Chinese Premier Wen JiabaoA bitter showdown between Republicans and Democrats is riveting the financial world as the U.S. midterm congressional elections approach. And American investors are getting understandably nervous that the game of chicken between the two parties could result in an across-the-board tax hike in 2011 if the combatants can't reach some consensus before all of the Bush tax cuts expire.

This dysfunctional drama in America is in sharp contrast to how events are lately unfolding in China, now the world's second-largest economy. The strength of Chinese growth has surprised many critics. And now the country's generally low-key political leaders seem to be taking a more assertive position on the world stage, but with remarkable skill rather than with bellicose rhetoric.

For investors who have struggled with the likelihood of China taking the "nuclear option" -- dumping its massive holdings of U.S. debt with the consequent chaos that would unleash -- the steady, calculating maneuvers should be reassuring.

Signaling More Accommodation


A charm offensive this week by Chinese Premier Wen Jiabao was the most recent demonstration of tact and reasonability. Wen announced plans to bolster domestic demand as part of a broader move to rebalance China's heavily export-dependent economy. He also pointed to keeping inflation in check as a key priority.

Investors should see the remarks as a signal that China may let the yuan appreciate further. The currency issue has been highly contentious, of course, and has taken on a carnival-like tone as U.S. politicians look for quick fixes to the dreary jobs situation at home.

But Wen was likely signaling a more accommodative position while sidestepping any appearance that he conceded to American browbeating. He did so by pointing to how China stands to benefit from a stronger yuan: Chinese domestic consumption should get a boost, while inflationary forces should be checked by a rising currency. That should make the bitter pill of a higher yuan for easier for China's export sector to swallow.

Lending Greece a Hand


China melded the quiet currency concessions to the U.S. with loud overtures to the European Union, a major American economic rival. Wen affirmed China's commitment to the euro and to European bonds, despite the Continent's financial strains.

He also said China would buy Greek bonds when the country returned to capital markets and would be supportive of Greece's shipping industry. Wen made the announcement in Athens -- the first Chinese premier to visit Greece in 24 years -- as part of a whirlwind European tour that underscores China's invigorated engagement.

Beijing seems to be getting the hang of the carrot-and-stick protocol favored by big powers when it comes to its own neighborhood, too. The recent sharp flare up with Japan over territorial issues, for example, appears to be getting resolved quickly following high-level diplomacy between the two countries.

The recent series of dealmaking is impressive: China has sidestepped plenty of U.S. pressure, turned to checkbook diplomacy in Europe and resolved a contentious issue with historical overtones with another major trading partner.

Selective Aggression

That trifecta is all the more striking given how modestly China often tries to present itself on the world stage. Despite China's rapidly expanding economic might, the country's top politicians frequently stress that it remains a developing nation.

Of course, this also is fairly calculated. By being only selectively aggressive, China can duck a lot of international pressure on thorny issues like providing more funding for international security or engaging more deeply on energy policy.

Still, investors should find China's more deliberate and muted approach far easier to grapple with than the grandstanding in the U.S. American politicians never tire of pointing to American exceptionalism or the country's superpower status. But when it comes to the basics -- like finding consensus on tax policy -- the situation tends to be far more disappointing.

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otterdad48

China does have an advantage where policy decision are concerned. Here we have a system where a single Senator can selfishly and egotistically stop all forward progress for American policy. A generation ago China was an agrarian society whose people where very backward and the economy locked in ideological amber. Today the Chinese are growing like America was in the 1950s. Perhaps we Americans need to rethink the zero sum mentality that continually redistributes wealth to the top of the food chain. Economies grow when the middle class grows. China is creating a middle class right now while supply side economic policies are destroying the middle class in America.

October 06 2010 at 8:26 AM Report abuse rate up rate down Reply
Robert & Lisa

Hey AOL, why don't you hire a couple of conservative writers. Be balanced like the number one news channel, FOX NEWS.

October 06 2010 at 2:56 AM Report abuse +2 rate up rate down Reply
luccassoc

You are all blind. Right, Left, Middle, Liberal, Conservative, Democrat, Republican, It's all for the de Facto US federal corporation US code 28,3002's intertainment. You dummies, divide and conquer. When are all of you idiots going to wake up. It's WE THE PEOPLE against them. For the republic for which it stands, one nation under GOD, indivisable, with liberty and justice for all. Do you remember or even know?

October 06 2010 at 2:12 AM Report abuse +2 rate up rate down Reply
luccassoc

Did anyone know that China put a 47 trillion dollar lean on the US Treasury? Wow, the media is keeping that quiet, since Dec. 15, 2009. OUCH!!! I think they own us, US get it. OUCH!!! Big trouble.

October 06 2010 at 2:07 AM Report abuse +1 rate up rate down Reply
1 reply to luccassoc's comment
itacurubi

Good grief! Can you really be that gullible? Our total Treasury debt with China is -- at worst -- a bit over one trillion.

October 06 2010 at 9:07 AM Report abuse rate up rate down Reply
Change to Englis

China looks politically savy vis-a-vis the U.S. in some great measure because it is a command economy in which business does government's bidding while the U.S. is a mixes economy: free enterprise with government control as required. It is time the GOP leaders reminded themselves of this truth. Delaneyriver@aol.com

October 05 2010 at 11:03 PM Report abuse -2 rate up rate down Reply
1 reply to Change to Englis's comment
itacurubi

The Chinese economy is definitely not a command economy in the classic sense of that term. The Chinese government doesn't tell Chinese business how many cars to produce, nor toasters to produce, nor computer displays to produce. The Chinese government doesn't require manufacturers to use any particular design or designs for any of these items. The Chinese governmnet doesnt control the prices charged for these items. These are all determined by market demand. The Chinese economy is a mixed one.

October 06 2010 at 9:11 AM Report abuse rate up rate down Reply
shimizu717

Beware of China and "soft talk"; we are in a mess right now simply because we let the Chinese get away with their physical might. Witness the exclusion of USA/ASN vessels from areas that used to be open to all. It is not going to go away! We need to stop exporting jobs to China, we need to have our won machine shops and foundries working. I am flooded with requests from Chinese manufacturers to buy their products (Titanium) at lower prices than USA. If I do this, I help put another American in the unemployed line and another factory closes. Come on big USA companies___get with it and build it here, sell it here, buy it here. Smokescreen

October 05 2010 at 9:23 PM Report abuse +2 rate up rate down Reply
z4rock

We need a President with a MBA from Harvard, business experience, and executive political experience as in running a state. Oh wait, we had one and the main stream media teamed with Democrats to tell us he was dumb. At lease Bush never blamed anyone in this country for anything. Obama has attacked everyone verbally except the leaders of Venasaulia and Iran.

October 05 2010 at 7:41 PM Report abuse -1 rate up rate down Reply
lulu0510

That's what you get when you elect a community organizer instead of a seasoned politician or business savy executive. Its funny how todays college kids are so anxious to insure thst there will be no jobs waiting for them when they graduate and that they will be burdened with debt the rest of their lives. It must be a required course these days , Stupidity 101.

October 05 2010 at 7:41 PM Report abuse rate up rate down Reply
zattico

the article is itself deeply in error and written from a liberal stand point this is not reporting in any true sence it is one propaganda

October 05 2010 at 7:40 PM Report abuse +1 rate up rate down Reply
ringmesh

That's how the progressives would like to see this country. A small minority of the super powerful and wealthy, a strictly controlled middle class, which in turn controlls (or ignores) the vast majority of poor (no plumbing, heat, food, etc.). I've been there. One ruling party and possible opportunities only for those chosen. No elections means no change. And yet our government, media, and business communities, along with the rest of the world, look up to them as an EXAMPLE! All for the love of money? .....go figure

October 05 2010 at 7:39 PM Report abuse +4 rate up rate down Reply