Obama plays China card, but who holds the ace? — I

For all the talk of a growing U.S.-China partnership, in many ways the two remain rivals. Both U.S. conservatives and the Pentagon express concern about a decade of double-digit annual growth in the budget of China's secretive military.

“We don't deny the legitimacy, that they're entitled to modernize their military,” said the U.S. official. “But given the size of China and its position, its neighbors, we are entitled to ask, 'Why are you doing the things that you're doing?'”

The top concern on both the left and the right in the United States, however, is Beijing's growing economic clout.

Highlighting U.S. ambivalence about China, a Thomson Reuters/Ipsos poll showed that while Americans view China as important, many are wary.

Thirty-four percent of Americans chose China as the “most important bilateral relationship” in a poll of 1,077 adults across the United States. Next were Britain, selected by 23 percent, and Canada, the choice of 18 percent.

When asked to characterize China, 56 percent saw it as an adversary while only 33 viewed it as an ally.

In some sectors, trade issues are going to “pit the U.S. against China” and Obama will need to assert U.S. interests without inviting a “nasty confrontation with China,” said Prestowitz of the Economic Strategy Institute.

The Obama administration says it will not shrink from standing up for U.S. economic interests. For proof, it says, look no further than its decision in September to slap a 35 percent duty on Chinese-made tires.

Since Obama took office in January, the administration has twice declined to label China a “currency manipulator” — a designation that could trigger negotiations leading to possible trade sanctions. But Treasury has made clear it thinks China's currency, the renminbi, is undervalued and the topic is expected to come up when Obama meets Hu.

U.S. manufacturers say Beijing's policy of managing its currency puts them at a big disadvantage because the cheaper renminbi lowers the price of Chinese goods abroad. Last year, imports from China totaled more than US$330 billion, making it by far the biggest contributor to the U.S. current account deficit.

But in a sense, no one buys American like Beijing — at least when it comes to investing in debt securities. Having amassed some US$800 billion of U.S. Treasurys, China is the largest holder of the U.S. government debt, giving Beijing new leverage over Washington but also making their economies more closely intertwined than ever.

In what some U.S. analysts saw as a “shot across the bow” of the United States this year, Chinese central bank governor Zhou Xiaochuan called for the creation of a super-sovereign reserve currency, all but saying the U.S. dollar's days as the world's preeminent currency were numbered.

He made the suggestion in an essay published a week before the London Group of 20 summit. Clearly aiming at an international audience, the central bank took the unusual step of publishing the paper in English at the same time as it issued the Chinese version.

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