What's at Stake in US-China Summit? Pretty Much Everything

Presidents Barack Obama and Hu Jintao have a lot to talk about.

The Chinese leader arrives in the United States for a state visit at a time when Washington and Beijing are partners, adversaries or both on nearly every substantial international issue -- from Iranian and North Korean nuclear ambitions to disputes over subsidized steel and software piracy, from human rights and climate change to control of sea lanes and currency exchange rates.

And the scope of U.S.-Chinese interaction itself has been evolving so rapidly that the White House has described the building of a better working relationship as one of the primary goals of Obama's meetings with Hu, which begin informally on Tuesday night.

"America and China have arrived at a critical juncture, a time when the choices we make -- both big and small -- will shape the trajectory of this relationship," Secretary of State Hillary Rodham Clinton said Friday in one of a series of Cabinet-level speeches describing the Obama administration's goals for the summit. "It is up to both of us to deal with our differences, and there will be always differences between two great nations. We need to deal with them wisely and responsibly."

Many of those differences are economic.

For more than a decade, China has been the biggest engine of global economic growth, especially since the recent financial crisis slammed the breaks on the U.S. and Europe. And much of that growth came from China's rapidly expanding role as the factory floor for products that ultimately made their way to the homes of American consumers.

But over the same 10 years the U.S. government has become increasingly impatient with the Chinese policies that fostered the country's industrial growth, including:

• De facto state subsidies on products that range from steel to pajamas
• Scant enforcement of copyright protection for American films and music and books
• Rigid currency policies that keep the Chinese yuan artificially low against the U.S. dollar in ways that hurt the international competitiveness of American goods and services

"We are at a turning point in the U.S.-China economic partnership," Commerce Secretary Gary Locke said in his own speech on the subject. "Last year, China became the second largest economy in the world. And the policies and practices that have shaped our relations over the past few decades will not suffice over the next few decades."

American consumers got "an impressive array of low-cost goods" in a process that allowed China "to lift millions of its citizens into a fast-growing middle class," Locke added. "But it's not sustainable. The debt-fueled consumption binge in developed countries like America is over. And countries like China are beginning to realize that there are limits to purely export-driven growth."

Dollar Diplomacy

Many Chinese officials may agree that their economy can no longer be so focused on exports. But they're extremely unlikely to admit that this week in Washington.

In a rare response to questions from journalists, Hu's office over the weekend made it clear he believes American policies are responsible for most bilateral and international economic imbalances.

Treasury Secretary Timothy Geithner last week said a less-restrictive Chinese currency policy would help China fight rampant domestic inflation, in addition to leveling the playing field for U.S. exporters.

Hu responded that inflation shouldn't "be the main factor in determining the exchange rate policy," and that the Chinese leadership has confidence in its ability to stabilize prices on its own.

It isn't clear how much either side is willing to make compromises to bridge their differences. At a White House briefing, Tom Donilon, Obama's national security adviser, declined to say before the summit whether the two leaders would even be issuing a joint statement.

But like Obama, Hu headed into the meeting emphasizing that "we both stand to gain from a sound China-U.S. relationship, and lose from confrontation."

The summit officially takes place Wednesday, but Obama will host Hu for a private dinner in the White House residence Tuesday night after the Chinese leader arrives, accompanied only by translators, Donilon, Clinton and two senior Chinese officials.

On Wednesday, after the official arrival ceremony, the two leaders will hold a small meeting in the Oval Office before bringing in other officials, and then they'll meet with U.S. and Chinese business leaders.

That could prove to be the most contentious moment of the day.

"When I talk to business leaders across America, they continue to express significant concerns –- shared by business around the world -- about the commercial environment in China, especially China's lax intellectual property protection and enforcement, lack of transparency in government decision-making and numerous indigenous innovation policies that often preclude foreign companies from vying for Chinese government contracts," Locke sad. "These policies mandate that products must be made, conceived and designed in China."

None of these concerns is new, all have repeatedly been the subject of high-level diplomacy and many have brought promises of change from Hu or Premier Wen Jiabao.

But as Locke pointed out, even the establishment of new Chinese laws or regulations can make little substantial difference on the ground.

A flagrant example is intellectual property. According to U.S. government statistics, for every $1 spent on computer hardware in the U.S., about 88 cents of software is sold. In China, the ratio is about $1 to 8 cents because most of the software used in China is counterfeit. Similar abuse affects DVDs, pharmaceuticals and other entertainment, and scientific and technological intellectual property rights.

Though the new, more Republican Congress is less fervent on the currency disputes than the last Congress, Geithner suggested the administration's biggest economic push will be about the yuan and the dollar.

Since June, when Chinese officials promised to loosen the reins on the yuan, it has risen about 3 percent on the dollar, or at an annual rate of about 6 percent.

"If China does not allow the currency to appreciate more rapidly, it will run the risk of seeing domestic inflation accelerate and face greater risk of a damaging rise in asset prices, both of which will threaten future growth," Geithner said. "And sustaining an undervalued currency will undermine China's own efforts to rebalance growth toward domestic consumption and higher-value-added production."

China has some economic demands as well. It wants greater access to U.S. technology products whose exports are restricted for security or economic reasons; more access to U.S. investment opportunities; and the trade and market access rights currently granted to American partners that have purely market economies.

"We are willing to make progress on these issues, but our ability to move on these issues will depend, of course, on how much progress we see from China," Geithner said.

Ally or Adversary?

Despite recent headlines about the technological advances of China's armed forces, the security issues on Obama and Hu's agenda are less urgent, and less heated -- in part because the U.S. enjoys a huge military superiority, even off China's shores, that is unlikely to diminish any time soon.

Defense Secretary Robert Gates, who met with Hu in Beijing last week, said China's "growing role" in regional territorial disputes has worried its neighbors and highlighted American promises to defend U.S. allies there.

"Nonetheless, I disagree with those who portray China as an inevitable strategic adversary of the United States," Gates said during a speech in Japan. "We welcome a China that plays a constructive role on the world stage."

China's considerable diplomatic prowess -- as a veto-wielding permanent member of the United Nations Security Council and increasingly influential economic player in Africa and South America -- is more of a concern for the U.S., which needs Chinese diplomatic support on a host of fronts.

One is Iran, the target of harsh economic sanctions enacted last year thanks to Chinese backing. Clinton has credited those sanctions with tightening the pressure on the Iranian nuclear program.

Another is the Korean peninsula, where a recent dip in tension over aggressive moves from North Korea has also been attributed to action from China, which came under considerable pressure from the Obama administration to assume such a role.

One of the biggest questions about the summit will be how much U.S. needs -- on security and economic issues -- will temper the Obama administration's demands that China improve its human rights record.

"America will continue to speak out and to press China when it censors bloggers and imprisons activists; when religious believers, particularly those in unregistered groups, are denied full freedom of worship; when lawyers and legal advocates are sent to prison simply for representing clients who challenge the government's positions; and when some, like Chen Guangcheng, are persecuted even after they are released," Clinton said last week.

Obama's public comments may be less forceful, but he is expected to press the issue with Hu in private.

Still, for all the weight of the demands and entreaties the U.S. is making toward China, the Obama administration has at least one strong selling point recognized by Beijing: As the world's No. 2 economy, China has an interest in global stability that's now more akin to that of the U.S.

"Global recession, nuclear proliferation, terrorism, piracy on the high seas -- these are threats that affect all of us, including China," Clinton said. "We have a wide-ranging agenda, a number of areas where we will ultimately be able to judge whether our relationship is producing real benefits."