President Xi Jinping may have spent the week touting cooperation with Russia, but an intensive period of U.S.–China activity is approaching. The State Departmentannounced today the Strategic & Economic Dialogue (S&ED) will take place late next month in Washington, and Secretary of State John Kerry is traveling to Beijing to prepare for S&ED and Xi’s September state visit with President Barack Obama. We can expect skeptical coverage, like this from the Washington Post today, to dominate U.S. media while officials put on a friendly face.
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LAW AND THE MARKET
Chinese firms, with help of their government, avoid enforcement of significant U.S. laws
A new report by a U.S. Congressional commission analyst neatly outlines several ways the U.S. legal system is frustrated by the “extraterritoriality” of Chinese firms operating in the U.S. market and financial system. “Chinese financial institutions can effectively operate behind a firewall that keeps them largely immune from the jurisdiction of U.S. courts and regulatory agencies, leaving U.S. partners, competitors, and investors vulnerable. … Multiple examples already exist of China-based financial institutions arguing that their complex multinational corporate structures and the need to comply with Chinese law, especially state and banking secrecy laws, makes them immune to U.S. jurisdiction.” The report offers policy suggestions, including “legislation definitively declaring that China-based firms which list on or participate in U.S. financial markets are subject to the jurisdiction of U.S. courts would eliminate any ambiguities about this jurisdiction.”
ANALYSIS: The author, Kevin Rosier, argues hopes that Chinese business presence would have “positive spillover effects on the behavior of Chinese firms and rule of law in China” have not been fulfilled. I would propose that it’s possible there could both be positive effects and significant difficulties on the U.S. side. The report provides a quick, clear vision of the difficulties.
A case for the U.S. government pushing China toward democracy
Two high-level George W. Bush administration officials have published a must-read argument for a major shift in U.S. policy toward China. Dan Blumenthal and William Inboden argue that economic development has not led to democratization in China, and that the U.S. government should add a “freedom prong” to its longstanding two-prong policy of engagement and hedging. “Just as the United States should protect its security and economic interests in Asia, the grand aim of U.S. strategy should be the measured yet persistent push for a free and democratic China. … A free and democratic China would not only tame the increasingly dangerous strategic rivalry but also change the world: The Chinese people are enterprising and resilient, and more freedom in China would unleash their potential for innovation, commerce, and creativity.”
ANALYSIS: There is of course the question of how the U.S. government might realistically push for democracy, but this essay takes that challenge seriously. Agree or disagree, this argument should be taken seriously as part of a growing toolbox for Republican presidential candidates and even for Hillary Clinton. Significantly, Blumenthal and Inboden argue that U.S. businesses are more likely to favor an aggressive human rights approach given their frustration with China in recent years.
U.S. report sees significant developments in China’s military efforts
The U.S. Department of Defense this week released its annual report to Congress on Chinese military modernization, concluding that the United States risks losing its technological edge, that China is using “low-intensity coercion” in the South China Sea, and that cybersecurity and space are among key areas to watch. The report is a valuable reference, and Andrew Erickson has written a nice summary emphasizing that China has both new strengths and substantial persistent weaknesses in the military sphere. A Chinese Defense Ministry spokesperson decried the report for hyping the “China threat” concept.
ANALYSIS: For something that came out of the Pentagon’s acronym constellation, this is an uncommonly easy to read piece of work. It also highlights U.S. and Chinese efforts to expand military-to-military ties, something hawks on Capitol Hill have been calling into question. These ties are low-cost and high-value, and should be expanded, not stopped. The two sides also need to seriously engage on cybersecurity norms and confidence-building measures.
U.S. pushes China to investigate GitHub attack; China’s ‘cyberspace sovereignty’ concept appears in draft law
Asked about the Chinese so-called “Great Cannon” that redirected foreign Internet traffic heading for Baidu in a denial of service attack against the software developing platform GitHub, a State Department spokesperson said: “The cyber attack manipulated international web traffic intended for one of China’s biggest web services companies and turned it into malicious traffic directed at U.S. sites. We have asked Chinese authorities to investigate this activity and provide us with the results of their investigation.” Meanwhile, a draft National Security Law published by the Chinese government enshrines “cyberspace sovereignty” as a national security priority. A crowdsourced English translation is here.
ANALYSIS: These developments are consistent with both governments’ recent approaches. For the U.S. government, faced with unsatisfactory responses from the Chinese government, numerous relatively minor events are opportunities to push counterparts toward engagement. (I doubt this will work, but it’s better than most alternatives.) For China’s government, codifying and emphasizing the right to exclude foreign influences (including online) is an overarching trend. Despite a reported U.S. push at the UN for cyberspace norms, we see China and the United States essentially speaking different languages about the Internet.
Everyone says everyone’s at fault in the South China Sea
After a weeks-long campaign by U.S. and other media and officials raising alarm at China’s island construction in the South China Sea, China’s government has accusedthe Philippines of breaking the Declaration on the Conduct of Parties over its own construction efforts. An unnamed Pentagon official told Reuters, “We do not support South China Sea land reclamation efforts by any party. … However, the pace and scale of China’s land reclamation in recent years dwarfs that of any other claimant. China has expanded the acreage on outposts it occupies by some 400 times.” Reuters also reported on Vietnam’s construction, and China’s spokesperson claimed China’s larger efforts are “should be commensurate with its responsibilities and obligations as a major country.” And just for fun, sources told Reuters Japan and the Philippines would hold their first joint naval exercise this month in the South China Sea.
ANALYSIS: The torrent of accusations and the thick tangle of amity and confrontation between states in the region would be amusing if it weren’t so dangerous. The more these countries have military and civilian ships and aircraft operating in close proximity and amidst bitter recriminations, the more likely we are to see a dangerous military confrontation that would almost certainly involve the United States and China at some level.
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].