WikiLeaks: Hillary Clinton's question: how can we stand up to Beijing?
Australia's ex-PM Kevin Rudd advised US secretary of state to welcome Beijing onto world stage but keep force as a last resort
"China's relatively strong economic position in the wake of the global financial crisis has intensified that trend. As has Chinese hubris that it can call the shots and determine the playbook under which it operates without disclosing the same to foreign firms.
"We may want to consider ways to toughen up our talking points and enhance the use – or perception of likely use – of other real 'sticks' in order to achieve market-opening, job-creating objectives. This will require some consideration of just how much disruption in our economic relations we are willing to countenance if we must carry through on threats."
4 Dec, 2010
Hillary Clinton revealed America's deep anxiety over China's growing economic power and hold on US finances by asking Australia's then prime minister: "How do you deal toughly with your banker?"
The question, at a lunch with Kevin Rudd last March and reported in a US Department of State cable, underscores the evolving and often difficult relationship between the world's superpower and an increasingly mighty China. It is the largest holder of US treasury bonds, with around $870bn. Tensions are also highlighted in an economic dispatch, written by the US ambassador to Beijing last January, warning of a "rough" year for relations between the two countries and accusing China of hubris.
His remarks presaged increasing tensions between the two countries over their currencies and fears of protectionism. The United States is pushing China to allow significant appreciation of the yuan, which it says is substantially undervalued, while Beijing is unhappy at the US Federal Reserve's loosening of monetary policy through quantitative easing.
Another cable from last year quotes a senior Chinese official predicting that the midterm elections in America would increase pressure for protectionism in the US and expressing fears about the Fed "printing lots of money".
According to the note of Clinton's lunch with Rudd in Washington: "The secretary affirmed the US desire for a successful China, with a rising standard of living and improving democracy at a pace Chinese leaders could tolerate… The secretary also noted the challenges posed by China's economic rise, asking: 'How do you deal toughly with your banker?'"
Rudd responded by calling himself "a brutal realist on China", arguing for a policy of "integrating China effectively into the international community and allowing it to demonstrate greater responsibility, all while also preparing to deploy force if everything goes wrong". He described Chinese leaders as "subrational and deeply emotional" on Taiwan, a frequent source of tension with the US.
In the January memo, Jon Huntsman, the US ambassador to China, argued: "Whereas 2009 was a year to build the US-China relationship, 2010 will be a year that tests it.
"Ten per cent US unemployment coupled with our huge trade deficit with China, China's increasing use of industrial policies to restrict market access, and an undervalued RMB [yuan], will bring greater tension to bilateral ties. The Google case adds fuel to the fire."
Clinton made a speech about internet freedom shortly after Google announced it would no longer censor results in China, to the anger of Chinese leaders. Officials said the speech was planned before the Google case emerged.
Huntsman said: "The Chinese continue to signal intense displeasure with US positions on issues from the Dalai Lama to Taiwan arms sales and internet freedom, which they then cite as reasons why they may not co-operate with the US on other issues."
The ambassador stressed that China's economic growth offered "enormous" opportunities for the US to create growth and jobs and talked of possible options for increased co-operation.
China has overtaken Japan to become the world's second-largest economy and Huntsman noted that this offered a huge potential market for US goods and services. He listed possible "carrots" to dangle in front of Beijing, including a re-examination of export controls.
Set beside that, he warned: "USG [US government] complaints about discriminatory policies – absent a credible threat of retaliatory action or other leverage – are falling on increasingly deaf Chinese ears.
"China's relatively strong economic position in the wake of the global financial crisis has intensified that trend. As has Chinese hubris that it can call the shots and determine the playbook under which it operates without disclosing the same to foreign firms.
"We may want to consider ways to toughen up our talking points and enhance the use – or perception of likely use – of other real 'sticks' in order to achieve market-opening, job-creating objectives. This will require some consideration of just how much disruption in our economic relations we are willing to countenance if we must carry through on threats."
Despite tit-for-tat tariff impositions, both countries have been cautious about damaging an economic relationship valuable to both sides. Huntsman suggested highlighting possible congressional action on "hot button issues" like the valuation of the yuan and carbon tariffs on Chinese imports. Last month the US House of Representatives passed by an overwhelming majority a bill calling for tariffs to be imposed on countries with artificially low currencies.
The US treasury secretary, Timothy Geithner, has postponed his report on whether China is a currency manipulator, due last month. Geithner has since said that he believes that Beijing is committed to allowing the yuan to increase in value.
The dispatches also show Chinese concerns that domestic politics in the US could derail the economic relationship this year.
In a meeting last November, vice-minister Liu He "described the trade conflicts as 'terrible', with the small number of disputes having huge political and social impact in both countries.
"He believed that American labour unions and the upcoming midterm [2010] US congressional elections both increase pressure for trade protectionism in the US."
Liu also told Robert Hormats, the state department's under-secretary for economics, energy and agricultural affairs, that he was "a little worried" about the US economy and the Federal Reserve "printing lots of money". The concern about quantitative easing has since returned to the forefront of economic discussions.
Another official at the meeting expressed concern that future inflation could erode the value of China's dollar holdings.
