FOREIGN POLICY: WHAT A DIFFERENCE HAVING MONEY MAKES

China's President Hu Jintao just completed a two-country visit to Europe last week where he indicated that China may be buying up some debt of financially hard-pressed countries in Europe, as well as announcing some major business deals. One deal made while he was in Paris was a $20 billion purchase of jet planes from Europe's Airbus company, the competitor to Boeing for dominance in China's aircraft market.

Meanwhile, President Obama is on a 10-day four-nation tour in Asia to promote a variety of U.S. interests, including expanded trade relations. While in India, a $10billion job-creating package for U.S. workers was reported which included the purchase by India of U.S. military and civilian aircraft.

The big difference between the two Presidents is that Obama is looking for ways to help the sluggish American economy by increasing exports which in turn creates U.S. jobs. (The U.S. made no friends with the recent announcement by the Federal Reserve that it would purchase $600 billion of Treasury bonds to foster economic growth. But that additional injection of dollars into the money supply will lessen the value of the dollar against other currencies and make their exports more expensive.) By contrast, Hu, presiding over a $2.7 trillion surplus in its foreign reserves, is in a position to help other countries with their financial and economic problems.

For some time China has been making significant investments in Africa and South America to assure its access to a variety of natural resources, as well as providing capital for infrastructure development. It has also heavily invested in the purchase of companies around the world, including the United States. China's investment/political strategy has now expanded to Europe to help or indicate a willingness to assist financially strapped countries such as Greece, Portugal, Spain, Italy, and Ireland. That help could come in the form of Chinese purchase of some existing debt, as already done in Greece, or of bonds yet to be issued by these countries. This is occurring while China has already become the largest holder of outstanding U.S. Treasury obligations. No less important are the Chinese commitments already made or in progress for major infrastructure investments in Europe, such as port development in Greece and transportation projects to better link developed western with developing eastern Europe and Turkey.

In short, China, an emerging economy with vast cash reserves, has become an economic/financial power in its ability to gain and sustain influence in both developed and undeveloped/developing areas of the world. Meanwhile, handicapped by annual deficits exceeding $1 trillion, the U.S. counter strategy is necessarily directed toward a far less costly diplomatic approach of developing or strengthening its relations with countries bordering China and nearby countries in the Asia-Pacific region.

We have long had a variety of close relations with countries such as Japan, South Korea, New Zealand the Philippines, and Australia, as well as Taiwan. What we now seem to be doing through visits by Obama and other high administration officials such as Secretary of State Clinton is to seek closer ties with countries such as India with whom U.S. relations have ranged from warm to chilly over the years, depending on how India perceived our ties with its chief adversary, Pakistan. India has some major issues with China. Not only are they competitors in economic growth in Asia, but India also has had serious border disputes with China going back to the early l960s, when they fought a major war.

We have also been reaching out to give support to other countries which have current or recent problems with China. One of these is Vietnam which has significant territorial disputes with China, including one that led to a major military conflict in l979. Vietnam is also opposed to China's efforts to control the South China Sea and its potential resources. And recently Vietnam announced that it was opening its port at Cam Ranh Bay to foreign navies. Cambodia, which has some outstanding problems to be resolved with the U.S., is unhappy with China for the construction of dams on the Upper Mekong River which has slowed the flow of needed water to Cambodia. In a very recent visit to both Cambodia and Vietnam, Secretary Clinton stressed the U.S. commitment to maintaining a dominant role in Asia-Pacific affairs, including opposition to China's claims regarding the South China Sea. In turn, China has let it be known that it is unhappy with what it sees as U.S. intervention in its regional interests and internal affairs.

The U.S. efforts to enhance its presence in South and Southeast Asia have also led to some Chinese concern that we are reverting to a Cold War strategy of "containment". With that policy we sought to hem in Russia with a chain of military alliances that extended from western Europe (NATO), the Middle East (CENTO*) to Southeast Asia (SEATO**) We also flanked Russia in the east through our security ties with Japan. Ultimately the Middle East and Southeast Asia alliances proved to be weak and meaningless but the concept of "containment" or "encirclement" did not disappear and has now been resurrected by the Chinese as we try to build and/or strengthen our ties with countries extending from Japan to India.

In sum, China, with its economic growth and its financial resources is now sowing seeds in our traditional backyard, western Europe, presumably not only to make money on their investments but also to seek to re-orient or weaken Europe's ties with the United States while strengthening its own. Our counter on-the-cheap, diplomatic strategy is the slower process of building or rebuilding relationships with countries on China's periphery as a means of establishing or maintaining a strong deterrent to any Chinese ambitions for external expansion.

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* Central Treaty Organization, at its height included Iran, Iraq, Pakistan,Turkey, and Britain. Turkey was the linking tie between NATO and CENTO.

**Southeast Asia Treaty Organization, at its height included France, Britain, Australia, Thailand, Philippines, New Zealand, and Pakistan. Pakistan was the linking tie between CENTO and SEATO.