U.S.–China Week Issue 1: Two Chinese views on South China Sea, tech & trade tides, Paulson’s plunge, rhetorical battlegrounds (2015.04.20)

Welcome to the inaugural full edition of U.S.–China Week, a news and analysis brief written by me, Graham Webster. This week builds on 10 weeks of “beta” efforts and comments from more than a dozen early readers. Though it will continue to evolve, the basic format of five entries featuring summary and analysis seems to be working well. I will continue to be grateful for your comments, quibbles, and suggestions, which you can send to [email protected] or by replying to this message.

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Without further ado…

A NEW NEW MODEL
Cui Tiankai: China to provide ‘public goods’ and won’t accept a ‘unilateral status quo’ in the South China Sea

Chinese Ambassador to the United States Cui Tiankai gave a detailed speech on the South China Sea that bears close reading. It promises China will provide “public goods” in the region, it denies that anyone can “impose on China a unilateral ‘status quo,'” and it declares that the UN Convention on the Law of the Sea “does not give anyone the right to conduct intensive, close-range reconnaissance activities in other countries’ Exclusive Economic Zone.” This and another recent speech also show movement on the “new model” rhetoric, downplaying the “major country” relations part and reiterating the value of a “new model of relationship between China and the United States.”

ANALYSIS: Whatever you think of the now-tired debate over the “new model” concept, there’s no doubt that the United States and China need a new kind of relationship. In his South China Sea speech, Cui asks: “Do we have ourselves on the new realities of the 21st century, or do we still believe that the world should be run in the same way as the 19th century or the early part of the 20th century?” Though he leaves out the late 20th century, the era favored by many in the United States, it’s a reasonable question. As usual, both governments will need to adapt to get us there.

TECHNOLOGY
Intel is denied export license over national security; Concern that IBM ‘breaking ranks’ with U.S. industry

The U.S. government, citing “national security and foreign policy interests,” banned the export of high-end Intel hardware to Chinese supercomputing centers, leading some to suggest China will simply accelerate its own development. U.S. Commerce Secretary Penny Pritzker was in Beijing pushing market access and heard about it from Premier Li Keqiang, who reportedly said that if export restrictions aren’t relaxed, China will look to Russia and elsewhere. Meanwhile, a New York Timesstory reported on concerns that an IBM venture with China undermines the U.S. position that proposed Chinese technology rules (see next item) could effectively exclude U.S. firms from the market.

ANALYSIS: The Intel developments underline that security concerns are a two-way issue in U.S.–China technology trade. When the Chinese government pushes for homegrown products, it partially fears U.S. surveillance. When the U.S. government blocks security-related exports, it partially fears strategic competition. But the Chinese government also wants a strong domestic tech industry for its own sake, and U.S. export restrictions derive from politics that can frustrate industry.

TRADE & STATECRAFT
China suspends contested IT rules for banking as both governments ramp up pre-summit diplomacy

The tempo of U.S.–China interactions, positive and negative, over trade and economic issues has risen in recent weeks, and one top U.S. demand has centered around market access for IT companies in China. This week, Vice Minister of Finance Zhu Guangyao in Washington told U.S. counterparts that China would suspend one particularly controversial rule requiring technology in the banking industry to submit to intrusive security checks, potentially blocking products from U.S. companies that could not or would not comply. Whether the revised rules will represent real change is unclear. Meanwhile, President Barack Obama continued his (risky?) effort to sell the TPP at home partially by appealing to fear of Chinese leadership: “[I]f we do not help to shape the rules so that our businesses and our workers can compete in those markets, then China will set up rules that advantage Chinese workers and Chinese businesses.”

ANALYSIS: Chinese actions that respond to U.S. demands should be examined in light of the coming meeting between Obama and President Xi Jinping in September and pending bilateral investment treaty negotiations. Even if these rules are gone forever, don’t bet the Chinese government intends to let up on developing an autonomous, domestic IT industry. Meanwhile, Obama’s comment and other administration moves, for instance on cybersecurity, suggest the U.S. government has significantly toughened its stance on China economic issues.

SOUTH CHINA SEA
Looking past China’s island construction: What’s next?

Nong Hong, head of the Institute for China-America Studies (ICAS), a Washington group created by a key Chinese South China Sea research center, offers an interesting account of the “facts on the water” in the South China Sea. Hong argues that island construction is legal so long as exclusive economic zones are not yet settled, and that it doesn’t change the status of the underlying features, but that China may be in conflict with the law over the UN Convention on the Law of the Sea’s provisions on “due notice” and environmental impact (on which see this from my colleague Robert Williams). Hong suggests China should employ soft power and work with ASEAN, but that the United States is the real challenge. The two countries, she writes, need to “engage each other and maintain regular consultations on how they can coexist with their respective core interests.”

ANALYSIS: It is refreshing to see a seemingly reality-based (as opposed to rhetoric-driven) account of the current dilemma from a source who can be seen as close to one of the key governments. Locating the crux of the issue in the U.S.–China relationship, however, is a half-truth. The U.S. may not be a claimant, but it is surely a key actor in the region. Still, the crux of the issue is how China, its neighbors, and others can come to an acceptable equilibrium for this important swath of the planet.

BLITZ
Paulson’s rich deluge of media and the contest to set the 2016 agenda

Former U.S. Treasury Secretary Hank Paulson must have been saving up some energy before embarking on a media blitz to promote his new book on Dealing with China. Among the best reads: David Wertime of FP/Tea Leaf Nation has a rich storybased on an interview; Paulson writes in The Wall Street Journal that China should “double down on reform,” not reach for stimulus; and here’s Paulson backing the conventional wisdom that the U.S. handling of the Asian Infrastructure Investment Bank was a fiasco. Jeffrey Wasserstrom has reviewed the book, calling Paulson’s approach “engagement without illusions” but saying he is “too soft” on civil society developments.

ANALYSIS: I haven’t read the book, so no comment on that. But Paulson comes out at a time when the China policy landscape for the U.S. political community is being reshaped ahead of the 2016 election and the next administration. In addition to the containment-in-all-but-name report from CFR (discussed last week), former Australian Prime Minister Kevin Rudd joined that discussion this week, calling for “constructive realism.”

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