Wednesday, May 10, 2006

Beijing Bureaucrats See Signs of US Weakness

This week's scorecard: China 2, America 0.

That's the view from Beijing. Government officials are letting it be known that China has scored political points on two fronts--the potent currency reform issue and the festering Taiwan Question, as Communist Party hacks and flacks term China's obsession with ending nearly six decades of de facto Taiwanese independence.

They contend that the United States basically capitulated on the currency issue. The US Treasury Department on Wednesday stopped short of calling China a currency manipulator and instead criticized the country for making "far too little progress" in reforming its managed exchange regime. In a semi-annual report on global currency policies, the department acknowledged some steps by China to make its currency, the yuan, more flexible--meaning, slightly more expensive compared with the US dollar--while stopping short of using the loaded "M" --for manipulation--word.

US lawmakers, manufacturers, and labor leaders have been pressuring the Bush administration to brand China with the M word, arguing that an artificially low yuan gives the country's exports--the engine driving its awesome economic expansion--an unfair competitive edge. But charging China with manipulation would require the Bush administration to enter into formal and, in the end, probably fruitless negotiations with Beijing over the currency issue.

Branding China a currency manipulator would also signal that the US wants the dollar to decline in value. Some analysts have assumed that is the case; but the US Treasury made clear in its report Wednesday that Washington still supports a strong dollar.

"A strong dollar is in our nation's interest, and currency values should be determined in open and competitive markets in response to underlying economic fundamentals,'' Treasury Secretary John Snow said.

The US trade deficit with China hit a record $202 billion in 2005. Parallel to boosting exports, the Middle Kingdom has accumulated more than $800 billion in foreign exchange reserves. The fact that most of China's reserves are in dollars is generally interpreted as proof of its intervention in the foreign exchange markets to keep the dollar high relative to the yuan.

So much for the complex currency issue. Turning to an unfinished piece of Chinese civil war business--self-ruled, democratic Taiwan's refusal to reunite with authoritarian China--another arm of the US government, the State Department, defended the administration's decision to refuse permission for the island's independence-leaning President Chen Shui-bian to visit San Francisco and New York on his way to touring Latin American countries. Instead, the US offered an Alaska refueling option, which Taiwan rejected as a diplomatic insult.

In a tense question-and-answer exchange at a Congressional committee hearing Wednesday, Deputy Secretary of State Robert Zoellick said: "We want to be supportive of Taiwan, while we're not encouraging those that try to move toward independence. Because let me be very clear: independence means war."

Unfortunately for Taiwan, the status quo could also lead to war. China regards the island as a renegade province; more important, Beijing last year adopted a provocative Anti-Secession Law that authorizes a military attack against Taiwan if it makes formal moves toward statehood ... or ... if peaceful reunification efforts ultimately fail.

China has nearly 800 missiles aimed at Taiwan and is said to be adding significantly more each year, while building up an amphibious landing capability and a formidable conventional military deterrent to possible US intervention.

The US is committed to provide Taiwan with the means to defend itself. In the past, that was generally assumed to include intervention in the event of a Chinese attack, but nowadays most analysts do not regard this as a realistic option.

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