Did you know that the slide in the dollar and the surge in oil to over $100 a barrel were part of a deliberate US strategy to reduce the purchasing power of China’s foreign exchange reserves?
Few in the West probably noticed the comments by Li Lianzhong, made last month in a public forum, even though he is the head of the Communist Party Central Committee’s economic think-tank. After all, no one has a monopoly on conspiracy theories. But Li’s views illustrate that, despite China’s integration into the global economy, a gulf in comprehension sometimes separates Beijing and the West. The world is not yet flat.
Indeed, mutual recriminations seem to be on the rise. What is China up to in Africa? What are the real motives of its sovereign wealth fund? Western critics want to know. Why is Washington blocking investments by our companies? Why are Western media distorting coverage of Tibet? ask Chinese skeptics.
The danger for markets is that such antagonism could erode the trust underpinning economic links, especially when slower growth is putting Western politicians on the defensive and August’s Olympic Games are heightening Chinese sensitivities. “Both sides will need to learn better how to deal with each other. There are plenty of examples on both sides of misunderstandings and inability to comprehend how the society works, which then leads to real problems when it comes to the investment process,” Jonathan Woetzel, a senior partner in McKinsey’s Shanghai office, said in an interview. As Woetzel put it, ties with the West can still be summed up at times with the Chinese saying “same bed, different dreams”.
That was the background to a visit to Beijing last week by OECD chief Angel Gurria, who made a pitch for closer cooperation with the 30 industrial democracies that make up his membership. Gurria’s purpose, he told reporters, was to make the OECD more relevant and to "create a level of comfort" on both sides. The Organisation for Economic Cooperation and Development is in theory well suited to ironing out wrinkles in China’s relations with the West. The Paris-based group does not lend money, so it has no pesky conditions to impose. Rather, its members share information and establish best practice through peer reviews in what Gurria calls a “soft law approach”. In short, member governments can take or leave the
policy advice on offer. Perfect for Beijing.
The problem is that while China participates in a range of OECD activities, it is not a member. And Gurria, though suggesting that China might join other emerging economies in the OECD’s Development Center, said Beijing had expressed no particular wish for full membership. “This is too important to be urgent, so we should let it take its own pace,” he said when asked about membership prospects. US Treasury Secretary Henry Paulson also stresses that building trust with China is a marathon, not a sprint. Paulson, who made dozens of visits to China when he headed investment bank Goldman Sachs, is making the trek again this week, principally to meet Wang Qishan, a newly promoted vice-premier who is taking over responsibility for the “Strategic Economic Dialogue” that Paulson instituted with China in 2006.
Critics say the SED talks have delivered little of substance, but Woetzel said such structured dialogue is needed to avert the risk that Beijing or Washington ignores the other’s interests, be it on security, the energy or the environment. “Take energy. The US and China are in the same boat. We are collectively the world’s largest energy consumers, investors and polluters. So from the world’s point of view, it’s not ‘either/or’. It’s ‘and’. So both countries need to work together and to explicitly think about a framework where they can consider each other’s rightful interests and needs,” Woetzel said. Energy and the environment are obvious flashpoints as China’s hunger for resources grows and concern over global warming mounts. Paulson will address both issues in a speech during his two-day visit.
China and the West have done well so far to manage the strains of the Middle Kingdom’s meteoric economic rise. Beijing’s accession to the World Trade Organisation in 2001 has taken a lot of the sting out of China’s outsized trade surplus by putting the fiercest commercial disputes in the hands of a neutral umpire. But getting both sides on the same wavelength will not happen in the blink of an eye. It was perhaps fitting that Gurria was in Beijing to launch a book about China’s long-run economic performance -- from 960-2030 AD. (Reuters)