Welcome to the second installment of my weekly newsletter on important developments and significant ideas in U.S.–China relations. A special welcome to the more than 3/4 of those receiving this message who signed up since the first edition. Others who are interested can subscribe here. In this edition, I have adjusted the format slightly based on insightful comments from several readers. Please send your feedback to [email protected]
U.S. Challenges China at WTO Over Export Subsidies
From U.S. Trade Representative Michael Froman’s announcement: “Let me tell you how this works: China designates certain companies in these sectors as being ‘demonstration bases,’ which is contingent on them exporting their product. Once designated, they’re eligible for subsidized services provided by the ‘common service platform.’ So, if you’re a Chinese textile firm designated as a demonstration base, you might get subsidized IT services, subsidized product design services and subsidized training services for their employees, showing them how to use yarn spinning techniques and weaving technologies. All of these services, provided for free or at a discount, undermine fair competition.” The USTR press press release lists seven sectors in which China allegedly gives export-contingent support: “(1) textiles, apparel and footwear; (2) advanced materials and metals (including specialty steel, titanium and aluminum products); (3) light industry; (4) specialty chemicals; (5) medical products; (6) hardware and building materials; and (7) agriculture.” USTR also published the formal consultation request letter. COMMENT: Note the supportive comments from members of Congress in the USTR release, and keep in mind the Obama administration is seeking “fast-track” authority to conclude the Trans-Pacific Partnership negotiations. The timing of this move should be read as politically oriented, both domestically and bilaterally. Given the friendly implications of Xi Jinping’s invitation for a state visit to Washington, this is a good time to unleash something routine but more negative, and to signal to China hawks in the United States that the administration is not “soft on China.”
Xi Jinping State Visit to US Confirmed for September
Xi Jinping will make his first state visit to the United States in September, to coincide with the UN General Assembly meeting in New York—a meeting that marks the UN’s 70th anniversary. Xi and Obama spoke on February 10, and,according to the White House: “[Obama] expressed appreciation … for President Xi’s commitment to partner in reducing greenhouse gas emissions and in achieving a successful outcome at the Paris Climate Summit this December. The President encouraged China to continue its move toward consumption-led growth and a market-determined exchange rate, reiterated his commitment to pursue a high-standard and comprehensive bilateral investment treaty, and called for swift work to narrow our differences on cyber issues.” Xinhua offered a familiar list of China’s concerns, but did emphasize the BIT negotiations as well as Paris climate talks. COMMENT: By combining a state visit with a trip to the United States for the UN meeting, Xi parallel’s Obama’s November 2014 Beijing trip for APEC and a state visit. Xi also avoids appearing to make the trip especially for bilateral purposes, as Obama did last year. Will Xi speak to the Clinton Global Initiative during UN Week?
China Internet Czar Lu Wei and Amb. Baucus ‘Are WeChat Pals’?
Last week’s newsletter noted U.S. officials were speaking up against new Chinese internet regulations that, in addition to restricting open exchange of ideas, appear to hurt U.S. IT business interests in China. Lu Wei, an official who hasemerged as the key public face of Chinese internet regulation, reportedly proposed he and U.S. Ambassador Max Baucus use the Chinese mobile chat platform WeChat to discuss Internet regulatory issues: “WeChat will be a very normal channel to exchange ideas for me and Baucus,” Lu said. COMMENT: It’s unclear what Baucus’ role is in U.S.–China Internet policy discussions, but it’s hard to think of a less serious proposal for dialogue from Lu than offering to exchange views by smart phone message. Meanwhile Obama called out China and Russia in a speech to a cybersecurity conference this week. In a section not specifically referencing China, Obama said, “American companies are being targeted, their trade secrets stolen, intellectual property ripped off.” Those American companies, with dreams of China’s 1.4 billion-person market, used to be the strongest contingency for stable China ties in Washington. Now, many have stopped seeing the point.
U.S. Congress-sponsored Report Finds PLA Lacking
A new report, prepared by RAND and sponsored by the Congress-created U.S.–China Economic and Security Review Commission (USCC), charts “China’s Incomplete Military Transformation” and the persistent weaknesses of the PLA. From the executive summary: “The first [weakness] is institutional. The PLA faces shortcomings stemming from outdated command structures, quality of personnel, professionalism, and corruption. The second set of weaknesses centers on combat capabilities. These shortcomings include logistical weaknesses, insufficient strategic airlift capabilities, limited numbers of special-mission aircraft, and deficiencies in fleet air defense and antisubmarine warfare” COMMENT: It is a rare Washington report, especially by serious defense analysts such as these, that frames China’s military development as anything but rapid and alarming. That alone makes this report worth a skim. The title recalls Minxin Pei’s 2008 book China’s Trapped Transition, which is particularly relevant on the first challenge. Pei argued that, absent institutional reforms, China’s economic transformation could not fully succeed. Will the current anti-corruption campaign and PLA reforms be enough to overcome institutional obstacles?
Argument: China, Through Afghanistan Moves, Shows It’s OK Being No. 2
Following reports that China is stepping up its role in Afghanistan as the United States draws down, University of Warwick’s Shaun Breslin argues China is increasingly at home taking on a role providing international public goods—in this case attempting to contribute to stability in Afghanistan. Breslin’s provocative thinking: “The challenge for China is not (yet) how to replace the US, but how to act as its No. 2. In the case of Afghanistan, the No. 1 seems relatively comfortable with a greater Chinese role. But it’s not always the case that the No. 1 seems amenable to accommodating China’s further rise. Where it isn’t, China has begun to take action to build its own alternatives. So if the US won’t ratify changes to voting power at the IMF that would give China a greater say – and the power structure at the ADB continues to favour others – then China is prepared to launch its own organ of financial governance in the form of the Asian Infrastructure Investment Bank. Here we see China competing for some form of leadership by replicating existing ways of doing things, rather than trying to fundamentally challenge the very nature or essence of global governance and the global order.” COMMENT: I’m sure China would not embrace the language of “No. 2,” but the broader idea is worth a thought.
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