21 August 2019
President Xi Jinping talks to US Secretary of State John Kerry as Chinese Vice Premier Liu Yandong listens in Beijing last week. Photo: AFP
President Xi Jinping talks to US Secretary of State John Kerry as Chinese Vice Premier Liu Yandong listens in Beijing last week. Photo: AFP

US, China make more progress on economic than political track

The political track of the United States-China strategic and economic dialogue held last week in Beijing was beset by bickering, such as those over China’s maritime disputes and charges and countercharges over cyber espionage, with little of substance achieved. Things were different, however, on the economic track, where there was movement on negotiating a high-quality bilateral investment treaty and reduction of government intervention in the value of the Chinese currency.

Concessions were not one-way. The US agreed to “continue to move towards a growth pattern characterized by higher investment and national savings, cut federal budget deficit, reduce debt-to-GDP ratio, encourage personal saving, and pay closer attention to the impact of the US monetary policy on the international financial system”.

Even on the strategic track, there was reason for some satisfaction as the two sides proved willing to set aside differences and not let one or two issues hijack the whole relationship.

China refused to convene the cyber working group, canceled after the US announced the indictment by the Department of Justice of five Chinese military officers for allegedly having stolen American corporate or proprietary information and transferring it to China’s state-owned enterprises.

The Chinese side made it clear that for cooperation on the crucial cyber issue to resume, the US must first demonstrate “sincerity” by dropping charges against the Chinese officers.

Despite such problems, however, the two sides were able to make progress with dozens of “outcomes” on each track. President Xi Jinping, meeting Secretary of State John Kerry and Treasury Secretary Jacob Lew, the US co-chairs, called on the two sides to accelerate discussions on the bilateral investment treaty, increase military contact while increasing cooperation on climate change.

The approach, he said, is for the two sides to “seek common ground while reserving or resolving differences and conflict”.

Similar sentiments were voiced by US President Barack Obama, who stated in a letter that the two countries should demonstrate to the world that even when “the relationship is complex as ours, we remain determined to ensure that cooperation defines our overall relations”.

During talks on the economic track, the US and China agreed to intensify negotiations on a bilateral investment treaty with the aim of agreeing on a text this year and starting negotiations on China’s negative list in early 2015. The negative list reflects a major shift that China agreed to last year, with a presumption on openness and with areas closed to foreign investment being confined to a list.

So well is Chinese overseas investment doing that last year, Chinese direct investment in the US was greater than US investment into China for the first time. “Chinese firms are making important contributions to US output and employment and are valued members of the communities in which they invest,” Kerry acknowledged.

On the perennial issue of the value of the renminbi, China pledged to “reduce foreign exchange intervention as conditions permit, and increase exchange rate flexibility”. Granted the concession was vague, but it was the first time the Chinese had agreed to put this in writing in a jointly issued document.

Although the yuan has increased 2.4 percent in value since January and 17 percent since 2010, the Americans were still pressing the Chinese to do more.

Discord on the political side was reflected in Chinese State Councilor Yang Jiechi’s statement at the end of the two-day meeting in Beijing.

At one point Yang said “the two sides” – then quickly corrected himself to say the “Chinese side” – “reaffirmed that both should respect each other’s sovereignty and territorial integrity, respect the choice of development paths, and properly handle their differences with constructive manner”.

Clearly, the Americans wouldn’t agree to this description of the new type of relations between major powers that both sides had agreed to develop, especially since China has multiple territorial disputes with its neighbors, some of whom are US allies.

Kerry was asked at a press conference how discussions in the strategic and economic tracks affect each other. Though he did not respond directly, at another point he said, “the State Department today is very clear that economic policy is foreign policy and foreign policy is economic policy.”

Sino-American bilateral relations have clearly moved beyond the point when the overall relationship can be held hostage to any one issue, such as arms sales to Taiwan or human rights. The two sides are now able to make progress in areas where they have common interests while reserving differences in other areas.

Such actions may well be the way to lead to the development of a new type of major power relationship.

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Frank Ching opened The Wall Street Journal’s Bureau in China in 1979. He is now a Hong Kong-based writer on Chinese affairs.

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