Center for American Progress

Watching the U.S.-Chinese Relationship in Los Cabos

Watching the U.S.-Chinese Relationship in Los Cabos

Upcoming G-20 Meeting Will Push Forward Practical Framework for Positive Change

Nina Hachigian describes how the U.S.-Chinese relationship will greatly influence the G-20’s future success, at Los Cabos and beyond.

The headlines for the upcoming G-20 meeting in Los Cabos, Mexico, from June 18 to June 19 will focus on the financial crisis in Europe. But the role the G-20 plays in the U.S.-Chinese relationship—and vice versa—are important to watch. The actions and interactions of these two economic heavyweights will greatly influence how successful the G-20 can be over the long run in steering the world’s economic ship.

At G-20 meetings, and at those of every other major international institution, the United States makes the argument that as China grows, so too do its duties to the international system of laws, norms, and institutions. That system drove the globalization of world trade and enabled China’s explosive growth over the past three decades. In the words of former President George W. Bush’s Deputy Secretary of State Robert Zoellick, the United States wants China (and every other emerging power) to become a “responsible stakeholder” in the international system.

This is not a request for China to act against its own national interests—no nation can be expected to do that. It is instead a call for China to ensure that its decisions strengthen the international system instead of undermining it, and for China to consider its own interests in the context of other nations’ interests.

China’s incredible growth rate, huge foreign currency reserves—$3.3 trillion worth as of December 2011, the most in the world—and track record of implementing ambitious projects such as the Three Gorges Dam, the largest hydroelectric project in the world, mean it is more able than most to contribute to the needs of the global community. China has the world’s second-biggest economy, and it has raised its gross national income per capita by roughly 3,000 percent in real terms since 1980.

China, on the other hand, suspects that America’s desire to see it play a larger global role is part of a strategy designed to stifle its growth and challenge its autonomy.

China’s record as a responsible member of the international community has improved greatly over the past 30 years. China is not intent on overthrowing the international order—instead, it seeks to shape the system to its own ends. Still, China’s international posture can best be described as a “selective stakeholder,” to use Secretary of State Hillary Clinton’s term. Beijing chooses to contribute in some areas such as peacekeeping but not in others such as intellectual property protection.

We can hope that the G-20 process will help push China further along the curve in taking up the burdens of a modern pivotal power for several reasons. First, for the economic issues at the core of the G-20’s mandate, China is not just a “stakeholder.” It has become a “systemically important” player in the global economy. China’s actions affect the system that supports the global economy on which it depends. In other words, it has tremendous self-interest in having the G-20 make sensible, well-coordinated, long-term decisions about the global economy.

Second, the G-20 is a powerful symbol of the interdependence that characterizes today’s world. But more than that, all the discussions before, after, and during the G-20 summits reinforce the essential truth: “What you do affects me.” China can resent the obligations that come along with becoming a major power in the modern age, but they are simply a function of the globalized world in which we live. The G-20 is framed around this reality.

Third, the G-20 is the first major international organization where the People’s Republic of China was in on the ground floor. Unlike the International Monetary Fund, the World Trade Organization, the World Bank, and others, where China was a fairly late addition to the party, China was among the 20-some nations President George W. Bush called to Washington at the height of the financial crisis for the first leaders meeting on November 14, 2008.

Because China was there at the creation of the G-20, it cannot easily offer one of its standard rebuttals to American pressure—that being a “responsible stakeholder” actually just means satisfying U.S. interests, furthered by institutions the United States created, and according to rules that the United States drafted. Beijing wants to remain highly focused on its domestic problems and argues that it is being internationally responsible in many ways, though it is not always fulfilling America’s wishes.

Over time China’s sense of ownership of the G-20 could help encourage a greater willingness to shoulder the burdens of economic problem-solving. Indeed, China has been an active and often constructive player at the G-20.

To start, it coordinated with the United States to jolt the world economy with a significant stimulus measure—China’s was a $586 billion direct-stimulus program and a campaign of monetary easing and state-spurred lending to jumpstart its economy in late 2008 and through 2009. The United States, of course, enacted a $787 billion stimulus in early 2009 and embarked on several rounds of its own monetary easing through the Federal Reserve. Together these efforts helped pull the world back from the economic cliff.

Further, China has accepted efforts to inject a measure of accountability into the process of rebalancing the global economy. It is participating in the ongoing Mutual Assessment Process, whereby countries reveal their economic plans to their peers and get feedback about the effects those plans will have on others. China also signed on to the Framework for Strong Sustainable and Balanced Growth, which involves commitments to rebalance the world economy by increasing American exports and savings, as well as Chinese imports and consumption. Of course to date these commitments have not resulted in China taking bold steps to shift away from export-led growth to a more domestic consumption oriented economy, as it knows it must.

But in the lead-up to the G-20 meeting in Los Cabos, China has announced that it will join the rest of the G-20 in boosting the International Monetary Fund’s resources by $430 billion. This marks a meaningful first step in China’s helping to contain the European debt crisis in the interest of sustaining the world economy.

The G-20 forum even seems to have had an effect on a particularly thorny issue in the U.S.-Chinese relationship—the value of the renminbi. The United States successfully introduced the question of China’s undervalued currency to G-20 discussions about global economic imbalances. Since then, Beijing has raised the value of the renminbi before almost every G-20 meeting (though not the upcoming one). At the previous G-20 meeting in Cannes, France, for the first time the G-20 adopted language that specifically mentioned the importance of flexible exchange rates:

We affirm our commitment to move more rapidly toward more market-determined exchange rate systems and enhance exchange rate flexibility to reflect underlying fundamentals, avoid persistent exchange rate misalignments and refrain from competitive devaluation of currencies.

Multilateral pressure from the G-20 has proven a very useful venue on the issue of China’s undervalued currency.

But two can play that game, and Beijing used an earlier 2010 G-20 meeting in Seoul, South Korea, to criticize Washington’s second round of “quantitative easing,” wherein the Federal Reserve stimulated growth by purchasing Treasury bonds with newly created money.

The G-20 plays other roles in the U.S.-Chinese relationship as well. It has helped the United States and China find common ground on less high-profile issues such as food security and anticorruption. In the future the G-20 forum might help to dampen flare-ups in the U.S.-Chinese rivalry because the other nations represented will be affected by whatever steps Washington and Beijing take to punish the other.

Finally, because it was born out of the 2008 financial crisis, the G-20 symbolizes one of the bigger goals the United States and China share—global financial stability and economic growth. Reminding everyone in both countries about that shared interest, especially during a period where both countries face uncertain leadership transitions and deepening distrust on security issues, is useful in and of itself. Giving it a practical framework is even better.

Nina Hachigian is a Senior Fellow at the Center for American Progress.

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Nina Hachigian

Senior Fellow