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Open Letter to the President

By Jim Trippon

Dear President Obama,

Facing the global financial crisis, record U.S. unemployment and two wars, I understand that you have a great many issues occupying your time. However I feel compelled to speak out about one of the key concerns that needs greater attention from your administration: China.

I would respectfully submit that America, which regards itself as the world's lone superpower, is at a turning point that is equal to the events preceding the collapse of the Soviet Union. The economic rise of China, the world's most populous nation, is the global event of our times. Yet American policies towards China have not kept pace. Indeed, recent political events in Washington suggest that America is moving towards an antagonistic relationship with the Chinese at a time when we need Beijing's cooperation.

As you are no doubt aware, China has become the world's number one holder of U.S. currency, bonds and equity assets in an amount that may be approaching one trillion dollars. There are those who suggest that the United States embark upon a showdown with the Chinese in order to force Beijing to revalue the yuan to a level that some consider fair. Reckless voices in Congress advise that there is little risk in threatening the Chinese because they would stand to lose hundreds of billions of dollars if they began dumping dollar assets. This ill-considered assumption puts the nation's tenuous finances at risk, based on an appalling lack of understanding of China's state of mind.

As one of the world's oldest civilizations, China is rightly proud. In fact, the paper money that your treasury prints was an innovation invented in China. The explosives that underlie America's military force originated in China thousands of years ago.

After enduring a period that some Chinese call "the one hundred years of humiliation" at the hands of foreign powers, the Chinese people are exquisitely sensitive about foreign intervention and justly proud of the economic success they have achieved in just three decades. Because it is a robust military and nuclear power, an economic giant and a space-faring nation, China is impervious to threats from the United States.

Yet the heavy hand of threats and intimidation are allowed free rein in Washington. This is a state of affairs that China will not accept passively.

To be sure, there are philosophical, political and economic policies in China that America disagrees with profoundly. That is unlikely to change. Indeed, foreign pressure upon the Chinese to alter its internal affairs to suit our preferences is likely to have the opposite effect.

Because China is a proud nation it will resent and resist even the best-intentioned foreign calls for change. Neglect, or arrogant calls for adherence to American values, will breed only resentment.

Despite its burgeoning economic and military strength, China maintains that it is not a new superpower. Three to four hundred million Chinese people have risen to what we call middle-class status, a number roughly equal to the population of the entire United States. Yet twice that number of Chinese people remain mired in poverty. That is why China regards itself as an emerging nation. Beijing is determined to eliminate the poverty and pollution that go hand in hand with under-development. Beijing will not accept foreign dictates that run counter to this determination.

If America chooses to dictate policy to China, the result will be counter-productive. But if the United States chooses the path of cooperation and mutual respect with the Chinese, the results can be beneficial to both sides.

America, unlike Britain and Japan, does not have a history of crushing Chinese aspirations. In fact the U.S. and China cooperated in eliminating Japanese imperialism during World War Two. It is this kind of cooperation and mutual respect that must set the tone for future relations between Washington and Beijing.

The rise of China is the pivotal event of the 21st century. How America manages its relationship with China will set the tone for the next 100 years of history.

President Obama, domestic concerns are looming large, but America's relationship with China will be pivotal. The U.S. may choose the path of confrontation and embark on a path similar to the Cold War. Or, the United States may set its priorities and employ its diplomatic skills in a way that creates a new era of prosperity, peace and cooperation for billions of people.

I urge you to place America's relationship with China at the top of your priority list. Yours decisions about China will set the tone for the century.

Jim Trippon,

China Stock Digest Editor-in-chief