A New Long View On China

[NATO AIR]

interesting recalibration happening from the state dept. on the US's new China policy

http://www.theaustralian.news.com.au/common/story_page/0,5744,16742518%5E12250,00.html

Taking a new long view on China policy

September 28, 2005
IN the most important speech on China since George W. Bush came to office, Deputy Secretary of State Bob Zoellick has offered China a new partnership "working with us to shape the future international system".

Zoellick wants to re-conceptualise US policy and, in the process, alter fundamentally Beijing's approach to the world. This is based upon the correct view that China's current economic policy is mercantilist in nature and unsustainable in practice.

Reserve Bank Governor Ian Macfarlane gives a speech today on global imbalances that elaborates his May 12 Beijing speech when Macfarlane told his hosts that for China "the inflow of foreign funds through the current and capital accounts has to be reduced through a higher exchange rate".

Zoellick, like Macfarlane, knows that China must change its ways in its own self-interest.

The pressure on China is now stronger than ever and it will concede. It operates a grossly undervalued exchange rate that affects not just the US but on East Asian nations. Two months ago China announced an exchange rate change (a minor appreciation) but Australia's regional economic specialist Ross Garnaut says: "You can't draw the line at this new rate. The situation is unsustainable."

Zoellick has redefined the China issue in a way that will delight John Howard and Alexander Downer. In his September 21 speech to the National Committee on US-China Relations Zoellick dismissed most of the neo-con baggage about China by offering his audience "a sense of the current dialogue" between the nations.

He rejects two popular US paradigms - that China merely replaces the Soviet Union as a threat to the US and that China needs to be managed in a 19th-century balance-of-power model by promoting other Asian nations at its expense. "The templates of the past do not fit," Zoellick says.

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