China: U.S. Debt Crisis Is Giving Democracy A Bad Name
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WASHINGTON -- The seemingly endless process of resolving America's debt crisis may be giving America and its democratic form of governance a bad name in China, where much of that debt is held.
"This is a big issue -- what is it about the democratic process that is preventing [America] from getting something done?" said Charles Freeman III, a China policy expert at the Center for Strategic and International Studies. "What I think Chinese officials prize more than anything is stability and predictability. To do that they want to know the way forward, and this kind of activity is completely flabbergasting."
No place outside the U.S. has more invested in the outcome of the debt ceiling debate than China: as America's largest creditor, China currently holds some $1.5 trillion in Treasury securities; about one-third of its currency reserves are in the dollar.
And yet on Monday, when Secretary of State Hillary Clinton arrived in China for the final leg of a ten-day trip across Asia, she spent about as much time justifying to the Chinese the "political wrangling" that has been part of the deliberations as she did reassuring them that she was certain the crisis would soon end.
"These kinds of debates have been a constant in our political life throughout the history of our republic -- and sometimes, they are messy," she said in a speech in Hong Kong. "But this is how an open and democratic society ultimately comes together to reach the right solutions."
Not everyone in China is so convinced.
"I fully understand her points, and I agree with her, that democracy sometimes makes things difficult, but that in the end they can make a compromise," says Shen Dingli, the executive dean of the Institute of International Studies at Shanghai's Fudan University.
"But most Chinese are not as sophisticated as that. They read Chinese newspapers, and the Chinese newspapers portray the U.S. as an irresponsible country that owes a lot of money to us, and is threatening to not pay it back."
Gao Wenqian, a Chinese historian and senior policy adviser for the New York branch of Human Rights in China, says he has yet to see too much emphasis on the failings of democracy in the Chinese press. But he adds, "If this doesn't get resolved, it would be a very convenient excuse for the Chinese official media to mock the democratic process in the U.S."
American officials traveling with the Clinton last week reported that they encountered stern reproach from Chinese leaders they met to discuss the debt crisis.
"I’ve had several meetings where the Chinese have basically made clear that they’ve made a substantial investment in the United States, and that they expect –- not hope, expect –- that the United States will abide by its various financial international commitments, full stop," one senior State Department official told reporters on the trip.
In public at least, Chinese banking officials have projected calm and confidence lately about the outcome of the American debt negotiations.
"Don't worry too much about it. The United States will have to issue more debt and issue more currency," Xia Bin, a top adviser to China's central bank, recently told reporters. "They won't betray the national interest. They are now playing with politics."
But just a month ago, when the debt crisis seemed somehow less dire and more easily resolved, official Chinese anxiety was more palpable.
In June, for instance, a different central bank adviser publicly warned that any default –- even a brief one –- in the name of forcing spending cuts could be economically damaging, and lead to a decline in the value of the dollar.
"I think there is a risk that the U.S. debt default may happen," the adviser, Li Daokui, said at the time. "The result will be very serious and I really hope that they would stop playing with fire."
"There's not much else they can do," said Steven Dunaway, a senior fellow for Asian economics at the Council on Foreign Relations, about the softening rhetoric.
"If you really look at it, if you ask the question, 'Well, who's dependent on whom?' Push comes to shove, China is far more dependent on us that we are on them. If China doesn't buy our bonds, fine, someone else will. But meanwhile, China's extremely dependent on the U.S. as a market for their exports -- and it needs those exports."
Nevertheless, China analysts say that as long as the deliberations drag on, the real damage to America's reputation and prestige is already being done. In an interview with The Huffington Post, former Secretary of State Madeleine Albright argued that the lack of resolution makes America look "pretty feckless" around the world.
In China, the fallout is potentially more substantial.
"I think they would take it as a further sign of America's decline," said Kerry Brown, the director of the Asia Program at Chatham House in London. "I don't think they're celebrating that by the way, but Chinese popular opinion already strongly holds the idea that America is declining."
"The Chinese are worried about both outcomes," said Fudan University's Shen. "China can be hurt if Obama loses, and China can be hurt if Obama wins."
He continued, "This is a problem that the U.S. has to resolve, because if they don't resolve it, it will hurt us. But the U.S. is a bigger stakeholder: they have their entire reputation at risk."
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First Posted: 07/27/11 05:50 PM ET Updated: 09/26/11 06:12 AM ET