[NYTr] America’s Point Man on China Is Running Into a Wall

[All the News That Doesn't Fit]

Newsweek - Dec 8, 2007
http://www.newsweek.com/id/74433/output/print

America’s Point Man on China Is Running into a Wall

by Stephen Glain

Is Henry Paulson's big China offensive dead in the water? As the U.S.
Treasury secretary preps for the next meeting of his widely hyped
Strategic Economic Dialogue in Beijing this week, some China watchers
are heralding its demise. Paulson left as CEO of Goldman Sachs and took
the Treasury post on condition that he'd be America's point man on
China, yet so far he's not even meeting the right people. Prime
Minister Wen Jiabao declined to lead China's side, shunting the job off
to Wu Yi, who will be a lame duck when she meets Paulson this week.
Worse, her likely successor is thought to be Zhang Jiang, a provincial
party chief who learned his economics at Kim Il Sung University in
Pyongyang, hardly a bastion of free-market liberalism.

Treasury officials hope Paulson will end up working with Li Keqiang, a
highly regarded reformer and rising star in the Communist Party. But
it's unlikely anyone on the Chinese side will give much more anyway.
The dialogue was supposed to work like this: Beijing would make
concessions on hot issues like piracy and the value of the yuan, and
Paulson would dampen China bashing from Washington. It hasn't happened,
because China was never going to make real concessions to relieve
protectionist pressure, which has been rising in Congress and from U.S.
presidential candidates anyway. It's not easy to manage a relationship
with China when both Democrats and Republicans in the United States are
"screaming" about alleged Chinese misdeeds, notes Charles Freeman, a
former senior trade official in the Bush administration.

Both sides sold each other a phony premise for the talks. A senior U.S.
official not cleared to speak by name insists the dialogue has produced
major achievements, including a recent air-service agreement and U.S.
support for China's membership in the Financial Activity Task Force, an
anti-money-laundering agency. Thin gruel, most analysts agree, compared
with the expectations for what Paulson, an old China hand, could get
done.

The United States, burdened by its trade deficit, needs this dialogue
more than China does. Paulson's vision that it would become a permanent
framework for U.S.-China relations lies in ruins. China is in a strong
position, not in a mood to grant favors to itinerant foreigners. (A
delegation from the European Union, which went to Beijing last week
also seeking a higher price for the yuan, left empty-handed.) It now
looks likely that this effort to regulate Sino-American affairs will
fade away when Bush leaves office in 2009—just one more misguided
effort to "hustle" the East, as Kipling put it.


Commodities: China as the Metal Kingdom

by Patrick Falby

What's the most exceptional ingredient in your PC, iPod, cell phone and
digital camera? Rare earth. The rare earth industry (including minerals
and oxides like indium, tungsten and dysprosium) is worth $1 billion
and poised to grow by 50 percent in the next three years as high-tech
devices become more ubiquitous. And, surprise: China has a stranglehold
on it. While China imports nearly every other important commodity, it
currently supplies about 97 percent of rare earths, thanks to a crafty
state decision to develop the industry.

Chinese export quotas and taxes to control rare earth supply, along
with increased demand, have propped up prices, expected to increase 10
to 20 percent annually for the next five years. Companies are racing to
develop reserves in the U.S., Canada and Australia, but production
cannot meet demand.

That has outsiders worried. The United States recently said its
supplies of rare earths used to make LCD TVs, catalytic converters and
pace-makers were potentially at risk. The military is also concerned
about supply critical to defense. This year Japan declared it would
begin stockpiling minerals indispensable for its automotive and
high-tech manufacturing. Last month, Japan's minister of Trade urged
China to ease its grip, then visited Africa in search of alternative
sources. Whatever happens, China won't be hurting—it sits on 31 percent
of known reserves, the highest proportion in the world.