Reporter: Times may be getting tougher but for the US President there is one thing that Americans really can’t afford - to lose hope of a recovery.

Obama: We are keeping focused on all the fundamentally sound aspects of our economy. All the outstanding companies, workers, all the innovation and dynamism in this economy then we are going to get through this.

And I am very confident about that.

Reporter: Unfortunately for Barack Obama that enthusiasm isn’t shared elsewhere. On Friday Chinese Premier Wen Jiabo said he is worried the US economy is doing so badly that Chinese assets there could soon be in trouble.

Translator: Of course, we are concerned about the safety of our assets - to be honest I am a little bit worried.

I would like to take this opportunity to implore the US through you to honour its words to stay a credible nation and ensure the safety of Chinese assets.

Reporter: China is America’s biggest foreign creditor, holding around one trillion dollars of Washington’s debt, an asset whose value continues to fall as the US economy gets weaker.

US officials were quick to reassure China that its investments were safe.

Official: There is no safer investment in the world than in the United States.

Reporter: But despite Washington’s assurances as Finance Ministers from the world’s richest nations meet in Britain to discuss solutions, they were greeted by news that US trade figures had slumped to their lowest level in six years.

And the difficulty now will be persuading economies now like China not to adopt protectionist policies as nations around the world struggle to keep their assets safe.

Presenter: President Barack Obama says investors should have the utmost confidence in the financial stake they have in the United States.

Obama: The stability not only of our economic system but also our political system is extraordinary. And so I think that not just the Chinese government but every investor can have absolute confidence in the soundness in investments in the United States.

Asia2025: Well there you have it – the big news last week – Obama reassuring the Chinese that their investments in the US are safe.

I wonder if they would have liked that reassurance prior to a few incidents in the US late last year.

Perhaps they’d like it in writing.

One Australian columnist has likened the current US-China situation to ‘mutually assured destruction’ in the Cold War that kept the world safe - in this case, nuclear financial weapons held by both parties – so we’ll see if so called ‘economic interdependence’ really keeps these two powers at the table.

Obama’s statement came alongside a report in the Financial Times that China may have lost 80 billion dollars worth of its foreign exchange reserves after buying into equities just before world markets collapsed. The investments were made by the State Administration of Foreign Exchange.

You may remember I spoke about the losses China Investment Corporation suffered in Blackstone and Morgan Stanley here and in a piece for New Matilda late last year.

Victor Gao talked about US rising protectionism last program, and whether China would continue to invest in the US – so keep your eye on the G20 and what emerges between the two powers, because it is sure to get interesting.

In China, we’ve heard those that say there are encouraging signs from the United States with the new Barack Obama administration – and those that are much, much more cautious.

This week I have a fascinating discussion with Jin Canrong, Professor and Associate Dean with the School of International Studies at Renmin University in Beijing, and a well-known US expert here in China.

His assessment of the challenges facing this relationship are extremely interesting and you can hear him sitting back at his desk smoking, and there was a real image there for me, of this being a China Conversation during an extremely interesting period for US-China relations.

First, we talk about the naval incident – and he raises the issue of ‘special interests’ – he calls them an ‘iron triangle’ of groups - pressuring the US government toward a ‘China threat’ perspective.

Then, we talk North Korea – whose Premier Kim Yong Il has just visited Beijing - Jin Canrong states that the satellite launch is more about getting Washington’s attention than anything else.

But as I have stated before, North Korea is on China’s doorstop, and there was a reason China was involved in the Korean War, due to fears that Western control of the country would threaten China’s ‘territorial’ integrity.

And a statement did come from a meeting between the North Korean Premier and Wen Jiabo.

‘The Communist Party of China and the government have all along viewed the relationship with the DPRK from a strategic perspective’.

However it is Jin Canrong’s assessment of the policy challenges for China and the US that is really interesting – so I hope you stick with the interview when he starts on this topic around half way through.

I began by asking Jin Canrong what he thought of the idea raised in the Chinese press that hawks in the US were trying to influence US-China relations ...

JC: I tend to think there is a so-called ‘soft government’ or ‘iron triangle’ on the US side. They want to make some tension, in order to get some benefits.

Within the United States’ political system there exists several hundred soft governments or iron triangles. That is really not understood by the outside world. But they exist there.

Asia2025: You call them an iron triangle?

JC: Yes.

Asia2025: And what do you mean by that?

JC: Iron triangle referring to this political circle or political phenomena within the United States that is the alliance among some committees or sub-committees in the Congress and the related government branches and the related special interest groups.

They have a very close tie to each other and they are very independent from the supervision of the President and media and public. So that phenomena is defined as an iron triangle. Sometimes defined as a sub-government.

And they are very powerful, very influential, and very independent. But unfortunately not really understood by the outside government.

Asia2025: What sort of concessions would they be looking for?

JC: I think for some people on the US side, they need the tension. And that is different from the opinion of the Obama administration as a whole.

Personally Mr Obama himself recognises the importance of US-Sino relations. And Secretary of State Hillary Clinton expressed her willingness to improve US-Sino relations, so that is the general trend.

The general policy is to try to put Sino-US relations in a more important position and try to improve it.

But I tend to think that there are some in the US government, or sub-government or iron triangle circles that dislike this development. They want to have man-made tension.

And the tension will help them get more money. To help them enjoy some influence in the policy making process, so that is the main reason and that is the focus of my concern at the moment.

Asia2025: Well that is very interesting and considering that military to military dialogue was just resumed after it was suspended due to US arms sales to Taiwan.

And I was looking at the comments of Admiral Timothy Keating, the head of US Pacific Command, who was quoted as saying that Washington remains concerned about Chinese military expansion, especially in the development of aerial denial weapons, anti-satellite operations and cyber warfare.

He said he is not concerned about your submarines.

Now I have talked about this with American experts on my program and is Timothy Keating overstating Chinese capability, or as Shi Yinhong talked about last program, is he talking about Chinese intention here as opposed to capability?

What’s your view of his comments?

JC: The uniform guys, they basically belong to the category of so-called strategists and the natural mentality of a strategist is seeking best but prepare for the worst.

So as good professionals they have to take any development in China seriously. So as you said some people Stateside, especially in Pacific Command are very concerned about China’s military development.

That’s just natural. That is the feature of a good professional.

But Sino-US relations is very complicated, and military to military relations is just part of that.

Asia2025: Yes of course and there was also the Council of Foreign Relations report that said China was still two decades behind America in military capability.

North Korea is on China’s doorstep and it has always been strategically important to China. How much of what North Korea is saying at the moment both regarding the satellite launch and its readiness to deter an American invasion, is just rhetoric because we have heard this rhetoric from North Korea before?

So how much of this should we take as serious at this stage?

JC: Personally I tend to think that that is just a game. They want to get more attention from the Obama administration.

My personal opinion is that the real love of Pyongyang is not Beijing, is not Seoul, but Washington DC. They really want to win the heart of Washington DC but the problem is after being isolated for so many years they don’t know how to win the heart of other people. So they use strange tactics or approach.

So based on this observation I tend to think that the recent threat is just rhetoric, it does not lead to some substantial consequence.

Asia2025: Well what will this satellite/missile do, because Pyongyang says it will splash down in the Sea of Japan and the second stage splash down in the Pacific Ocean?

What does this give them and should we think, as the UN Secretary General has said, that is will jeopardise the stability of the Pacific Rim region?

JC: If we consider the whole context of the Peninsula situation I definitely agree with this point. It is no good to take any action that will lead to more tension, right, actually that is the attitude of China.

But as for this specific possibility, now coming out are the different signals. The North Korean side insists that their activity is just relating to the peaceful use of space. They will launch nothing relating with military use missiles, but just for peaceful orientated satellite.

They submit their report to international organisations already, so legally speaking that is their right.

Asia2025: But is China concerned about the joint exercises between the United States and South Korea, as North Korea seems to be?

JC: I don’t think so. This joint exercises is an annual retreat, so conducted many years, several decades. So from Chinese perspective that is just a historical legacy.

But what makes North Korea nervous this year is not the exercises themselves, but they want to get the attention of the Obama administration. There are some worries from Pyongyang’s side that the Obama administration is too busy, occupied by other priorities and forget Pyongyang.

So that is their concern. So my personal opinion is that what they really want is to force Obama administration to start talks with them as soon as possible.

You’re listening to Asia2025 with Maryann Keady and we are talking to Jin Canrong, from Renmin University in Beijing about US-China relations and the way forward under the new US administration.

Asia2025: America has said that it can endure its own Long War, that is Iraq.

Can China endure a financial crisis that may be the longest of wars for the country, and are you buying into the ‘China is ruined and its export led growth is all but over’ theory. Because trade is now down 25% from last year.

JC: The current economic recession that originated in the United States hurt China to some extent, but China did not complain like others, unlike many other European friends. European friends more broadly criticised the United States but China has been very restrained.

So one fact is that China’s substantial economy got hurt, especially the export part but China is no longer playing, it tries to rescue, to save itself.

And China tried to reach out, to help other people. So if you look at the statistics you will find that exports dramatically declined, over a quarter. But on the other side, the domestic investment increased to 26%. And more important that in the first two months China’s consumption increased 15%.

So I tend to think under the pressure of an externally orientated recession China will change, China will be forced to change its economic development strategy. From relying too much on export strategy, to a new strategy that is a more balanced strategy.
The new strategy driven will be driven by both exports and domestic market demand.

From a long term viewpoint I think the external pressure will force China to adopt a new development strategy and this new development strategy will be more sustainable.

So this crisis to some extent is a real opportunity for China.

Asia2025: So that’s what the Foreign Minister was talking about when he was talking about a ‘strategic opportunity’ for China, in Monday’s speech.

What is US foreign policy toward China at the moment, in the 21st Century?

Because if I was looking at it purely from a geo-political perspective, I might say that the door is shutting a little. That there have been some interesting turn of events.

Or do you see it as dual development in spheres around the globe – Africa, Latin America and other areas?

JC: Both bad news and good news ahead of us. And the bad news first.

For the bad news I see two, three categories of bad news.

One, the policy disputes that we will have disputes over several issues – lets say Tibet, and trade, and possibly climate change. So that is one category of problem, that’s policy disputes.

Second, policy fluctuations. Some people will say something and then he or she will withdraw. We have a case already on January 28th when Timothy Geithner spoke out in the Congressional Hearing process, he described China as a ‘currency manipulator’.

But two days later under pressure from the US business circle, the White House withdrew from that statement. It goes without saying that this issue is still under discussion, there is no conclusion reached yet. You have to wait and see.

So that is a typical case for so-called policy fluctuations. And this policy fluctuation will confuse the Chinese side because we will not know which tone, which policy is the real one.

And the third problem is so called ‘responsibility sharing’. Now Obama administration says they will say goodbye to the Bush doctrine. That is the doctrine of relying heavily on military instruments, relying heavily on the offensive or pre-emptive strike strategy. And very unilateral.

Then Obama will get back to multilateralism. They will listen to, consult to, and co-operate with allies and countries like China. What they want, they want countries like China and European allies to take more responsibility and so it is possible that when they raise the demands for responsibility sharing that China not get ready. Then that will lead to some problems.

So put all these together, at the moment I see that there are three problems ahead of us - policy disputes, policy fluctuations and the responsibility sharing.

But having said this bad news, I have to say I stress more on the good news.

The good news ahead of us first is that both governments pay more importance on Sino-US relations. So the policy orientation is very positive. So that’s first.

Second, the common interests between the China and the States are very large. And getting larger.

Third, the Sino-US relations get matured after 30 years development, now the economic interdependence, social contact and dialogue between the two governments is quite mature.

We have a lot of mechanisms to control the problems, then challenges.

Fourth, the most sensitive issue in Sino-US relations is the Taiwan issue, and this issue is now controllable.

And the fifth one should be relating with the balance of power. Now the balance of power between the United States and China has changed dramatically.

In 2000, the year that GW Bush sought his Presidency, China’s GDP was lower than one trillion dollars. And United States was 10 trillion. But when last year Barack Obama sought his Presidency, GDP reached 4.3 trillion dollars. And United States something around 14 trillion dollars. Not 10 times the gap, but now only three and a half times gap.

So the balance of power dramatically changed.

And the last thing is that there is an absolutely new issue structures so that even if American people consider China as a challenge, but as a challenge China is staying at the very bottom on the list of challenges.

There are many issues, terrorism, angry Russia, the angry Islamic world, the global anti-Americanism, financial crisis, climate change - many issues ahead of China. So that is a fact. But if you take a look on the other side, when the States wants to resolve these issues, they will always find China always part of the resolution.

So the sixth point is the new issue structure looks like this –China as an issue stays at the very bottom of the list. China as a partner for the resolution stays at the very top of the list. So that is a new phenomenon that emerged after 9/11.

So put these six reasons in mind, then my conclusion is the general policy or tone of Sino-US relations in the next coming days should be positive.

Asia2025: Interesting that you say that that China isn’t at the top of the list, and that the War on Terror is above it.

However if you look at strategic documents, the Asia Pacific is always considered the most crucial theatre and I want to go back to a discussion I had back in 2002 in Serbia, and I was having a discussion with a politician and he said ‘Maryann do you understand what is happening in the world at the moment?’ And I said, no I don’t and he said ‘you’ve got to look to the East’.

And I guess my question is doesn’t the East preoccupy the minds of leaders in Washington, don’t you think that China is the top of their policy list and in a strategic sense as well?

JC: When people are setting the agenda for themselves there are two indicators jumping into their mind. One is the importance of the issue and another is the urgency of the issue.

For the importance, very possible that China’s rising will be a challenge for the United States in the 21st Century. But as for the urgency, if you consider China as the issue, the issue is not so urgent.

So people more tend to rely on the urgency to serve their agenda because this structure from long term viewpoint, the strategists within the Washington beltway, they will pay a lot of attention to China. But for the daily work, I doubt China will occupy a very important position.

They have to pay more attention to those immediate threats, lets say terrorism, non-proliferation, angry Russia, anti-Americanism, the alienation of European partners, European countries.

And that was Jin Canrong, Professor and Associate Dean of the School of International Studies at Renmin University.

That’s the program for this week,

You’ve been listening to Asia2025

Thanks for listening,

Have a great week.