U.S. government representatives visit China this Wednesday and Thursday for an annual meeting they dub Strategic and Economic Dialogue. It could be an uncomfortable gathering based on two issues which neither side may mention when they report to the public: spying and gold.
For the U.S., it could prove particularly disquieting. The Sino-American mid-week dialogue will follow an early-week visit to Beijing by German Chancellor Angela Merkel, who publicly solidified growing ties with the Chinese both on trade and a unified effort at cyber-security—the latter issue specifically aimed at the U.S.
Cyber-Spying on Germany
Reports this week revealed that a German intelligence officer had supplied documents to the U.S. from a Berlin government committee investigating recent spying by the Americans’ National Security Agency, including tapping communications of Merkel. President Obama had assured Merkel he had not known of the spying efforts, and they would stop. When Merkel got word of the new spying revelation this week, she publicly stated her increased concern about actions from a supposed ally, especially following Obama’s promises.
Reports from Germany today made clear that government officials were upset to the point that a push has arisen to start a spying program against the U.S., until now not allowed.
The American spying on the German government has also affected American business. In late June, Reuters reported that the Germans had cancelled a contract with Verizon as a result of NSA snooping efforts:
Verizon has been providing network infrastructure for the German government’s Berlin-Bonn network, used for communication between ministries, since 2010, the statement said. The contract is set to expire in 2015.
The government said Deutsche Telekom AG DTEGn.DE would replace services provided by Verizon, and noted Deutsche Telekom was already responsible for the most sensitive communications between ministries or between the government and German intelligence agencies.
American-Chinese Digital Snooping
Meanwhile, the U.S. and Chinese governments have traded accusations of digital spying against one another.
In late May, China left a cybersecurity working group after the U.S. indicted five Chinese military officials for commercial spying. Two months earlier, Beijing had demanded an official explanation regarding reports that the NSA had infiltrated servers at the headquarters of Huawei Technologies Co., a Chinese telecom giant. These are two examples of growing concerns over both China’s cyberhacking and the NSA’s spying on foreign government officials.
Gold as Currency Security
Peculiar Progressive has a sense that behind this spying tug-of-war lies an economic reality: the concern about gold as a solid security to back financial transactions.
The gold issue has created rugged waves for Germany and the U.S. In the fall of 2012, the German court of auditors ordered the Bundesbank, the German central bank, to audit its gold reserves held by foreign central banks, specifically the Bank of England, the Bank of France, and the U.S. Federal Reserve. The Bundesbank developed a plan where those banks would return Germany’s gold by 2020. France has returned its holding of 11%. The UK holds 13% .
But the U.S. Fed has held 37 tons, just over 45% of Germany’s gold, so far having only returned 5% of it. Merkel’s government has played the issue down, perhaps thinking that jumbling the hot spying scandal with the Fed’s stingy stance on returning gold might cause a revolt in Deutschland. Her opponents argue that Germany should at least audit exactly how much the U.S. is holding. Time will see how this plays out.
But for U.S. reps in China this week, they’ll know that China knows about the German-American gold issue. And China’s been collecting gold, as well as mining it in recent days, looking to solidify its strengthening stance internationally.
It’s strong enough now that China’s President Xi Jinping last October proposed a $50 billion Asian Infrastructure Investment Bank when he was visiting Southeast Asia, a bank which China would likely have a 50% stake in. It’s a move away from Asian countries’ dependence on the World Bank—the United Nations international financial institution that provides loans to developing countries for capital programs—and for Asian countries to economically support one another.
It’s also a counter move by Xi to Obama’s recent efforts at solidifying military ties with Japan and the Philippines. In May, Xi said he wanted China to be a friend to fellow Asian countries, but he also warned Asian nations about strengthening military alliances to counter China. “Asian problems must be resolved by Asian people, and Asian security must be protected by Asian people,” he stressed.
His economic efforts seem to be having an effect. The International Monetary Fund, consisting of 188 countries and designed to help them meet a balance of payments, has made its home in Washington, D.C. since the fund’s founding in 1944. But it may move its home to China, due to that country’s growing economic influence. That’s according to Christine LaGarde, the fund’s managing director, who made the statement in June.
All this may have U.S. reps in Beijing this week feel like they’re sitting with tacks in their chairs, knowing that the Chinese understand how America for years has tried to control world markets militarily and through manipulating the dollar, but is finding it tougher these days to do so.