Veteran U.S. Diplomat: We Are Becoming the USSR

Chas Freeman

Mark Thompson
TIME Magazine

Chas Freeman was President Nixon's interpreter during Nixon's historic visit to China in 1972. Now, nearly 40 years later, after an impressive diplomatic and defense career, he's interpreting China for the rest of us.
Last week he said:

The balance of prestige, if not yet the balance of power, between the United States and China has shifted...In some disturbing ways, Sino-American competition is beginning to parallel the contest between us and the Soviet Union in the Cold War. This time, however, the United States is in the fiscally precarious position of the USSR, while China plays the economically robust role we once did.

Freeman has long been a global agent provocateur. His outspoken views, especially on the Middle East and China, doomed President Obama's nomination of him two years ago to serve as head of the National Intelligence Council. But he also tends to be enlightening. During his talk last week, he ruminated on a key point about the U.S. Navy's presence in the western Pacific: why shouldn't Beijing be ticked off at us for loitering in their neighborhood?

The bad news:

China has been patient for four decades, but it is now actively pondering how best to remove the United States from what is – from its point of view – our very unhelpful residual military role in cross-Strait relations so that Beijing's negotiators can settle the Taiwan issue with their counterparts in Taipei. That, I take it, is a principal focus of the national review of policy toward the United States that China is reportedly poised to launch. Americans cannot safely assume that China's recent objections to U.S. arms sales to Taiwan or other military actions on our part are pro forma or “just more of the same.” It's at least as likely that we will soon once again confront the necessity to choose between the self-imposed shackles of longstanding policy and the imperatives of our long-term strategic interests.

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US seeks lead in crafting Asia trade vision

© AFP/Getty Images Joe Raedle

AFP

BIG SKY, Montana (AFP) - The United States is looking to forge a new vision on free trade that boosts its role in Asia while assuaging public concerns as officials from the Pacific Rim prepare to meet at a mountain resort.

Trade representatives from the 21-member Asia-Pacific Economic Cooperation forum gather Wednesday in Big Sky, Montana -- near sprawling Yellowstone National Park -- to help lay out an agenda for a wide-ranging trade pact.

President Barack Obama has set an ambitious goal of doubling US exports to boost the uncertain economy. He also hopes trade can serve as a tangible tool to increase US influence around Asia, where the rise of China is looming large.

US to press China on financial reform: Geithner

© AFP/Getty Images/File Justin Sullivan

AFP
  
WASHINGTON (AFP) - The United States will press China to make progress on financial reform at high-level bilateral talks next week, Treasury Secretary Timothy Geithner has said.

The US is going "to put a little more attention this time on expanding our discussion to the next stage of financial reform in China," he told a US-China Business Council forum in Washington.

"If China's going to be successful in moving the economy away from exports to a more domestic-demand economy, it's going to have to increase the return to savers in China and dismantle the set of protections that are now designed to lower the cost of capital to state-owned enterprises."

US, China to hold economy meeting in May

© AFP/File/Nicholas Kamm

AFP

WASHINGTON (AFP) - Top officials from the United States and China will meet in Washington early next month, the Treasury Department said Monday, as tensions between the two economic superpowers simmer.

Treasury Secretary Timothy Geithner and Secretary of State Hillary Clinton will host Chinese Vice Premier Wang Qishan and State Councilor Dai Bingguo, amid continued tensions over debt, exports and the value of China's currency.

The Treasury Department has delayed the publication of a report that could lead to sanctions against Beijing until after the meeting, despite US lawmakers complaining that China is still manipulating its currency for trade advantage.

IMF bombshell: Age of America nears end

Commentary: China’s economy will surpass the U.S. in 2016

Brett Arends
MarketWatch

BOSTON — The International Monetary Fund has just dropped a bombshell, and nobody noticed.

For the first time, the international organization has set a date for the moment when the “Age of America” will end and the U.S. economy will be overtaken by that of China.

And it’s a lot closer than you may think.

According to the latest IMF official forecasts, China’s economy will surpass that of America in real terms in 2016 — just five years from now.

Put that in your calendar.

It provides a painful context for the budget wrangling taking place in Washington, D.C., right now. It raises enormous questions about what the international security system is going to look like in just a handful of years. And it casts a deepening cloud over both the U.S. dollar and the giant Treasury market, which have been propped up for decades by their privileged status as the liabilities of the world’s hegemonic power.

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Oil Crisis Just Got Real: Sinopec (Read China) Cuts Off Oil Exports

Sinopec Station in Hong Kong
Wikimedia Commons image

Zero Hedge

As if a dollar in freefall was not enough, surging oil is about to hit the turbo boost, decimating what is left of the US (and global) consumer. Xinhua, via Energy Daily, brings this stunner:  "Chinese oil giant Sinopec has stopped exporting oil products to maintain domestic supplies amid disruption concerns caused by Middle East unrest and Japan’s earthquake, a report said Wednesday. The state-run Xinhua news agency did not say how long the suspension would last but it reported that the firm had said it also would take steps to step up output “to maintain domestic market supplies of refined oil products”. Oh but don’t worry, those good Saudi folks are seeing a massive drop in demand… for their Kool aid perhaps. “Sinopec would ensure supplies met  the “basic needs” of the southern Chinese special regions of Hong Kong and Macao, but they also should expect an unspecified drop in supply, Xinhua quoted an unnamed company official as saying.” Now… does anyone remember the 1970s?

The report said Sinopec has raised output of refined oil products this year, with its first-quarter production reaching 31.55 million tonnes, an increase of 6.2 percent from the same period last year. 

Sinopec last month said its 2010 net profit rose nearly 14 percent on higher oil prices and strong domestic demand for refined oil and chemical products. 

It reported a net profit of 71.8 billion yuan ($11 billion). 

The Beijing-based company attributed the result to China's rapid economic growth, robust oil demand and "the increase in the price of crude oil, oil products and petrochemical products."

A "new phase of globalization" is Taking Shape in Beijing, Flag Planted on American Soil

Activist Post

The Red Dragon is roaring.  The headline news over the weekend was that Chinese President Hu Jintao called the currency system a "product of the past." Hu believes that Chinese currency will likely become the world's currency within the not-to-distant future.  On the heels of that announcement, a Financial Times article highlights the role that China already has within a new system of globalization; one that supplants the U.S. as a key trading partner at the hub of the global trade wheel.

Here is a perfect summary of the current situation:

Over the past few decades, China has benefited hugely by hitching itself to a process of globalization where the rules were written in Washington and the American consumer was the buyer of last resort.  China prospered by making first the socks, then the washing machines and finally the iPods sold at Walmart.

Now China is moving beyond cheap consumer goods to infrastructure such as power equipment.  By supplying developing countries with the tools to grow, China is becoming a principal global investor.  In so doing, it is entrenching itself as an engine of growth for the future, which has an added effect of laying the groundwork for its own currency to take a central role in the new relationships being developed.

At the heart of China's global initiative is China Development Bank; counterpart to the U.S. Federal Reserve Bank.  However, unlike the private Federal Reserve, China's investment bank is firmly under state control, not the other way around, allowing it to openly invest domestically and abroad, while integrating coherent government policy decisions.  Its investment strategy is rooted in entering a market where they can "buy up low-priced (financial) assets."  Lucky for them, that is the very direction the entire global market is headed.

The fact that China is set to be the new global boss was confirmed by the White House red-carpet treatment and state dinner given to the Chinese head of state yesterday, culminating with Chinese flags planted along Constitution Ave. signifying the changing of the guard.  The full outsourcing of the American Republic has been finalized.

The world now awaits its new marching orders.

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Pessimism pervades as G20 leaders show sharp split

Jean H. Lee
Associated Press

SEOUL, South Korea — A strong sense of pessimism shrouded the start of an economic summit of rich and emerging economies Thursday, with President Barack Obama and fellow world leaders arriving in Seoul sharply divided over currency and trade policies.

The Group of 20 summit, held for the first time in Asia, has become the centerpiece of international efforts to revive the global economy and prevent future financial meltdowns.

Hopes had been high that the Group of 20 – encompassing rich nations such as Germany and the U.S. as well as growing giants such as China and Brazil – could be the world forum for hashing out an economic way forward from financial crisis.


But agreement appeared elusive as the summit began, divided between those such as United States that want to get China to allow its currency rise and those irate over U.S. Federal Reserve plans to pump $600 billion of new money into the sluggish American economy, effectively devaluing the dollar.

Obama told fellow leaders that the U.S. cannot remain a profligate consumer using borrowed money and needs other countries to pull their weight to fix the world economy.

"The most important thing that the United States can do for the world economy is to grow, because we continue to be the world's largest market and a huge engine for all other countries to grow," Obama said at a news conference.

Brazil's president, Luiz Inacio Lula da Silva, warned that such policies would "bankrupt" the world.

"If the rich countries are not consuming and want to grow its economy on exports, the world goes bankrupt because there would be no one to buy," he told reporters. "Everybody would like to sell."

Concerns about trade gaps, protectionism and a currency war threatened to overtake momentum for forming global solutions to the financial crisis created at last year's London summit.

So far, officials can't even agree on the agenda, much less a draft statement. Government ministers and senior G-20 officials have labored for days without success to come up with a substantive joint statement to be issued Friday, G-20 summit spokesman Kim Yoon-kyung said.

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China's Lead Credit Rating Agency Downgrades U.S., Second Time This Year

Joshua Fellman and Ye Xie
Bloomberg

China’s Dagong Global Credit Rating Co. reduced its credit rating for the U.S. to A+ from AA, citing a deteriorating intent and ability to repay debt obligations after the Federal Reserve announced more monetary easing.

The credit outlook for the U.S. is “negative,” as the Fed’s plan to buy government debt will erode the value of the dollar and “entirely encroaches” on the interests of creditors, analysts at Dagong, one of China’s three largest ratings companies, said in a statement. The U.S. is rated Aaa and AAA by Moody’s Investors Service and Standard Poor’s Corp., the highest credit ratings of the New York-based companies.

The downgrade came before a meeting of leaders of the Group of 20 nations this week in Seoul and as the U.S. steps up pressure for China to let the yuan strengthen to help reduce the U.S. trade deficit. China countered the criticism by saying U.S. economic policies threaten the stability of developing nations.

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Federal Reserve Risks Ruining Reserve Currency

The Fed ponders its biggest decision yet. Will it sacrifice the dollar?

Image: Mark Wilson/Getty

Joel Hilliker
The Trumpet

The Federal Reserve is expected to announce today whether or not to unleash a second round of quantitative easing. It may be one of the most important decisions in its history. Will the Fed sacrifice the dollar, and risk losing reserve currency status in an attempt to stimulate the economy and “painlessly” pay its debts?

The Telegraph’s Ambrose Evans-Pritchard is warning that the Fed’s quantitative easing plan “risks” a “currency war” that may accelerate “the demise of the dollar-based currency system, perhaps leading to an unstable tripod with the euro and yuan, or a hybrid gold standard.”

The problem facing the world is that the global economy is trapped in stalling speed. Most of the regular tools used by central banks have been exhausted. Interest rates are already near zero, and many governments have mostly spent what they can—and yet the global economy is sputtering.


All that is left for national economies is to try to gain export market share at the expense of their neighbors. To do this, nations are attempting to devalue their currencies to make their exports less expensive and imports more expensive. The risk, as Evans-Pritchard points out, is trade war.

Relations between China and America are especially strained. America wants to devalue the dollar and thus reverse its trade imbalance with China. China is resisting and is maintaining its dollar peg, which ensures that the yuan’s exchange rate remains fixed to the dollar. And the war is spreading. The Telegraph reports (emphasis ours throughout):

China’s Commerce Ministry fired an irate broadside against Washington on Monday. “The continued and drastic U.S. dollar depreciation recently has led countries including Japan, South Korea and Thailand to intervene in the currency market, intensifying a ‘currency war.’ In the mid-term, the U.S. dollar will continue to weaken and gaming between major currencies will escalate,” it said. …

Taiwan intervened on Monday to cap the rise of its currency, while Korea’s central bank chief said his country is eyeing capital controls as part of its “toolkit” to stem the flood of Fed-created money leaking out of the U.S. and sloshing into Asia. …

“It is becoming harder to mop up the liquidity flowing into these countries,” said Neil Mellor of the Bank of New York Mellon. “We fully expect more central banks to impose capital controls over the next couple of months. That is the world we live in,” he said. Globalisation is unravelling before our eyes.

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China’s Fast Rise Leads Neighbors to Join Forces

The New York Times

Pool photo by Barbara Walton

HANOI, Vietnam — China’s military expansion and assertive trade policies have set off jitters across Asia, prompting many of its neighbors to rekindle old alliances and cultivate new ones to better defend their interests against the rising superpower.

A whirl of deal-making and diplomacy, from Tokyo to New Delhi, is giving the United States an opportunity to reassert itself in a region where its eclipse by China has been viewed as inevitable.

President Obama’s trip to the region this week, his most extensive as president, will take him to the area’s big democracies, India, Indonesia, South Korea and Japan, skirting authoritarian China. Those countries and other neighbors have taken steps, though with varying degrees of candor, to blunt China’s assertiveness in the region.

Mr. Obama and Prime Minister Manmohan Singh of India are expected to sign a landmark deal for American military transport aircraft and are discussing the possible sale of jet fighters, which would escalate the Pentagon’s defense partnership with India to new heights. Japan and India are courting Southeast Asian nations with trade agreements and talk of a “circle of democracy.” Vietnam has a rapidly warming rapport with its old foe, the United States, in large part because its old friend, China, makes broad territorial claims in the South China Sea.

The deals and alliances are not intended to contain China. But they suggest a palpable shift in the diplomatic landscape, on vivid display as leaders from 18 countries gathered this weekend under the wavelike roof of Hanoi’s futuristic convention center, not far from Ho Chi Minh’s mausoleum, for a meeting suffused by tensions between China and its neighbors.

China’s escalating feud with Japan over another set of islands, in the East China Sea, stole the meeting’s headlines on Saturday, and Secretary of State Hillary Rodham Clintonproposed three-way negotiations to resolve the issue.

Most Asian countries, even as they argue that China will inevitably replace the United States as the top regional power, have grown concerned at how quickly that shift is occurring, and what China the superpower may look like.

China’s big trading partners are complaining more loudly that it intervenes too aggressively to keep its currency undervalued. Its recent restrictions on exports of crucial rare earths minerals, first to Japan and then to the United States and Europe, raised the prospect that it may use its dominant positions in some industries as a diplomatic and political weapon.

And its rapid naval expansion, combined with a more strident defense of its claims to disputed territories far off its shores, has persuaded Japan, South Korea, Vietnam and Singapore to reaffirm their enthusiasm for the American security umbrella.

“The most common thing that Asian leaders have said to me in my travels over this last 20 months is, ‘Thank you, we’re so glad that you’re playing an active role in Asia again,’ ” Mrs. Clinton said in Hawaii, opening a seven-country tour of Asia that included a last-minute stop in China.

Few of China’s neighbors voice their concerns about the country publicly, but analysts and diplomats say they express wariness about the pace of China’s military expansion and the severity of its trade policies in private.

“Most of these countries have come to us and said, ‘We’re really worried about China,’ ” said Kenneth G. Lieberthal, a China adviser to President Bill Clinton who is now at theBrookings Institution.

The Obama administration has been quick to capitalize on China’s missteps. Where officials used to speak of China as the Asian economic giant, they now speak of India and China as twin giants. And they make clear which one they believe has a closer affinity to the United States.

“India and the United States have never mattered more to each other,” Mrs. Clinton said. “As the world’s two largest democracies, we are united by common interests and common values.”

As Mr. Obama prepares to visit India in his first stop on his tour of Asian democracies, Mr. Singh, India’s prime minister, will have just returned from his own grand tour — with both of them somewhat conspicuously, if at least partly coincidentally, circling China.

None of this seems likely to lead to a cold war-style standoff. China is fully integrated into the global economy, and all of its neighbors are eager to deepen their ties with it. China has fought no wars since a border skirmish with Vietnam three decades ago, and it often emphasizes that it has no intention of projecting power through the use of force.

At the same time, fears that China has become more assertive as it has grown richer are having real consequences.

India is promoting itself throughout the region as a counterweight to China; Japan is settling a dispute with the United States over a Marine air base; the Vietnamese are negotiating a deal to obtain civilian nuclear technology from the United States; and the Americans, who had largely ignored the rest of Asia as they waged wars in Afghanistan and Iraq, see an opportunity to come back in a big way.

In July, for example, Mrs. Clinton reassured Vietnam and the Philippines by announcing that the United States would be willing to help resolve disputes between China and its neighbors over a string of strategically important islands in the South China Sea.

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G20 struggles to find common ground on currency war, triggers US push for trade caps

Finance ministers from the Group of 20 nations struggled to agree on how to prevent a currency war on Friday, with the United States switching tack to focus on a way to rebalance global trade.

G20 Finance Meeting - EPA Photo

Malcom Moore
Telegraph

With China resolutely refusing to allow the yuan to rise more quickly, the US shifted the debate on the first day of the G20 summit to address trade imbalances, the root issue behind exchange rate clashes.

Timothy Geithner, the US Treasury secretary, told G20 members they should commit to specific trade caps, allowing surpluses and deficits on their current account, the broadest measure of trade in goods and services, to be no more than 4pc of gross domestic product.


China's current account surplus was 5.9pc in 2009, having almost halved from its peak of 10.6pc in 2007. The US, by contrast, had a current account deficit of 3pc last year.  In a letter to the G20, Mr Geithner called for a "co-operative effort" on the issue, but said there would have to be "some exceptions" for countries that imported large quantities of raw materials.

The US plan, a way of side-stepping a direct spat over currencies, was backed by Korea, Australia and Canada, but immediately opposed by large exporters such as Japan and Germany.

Rainer Bruederle, the German finance minister, rejected a "command economy" approach, while Yoshihiko Noda of Japan said "setting numerical targets would be unrealistic".

India also said the trade caps would be hard to work out, while Russia said there would be no numerical limits set in the summit's final statement.

Mr Geithner also called for G20 countries to refrain from "either weakening their currency or preventing the appreciation of an undervalued currency". Mr Geithner, who also called for the IMF to monitor the G20's commitments, added: "G20 advanced countries will work to ensure against excessive volatility and disorderly movement in exchange rates."

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China Said to Widen Embargo of Minerals

Keith Bradsher
NY Times

HONG KONG — China, which has been blocking shipments of crucial minerals to Japan for the last month, has now quietly halted some shipments of those materials to the United States and Europe, three industry officials said this week.

The Chinese action, involving rare earth minerals that are crucial to manufacturing many advanced products, seems certain to further intensify already rising trade and currency tensions with the West. Until recently, China typically sought quick and quiet accommodations on trade issues. But the interruption in rare earth supplies is the latest sign from Beijing that Chinese leaders are willing to use their growing economic muscle.

“The embargo is expanding” beyond Japan, said one of the three rare earth industry officials, all of whom insisted on anonymity for fear of business retaliation by Chinese authorities.

They said Chinese customs officials imposed the broader restrictions on Monday morning, hours after a top Chinese official summoned international news media Sunday night to denounce United States trade actions.

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China rejects clean energy probe, calls US unfair

Joe McDonald
Associated Press

BEIJING — A senior Chinese official rejected a U.S. trade complaint about Beijing's clean energy policy and said Sunday that Washington might be improperly supporting its own industry.

The U.S. government said Friday it would investigate complaints by a labor union that Beijing unfairly subsidizes its producers of wind and solar equipment.

"Chinese subsidies to new energy companies are much smaller than those of the U.S. government," said Zhang Guobao, director of the Cabinet's National Energy Administration, at a news conference. "If the U.S. government can subsidize companies, then why can't we?"

The complaint by the United Steelworkers adds to strains between Washington and Beijing over trade in tires, steel, chicken, movies and other goods. It says Chinese producers can sell wind and solar equipment at lower prices abroad because they get subsidies that are prohibited by global trade rules.

Zhang countered that Washington might be improperly supporting its own industry. He cited what he said were rules on spending of U.S. government money for solar energy that require equipment to be domestically made.

"If what I said is right, it is the United States that should be sued, not us," he said.

The unusually prompt, high-level Chinese response reflects Beijing's growing confidence in rejecting U.S. pressure over trade and other issues, as well as its determination to develop high-tech industry.

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