I continue to be grateful for your input. Keep it coming! This is the fourth “beta” edition of the newsletter, and the current plan is to launch more broadly when I het number 10. Remind your friends to subscribe, and remember the newsletter archive appears at Transpacifica! Now, your top five U.S.–China developments this week.
U.S. tech businesses losing out in China; Their government may be to blame
In recent weeks, U.S. tech companies have experienced increasing barriers to doing business in China. The New York Times has a good summary of why: “‘We are at a bad point in a triangular drama,’ said Peter F. Cowhey, dean of the School of International Relations and Pacific Studies at the University of California, San Diego. ‘The Chinese government is suspicious of American spying, and it wants to advance Chinese leadership in digital markets’…’Washington suspects the worst of Chinese commercial policy and is equally suspicious of Chinese digital espionage.'”
COMMENT: Of course, the Chinese government is right to be suspicious of U.S. spying, but it is not necessarily right that using Chinese-made technology will do much to help. New documents from Snowden’s haul show the U.S. government had encryption keys for a vast swath of European-made mobile phone SIM cards. So while security is a good excuse, don’t underestimate the Chinese government’s desire to champion Chinese companies. Today, the People’s Daily launched on page 1 a new series called “Chinese brand, Chinese story” with an admiring look at Huawei—perhaps not coincidentally one of the companies most enthusiastically targeted by the U.S. Congress.
Rice and Yang meet, and we’re in for half a year of ‘preparations’ for Xi Jinping’s visit to the United States
Chinese State Councilor Yang Jiechi met with U.S. National Security Adviser Susan Rice last week in New York. Xinhua and the White House both reported that the meeting was in part to prepare for Xi’s visit. (Rice had traveled to Beijing to meet with Yang in advance of Obama’s November visit to Beijing.) But as usual, the governments differed in emphasis. Xinhua (and the Chinese Foreign Ministry in Chinese) again used the “new model” language, and the White House did not. Xinhua and the MFA led with preparations for Xi’s visit, while the White House emphasized work on “global challenges” such as North Korea, Iran, and climate change. The U.S. side mentioned Afghanistan, and the Chinese side did not. But watch this space: Both mentioned counterterrorism.
COMMENT: As underlined by a recent Foreign Policy piece, differing U.S. and Chinese views of the counterterrorism and human rights are hard to reconcile. The two governments, however, seem determined to highlight the positive, and preparations for Xi’s September visit will likely keep them both on message.
U.S. conditionally welcomes China’s infrastructure bank proposal; Sherman speech sets out regional vision
“[T]he United States welcomes new initiatives, such as the China-proposed Asian International Infrastructure Bank, provided its founding documents and practices uphold the high standards of other development institutions,” Under Secretary of State Wendy Sherman said in a speech in Washington. The overall speech is worth a read, as it appears to set the Obama administration’s agenda for this year with East Asia.
COMMENT: With Japanese Prime Minister Shinzo Abe set to visit Washington in April, most likely including a speech to Congress, and Xi coming in September, Washington will be more closely focused on East Asia policy than at any time in recent years. Sherman’s speech wisely sets up an integrated regional perspective, even if it doesn’t make much news. Let’s hope reporters and politicians can focus on more than one element of U.S. foreign policy in East Asia at the same time.
Prodding Congress on TPP with the threat of China taking a leading, rule-making role
When it comes to the Trans-Pacific Partnership trade negotiations, the Obama administration can sometimes seem like a captive beast, thrashing about against the chains of tough negotiators in Japan and elsewhere, skeptical members of Congress, and interest groups for and against the agreement. As we saw beginning with Obama’s State of the Union speech, however, the administration is willing to hold up a kind of China threat to plead its case: “China wants to write the rules for the world’s fastest-growing region.… Why would we let that happen?” As Reuters reports, that line has been highlighted by several officials in recent weeks. Meanwhile, The Wall Street Journal argues the SEC has already surrendered authority to Beijing by essentially exempting Chinese firms from some audit requirements.
COMMENT: It is remarkable to recall the shifts in the rhetorical landscape over the last several years. Many Chinese commentators at one time accused the U.S. of using the TPP as a tool of containment, as part of the pivot/rebalance strategy. Then many Chinese views softened and it was the United States that bizarrely opposed Chinese economic initiatives that it had supported in the past (see the FTAAP). Now, with the U.S. administration explicitly using a “China threat” frame for political purposes, it is not uncommon to find Chinese commentary noting that TPP and Chinese trade ambitions are not incompatible. It’s hard to spot a principled stand in any of this.
Bilateral direct investment long reads
David Dollar, a Brookings expert and until recently the U.S. Treasury’s representative for China, has a significant new report asking why U.S. investment in China and Chinese investment in the United States are seemingly low. The Congressional USCC also has a new paper out tracking trends in Chinese investment in the United States.
COMMENT: For the United States, negotiating a bilateral investment treaty (BIT) with China has taken a back seat to the TPP, and the Chinese side has a lot of work to do to bring diverse economic and institutional interests into alignment. The BIT got a big boost in 2013, when China agreed to negotiate on the basis of a “negative list,” but progress has been slow. Increasingly, the potential political upsides of higher mutual investment are dwarfed by the active dispute (mentioned above) over U.S. tech firms and Chinese security policies. The longer a BIT takes, the more comprehensive it will need to be to have the desired effect. You can bet the governments want a strong announcement in September.