NEWS BRIEF
Commentary: With New Administration, U.S. and China Examine Their Relationship
February 19, 2009
Christopher Bjorke

Like new neighbors feeling each other out, Beijing and Washington have spent the first weeks of the Obama administration nosing into one another's business.

The relationship between the two countries, both grappling with major economic crises, got off to an awkward start shortly after President Barack Obama's inauguration, when Timothy Geithner accused China of currency manipulation during confirmation hearings for his nomination as treasury secretary. Beijing was quick to point out that the yuan had appreciated 20% against the dollar since 2005.

"Directing unsubstantiated criticism at China on the exchange-rate issue will only help U.S. protectionism and will not help towards a real solution to the issue," the Chinese Ministry of Commerce responded in a press statement.

The charge of protectionism became sharper when a "Buy American" provision was inserted into Obama's stimulus program. China, where exports fell by 17.5% in January, felt it was in danger of being shut out of the $787 billion plan.

"History and economic theory show that in facing a financial crisis, trade protectionism is not a way out, but rather could become just the poison that worsens global economic hardships," stated a commentary by Xinhua, the official Chinese news agency.

Later on, there were more suggestions from China about how the United States should manage its financial crisis. A prominent finance official this week urged Washington to quickly establish a "bad bank" to purchase toxic assets or face a prolonged recession like Japan's "lost decade."

Tian Guoli, head of China's largest bad bank, made the comments in a Financial Times interview and contrasted the plight of U.S. financial giants with China's more stable banks.

"Who would have thought that these banks we used to revere, such as HSBC and Citigroup would have such big problems?" Tian said.

Finding a footing

Transitioning from eight years with the Bush Administration, both countries are trying to position themselves in their relationship while facing crisis on both sides. Though either country might be tempted to use the change in presidency to assert a new role in relations, the crisis will likely preserve status quo.

Since the first tense days after the presidential inauguration, there have been efforts toward a more cooperative tone. Geithner has had phone conversations with his Chinese counterparts to assure them that high-level economic dialogue would continue. The new Secretary of State Hillary Clinton will visit Beijing and address collaboration on economic, security and environmental issues.

China, for its part, has signaled that it would continue to buy U.S. Treasury notes, a necessity for financing American recovery spending. Even though the dollar is likely to fall, further investment was "the only option," according to Luo Ping, head of the China Banking Regulatory Commission.

The United States and China will both find themselves with limited options as long as crisis management remains the top priority.

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