http://www.atimes.com/atimes/China_Business/HD19Cb06.html
Hu's White House lunch: Rare but not bloody
By Brian Wingfield
WASHINGTON - Chinese President Hu Jintao was to touch down in the United States on Tuesday, and most pundits seem to believe that his visit - which includes his first trip to the White House - will yield little in the way of tangible results.
No one is expecting any deals to be made on contentious economic disputes. No one anticipates Hu promising to cut his country's military spending and energy consumption or announcing a new crackdown on rampant intellectual property theft. In fact, US President George W Bush will not even honor him with a formal state dinner. (The two presidents will have a very formal lunch instead.)
But this is not to say that the Chinese leader's visit is unimportant. Congress is away on its Easter recess this week, which means that when Hu reaches Washington on Thursday after a rambling trip across the US, all eyes will be on him. And it will be a rare opportunity for the leaders of two of the world's most powerful nations to sit down and talk about what is perhaps the greatest wedge between them - economic policy.
That issue in itself is a two-headed monster: trade and exchange rates. Many American leaders, eager to protect manufacturing jobs, believe China is flooding the US with cheap imports. This problem, many say, is exacerbated by China's undervalued currency and trade surplus: if the yuan is cheap, the logic goes, Americans buy more Chinese products, sending their dollars to Beijing , where they are kept in reserves, further widening the trade gap between the two countries. According to some news reports, China may have recently set a new record for foreign-currency reserves by holding as much as US$854 billion.
In recent days, China announced that its economy grew faster than expected - 10.2% during the first quarter of 2006, exceeding all published expectations. Hu has made domestic growth and low unemployment two of his central economic goals, and this no doubt has contributed to China's astounding growth rates. But critics argue an equally important cause is the undervalued yuan, which draws foreign capital to China.
According to Shang-Jin Wei, a senior fellow at the Brookings Institution, the higher-than-expected GDP (gross domestic product) figures also do not necessarily mean that Beijing should revalue the yuan. "It could be used to say that the economy is much more reliant on domestic demand than previously thought," he said.
Nonetheless, the 10% growth rates do put pressure on China to revalue its currency. Although the government is trying to cool the economy by encouraging domestic consumption, foreign direct investment seems to keep outpacing these efforts - perhaps proof that Beijing needs to adopt a monetary policy that will deter foreigners from sending so much capital to China. If the yuan appreciates far enough, that would have the effect of slowing down the economy.
In the US, the charge to force Beijing to revalue the yuan has been spearheaded by an unlikely duo: Senators Lindsey Graham and Charles Schumer. For more than a year now, Graham and Schumer have threatened a 27.5% across-the-board tariff on Chinese goods if the yuan is not allowed to appreciate. In July, China allowed its currency to appreciate by just over 2%.
But the senators have argued that this is not enough. Last month, they led a congressional delegation to China specifically to discuss trade matters. Upon returning, Graham said in a statement: "My message to the Chinese was [that] the status quo is devastating to American manufacturers, and they need to embrace reform by over time allowing their currency to float. The small progress we have seen needs to continue. I'm willing to abandon the need for tariffs if the Chinese embark on real reform. We're not there yet."
According to Wei, "It's very unlikely that exchange rate reform will happen while [Hu] is in the US." Wei believes that Hu will not want to be viewed as kowtowing to revaluation pressure from the Bush administration. "To make the exchange rate more effective is not a trivial thing," he added. "It does in fact take several technical steps," and such a move would not necessarily resolve America's trade deficit with China.
Bates Gill, an expert on China Studies at the Center for International and Strategic Studies (CSIS), indicated that any pressure Bush puts on Hu for economic reforms will likely be tinged by pressure from Congress.
"The American people have increasing concerns with China as a potential economic competitor, and that hits them in the pocketbook," he said in audio remarks posted on CSIS's website. "When Congress goes home, they hear it from their constituents.
"China seems to represent the potential threats of globalization, and Americans are feeling some anxiety and China's an easy target."
In addition to economic issues, the two leaders will have the opportunity to talk about mutual security issues, how to manage a growing demand for energy resources and the US desire for China to more forcefully enforce intellectual property laws on software, music and other media.
Another issue that could be discussed is China's crackdown on Internet freedom. During a congressional hearing in February, members of Congress berated representatives of Internet companies, including Yahoo, Microsoft and Google, for practicing unethical business practices in China by being complicit in the persecution of free-speech advocates there.
If no deals are to be struck, then what is the point of the visit? For one, it gives Hu the opportunity to assuage US fears that China is competing against the United States in an economic and military sense. In addition to meeting with Bush, Hu was to dine at the home of Bill Gates and meet with executives from Microsoft and Boeing Corp.
According to Wei, the meeting with the software giant is of particular importance. "Microsoft is a symbol of the high-tech society that the Chinese aspire to," he said.
It's also a symbolic gesture that could mean that China is ready to take intellectual property rules more seriously. Just before Hu's US trip, several Chinese computer makers signed a deal with Microsoft to include Windows software on their new computers in China. The Chinese government is also now requiring state-owned enterprises to use unpirated software to support intellectual property rights, according to a statement by Microsoft.
And last week, Boeing and China Aviation Supplies Import and Export Group signed a deal to sell China 80 new Boeing 737 airplanes. The agreement can benefit Hu by promoting the fact that China is the United States' fastest-growing trading partner and that trade relations between the two nations are "not all a one-way street", according to Gill.
Wei said, "If there's an image of [Hu] being well respected in the US, that can translate at home." But he added that if the Chinese leader doesn't yield to American pressure while in the US, this could also strengthen his support at home.
According to Gill, Hu will be looking for a "high-profile, low-trouble type of event". With Congress out and no deals likely to be reached, but with trips to two major US corporations, a speech at an elite university (Yale) and a "state" luncheon at the White House, that's likely exactly what he'll get.
Brian Wingfield is a freelance reporter based in Washington, DC.
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