Bloomberg News

No More Valentines for China’s Xi as He Faces Bad Cop Congress

February 27, 2012

Feb. 15 (Bloomberg) -- Chinese Vice President Xi Jinping, in line to become the country’s top leader next year, may get a chilly reception when he meets congressional leaders angry over his country’s record on trade and currency issues.

Xi will meet today with Senate Majority Leader Harry Reid and his Republican counterpart Mitch McConnell, as well as House of Representatives Speaker John Boehner. The tone may be less cordial than yesterday, when President Barack Obama welcomed Xi at the White House and he received a 19-gun salute at the Pentagon as well as a Valentine’s Day luncheon complete with red roses at the State Department.

“The rhetoric out of the Congress on China is much more muscular and confrontational because they know they’re not running China policy, the White House is running China policy,” Robert Kapp, a business consultant focused on China and former president of the U.S.-China Business Council, said in a phone interview. “It’s a bad cop, good cop situation.”

Congress and U.S. trade officials have criticized China for unfairly promoting domestic enterprises, failing to control intellectual-property theft and forcing technology transfers from foreign companies. The country’s economic practices have become a campaign issue ahead of the November U.S. presidential election, with Republican candidate Mitt Romney saying he will direct the U.S. Treasury to list China as a currency manipulator if he is elected.

Prevent Politicization

Ahead of today’s meetings, Xi told a roundtable with business executives at the U.S. Chamber of Commerce in Washington that the two sides must make an effort to more “effectively prevent politicizing economic issues and avoid various kinds of undue interference.” When President Hu Jintao visited the U.S. in 2011, Reid called him a “dictator” and some members of Congress, including Boehner, stayed away from his state dinner.

While both sides stressed that the relationship was getting stronger, Vice President Joe Biden openly criticized some China policies. Addressing Xi at the same meeting, Biden said the U.S.-China business relationship can only work if there is a fair playing field.

“Competition can only be mutually beneficial if the rules of the game are understood, agreed upon and followed,” Biden told the roundtable. He cited progress in “areas of concern” including China’s exchange rate, and the rebalancing of China’s economy to focus on domestic consumption rather than export-led growth.

Economic Uncertainties

At the meeting with business leaders, Xi said uncertainties in the global economic recovery meant there is “an even more pressing need” for the two countries to cooperate. Xi heads to Iowa later today and then to California.

Xi singled out General Motors Co., congratulating the company for “becoming world champion in car sales last year” and noting that its joint venture with the Chinese company SAIC Motor Corp. now produces and sells 1.2 million cars annually.

Starting in December, the Chinese government began imposing punitive tariffs on some vehicles manufactured in the U.S. after China failed to block U.S. anti-dumping levies on its tires. Under the rules that went into effect Dec. 15, U.S.-made GM cars are subject to punitive duties of 22 percent on top of the 25 percent import tariff when sold in China.

Obama administration officials and foreign policy experts say the trip may be most important for developing relationships between Xi and Washington’s military and political leaders. He is expected to become president in a leadership transition that ends early next year.

‘Open to Dialogue’

“Xi Jinping has to demonstrate to the U.S. that he is open to a dialogue about some of the crucial economic and financial issues,” said Andrew Collier, an independent China analyst and former president of the Bank of China International USA. “This is particularly important to a Congress that in the past has been hostile toward China’s exchange rate and trade policies, and the dialogue becomes more heated in the face of a change of leadership that is occurring in both countries.”

At a briefing last night, Vice Commerce Minister Gao Hucheng announced a Chinese plan to purchase $27 billion in U.S. goods, including chips, machinery and electronic materials.

The White House released a joint statement on economic issues yesterday saying China will allow foreign-invested insurance companies to sell third-party liability insurance for motor vehicles, and the two countries announced plans to develop global guidelines for export financing, with the goal of reaching an agreement by 2014.

WTO Complaints

Obama filed five World Trade Organization complaints against China since taking office three years ago. The U.S. and China have clashed over access to each others’ markets for products including steel pipes, poultry, tires and music.

Obama told Xi during their meeting yesterday that the U.S. believes China’s yuan is undervalued and the country needs to show more progress in correcting that, according to an administration official familiar with details of the conversation who spoke on condition of anonymity.

Obama also told Xi that he appreciates China’s role in enforcement of Iran sanctions, is disappointed with China’s veto of the UN resolution on Syria and wants continued coordination on responding to North Korea, the official said.

China’s yuan hit 6.2884 on Feb. 10, the strongest level since the country unified the official and market exchange rates at the end of 1993. The yuan traded at 6.3005 in Shanghai, from 6.2996 yesterday, according to the China Foreign Exchange Trade System, amid concern that Europe’s slowing economies will cut purchases from China.

The U.S.-China trade deficit was $295 billion last year. The imbalance is a main source of friction between the two countries.

On Feb. 13, Obama asked Congress in his next budget for $26 million and at least 50 people for a new panel to investigate unfair trade practices by China and other countries.

--With assistance from Margaret Talev and Viola Gienger in Washington. Editors: Nicholas Wadhams, Peter Hirschberg

To contact the reporters on this story: Dune Lawrence in New York at dlawrence6@bloomberg.net; Eric Martin in Washington at emartin21@bloomberg.net

To contact the editors responsible for this story: Steven Komarow at skomarow1@bloomberg.net; Peter Hirschberg at phirschberg@bloomberg.net


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