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

“They have an enormous stake in our economic success and we have an enormous stake in their economic success,” this official said. “That's not a problem; it's a good thing. It's an enormously good thing and it should be welcomed.”

Prestowitz said China's leverage is limited by an awareness that it, too, would, suffer drastic consequence if it decided to suddenly unload its holdings of U.S. Treasurys.

“It would be a mutually-assured destruction situation,” Prestowitz said in a view shared by many Chinese analysts.

“Under extreme circumstances, it might be possible for Chinese leaders to threaten to sell Treasurys,” said Xie Tao, an expert on U.S.-China relations at the Beijing Foreign Studies University.

“But at the moment, I really cannot believe that they would do this,” Xie said.

Rebalancing and currency rows are new items on a list of U.S.-China fault lines that has long been topped by Taiwan and human rights.

Tensions Cooling With Taiwan

Taiwan is still the one issue that could trigger war between China, which claims sovereignty over the self-ruled island, and the United States, which is committed by U.S. law to provide weapons for Taiwan's defense.

But Obama's tenure has coincided with a cooling of tensions between Beijing and Taipei thanks to the 2008 election of Taiwan President Ma Ying-jeou, who has sought better ties with China. But potential friction over U.S. arms sales remains.

The Obama administration has angered some for appearing to play down human rights in the interest of gaining Chinese cooperation in combating the financial crisis.

Obama broke with presidential tradition and did not meet the Dalai Lama when the exiled Tibetan spiritual leader visited Washington last month. But U.S. officials reject the idea that Obama snubbed the Dalai Lama and tell critics to judge the policies by their results.

Other foreign policy disputes stem from China's scorching economic growth. China's need for energy and raw materials to fuel its growth has led it to deepen ties with countries which have troubled relations with the United States or face international condemnation for their human rights records or pursuit of banned weapons.

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