U.S.–China Week: Yang Jiechi in U.S., Trump vs. Mnuchin on currency; U.S.–DPRK talks canceled, CFIUS expansion?, SCS (2017.02.27)

Welcome to Issue 89 of U.S.–China Week. Starting this week, you will notice some experimental changes in the formatting and content below. Writing U.S.–China Week is a constant battle between concision and comprehensiveness, and I believe the latter has lately been winning too easily. I welcome your thoughts on these changes and will be experimenting on all of us over the coming weeks, hopefully without much interference in your reading.

As always: Please encourage friends and colleagues to subscribe to U.S.–China Week. Here is the web version of this issue, ideal for sharing on social media. You can also find U.S.–China Week on Medium and Facebook, and you can follow me on Twitter at @gwbstr. Please send your comments, quibbles, and suggestions to [email protected].

EMISSARY
Yang Jiechi begins two-day U.S. visit, faces fresh start with White House after Flynn exist

► Top Chinese diplomat State Councilor Yang Jiechi is set to hold meetings in the United States today and tomorrow. The highest-ranking Chinese official to visit since Donald Trump became president, Yang arrives on the 45th anniversary of the Shanghai Communique that emerged from President Richard Nixon’s historic visit to China. Yang’s travel announcement came a few days after he spoke with Secretary of State Rex Tillerson (U.S. readout, Chinese readout). Yang had met with Trump’s short-lived national security adviser, Gen. Michael Flynn, during the transition and had spoken with him as recently as Feb. 3.

► Yang’s present visit comes a week after Trump named Gen. H.R. McMaster to replace Flynn. In a 2016 CSIS appearance, McMaster said “you could characterize what’s going on in the South China Sea, for example, as territorial expansion” and compared military facility construction there to “what Russia’s done in Ukraine.”

Meanwhile:
▻ Philip Bilden, Trump’s pick to be secretary of the Navy and one of the few figures in the administration with Asia experience, withdrew from consideration.

ANALYSIS: Whatever rapport Yang had developed with Flynn is now all but useless, Yang is likely to try for a fresh start with McMaster. Will he also meet Trump? [UPDATE: Reports emerged during editing that Yang had met Trump. -gw] Or Jared Kushner, who has reportedly played a role in ties with the Chinese embassy? Or Matt Pottinger, Flynn’s Asia deputy whose continued tenure is in question? Or Steve Bannon? We’ll see. Regardless, Yang’s visit is by no means the only open bilateral line. A Chinese spokesperson said Treasury Secretary Steven Mnuchin had held conversations with “Vice Premier Wang Yang, Finance Minister Xiao Jie, Governor Zhou Xiaochuan of the People’s Bank of China, and Minister Liu He in the Office of the Central Leading Group on Financial and Economic Affairs.” What the Chinese government will be looking for, however, is a dependable, authoritative high-level channel—one that would be crucial in defusing urgent dilemmas and in more mundane matters like setting up a first meeting between Trump and President Xi Jinping.

INTERPRET THIS
China’s ‘grand champions’ of currency manipulation? Trump’s bluster vs. Mnuchin’s caution

► In an interview with Reuters, Trump said of China, “I think they’re grand champions at manipulation of currency,” adding, “We’ll see what happens.” Foreign Ministry spokesperson Geng Shuang, responded to most of Trump’s remarks with boilerplate restatements of Chinese positions. Pressed on whether China identifies as a “‘grand champion’ of currency manipulation,” Geng got a little pugnacious (for a diplomatic spokesman), saying, “If the ‘grand champion’ has to be used on China, then grand champion it is, because we are a grand champion in economic development.”

► Mnuchin separately said the Treasury Department was “not making any judgments” on a currency manipulator declaration until an internal process is completed “as we have in the past.”

ANALYSIS: These most recent currency remarks appear to give the Trump administration the option of backing away from declaring China a “manipulator,” a measure that might have made sense at another time but not based on today’s realities. Observers, including those in the Chinese government, can use this as a test to see whether Trump’s informal declaration of “grand championship” or Mnuchin’s bureaucratic deference to process will carry the day. It’s a dangerous time for predictions, but I suspect the latter. If I’m right, the president of the United States will be once again revealed as an unreliable spokesperson for his own administration.

KOREAN PENINSULA
U.S. visa decision scuttles ‘Track 1.5’ talks with North Korea; MFA mocks Trump’s remarks on nuclear issue

► Talks in the United States between former U.S. officials and current North Korean officials, termed Track 1.5 dialogue, were canceled after the State Department did not issue visas for the visitors. Retired diplomat Evans J.R. Revere, who was to join the U.S. side, had earlier said, “If the visas are issued, it will be a clear message that the Trump administration is prepared to go the extra mile and engage North Korea.” Though the rationale for preventing the talks was not disclosed, speculation centered on the recent killing of North Korean leader Kim Jong Un’s half brother, Kim Jong Nam, with a banned chemical weapon in Malaysia. The WSJ reported this would have been “the first meeting between the two sides on U.S. soil in nearly six years.”

► In Trump’s Reuters interview, he said, “I think China has tremendous control over North Korea. … I think they could solve the problem very easily if they want to.” To this, the Foreign Ministry’s Geng responded with some pretty direct mockery: “Does anyone truly believe that the Korean nuclear issue is an easy one to solve, considering it has been with us for these many years?”

Meanwhile:
▻ The South Korean company Lotte approved a land swap deal with the South Korean military, a precursor to installing the THAAD missile defense system, a measure China’s government firmly opposes.

SOUTH CHINA SEA
Trump: ‘Massive military complex’ in S. China Sea ‘should not have been allowed’; Xi promise not to build on Scarborough?

► In his interview with Reuters, Trump said, “Many things took place that should not have been allowed. One of them is the building of a … massive military complex in the middle of the South China Sea.” He added, “you were in a much better negotiation position three years ago. I am not happy about it.” A NBC News report meanwhile said U.S. military deployments designed to be visible to China have occurred “almost every week” since Trump took office.

► “President Xi has promised President Duterte they will not reclaim and build structures on Scarborough Shoal,” Philippine Foreign Minister Perfecto Yasay said, according to Reuters. Breaking that promise would be a “game changer,” he said. MFA’s Geng said these or other remarks by Yasay were “baffling and regrettable.” Then China’s commerce minister canceled a trip to the Philippines to further billions of dollars in joint projects.

Meanwhile:
▻ Chris Mirasola at Lawfare has a good analysis of proposed changes to China’s Maritime Safety Law that had produced some confused reporting.
▻ Reuters reported analysts are expecting an increase in China’s Navy spending.

ANALYSIS: Though the NBC report on U.S. deployments compiles information from several sources and gives more detail than is often the case, the level of activity it describes seems relatively routine and not indicative of a Trump administration decision to take greater action. Eyes are now on the U.S. carrier group deployed to the South China Sea. Whether or not it performs a formal freedom of navigation (FON) operation, its presence makes a visible point. So far, there is little indication that China has sought to make a visible point in return, though it is possible such a move could have been delayed until after today’s meeting (mentioned here) of a working group among the 10 ASEAN countries and China on implementation of the Declaration on the Conduct of Parties in the South China Sea.

TRADE + INVESTMENT
Proposals to beef up CFIUS with China in mind; China’s caution on trade; Huawei’s U.S. hopes

WSJ reported on China-motivated Congressional proposals to strengthen CFIUS, the multiagency committee that reviews some foreign transactions for national security concerns. Sens. Cornyn and Schumer each are reportedly developing proposals, with Schumer supposedly proposing that CFIUS consider economic factors beyond the current national security focus.

▶ Commerce Minister Gao Hucheng said China is withholding judgment on U.S. trade measures: “If the U.S. introduces detailed plans, China will assess them in a serious manner and react in accordance with the result of the assessment.” He also said, “We don’t think a trade war should become an option.”
▻ Gao also said (paraphrased by Xinhua): “China will roll out favorable policies to encourage FDI into the country’s central, western and northeastern regions, while replicating the successes of the country’s pilot free trade zones.”

▶ “We are not like Jack Ma,” Huawei’s Richard Yu told CNN, referring to the Alibaba founder’s trip to see Trump during the transition. “He is more active … we are more humble.” CNN reported on Huawei’s hopes to sell more smart phones in the United States.

Meanwhile:
▻ Solar Squabble Shows How a Trump Trade War With China Could Backfire –Bloomberg
▻ Chinese Tire Companies Win U.S. Trade Case –China Law Blog
▻ Trump team looks to bypass WTO dispute systemFT

ANALYSIS: Broadening the set of concerns CFIUS is responsible for examining would have major implications for investment in the United States. Only in recent years have Chinese officials and businesses seemed to grow used to the routine but opaque character of the current process. While there may be good reasons to examine transactions that are not currently covered in the CFIUS process, any further scrutiny should probably come with greater transparency to assure both foreign entities and the U.S. public that decisions are being made for legitimate public policy reasons.

#USChinaWeek1967
‘Moscow Says U.S. Seeks China Deal’ — ‘U.S. Denies Seeking Deal’

“MOSCOW, Feb. 21[, 1967] — The Soviet Defense Ministry’s newspaper asserted today that the United States was maneuvering to negotiate a deal with Peking. The paper, Krasnaya Zvezda, said Washington strategists welcomed the anti-Soviet policies of Chairman Mao Tse-tung, the Chinese party leader, for opening opportunities for the United States to bolster its ‘aggressive anti-Communist policies in Asia.’ … Krasnaya Zvezda recalled recent reports that Chinese steel, sold through agents in Singapore, had been used by the United States to build military installations in South Vietnam. The paper also stressed allegations that Peking-controlled business concerns in Hong Kong had sold electronic equipment and other supplies to the United States Navy’s Seventh Fleet. … Countercharges by Moscow that Peking is plotting with Washington have been regarded here as propaganda thrusts. Some observers do not rule out the possibility, however, that behind the Soviet accusations lurks a suspicion that Washington and Peking indeed may someday arrive at an understanding detrimental to the Soviet Union.” — “WASHINGTON, Feb. 21[, 1967] — American officials denied today Soviet charges that the United States was seeking a political alliance with Communist China against Moscow.”

(Source: The New York TimesThis entry is part of an ongoing feature of U.S.–China Week that follows U.S.–China relations as they developed in another era of change and uncertainty, 50 years ago.)

ABOUT U.S.–CHINA WEEK

U.S.–China Week is a weekly news and analysis brief that covers important developments in U.S.–China relations and features especially insightful or influential new policy analysis.

Graham Webster is a senior research scholar, lecturer, and senior fellow of the Paul Tsai China Center at Yale Law School, where he specializes in U.S.–China diplomatic, security, and economic relations through research and Track II dialogues. He is also a fellow for China and East Asia with the EastWest Institute. His website is gwbstr.com.

Disclaimer: Opinions expressed here are my own (and I reserve the right to change my mind).

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Contact: Follow me on Twitter at @gwbstr. Send e-mail to [email protected].