Author: Ronald I. McKinnon, Stanford University

Speculation is rife about when, not just if, China should exit from its policy of stabilising the yuan/dollar rate. Investment banks and hedge funds are making their usual one-way bets. Chinese officials are being closely quizzed for possible hints as to when the great event is going to happen. Governor Zhou Xiaochuan of the People’s Bank of China (PBC) is playing the role of Hamlet. Recently he told a press conference that the currency peg was a ‘special measure’ to help China weather the financial crisis. ‘These policies sooner or later will be withdrawn’. In seeming contrast, Premier Wen Jiabao declaimed on March 5, ‘We will continue to improve the mechanism for setting the renminbi and keep it basically stable at an appropriate and balanced level’.

But must China ever appreciate? Read the rest of this entry »

Author: Ernest Bower, CSIS

While the United States is unquestionably a Pacific power, it lacks a comprehensive Asia strategy. In fact, the US approach to Asia has focused primarily on Northeast Asia – Japan, China and South and North Korea. Appropriately, significant focus has also been given to India in the last five years.

But since the end of the Vietnam War, American focus on Southeast Asia has been episodic and crisis driven. While the US has a substantial reservoir of strength in the region, US policy has failed to connect the dots and develop them into a rational and well articulated strategy. Read the rest of this entry »

Author: Peter Drysdale

Over the horizon, a storm in US-China relations is gathering around the question of whether China is deliberately undervaluing its currency, the renminbi, against the US dollar, giving it an unfair competitive edge in US markets and causing high levels of American unemployment and current account surpluses. Most economists would accept that there was some measure of undervaluation of the Chinese currency (how much is a more difficult question on which to get agreement). But few would argue that appreciation of the Chinese currency would solve the American woes of which it is supposed to be the cause.

In the feature essay today on this question, Yiping Huang argues that appreciation of the renminbi is certainly on the Chinese economic policy agenda, but he warns, for a number of reasons, that sharp and sudden Chinese appreciation is likely to do more harm to America and the global economy than it would do good, and that it certainly would not alone solve the problems in America that it is supposed to be causing. Read the rest of this entry »

Author: Yiping Huang, Peking University and ANU

Paul Krugman is one of the international economists I most respect. He is a towering figure in the study of international trade. But his understanding of some international economic policy issues is, to put it generously, naïve. In fact, were the Obama administration to follow his policy advice, the world economy could encounter more serious difficulties, if not another recession, in the years ahead.

In the year 2010, Krugman suddenly found a new and passionate interest in China’s exchange rate policy. Read the rest of this entry »

Author: James Boyers, ANU

On September 5 2007, George W. Bush and John Howard signed a treaty to improve defence cooperation between the United States and Australia. Although signed over two years ago, the treaty has not yet been ratified by the United States or Australian governments. Recent developments within United States Senate indicate that it is likely to obtain Senate approval, and ratification shortly thereafter.

At the time, the treaty reflected the Bush administration’s especially close ties with the Howard government in Australia. Read the rest of this entry »

Author: Tobias Harris, MIT

In different ways, two articles published in Western media outlets this week suggest the emergence of a new narrative concerning Japan in elite circles in the United States. One might call that narrative the ‘losing Japan’ narrative, reminiscent of the idea — propagated by newsman Henry Luce — that the United States, or rather, the Democratic Party ‘lost’ China when the Communists won the Chinese Civil War. This narrative suggests that the United States is ‘losing’ Japan to China, raising a call to arms that unless the US government acts expeditiously it could let the DPJ-led government lead Japan into China’s embrace.

The first is the now infamous editorial in the Washington Post on Fujita Yukihisa, the DPJ upper house member best known for his doubts about the 9/11 terrorist attacks. Read the rest of this entry »

Author: Peter Drsydale

The flurry of leaders’ visits — by Indonesia’s President Susilo Bambang Yudhoyono to Canberra this week and American President Barack Obama to Canberra and Jakarta a little over a week later — signals an elevation in the triangular relationship between the United States, Indonesia and Australia, not merely the growing depth of their bilateral relations. Indonesia is one of the world’s newest democracies, a secular state with a predominantly Muslim population, of immense importance to Australia and America in securing Southeast Asian stability and openness. Indonesia and Australia are members of the new G20 group and have deep and common interests in working with America to entrench the G20 as the pre-eminent and enduring forum for global economic governance. Indonesia, with its pivotal role in ASEAN, and Australia, an anchor in trans-Pacific security, are close confidants on America’s re-engagement with Asia under the Obama administration.

American conceptions of security in Asia and the Pacific do not routinely comprehend Southeast Asia. Read the rest of this entry »

Author: Andrew MacIntyre, ANU

Barack Obama’s upcoming visit to Indonesia and Australia is likely to be one of the less difficult and more gratifying international missions he undertakes this year. But along with the surges of goodwill that will greet him in both countries, there will also be opportunities– in partnership with Susilo Bambang Yudhoyono and Kevin Rudd – to advance significant common causes in the region and globally. And Yudhoyono’s separate bilateral visit to Canberra the week before gives added weight to the moment.

With climate change sliding down the agenda in all three countries for now, the big issue on which the three leaders will find common cause is the G20. Read the rest of this entry »

Author: Jerome Cohen, NYU

The most formidable challenge to China’s establishment of a credible ‘rule of law’ is neither the quality of its legislation nor the professional competence of its judges, prosecutors, lawyers and police. Laws and the skills of those who apply them have both witnessed substantial progress in the People’s Republic during the past three decades.

The real challenge to the administration of justice in China is, rather, the undue intrusion of politics and, even more broadly, of ‘guanxi’, the network of interpersonal relations of mutual protection, benefit and dependency that is one of the enduring hallmarks of Chinese society. Read the rest of this entry »

Author: John W. Lewis and Robert Carlin, Stanford University

It is routine in US foreign policy for a pot not boiling over to be moved to the back burner. But precisely because the North Korean issue is not boiling, it might offer an all-too-rare chance to make progress with Pyongyang. Over the past several months, the North has signalled publicly and privately that it is in engagement mode. In Washington, arguments abound about whether or not this is a stall tactic or a trick, but we will never know if we do not move ahead with serious and sustained probing of the North’s position. So long as our government sticks to an all-or-nothing approach in terms of Pyongyang, the opportunity to advance vital US security interests in northeast Asia could be lost.

Underlying Washington’s current position are two beliefs, so firmly held that they approach dogma. Read the rest of this entry »

Author: James Boyers, ANU

On January 29, Republican Scott Brown won a United States Senate special election held in Massachusetts to fill the senate seat of the late Edward Kennedy. The victory occurred in the context of a slowly recovering national economy, continuing high unemployment and discontent over the passage and content of healthcare reform legislation. The extraordinary result followed an excellent campaign by Brown and a poor campaign by the democratic party candidate, Martha Coakley.

Scott Brown’s campaign was defined by three issues: lower taxes to encourage job growth and reinvigorate the economy, a pledge to be the 41st vote against healthcare reform (Senate voting rules require a ’supermajority’ of 60 votes on a bill to defeat filibustering), and opposition to the trial of accused terrorists in civilian courts. Read the rest of this entry »

Author: Peter Drysdale

The global financial crisis has brought with it big changes in the international economic system. The response to the crisis has seen the emergence of the G20 as the main locus of international economic governance and a cession of authority from America and the old industrial powers (the G7 economies) to the emerging powers in Asia and elsewhere. The role of the US dollar as the world’s primary international currency is also under question, as the growth of US deficits that are necessary to sustain that role has begun to corrode confidence in the value of the dollar.

As the big new kid on the block, China plays into everyone’s thinking about what to do next. Read the rest of this entry »

Author: Yiping Huang, Peking University and ANU

The global financial crisis could mark the beginning of the end for the US dollar’s dominance over the global economy.

But the US dollar will not leave the global stage in the foreseeable future. It will remain one of the world’s most important currencies for many years to come. But the difficulties in maintaining the US dollar’s role as a global reserve currency are large, and are best characterised by the ‘Triffin Dilemma’. Read the rest of this entry »

Author: Ron Huisken, ANU

China’s fierce reaction to Washington’s recent confirmation of a US$6.4 billion arms deal with Taiwan was pre-meditated, not spontaneous. The deal itself has been around since 2001, and it was an open secret that the recent announcement was a matter of when and not if. This issue played out alongside a subsequent confirmation that President Obama would meet the Dalai Lama in his capacity as Tibet’s spiritual leader, a development that Beijing warned would threaten trust and cooperation with the US.

China and Taiwan have notched up some significant gains in the direction of normal dialogue and freer economic interaction since President Ma took over in Taipei in May 2008. Many commentators assessed that the ‘Taiwan question’ seemed to be more securely quarantined than ever. Read the rest of this entry »

Author: Xiao Geng, Brookings Institution

Recent debate has focused on how to increase US exports and savings and increase Chinese imports and consumption in order to correct the trade imbalance between the US and China. In America in particular, focus has been placed on Chinese exchange rate policy. American leaders would like the RMB to appreciate significantly and quickly. They hope that this would lead to an increase in US exports and employment.

Yet Chinese leaders regard pressures to appreciate and protectionist measures from the US as unfair, and as detrimental to China’s development. They place emphasis upon structural and institutional reform in order to increase Chinese consumption and to bring about more efficient domestic investment. Read the rest of this entry »