Americans need to pay careful attention to two events in China. The first, and perhaps most significant, is an indicator that China has entered deflation for the first time in more than six years.
China's Consumer Price Index in February dropped 1.6 percent from a year earlier, according to the National Bureau of Statistics. Chinese government officials downplayed the likelihood of a deflationary spiral. Instead, China's top economic official says prices are expected to rise 4 percent.
Although China has emerged as a world economic power — now financing more than $1 trillion in U.S. debt — it is not immune to the global economic downturn. No posturing by government officials will make it so.
Moreover, it relies heavily on U.S. buyers for its goods. In this period of significant job losses and contracting credit, American consumers are dialing back purchases of consumer goods, many of which are manufactured in Chinese factories.
The truth is, no one can say for certain whether the global financial crisis has hit bottom. Some economists say China's deflationary problems may be temporary due to the massive stimulus package it has devised.
Regardless, restoring confidence in the global economy will require evidence that measures to stimulate consumption and resume lending are working.
Meanwhile, China has confronted a U.S. Navy vessel it contends violated "relevant international law, Chinese laws and regulations," said Chinese Foreign Ministry spokesman Ma Zhaox.
The United States counters that the vessel, which maps the ocean floor with sonar to help the Navy steer its submarines or track those of other nations, was in international waters. The Pentagon said the incident, which occurred more than a week ago, was one of a half-dozen "increasingly aggressive" acts since March 4 against the Impeccable and a sister ship, the Victorious, which have included flybys by Chinese surveillance planes.
However, Guan Jianqiang, an international law expert at East China University of Politics and Law in Shanghai, says China has recorded at least 200 instances of U.S. vessels collecting intelligence in China's exclusive economic zone.
At a minimum, these events complicate an already complex relationship between China and the United States. As China's economic and military might increase, it must make careful choices whether it will use its power for good or ill.
The United States' diplomatic and military officials must remain nimble enough to respond in either case.