Amer­ica's banker calls loans in Wik­iLeaks world

The U.S. is thrilled that hu­man- rights fail­ings in its fast-emerg­ing ri­val are in the spot­light as rarely be­fore. Talk about di­ver­gent views.

The Pak Banker - - Editorial5 - Wil­liam Pe­sek

The No­bel Peace Prize is nor­mally about those who bring na­tions to­gether. Events in Oslo to­mor­row will show how far two vi­tal ones have moved apart.

China is en­raged that the No­bel Com­mit­tee is hon­or­ing jailed dis­si­dent Liu Xiaobo. The U.S. is thrilled that hu­man-rights fail­ings in its fast-emerg­ing ri­val are in the spot­light as rarely be­fore. Talk about di­ver­gent views.

Yet the No­bel brouhaha is merely a pre­view of what's to come. The dream­ers who thought things would go smoothly for the Group of Two are hav­ing a tough re­al­ity check. China's re­fusal to rein in Kim Jong Il is an­other sign that the G-2 is en­ter­ing a dif­fi­cult phase that will un­nerve mar­kets.

Amer­ica's $14 tril­lion econ­omy still tow­ers over China's. Yet mas­sive U.S. debts, pro­tracted wars and wan­ing in­flu­ence give China a big win­dow to flex its mus­cles and con­sol­i­date power. There's lit­tle ev­i­dence U.S. of­fi­cials fully grasp this dy­namic. The year ahead might be a ban­ner one for U.S.-China ten­sions. Here are four po­ten­tial flash­points.

One, cur­ren­cies. There is a grow­ing school of thought that af­ter the deep freeze in re­la­tions this year, 2011 has to be bet­ter. Per­haps. With U.S. un­em­ploy­ment on the verge of 10 per­cent, though, hos­til­ity is more likely to soar.

U.S. politi­cians will see China as a con­ve­nient bo­gey­man as vot­ers de­mand to know why jobs are scarce. It's doubt­ful that China, des­per­ate to main­tain the ex­por­tled growth needed for so­cial sta­bil­ity, will agree to let its cur­rency jump in value to pla­cate of­fi­cials in Washington.

This is­sue alone ex­em­pli­fies the folly of think­ing the G-2 will join hands to fix the world econ­omy. A 2009 com­ment by U.S. Sec­re­tary of State Hil­lary Clin­ton to then-Aus­tralian Prime Min­is­ter Kevin Rudd says it all. Clin­ton, ac­cord­ing to ca­bles re­leased by Wik­iLeaks, asked Rudd: "How do you deal toughly with your banker?"

That's the whole point. That $884 bil­lion worth of U.S. debt in China's vault means the U.S. can only ask China for pol­icy steps, not de­mand them. China won't be pushed around and many U.S. law­mak­ers haven't got­ten the memo.

Two, North Korea. If there is any­thing we know for sure about Dear Leader Kim it's this: lit­tle of what he does is ran­dom and tim­ing is ev­ery­thing.

At the very moment Sun­day when South Korea held a press con­fer­ence to talk up the mer­its of its free-trade agree­ment with the U.S., the North lobbed fresh bombs --ver­bal ones. The North ac­cused the South of rais­ing ten­sions, thus hog­ging the head­lines. A co­in­ci­dence? I doubt it.

Kim is rain­ing on China's pa­rade, too. His re­cent provo­ca­tions raised the stakes at a time when China has plenty on its hands. The year ahead will see the U.S. call­ing on China to shorten Kim's leash, and China prob­a­bly re­fus­ing. Mar­kets and credit rat­ings hang in the bal­ance.

Three, pa­tri­otic hack­ers. Com­puter en­thu­si­asts backed by Chi­nese au­thor­i­ties con­ducted ex­ten­sive attacks on U.S. govern­ment agen­cies and com­pa­nies, in­clud­ing Google Inc., ac­cord­ing to the New York Times, which cited Wik­iLeaks.org.

Cy­ber­war­fare is no longer the stuff of Tom Clancy nov­els. The more we learn about China's "pa­tri­otic hack­ers," the more it be­comes clear the In­ter­net is emerg­ing as the bat­tle­field of glob­al­iza­tion. Sure, China's mil­i­tary buildup is rais­ing eye­brows. Yet this cy­ber arms race is a more im­me­di­ate threat.

Four, Asia's fu­ture. The Korean trade agree­ment is a rare U.S. vic­tory in the world's fastest­grow­ing re­gion. It demon­strates a re­newed U.S. fo­cus on Asian trade af­ter 10 years of ne­glect.

A year ago, of­fi­cials from Seoul to Jakarta might have bris­tled at U.S. ef­forts to mus­cle its way back into Asia. Af­ter Amer­ica's bad ad­vice dur­ing the 1997 cri­sis and the mess its own econ­omy has be­come, who needs the White House in this re­gion? That was be­fore re­cent events.

China's over-the-top re­ac­tion to ter­ri­to­rial dis­putes with neigh­bors spooked Asia. So did its ra­tioning of rare-earth met­als ex­ports and con­tin­ued sup­port for a bel­liger­ent North Korea. China has been lob­by­ing gov­ern­ments around the world to blow off to­mor­row's No­bel Peace Prize cer­e­mony. The ham-hand­ed­ness of China's diplo­macy may prompt lead­ers to wel­come U.S. in­flu­ence back to the re­gion.

There is a lot for the U.S. and China to co­op­er­ate on: restor­ing bal­ance to mar­kets, anti-piracy ef­forts off So­mali's coast, fight­ing ter­ror­ism, in­vest­ing in Afghanistan and Cen­tral Asia, build­ing high-speed trains in Cal­i­for­nia and freer trade. The risk in the year ahead is that the dis­agree­ments pile up faster than ar­eas of co­op­er­a­tion. Amer­ica's banker has its own plans for 2011.

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