By Tao Wenzhao

US Secretary of the Treasury Henry Paulson visited China in the latter half of September. He and Chinese Vice-Premier Wu Yi launched the bilateral economic strategic dialogue, which is widely viewed as important leverage to promote Sino-US relations.

For China and the United States, economic ties have become a new cornerstone for bilateral relations as a whole, as is shown by the experience since the end of the Cold War.

Over the last decade or so, economic cooperation and trade between the two nations has been rising in a sharp upward curve.

Figures provided by the Chinese customs authorities indicate that the total trade volume between the two countries hit US$211.63 billion in 2005, compared with a mere US$8.26 billion in 1988. The United States is China's second-largest trade partner and China the United States' third largest. Moreover, the United States is the biggest investor in China, investing US$48.03 billion in total between 1980 and 2004.

China needs US investment and US consumers buying Chinese-made goods. Conversely, the United States needs China's help in bringing down labour cost and the prices of capital and commodities. Low-priced Chinese goods help make it possible that the United States enjoys low inflation. Imports from China also help the average American household save more than US$600 each year.

All this signifies that the bilateral economic co-operation has great potential for expansion in the future.

Two other events of watershed significance are the bilateral accord reached by China and the United States over the former's joining the World Trade Organization and the US legislation granting China Permanent Normal Trade Relations (PNTR) status in 2000.
Starting in 1990, the US Congress' deliberation on granting Most Favoured Nation status, now PNTR, to China on an annual basis constituted a destabilizing factor with respect to bilateral relations. Elements harbouring hostility to China took advantage of this yearly occasion to pour dirty water on China, which unavoidably hamstrung relations. This unpleasant situation, going on for more than a decade, was eventually put to an end by the act granting PNTR status to China.

The strategic economic dialogue is important because it redefines bilateral economic relations. China has enjoyed a favourable trade balance, and the United States a reversed one. This created a wrong impression that China needs the United States more than the United States needs China. Some in the United States harp on the condescending note that it is the United States that makes China's favourable balance possible.

The fact that the United States has initiated the strategic economic dialogue shows that it assigns much more importance to Sino-US economic ties than before and has a deeper understanding of both countries' economic interdependence on each one.

Shortly before starting his Asian trip, Paulson said in Washington on September 13: "The Unites States has a huge stake in a prosperous and stable China, a China able and willing to play its part as a global economic leader."

He also noted: "The biggest risk we face is not that China will overtake the United States but that China won't move ahead with the reforms necessary to sustain its growth."

Different people have different interpretations of Paulson's remarks. But one signal is certain: the two economies are indispensable to one another, sharing the economic weal and woe.

The economic strategic dialogue will cover an unprecedented wide range and go into unseen depth. This is, therefore, different from the mechanisms introduced in the past, which were designed to address the disputes and friction arising from a given economic sector at a certain period of time.

Looking at the bilateral economic relations from a general perspective, the strategic economic dialogue addresses the framework for bilateral economic ties in the long run, geared not only to the present economic affairs but also to those for generations to come.

A message is thus conveyed: The United States hopes to know China's long-term reform targets and plans, China's economic policy and the direction in which the Chinese economy is going, all of which are likely to impact the US economy.

Conversely, China will be able to better know the US economic policy and the means to carry it out. The mechanisms of the strategic dialogue and the old mechanisms that are already in place complement each other, which facilitates clearing away misunderstanding and promoting mutual trust. All this will positively impact Sino-American economic relations in the long term.

The United States is the world's No 1 economic entity and its largest trade power. China ranks fourth in terms of economic size and is the third-largest trade player on the globe. Furthermore, China's economic standing is still rising among its global peers. It is widely acknowledged that China and the United States are major engines that power global economic growth. Any mishap in these two economies is bound to cause harm to others.

In addition, the dire likelihood that the derailment of one country's economy may lead to regional - or even global - recession should not be ruled out. In 1997, for instance, financial crisis first broke out in Thailand and soon spilled over to the whole of Southeast Asia. Fortunately, the dialogue mechanism will be able to send out early-warning signals should such a crisis raise its head again.

Any set of bilateral relations is dictated by the common interests of the two parties involved. However, people, decision-makers in particular, can play a very important role that cannot be exaggerated.

Now that Paulson has taken the helm of the US Treasury Department, we look forward to him playing his part in promoting bilateral economic ties in the coming two and a half years.

Paulson has visited China more than 70 times, venturing to mountainous villages as well as touring major cities. He thus understands China's national traditions, historical experiences and current situation better than many other US officials.

Moreover, the portfolio of treasury secretary carries much importance among US cabinet members. All this facilitates his fulfilment of his tasks with regard to promoting US-Chinese economic ties.

Protectionist feelings still run high in the US Congress at present. US Senators Charles Schumer and Lindsey Graham are pushing for a vote on their 27.5 percent penalty tariffs on Chinese imports unless China moves to allow a greater appreciation of the renminbi. Paulson's China visit and the launch of the Sino-US economic strategic dialogue are of particular importance at this moment.

China is honouring, and will continue to honour, its pledges made upon its joining the World Trade Organization. But in handling some specific matters such as the renminbi's exchange rate, caution and patience are called for. Being careful and cautious on sensitive economic matters is a responsible attitude for the world economy as well.

Note: the author is a researcher with the Institute of American Studies under the Chinese Academy of Social Sciences

(China Daily September 28, 2006)