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Barack Obama

China to politely push back on Obama's G20 proposal

BEIJING (Reuters) - China will find it hard to object to U.S. President Barack Obama’s drive for a more balanced global economy at a G20 summit this week, but will resist any sweeping reforms that risk checking its headlong growth.

U.S. calls for exporting nations to consume more will shift the spotlight back toward China’s managed currency regime and whopping trade surplus after a year in which these were put to one side, displaced by the imperative of recovering from the global financial crisis.

That the United States is ready to put pressure on Beijing became clear this month when, for the first time since time since China joined the World Trade Organization in 2001, it invoked a “special safeguard” clause to slap duties on Chinese-made tires.

China, brimming with confidence as the world’s fastest-growing economy, will extend a cooperative hand, but will refuse to be pilloried as the main culprit.

“China will certainly want to understand more of what the United States is proposing before making any commitments,” said Wang Yong, a professor of political economy at Peking University.

“China would want to ensure that there were no binding conditions and no chances of the document being used as a pretext for trade protectionism,” Wang said.

The U.S. proposal foresees analysis of G20 members’ economic policies by the International Monetary Fund to determine whether they are consistent with better-balanced growth.

Chinese government researchers on Tuesday gave a cautious welcome to the U.S. initiative, but recent history shows that China will not let the IMF cut close to the bone.

When the IMF changed its exchange-rate monitoring rules in 2007, Beijing feared it was a ploy by the United States to enlist the organization’s support in its campaign for a stronger yuan.

China blocked the IMF’s annual assessment of the Chinese economy until the fund reversed the rule change this year.

WORKING TOGETHER

But Beijing and Washington also grasp that any wider feuding between them could tarnish hopes for global economic revival, and Hu and Obama will want to keep trade and currency complaints from taking center stage at the G20 meeting.

“Neither side likes the other’s (political) system, but they have to cooperate. They have their disputes but also need each other,” said Sun Zhe, director of the Center for U.S.-China Relations at Tsinghua University in Beijing.

China may be in a relatively conciliatory mood in Pittsburgh.

First, it has been pressing to increase developing countries’ voting rights at the IMF, and needs U.S. and European support for this. Second, it has been trying to shift its own economy away from export-driven growth after the financial crisis illustrated the perils of relying on external demand.

“China will take the U.S. proposal seriously. After all, the G20 is an increasingly important forum,” Sun said. “What China’s ultimate response will be is a different matter. China will be watching not just what the United States says but what it does.”

On that count, the tire dispute could serve as an acid test.

Hu is likely to press Obama, directly or indirectly, for reassurances that Washington will not expand use of the safeguard measures to bigger areas of trade, such as steel.

“China was surprised by Obama’s announcement, but it sees the domestic political considerations for him,” Wang said.

“Now China wants to minimize the negative impact of the tire case opening up other safeguard measures and trade disputes.”

PREVENTING ESCALATION

The world has seen other close yet contentious trade relationships before. Observers point to parallels between China now and Japan during the 1980s, when Tokyo also quarreled with Washington over trade imbalances and exchange rate policies.

With Beijing and Washington, however, trade friction is overlaid with political, ideological and security rifts.

The U.S. trade deficit with China totaled $123 billion in the first seven months of 2009, accounting for nearly 60 percent of the overall American trade deficit.

Many U.S. critics say this reflects the Communist Party’s pervasive grip on the economy and lax labor and quality standards. In turn, Beijing sees many U.S. policies as aimed at containing China’s growing might, and it regularly accuses Washington of clinging to a “Cold War mentality.”

But recent cases suggest both sides have scant appetite to dramatically escalate spats, said Gregory Chin of York University in Toronto, who studies China’s multilateral diplomacy.

Few U.S. consumers could do without the torrent of inexpensive Chinese-made goods in their shops. For its part, China has invested up to 70 percent of its $2.13 trillion of foreign exchange reserves, the world’s biggest stockpile, in dollar-denominated assets, mainly U.S. government debt.

China’s main strategy at the G20 may be to deflect Obama’s ambitious agenda by pushing for more modest, technical goals of enhancing cross-border financial regulation.

“China would like this to be focused on re-regulation, the core bread-and-butter issues,” Chin said. “I don’t think they want to open up all this (trade) stuff in front of everyone else because that could open up a focus on broader imbalances and China doesn’t want that.”

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