Experts debate China-US grand bargain

Updated: 2013-06-12 12:13

By Chen Weihua in Washington (China Daily)

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Just three days after the summit between Chinese President Xi Jinping and US President Barack Obama in Sunnylands, California, experts are trying to find a path to greater cooperation and power sharing for the two countries.

Arvind Subramanian, a senior fellow at the Peterson Institute for International Economics in Washington, is worried that despite great cooperation, economic skirmishes between the rising power and existing power could corrode multilateral global institutions.

He said that the best way to preserve the current global system is for the two countries to strike a grand bargain.

"Essentially, this means the US gives up power in existing multilateral structure and multilateral institutions. I think in return, China's stake and incentives in preserving this open system will be reinforced," Subramanian said on Tuesday at a seminar at the Peterson Institute.

In Subramanian's view, the US and Europe often talk about what China should do, but forget what they should do themselves.

Washington should work to increase China's power and influence in multilateral financial institutions such as the IMF and the World Bank, just like the US and Europe enjoy today, argued the former IMF economist.

He believes it is too much for Europe, which is now a debtor, to have 30 percent of the voting rights and veto power at IMF. "If everyone has veto power, so should China," said Subramanian, author of the book Eclipse: Living in the Shadow of China's Economic Dominance.

China's ambassador to the US Cui Tiankai said in a recent interview with Foreign Affairs magazine that China has integrated and is ready to integrate further into the global system, as well as follow international rules.

But he argued that since some of those rules were set half a century ago and without China's participation, they no longer fit the world today. "What we want is not a revolution," Cui said. "We stand for necessary reform of the international system, but we have no intention of overthrowing it or setting up an entirely new one."

Subramanian also suggested that Washington should actively promote the rise of China's currency as an international reserve currency.

"If the renminbi were to become a reserve currency, China would be reluctant to jeopardize that by closing its markets to foreigners or expropriating property," said Subramanian, who published a paper on Peterson's website early this month titled Preserving the Open Global Economic System: A Strategic Blueprint for China and the United States.

In it he argued that China will be willing to take on additional responsibilities because the country's rebalancing strategy, from an investment-driven to a consumption-driven economy, would require a new round of liberalization with reform of state-owned enterprises and the opening of the financial markets.

"This is also what outsiders want and an open trading system needs," he said.

Subramanian also suggested the US recognize China's market economy status, since China is going to get it anyway in 2015 as part of the terms of its WTO accession in 2010.

He believes lots of the skirmishes stem from a mistrust between the two countries. He is also worried about the growing protectionist mood in the US, among both the public and some economists.

Joseph Nye Jr, a noted political scientist at Harvard University, said he agrees with the idea of granting China more power in the IMF and the World Bank and making the renminbi a reserve currency, but he expressed doubts about how fast the US should do it and how it will manage its allies in the process.

Kurt Campbell, who stepped down in February as assistant secretary of state for East Asian and Pacific affairs and is now chairman and CEO of Asia Group, a consulting firm, said that welcoming China to join and play a larger role in multilateral institutions such as G20 is something that has already been happening for decades.

He added that in some cases, such as the East Asia Summit, China preceded the US by several years and it was China that welcomed the US to join it.

Campbell dismissed the China containment talk as resembling "the residue of a period of history that is long gone".

"Anyone who focuses on Asia understands at a very deep and fundamental level that every single country in Asia, including Japan, the Philippines, Vietnam, and the United States, wants a better relationship with China," said Campbell.

(China Daily USA 06/12/2013 page1)