You can never be sure if it was just another diplomatic stalemate, but this week, the United States and China agreed to deepen their cooperation on economic and military matters, setting aside a year of tension over issues such as arms sales to Taiwan and the hugely controversial value of Chinas currency.
If duly enforced, the Spirit of Washington pact, also dubbed a milestone agreement, could have global repercussions.
After two days of high-level talks in the U.S. capital, the two sides agreed that their top military leaders would meet regularly in what has also been termed the Strategic Security Dialogue.
Treasury Secretary Timothy F. Geithner and Chinese Vice Premier Wang Qishan released what they described as a blueprint for managing the sometimes contentious economic relations between the two countries. The framework of comprehensive economic cooperation was based on what Geithner said was a healthy recognition by Chinese officials that they need to open more aspects of their economy to outside investment if they are to sustain the high rates of growth needed to continue improving living standards for their 1.3 billion people.
It was encouraging that the pact included action on some long-standing issues including initial moves by China toward opening its financial sector by allowing U.S. and other foreign firms to sell auto insurance, sell mutual funds and other investments, and underwrite corporate bonds.
Although these may be seen as modest steps for a country where the financial system remains firmly under state control, U.S. officials say they are the types of changes needed for China to put more spending power in the hands of households and to help small and medium-size businesses finance their operations.
It was indeed significant that for the first time, China agreed to explain in detail its use of export credits a sometimes opaque system that subsidizes domestic companies with public money. U.S. officials said they would explain similar their own programs as well, in hopes that the two sides could come to agreement on the rules and limits that should govern such programs.
Despite its manufacturing and export success, China is still at the early stages of making the transition to a market economy, Geithner said, adding that he expected substantial ongoing improvement in the ability of U.S. and other foreign firms to operate in China or export goods to the country.
For the better part of last year, the two sides had clashed over Chinas management of its currency and policies that seemed to discriminate against foreign companies in the Chinese market. The Peoples Liberation Army cut off ties with its U.S. counterpart in January 2010 after the Obama administration announced a US$6.4 billion arms package for Taiwan. China rejected a planned trip by Defense Secretary Robert M. Gates last June, but he was permitted to visit this past January.
This weeks conversations helped to build trust, said Secretary of State Hillary Rodham Clinton. The meetings, she said, covered a dizzying set of issues.
Always critical of Chinas policies, the U.S. Chamber of Commerce said the agreements reached this week have the potential to bolster the confidence of U.S. investors after a year in which businesses have expressed concern about Chinas direction.
Predictably, U.S. officials urged China to allow its currency to appreciate more quickly. The Chinese yuan has been rising at a pace of about 0.5% a month, though high inflation within China is pushing up the effective exchange rate against the dollar. Even without U.S. pressure, Chinese officials may be more inclined to let the yuan climb more quickly to limit domestic inflation and reduce the cost of imports.