House of Paine

a great and nasty ignorance

bobby wood chuck
editor of amerikan prostate 

turns his  longest shore battery guns
                on ...the han menace 


Indispensable, untouchable China
By Robert Kuttner  |  April 22, 2006

QUESTION: HOW do you apply leverage against an emerging geopolitical giant that also happens to be among your biggest creditors? Answer: not very well.

 When President Bush took office,
 prodded by neoconservative advisers, 
he viewed China as a potential rival and menace

 Today, bogged down in Iraq 
and hobbled by American 
financial dependence on Beijing
 Bush must look to the Chinese 
like a modern, self-inflicted Gulliver.

 Beijing should play
 by the usual financial rules 
and not keep their currency artificially cheap 
to stimulate exports,
 which worsens our $200 billion 
bilateral trade imbalance.

We want the Chinese to respect
 American intellectual property
 religious liberty
 and human rights. 

We'd like Beijing to play 
a more helpful role 
in the nuclear containment 
of North Korea and Iran
 and
 please 
           not to menace Taiwan.

Administration officials
 have wishfully urged the Chinese
 not to try to corner global petroleum supplies
 as their appetite for energy grow
 In other words
 do as we say
 not as we did


empty promises of greater currency ''flexibility,"
 and increased domestic demand

 explicitly ruled out
 a dramatic revaluation


and there is just about nothing
 Bush can do about it

 The world's sole remaining superpower
 despite a military budget
 more than 10 times China's
 is curiously impotent 
when it comes to influencing Chinese behavior

Why? 


Two big reasons 


First, we have let ourselves 
get into a dangerous economic co-dependency

 We keep borrowing money
 to finance a trade deficit
 that gets more alarming every year

 The Chinese
 now our second-largest creditor
 keep accumulating dollars
 which they lend back to us
 to underwrite those deficits 
and provide America the borrowed funds 
we need so that we keep 
buying their products

Some of those products
 are made by affiliates of US companies
 which have flocked to China
 for the dirt-cheap labor

 Others are made by mostly Chinese companies
 which have paid huge subsidies
 or imposed content requirements
 to induce American producers
 to shift high-end
 as well as low-end
 production to China

What would happen
 if the Chinese pulled back 
even a bit
 on their lending? 

Heavily dependent money markets
 would go into cardiac arrest.

The second reason 

 Washington has let the narrow interests
 of American corporations overwhelm 
the broad interest of the nation


 The United States sponsored
 Chinese membership in the World Trade Organization
 long before China 
was willing to play 
by normal trade and currency rules

Why did we do this? 

Because American companies 
hoping to locate production 
in China or to export to China
 as well as American banks
 and insurance companies
 were eager to have China 
in the trading system
 even if China broke
 trade and currency rules

China breaks the rules 

by pegging its currency

 by lending to government-controlled companies
 at zero interest

 by limiting what foreigners can buy

 and much more

 It is an export powerhouse
 but not a normal capitalist country

 By letting a still mercantilist China 
into the WTO prematurely
 Washington lost its best leverage
 to change China's behavior going forward.

Normally
 a developed country 
would be exporting capital 
to a developing one

 With a need to create jobs
 for hundreds of millions of peasants
 and a growth rate of about 10 percent a year
 China has a huge appetite for capital

 China absorbs massive investments 
by foreign companies with one hand
 while it doles out dollars
 to American capital markets
 with the other

 As Hu adroitly demonstrated with Bush
 by making itself indispensable
 China makes itself untouchable

The Bush administration imagines
 that as China becomes more capitalist
 it will naturally become more democratic

 Dream on.

 China remains a one-party state
 that still plays rough with dissidents

 In case we forgot
 Nazi Germany was a convenient alliance
 between a despotic state 
and the captains of German private industry

 China displays a mutation of capitalism
 that violates both free markets 
and free society
 and does very nicely at it

At this week's meetings
 fittingly, most of the honored guests
 were American corporate executives

 If our China policy were not
 so warped by the dictates 
of America's business elite
 Bush might have more diplomatic leverage 
to pursue his political objectives with Beijing

 This irony might seem poetic justice 
if the stakes weren't so high

Robert Kuttner 

 co-editor of The American Prospect