Robert A. Manning: Trying to bridge the US-China trust deficit

Robert A. Manning: Trying to bridge the US-China trust deficit

WASHINGTON — Now that the dust has settled from Chinese President Xi Jinping’s state visit to the U.S., what does it all add up to? His summit with President Barack Obama took place amid heightened tensions between the U.S. and China as well as growing debate over U.S. policy toward China.

     The relationship of the world’s two largest economies and two biggest military powers, arguably the world’s most important, appears to be at a tipping point. Xi’s visit marked a major juncture.

     Despite flowery speeches and the positive spin of White House fact sheets, there are few signs that Xi is altering his nationalist economic policies, biased toward creating “national champions” and using opaque, discriminatory legal and regulatory policies that complicate life for U.S. investors. Nor are there indications that Beijing is rethinking its assertive foreign policies that challenge the U.S. posture in East Asia.

     Looking ahead, the degree to which Xi succeeds in implementing radical market reforms aimed at changing China’s economic model from an investment and export-driven one to an innovative consumer-driven and service-oriented one may be the critical factor in shaping Beijing’s economic and foreign policies in the future. But to date, China is a long way from its stated goal of having the market play a “decisive role” in managing the economy.

     For the near term, the assumptions that have guided U.S. policy on China since U.S. President Richard Nixon’s visit in 1972 are being called into doubt by U.S. businesses as well as the U.S. intellectual elite. Rising Chinese nationalism in terms of both its foreign and economic policies, concerns over cybersecurity, Chinese techno-nationalism and U.S. business’s difficulties in operating in China as well as China’s assertive posture in the South China Sea pose challenges on U.S. policy toward China. Few solutions to these problems are in sight.

Unprecedented negotiations

Despite the concerns, though, in theory at least, agreements on cybersecurity, investment and climate change appear to have slowed, if not halted, the downward spiral in Sino-U.S. relations, at least for the moment.

     The economic relationship is key, as demonstrated by the remarkable “who’s who” of Silicon Valley CEOs gathered in Seattle to meet Xi. By all accounts, Xi was impressive, addressing many U.S. concerns about China’s direction — or at least saying soothing things to defuse tensions.

     Both sides sought to reassure the other. The White House welcomed Xi with a 21-gun salute and red carpet treatment usually reserved for democratic allies. This was a key objective for Xi: to send a message home through extensive media coverage that China is being treated with respect as a great power. Xi, in his speech and meetings in Seattle, emphasized that, “opening up is a basic state policy of China,” and pledged to implement reforms to give the market a “decisive role,” and to “protect the legitimate rights and interests of foreign investors.”

     The most contentious issue in the bilateral relationship is cybersecurity. The two countries have markedly different views of the Internet: The U.S. focus is on open access; China endorses “cyber sovereignty” and uses its Great Firewall to control access.

     Massive cyberespionage of the U.S. Office of Personnel Management, hacking information on 21 million current and former U.S. officials and the cybertheft of intellectual property belonging to U.S. companies has forced President Obama to gear up toward issuing sanctions against Chinese companies that benefit from these cybercrimes.

     This threat led to unprecedented closed-door negotiations between top aides to Xi and U.S. officials — including U.S. Attorney General Loretta Lynch and FBI Director James Comey. These talks appear to have paved the way for a common ground achieved at the summit.

Serious doubt

The agreed formulation is that “neither country’s government will conduct or knowingly support cyberenabled theft of intellectual property, including trade secrets or other confidential business information, with the intent of providing competitive advantages to companies or commercial sectors.” In addition, Xi and Obama agreed to create a cabinet-level mechanism and hotline to address concerns. Both pledged to cooperate in creating a global code of conduct for cyberscecurity.

     But there is lingering skepticism that China will stop doing what it claims it has never done. Obama questioned if words would be followed by actions. Nonetheless, the agreement marks the first time for such a commitment from Beijing and, if implemented, could be a major breakthrough. But most analysts doubt that Chinese state-sponsored cyberhacking, done through networks of independent contractors, will cease anytime soon.

     Cyberissues are among larger concerns about an economic relationship that in 2014 totaled $590 billion in two-way trade and China’s holding of $1.2 trillion in U.S. Treasurys. In pre-summit meetings in Seattle with several dozen leading CEOs, Xi heard complaints about taller obstacles facing foreign businesses in China, as reflected in comments from U.S. Commerce Secretary Penny Pritzger: “We — and our companies — continue to have serious concerns about an overall lack of legal and regulatory transparency, inconsistent protection of intellectual property, discriminatory cyber and technology policies, and more generally, the lack of a level playing field across a range of sectors.

     Xi and Obama announced progress on the Bilateral Investment Treaty, which has the potential to strengthen the key, yet beleaguered, economic pillar of the relationship and revive waning U.S. business enthusiasm for the relationship. Talks had stalled as each side offered “negative lists” of items to be excluded. These lists can wall off industries considered strategic — such as energy, aviation, telecommunications, or access to state-owned industry procurement — and many were on the initial lists. These appeared to be pared back, and both leaders pledged to accelerate efforts on the investment treaty. But in my discussions afterward with U.S. corporate officials, they expressed serious doubt that China would follow through.

Cooperative vs. competitive

There were also agreements on finance and development cooperation, including Beijing commitments to the Bretton Woods system, as well as on a range of global issues such as wildlife protection, development, infectious diseases, terrorism and nonproliferation.

     The showcase global issue is increased U.S.-China climate cooperation. Xi’s announced commitment to a cap-and-trade carbon scheme, similar to that of the European Union, is emblematic of the Sino-U.S. partnership, as is China’s cooperation in obtaining the Iran nuclear accord. However, the EU system has been a disaster, with mismatches between carbon prices and the allowance of permits leaving prices too low to provide incentives for industry. Implementing reform will be far more difficult in a much larger and more complex Chinese carbon market.

     On key security issues, apart from a modest, but important, confidence-building measure of improving air-to-air military communication, there appears a standoff in regard to views of the problem. Xi reiterated Chinese claims to the entire South China Sea and gave no hints of flexibility, offering only a vague pledge not to “militarize” some 2,000 acres of reclaimed land on disputed islets where China has recently built ports and airstrips. What Xi meant is likely to be explored in U.S.-China working level diplomacy and military-to-military dialogue. There is little indication that the summit will alter U.S.-China strategic competition.

     Obama describes his foreign policy as “hitting singles and doubles,” not home runs — baseball terminology for moving in spurts rather than big bursts. All told, the summit appears to be, at best, a solid single. One problem in assessing Sino-U.S. ties is that the relationship is so large and complex that areas of friction are inevitable. The increasingly difficult challenge is to shape and sustain a relationship that is more cooperative than competitive — and not allow one area of disagreement or confrontation to overwhelm the overall relationship.

     Implementation of many of the agreements reached at the Xi-Obama meeting can show whether China is moving toward more cooperation. If so, China could reduce the large trust deficit in Sino-U.S. ties and put the relationship on a trajectory that will lead Obama’s successor in 2017 to also pursue a policy that is more cooperative than competitive.

The author is a senior fellow of the Brent Scowcroft Center for International Security at the Atlantic Council. Follow him on Twitter @RManning4.

Robert A. Manning: Trying to bridge the US-China trust deficit