INSIGHT: Maintaining good relations with China

15 January 2013 16:49  [Source: ICIS news]

By John Richardson

Demonstrators on the streets in China in September 2012PERTH (ICIS)--Concerns were expressed about the fall-out for US-China trade relations if Mitt Romney were to win the race for the White House, as he had promised to declare China a currency manipulator on his first day in office.

But could the second Obama administration step over the line by being overly aggressive towards China?

Box any country into a corner and there is always the risk that it will step up nationalistic rhetoric and engage in tit-for-tat trade sanctions.

Trade relations are probably on temporary hold right now as the confirmation process takes place for John Kerry – the senior Senator for Massachusetts, and himself a former US presidential candidate. Kerry is set to replace Hillary Clinton as Secretary of State.

Dr John Lee, a professor at the Centre for International Security Studies at Sydney University, believes Kerry will be required to follow Clinton’s approach.

“From 2010 onwards, and helped along by increasingly assertive Chinese behaviour in the East China and South China seas over maritime disputes with a number of countries, Clinton was at the forefront of American attempts to openly convince Asian allies that Washington ‘was back’ in Asia – as if it ever left,” wrote Lee in a 9 January article for the Business Spectator, an Australian-based on line financial news and analysis service.

“The result was Obama’s strategic, economic and moral ‘pivot’ back to Asia, with Clinton leading the policy and rhetoric of America’s regional reengagement.

“One part of this ‘pivot’ was a greater willingness to challenge China on a number of issues such as its current and trade policies, and poor human rights record.”

China is in dispute over ownership of islands in the East China Sea with Japan, and with the Philippines in the South China Sea.

All the islands have rich oil, gas, fishing and mineral resources, with the East China Sea dispute also driven by Japan’s imperial past.

One particular issue that could see US relations worsen with China is over intellectual property-right theft.

“[For example] the American Superconductor Corp, a small wind-energy company in Massachusetts, lost over two-thirds of its revenues after a Chinese partner with Chinese Communist Party links enticed one of its employees to steal the technology of the American company and reproduce it back in China,” wrote Lee.

Kerry said of this case: “It’s a very clear and, in our judgment, egregious, palpable demonstration of the practice that we are deeply concerned about… but it’s not the only one. There are so many things: cyber-attacks, access-to-market issues, espionage, theft.”

A November 2011 report by Washington’s National Counter-Intelligence Executive agency said that China was “building its economy” on “US technology, research and development, and other sensitive forms of intellectual property”.

Lee added that “an increasing number of American private firms that once believed that criticism of China was unproductive and not constructive to the trade relationship now firmly want Washington to take up the cause.”

Japan, South Korea and Australia were also experiencing increasingly “intolerable rises” in cyber-espionage activity originating from China, he said.

But Ed Sim, international trade expert and partner in the Singapore practice of law firm Appleton Luff, believes that the focus of the Obama administration will remain on maintaining good relations with China.

“The tensions are there, yes, but will be dealt with beneath the waterline – in private,” he said.

“The main emphasis will be on encouraging China to play a more engaged role in international relations, now that its economy has grown so rapidly.

“The three areas of focus for the US will be firstly, encouraging China to become more global in its approach to diplomacy and economics.

“Secondly, the US will try to resolve the South and East Sea disputes without getting directly involved and finally, it will seek more open access for everyone in Myanmar.”

China has long had close relations with Myanmar. But over the last 12 months the west has become much more eager to do business with Myanmar, which is rich in oil and gas reserves, as political freedoms have increased.

“All governments like stability and, for that reason, China was grateful that Obama was re-elected,” added Sim.

On the South and East China Sea disputes, Sim predicted that nationalistic rhetoric may continue over the next 12 months as the country’s new Politburo builds popular support. After that, though, he hopes that a solution might be found.

“One of the key things to realise about China is that you are not dealing with a monolithic authority with complete control,” continued Sim.

“There are lots of competing forces in China, and so the last thing the US wants is to alienate the reformers and make their internal position more difficult.

“The best way to encourage reform is through quiet diplomacy.”

Read John Richardson and Malini Hariharan’s Asian Chemical Connections blog
Bookmark Paul Hodges’ Chemicals and the Economy blog

By: John Richardson
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