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New spat over bill increases stress on US-Chinese relations

A new US lawmakers' bill aimed at exerting pressure on China's currency policy has stirred up fresh tension between the two economic superpowers, but commentators believe the effect on the wider conflict will be minimal.

US Treasury Secretary Timothy Geithner, left, is greeted by Chinese Vice Premier Wang Qishan

The US and China are aware of their economic interdependence

If international commentators are to be believed, US-Chinese relations are slowly pushing the world into a crisis. The argument goes that China's rapidly-increasing consumption of oil and energy will put its interests into direct competition with those of the US in the world's conflict areas, particularly the Middle East.

Up until the late 1990s, China was able to rely on domestic resources for the lion's share of its oil supply, but the country's ever-increasing oil thirst meant that by 2009, it had to import some 4.8 million barrels a day - more than half of its 8.6-million-barrel-consumption.

US President Barack Obama tours the Great Wall

Barack Obama's government needs leverage against China

The US Department of Energy now predicts China will overtake the US as the world's leading oil importer around 2030 - just as it became the world's biggest energy consumer in 2010. This will almost inevitably lead to China becoming more involved in power struggles with the US over oil-rich troubled regions.

The first rounds of the political conflict are seemingly already evident. US efforts to impose ever-tougher sanctions on Iran have been frustrated by Chinese moves to protect its energy deals with that country, and similarly China recently lent $20 billion (14.7 billion euros) to Venezuela's oil industry, giving that inveterate US bugbear President Hugo Chavez a timely boost.

Protectionism accusations

The latest evidence of mounting difficulties between the two countries came this week, when the US House of Representatives passed a bill targeting China for allegedly manipulating its currency. The bill, which many analysts say is unlikely to become law, is aimed at pressuring Beijing to let its currency - the yuan, also called the renminbi - rise faster by branding it in violation of world trade rules.

Jonathan Holslag, research fellow at the Institute of Contemporary China Studies (BICCS), says this is significant. "It's a very important political signal for the Chinese that the limits of American patience have been reached with regard to the trade deficit," he told Deutsche Welle. "But I'm not sure this bill will have an impact on bilateral trade."

A worker at an oil refinery in northeast China's Jilin City

China's growing dependence on foreign oil could destabilize power relations

Andrew Small, transatlantic fellow at the German Marshall Fund of the United States, also believes that the consequences of this particular spat will not be great, but it is an illustrative row. "It's unlikely to determine the actions, but it reflects the mood," he told Deutsche Welle. "And the willingness of the US administration to engage with the legislation does suggest they do need additional leverage on these issues."

China's response to this very provocative bill has been surprisingly restrained. The Beijing government issued a statement Thursday saying that it "firmly opposes" the bill, but Chinese Foreign Ministry spokeswoman Jiang Yu used relatively measured language at a regular news briefing. "Using the renminbi exchange rate issue as an excuse to engage in trade protectionism against China can only harm China-US trade and economic relations, and will have a negative effect on both countries' economies and the world economy," she said.

Conciliatory notes

There are several reasons why China's response might have been fairly controlled, thinks Holslag. "Of course the Chinese at this moment feel a bit beleagured from all sides," he said. "They had a recent spat with Japan [over the arrest of a Chinese fishing boat captain], and it has several economic frictions with other neighboring countries. I think the leadership of the Communist party does not want to turn China into a completely isolated power."

To balance out events in Congress, the US military suddenly found itself playing the dove this week, announcing a resumption of military ties with China after a 10-month break. The Pentagon said that the Pacific nations would meet about safety and communications issues at sea at an October meeting in Hawaii, followed by defense talks later in the year in Washington.

"It's a trade-off for China," said Holslag. "There is huge pressure on the Chinese leadership to be strong on China's key economic interests, but Chinese politicians also realize they need to take into account the expectations of other countries if they want to continue to tap the global economy."

Bi-polar approach

There is a similarly bi-polar approach in China's foreign energy policy, Holslag believes. "On the one hand, they see the need for an open energy market, but on the other hand there are powerful lobbies for state support of national oil companies in securing equity projects overseas," he said.

Coal-based power station in China

China is already the world's biggest energy consumer

But to what extent this will lead to conflicts with US interests in the Middle East is difficult to speculate. "China will also see the need to maintain security, but it also recognizes that it cannot bear the entire burden by itself. This almost inevitably requires cooperation with other powers such as the United States," Holslag said.

And yet, such synergies are often impeded by a very deep-seated, traditional distrust between the two countries. "Many Chinese experts and officials argue that it will be very difficult to cooperate on energy security in areas like the Middle East, Central Asia and Africa, as long as the United States continues to prepare what they call a new containment policy in eastern Asia," says Holsag. "I'm sceptical that even though there is this interdependence, it might not translate into tangible cooperation."

"In a number of areas China is pushing out, and the US is pushing back," concludes Small. "It's a bit volatile at the moment."

Author: Ben Knight
Editor: Rob Mudge

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