New Hope in U.S.-Chinese Talks

July 10, 2013 Topic: Global Governance Region: ChinaUnited States

New Hope in U.S.-Chinese Talks

Progress is possible this week—but Beijing party politics will decide if it lasts.

There has been a predictable pattern to past U.S.-China summit meetings: the two leaders endorse lofty pledges of closer friendship and shared objectives, complete with upbeat photo-ops to impress their respective publics. Then they go home again and not a whole lot changes.

Whether last month’s California talks between Presidents Barack Obama and Xi Jinping will prove any different remains unknown. But two events—one current and the other in October—will do much to determine if in fact there will a significant upgrade to crucial connections between the world’s two largest economies, which annually record $500 billion worth of trade with each other. As usual regarding China, firm predictions would be unwise but there are signs that important economic changes that both Washington wants and Beijing needs are indeed possible.

Yet if the economic outlook shows tentative promise, the security side is a bit murky. In particular, U.S. hopes of restraining one aspect of China’s enthusiastic cyber espionage, deemed “really at the center of the relationship” by the White House, have been sabotaged by the revelations of Edward Snowden, the whistleblower stranded in a Moscow airport. Chinese officials may use his disclosures as an excuse to avoid restrictions on their own cyber spying despite previously agreeing to hold serious talks about the problem.

However, there are indications of flexibility on the foreign-policy front. Beijing has hinted it may temper nationalistic rhetoric and ease territorial disputes with Asian neighbors, and also cooperate more effectively to curtail North Korea’s nuclear-arms program—two Washington goals. But at the same time it is tightening internal political controls to ensure that the first priority of Xi and his colleagues is not threatened—keeping the Communist Party in firm command. Thus human-rights differences will continue.

The first significant event is underway in Washington this week. It’s the fifth round of recurring high-level discussions called the U.S.-China Strategic and Economic Dialogue (SED), this time headed by Secretary of State John Kerry and Treasury Secretary Jacob Lew for the United States and State Councilor Yang Jiechi and Vice Premier Wang Yang for China, with a supporting cast of hundreds from a multitude of agencies. The purpose is to resolve, or at least minimize, differences over a wide range of economic, diplomatic and security issues that have eluded solution in lower-level talks. If successful, the two sides will draft guidelines that could let specific problems be settled amicably in follow-up bureaucratic negotiations, placing overall relations on a smooth and productive path.

This is easier said than done. Beneath the soothing words there is great and persistent distrust between Washington and Beijing politicians, attitudes shared by significant portions of their populations. For example, a former governor of Virginia now concerned with security affairs believes the United States must be prepared to counter strenuous Chinese efforts to deny it naval access to the western Pacific, where the United States has important allies. And many Chinese, including some officials, believe Washington is plotting to “contain” a rising China and deny it its “rightful” place in world affairs. American protests that containment is neither possible nor desirable, that it wants China to become a full and responsible member of global governance, are often disbelieved.

This week’s meetings won’t produce final agreements on many topics. But participants hope the level of distrust can be eroded enough to permit serious progress by yearend on several key issues. Among them are:

Military consultations: Beijing’s growing ability to project military power worries many Pentagon and other officials, as well as China’s neighbors. Arguing that a great nation should be able to display great power, Beijing has been expanding its navy and modernizing its air force at a rapid pace. But its strategic goals remain unclear. Thus Washington for years has sought expanded military-to-military exchanges so the two sides could explain their basic plans and work out operating rules to prevent dangerous accidents or confrontation. Doing so should reduce current military tensions across East Asia, minimize future ones and avoid unwelcome surprises. But Beijing has generally resisted, suspecting ulterior motives and yet another foreign effort to hold China down—a historical legacy that conditions most Chinese relations with the Western world. (Some hesitation has been American; when he headed the Pentagon, Donald Rumsfeld blocked at least one promising venture.)

Yet there have been signs since Xi took office that China is ready for more substantive military talks and working agreements—even for more joint operations such as disaster-relief and rescue missions (though not likely joint fleet exercises anytime soon like those it is holding with Russia). Sending more senior officers to each other’s military staff colleges is another possibility, as are reciprocal tours of military bases. Basically, anything that could improve understanding of each other’s strategic goals and reduce mistrust belongs in this category.

Cybersecurity: This area showed promise at the Obama-Xi meeting, where the two presidents agreed a new joint committee would examine each other’s complaints and perhaps suggest solutions. Then along came Snowden. No nation is pristine—certainly not China—when it comes to spying, but his revelations made clear that the U.S. effort is more comprehensive than most people knew; this gives suspicious Chinese security officials a persuasive excuse for resisting agreements that might restrain their own operations. But Washington insists that some restraint is mandatory if the overall relationship is to improve.

Traditional spying for national-security reasons is not the main issue. Both countries do it and neither dares stop; better cyber defenses will be their main response. But Washington contends, with hard evidence in hand, that Chinese agencies—including units of the People’s Liberation Army—follow a state policy of using electronic means to systematically steal American commercial secrets and hand them over to Chinese competitors. The targets include both corporate strategy and business technology, the innovation essential to American competitiveness. The United States has warned that curtailing this espionage is “really key to the future of U.S.-China economic relations.”

Trade and investment: The $500 billion trade volume is tilted heavily in China’s favor, and that won’t change anytime soon. But American companies complain that Chinese bureaucrats often apply commercial laws unfairly to hinder them and help state-controlled rivals, such as by restricting access to lucrative markets theoretically open under international trade rules. Meanwhile, Chinese officials complain the United States won’t sell certain technologies for alleged security reasons, even though similar items are often available from Europe or Japan. And Chinese companies say unwarranted political backlash blocks some attempts to invest in what America claims is a free and open economy. These and a multitude of related issues will occupy the bureaucratic munchkins for many months, and success could level the playing field on both sides of the Pacific to mutual advantage.

But one issue that has been a Congressional pet peeve for years won’t get much attention—the exchange rate of the Chinese yuan, or renminbi. For years, China has manipulated the currency’s value, keeping it low to aid exports and hinder imports. But since 2007, the yuan has risen steadily—if not always noticed—some 35 percent against the dollar, with China also edging toward full convertibility. It’s not there yet and may not be for some time, but this often-neuralgic issue has lost importance and pretty much dropped off the agenda.

When this week’s talks are over, briefers most likely will sound the usual upbeat notes, claiming serious progress toward the goal—in the words of former national security advisor Thomas Donilon—of “building a stable, productive and constructive relationship with China” that is essential to American interests. But just what they’ve really accomplished may not be known until the October event in Beijing. That will be the third plenum meeting of the Chinese Communist Party’s eighteenth national congress—in brief, a gathering of the 205 members of the party’s Central Committee. It will be asked to endorse President Xi’s domestic and foreign policies, but may offer significant resistance.

One reason is the rise of nationalism inside China, partly spurred by Xi’s own talk of a “Chinese dream” intended to bring (or restore) national greatness. The purpose is to make China more assertive overseas, if not belligerent, bringing foreign respect and perhaps acquiescence on policy matters. This desire for greater status, combined with long-held suspicions of foreign intentions, means plenum members may continue to distrust efforts to get cozier with the United States—and tentative agreements in Washington could face trouble.

More crucial, though, are Xi’s domestic-reform plans. He and his premier seem to recognize that China can no longer rely on net exports and infrastructure spending for economic growth; the rate is now 7.5 percent and falling. They favor an overdue rebalancing that stresses domestic spending and markets, including neglected service industries. They also want to overhaul the troubled financial system. But this could rouse opposition from, among others, powerful export industries and the ministries that protect them. Several Central Committee members represent these vested interests and won’t be eager to have their roles (and privileges) reduced. If Xi pushes ahead with announced plans to curtail the state economic role and encourage private enterprise, he risks even more resistance. Too many senior party and government officials profit from the current system to want drastic revisions that could come at their expense. But these changes are essential if the overall U.S.-China economic relationship is to show major gains.