U.S.–China Week: Lew in Beijing, AIIB aftermath, Volvo’s big move, tech and security (2015.03.30)

This week’s U.S.–China news was dominated by economic developments, not all of them friendly. But it’s worth remembering that top U.S. and Chinese diplomats have been deeply engaged together in the nuclear talks with Iran that face a critical juncture this week. Such is the nature of bilateral ties that a very public clash (over the AIIB) can occur just as both governments also face common challenges (such as nonproliferation).

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BANKING & LEW IN BEIJING
U.S. challenges Chinese banking technology rules at WTO and in Beijing

The U.S. government used a WTO mechanism to seek clarification on new Chinese rules that restrict the use of foreign information technology in the banking sector. Reuters reported: “The United States has put pressure on China to explain how the regulations—which aim to promote ‘secure and controllable’ banking technology—comply with global trade rules.” U.S. Treasury Secretary Jack Lew, in Beijing, called on China to “suspend” the rules, FT reported. “It would be a significant barrier to U.S. companies doing business in China if they were to go ahead with the proposals pending,” Lew said. “They want U.S. companies to be here, so they can’t put barriers in the way.”

ANALYSIS: This effort follows earlier U.S. statements on the issue and is apparently designed to produce something like the reported “suspension” of progress on a draft Chinese counterterrorism law that also includes language the U.S. tech industry finds worrisome. The U.S. protests do not, of course, address legitimate Chinese concerns about U.S. surveillance capabilities—a huge problem for U.S. firms.

AIIB & LEW IN BEIJING
U.S. walks fine line on China-backed bank, after allies sign on

“China has an important role to play in the global economic order, and we should be partners in promoting strong, inclusive, and balanced growth.” So said Jack Lew in Beijing, in a subtle reference to the China-backed Asian Infrastructure Investment Bank (AIIB). Xinhua also reports, paraphrasing Lew, that the “United States is looking forward to cooperating with the AIIB, as it welcomes and supports proposals that are helpful to infrastructure construction.” But Bloomberg underlines that the United States still won’t join. Meanwhile, South Korea and Australia are among the U.S. allies that signed on despite a broad U.S. effort to delegitimize the institution.

ANALYSIS: It’s no surprise that the United States won’t join the AIIB. As I wrote last week, Congress would have to approve funding—an almost inconceivable outcome at a time when it won’t even approve modest IMF reforms. It is now obvious that the U.S. opposition campaign was a hugely embarrassing failure, but the reasons behind it are still relevant. Will the AIIB, now with significant buy-in from developed democracies, suffer from weak governance and engage in irresponsible lending, or will it promote “strong, inclusive, and balanced growth” as Lew hopes China will do?

SOUTH CHINA SEA
Kissinger: U.S. and China should ‘remove the urgency’ from South China Sea disputes

Henry Kissinger, at 91 still an influential voice in U.S.–China relations (perhaps especially in China), told reporters the United States and China should follow former Chinese leader Deng Xiaoping’s approach of shelving contentious issues when it comes to the South China Sea (SCS). “Deng Xiaoping dealt with some of his problems by saying not every problem needs to be solved in the existing generation,” Kissinger said. “Let’s perhaps wait for another generation but let’s not make it worse.” Kissinger’s comments came on a visit to Singapore after he visited China and met with President Xi Jinping earlier this month.

ANALYSIS: Kissinger’s suggestion would seem to demand more of China than of the United States, since the U.S. position has at least recently been that all countries should refrain from efforts to change the status quo. China has rejected the U.S. view and continued island construction, this week leading the Philippines to announce a restart of its own efforts. It’s unclear who Kissinger’s advice would serve, since shelving the issue would not stop the change in power dynamics in the region.

CHINESE INVESTORS
Chinese-owned Volvo to open first U.S. plant, spending $500m

WSJ reports: “After years of losing out to Mexico in the race for new automotive assembly plants, the U.S. is about to notch a victory. Volvo Car Corp., owned by a Chinese company, will spend $500 million to build a new vehicle plant in the U.S.” A spokesperson said “the new plant will also reduce shipping costs and insulate Volvo from currency fluctuations.” The company will announce the host state in about a month. Here’s an un-paywalled story from The Detroit News.

ANALYSIS: As Chinese companies develop and acquire global brands, as Geely did when it bought Volvo in 2010, we will see more and more large-scale Chinese investments in the United States that come with benefits for local economies and new jobs. This is an example of how the United States can be an attractive destination for investment, whether acquisitions like Smithfield or plants like this one. Ties like this, some hope, can make U.S.–China common interests more concrete for Americans, even as the two governments face challenging differences.

STRATEGY
Computer, naval, and other military tech plays key role in Asian security

A new report from the Center for a New American Security underlines the importance of technology in security challenges in East Asia, not just for China and the United States. Rather than take up just cybersecurity, or the role of aircraft carriers, or the effects of a specific military platform, the authors emphasize that all new technologies for regional actors mean new capabilities and vulnerabilities and produce the potential that “states may be willing to take riskier military actions with new technologies” and the risk of “inadvertent escalation from miscalculation about an opponent’s capability…or resolve.”

ANALYSIS: The authors make an important contribution by offering an integrated look at the role of technology. Their recommendations, however, deserve careful examination and debate. They write: “to address security dilemma concerns, we emphasize transferring and developing localized A2/AD capabilities, because they are most useful for defending against power projection, not for offensive actions.” Of course, in the South China Sea, one country’s defense is another country’s incursion.

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