This is an attempt to look at the economic aspect of US - China relations from a Chinese perspective. This approach may yield interesting insights  in the most important economic axis of economic interdependence of the modern world, and generate innovative ideas about how to approach existing and future issues.

Theoretical background
The contemporary phase of US-Chinese relationship characterized by high level of economic interdependence can be analyzed from a realist perspective. Henry Kissinger was working towards a classic "realist" balance of power arrangement by seeking closer relationship with China to counterbalance Soviet influence in Asia after the end of the Vietnam war. In Dr. Kissinger's own words with Nixon they "had ideas for the construction of peace on a global scale". Consequently it could be argued from a constructivist perspective that this classic 'realist' foreign policy act created a reality that will develop into the most remarkable phenomenon of modern politics the economic interdependence between the world's leading liberal free market democracy and the last explicitly communist state. The impressive rise of the economic exchange between the two countries after the reforms introduced by Deng Xiaoping in 1979 led to the current situation in which they dominate world trade and global economic stability is dependent on their successful development. The management of these relations and the interlinked political and security implications require skillful economic statecraft to resolve the issues bound to arise from the unparallelled scope of the economic interdependence and the structural differences between the communist rule over an economy in transition to free market in the case of China and an economy in transition from the 'laissez-faire ' principles of the Reagan era to increasing calls for more regulation after the global financial crisis of 2008.

Historical Context
The relationship between US and China began to develop in in a new direction after  Henry Kissinger approached China and the economic relationship picked up particularly after the reforms of Deng Xio Ping in 1979. Trade with the US has helped China achieve dramatic success in improving the quality of life of the most populous country in the world. Chinese political life has advanced towards more openness, democracy and accountability and the protection of private property has given the opportunity for a prosperous middle class to emerge. At the same time China remains a Communist country ruled by Communist Party which is far even from the notion of something resembling Gorbachev's perestroika, let alone more comprehensive political reforms. The remarkable economic development has been accompanied by extensive environmental damage. Some of the new rich have earned their wealth through corruption and the lack of effective judiciary to deal with the problem is due in part to the CCP opposition to political reform.  The livelihood of a large part of the population though better than the starving populations of sub-Saharan Africa is still precariously close to the poverty line. The economic development is based on cheap labor and has yet to show signs of achievement into more technologically advanced areas as Japan, and the Asian Tigers have done.
The US approach to China has ranged from the desire to ensure good relations to alleviate the security threat in the 70s through the remarkable period of the growth of economic relations starting with Deng's reforms and culminating in China gaining the top spot among US trading partners and world wide prominence leading to US uncertainty as to how to treat China: as a rival, an ally or controversial partner-difficult to deal with but impossible to reject.
Floating exchange rage for Chinese currency.
The Chinese government has strongly resisted international pressure led by the US to float Chinese currency. The Chinese complain that now after the financial crisis the problem is not the exchange rate of their currency but the value of the dollar or more correctly not the value but the stability of the dollar which is dependent on the stability of US policy. The above conclusion of the Wang Qing, an economist from Morgan Stanley in Hong Kong make the US government responsible for exchange rates linking their stability with the stability of policy. While a link between policy and currency values may be established it is not that direct. There was no observable policy change when the financial crisis struck in the latter days of the Bush administration.  It is more the adequacy of particular policy that may affect the exchange rate. In any case the huge Chinese trade surplus has materialized in US dollars mostly in the form of Treasury bonds.

 "We have lent a huge amount of money to the U.S. Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried." The problem is that The Chinese cannot  undertake a massive sellout of US treasury bonds as this will cause their price to fall. But even if they hold them massive US stimulus will mean the US government selling more bonds and the market may demand higher interest rate for them than the interest rate for the bonds the Chinese hold. That scenario will result in a price drop of bonds held by the Chinese. Alternatively if the US government chose to limit the borrowing and respectively the stimulus may mean slower recovery for the US economy which will hurt Chinese exports to the US. Another scenario involves reduced US trade deficit because of the crisis resulting in less Chinese purchases of US bonds. In any case the financial crisis confronts the Chinese leaders with a difficult dilemma. The US sees the solution in encouraging Chinese domestic consumption. The Chinese government sees a solution in decreasing its reliance for its reserves on the US dollar and dependence on US financial policies outside its control, by calling (alongside Russia) for the establishment of an internationally managed reserve currency that will increase the stability of world financial markets and have the added benefit of more freedom for the financial policies of reserve currency polities like the US, the EU and Japan.

2. What China expects from the US

Budget deficit control
Following the financial crisis and the implementation of stimulus measures the primary concern of China is the US government's resolve and ability to bring the budget deficit under control. From the perspective of Chinese national interest their ability to deal with the adverse effects of the global financial crisis depend on the value of their national reserves which is dependent on US policies. Commentators speculate on whether China will continue to buy US securities to and thus finance US government spending. The obvious answer is yes because there is no substitute for US government bonds in terms of secure investment even when taking into account all the pitfalls of using them as financial reserve instruments. A logical consequence of improving trade balance between China and the US will be that China will buy less US securities as it will have less free funds to use for bonds purchases but will use the money gain from export to the US to pay for imports instead. To conclude if China had a financially viable option to switch reserves to other safe haven like IMF Special Drawing Rights or Euro they would have done so and they will not hesitate to do it if it becomes viable in the future. The current calculations though make the US dollar most attractive despite its contradictory position of serving as an international currency but held under US national control. China will continue to keep their national reserves in US dollars and attempt to influence the US government to pursue policies that will prevent the dollar from losing value.

Free trade not rotectionism
The other most important economic statecraft policy issue that China would like to see positively resolved in their relations with the US is how the administration will go about with dealing with protectionist pressures from Congress. China is understandably suspicious on the true US intentions. On one side we have the resolute declarations of president Obama on several G20 meetings warning against the dangers of protectionism and on the other the controversial imposition of tariffs on tires imported from China.

New US financial regulations to prevent crises
China is concerned with the negative impact of the current financial crisis that has exposed their economic vulnerability to events beyond their control. Understandably, China wants to see better regulation to ensure the smooth operation and predictability of the US financial system as the world trade is dependent on its health.

Increased role for China in IMF
At the 20th meeting of the International Monetary and Financial Committee of the Board of Governors of the International Monetary Fund in Istanbul the Deputy Governor of the Central Bank of China Yi Gang made a point for a larger quota for the developing nations and better monitoring abilities for the International Monetary Fund. He accused the IMF of failing to foresee the global financial crisis and blamed this failure on mismanagement stemming from skewed representation in IMF governing bodies. That is a valid Chinese complaint as they have done what was expected from them: efficiently produced goods for export and the financial collapse adversely affected them without warning. That the IMF is in need of structural and administrative reform including quota revision is acknowledged supported by the US government.
 
Recognition of the status of China as a market economy.
The recognition of China as a market economy affects the way the fair market value of goods is calculated to determine whether the country engages in subsidies or dumping. As China is not recognized as a market economy by its main trading partners the US and the EU they can more easily apply punitive measures against China as was in the latest case of US tariffs on tires imported from China. Theoretically the question has two sides. The first one is can China be considered  a market economy? The prevalence of state enterprises and the strict control over the national currency points towards a negative answer. On the other hand the remarkable development of China towards establishing efficient enterprises including private ones successfully working towards ever increasing export capacity points to a conclusion that China is making considerable effort to implement a market driven system. The results of the latest China - US Strategic Dialogue show that there are no insurmountable obstacles on the way of US recognition of China's market economy status which will materialize sooner or later depending on political developments in both countries.

While official Chinese policies may be concerned with the continuing dominance of the Communist Party and Marxist ideology from the Russian (and Yugoslav) experiences suggest that the true interests of the ruling elite may be the more material than ideological centering on the perpetuation of their economic power. The metastasis of corruption feeding on China's economic boom points int that direction Bearing that in mind three scenarios can be discerned for the future development of China. The most desirable, but maybe not the most probable will be the gradual political development of the Chinese society towards democracy following the consolidation of the  market principles in the economy. The most dangerous would be a slip backwards under the pressure of economic duress into the oppression and belligerence of the Mao era. The most probable though will be the collapse of the Communist party and transfer of power into the hands of corrupt officials and mafia like structures. US inducement for democratic reforms in China may diffuse the dangers of chaotic collapse of communism and the and the considerable security implications that may cause. Ultimately it can be concluded that there is a convergence of interests between the Chinese Communist Party, the entrepreneurs and the people of China and that leads to peaceful economic development as a way to solve all problems facing modern China. That position can find understanding in the US and the rest of the world because it is in harmony with the long term interests of all countries interested in developing economic relations with China on a win-win basis.


 

Iraq the problems is not security but lack of democracy. And democracy is not about elections but about economically and politically independent middle class which is lacking in Iraq. We have corrupt government that supports corruption in politics and the economy and is widely perceived by the United State and it is. Until that changes no amount of military involvement will make any difference. The only way to turn things around is if US projects in Iraq are open for competition including international. That will bring more transparency and lead to better efficiency and effectiveness of US involvement in Iraqi economy, bring in willing Europeans, Chinese, Russians and possibly Indians, lead to Iraqi economic revival and ultimately discredit militants.
The same is valid for Pakistan and Afghanistan.. At present poor tribal villagers have no choice but to succumb to Taliban and Al-Quaeda bullying and grow opium for them for lack of other productive opportunities. For sure militants can be defeated only by armed force but that alone have proven unsuccessful in the long run. Depriving the armed groups of their financial and popular support is the key to defeating them. Military action will be the last not the primary concern.
Europe is in very precarious position and that has unique possibilities for development. Eastern Europe is in serious trouble and Western Europe seems reluctant to help. The US can promote its own agenda through economic help which could be financial but more important intellectual in the sphere of management while utilizing local engineering talent. The same applies to Russia. Pushing NATO agenda is a lose - lose situation. For Eastern Europeans (Czechs for example) the attempt to build a US missile base on their territory is just another attempt to bring foreign troops on Czech soil just when they got rid of the Russians. Other Eastern European nations will interpret it just the same. Membership in the Russia led Warsaw pact was cemented with cheap Russian oil and gas. I doubt the US is prepared to pay for such questionable loyalty. Yet the Obama administration has the unique chance of forging an independent of Western Europe policy towards Eastern Europe based on economic (not military) cooperation and win the loyalty of the people of Eastern Europe who are tired of being exploited as cheap labor and environmental dump of Western Europe not to mention Russian bullying.
Putin's Russia is at a crossroads. It will be unwise to antagonize them in these difficult times, There are many converging interests where both countries can work together for shared benefit. Let's not forget that détente led to perestroika and ultimately to the dismantling of the oppressive Soviet Union and its system of international domination while more than forty years of isolation did nothing to change the regime in Cuba. There is no use lamenting the plight of Russian "businessmen' bullied by their government as most of them are common crooks owing their riches to the lawlessness of the Yeltsin era, on the other hand murdering journalists and letting the assassins walk free is a crime against freedom of speech not to be condoned..
I believe it will be beneficial if the Obama administration leans a bit harder on China not only on human rights but on North Korea too. I know keeping the criminal regime their alive is in the interests of those who favor US military presence in South Korea but its not sustainable in the long run and ultimately detrimental to US interests and the interests of the people in the region. So North Korea must go and the signal must come from the White House.
Israel? The Israelis are among the most intelligent people in the world. I am sure they just wait for the sign of where the prevailing winds will blow. But the sign must be consistent enough I don't think there is an easy solution. A federation of Jews and Arabs seems like a good idea but may be impossible to implement. In any case more than sixty years of realpolitik in the region didn't lead to anything good. It is time for innovative solutions taking into account not the interests and preferences of corrupt governments and shady terrorist organizations but the real world interests of the people in the region regardless of their religions, national or political affiliation..
The same is valid for Latin Americans who have yet to see an United States administration treating them with respect as people regardless of the corrupt governments, corporate interests and mafia connections.

I believe it is self evident that any American administration should conduct its foreign policy based on the premise that we are all created equal and endowed with certain inalienable rights.

If Henry Kissinger is up to some secret negotiations dramatic results are bound to follow. Usually good for the US and the rest of the world: like the end of the Vietnam war, transforming China from worst enemy to best trading partner, and ending hostilities between Israel and Egypt. What can we expect now?
Russia has been steadily antagonised by withholding their WTO membership for no valid reasons, promoting NATO expansion while Russia is not invited they have no choice but regard NATO as a hostile organisation, prod neighbours like Georgia to physically attack Russian soldiers. Not the best trust building policies. But what should be done?
I think the best approach will be to hug the bear so hard it will find it hard not to respond. Let me explain:
1. That's the approach the US used successfully in post-war Germany and Japan, that was the approach used successfully by the brilliant Nixon-Kissinger team towards communist China. (I wonder how the US would have managed in a world where the worlds most powerful economies were hostile).
2. The mindless foreign policy of the Bush administration has successfully alienated the US from most of the civilized world and has left the current administration with almost no alternative than try and repair the eroded trust (which ultimately may be a good thing: nothing wrong with consistently positive foreign policy for a change).
3. Siemens (from Germany) is developing nuclear cooperation with Russia, Areva (from France) with China, Iran is sending a satellite in space with Russian help and Russo-Chinese and Russo-Indian military cooperation (not without their own problems) is developing. It looks like Joe Biden is on his way to start repairing the damage done by the Bush administration in alienating the Europeans. The alternative will be an undesirable anti-American Euro-Russo alliance (or even worse Euro-Russo-Chinese or Indian alliance. Unlikely because of the importance of the US for these countries that will neutralize their interest in anti US arrangements. Possible US protectionism though could make that option more viable.

That's why I think Afghanistan is the smallest American foreign policy problem. I regret to be cynical but who cares about that illiterate mountain people and a bunch of smelly Taliban with flea infested beards. No one! Just cut of their sources of international currency and they will literally have no money to travel abroad to cause trouble. (If you really care about the Afghan people think about how to offer them better livelihood than growing poppies for the Taliban instead of how to send more troops that might be cheaper and more effective).

So I suggest:
1. Get Russia into the WTO, NATO and the EU which will lead to better transparency and trust. Keeping them out gives the government the excuse to brake international norms.
2. Get the Russian army into Afghanistan (if they are to share the fruits of democracy they should share the responsibilities too).
3. Increase academic exchange between the two countries for two reasons:
a) that may actually benefit the US in the flow of technology and b) that will increase understanding and good will between the two countries and make it more difficult for the ruling elites to resort to war mongering and scare tactics.
c)send government funded consultants to help improve Russian economy (no one want's to fight on a full belly:)

In any case clever as he may be Henry Kissinger cannot thaw the glacier of Russian suspicion caused by unproductive US hostility under Bush. Hostility that didn't lead to any particular gain for the US and weakened the position of democracy in Russia. But it is a step in the right direction. Russia need the US more than the US needs Russia and that need can be easily transformed into a win/win outcome for all participants.

Recent news about social protests in Russia hardly made the headlines for two reasons: they weren't unexpected with the falling prices for oil and gas the main source of revenue for the failed communist empire and the inability of the corrupt government and business leaders to do anything more than collect the monopolistic revenue and issue pseudo patriotic propaganda.
 For me though the demonstrations were ominous because none of them was truly democratic. You have only to look at the communist era professionally prefabricated posters to see that something is amiss. The next source of worry is the agenda of the demonstrators half of them support the government the others want return to communism (oddly enough supporting the abolition of the newly introduced tax on second hand car imports). I thought the communist party was supposed to support local auto workers.
Putin's regime brought stability and seeming rule of law but the continuing assassinations of dissenting journalists that as a rule remain unpunished and above all the total impotence of the country that send the fist man in space to do anything useful (except exporting oil) in the economic sphere. Even the aging Soyuz spaceship (though constantly modernized) is a remnant of a heroic ere never to be repeated. The main genius among many of that time Korolev is hardly remembered but the monster who sent him in exile and nearly ordered his execution Stalin is fondly remembered in both Russia and Georgia.
It looks like no glimpse of hope if you are talented and Russian. The only career options being an oil baron, or mafia boss, or corrupt politician all positions requiring chronic moral deficiency and scornful of any talent or creative ability.

The general opinion is: Israel may have some right to retaliate for the rockets Hamas is firing rockets at Israelis (technically it's not even Israel territory as it is legally not part of the UN recognized borders).but the retaliation is grossly disproportionate and the random killing of civilians especially children is unacceptable. Unacceptable is also the humanitarian disaster caused by the UN suspension of deliveries within Israel fired on an Israeli approved UN contractor killing the driver.

Additional accusations are the herding of civilians in a building and blasting it and the apparent neglect of children left alone without care to stay by there dead or dying mothers in view of the Israeli soldiers while the Red Cross was prevented by the same army from entering the area.

How the Israel government sees it: Hamas is firing rockets at Israel and Israel has every right to defense. Adequate care is given to avoiding civilian casualties by dropping leaflets. The stated goal is to permanently prevent Hamas from firing rockets.

The USA has adopted an unconvincing position that Israel has the right to defense yet halfheartedly supported a lame UN move towards a cease fire.
Understandably the Security Council resolution didn't impress the main culprits to fthe conflict and they continued the massacre of civilians.

There is widespread understanding that the Arab countries don't support Hamas and even find the current conflict dangerous as it inspires the extremists in their own countries with Iran as the only remaining sponsor.

No wonder the Security Council resolution is a waste of words and my and your tax money as it is concocted without the agreement of the main participants and their sponsors Iran and the USA respectively. The Americans actually took part in the discussions only to abstain in the voting thus sending the right signal to Israel: ignore.

The UN has called for an investigation of war crimes and that I think can be a step in the right direction. A "Balkanization" or "Yugoslavization" of the Israeli conflict consisting of two steps: 1 Foreign occupation of the region by peacekeepers preferably from Europe (but not Turkey) and 2 Arrest of the suspects an international trial to discover guilty for the war crimes. That should satisfy the international community, especially the USA  and above all the people of Israel and Gaza (and Lebanon) who won't fear for their lives.

Unfortunately the most probable development will probably be a half-cooked ceasefire leaving open the possibility for future Hamas rocket attacks and Israeli reprisals that plays in the interests of the corrupt militant elements in both Hamas and Israeli government.

What could the new administration do?

Talk to those responsible. It may be hard to talk to Iran but the Russians might help. Next is to decide what America really wants from Israel and ask nicely. I'm sure they won't say no.

China and Russia Facing Tough Choices

China's unique experiment 30 years successful capitalist development under the rule of the communist party. Bearing in mind the capitalist development was with massive US help and the communist party was very open minded unlike others it worked.

On the other hand Russia disbanded the communist party altogether but suffered from criminal privatization and political instability to swing towards stronger central government reclaiming its stake in the economy.
Now with falling oil prices the Russian government won't be able to bribe the population into submission and will face popular protests.

With economic stagnation in the US and other major markets Chinese leaders face the same predicament.

From the way they manage this precarious situation will depend the pace of recovery for the rest of the world. Or not?