Thread: China's Evolving Global Role Benefits U.S.

JUNE 21, 2010, 5:44 P.M. ET.

China's Evolving Global Role Benefits U.S.

By GERALD F. SEIB.

President Barack Obama, badly in need of good news, got some over the weekend from the most unlikely of sources: China, which said it would allow the value of its currency to rise, thereby answering the single most fervent prayer U.S. officials utter when seeking divine intervention to help with America's big trade deficit.

President Obama has needed help from China on major issues, and in the last few weeks, he has gotten it, which tells us something important about China's maturing view of its world role and the state of U.S.-Chinese relations. Eduardo Kaplan and Jerry Seib discuss. Also, Julia Angwin and Lauren Goode discuss Amazon's Kindle price cut.

In fact, this is the second time in a month that American prayers have been answered in Beijing. The first came when the Chinese agreed to a United Nations Security Council resolution imposing economic sanctions on Iran, then stuck to that agreement despite a diplomatic volley from Tehran designed to coax the Chinese into backing down.

Let's not get misty-eyed about a new age of Sino-American cooperation here. The Chinese moved on their currency as much for their own inflation-fighting self-interest as out of any concern for U.S. wishes, and they are moving slowly in any case. And one can argue that the Chinese did the minimum necessary, and belatedly, on Iran sanctions.

Still, the two moves show that the U.S.-Chinese relationship has a healthier glow than it did just a few months ago, when the two nations were arguing about global warming, a visit by the Dalai Lama to the White House and American arms sales to Taiwan.

More importantly, the steps suggest a certain maturing of China's view of its role in global affairs—and a more deft touch by the Obama administration in coaxing China into playing that role responsibly.

"In both cases there was a perception the Chinese had that they were in the danger of being isolated internationally," says Charles Freeman, a China watcher at the Center for Strategic and International Studies. "In both cases you can look at their moves as things the Chinese wanted to do in order not to be seen as troublemakers internationally."

The first thing to note here is that the Chinese actually cared that they not be isolated, or be seen as troublemakers. That wasn't always the case in years gone by.

Now, these recent events provide more evidence that China is slowly but steadily coming to see itself as a partner in world affairs, not just an observer and critic of them. As Mr. Freeman notes: "They are feeling both the joys of having achieved a certain global status, as well as the pressures."

A few years ago, the Chinese acted as if they could have the former, and not worry about the latter.

In the case of the currency revaluation, that meant the Chinese didn't want to be the subject of pressure and tongue-lashings at the summit meeting of the Group of 20 major economies later this week. With China's artificially low currency widely seen as favoring its exports at the expense of economic recovery in the rest of the industrialized world, that was certainly going to be the case.

In that environment, the U.S. appears to have done two things right.

Mr. Obama, in a conversation with Chinese leader Hu Jintao, both assured him that China was headed for G-20 trouble, and used the threat of protectionist legislation from Congress, to underscore Beijing's political problems.

Then Treasury Secretary Timothy Geithner gave China breathing space to act by delaying an April report that would have branded the Chinese as currency manipulators—a report that likely would have produced an unhelpful nationalistic backlash.

Now Mr. Obama moves on to two more challenges. The first is to return the favor to the Chinese by cooling off a drive in Congress to impose trade penalties on China. Sen. Charles Schumer of New York, in particular, has been pushing such legislation, and already has signaled he'll continue to do so because the rise in the value of the Chinese yuan may be too gradual.

Yet it shouldn't be too hard for the president to deflect congressional action. Mr. Schumer knows by now that his role is to be the bad cop keeping up pressure on Beijing, while the White House gets to play the good cop. No reason to think that will change now. But the odds that legislation will actually pass just went way down.

The second challenge lies in North Korea. Exactly a year ago, China cooperated in passing economic sanctions on its friends in North Korea because of their nuclear-weapons program. But backsliding is underway. The Chinese refuse to blame North Korea for sinking a South Korea military vessel in March, and Beijing recently dis-invited Defense Secretary Robert Gates from visiting.

Meanwhile, a North Korean border guard shot three Chinese residents dead recently, in an incident that has Beijing fuming.

Maybe that also will be a wake-up call to China that, having been a stand-up player on Iran and economics, it should follow suit on North Korea.

Write to Gerald F. Seib at jerry.seib@wsj.com
contact Dow Jones Reprints at 1-800-843-0008 or visit
www.djreprints.com

http://online.wsj.com/article/SB1000142 ... NewsSecond

The Timing of this is very Curious but could it POSSIBLY be tied to the Federal Government announcing its plans to sue Arizona over their attempts at anti illegal alien enforcement. China wants Mexican Illegal Aliens here badly for several reasons...Sounds like that could have been a deal between the Obama admin and China.

Originally Posted by Tbow009

The Timing of this is very Curious but could it POSSIBLY be tied to the Federal Government announcing its plans to sue Arizona over their attempts at anti illegal alien enforcement. China wants Mexican Illegal Aliens here badly for several reasons...Sounds like that could have been a deal between the Obama admin and China.

I doubt that.
Trade with China is the most important part of this.

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What China's Currency Reform Means For Investors

By Rob Silverblatt Rob Silverblatt –
Mon Jun 21, 4:12 pm ET

The Chinese government's move to allow its currency, the renminbi, to appreciate against the dollar provided a big boost for U.S. stocks as investors expressed their confidence that American companies will be able to gain a firmer foothold in China's notoriously protective economy.

Specifically, China's weak currency has propped up the country's exporters, while at the same time making imports costly. With the Chinese government's decision, which was announced over the weekend, to officially begin strengthening the renminbi, Chinese consumers will be better able to afford foreign goods, including those produced in the United States.

But even as shareholders in domestic companies celebrate, questions linger about how currency reform will affect a different class of investors: those who have their money in U.S.-based mutual funds that invest in the Chinese stock market. On one hand, a stronger renminbi can help the Chinese government stave off inflation and allow the country's consumer base to expand. But at the same time, it's possible that certain segments of the Chinese economy, particularly the country's exporters, could take a short-term hit as a result of the weakened currency.

Still, the prospect that the Chinese economy may not undergo a seamless transition hasn't quelled the enthusiasm of U.S. mutual fund companies who have their money invested in China. So what are they so excited about? For U.S.-based investors, one of the bigger benefits of the currency reform is that it will make their holdings more valuable. That's because their profits from the Chinese stock market, which are originally collected in renminbi, are then converted back into U.S. dollars. A stronger renminbi means that they will get more out of the conversion.

"For a dollar-based investor, those earnings are going to become more valuable," says Edmund Harriss, a comanager of the Guinness Atkinson China and Hong Kong mutual fund (symbol ICHKX). Or, as Jeff Tjornehoj, Lipper's research manager for the United States and Canada, puts it: "Another way of saying it is the U.S. dollar will decline against Chinese currency, and that will help U.S. investors. When the dollar declines against another currency, the value of your fund appreciates."

James Oberweis, a comanager of the Oberweis China Opportunities fund (OBCHX), says any short-term stumbling blocks in the Chinese economy will be "more than offset" by this conversion advantage. Still, he expects the benefits to be modest in the near term, particularly since the Chinese government hasn't given any indication that it will allow significant appreciation.

"It's a positive. Is it a big positive? It would be a big positive if we had big appreciation. We're not going to get that right away. But we might over a period of a few years," he says. In other words, he says that the current currency movements for the most part represent a "symbolic" gesture. "It could be indicative of things to come, but the type of appreciation that they're likely to permit in the short run is rather modest," he says.

Harriss, for instance, doesn't expect the renminbi to appreciate against the dollar by more than 2 to 3 percent before the end of 2010. "I don't expect there to be a major move this year," he says.

http://news.yahoo.com/s/usnews/20100621 ... rinvestors