By Zhao Minghao Source: Global Times Published: 2015-9-22
During Chinese President Xi Jinping`s State visit to the US, economic issues will no doubt be high on the agenda of his meetings with US President Barack Obama. Economic exchanges have been an anchor for China-US relations during the past three decades. But many observers are now concerned that China and the US are alienating one another over economic issues, even though bilateral trade exceeded $550 billion in 2014.
The first stop on Xi`s trip is Seattle, where he is scheduled to meet a business delegation representing companies from both the US and China. Starting from the late Chinese leader Deng Xiaoping, almost all Chinese top leaders have visited Seattle. They wanted to take the opportunity to show that China has voluntarily chosen the path of market-oriented reform and will continue to follow that route.
Moreover, such visits are meant to show that China attaches great importance to China-US relations. China has overtaken Japan to become the second-largest importer from companies in Washington state, of which Seattle is a chief city and large US companies that have major operations in the state such as Boeing and Microsoft have reaped huge profits from the Chinese market.
According to an estimate by the Economist magazine, China will overtake the US to become the largest economy in the world in 2021. But the big concern for Washington is China`s economic uncertainty. US policymakers do not understand what China`s economic "new normal" - characterized by an economic slowdown - means to the US.
A Nobel laureate in economics, Paul Krugman, warned that it is not only China that is having economic problems. He said that continuous sluggishness will be the "new normal" for the global economy. He noted in an article in the New York Times in August that "for seven years and counting, we`ve lived in a global economy that lurches from crisis to crisis: Every time one part of the world finally seems to get back on its feet, another part stumbles. And America can`t insulate itself completely from these global woes."
Recent big swings in China`s stock market and a run of discouraging economic data from the country have already made the US uneasy. Memories of the global financial crisis, which originated in the US in 2008 and engulfed most countries in the world, remain fresh. At the time of the crisis, China decided to adopt a major stimulus package to stabilize the economy. It has had to bear the consequences of that decision.
Today, Americans worry whether the stock market slump in China will trigger a tsunami that will affect the US. This issue vividly demonstrates the economic interdependence between China and the US. To put it simply, facing increasing volatility and uncertainty in the global economy, both China and the US are finding they are equally vulnerable.
Xi has often stressed that the key to continuously strengthening China-US economic ties is to complete the Bilateral Investment Treaty (BIT) as soon as possible. Such a pact can allow US firms to gain greater access to China`s market and also make it easier for ambitious Chinese firms to crack the US market.
China is undergoing a transition from being "the world`s workshop" to being a "big consumer nation" and a "large capital exporter." That shift offers huge business opportunities for the US. In the past nine years, bilateral trade has doubled and China has become one of the fastest-growing importers of US products.
Chinese firms` direct investment in the US reached $46 billion between 2000 and 2014. Their investment in the US market increased five-fold in the past six years and the number of US residents employed by these Chinese firms has exceeded 80,000.
In the coming years, investment from China will generate even more jobs for Americans. According to a forecast by US consulting firm Rhodium Group, which focuses on studying China`s investment in the US, cumulative investment from Chinese firms in the US will reach $100 billion to $200 billion by 2020, creating between 200,000 and 400,000 jobs in the US.
Apart from the BIT, China and the US should also try their best to bridge the gap in international economic institutions. Many business leaders have called for the US to encourage China to join the Trans-Pacific Partnership. They have also expressed the hope that China will push the US to join the Regional Comprehensive Economic Partnership.
If China and the US attempt to isolate each other through exclusive institutions, they are both destined for defeat. Obama once claimed that Asia`s trade rules should be set by the US instead of China. But China has sufficient reason to become a rule maker, along with other relevant countries, rather than merely a rule taker. China and the US should pursue the building of the Free Trade Area of the Asia-Pacific region and strive to complete it around 2030.
Recently, the OECD slashed the growth forecast for the global economy to 3.0 percent and 3.6 percent for this year and 2016, respectively. The US Federal Reserve chose not to hike interest rates given the still-weak global economy. The world needs China and the US to continue to cement their economic ties, and the meeting between Xi and Obama is definitely worth watching.
The author is a visiting fellow at the Chongyang Institute for Financial Studies, Renmin University of China.