"The pen is mightier than the sword." For nearly a decade, Brahm has used newspaper articles, magazines and authored over 20 books to explain current affairs, reshape stalled negotiations, and provide a communication platform to Asian leaders and policymakers. His writings reveal underlying central challenges facing Asia over the past decades.
Finding Commonality
Written by Laurence Brahm - Published by CSIS on 04/27/2009
On April 1, Chinese President Hu Jintao invited President Barack Obama to visit China later this year. It is unprecedented for a U.S. president to visit China so early in a new term; the trip symbolizes the beginning of a new epoch in U.S.-China relations.
To ensure this new beginning does not fail, U.S.-China dialogue should be constructed around three principle issues: the financial crisis, security, and climate change. Cooperation on these three principle points appears imperative, obvious, and to be in the two countries’ mutual interest. The dialogue should be set along a Chinese psychological framework that seeks guiding principles rather than tailored to the Beltway paradigm. In short, in a Chinese political context, form is more important that substance.
The three principle issues may be presented as “three points of cooperation” (sange hezuodian) as commonalities can be discussed at the outset. This will avoid the sometimes confrontational approach of previous administrations that did not yield realizable benefits. Likewise, there should be no illusions that face-saving mechanisms will avoid all or even most problems. The very nature of the two different political, social, and value systems means that complications are inevitable, and given the state of the global economy, the relationship’s complexity will increase in the months ahead. The three points of cooperation are intended to offset this inevitability by starting a dialogue with the right tone and by folding these differences into a structure of commonality. Anticipation of clashes will avoid intractability.
The first point of cooperation should be in the area of finance and investment. President Obama’s priority is encouraging China’s continued purchase of U.S. bonds to underwrite the cost of printing unprecedented amounts of money for the stimulus package. China has no choice unless it wants to see inflation and dollar depreciation that will wipe out the value of the Federal bond portfolio managed by the State Administration of Foreign Exchange (SAFE). However, as a hedge strategy, SAFE, has already divested from long- and medium-term bonds to short-term ones (even at zero interest) to retain liquidity. Diversification away from dollars into European currencies has emerged as a significant pattern in recent months. Threat of a bond fire sale may also be intended to keep Obama in check. While important, the Obama administration needs to be careful to not over-focus on China’s bond purchases and send the message that its financial distress has created dependency.
The investment equation is equally important. China has money to spend on hard assets and is already increasing U.S. share purchases. A smart China will buy real businesses, even rusted ones, and not just paper. Obama should turn trend into policy by launching a package of incentives that encourages direct Chinese capital investment in faltering sectors like autos and real estate. Offer unprecedented tax breaks -- exemptions and deductions -- as China offered U.S. companies two decades ago when it needed money to rejuvenate its own industries. These are incentives the Chinese will understand and appreciate. And by doing so, the U.S. can reverse the FDI Gap and achieve effective “Trade Gap Dollar Recycling.”
Chinese firms may hesitate to invest overseas after China’s sovereign investment fund China Investment Corporation stumbled out of the gate with a failed investment in Blackstone. To counter Chinese fears, the U.S. Embassy in Beijing and consulates should have an organization similar to the China Commission for Promotion of Investment and Trade (CCPIT), which guides enterprises and financial institutions into investing in the right industries and sectors. CCPIT and various government-backed advisory groups have guided CEOs investing in China for two decades. U.S. legal and accounting firms in China, once focused on supporting U.S. investments in China, should change course and work with Chinese investors heading for the U.S. By investing in the U.S., China will not take U.S. businesses from Americans. It may help stimulate more jobs in both white- and blue-collar industries.
For instance, in an economic downturn, U.S. automobile manufacturers may be forced to shut down their China operations, passing the unemployment problem back to China unless China can become a stakeholder. If China invests in the U.S. domestic automobile industry in a big way, then assurances can be made that factories in China will remain open. China has played the economic and business card in its dealings with the U.S. and Europe; now it is time to play this card ourselves. The Chinese will understand.
Moreover, export education: let rich Chinese send their children to our schools. They will buy apartments and consumer brands. Most likely, really smart Chinese students will stay and work in the U.S. Meanwhile we will be earning foreign exchange, while investing in our own future.
While this approach might be a difficult sell to Congress, the economic crisis calls for creative approaches and thinking “outside the box.” Why should the U.S. be afraid of Chinese in-bound investment? They have proven bad at management outside the Great Wall and they will probably need to liquidate investments when they become stuck in our system (just as many U.S. companies have become stuck in theirs).
Laurence Brahm is a global activist, international mediator, political columnist and author. He is the leading advocate of a fresh development paradigm - The Himalayan Consensus - an innovative approach to development.
