WASHINGTON, Dec. 10 (UPI) -- Chinese Premier Wen Jiabao's visit to the United States may have been a diplomatic coup, but the jury is still out on whether he has been able to smooth economic ties, particularly trade relations, between the two countries.
During his four-day visit to the United States which ended Wednesday, the dapperly dressed Wen met not only met with top government officials including President George W. Bush to discuss political issues including relations and Taiwan and North Korea, he also made a point of touring the New York Stock Exchange and met with GE's chief executive Jeff Immelt, amongst other top businessmen.
The stakes remain high, with China being one of the world's fastest-growing economies, while the United States remains the world's biggest. Perhaps unsurprisingly, tensions between the two sides have been increasing over the past few years, especially as China's export levels to the United States have been reaching record levels in recent months.
As when he met with President Hu Jintao in Beijing in October, Bush tried not only to push for a greater trade balance between the two nations, but also to discuss the possibility of China floating the yuan, which has been pegged to the dollar since 1995. Many economists believe that the Chinese currency is undervalued by as much as 40 percent, giving the country an unfair advantage in being able to under-price competitors in international markets.
In fact, only weeks ahead of Wen's arrival, the administration announced its decision to impose quotas on select Chinese textiles to decrease imports from the country. Specifically, the United States would cap Chinese-made brassieres, dressing gowns, and other intimate apparel at 7.5 percent above shipments from last year.
Some China watchers had expected that issue to be raised publicly by Wen and his entourage, but the topic did not surface.
"The U.S. wanted movement on trade (during Wen's visit) ... that was simply not realistic," said Charlene Barshefsky, former head of the U.S. Trade Representative's Office under the Clinton administration. She added that the Chinese premier wanted to reassure Americans that the country was not a threat, and that he came to the United States "in peace" to emphasize that China's rapid economic expansion was good not only for the populous nation, but for the world at large.
"There was no other real agenda," Barshefsky concluded.
Meanwhile, there are rumblings that the United States is not seeing the bigger picture of what China's economic rise means for the global economy. Granted, the U.S. trade deficit with China reached an all-time high of $12.7 billion in September, according to the Department of Commerce's latest report released in November.
At the same time, the World Bank reported that China's exports worldwide increased by 32 percent from last year to $308 billion. But China's pace of importing goods actually exceeded that of exports, rising 41 percent to $229 billion. In fact, China has now surpassed Japan as a net importer of goods in Asia, and its purchasing needs are seen as a key driving force for the region's economies.
Indeed, simply analyzing trade data between the United States and China doesn't tell the whole story.
Many U.S. companies have actually profited immensely from China's economic surge. For instance, during his visit, the premier signed a deal formalizing the agreement made in November with Boeing to buy planes and engines for five Chinese airlines in 2005 and 2006 to the tune of $1.7 billion.
And Boeing isn't the only company that is benefiting from a more prosperous and accessible China. GE expects more than $2.5 billion in sales to China in 2003, which would be up more than 40 percent from 2002, when its sales were $1.7 billion. GE reported total revenue of $131.7 billion last year.
Indeed, in his speech at the American Bankers Association in New York, Wen warned business executives not to "politicize economic and trade issues," and emphasized instead the win-win situation of China's growing economy.
"Of the top 500 companies, more than 400 have come to China, and most of them are making a handsome profit," Wen said. He also stressed that he came to the United States "to seek friendship and cooperation, not to fight a trade war."
Separately, in a speech to nine U.S. organizations, including the US-China Business Council, which organized a dinner in Washington Tuesday night, Wen said that China has become more open to foreign investors over the past decade, and would continue to do so, even though he cautioned that "opening up is a two way street."
"China will open its door even wider to the United States, and hopefully, the United States will do the same by opening more sectors to China, including its high-tech industries," Wen said.
Certainly, with Beijing hosting the summer Olympics in 2008, there are likely to be more opportunities for U.S. businesses to enter the Chinese market, and for China to import more from the world.
Sidney Weintraub, the chair of political economy at the Center for Strategic and International Studies, agreed.
"On the up side, a good proportion of the U.S. business community will express satisfaction with its ability to trade with China," even though he added "others will deplore the competition coming from China's low wages and undervalued exchange rate."
Even though many policymakers have been highly critical of the growing trade gap between the United States and Canada, not all business executives share that sentiment. In fact, the National Association of Manufacturers released a report Tuesday arguing that companies are relocating overseas, especially to China, not just because Asia offers cheaper laborers that allows personnel costs to be slashed. NAM argued that it was high corporate taxes, excessive employee benefit costs, and other domestic factors that were leading to the exodus, rather than anything in particular China or any other country was offering.
As for floating the yuan, USTR's Barshefsky said that China was not yet ready for a free-floating currency, and to do so now would only lead the country, as well as the world economy at large, into decline as a result of its weak financial sector.
"China cannot withstand floating at this time ... bad debts need to be off balance sheets," Barshefsky said, adding that establishing a sound banking system must precede any change in the foreign exchange regime or else there would be a financial meltdown that would "dwarf the Asian crisis" of 1997.
