The Dollar-Renminbi Exchange Rate
Brady Dennis, writing for the Washington Post, gives us the thumbnail sketch of what is likely the thorniest economic issue in the bilateral relationship between the United States and China:
"Beijing's currency policies remain the most contentious economic issue between China and Washington. By keeping the value of its currency low, China gives its exporters an advantage by making their goods cheaper on the international market. The undervaluation of the renminbi, also known as the yuan, 'is not a tenable policy for China or for the world economy,' Geithner said in a morning speech at the Johns Hopkins School of Advanced International Studies. Although China has allowed the yuan to appreciate slightly against the dollar over the past year, Geithner urged Chinese leaders to accelerate that process. Failure to do so could cause a jump in inflation for China and a damaging rise in asset prices, 'both of which will threaten future growth,' he said."
Sewell Chan, writing for the New York Times, fills in a few of the critical details:
"China’s management of its exchange rate, and its restrictions on capital flows in and out of China, 'have the effect of keeping the Chinese currency substantially undervalued,' imposing burdens on other emerging economies that allow their currencies to float, Mr. Geithner said. He added, 'This is not a tenable policy for China or for the world economy.' Since June, when China pledged to allow its currency, the renminbi, to move more freely, it has appreciated by about 3 percent against the dollar in nominal terms, or an annualized rate of about 6 percent, though the appreciation is greater in real terms because inflation in China is higher than in the United States. Failure to allow more rapid appreciation could accelerate inflation in China, lead to asset price bubbles and undermine the rebalancing of the Chinese economy, Mr. Geithner said. "
Finally, Javier E. David, writing for the Wall Street Journal, makes the case for what may be the eventual solution to the issue—driven by market forces:
"The move toward liberalizing the yuan began in earnest last June, when the government pledged to increase the flexibility of the currency's exchange rate versus the dollar. In July, it opened the currency to trading in Hong Kong, a former British colony that is a draw for international capital and sees daily yuan trading of about $400 million. Finally, in December, a surge in Hong Kong's yuan deposits was coupled with a technical change that allowed banks to make wider use of electronic settlement. These events were seen as milestones on the road to internationalization of the currency, a goal the Chinese government is believed to aspire to partly for reasons of national prestige but also to slow down the treadmill of reserve accumulation that the current foreign-exchange regime puts it on. Eventually, the currency would become like other major currencies and would be convertible for capital transactions, not just trade."
Intellectual Property Enforcement Standards
From Michael Birnbaum in the Washington Post:
"Commerce Secretary Gary Locke on Thursday called for China to make its economy more open to international investment and to respect intellectual property laws, on the same day his department released November figures that showed an unexpected narrowing of the U.S. trade deficit."
He continues: "China's lax intellectual property protection and enforcement" discourage foreign investment in the country, Locke said. He expressed frustration that agreements made between the United States and China at the highest levels did not always change behavior on the ground, and he said that carrying out agreements is a crucial step to improving trade relations between the countries."
Market Barriers & Fair Trade
From Tom Barkley, writing for the Wall Street Journal:
"Bilateral trade talks in which Mr. Locke participated last month produced a range of commitments by China to eliminate regulatory barriers in sectors such as cellphones and wind farms, and to step up enforcement of rules against counterfeiting and software piracy. But while Mr. Locke called the outcome of those talks 'productive,' he noted that similar promises made by China in the past had gone unfulfilled. This time, the agreements 'must be turned into concrete action,' he said."
From John Schmid of the Milwaukee Journal Sentinel:
"Beijing and the West have long assumed that the impoverished Chinese interior would furnish an inexhaustible supply of cheap migrant labor, keeping wages depressed in the industrial urban centers. But it didn't turn out exactly as planned. Coastal cities such as Shenzhen or Guangzhou today are crammed with migrant laborers, who have begun striking, including at factories for Honda and Toyota. China's labor practices drew international condemnation last year with a string of suicides at the Taiwanese contract manufacturer Foxconn, which makes electronics for Western brands in the southern Pearl River Delta."
JoAnne Allen, writing for Reuters, discusses President Obama's meeting with five human rights advocates ahead of Hu's visit:
Obama will speak about human rights in his public appearance with Hu and also bring up the issue during their private meetings, the Post reported, citing one administration official who attended Thursday's meeting with the human rights advocates.
Voice of America reports on the tinderbox that is the Korean Peninsula, and on China's involvement multiparty talks.
"The top defense officials of the United States and South Korea held brief talks about North Korea as U.S. Defense Secretary Robert Gates was winding up his week-long Asia trip. Gates is the latest figure on the international stage to signal the possibility of peacefully re-engaging North Korea. During a meeting Friday here with his South Korean counterpart, Gates said any return to multi-national talks with Pyongyang could only come after the two Koreas meet. 'When, or if, North Korea’s actions show cause to believe that negotiations can be productive and conducted in good faith, then we could see a return to the six-party talks,' he said. 'But the DPRK [North Korea] leadership must stop these dangerous provocations and take concrete steps to show that they will begin meeting their international obligations.'"
The complex multilateral issues between Iran, China, and Russia also seem likely to arise. Henry Meyer and Ilya Arkhipov report from Bloomberg news:
"Iran resumed nuclear talks last month in Geneva with the so-called P5+1 nations—UN Security Council permanent members China, France, Russia, the U.K. and the U.S. plus Germany—after more than a year. The second round is due to take place in Istanbul later this month. Iran is hoping to play the members of the Security Council off against each other, which it didn't succeed in doing last year when sanctions were approved," said Fyodor Lukyanov, an analyst at the Council on Foreign and Defense Policy in Moscow. "It looks like China and Russia coordinated their position and Iran didn't get the result it wanted."
Defense Posture & Asian Security
Phil Stewart, writing for Reuters, weighs in on secretary of defense Robert Gates' position on the Chinese strategic global military posture:
"Gates, in Japan after a visit to China earlier this week, said in a speech that advances by China's military in cyber and anti-satellite warfare technology could challenge the ability of U.S. forces to operate in the Pacific. While saying he did not see China as an 'inevitable strategic adversary', Gates stressed the importance of U.S. military ties with Japan, where about 49,000 U.S. military personnel are stationed."
China's Investment Portfolio
Hans Nichols and Michael Forsythe, writing for Bloomberg/Businessweek, on the topic of China's portfolio 'rebalance':
"President Barack Obama is having America's banker over for dinner. Two nights in a row. [Yikes!] Hu Jintao, the Chinese President, arrives in Washington on Jan. 18 for a state visit aimed in part at diversifying an investment portfolio that includes $906.8 billion in U.S. Treasuries, the largest foreign holdings of U.S. debt. That could mean a flurry of commercial deals, or so the White House hopes. Accompanying Hu will be Chen Deming, the Commerce Minister, and Lou Jiwei, chairman of the country's sovereign wealth fund. The Chinese government has indicated it may be shopping for some clean-energy cooperative ventures. 'I'm sure when the visit wraps up we're going to see many outcomes, including in the economic and trade field,' Cui Tiankai, China's vice-foreign minister, said on Jan. 12 in Beijing."
The Naval Force structure in the Pacific
Finally, Elisabeth Bumiller reporting for the New York Times, covers the blue water naval posture in the Pacific theater:
"But China experts in the United States say there is also a growing danger of a confrontation between American and Chinese forces in the waters of the Pacific, where Chinese ships have increasingly challenged the United States Navy. 'We are a much more powerful military presence there than they are, and they in fact can’t muscle us out,' said Kenneth G. Lieberthal, a China policy adviser in the Clinton administration who is now a scholar at the Brookings Institution. 'They want to hassle us out rather than whack us out. But as they try to hassle us, there’s always a chance something more serious will occur.'
Questions? Comments? Email us atNetNet@cnbc.com
Follow NetNet on Twitter @ twitter.com/CNBCnetnet
Facebook us @ www.facebook.com/NetNetCNBC