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China's Diplomacy: Territorial Disputes and Currency Policy

Editor's Note: Kenneth Lieberthal dicusses China's territorial disputes with Japan and Southeast Asian nations. Relations between China and Japan deteriorated to the lowest point in five years during the 17-day detention of a Chinese fishing boat captain before Japanese authorities last week decided to release him. China opposed U.S.-South Korea military exercises aimed at deterring North Korea, and dismissed regional efforts to mediate maritime territorial claims. Lieberthal also discusses U.S. government's stance on China's currency policy. He speaks from Washington with Susan Li on Bloomberg Television's "First Up." Below is a partial transcript of the interview.

SUSAN LI:  Mr. Lieberthal, so a lot of political flashpoints for China these days. I’m going to start by talking about this Japan-China dispute over the fishing boat captain who was released last week, but China is asking for an apology. Who do you think won this showdown?

KENNETH LIEBERTHAL: Well, I think at this point the Chinese have won it in that Japan caved into Chinese pressure to release the captain. Having said that, I think the Chinese are getting themselves into trouble around Asia. They’re pushing hard with South Korea, they’re pushing hard with Japan, they’ve been pushing hard recently in the South China Sea. And I think frankly they’re at risk of undoing much of the carefully laid diplomacy that they had pursued over the previous five or six years.

LI: Ken, some are calling China the big bully in the playground these days, trying to flex its muscles. What do you think they’re trying to achieve by going head-to-head with Japan over this dispute and not helping South Korea with the North?

LIEBERTHAL: Well, I think you have to keep in mind that China, like North Korea now, is undergoing a political succession. The formal succession will take place in two years, but the jockeying is already well underway. And I think during a period of political jockeying in China folks who take a harder line nationalistic stance are hard to simply put down, so you tack a little bit to give them a little room, but try to not let them go too far. And I see some of that in what’s been happening around China’s periphery recently. Frankly, it’s not good news for the neighborhood and the question is whether the top leaders will take a look at the results they’re getting and say, on balance, we had better recalibrate.

Watch the full interview at bloomberg.com »