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Published: Tuesday, 10/26/2010

Eye on China

AMERICANS must follow what is happening in China, given the $1 trillion the United States owes the Asian nation and the fact that the U.S. trade deficit is largely caused by the imbalance in trade with it.

In addition, although it is not a serious problem, China's growing military capacity is the most potent threat to any pretensions the United States might still have to being the dominant power in the region.

China continues to pursue a monetary policy based on an undervalued currency, which ignores complaints from the United States and European countries. There are slight shifts in the Chinese economy. Its growth rate slipped from an impressive 10.3 percent in the second quarter to a still robust 9.6 percent in the third. Its central bank raised its interest rate slightly, meaning the money the United States continues to borrow from China will cost more.

China is maintaining frosty military relations with the United States, based on Beijing's displeasure over $6.4 billion in planned U.S. arms sales to Taiwan. Defense Secretary Robert Gates met this month in Vietnam with defense ministers of the Association of Southeast Asian Nations to work on high-level contacts with the Chinese defense establishment, with some success. The military developments come in the context of a feud between U.S. ally Japan and China over ownership of islands in the East China Sea.

In spite of the shield that China attempts to erect publicly around personal rivalries within the Communist Party and the country's leadership, it has a succession coming in 2012, when President Hu Jintao and Prime Minister Wen Jiabao are scheduled to step down. The heir apparent to Mr. Hu is said to be Vice President Xi Jinping, who, at the annual party plenum session, was named to a vice chairmanship of the party's Central Military Commission.

Getting that ticket punched is an indication that he will be moving up. Even though there does not appear to be viable competition to Mr. Xi, such successions produce waves of leadership changes in China, and sometimes political and economic policy shifts.

The United States needs to watch these developments closely, given the importance of the relationship.



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