Obama plays China card, but who holds the ace?

By Caren Bohan, Paul Eckert and Simon Rabinovitch

WASHINGTON/BEIJING (Reuters) - Although U.S. President Barack Obama has never set foot there, China cast a long shadow in the Pacific region where he grew up.

Obama, who will visit Shanghai and Beijing for the first time on November 15-18, spent much of his childhood in Hawaii, five time zones away from Washington, D.C.; and beginning in 1967, when he was six years old, he lived in Jakarta for four years.

At the time, China was in the throes of Chairman Mao Zedong's bloody Cultural Revolution. Abroad, the nation was less interested in selling widgets than in promoting Mao's brand of radical communism -- a force the U.S. saw behind communist movements and political upheaval in Vietnam, Indonesia and elsewhere in Southeast Asia.

In 1979, Obama's senior year at Punahou school in Honolulu, China and the United States normalized diplomatic relations, launching a three-decade period in which ties between the two grew inexorably tighter and deeper -- and complicated.

"Think of what China was in 1979: It was an autarkic, insular, inward-looking country that was preoccupied with its own internal things," said a senior U.S. official. "Even 10 years ago ... there was still a sort of sense of 'We're not a part of these global rules, we're not doing this stuff.' Now they see themselves as sitting at the table."

If there were any doubts that China would have a seat at the table from now on, Obama dispelled those when he sent Secretary of State Hillary Clinton there on her first official trip abroad -- not Pakistan, Afghanistan or any other foreign policy hot spot.

"That the first major visit (was) to China, and to Asia as well, is symbolic of where the locus of international economic activity -- and to some degree the locus of international activity, period -- is going to be in the coming years," said economist and author Zachary Karabell, whose new book "Superfusion" posits that the U.S. and Chinese economies have effectively merged.

Beijing, once considered a wallflower on global affairs, is in turn warming to its more prominent role, though it's unclear that will translate into greater cooperation with Washington on issues like climate change and the nuclear disputes with Iran and North Korea -- not to mention human rights differences.

U.S. Deputy Secretary of State James Steinberg highlighted the tension at the heart of the relationship in a speech in September. "Given China's growing capabilities and influence, we have an especially compelling need to work with China to meet global challenges," he said.

But Steinberg added that there was a tacit bargain in which the United States expects China to reassure the rest of the world that its growing role "will not come at the expense of security and wellbeing of others."

That of course includes America's.

"The big challenge there is going to be to maintain a competitive U.S. economy, and at the same time to maintain a high degree of stability and equanimity in the U.S.-China relationship," said Clyde Prestowitz, president of the Economic Strategy Institute think tank.

Indeed, even as the United States and China have grown closer diplomatically, their economic and trade ties have deepened to the point of mutual dependence. Not only does China depend on the U.S. export market to fuel its highflying economic growth rates, the United States relies on China's vast savings to help finance its burgeoning budget deficits.

"It is clearly unsustainable. This relationship helped give rise to global economic imbalances," said Ben Simpfendorfer, an economist with Royal Bank of Scotland in Hong Kong. "If we are ever going to free ourselves of these imbalances, we need to reverse this relationship, get China to buy things in the U.S. and the U.S. to invest in China."

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