Pomfret's China

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Obama as Peacemaker between Sarko and Hu

The U.S.-China luvfest continues!

You have to love this notion of President Obama helping China and France come to a deal at the G-20. As this Bloomberg story said Obama pulled Hu and Sarkozy to a corner of the room during the G-20 meeting in London's Excel Center.


The issue was Sarkozy's jeremiad against tax havens. The French president wanted the G-20 to publish a list of tax havens from the Organization for Economic Cooperation and Development, Bloomberg reported. The Chinese were against it. (I'll explain why later.)

Obama hammered out a deal, Bloomberg reported, whereby the G-20 "would promise action against tax havens, note the OECD list and go no further," Bloomberg said.

It's a shame the media in the United States is not jumping all over this emerging partnership between the United States and China. Maybe it's because it's a lot easier to report on conflict than it is to chronicle the emergence of a deepening relationship. An example? Papers went hog wild over the U.S.-Russia stuff between Obama and Medvedev. But on the re-read, that was so Cold War. Few have focused on the increasingly fascinating dance happening between Washington and Beijing. Watch that axis, I say.

Why is China against cracking down on tax havens? Simple: a significant percentage of foreign investment in China comes from places like these -- the Cayman Islands, Macao and other offshore locations.

Western investment banks use offshore locations to funnel into China for tax advantages or to more easily bypass Beijing's strict controls on investing in Chinese companies listed overseas. (David Barboza of the NYTimes has a good piece on Western banks in China's real estate market here.)

For their part, the Chinese use such locales because if they take money outside of China and then send it back home as "foreign investment," they get tax breaks and other benefits that they wouldn't normally receive. (In the early 1990s when this fad was just beginning, the Chinese called these businessmen jia yangguizi or fake foreign devils. But now everybody is doing it.)

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Comments (19)

polarcityboy Author Profile Page:

JOHN Pomfret, are you aware that your blog entries are now appearing in print in the print edition of the China Post newspaper in Taiwan, in print! with editors note saying :From JP's blog in the wash post.....? good idea, i love it...blogs break into print editions. NICE. did you know some papers are doing this? must be a service of the WASH POST SYNDICATE OR WIRE i guess. danny bloom in Taiwan danbloom at gmail

this entry was in the CHINA POST (sic) today

danny

foreverocky Author Profile Page:

French wanted Hongkong and Macou to be on the list, which is of course unaceptable for Chinese gov

Donald2 Author Profile Page:

According to "Global Issues" and CIA, the 2008 percentage of GDP vs military spending in the world are:

US: 45% of world military spending, 23% of world GDP

GDP of other countries:

Japan of 7.78%, China:6.78%, Germany:6.14%, and France of 4.78%

Military spending of other countries in 2008:

UK, Japan, france and China each had about 5% of world military spending.

Even with much higher GDP share in the world, US does have even higher military spending ratio in the world stage, and it's a good thing.

US safeguards world shipping lines, keeps oil producing countries in check. All other countries, including China, take a free ride with US military services without paying any protection fee. With that much protection, I think it's OK for US to boss other countries around a little, unless someone else wants to outspend and defeat US then to assume this role.

free9604 Author Profile Page:

Addendum:
Here is the quote from the Smith/Nakashima article about Gates in WaPo on 4/4/09:
"The 2009 total of $513 billion -- not including special Iraq and Afghanistan war costs -- exceeds the combined military budgets of the next 25 highest-spending nations."
I don't know if China is included in the 'next 25'. Kinda' puts things in perspective, eh?

free9604 Author Profile Page:

China and the U.S. are locked in a dance of mutual self-preservation: the U.S. needs China to buy our 'debt' to finance our economic recovery and China needs our economy to prosper so we can continue to buy their goods and fund their economy. We rise or fall together. Simplistic but basically true. As for China's military build-up, the Pentagon's annual budget--not even counting the war costs in Iraq/Afghanistan/Pakistan--totals more than the combined budgets of the 25 nations following the U.S. in their annual military spending. China will go bankrupt long before it can begin to 'catch up' with our military expenditures. This factoid is from an article in this paper on 4/3/09 about SecDef Gates' review of Pentagon spending.

Aprogressiveindependent Author Profile Page:

I agree with the American resident in Beijing, the United States needs to go beyond words to actions that promote more friendly relations with China. He/she is also correct the Pentagon is blatantly hypocritical in criticizing China's modest defense build-up, especially when this country spends more on military than Russia, China, Great Britain, France, Japan, Israel, Germany and the next twelve or so nations combined. The message in such criticism seems to be the United States governments wants a weak China.

Obama, when he goes to China next year, needs on the other hand, to bring up human rights issues with Chinese leaders. As an example, read the article about child abduction in China currently at "The New York Times" website. The local police, according to the reporter, usually do nothing in such cases and central government authorities mostly ignore the problem. This is worse than cultural repression in Tibet. Both Obamas should bring up this issue in public when they visit China.

JohnRobertsFreeingTibet Author Profile Page:

Chinese exports dropped 19% in February, and the real estate sector is also still falling. This means no rebound in the construction industry for China -- and more labor unrest unhead. Growth is not going to hit China's 8% target and may not top 6%, leaving the regime vulnerable to domestic upheaval. Mr. Obama should realize that China is as fragile today as the USSR was in 1981 when Reagan took office. If Americans and Europeans refuse to buy any goods with the "Made in China" label, we can keep Chinese exports from rebounding and pressure the regime until it reforms, or collapses, whichever comes first. Read my blon on www.FreeingTibet.com, or better still, read the book -- "Freeing Tibet: 50 Years of Struggle, Resilience, and Hope," March 2009. A junior editor named Alex Remington on the Washington Post's op-ed pages is blocking any opinion pieces on this topic -- but he can't block what's going to happen in Washington, D.C. later this month.

IndiePendants Author Profile Page:

Forget anonymity on comments posts. Anonymity on these comments is what leads people to say such asinine, inflammatory and hateful things...they figure when they hide behind their proverbial white hoods, nobody will think any less of them when they show up to teach our kids the next morning.

-Ryan Kelly
Stockton, CA

rplat Author Profile Page:

Lovefest, my foot . . . they own us and this government has no choice but to pander to them. This poor sick Republic is collapsing under its own weight.

As for "charm" Chimpunk . . . that and $1.50 will get you a regular cup of coffee but nothing more. If he wants to be a "charmer" get him a spot on the "Bachelor" and let a real leader have his current job.

rplat Author Profile Page:

Lovefest, my foot . . . they own us and this government has no choice but to pander to them. This poor sick epublic is collapsing under its own weight.

tkjtkj Author Profile Page:

I wish to comment upon the loss of anonymity in the comment section here. There is a reason why the act of voting is 'private'. It assures that the opinions of all voters can be expressed without fear of retribution.

The same principle must apply to news commentary: if the newspaper wants to hear all sorts of opinions, then it must tolerate the anonymous ones.

Call it 'the price of liberty', if you will.. I, for one, do not wish to delegate to any censuring body, the newspapers included, the ability to prevent me from the ability to see all sides. Would your paper insist that all 'public commentaries' posted in Nepal be required to include the authors' names?

You are doing a disservice to the principles of democracy.

murraygwjr Author Profile Page:

The Chinese have us just where they want:

Weak, socialist administration + we react to them = we lose.

Comrade President Obama and the Sisterhood of the Traveling Pantsuit are no match for the Chinese, who BTW have been around for a few thousand years.

wysiwyg Author Profile Page:

By 2010, 20 years after the fall of Soviet Union, the world will witness the falling apart of the other superpower amid rampant domestic violence. "Those who live by the sword die by the sword"--it all began in March 2003.

China, like a five thousand year old wise man, has seen too many young upstarts rise and fall...

chimpunk Author Profile Page:

Mr. Obama is nothing if not charming. And has set out to prove how charm can be as powerful an agent of positive change as for instance Darth Cheney strove to prove the inverse. I don't agree with Mr. Obama's every position, but this one must give him.

As my dear departed Grandmother would say, "You can catch more flies with honey than you can with vinegar."

jimeglrd8 Author Profile Page:

As an American resident of Beijing for four years I pay close attention to the relationship between the US and China. The US says it wants friendly relations with China but they do little which could be labeled friendly. It is difficult for Chinese business people to get business visas to visit the US. The US should give Chinese citizens the same visa rights currently provided to residents of Japan and South Korea. In addition the US policy regarding the on again, off again "investor visa"[EB5] program makes it clear that the US doesn't really want Chinese citizens as investors. Add to this the pressure from the US regarding valuation of the RMB, sales of military items to Taiwan, restrictions on what the Chinese can buy from Silicon Valley and it all adds up to an unfriendly approach by the US towards China.
If the US wants to be friends with China it needs to begin treating China as a friend. The recent critical remarks of the Pentagon regarding Chinese defense spending was really hypocritical coming from a country which spends so much more on its military. If President Obama wants to improve US relations with China it will take more than just words.

TSLee Author Profile Page:

Internationalize Chinese Yuan

Quite a number of years ago, it was suggested that :
(1) China should set up a lot more commercial banks/branches in major trading partners’ financial centers and industrial districts.
(2) Select certain export goods in selected areas to issue invoices in Chinese Yuan, as an experiment.
(3) Through supply and demand, the exchange rate between Chinese Yuan and other major currency (currencies) can be or should be able to be determined fair and square.
(4) In the mean time, Chinese Yuan can be internationalized in stride.
That idea was not accepted/practiced then.
Now, if the SDR reserve currency can not be created in time, while regional currencies are probably on the brink of materialization, along with the swap of sovereign currencies, spreading in Asia, Russia, Latin America etc., it can be foreseen that a messy situation is on the horizon.
Worse comes to worse, as some have suggested, United States will end up buying “Made in America” only. Few would want to export goods to the US any longer.
Then again, as is well known, the wider the gaps are among major powers, the greater the compromises that they will come.
It is fascinating to observe the chess game with a round table of excellent players.

faithfulservant3 Author Profile Page:

Thank you Mr. Pomfret...I was intending to read the NYT article this morning but forgot. Now that I have read it, I can confidently say that the rest of your piece is garbage.

Left unsaid is that the western players who took part in these off-shore shenanigans for the quick jackpot are probably left with no recourse when the Chinese real estate developers go bust. This is yet another part of the meltdown that has yet to hit the fan.

The big issue is why the Chinese want to stay mum on all of this, after all they don't need foreign investors who end run their regulations and they have plenty of our money to play with. Whatever their motives, you know they were selfish, and Obama probably just helped nail the little guy...again.

Dawny_Chambers Author Profile Page:

Mr. Pomfret, please stop trying to make a story where there is none. We know you are a one-trick pony, but talk of a "luvfest" is silly.

ypcchiu Author Profile Page:

China has surpassed Japan as the biggest debtor of United States. This is why Obama wanted to smooth out the rough relation between France and China. First some French, including some politicians were very unkind to China being the host of 2008 Olympics. This is followed by anti French movement in China after the Olympic game. Later, the French has added fuel to the fire by trying to expose some offshore islands like Macao as tax haven in funneling money to China for investment.

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