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K. Palonka: President Xi Jinping in the United States. What are the issues

There are two state visits the same time to the USA. Pope was definitely more spectacular for media. Chinese president humbly started the same day with „business speech” in Seattle. For Seattle has long been a favorite stop for Chinese leaders looking to demonstrate trade ties between the two countries. Washington state was the largest exporter to China among U.S. states last year, (almost $21 billion).President Xi landed Tuesday in an Air China Ltd. Boeing 747, near the factory where the planes are made. Not yet revealed details of  the new deal disclosed that  the 300 Boeing aircrafts would be purchased by a group of companies including China Aviation Supplies Holding Co., ICBC Financial Leasing Co., and China Development Bank Leasing. Boeing is supposed to build its first factory in China. This is apparently  a proof of good business relations.

“The Seattle leg of Xi’s trip includes a tour of a Boeing factory and a visit to Microsoft’s campus, where China’s top Internet regulator is meeting with technology executives. The president will hold talks with some of the U.S.’s most prominent business leaders such Apple Inc.’s Tim Cook, Berkshire Hathaway Inc.’s Warren Buffett and Amazon.com Inc.’s Jeff Bezos.” (Bloomberg)

There are however piling problems causing growing tensions between two powers.

First political ones including: South China Sea island disputes, where U.S Navy  have patrolled unchallenged until Chinese military announced air-defense identification zone-ADIZ over the area;  China’s growing efforts to turn coral atolls into navy bases and airstrips to help it intimidate neighbors by making it easier to keep coast guard and other ships operating far from Chinese ports that is fiercely published by US media (see picture below)

Source: Foreign Policy.com

Source: Foreign Policy.com

There are “small things”, as accusations on spying and hackers attacks that were raised quite seriously during President Xi introductory speech in Seattle. (A new one emerged as Xi began his visit when Chinese authorities formally charged a U.S. businesswoman with spying).

There is hidden rhetoric behind all that political games articulated by fancy vocabulary, such as “Asia pivot” or “EU pivot” whatever it means. The thing is how to gain or maintain influence within whole region.

Second, very significant issue is extraordinary interdependence of globalized economy. The evident proof is slide of stock exchange in China that influenced global capital markets (see graph below).

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Significant financial linkages combined with declining investment and output in China, that  has given  in effect the RMB ( Chinese currency) devaluation showed weaknesses in economies dependent on that country’s purchases or on prices set by its buying. It reshuffles the trade patterns and  provokes shifts in exchange rates, risking also trade balance equilibrium. Because of Chinese economy slow down commodity prices have fallen, influencing not only  the value but also the volume of international trade. Diminishing trade interact with finance. Many affected companies are highly indebted. The resulting financial stresses force cutbacks in borrowing and spending upon them, directly weakening economies.

Major commodity exporters are suffering mostly, among them countries like: Australia, Brazil, Canada, the Gulf States, Kazakhstan, Russia and Venezuela. Changes in their financial conditions evidently press on devaluation of their currencies. (see graph below).

Source: "Financial Times"

Source: „Financial Times”

(Although net commodity importers, such as India and most European countries, are gaining.)

The evident consequence of all that changes was, broadly disputed decision of FED (American Central Bank) president Janet Yellen not to raise basic interest rate . (To prevent, among others, growing demand for and as a result, appreciation of US dollar).

Why the latter might be dangerous? It is enough to look at trade balance between China and USA. (see graph). Any raise in dollar value, meaning devaluation of Chinese currency would make Chinese export even more competitive swelling the gap in trade balance between two countries.

Source: Economist com

Source: Economist com

Recent publications show that Chinese export is growing already, and has got extreme altitude. Even some strategic energy resources are on sale. This means the devaluation and slowing-down effect delivers some positive results ( at least for China). But China , what president Xi persistently admits during his state visit in USA, is now facing significant reforms. Major efforts are aimed at SOE (state owned companies) restructuring, financial system transparency and effectiveness, regional imparities, pollution, to name the most important. As it become evident the world economy will remain vulnerable until China has completed its transition to a more balanced pattern of growth, and the rest of the world economies would have to absorb the results. Thus aside of customary statements expected during state visit nothing significant probably occurs. Does it justifies the weak media coverage comparing to competing Pope Francis visit?

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K. Palonka: President Xi Jinping in the United States. What are the issues Reviewed by on 24 września 2015 .

There are two state visits the same time to the USA. Pope was definitely more spectacular for media. Chinese president humbly started the same day with „business speech” in Seattle. For Seattle has long been a favorite stop for Chinese leaders looking to demonstrate trade ties between the two countries. Washington state was the largest

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