IEEJ: January 2011

Special Bulletin
A Japanese Perspective on the International Energy Landscape (27)January 21, 2011

U.S.-China Relations at Critical Juncture and Obama-Hu Summit
Ken Koyama, PhD
Director
Strategy and Industry Research Unit
Institute of Energy Economics, JapanOn January 19, U.S. President Barack Obama and Chinese President Hu Jintao
held a summit meeting at the White House. President Hu then made his first official
visit to the United States in the last four years and nine months and had his eighth
meeting with Obama. After their summit talks, they issued a joint communiqué thatemphasized U.S.-China cooperation in the world economy and security by calling forenhancing bilateral relations, promoting bilateral exchanges, and addressing regionaland global challenges.
The U.S.-China summit attracted global attention as media reports before thetalks predicted that the summit could be of historic significance to bilateral relations.
There are two reasons for the global attention to the Obama-Hu meeting. First, theUnited States and China now boast of their respective outstanding presences in theworld with regard to the world economy, international politics and security, assymbolized by the recent timely announcement, which came in a manner to coincidewith the Summit, that China replaced Japan as the world’s second largest economy in2010. Second, there are frictions now in the important U.S.-China relations over awide range of problems including economic, security and human rights issues. The
latest U.S.-China summit was expected to represent a key turning point for the futurebilateral relationship and its influences on the entire world.
The Obama Administration upon its inauguration might have expected China to
not only be the United States’ key economic and trading partner but also its strategic
partner, cooperating with the United States in addressing global and regional problems.
But the situation might have turned around over the past two years since theinauguration.
While the United States has remained plagued with a prolonged economic
slump, China has promptly recovered from an economic slowdown and restored adouble-digit economic growth rate. Their presences in the world economy have moved indifferent directions. Amid such changes, China has growingly been criticized for taking
advantage of its undervalued yuan to expand exports, exerting negative impacts on U.S.
industry and employment. In the U.S. Congress, calls have grown for a tougher attitude
toward the yuan problem. For its part, China at the Group of 20 Summit and otherforums has pointed out that the U.S. quantitative monetary easing policy for economic
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recovery has led to negative impacts as excess liquidity flowing into China and otheremerging economies to trigger inflation and economic bubbles. U.S.-China economic
frictions have thus begun to be emphasized. Although the United States and China
have deepened their economic relations through their bilateral trade expansion and
China’s purchases of U.S. treasury bonds, their economic frictions have grownconspicuous. In a symbolic development, the media quoted remarks by President Huthat called the dollar-based global monetary system “a relic of the past” just before hisU.S. trip attracted public attentions.
In non-economic areas, China’s stances on international discussions over theglobal warming issue at the 15th Conference of Parties to the U.N. Framework
Convention on Climate Change and on North Korean problems, including the sinking ofa South Korean warship and a shelling attack on South Korea’s Yeonpyeong Island,
have failed to meet U.S. expectations. In the United States, China is growingly viewed
as getting tougher on external problems including the South China Sea and Senkaku
Islands issues, restrictions on its rare earth exports and its military buildup. An
important point is that the United States has grown more concerned over China inregard to international politics, security and human rights. "America and China havearrived at a critical juncture," U.S. Secretary of State Hillary Clinton said in a speechon U.S.-China relations on January 14. The latest U.S.-China summit came as theenvironment surrounding the two countries was growing tougher. But the U.S. side
(and the Chinese side) gave priority to the positive enhancement of bilateral relations
even under the toughening environment, arranging a small-scale unofficial dinner
meeting for the two leaders on the eve of the official summit, in addition to an official
banquet. The U.S. side has demonstrated such exceptionally great hospitality for theChinese leader in an apparent bid to promote bilateral dialogue.
The joint communiqué basically called for enhancing bilateral relations,indicating that Obama and Hu gave priority to the restoration and stabilization of therelations. Interestingly, energy and environment could be positioned as one of thepriority areas for U.S.-China cooperation. This is because (1) the promotion of clean
energy development and energy conservation to upgrade the energy supply/demandstructure is greatly effective for energy security and environmental measures both in
the United States and China as the world’s first and second largest energy consumers
and carbon dioxide emitters, (2) the energy and environment area has great potential
for bilateral technology cooperation and transfer, (3) bilateral cooperation is expected toexpand energy business opportunities, and (4) upgrading of the two countries’ energy
supply/demand structure can contribute to the stabilization of energy markets and thereduction of environmental loads for the entire world. Thus the energy and environmentarea represents an important theme in which the two countries can pursue theircommon interest even in the face of various difficult challenges. Following the latest
summit, therefore, the two countries are expected to put forward a specific action planfor the enhancement of bilateral relations and cooperation in the energy andenvironment area.
But how the United States and China would enhance their cooperative relations
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in the energy and environment area is still uncertain. Basic U.S. and Chinese market
systems are different as China has giant state-run companies and as their market
regulation/management approaches differ substantially. In addition to the difference,various problems including the protection of intellectual property rights regarding thetransfer and introduction of technologies must be considered. But far more important is
the fate of the entire U.S.-China relationship on individual cooperation areas including
energy and environment, or how the two countries would address yuan, human rights
and other problems over which they have remained apart. Cooperative relations inindividual areas may depend on the fate of broader problems. The two countries’
respective domestic conditions including politics, social problems, economic growth andemployment are also important for their relations. In this sense, it may be difficult to beoverly optimistic about their future relations.
The United States, China, and their bilateral relationship represent the mostimportant point for analyzing the world economy and international politics.
Undoubtedly, the international energy landscape depends on how the two countries andtheir relations will evolve. For Japan, bilateral relations with the United States andChina respectively are of crucial importance. In this sense, U.S.-China relations havethe most important implications for Japan. Accurate analysis on the current and future
U.S.-China relations and the development of a strategy based on the analysis areindispensable for considering Japan’s policies on foreign affairs, economic measures,
energy security and global warming.
Contact: report@tky.ieej.or.jp

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