Economy looms as China, US celebrate relations

Crisis may be the biggest strain yet on their web of ties

China and the United States should be kicking off 2009 with a celebration of three decades’ hard work building one of the world’s most crucial diplomatic relationships.

Instead the superpower and the rising power are fighting their way through an economic crisis that may be the biggest strain yet on the web of ties they have created.

Following a ground-breaking visit by former US President Richard Nixon in 1972, the United States switched diplomatic recognition from democratic Taiwan to Communist China on Jan 1, 1979, recognising “one China” and marking Beijing’s emergence from diplomatic and economic isolation.

It smoothed and accelerated reforms that would transform China from a Cold War backwater into the world’s fourth largest economy at astonishing speed.

“This is a very tough thing to manage because of historical precedents of rising powers and the reactions they provoke from other countries,” said Susan Shirk, a professor at the University of California San Diego and former US diplomat.

“Historically, rising powers almost always mean war.”

In the search for a relationship that will be the cornerstone of peace, they have weathered an embassy bombing and a spy plane crash, a military crackdown on pro-democracy protests, and more recently, tensions over trade and the value of China’s currency.

But US President-elect Barack Obama has vowed to put more pressure on China over export incentives and managed currency, and upbraided Beijing over human rights abuses and failure to enforce labour, environment and product safety standards. Analysts say a more aggressive US stance, particularly on trade, risks testing delicate relations amid rapidly rising unemployment and a gloomy economic outlook in both countries.

China’s leadership may be facing one of its biggest challenges since the Communists won the civil war in 1949. Struggling with unemployment amid the global economic crisis, short cuts to help Chinese products compete abroad, like subsidies and tax reductions, look increasingly attractive.

In the United States, protectionist calls are mounting as house prices tumble and pension savings collapse, but officially Washington trusts that mutual self-interest will keep either side from lashing out, said US Ambassador to China Clark Randt.

“The Chinese have understood clearly that they are our biggest creditor,” Randt told Reuters, referring to vast US debt accumulated in China’s coffers after years of trade surpluses.

“They are rooting for us, they hold a lot of dollars and they understand that we are in the same boat. If our economy is in trouble, they are in trouble.”

Political chasm

But the efforts needed to keep both sides talking as their economies fray risk being undermined by a basic mistrust, between advocates of democracy and communism.

“The fundamental problem, the challenge, is the real and perceived difference in each country’s political system,” said Wenfang Tang, political science professor at Iowa University.

Washington was once embraced as an ally and inspiration, when China began its slow recovery from Maoist policy experiments.

“In the 80s there was enormous naivety and a view of America as a very modern, democratic, corruption-free, intellectually vibrant epitome of what an advanced society looked like,” said Kenneth Leiberthal of the Brookings Institute.

Disillusionment for the Chinese government elite came in 1989, when they realised that Washington was prepared to openly support protesters in Tiananmen Square who sought their ouster.

For many ordinary Chinese, doubts set in a decade later, when Nato bombed the Chinese embassy in Belgrade during the war against Serbia. Washington said it was a mistake, caused by out-of-date maps, but China was unconvinced.

And good ties have not always been an easy sell in Washington either, particularly after the fall of the Soviet Union removed the bitter enmity that first united Washington and Beijing.

Repairing the Sino-US relationship is increasingly seen as one of the few clear foreign policy successes of a Bush administration bogged down in Iraq and Afghanistan.

Flexing muscles

With a growing economy and rising political clout, China has found big business increasingly tangled with strategic concerns, despite a doctrine of non-interference in other nations’ affairs.

Its firms are courting resource producers in Africa and have ventured far into Latin America, traditionally Washington’s “backyard”. Beijing says its interests are purely commercial, but strengthening ties with partners like top US oil supplier Venezuela have inescapable political implications.

China has also been discreetly flexing its military muscle with more peacekeepers overseas – from Haiti to Darfur – and its navy has joined an international crackdown on Somali pirates.

Nervous as these projections of power may make some hawks in Washington, Taiwan is the most volatile part of the relationship.

China has claimed self-ruled Taiwan since 1949 and vowed to bring the island under mainland rule, by force if necessary.

China long ago gave up regular shelling of Taiwan-held islands, and bilateral ties improved dramatically after the election of President Ma Ying-jeou, who opposes provoking China. But many in Taiwan still seek a formal declaration of independence from China and enough suspicion remains on both sides to make it one of the most dangerous flashpoints in Asia.

“The ‘Taiwan independence (movement)’ could destroy peace in the Taiwan Strait and severely damage the prosperity and stability of the Asia-Pacific region,” Tao Wenzhao, from the Chinese Academy of Social Sciences, wrote in a recent commentary. — Reuters