Out with the old for U.S., China

All important stuff, no doubt, but also a bit predictable, isn't it? Frankly, the fusion of these two massive economies demands a more daring approach. Hundreds of billions of dollars in annual trade, trillions in loans and investments, and two decades of ever-closer integration have transformed both countries, and the mutual dependence has only deepened during the financial crisis of the past year. Another summit-as-usual won't do. So here are a few suggestions for what Obama and Hu should really be talking about:

First, it's time to form a joint central bank. This won't happen overnight, but in some ways, the process has already begun. Loans and capital flows have undermined the ability of the Federal Reserve to determine interest rates and monetary policy unilaterally. Since 2001, the Fed has moved short-term rates from 1 percent to more than 5 percent and then down to zero, yet the rate on the 10-year Treasury note — set by market forces and increasingly by Chinese purchases — has stayed mostly within a relatively narrow band, between 3.5 percent and 4.5 percent. Central banks still matter, but they are severely constrained by global capital flows and mutual dependency.

Rather than maintain the fiction of control, a joint Sino-American central bank would determine interest rates and currency pegs. The Fed chairman and voting members of the Fed's board of governors would sit alongside the head of the People's Bank of China. This transnational entity would meet regularly, and the two staffs could merge (or at least mingle).

If anything, such a joint committee would be even more important to China than to the United States. As a debtor nation that relies in part on Chinese loans, the United States needs to calibrate rates and its level of debt to meet the needs of its creditors, China above all. America in turn is China's largest market, and the Chinese renminbi is pegged to the dollar. China's vast dollar reserves gain or lose value depending on which direction the greenback moves, hence China has a vested interest in shaping the currency and interest rate policies of the United States.

Next on the agenda: Give up on intellectual property rights. The United States spends an inordinate amount of time staging a rear-guard action against China's infringement of patents and other intellectual property. Successful American businesses operating in China, however, have learned that trying to protect intellectual property wastes time and energy, and they're better off reinvesting in research and developing new products. Chinese firms excel at copying but not yet at creating. As a result, smart foreign companies realize that the lasting solution is innovation, not courts and lawyers.

Joint ventures between Chinese and American companies often stipulate that the latter share a certain percentage of the intellectual property. The more they cede, the sweeter the deal. Many U.S. companies take the stance that in the three to five years it would take their Chinese partners to replicate their more intricate products and processes, they can create the next generation because of better research and development. Yet the issue remains a live wire, particularly in Congress, forcing the Commerce Department to take grievances to Beijing. Total waste of time.

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