Mr. Xi Goes to Washington…and Iowa

Xi’s trip demonstrates the limits of Chinese power and the interconnection between US and PRC

China’s VP (and presumptive new President) Xi Jinping will be touring the US this week. The visit is officially hosted by US VP Joe Biden, and is more of a meet & greet than a high-level diplomatic negotiation. Forget the noise about Syria UN votes, Iran nukes or gunboats in the Pacific. Nothing will be decided on this trip – but the symbolism surrounding this trip points to a new narrative in US-Chinese relations.

The accepted wisdom is that China is a relentless juggernaut that will inevitably overtake the US and the rest of the West in terms of economic, social and military power. But a closer read of recent events seems to reveal a few vulnerabilities in the China Century story. China can’t feed itself, can’t educate itself, and can’t pay its bills.

VP Xi will be returning to Iowa, which he first visited as an agricultural official in 1985  . Iowa sold around $670 million worth of grain to China in 2010. More and more of the soy and grain that China imports goes to feed livestock that will eventually end up on  middle class and elite dinner tables. China is producing more food than ever, but still must import record amounts to feed itself.

He won’t be visiting Boston, where his daughter is attending Harvard. The presumptive first daughter is part of a growing trend among Chinese with power and money – passing on elite Beijing schools in favor of US institutions. Education reform has fizzled in China – particularly at the college level. US schools are setting up branches in China at breakneck pace, but MWMs (mainlanders with money) are still choosing to send the princelings to the US for their degrees.

The US economy seems to be struggling to its feet just as China’s looks to be stumbling. In a worrying move, China has ordered its banks to roll over loans to local governments, in what can only be seen as an under the table bailout. Imports (with the exception of food) are off, and inflation seems to be back.

The takeaway for American and western managers in China is that you might have more leverage than you did in the past few years – but you have to manage it. There is still demand for the right overseas products and services – but the main value you off might be in helping successful Chinese entrepreneurs and business owners set up shop in the US or other overseas markets.

In Charged Moment, China’s Political Heir Tries Introducing Himself to U.S.: NY Times 

As Xi visits, China’s U.S. crop demand a balm for tensions: Reuters

China Tells Banks to Roll Over Local Government Loans: FT

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