Feb. 18 (Bloomberg) -- President Barack Obama goes into todays meeting with the Dalai Lama on notice that it will anger Chinas leadership and add tension to an already strained relationship.
That isnt likely to fray economic ties secured by $366 billion of mutual trade and $755 billion in Chinese-held U.S. Treasury bills, according to analysts.
And the path to a more constructive overall relationship may lie in both sides dropping any pretense at friendship and acknowledging they are competitors as much as partners, said Yan Xuetong, director of the Institute of International Studies at Tsinghua University in Beijing.
If China and the U.S. identified each other as rivals I dont think they would be disappointed with each other, Yan said. Both sides pretend to be friends. Actually, they are not.
Relations have suffered recently as the U.S. announced a planned $6.4 billion arms sale to Taiwan, Google Inc. threatened to exit China on the grounds that user e-mail accounts were being hacked and China taxed American chicken imports after the U.S. imposed tariffs on Chinese tires. The two countries also have differed on steps to halt global warming and nuclear programs in North Korea and Iran.
Chinas Foreign Ministry on Feb. 4 rejected Obamas call to strengthen the Chinese currency, saying that accusations and pressure will not help solve the issue.
Cruising Altitude
All this since U.S. Ambassador to China Jon Huntsman told reporters during Obamas November visit that the relationship was at a cruising altitude that is higher than any other time in recent memory.
Still, there is little chance that these differences will fundamentally damage the network of economic and political ties that China expert Orville Schell calls the most important bilateral relationship in the world today. He is director of the Asia Societys Center on U.S.-China Relations in New York.
In a positive sign, the USS Nimitz aircraft carrier and four other U.S. warships yesterday anchored in Hong Kong, where more than 5,000 sailors will get shore leave.
In 2007, China prevented the USS Kitty Hawk from visiting the city, with Foreign Ministry spokesman Liu Jianchao saying China was angered that President George W. Bush met the Dalai Lama and presented him with the Congressional Gold Medal. Although China belatedly approved the port-call, the fleet had already turned back.
Ratchet Down
I dont see anything that could destabilize the relationship right now, said Elizabeth Economy, director of Asia studies at the Council on Foreign Relations in New York. Leaders on both sides will ratchet this back down at an appropriate time, but not right now, because a little chest- thumping serves domestic purposes.
Neither nation can afford to sabotage the economic relationship, said Carl Lantz, an interest-rate strategist at Credit Suisse Group AG in New York.
We are kind of joined at the hip economically, Lantz said. People refer to it as Chimerica, and in general its worked out relatively well, where they finance our borrowing and consumption and we buy their exports to finance their social stability.
Chinas holdings of U.S. Treasuries have increased more than 10-fold in the past decade, from $71.7 billion in 2000 to $755.4 billion in December.
Largest Creditor
China surpassed Japan as the largest creditor abroad to the U.S. in September 2008, although it fell back to second place in December when its Treasury holdings declined for the second consecutive month, the Treasury Department said on Feb. 16. China allowed its short-term Treasury bills to mature and replaced them with a smaller amount of longer-term notes and bonds, the Treasury data showed.
The December reduction in Chinas holdings didnt prompt a sell-off in U.S. bonds as investors focused instead on an overall increase in foreign holdings of U.S. Treasuries, which rose by a net $69.9 billion. The yield on the benchmark 10-year note fell three basis points, or 0.03 percentage point, to 3.66 percent on Feb. 16, according to BGCantor Market data.
The Obama administration is also convinced that the recent tensions wont fundamentally change the countries relationship, said an administration official who asked not to be identified out of concern for Chinese sensitivities.
Cancellation Request
That hasnt stopped both sides from trading rhetorical blows.
China demanded last week that Obama cancel the meeting with the Dalai Lama, even though Obama informed Chinese President Hu Jintao during his Beijing visit that he planned to receive the Tibetan leader, according to the administration official.
The U.S. also told China in advance of the Taiwan arms sale, the official said.
Secretary of State Hillary Clinton said she expected China to conduct a thorough investigation of charges from Mountain View, California-based Google that hackers had entered e-mail accounts it hosted belonging to Chinese dissidents. Free access to information and protecting what she called the basic rights of Internet users is essential, Clinton said.
Such exchanges may paradoxically allow both countries to pursue their own agendas and work together on larger issues without fear of domestic backlash, said Robert Barnett, director of Modern Tibetan Studies at Columbia University in New York.
More Confident?
Were seeing a slightly more confident America, which is trying to communicate that distinction between interests and values, Barnett said.
Visits by the exiled Tibetan spiritual leader are a perpetual irritant to China. It has opposed any outside pressure on how the country runs Tibet, which was brought under its rule after a military invasion in 1950.
The Dalai Lama has met with every U.S. president since George H.W. Bush in 1991. While China has exacted diplomatic punishment on leaders who met him -- it canceled a China- European Union summit after French President Nicolas Sarkozy met the Dalai Lama in 2008 -- trade relations have been little affected, said Schell.
China received the Dalai Lamas envoys at the first talks on Tibet in 15 months, which ended Feb. 1. Chinas top negotiator rejected calls for greater autonomy for the region, the Tibetan exile administration said.
Douglas Paal, vice-president of the Carnegie Endowment for International Peace in Washington, said the discussions probably were partly to prepare for the effect the Obama meeting could have on Chinese public opinion.
More is imputed to these meetings than actually occurs, said Paal, who was at the White House National Security Council from 1989 to 1993. Presidents have to check the political box of seeing the Dalai Lama.
To contact the reporters on this story: Peter S. Green in New York at psgreen@bloomberg.net Edwin Chen in Washington at EChen32@bloomberg.net
