U.S.–China Week: Diplomatic end-game for Obama era, Kerry to Beijing on DPRK, China’s OFDI, Jeb on China, Cui Liru on power transition (2016.01.25)

Welcome to Issue 37 of U.S.–China Week. As always: Please encourage friends and colleagues to subscribe to U.S.–China Week. Here is the web version of this issue, ideal for sharing on social media. And please send your comments, quibbles, and suggestions to [email protected].

DIPLOMACY
Kerry in Southeast Asia swing before Beijing visit; Blinken concludes strategic and Taiwan talks in China

Secretary of State John Kerry began a trip to East Asia in Vientiane before traveling on to Phnom Penh and Beijing this week. An official said the Laos and Cambodia legs were designed to set up the ASEAN leader summit President Barack Obama is to hostin the coming weeks in California. “The preeminent issue … with the Chinese vis-a-vis the DPRK is the question of how China, in tandem with international partners and on a bilateral basis—or I should say perhaps a unilateral basis—can convince the DPRK to reverse course,” a State Department official said in a briefing dominated by North Korea issues. Kerry was circumspect when speaking to reporters in Laos. / Deputy Secretary of State Tony Blinken concluded his trip to China for the Interim Strategic Security Dialogue, with counterpart Executive Vice Foreign Minister Zhang Yesui and defense-side leads Deputy Assistant Secretary of Defense Abe Denmark and Rear Admiral Li Ji. The trip, intentionally or not, coincided with the period following Taiwan’s election, and Blinken met with Taiwan Affairs Office Minister Zhang Zhijun. The State readout also said Blinken met with unspecified “members of civil society to reinforce the United States’ concern over the diminishing space for freedom of expression in China.” The Chinese readout was very sparse.

ANALYSIS: As the Obama administration entered its final year this week, North Korea was perhaps the only China-related issue that is difficult and urgent, without needing substantial Congressional cooperation to make a lasting mark. A bilateral investment treaty would almost certainly have to wait until after the election. Incremental improvements in bilateral crisis mechanisms are worthwhile but not as crucial. One other area of opportunity, depending on how implementation of September’s agreements has gone, could be developing norms for bilateral and multilateral conduct in cyberspace. But for legacy-making, nothing would beat a breakthrough on North Korea.

SUMMITRY
Xi likely to attend late March nuclear summit in Washington

Nuclear security and North Korea might be rising on the U.S.–China official agenda even without the recent nuclear test. SCMP reports sources in both countries say President Xi Jinping is likely to attend the Nuclear Security Summit in Washington,set for March 31–April 1.

ANALYSIS: Though Xi’s attendance is a solid rumor, the fact that it hasn’t been announced yet means plans could change. Assuming he does attend, this will be one of Xi’s last chances to meet with this U.S. president, and one of Obama’s last chances to make a mark on bilateral ties. Obama has said he looks forward to the China-hosted G20 meeting this year in Hangzhou, providing one more opportunity for meetings, likely in September. By then, however, Obama will be closer to what many Chinese analysts erroneously assumed he became after the 2014 midterm elections: a lame duck. Still, the governments could make progress on a wide variety of issues, using the last Obama–Xi meetings as motivating deadlines. The Chinese side may be eager to reach agreements if they believe the next president will be less willing to deal.

INVESTMENT
2015 was top year for Chinese investment in U.S. with $15.7B in M&A and new ventures

Chinese investment in the United States was the highest ever in 2015, with $14 billion in mergers and acquisitions (M&A) and $1.8 in greenfield investments, or new ventures, according to the Rhodium Group. One report suggests China’s global outbound M&A surpassed $100 billion, but Rhodium puts the number at $61 billion. Rhodium’s Thilo Hanemann and Cassie Gao write that: services now account for about two thirds of investment targets; 84 percent of total investment comes from privately owned firms; and more than $22 billion in pending acquisitions are in the pipeline at the beginning of 2016. U.S. security reviews by the Committee on Foreign Investment in the United States (CFIUS) have not been a significant barrier, they argue, but political risk on the Chinese side is increasing. Limits designed to reduce capital flight may interfere with outbound investment, the Chinese currency might depreciate against the dollar, and private firms could find themselves targets of corruption investigations.

ANALYSIS: In 2016, we should learn more about whether CFIUS really is a practical barrier for Chinese acquisitions. Analysts seem to agree Chinese firms are better informed about potential U.S. security concerns, and several deals have reportedly been proactively submitted for review. That huge $22 billion deal pipeline contains test cases, especially in technology, with Omnivision, Western Digital, Philips’ LED unit, and GE Appliances on the docket, according to Rhodium.

CAMPAIGN 2016
As Jeb Bush talks China, status quo ideas from a candidate unlikely to win early contests

Republican presidential candidate and former Florida Governor Jeb Bush spoke at some length about U.S. China policy during an event at the Council on Foreign Relations. Targeting Donald Trump, Bush said, “Someone who proposes a 45 percent tariff across the board on China, it’s not a serious proposal. It’s basically advocacy of a global depression that will wipe out the middle class in this country.” Bush called for “full engagement with the Chinese across the board,” citing North Korea and the potential for “huge misunderstandings” between the United States and China. Bush questioned the “pivot” for the regular reasons about seeming to abandon other regions and talking a big game that Asian governments don’t always agree is backed up. Bush stayed measured throughout his China comments, concluding: “The China miracle is phenomenal. It is something to be admired. But I don’t think it’s sustainable in its current form, no matter how impressive President Xi is.” / BothChinaFile and the East-West Center have great sites tracking the candidates on China and Asia.

ANALYSIS: Poll analysis by FiveThirtyEight sees Bush running 5th in both Iowa and New Hampshire, surpassed in both states by Trump, Ted Cruz, and Marco Rubio. Of those three, Rubio (see third item two weeks ago) is the only to have outlined a fairly coherent approach to China. Both Bush and Rubio, though duty-bound to trash Obama administration policy and its first-term chief implementer Hillary Clinton, support essentially status-quo China policy. We’re going to have to look deeper, and likely wait a few months, to discern any partisan difference in the 2016 campaign.

WORLD ORDER
Cui Liru: Multipolar world and China’s emergence as strategic competitor worries U.S.

Cui Liru, former president of the influential China Institutes of Contemporary International Relations (CICIR), argues that global multipolarity, “U.S. strategic contraction,” and an “expansive trend” in China’s international activities have made “major-country diplomacy” necessary in U.S.–China relations. Cui identifies the South China Sea and cybersecurity as the “two major disputes” in bilateral ties. He calls the cyberspace “agreement” from Xi’s Washington visit both “partial progress” and a “great breakthrough,” but argues the South China Sea issue is set up for “long-term wrestling.” The reason, he argues, is that “the U.S. intention to maintain its dominance in the Asia-Pacific remains unchanged.”

ANALYSIS: Cui’s analysis is at once conventional and revealing. Particularly revealing is what is missing: any sense that the United States and China might engage in anything positive together, and any concern about potential Chinese weakness. Cui advocates “risk control and development of crisis-management mechanisms,” but he seems to assume Chinese intentions are to undermine U.S. power in the region and that U.S. decision makers will allow that to happen quietly. China’s developing military has already changed the power calculus for certain scenarios, but this kind of confidence seems out of date. The U.S. decline narrative is tied closely to the financial crisis, and China might be on the verge of one of its own.

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 senior research scholar, lecturer, and senior fellow of The China Center at Yale Law School, where he specializes in 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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