U.S.–China Week: ‘Consensus’ at D&SD? Trump to China this year, Cornyn’s CFIUS changes, Alibaba to Detroit, Ford and Tesla to China (2017.06.26)

Welcome to Issue 104 of U.S.–China Week. New out this week is an essay by Hong Yanqing of Peking University, translated by Paul Triolo and myself, and published as a working paper by the Paul Tsai China Center at Yale Law School. Hong, who has worked for the Cyberspace Administration of China (CAC) and is a key participant in the TC260 standards-setting process under CAC, provides detailed and uncommonly authoritative insight into how Chinese policymakers view the scope, process, and intention of new regulations on the cross-border flow of data stemming from the Cybersecurity Law and related documents. Foreign businesses, governments, and trade associations—as well as Chinese companies who operate across borders—have concerns ranging from uncertainty over the rules’ meaning, to compliance challenges, to the potential for de facto trade and market access barriers. Hong’s essay will not eliminate all of these concerns, but his account provides important details not generally available in English. Read it here.

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, and you can follow me on Twitter at @gwbstr. Please send your comments, quibbles, and suggestions to [email protected].

SUMMIT CIRCUIT
U.S. and Chinese officials hold first ‘D&SD’ in Washington; Trump state visit to China expected in 2017

Secretary of State Rex Tillerson and Secretary of Defense Jim Mattis held the first Diplomatic and Security Dialogue (D&SD) meeting with State Councilor Yang Jiechi and People’s Liberation Army (PLA) Chief of the Joint Staff Gen. Fang Fenghui. President Donald Trump set an uneasy stage for the meeting, writing on Twitter, “While I greatly appreciate the efforts of President Xi & China to help with North Korea, it has not worked out. At least I know China tried!” Pre-meeting U.S. press conferences (State, State/Defense) also indicated an emphasis on North Korea. The People’s Daily‘s “Zhong Sheng” column called for cooperation, managing differences, and avoiding unnecessary trouble in U.S.–China relations.

Following the meeting, the Chinese government (but not the U.S. government) published a “consensus reached” at the meeting (English | Chinese). Concrete elements of the “consensus” were few but include: efforts toward Trump-Xi meetings in July at the G20 meeting in Hamburg and in China; the exchange of visits between defense ministers; and a visit to China by the chairman of the Joint Chiefs of Staff. Tillerson and Mattis spoke to reporters following the meeting, verbalizing much of what appeared in the Chinese side’s “consensus” release. A photograph published by Xinhua showed Yang and Feng, accompanied by Chinese Ambassador Cui Tiankai, meeting with Trump, National Security Adviser H.R. McMaster, and presidential adviser and son-in-law Jared Kushner. (The Chinese government reportedly invited Kushner and Ivanka Trump to China later this year.) Yang also met with Speaker of the House Paul Ryan and Senator Bob Corker.

What’s next? Before the meetings, Acting Assistant Secretary of State Susan Thornton indicated “we’ll have another Diplomatic and Security Dialogue with China, possibly even another one this year.” She also said the expected Law Enforcement and Cybersecurity channel would be chaired on the U.S. side by the secretary of homeland security and attorney general, and noted it “was established in the previous administration,” indicating continuity with what used to be called the “U.S.–China Cybercrime and Related Issues High Level Joint Dialogue.” Tillerson said Trump “looks forward to his state visit to China later this year.”

ANALYSIS: It’s hard to judge outcomes from this first “D&SD” meeting. While it is significant that a top PLA general and the secretary of defense are now in direct contact through episodic meetings, contact alone doesn’t solve the dilemmas of the Korean Peninsula or defuse an assumption of rivalry among some security officials on both sides. Unlike in the trade area, where the governments pushed out “early harvest” announcements of agreements that in some cases were already half-baked last year, this meeting brought no concrete announcements and set up nothing like the 100-day economic timeline following the Trump-Xi meeting in Florida.

INVESTMENT + SECURITY
Cornyn CFIUS reform bill will not name any country in particular, but senator expresses China concerns in speech

In a speech hosted by the Council on Foreign Relations, Senator John Cornyn (R-Tex.) announced he and Senator Gary Peters (D-Mich.) would be putting forward a bill to revise the system by which the U.S. government examines inbound foreign investment transactions for national security implications. The timeline for the proposed changes to the Committee on Foreign Investment in the United States (CFIUS) process was reportedly not given. Cornyn reportedly said “no nation’s name will be mentioned in the bill,” but that China “is using every tool at its disposal to close the technology gap between the U.S. and that country” and “China is the most preeminent and most aggressive country acting technically in a way to avoid the CFIUS process.” As discussed here last week, Cornyn’s concern about foreign investment is largely oriented around China and fast-developing areas of technology such as artificial intelligence (AI). Patrick Tucker at Defense One has an good story putting those concerns in context. / Meanwhile, venture capitalist and former Google China head Kai-Fu Lee writes about a different set of risks faced by the United States and China as they lead in AI development: AI technologies “will reshape what work means and how wealth is created, leading to unprecedented economic inequalities and even altering the global balance of power.”

TRADE
While Alibaba goes to Detroit, Ford and Tesla go to China

Alibaba founder Jack Ma was in Detroit for Gateway ’17, an Alibaba event advising U.S. small businesses on how to reach Chinese consumers through the company’s platforms. Emily Parker writes, “Earlier this year Ma had told President Donald Trump that he intended to create a million U.S. jobs, and the event was a step toward fulfilling that promise. ‘If we can help one million small businesses online and each small business can create one job, we can create more than one million jobs,’ Ma said in Detroit.” Parker writes that while the jobs rhetoric may be showy, some U.S. small businesses have developed significant sales in China through e-commerce platforms, sometimes with the assistance of firms who ease the regulatory and marketing burden of operating across borders.

Ford Motor, on the other hand, announced plans to build its Focus model “in China, rather than in Michigan or Mexico,” NYT reported. “… Ford’s decision could shift work away from American auto parts factories, which are heavily concentrated in Ohio, Indiana and southern Michigan.” Tesla, meanwhile, was reportedly in talks with the Shanghai government about setting up a car plant in the region.

#USChinaWeek1967
‘Secret U.S. Memos on China Disclosed’

“WASHINGTON, June 24[, 1967] (AP)—The State Department made public secret diplomatic dispatches today that were devoted to the United States relations with China in 1944. The dispatches included an evaluation that said relations with China were bad and that the Army was primarily responsible for the situation. The correspondence included a report to President Roosevelt from Donald Nelson, his personal envoy to China, stating that ‘our relations with China were bad—very bad.’ ‘The attitude of our army in China is primarily responsible for this situation,’ it added. Mr. Nelson had made a special mission with Maj. Gen. Patrick J. Hurley to confer with Generalissimo Chiang Kai-shek in October, 1944. One memorandum, concerning friction between Mr. Chiang and Gen. Joseph W. Stilwell, was from Clarence W. Gauss, then the Ambassador to China, to Cordell Hull, who was the Secretary of States. The note disclosed that General Chiang had insisted that General Stilwell ‘must go,’ and that if there was to be an American commander in chief in China, he must be under General Chiang’s command. The dispatches disclose that pressure from the President led to Mr. Chiang’s reluctant agreement to a United States military observer mission with the Communist forces in Yenan.”

(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).

Free Subscription to U.S.–China Week by clicking here or e-mailing me is open to all, and an archive of past editions appears at my long-running website on East Asia and the United States, Transpacifica.

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