China ties fray ahead of Hu visit

Cabinet members from the Obama administration have fanned out to press their case with China in advance of a state visit next week by Chinese President Hu Jintao.

Treasury Secretary Tim Geithner on Wednesday offered a laundry list of U.S. complaints with Chinese policies that Washington sees as hurting American companies and workers.

{mosads}More complaints are expected Thursday in a speech from a second Cabinet member, Commerce Secretary Gary Locke, while Secretary of State Hillary Clinton will make a major address about China on Friday.

The punches come amid provocative moves by China’s military. The People’s Liberation Army (PLA) chose Tuesday to send China’s first stealth fighter on its maiden flight, timing the test to coincide with Defense Secretary Robert Gates’s visit to the country. Gates said the flight appeared to surprise Hu, and experts interpreted it as a message from the PLA to both the American and Chinese civilian leadership.

“I think it’s going to get worse before it gets better,” William Reinsch, chairman of the U.S.-China Economic Security Review Commission, said of the U.S.-China relationship.

Changes in government in China and Washington will challenge both capitals, but the events in Beijing may be more important than the GOP’s control of the House.

Hu and Chinese Premier Wen Jiabao will complete their five-year terms next year, putting China’s leadership in transition.

“It’s a government in Beijing that is extraordinarily risk-averse, that is politically weak because of the transition, and a leader in Hu who is worried about his legacy, and a lot of people in China who hope his legacy falls apart,” said Charles Freeman, a former chief trade negotiator with China during the George W. Bush administration.

Freeman, now with the Center for Strategic and International Studies, expects an administration worried about the communication between China’s military and civilian leadership to put talks between the U.S. and Chinese militaries on the agenda.

North Korea, China’s currency value, tensions in the South China Sea and a host of complaints from U.S. businesses are among the other issues likely to come up.

Currency, at least, appears to be less of an irritant with Republicans in the House.

The House in September approved legislation allowing the Commerce Department to impose heavy tariffs on Chinese goods because of currency manipulation, but the Senate did not take up the bill. Rep. Dave Camp (R-Mich.), the new chairman of the Ways and Means Committee, voted for that bill but has said it is not a priority for his panel. 

Freeman said economic and foreign policy issues are kept on separate tracks, but noted that an overall atmosphere of mistrust, exacerbated by China’s military, makes life more difficult.

Republicans hawkish on defense have expressed worries about Beijing’s military buildup and increased frictions with its neighbors in the South China Sea. GOP lawmakers have also expressed frustration with China’s refusal to take a harder line with North Korea.

Geithner complained Thursday that China’s policies on currency and other issues give it an unfair advantage over U.S. companies.

“Chinese companies and workers able to take advantage of a range of preferences and subsidies and operate behind trade barriers that give them a competitive advantage relative to U.S. and other foreign firms and workers,” Geithner said Wednesday.

While the U.S. welcomes several commitments from China, including that the government will not discriminate against U.S. companies, he said more needs to be done.

Many of the new tensions reflect a changing global economy, where the U.S. and China increasingly are competitors for resources and business.

China has emerged from the financial crisis of 2008-09 in a stronger position, and that has worried the U.S. while emboldening China, noted Myron Brilliant, the U.S. Chamber of Commerce’s senior vice president for international affairs.

“People in China are more confident. They’re uplifted about what’s going on,” said Brilliant, a longtime observer of the country. This confidence translates up to Chinese diplomats and government officials.

For more than a decade, U.S. companies have focused on getting into China, but Brilliant said an increasing concern will be competition from emerging Chinese companies in third markets.

Chinese companies have bested their U.S. counterparts for valuable contracts in a number of countries by offering low-cost financing below market interest rates.

A $477 million deal General Electric has won to sell locomotives to Pakistan, reported in The Washington Post on Wednesday, is a hopeful sign, Reinsch said, because it suggests a willingness on the part of the U.S. to compete with China by offering lower rates through the Ex-Im Bank.

Still, Reinsch said, the administration, Congress and business should expect tough times and plan accordingly. “I think the danger is in thinking it’s going to get better,” he said.

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