By Zhang Lijuan

A very recent signal of enhanced Sino-US relations is the creation of the new Sino-US Strategic and Economic Dialogue (S&ED). This mechanism is an upgraded version of the Strategic Economic Dialogue (SED) established in September 2006. The implications of "upgrades" will include dialogues with the Secretary of State, and will cover a wide variety of strategic and economic topics ranging from economy and trade, to climate change and environment, as well as to world politics at both national and international levels.

Five year ago, former US Deputy Secretary of State Robert Zoellick warned that "it is time to recognize China for what it is and may become, not what we imagine China to be." The creation of S&ED is tangible evidence that the US is facing the new practical realities of Sino-US relations. This is particularly true in light of the world financial crisis and economic recession. The S&ED will provide a top level forum for policymakers from both China and the U.S. to forge and enhanced bilateral economic cooperation and strengthening political cooperation.

During the past few years, issues surrounding the Sino-US relations have covered the threatening power of China, the value of Chinese currency, and the disputes of intellectual property rights. While the world economic recession continues, however, none of the above is more important than stimulating the economy. If the United States is too big to fail, then China is too big to be ignored. For this reason, President Obama has sent both Secretary of State Hillary Clinton and Treasury Secretary Timothy Geithner to China to show the American willingness and emphasis of engaging China at this historical moment.

The first round of S&ED will be held in Washington, DC in late July. It will be a more interest-based dialogue than the usual position-based negotiation of the past. There will be a number of important areas of discussion, but the most important topic will be the role of China in the era of global recession. China's growing economic power has increased its global influence, which also convinced the Obama administration that strategic engagement with China is a key step at this particular time. However, China is deeply concerned about its US bond holdings and wants the US to assume its responsibility of protecting the value of the dollar. China requests the US government guarantee the safety of its holdings of US treasury bonds. This is becoming a more sensitive issue and deserves a clear commitment from the US.

Issues of reforming the International Monetary Fund (IMF) and restructuring the world financial system will also be brought to the first round of dialogue, and it is hoped that a mutually reinforcing framework of financial and economic cooperation will emerge. Obviously no one program will be powerful enough to end the current world-wide economic recession, but the decline has caused both China and the US to reexamine their overall economic policies. Fortunately, this provides an opportunity for both sides to build a more positive and cooperative relationship with respect to trade, investment, and economic issues.

Within the context of S&ED, trade will most certainly be an area of discussion. However, it is more likely that trade-related issues will be discussed in greater detail through the high-level Joint Commission on Commerce and Trade (JCCT) later this Fall. Free trade is no longer a keynote for the Obama administration, and instead, "Buy American" rule in US stimulus bills and "free but fair" trade policy initiative can be interpreted as a new type of trade protectionism. China has urged the US to lift its ban on technology exports in order to partially off-set its trade deficit with China, although US-China trade imbalance won't be at the top of the agenda. Inevitably trade promotion and expansion will drive the direction of bilateral trade dialogue. The two sides will exchange views on trade policy and attempt to intensify cooperation on global economic and financial issues. Such trade-related issues as intellectual property rights and standards on the environment, labor, and product safety will continue to be addressed through both S&ED and JCCT.

Another area of concern, as Secretary Clinton pointed out during her visit to China in February 2009, is climate change. S&ED will explore ways to build a more meaningful clean energy partnership between the two nations. This is a formidable challenge for both sides. On this issue, the US has more political concerns while China has more economic concerns. It is important for both China and the US to discuss their respective concerns and come to a mutual understanding with regard to climate change and the associated environmental issues.

In addition to economic issues, the S&ED will also become an important vehicle for bilateral dialogue on strategic global political issues. As stated by former Treasury Secretary Henry Paulson, "the United States is more effective at resolving global issues when it approaches them multilaterally rather than unilaterally." He further pointed out that "on every major economic, political, and security issue, the path that China chooses will affect the United States' ability to achieve its goals." In this context, the S&ED plays a vital role in addressing issues that stand in the way of a peaceful world.

The US-China commercial diplomacy is vital to the prosperity of the U.S., China, and the rest of the world. As Geithner's visit to China has indicated, the US is willing to take a soft approach to engage with China. With mutually beneficial cooperation on both sides, there is a prime opportunity to move the relationship forward. Through the S&ED, we look forward to seeing many of the objectives achieved during the forum.

Dr. Zhang Lijuan is a professor of School of Economics at Shandong University

(China.org.cn July 7, 2009)