international analysis and commentary

Dealing with China: the case for a dialogue between equals

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A report by the US Treasury Department, published on July 8th, refrained from labelling China a currency manipulator, as many wanted. The report even called Beijing’s June decision to end the yuan’s peg to the dollar a “significant development”, making China’s exchange rate regime more market based. A few weeks earlier, Timothy Geithner and Hilary Clinton had promised their Chinese counterparts that they would seriously consider granting China the market economy status. In July 16th, a Sino-German joint communiqué issued at the start of Angela Merkel’s four-day visit to China said that Berlin would push the EU to take the same step. This almost simultaneous decision by the US and Germany may have been a coincidence, but the recent financial crisis has fundamentally changed Western views on how to deal with China. Out have gone lectures to Chinese leaders on how to manage the economy, never mind criticism on issues ranging from environmental governance to human rights. In has come a new pragmatism that recognizes that the West has to deal with China as it is, not the China that American and European critics would like to see. This new pragmatism, based on a dialogue between equals, is a welcomed development. In the short term, it reduces possible frictions at a time when the recovery of the world economy still lacks solid foundations. In the long term, it will allow different political and economic systems to coexist, acknowledging that pragmatic dialogue rather than Cold War-style mutual criticism is beneficial. To be fair, Washington’s pragmatic approach towards China predates the Obama administration. The second term of the Clinton presidency marked a turning point, followed by significant continuity in the George W. Bush years and under the current administration. Engagement with Beijing and dialogue on issues of common interest, such as trade and climate change, form the basis of a cooperative relationship. Certainly, the Obama administration has occasionally denounced specific Chinese behaviours, such as some of Beijing’s economic policies or its stance on North Korea. However, regular denunciation of its political and economic system is a thing of the past. Recognizing that the Chinese economy displays the key elements of a market system is a further step towards wooing Beijing and reducing possible friction. The EU has been slower to recognize that denouncing the Chinese political and economic model and maintaining an ideologically-driven policy does not work – even in the context of wide-ranging economic relations and business ties. It was only two years ago that one European leader after another refused to attend the Beijing Olympics inauguration ceremony unless China changed its Tibet policy and discussed the one-party political system. Over the past few years, market access and trade disputes have become flashpoints of Sino-European disagreements as well. Merkel’s recent four-day official visit to China concentrated primarily on the commonalities between China and the EU, avoided heavy-handed criticism and vowed to work with Beijing on issues beyond economic cooperation. Not surprisingly, this turned out to be the most successful of her four visits to China since becoming German chancellor. Certainly, Western critics of pragmatic relations with China abound. Tellingly, both in the US and the EU the most powerful critics are elected bodies with limited influence on foreign policy towards the Asian giant. The American Congress and the European Parliament regularly denounce what they consider to be Chinese wrongdoings, such as poor labour and environmental standards, unfair restrictions to free trade or oppression of minorities. Lately, other powerful voices have also become critical of China: American and European business groups have sternly denounced Chinese economic policies which, they argue, amount to protectionism by favouring local producers and investors. For example, while Merkel was completing her successful visit to China, the chief executives of Siemens and BASF accused Beijing of forcing foreign companies to transfer business and technological know-how and discriminating against foreign companies in public tenders, respectively. Notwithstanding these criticisms, American and, it now seems, European leaders are finding it increasingly hard to deviate from pragmatism when dealing with China. The advantages stemming from such an approach are too big to ignore. At the bilateral level, the US has obtained tangible economic results such as an appreciation of the yuan and better controls over property rights. Outside the economic realm, Chinese collaboration on issues such as North Korea, Iran, Myanmar, climate change and others has been more forthcoming than in the past. In the case of Germany, Merkel’s recent visit produced ten agreements on issues covering trade, energy and culture. Other leaders are likely to follow on her steps over the coming months. Perhaps more importantly, China’s behaviour during the financial crisis has been key to avoid the greater recession that many experts thought inevitable in late 2008 and early 2009. Household consumption has been growing steadily over the past two years, the current account surplus has dropped from 11 to 6.1 per cent of GDP and the economy is shifting towards a more sustainable model of economic growth. It is unlikely that this would have been achieved with periodic denunciations of Beijing’s economic model by the Obama administration. To its credit, Brussels has also reduced its criticism to a minimum over the past few months. Cynics would argue that this reflects either European Janus-faced approach to China or the EU’s decreasing relevance in world affairs. Nevertheless, Washington’s approach to relations with Beijing may become a model. In the long term, pragmatic dialogue is certainly the best policy. China has made clear that it is not a revisionist power. It has not shown any desire to forcefully expand its political, societal and economic models, let alone any wish to go to war with the US or the EU, as some analysts predicted in the 1990s. Stable great power relations and a pragmatic approach, recognizing differences as well as common threats is the best means to ensure cooperation from China on global problems such as fossil energy scarcity and transnational crime in years and decades to come. But only true dialogue between equals in which criticism is replaced by respect and understanding will achieve this.