Monday, July 25, 2011

US-China Economic SuperPower Ready in Formation

On May 10, the U.S. and China signed an important agreement of Economic Cooperation Framework (ECF) during the 3rd round of S&ED (Sino-U.S. Strategic and Economic Dialogue) held in the U.S. Honestly speaking, we were not so excited about this ECF initially. However, we change our view after reading the details of the agreement and believe it is a good start to form a US-China economic superpower.

In fact, this is at least a high level and comprehensive ECF, and also a milestone for building a mutually-beneficial economic relation between the two nations. In addition to encouraging extensive and strategic economic cooperation between the two biggest economies of the world, this Economic Cooperation Framework (ECF) may also promote sustainable, balanced, and strong growth of global economy.

The ECF of this US-China Strategic and Economic Dialogue sounds so vital and has covered almost all important areas in economic cooperation between the two nations. It even covers far more than just economic areas of the U.S. and China, and is essential for building up cross-platform relations and forming an economic superpower. Here are the key points of this Economic Cooperation Framework from the US-China Strategic and Economic Dialogue:

(1) US-China economic relations should be in accordance with a large range of common interests of the two countries. Each country should consider the healthy and continual growth of the other country's economy is indispensable to its own success.

(2) The U.S. and China should consider the impact of their own policies on the world economy, and also cooperate to enhance international trades which can support worldwide stability.

(3) Either the U.S. or China should strengthen consultation on its policy actions that may affect the other country's interests.

(4) Both the U.S. and China agreed to increase communication and coordination on their macroeconomic, financial and fiscal policies.

(5) Both the U.S. and China agreed to work with other nations to keep the global monetary environment stable. While the U.S. should avoid excessive volatility in USD exchange rates, China promised to continuously improve flexibility on RMB (or called CNY, Yuan) exchange rate.

(6) Both the U.S. and China agreed to promote a better trade balance between the two nations, and also to fight against protectionism on trades and investments.

(7) Both the U.S. and China agreed on open trades and open environment for investments in cross-border portfolio management and financial services.

(8) Both the U.S. and China should work together for the international financial system reform.

Yes there are now still a lot of economic conflicts between the U.S. and China, especially due to the current trend that the U.S. is declining and China is rising. These conflicts are understandable and can be mainly reflected in the trade balance data between the two countries, i.e.: the U.S. is an economy with trade deficit while China with a trade surplus. (Reference: 2011 trade balance target).

However if you consider US-China as one single economic body, the situation will be totally different. This mechanism can undoubtedly help rebalancing the current trend and should also help forming an economic superpower. The U.S. enterprises can fully take advantage of the growing markets and cheap labor costs in China, while China enterprises can also expedite its technological advancement. With this Economic Cooperation Framework (ECF), if execute properly, it can be surely a win-win relationship between the two nations because the economies of the U.S. and China are basically complementary with each other.

We, Mr China, do urge and support a closer economic partnership between the U.S. and China, and believe it is a good way to resolve economic conflicts between the two countries. This Economic Cooperation Framework (ECF) shall at least build up more trust and understanding between the U.S. and China, so as to continue expanding the areas where they can cooperate and narrowing the areas where they may diverge. Remember the U.S. and China are now the top two super economies of the world. They are not necessarily acting only as competitor for all economic categories. Even competition really exists, it should be a healthy competition which encourages both nations to innovate and to become an even stronger economic superpower. In fact, the benefits for the U.S.-China economic cooperation are far more exceeding the difficulties that may arise. Perhaps the current economic situation even does not allow the U.S. and China to step backwards and stop cooperating with each other.

So which sectors should benefit most from such economic cooperation? According to the press release of this U.S.-China Strategic and Economic Dialogue, the Economic Cooperation Framework (ECF) shall expand bilateral cooperation in energy (eg.: power grids, clean energy, next-generation batteries for electric cars etc), environment (eg.: forestry, green economy, climate change, new clean water projects etc), transport (eg.: railway, and other infrastructure projects etc), science and technology innovation, and so on.

In short, the Economic Cooperation Framework (ECF) of this U.S.-China Strategic and Economic Dialogue is historic and should enhance the stability of the overall U.S.-China economy. Fair to say, there should still have a drawback for the formation of the US-China economic superpower as it may reduce competitiveness of the other economies such as the euro-zone or Japan, although China should then strengthen its relations with them by similar cooperation. In any case, cooperation is always better than confliction, and it will, as we always hope, help leaving a more peaceful world for all our children.


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