Why Chimerica alone may not ring quite true

WORLD VIEW:A "PAX-CHIMERICANA" would invite international hostility, be impossible for China to sustain politically, undermine the United Nations and contradict its government's commitment to multilateralism.

So wrote Jian Junbo of Fudan University, Shanghai, in the excellent Asia Times Online (www.atimes.com) after the recent EU-China summit in Prague. He also took issue with suggestions that China and the United States should form a G2 to set the international agenda, taking his cue from comments made by Chinese prime minister Wen Jiabao at that summit.

These observations are topical in a week when US treasury secretary Timothy Geithner went to Beijing to meet Chinese leaders. They are increasingly worried about the safety of their $1 trillion investments in US bonds, should burgeoning budget and trade deficits there stimulate inflation and dollar devaluation.

These worries were reflected in the sceptical questioning Geithner received from students at Beijing University. The US and China are to start a strategic and economic dialogue next month to discuss “the specific content” of their reform agendas, said Geithner. They are also to have a dialogue on climate change.

“Chimerica” was coined by historian Niall Ferguson and economist Moritz Schularick to describe the remarkable symbiotic relationship which has matched cheap Chinese manufacturing exports to US consumer-led demand and turned Chinese export surpluses into dollar-denominated reserves with the aim of preventing their own currency from appreciating. US deficits were thereby financed at historically low interest rates.

To correct that, Geithner says the Chinese must spend more and the Americans save more.

That is easier said than done. The two states are now going to chart their recovery programmes together – as “frenemies”, in another formulation by comedian Stephen Colbert – conscious that they have conflicting interests and values as well as overlapping ones.

Ferguson quotes Luo Ping, a director general at the China Banking Regulatory Commission: “Except for US treasuries, what can you hold? US treasuries are the safe haven. For everyone, including China, it is the only option. We hate you guys. Once you start issuing $1 trillion to $2 trillion [of bonds] we know the dollar is going to depreciate, so we hate you guys, but there is nothing much we can do.”

The G2 formulation comes from geopolitical theorist Zbibniew Brzezinski. Typical of his unadorned approach to shifting world power, it catches the change arising from the interlocking financial and economic crises and how they affect political relationships.

But as Jian Junbo recognises, the US-China relationship is asymmetrical as well as symbiotic. China is still an unevenly developed state, with many decades to go before current changes bring it fully into the more developed mainstream.

A G2 would therefore make it dependent on the US, necessarily becoming part of its (declining) hegemony and having to accept political responsibility for its actions. “At this stage, and in the foreseeable future, there is no match between China and the US in terms of overall strength.”

He quotes Wen Jiabao in the context of this discussion, drawing on an interview in the Financial Times last month with British foreign secretary David Miliband, who foresees China and the US as the two indispensable powers in this century.

Significantly, Jiabao rejected the G2 idea at his summit with the EU. This raises the possibility of a more balanced triangular relationship – US-China-EU – which might be more acceptable.

But, as Miliband put it, much depends on whether the EU can develop the political will and the structures to sustain that.

The EU, too, is to reinforce its dialogue with China. But both sides are aware that if they concentrate on it too much they risk alienating other Asian states.

Already the US-China entente is bothering Indian commentators. The intricate web of institutional and informal networks involving Association of Southeast Asian Nations (Asean) with China, Japan and South Korea and more recently with India, Australia and New Zealand is designed to enhance Asian autonomy from the US. This has also attracted China to participate constructively. Based as it is largely on multilateralism and soft power, the EU’s external relations policy should be especially aware of that.

“Financial crises often accelerate the gradual shifting of the geopolitical tectonic plates; they are to history what earthquakes are to geology,” as Ferguson recognises. He expects the US-China relationship will be as much conflictual as amicable. US state indebtedness and Chinese dollar assets are at stake.

That is surely rational, and it is bound to affect the rest of the world. Inflation, protectionism and competitive devaluations could be consequences if they fail to manage their relationship effectively. Geithner says: “The world is not going to be able to look to the United States, as in the last few recoveries, and expect US consumption to help the world out of this.”

There is not much hope that the euro zone will fill that gap, given its failure to develop a co-ordinated response to the crisis, and continuing disagreements about how it should be managed.

This week, for example, German chancellor Angela Merkel warned about potential future inflation arising from state borrowing and the European Central Bank’s issue of €60 billion covered bonds. The issue was quite inadequately debated in the European Parliament elections.

So Europe, too, may look to China to avoid a lost decade. Ferguson fears we’re going to get the 1970s to avoid the 1930s.

pgillespie@irishtimes.com