September 27, 2003	Saturday	Rajab 29, 1424

SHANGHAI: Through no choice of its own, China has become locked on a course pushing it toward the eye of the storm of United States electoral politics.

With a US presidential race on the horizon, the failed WTO talks in Cancun has given American politicians and trade groups added ammunition to fire against China and trade policies faulted for America’s economic woes.

“China is becoming the whipping boy for the poor US economy. Conservative political elements in the US will say that China is conspiring with other developing countries against the US trade interests,” Paul Harris, an expert at Lingnan University in Hong Kong.

The rising wave of political criticism in Washington risks, at least temporarily, cooling ties between the two trading powers, with China calling on the US not to allow internal politics to interfere in the Sino-US relationship.

“The problem is that the US will say things it does not really mean, but then come back into play in the Congress and House of Representatives, whom are closer to the public, and more likely to be believed by the American public, which can even result in action or policy,” Harris said.

But the Chinese government, aware of its dependence and need on its largest trading partner to keep its own economy humming, is likely to remain unruffled by US accusations, seeking to downplay the issue instead, analysts say.

“They know there is only so much they can do. They recognize that this is the way the American system works, and they don’t need to cry foul,” said Harris.

“By not responding, or keeping level headed they know they will help this issue go away.”

Clearly the US has benefited from cheap Chinese goods and labour which has provoked many American corporations to set up back offices in China, analyst say.

More importantly, they say, the US needs Chinese cooperation solving the North Korea nuclear crisis and fighting world terrorism, the backbone of the Bush presidency.

Since the terrorists attacks in New York two years ago, Sino-US ties have been at their warmest in a decade as President George W. Bush has sought and largely won Chinese support for the US-led “war on terrorism” and solving the North Korea problem.

While in the long run these geopolitical issues are more important to the United States, the trade issue has momentarily overtaken it, said Brian Bridges, a foreign policy expert at Lingnan.

The floodgates of criticism opened after the collapse of the WTO meeting in Mexico, as US manufacturing groups pointed the finger at China for anti-competitive trade practices due to what they claim is an undervalued currency.

While American concerns over the value of the Chinese currency date back at least three years, by pitting itself against the interests of developed countries in the WTO, namely the US and members of the European Union, China, which joined the WTO only in December of 2001, has become an easy target for US criticism.

In Cancun, China was singled out for helping lead a coalition of developing countries in a battle to push rich nations to slash their farm subsidies and ensure tariff protection for developing-world farmers, contributing to the impasse between the two sides.

At the heart of the row in Washington is China’s decade-old peg of its currency, the yuan, to the dollar, now blamed for America’s mounting trade deficit and the loss of manufacturing jobs at home.

Some economists say the yuan, maintained at in a tight band of around 8.28 yuan to the US dollar, is undervalued by as much as 40 per cent, making Chinese exports artificially competitive.

While not all dismiss claims that in the face of China’s growing export-might the yuan might in reality be undervalued, China, as well as many international economists say revaluation poses titanic risks to its debt-laden banks.

At a recent Forbes CEO conference in Shanghai, Jospeh Stiglitz, the former chief economist and senior vice president of the World Bank, said any move to revalue the currency now was “misguided”.

Floating the yuan would expose it to the global capital markets, whose volatility “would impose enormous costs on the Chinese economy,” he said.

The view is largely supported by rating agencies Standard and Poor’s as well as Fitch.

“Let’s say China liberalizes tomorrow, then you would have lot more capital from domestic residents flowing out and you would have Chinese banks falling over, there is no doubt about that,” said Brian Coulton, a Fitch Ratings senior director in Hong Kong.

Worse still, any float of the yuan “would also cause damage to the global economy,” Stiglitz argued.

Pressure from the US on China to float its currency was a by-product of Washington’s fiscal and trade deficits, and was not Beijing’s concern, he added.

“It is an American problem, not a Chinese problem.”

Yet with China’s trade surplus with the US set to surpass last year’s record of $103 billion, US pressure on the mainland to lift the value of its currency unlikely to go away any time soon.—AFP