China loses some luster

The Pak Banker - - OPINION - David Ig­natius

When U.S. pol­i­cy­mak­ers be­gan plan­ning Xi Jin­ping's state visit to Washington next month, they must have imag­ined that the Chi­nese pres­i­dent would be ar­riv­ing, fig­u­ra­tively, in a gleam­ing air­craft car­rier with his trade­mark "Chi­nese dream" ban­ners fly­ing. The chal­lenge then was how to deal with a strong and supremely con­fi­dent Bei­jing.

Now, the sum­mit plan­ners face a dif­fer­ent test: Af­ter this month's eco­nomic typhoon, Xi is pi­lot­ing a shakier ves­sel - still sleek on the out­side, but with some leaks and bat­tered com­part­ments. The ques­tion is how the United States can co­op­er­ate with this weaker and newly vul­ner­a­ble China to re­store eco­nomic growth and sta­bil­ity, with­out re­in­forc­ing Xi's au­thor­i­tar­ian po­lit­i­cal style. The para­dox is that a wounded China may be trick­ier to han­dle than a healthy one. "China is head­ing into a pe­riod of do­mes­tic un­cer­tainty and anx­i­ety, but this does not trans­late nec­es­sar­ily into more mod­er­a­tion in­ter­na­tion­ally," cau­tioned Kurt Camp­bell, who helped steer Asia pol­icy dur­ing Pres­i­dent Obama's first term. "Xi will likely strike a tougher stance to avoid any ap­pear­ance of weak­ness or vul­ner­a­bil­ity."

China watch­ers had warned that an eco­nomic "cor­rec­tion" was ahead af­ter so many years of rapid growth and unchecked lend­ing. Henry Paul­son, a for­mer trea­sury sec­re­tary, wrote in his book "Deal­ing with China," pub­lished this year: "Slow­ing eco­nomic growth and rapidly ris­ing debt lev­els are rarely a happy com­bi­na­tion, and China's bor­row­ing spree seems cer­tain to lead to trou­ble."

"Frankly, it's not a ques­tion of if, but when, China's fi­nan­cial sys­tem .?.?. will face a reck­on­ing," Paul­son pre­dicted. That "when" has turned out to be now. Xi had set him­self the twin goals of free-mar­ket re­form and a crack­down on in­ter­nal cor­rup­tion. Both were at­tempts to bol­ster China's sta­bil­ity and pro­tect the Com­mu­nist Party's rule. But Xi hasn't achieved the promised re­forms, and the an­ticor­rup­tion drive has made him new en­e­mies within the party. Xi had hoped to trim the power of a fac­tion men­tored by his pre­de­ces­sor, Jiang Zemin; in­stead, this group is now said to be bolder in sec­ond-guess­ing Xi.

Xi will come to Washington with a newly frag­ile po­lit­i­cal base, as well as eco­nomic tur­moil. He'll want the sym­bols of power that a Washington sum­mit can bring. And he will re­sist public con­ces­sions that would mean a loss of "face" back home. "It's all about the out­ward, vis­i­ble dis­play of Amer­i­can re­spect," Camp­bell ex­plained.

Hawks might ar­gue that this mo­ment of weak­ness is a time to squeeze Bei­jing. Some se­nior Pen­tagon of­fi­cials have sug­gested re­cently, for ex­am­ple, that the United States should be tougher in as­sert­ing the right to nav­i­ga­tion in the South China Sea, by send­ing planes and ships to chal­lenge Chi­nese claims of sovereignty in dis­puted wa­ters.

A quiet pol­icy de­bate about the South China Sea is­sue has been un­der­way in Washington. Pen­tagon of­fi­cials worry that China is build­ing what amount to naval in­stal­la­tions in dis­puted ar­eas, un­chal­lenged by the United States. Ad­vo­cates of a tougher stance in­clude U.S. al­lies in the re­gion, such as the Philip­pines and Viet­nam, which want the United States to re­new its his­tor­i­cal com­mit- ment to de­fend free­dom of nav­i­ga­tion at sea.

The Obama ad­min­is­tra­tion has re­sisted calls for such mar­itime chal­lenges, ar­gu­ing that they might set off an un­pre­dictable chain of re­ac­tion and counter-re­ac­tion. On the eve of Xi's visit, the White House is al­most cer­tain to re­ject any such provoca­tive moves. "Tell me what comes next" is likely to be Obama's wary re­sponse to pro­posed mus­cle-flex­ing in the South China Sea, as in Syria and Ukraine.

With the world econ­omy so shaky, Obama will prob­a­bly pur­sue a lim­ited agenda in his sum­mit with Xi. The broad theme may be that the United States and China, as the world's two big­gest economies, are work­ing to­gether for global sta­bil­ity and growth. Spe­cific "de­liv­er­ables" might in­clude a Chi­nese reaf­fir­ma­tion of the Iran nu­clear deal; a joint study group to ex­plore links be­tween China's new Asian lend­ing bank and ex­ist­ing in­sti­tu­tions such as the In­ter­na­tional Mon­e­tary Fund and World Bank; a work­ing group on cy­ber is­sues; a joint state­ment of con­cern about North Korea; and re­newed pledges to limit car­bon emis­sions ahead of De­cem­ber's cli­mat­e­change con­fer­ence in Paris.

This week's fi­nan­cial roller coaster, with mar­kets see­saw­ing from Shang­hai to Man­hat­tan, is a re­minder of the in­ter­de­pen­dence of the world econ­omy. That's a re­al­ity that's un­com­fort­able for both the United States and China. Each wants to be master of its des­tiny - and able to shape the 21st cen­tury in its own im­age.

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