U.S.–China Week Issue 3: Big trade speech, China’s Defense Ministry speaks, bribery and business, South China Sea jockeying (2015.05.04)

Japanese Prime Minister Shinzo Abe just finished a weeklong trip to the United States, and although China’s government responded at various times to U.S.–Japan statements and Abe’s speech in Congress, Japan was still a background issue for this week’s U.S.–China news. The U.S. media will have several more chances this year to focus on East Asia, including U.S. visits by South Korean President Park Geun-Hye and Chinese President Xi Jinping, and Obama’s trip (confirmed here) to the APEC summit in Manila this November.

As always: Please encourage interested friends and colleagues to subscribe to the list. You can find a copy of this issue at Transpacifica.net. That’s the best link to share on social media. Please send your comments, quibbles, and suggestions to[email protected].

INVESTMENT AND TRADE
U.S. speech on China economic ties suggests bilateral investment treaty prospects still uncertain

U.S. Trade Representative Michael Froman gave an important speech on China trade issues that’s worth reading in full. Froman says China’s “suspension” of banking and counterterrorism rules that affect U.S. tech firms “may be more of a pause than a resolution” and the proof will be “whether our companies are beginning to see orders for their products flow again.” He said bilateral investment treaty (BIT) negotiations are entering the negative list phase soon, and that “a negative list that echoes the lists of the Shanghai Free Trade Zone or the most recent revision of China’s foreign investment catalog would be a major disappointment and a departure from China’s stated ambition to use the BIT as a vehicle for economic reform and opening.” Meanwhile, Obama is still busy trying to sell the Trans-Pacific Partnership (TPP) to a skeptical Congress, and he’s using the purported threat of Chinese leadership as a motivator. Bob Davis in the WSJ has a good overview of the differing U.S. and Chinese approaches to trade, but basically the Chinese government seems less concerned about TPP than before.

ANALYSIS: Froman’s remarks about the BIT negative list are important. Top Chinese officials say they want the BIT negotiations to assist in reforming the Chinese economy, but strong domestic political forces make it hard for them to come to the U.S. side with something USTR and Congress would work with. Domestic limitations on both sides are the greatest challenge to the BIT.

WORLD ECONOMY, TWO SYSTEMS
Wall Street banks fighting U.S. authorities over ‘aggressive’ anti-bribery stance on China princeling hires

WSJ reports that a group of U.S. “banks have accused the government of overreaching by threatening to criminalize standard business practices in some countries.” J.P. Morgan’s China hires, including the son of the Chinese commerce minister, are the subject of a key investigation now joined by the New York Fed. U.S. law “bans U.S. companies from giving anything of value to a foreign official to gain business or an unfair advantage. Both sides agree that an executive of a state-owned company is considered a government official, but there is dispute over what conduct is considered legally corrupt in cultures in which it is common to hire well-connected individuals.”

ANALYSIS: Surely there is no culture in the United States of hiring well-connected individuals! But seriously, just because someone is well connected doesn’t mean they’re not qualified. Still, this story represents an important tug-of-war between capital and civil regulators. If the U.S. government wants to preach a rules-based international system, it should consistently enforce its own rules—including, by the way, on Chinese firms listed in the United States.

SOUTH CHINA SEA
Nice try? U.S. seems to reject Chinese claim that new island facilities could be used by all, provide public goods

China’s Navy chief told his U.S counterpart: “China welcomes the international organizations, the U.S. and relevant countries to use China’s civilian facilities on the islands and reefs in the South China Sea to carry out cooperation on humanitarian assistance and disaster relief operations, when conditions are ripe,” according to the Ministry of Defense. A U.S. State Department spokesman said: “Well, building facilities on reclaimed land in disputed areas will not contribute to peace and stability in the region,” adding that he was “not aware” of an invitation for the United States to use them.

ANALYSIS: It might have been more useful if the U.S. government’s rebuff came with a statement that cooperation in the area would be more realistic if a multilateral plan had preceded construction. Relatedly: Reports that Japan and the United States might engage in joint patrols in the South China Sea seem unlikely to bear out. These could be leaks by ambitious members of Japan’s military, but are unnecessarily inflammatory in any case.

THE UNDER-USED PODIUM
China’s Defense Ministry spokesman on U.S.–Japan, U.S.–Philippines, U.S. cybersecurity policy, Medeiros, and more

China’s Ministry of Defense only recently implemented a monthly (or so) press briefing. This week’s briefing made a lot of news. Spokesman Geng Yansheng criticized the U.S. and Japan program to “expand their defense cooperation to the whole world”; said U.S.–Philippine military exercises “create tensions in the region”; and warned the new U.S. Cyber Strategy “will further escalate tensions and trigger an arms race in cyber space.” He also directly responded to National Security Council Asia chief Evan Medeiros’ statement on Japan’s ties in the region that “what we want is for history to be history.” Geng said: “History should not be forgotten, justice needs to be upheld, and peace needs to be defended. The remarks of relevant U.S. people are wrong. If we do not face up to history, the same error might be recommitted and historical tragedies might be repeated.”

ANALYSIS: China’s government might have a better time getting its perspective out if these briefings were more frequent. Keeping them monthly, on the other hand, allows them to prepare to answer only the questions they really want to. I’m probably closer to Geng on this (narrow) history question, but Medeiros put it better later: “let history be history, but be mindful of it.”

BAD OPTIONS
Chinese analysis: China–U.S. military competition in the Pacific a lose-lose, but plenty of possible smaller conflicts

Large-scale competition between China and the United States in the Pacific reminiscent of that between Japan and the United States in the mid-20th century would mean everyone loses, according to an analysis on Sina’s military channel. (There is a pretty good English version.) Nonetheless, the article goes through potential flashpoints and outlines the challenges Chinese forces would likely face. Those flashpoints include Taiwan, the South China Sea, the Senkaku/Diaoyu Islands, a North Korea contingency, and island defense in the South China Sea. The article also summarizes “counter-intervention” (反介入) and island chain tactical issues.

ANALYSIS: The writer is very clear that U.S.–China differences are relatively limited, and the strategic landscape is very different, compared with what here is deemed the natural analog, the U.S.–Japan conflict in World War II. What’s interesting is an apparent sense that China still might be able to wring out some small victories (with significant difficulty) while avoiding escalation.

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 research scholar and senior fellow at Yale Law School’s China Center, where he focuses on U.S.–China diplomatic, security, and economic relations through research and Track II dialogues. A full bio is available here.

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

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

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

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