From January 18-21 2011, President Hu Jintao of the People’s Republic of China will be making a State visit to the United States of America for trade and foreign policy discussions. The framework for this visit is different from all others that have come before.
The visit represents the first time the US and China will be meeting as the two largest economies in the world.
For the better part of three decades this honor was reserved for the US and Japan, but the first decade of this century has seen a new economic order develop and no two countries are more important to the growth of that economic order than the Eagle and the Dragon (apologies to India for the moment).
In order to get things off on the right foot we can only hope that the under-managed nature of Hu’s visit in 2006 to then President Bush (no State dinner, introduced as the “President of the Republic of China”, hecklers in the Rose Garden) and the opposite, over-managed, nature of Obama’s China trip in 2009 (a “town hall” meeting packed with Communist Youth League ringers, no straying from scripted events) are dispensed with and the business of the day is business.
There are dozens of important issues that the US and China must continue to address bilaterally, including foreign policy and defense, sovereignty (Taiwan, Xinjiang and Tibet) shipping lane security etc. Too many to cover here. From a business perspective here are four to keep an eye on:
- The revaluation of the RMB. It’s hard to talk US/China relations without the currency valuation issue taking front and center. As usual opinions on the relative merits and problems of a market valued RMB range from “Let it float” to “Keep it Low” and everything in between. Whatever your opinion there is no doubt that China is looking to rebalance its economy and the US wants better balance between the two economies. Continued progress on the RMB will serve both goals. We feel that the likely result of the summit will be an agreement to continue the slow appreciation but with an end point in sight. This will benefit the long-term prospects of US companies looking to sell their products in China and will help create the “consumer culture” that China seeks to sustain its growth.
- Energy. As I type this, the US and China are consuming 50% of the world’s daily oil output, right now, today. That is unsustainable. One country is seeking to regain its footing economically and the other is looking to keep up 10% annual growth. Any infringement on the use of fossil fuels is a roadblock for both, right? At the same time, if 1.3 billion Chinese consume energy the way 300 million Americans do that is unsustainable, right? But who are we to tell the Chinese they can’t develop the way we did (including messy energy and environmental issues) for China and the world, right? Hopefully the two leaders will look to get clean/green energy cooperation back on track after a lull this past year. This has big implications for American companies in the solar, wind, hydrogen, hydro and other alternative energy industries.
- Indigenous Innovation and Intellectual Property Rights – These two subjects are usually spoken of separately but they are interdependent. China wants domestic companies to have the best, first chance at developing key products, components and technologies (for both domestic use and for eventual sale in markets around the world) and, some say, is giving such companies preference over foreign companies with perhaps more advanced solutions. Also, Chinese companies are seeking the fastest path to indigenous innovation and still prefer the acquisition, legal or otherwise, of foreign IP as the best route. These tensions need to be further addressed as they will have a huge impact on how US and other foreign companies deal with their Chinese counterparts going forward. A move away from state selected products and companies and a move toward respect for IPR will move China closer to the culture of innovation it sees as its future.
US GDP still hovers around 13 trillion dollars and China’s is a third of that and growing. China is in the first month of implementing its twelfth Five Year Plan, a foundation for achieving its economic objectives. There is no escaping the fact that this is the most important bi-lateral economic relationship in the world today. Dialogue and understanding are the key to good politics…and business. With that in mind we wish you a productive few days Presidents Obama and Hu.
