OXFORD, England, Dec. 28 (UPI) -- The conventional wisdom says the modest recovery in the global economy will continue in 2010, hauled along by China and the emergent economies of the developing world. But that will depend on the looming argument over China's currency policies reaching critical mass.
The levels of resentment against China in Europe and North America are rising ominously, both for its manipulation of its currency to keep its exports cheap and its imports over-priced, and for its mulish behavior at the climate talks in Copenhagen.
China is fast becoming the most urgent and difficult problem for the Old World countries of the G7, particularly in Europe. By holding down the value of its renminbi to parity with the weak dollar, it forces the euro higher and does nothing to help boost the U.S. economy.
Moreover, by refusing to accept firm targets for reducing carbon emissions, China doomed the Copenhagen talks to produce little more than a hollow compromise. And by agreeing in only the blandest terms to any intrusive system of verification of carbon reductions, it doomed even that compromise to futility.
China, of course, does not see it that way. In a lengthy analysis of the Copenhagen conference, the official Chinese news agency Xinhua claimed Premier Wen Jiabao played a "crucial role" in saving the Copenhagen talks from failure, adding that he succeeded in fighting off the "unrealistic and unfair demands" of Britain, Germany and Japan. The report ducked the way China squashed all attempts to impose 2050 reduction targets and blocked the appeal of small island states for a 1.5 C maximum global temperature rise.
The classic phrase to define the way the G7 countries hope that China develops was coined by Robert Zoellick, head of the World Bank, who said that he hoped China would become "a responsible stakeholder" in world affairs. And opinion is hardening in Europe and the United States behind the suspicion that China insists on putting its national interest first, and well ahead of any wider concern for the stability of the global economy or the biosphere.
That may be too harsh a judgment. It is probably fairer to say that China still sees itself as a poor and developing country that should be treated as such. But increasingly China is seen by others as a country that has already emerged from poverty and is determined to become rich and fully industrialized as fast as possible.
The problem is that both these perceptions are correct in their own way. And that way lies trouble. Unemployment in the G7 countries is high and still rising, albeit at a less alarming pace. As Oxford Analytica noted in its review of the year ahead, "Protectionism is a particularly serious risk in the United States and Europe as politicians are forced to respond to growing unease over China's trade and currency policies."
The EU Commission in its latest economic survey noted that continued European job losses are a "source of concern both socially and economically." Euro area unemployment stood at 9.8 percent in October -- which means more than 15 million men and women without work.
The Commission went on to warn that any further rise in the euro's value relative to other currencies could be a "serious concern" for the more open eurozone economies and claimed that the euro is already overvalued by 7 percent to 8 percent relative to other major currencies, reducing the attractiveness of the bloc's exports. The blame for this was aimed squarely at China.
"The sustained large current account surplus and the accumulation of foreign exchange reserves provide evidence of a significant undervaluation of the renminbi," the Commission's report said. "The fixed exchange rate policy is also contributing to loose monetary conditions in China, fuelling the risk of asset price bubbles."
U.S. President Barack Obama, who seems temperamentally inclined to look on the bright side, has been much less outspoken about China. But even he could hardly claim that the Copenhagen talks had been a success.
"I think that people are justified in being disappointed about the outcome in Copenhagen," he told PBS in a TV interview. "What I said was essentially that rather than see a complete collapse in Copenhagen, in which nothing at all got done and would have been a huge backward step, at least we kind of held ground and there wasn't too much backsliding from where we were."
Obama -- who backed away from his own earlier claims (before he entered the White House) that China was guilty of manipulating its currency -- is starting to look and sound soft on the Beijing government. His secretary of state said that China's human-rights abuses would not be high on her agenda. China's behavior toward its Tibetan and Uighur minorities is glossed over, and Obama became the first U.S. president to decline to see the Dalai Lama. His treasury secretary was forced to back off from a formal statement accusing China of manipulating the renminbi.
A pattern is emerging that is no doubt pleasing to the Beijing government, even when it behaves badly. Obama's endless conciliation seems to secure little in return. So the big question for 2010 is how long will Obama's patience last, and how strong will be the demands from Congress and from Obama's allies at home in the labor unions and abroad in Europe for a tougher stance.