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China-US Collision Course And Crowning Of Oil And Gold – OpEd

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By Dee Woo

The normalization of the Sino-American relationship 40 years ago did not only help contain the aggression of USSR’s communist imperialism in Asia-pacific and fragment the foundation of global socialist ideology, but help bring the reclusive middle kingdom into the fold of integration and globalization of markets and trade.

Now while the whole world is trying so hard to recover from the most devastating economic crisis ever since the great depression, China has almost singlehandedly underwritten the merits and resilience of free trade and globalization while protectionism is gathering pace around the world : The world’s factory accelerated its “Made-in-China” Engine at full speed against all odds to fill up many major economies’ vacuums left by evaporated domestic demand by devouring their commodity and capital goods. To combat the stagnation of recovery, the fed enjoys the luxurious strategic space to maneuver in printing press without much fear of inflation and with overcompensated confidence in economic living standard subsidized by cheap Chinese imports. China not only takes the sucker punch from the Fed but also sucks up the treasury’s excrement like there’s no better tomorrow. The US has overdrawn its superpower for too long but it’s China who picks up the tab.

We may still need several generations to truly appreciate the courageous foresight of President Nixon.

But 40 years ago, would Dr Kissinger and President Nixon foresaw this rosy picture of bothers-in-arms between China and the US. Would Chairman Mao do what China now does for the US? We are tempted to say NO. It’s still the same ruling class though but underneath what changed? Would the once dominating ideology conflict fade in the background while deals are making, Champagne is pouring and business is all good?

But the unmistakable truth is the US is an ailing giant who still hasn’t figured out a clear way out of this replay of fallen Rome and China is in the sight of the throne.

Empires do not cave in quietly. Old powers do not readily cede perquisites. Rising ones do not wield clout with dexterity.Global shifts have almost always intensified economic conflict, created problems for economic management and aggravated diplomatic tensions,Sometimes, they have culminated in military conflict; often, they show in strains in international economics and finance.

The volatility of Sino-American relationship bears some irreconcilable structural deficiencies.

Firstly, the ideology conflict always dictates the underlying balance between Sino-American economic cooperation and strategic manipulation. Let’s not deny the fact China’s vast market and capital clout contribute significantly towards American living standard and global corporation growth. But China has never been recognized as a serious market economy. To Washington elites alike, Chinese economic system is a mere marketizing hybrid of bureaucratic entrepreneurship and cadre capitalism, whose legitimacy solely relies on its economic achievements but not on free and fair election. That’s why Chinese political elites often take a businessman-like approach to Sino-American conflicts because their biggest imperative is to let the export industry continue flourishing to vindicate their legitimacy of rule. But to what end is Washington willing to provide that sort of vindication by running colossal trade deficit with China year in and year out? What if one day China’s rise is serious enough to convince everybody the economic prosperity and high quality of life can be better achieved by authoritarian regime than democracy? If that happens, Washington will lost his high-ground of global dominance for good. The best deterrent against this trend lies within the US’s sophisticated containment system of economic, diplomatic and military tools which can absorb China’s strategic attention away from its economic imperative.

Secondly, The energy-intensive nature of Chinese Economy will underwrite the aggressiveness of China’s foreign policies and military buildup. And that will firmly put China on a collision course with the US in a foreseeable future. China established dubious relationships with many resource-rich authoritarian regimes, among which is despiteful Sudan who committed Genocide in Darfur. That proves just how far China’s mercantilism will go when it comes to its energy security. “ China’s oil reserves have shrunk almost 40 percent since 2001 as the economy expanded 10.5 percent a year on average, according to data compiled by Bloomberg.” The fragile state of its energy security will push China more towards securing its oil supply in South China Sea where China has many unsolved disputes with many Asian countries. The fact that the US asserted interest in South China sea, the long-term trend of rising oil price and the insatiable demand derived by other Asian countries’ economic growth will intensify the conflicts even more. All this will provide the oil-hungry US with powerful leverage to counterbalance China.

Thirdly, The increasing economic irrelevance of The US in Asia-pacific will force the US to sustain its engagement with the region in alternative capacities, for example maintaining military power balance. China now serves as the hub for the region’s global supply chain, gobble up components, commodities and capital goods and is coming into its own as a vital pillar of support for the region’s economies, particularly at a time Western demand is lagging. “According to ASEAN statistics,China’s trade with ASEAN has jumped six-fold since 2000 to US$193 billion in 2009, surpassing that of the US China’s share of Southeast Asia’s total commerce has increased to 11.3 percent from 4 percent in that time, whereas the US’s portion of trade with the bloc fell to 10.6 percent from 15 percent. During that time, ASEAN’s trade deficit with China widened by five times to US$21.6 billion. The bloc reported a US$21.2 billion trade surplus with the US in 2009, down 12 percent from 2000.” China is also a very important source of investment and the largest source of foreign tourists in the region. Meanwhile, Asia today is the region with the highest increase in defense spending in the world, and that combined with China’s skirmishes over territory disputes with Japan, Vietnam and Philippine etc. present the US Military–industrial complex with a grave challenge and perfect opportunity.But to contain the rise of China, any miscalculation between Sino-American militaries will prove increasingly overt and economically burdensome.

Regardless of the merits in this debate, the Sino-American relationship will be the single most important bilateral relationship at least for the next decade, upon which the fortune of the global economic recovery, free trade, peace and prosperity lie. No doubt, they will be some serious competition and fierce rivalry, they will be some terrible miscalculation. But as Doctor Kissinger said “When China and the U.S. first restored relations 40 years ago, the most significant contribution of the leaders of the time was their willingness to raise their sights beyond the immediate issues of the day.”, we need to sincerely consider the merits of a return to the mutual respect for differences that the Shanghai Communiqué prescribed: co-exit with better mutual understanding, less brinkmanship and more trust, cooperate, prosper and rise together.

What investors and speculators alike should read into this debate is that the merits of Sino-American strategic manipulation will further China’s strategic interest to bolster Euro as a reliable vehicle to diversify its huge US dollar holdings, seriously distort the supply, demand and redistribution of oil assets, and add more and more weight to the currency status of gold and oil. All hell break loose for Euro, RMB, and to say the least the US dollar. This is no doubt the crowning moment for gold and oil.

Dee Woo is a grassroots economist and a citizen activist.

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Dee Woo

Dee Woo is a grassroots economist and a citizen activist.

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