America and China can speak, but can they talk?

The latest round of the bi-annual U.S.-China Strategic and Economic Dialogue gets underway in Washington today with the top leaders of both countries facing one overriding question. Do they know how to talk?

I’m not talking about speaking here. We know that the American and Chinese leaders can speak. In fact, they’ve been speaking at each other twice a year since the inauguration in 2006 of what was then called the U.S.-China Economic Dialogue (the strategic part was added in 2009). And that’s just my point. No one remembers what they have said or done over all these years of speaking.

Talking, as opposed to speaking, implies listening, comprehension, and considered response based on some degree of understanding of the objective situation, doctrines/philosophy/way of thinking, and motivating forces of the other. Of course there is a good argument for holding these Speak-Ats if for no other reason than to try to foster the ability to talk at some point down the road. But if that’s primarily what we’re doing, it might be a good idea to understand how far we have to go and the potential costs involved in the exercise.

For starters, let’s take a look at yesterday’s New York Times editorial page. It stated that China "has a long way to go (on human rights)- to win global respect or the trust and respect of its own people" and urged Treasury Secretary Timothy Geithner and Secretary of State Hillary Clinton to "deliver that message loud and clear." Okay, I’m sure the secretaries are perfectly capable of speaking that message in loud voices, but I am equally sure that China’s leaders will not hear them.

Take another part of the Times editorial. It noted that Commerce Secretary and U.S. Ambassador to China designate Gary Locke "rightly criticized Beijing last week for failing to make good on commitments to level the playing field (of China’s economy) for foreign firms." It went on to note that 80 percent of China’s computer software is counterfeit, that China has just published new restrictions on foreign participation in a long list of its industries, that it has enabled Chinese companies to recommend barring acquisitions by their foreign rivals, and that it has done nothing to reduce the enormous subsidies it extends to favored state-owned enterprises. Then the Times delivered the punch line. It urged the Obama administration to use whatever tools it has to urge China forward.

Think about that for a minute. The term "forward" here seems to mean the adoption of a democratic form of government along with the Anglo/American laissez faire, free trade, free investment, and shareholder driven forms of capitalism and corporate governance. For the Times and, indeed, for the U.S. government, the premise of this Dialogue/Speak-At is that the U.S. forms of political and economic organization are superior and that China is gradually moving toward them and must be continually encouraged to continue to do so and even threatened with dire consequences if it does not.

But wait a minute. China thinks it IS moving forward. It has lifted half a billion people out of poverty, accumulated the world’s largest trove of U.S. dollars, become the world’s largest auto, steel, cement, and electronics producer and its second largest economy while moving rapidly up the scale of value added production so that it now has a trade surplus with the United States in the category of advanced technology.

Now, here’s the key point that Americans determinedly keep missing. While China may have adopted certain market mechanisms and even certain capitalist ideas in its turn away from Mao style communism, it has not adopted and does not wish to adopt democracy or American style capitalism. It doesn’t see those as the way forward. It adheres steadfastly to an authoritarian form of government without an ultimate rule of law which is the antithesis of American political values and structures.

Perhaps more importantly, it has embraced the Asian modelof mercantilist, export-led growth. This entails suppressing domestic consumption, strongly incentivizing and even compelling high levels of saving, subsidizing investment in strategic industries that are also protected, managing the currency to be undervalued as a kind of indirect export subsidy, using Buy National policies, and conditioning foreign access to the market on the transfer of production and technology to its own economy. Like China’s authoritarianism, this mercantilism is the antithesis of the American model. And it really works.

So it seems to me that the Americans have no idea how to talk (as opposed to speak at) to the Chinese, and the Chinese have no reason to try to talk to the Americans. Which suggests that the dreary S&ED will continue without results for a long time.

Could that change? More to come.