International ties

The second S&ED: More equal, balanced and inclusive

By Huang Ying (Chinadaily.com.cn)
Updated: 2010-05-31 10:51

The second Sino-US Strategic and Economic Dialogue (S&ED) drew worldwide attention. US Secretary of State Hillary Clinton led an unprecedentedly big delegation of more than two hundred high-level officials to attend the meeting. The number itself revealed the importance US government attached to this bilateral dialogue.

After the global financial crisis, the leaders of the two countries decided to integrate and elevate the two existing dialogues, namely the Strategic Dialogue and the Strategic Economic Dialogue, to one mechanism. If the first S&ED held in July 2009 only had symbolic significance, this second one bore more tangible fruits.

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The meeting’s newly gained importance and momentum originated from three facts. First, since the darkest days of the financial crisis seem to be over and the world economy begins to embark on the road of recovery, America and China can divert some of their energy and efforts from battling the crisis to charting the blueprint of future cooperation.

Second, as the sovereign debt crisis, which seems unstoppable and very likely to spread to other European countries, casts uncertainty on the infirm and vulnerable recovery of the world economy, the successful opening of the Sino-US dialogue certainly provides the world with some positive news.

Third, the G20 will hold its fourth summit in Toronto in June. In this meeting, the institutionalization of this newly born global governance mechanism will be discussed as planned by the Pittsburgh Summit. For G20 to continue to play a crucial role in international economic coordination in the post-crisis period, the cooperation between China and America is of vital importance. In this sense, the second S&ED is not only important for the bilateral ties, but also has great impacts on the world.

Is the second S&ED successful? Observers analyze from different angles. Some point to the 26 cooperative documents China and America signed during the meeting, believing the bilateral cooperation has been deepened, broadened and strengthened. Some single out the issues that the two countries couldn’t reach consensus on, suggesting that the honeymoon between the two countries has ended and will be replaced by a more mature relation, in which wrangles and disputes are normal. While it is still too early to give a definite answer to the question, since that conclusion can only be made years later, it’s undeniable that the dialogue, compared with the previous ones, looks more on an equal footing, and more balanced.

For America, what it wants most from the dialogue is, of course, reducing its huge trade deficit with China. In the dialogue, America continued to emphasize the importance of the framework of the “robust, sustainable and balanced growth”. This received echoes from Chinese government, who recognized the unsustainability of the pre-crisis world growth model. In that model, America acted as the ultimate consumer of the world. Other countries, especially emerging economies, adopted the export-oriented development strategy and depended too much on the expansion of US consumption.

China agreed to adopt fiscal and monetary policies and other necessary structural reforms to stimulate consumption. In return, America agreed that it would make efforts to raise the domestic savings and gradually reduce the fiscal deficit to a more sustainable level.

Further opening of China’s financial market is also one of America’s main demands. Financial sector is where US core competitiveness lies. In all previous Sino-US economic dialogues, this issue always tops the agenda. This time is no different. For example, China agreed to open its financial sector more to foreign investors. Foreigners will be allowed to invest in the stock index futures under the prudent supervision of Chinese regulators.

Most surprisingly, despite the heatedly debate and universal anticipation of both US and Chinese observers before the dialogue, the issue of RMB exchange rate was played down by the US delegation this time. China emphasized that the reform of the formation mechanism of the RMB exchange rate was more important and meaningful than the debate over how much the RMB should appreciate. This argument seemed to be partially accepted by US Secretary of Treasury Timothy F. Geithner. Although this issue is temporarily shelved or frozen in this dialogue, it remains one of the most controversial questions in the Sino-US relation, as US domestic pressures keeps mounting. How to handle this issue in the future really tests the wisdom of both governments.