U.S.-CHINA RELATIONS: THE ENDLESS ROLLERCOASTER RIDE

This may not be accurate but to the casual observer it seems that everytime a high U.S. official visits China or vice versa, the lead into the story deals with the visit being an opportunity to repair U.S.-Chinese relations-- political, military, and/or economic. So it is with the current visit to Washington of Chinese President Hu Jintao. I don't know whether it's because the Chinese are easily offended or that they think they still need to muscle their way into the role of a world power, a world in which its chief competitor is the United States. If the first, then maybe there isn't too much we can do about it; if the second, "enough already", you've arrived. Then, of course, U.S. leaders tend to get preachy from time to time such as Secretary of State Clinton's taking the pulpit recently in Qatar admonishing a group of Arab leaders about their need to reform politically and economically, or else. Such preaching can be offensive and over time we certainly have done some preaching to China.

And the Chinese seem to cherry pick when it wants the U.S. to involve itself in China's issues with other nations. For example, China would like U.S. involvement in settling China's long standing border dispute with India. But takes a "butt out" attitude about China's disputes with Japan and a number of Southeast Asia countries over control of various islands in the China Sea. Having said all that, I'll now get to the business of what this posting is about, which is to use the Hu visit to update two earlier postings -- "What a Difference Having Money Makes" and "China Reinvents the Co-Prosperity Sphere."

Since those postings, there have been significant developments. The starting point of the first piece was that the U.S. is upon hard economic and financial times while China continues to build up its huge reserve of foreign currencies, now about $2.5 trillion, plus gold. The key point was that President Obama's November trip, while focused on building closer ties with India, was also a sales job. That is, making deals that would increase our exports and thus create needed jobs in this country. While Obama was doing a kind of "on the cheap" tour, Hu was using some of the Chinese cash to buy European products (and thus help Europe's job creation) and embedding China into Europe's financial problem by committing or semi-committing his country to helping Europe with its fiscal crisis and thus taking pressure off of the Euro. That effort goes on.

Just last week the Chinese Vice Premier was in Europe making more trade deals and assuring European leaders that China would be buying more debt of the countries in trouble, particularly Portugal and possibly Spain if the need arises. It had already purchased some Greek bonds. It should also be noted that Japan has told European leaders that it also would buy some of the debt to ease pressure on the Euro. These commitments, of course, are not just some form of international altruism or trying to make political points. Both countries have an economic stake in preventing any further decline in the value of the Euro. A decline makes Chinese and Japanese exports to Europe more costly and thus reduces the flow of trade. Now to Chinese expansion of its neo- Co-Prosperity Sphere.

As noted in the earlier posting, the Chinese seem to be succeeding where the Japanese utterly failed during World War II. As stated, Japan sought to create an East Asian economic empire through invasion and conquest, followed by economically raping the conquered countries to guarantee the economic security of the homeland. That ended with Japan's defeat in l945. What seems to have emerged today is a strategy by China to create a co-prosperity zone through investments and trade. And as noted previously, China has made important inroads into the economies of Southeast Asia. Less noticed has been its economic and financial invasion in Central Asia, an area once part of the Soviet Union before its collapse in 1991.

The region now has five independent countries -- Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan. According to reports, China has been quietly inserting huge sums of money there to develop, for example, oil and gas infrastructure that will help assure its energy needs in the future. Also, according to these reports, trade in general has grown greatly between China and these countries after a vacuum was created with the collapse of the Soviet Union. The United States is not a disinterested party in what happens in Central Asia. In addition to our general concern about any kind of Chinese expansion, it's a region involved in supply routes for our war in Afghanistan with a major U.S. air base in Kyrgyzstan. According to an item from WikiLeaks, China offered that country $3 billion to shut down the base. Russia has also sought to have the base closed down. Kyrgyzstan did threaten to close the base, but chose instead to settle for a higher rent which rose from $17 to $60 million a year. Neither country wants a U.S. military presence in a region that has always been in the sphere of influence or under complete control of China or Russia. In addition to efforts to economically integrate Central Asia into its Co-Prosperity Sphere, China also sees more integration of the region helping with its sometimes very serious problem of conflict between the Chinese and Muslim residents in parts of the region.

In sum, Hu's visit to Washington comes at a time when China is on the move with the U.S. government itself unable to counter proportionally with direct economic and investment tools, relying on our business community, our military presence in the region, and our efforts to build better political and trade relations there. So the state visit is a very important part of our seeking smoother if not a hugging relationship with China, but don't be surprised if something else comes along to chill the relationship still another time.