Thaw in U.S.-China ties driven by domestic issues

Frank Ching December 05, 2023 09:29

Expectations were low for the meeting between American president Joe Biden and his Chinese counterpart, Xi Jinping, held Nov. 15 in San Francisco. But since then, there has been a lowering of tension and a rare sense of stability in the U.S.-China relationship.

Both sides gave high marks to the summit. China’s foreign minister Wang Yi said: “The San Francisco meeting is significant for enhancing trust, removing suspicion, managing differences and expanding cooperation between China and the United States.”

Biden said the discussions were “some of the most constructive and productive we’ve had.”

Both sides hope stable relations will enable them to focus on key domestic matters.

On China’s part, there is an urgent need to cope with its slowing economy, including a property crisis, high youth unemployment and an unprecedented outflow of foreign investment.

Hours after the summit, Xi spoke at a dinner attended by top business leaders, assuring them that China was ready to be a friend and partner of the United States and asserting that its modernization offered a “huge opportunity” for the world.

Nicholas R. Lardy of the Peterson Institute for International Economics, in an article published two days later, linked Xi’s dialing back tensions to the surge of repatriation of earnings by foreign firms in China.

“These outflows exceeded $100 billion in the first three quarters of 2023 and are likely to grow further based on trends to date,” he wrote. “The investment selloffs are contributing to downward pressure on the value of the Chinese currency and, if sustained, will modestly reduce China’s potential growth.”

China’s attraction to investors was sharply reduced after three years of the Covid-19 epidemic, accompanied by an increasingly hostile relationship with the United States, which criticized China on its handling of the epidemic and for its actions in Xinjiang, Tibet and Hong Kong.

While Xi received a standing ovation, it will take more than words to convince American corporates to invest. That is because Xi’s policy to attract investors is countered by his higher-priority emphasis on security.

One example is China’s clampdown on the consultancy and due diligence sector. In March, police raided the Beijing office of U.S. firm Mintz Group, detained all five of its local staff and closed its office. Subsequently, Mintz was accused of conducting “foreign-related statistical investigations” without approval and fined $1.5 million.

Separately, the Shanghai staff of Bain & Company was questioned by the police. State security forces raided the Shanghai offices of Capvision, which was accused of helping to leak sensitive military information.

In April, China tightened its anti-espionage law, banning the transfer of information on national security and widening the definition of spying.

Such actions inevitably had a chilling effect on foreign investors.
Biden, too, has his hands full as the 2024 presidential election campaign rolls on. In addition to facing a polarized Republican opposition, he has to deal with firestorms created by his own party.

The meeting with Xi underlines this. Biden announced after the summit that the U.S. and China were “restarting cooperation on counter-narcotics” to deal with America’s drug overdose crisis, which claims 100,000-plus lives a year, about 70,000 of which involve fentanyl.

In the past, China had cooperated by cutting the flow of fentanyl into the country. However, after Nancy Pelosi, then House Speaker, visited Taiwan in August 2022 despite loud protests by Beijing, China stopped cooperation in narcotics control and certain other areas.

Three areas were communications between theater commanders, defense policy coordination talks and a military maritime security consultative mechanism.

Biden announced the resumption of military-to-military communications channels, shut since August 2022. Their absence, he pointed out, could lead to accidents.

It took 16 months to get China to drop its penalties for the actions of one person, Nancy Pelosi, a Democrat and supposed Biden supporter.

How long will the thaw last?

One threat emerged Nov. 29 when the House Foreign Affairs Committee passed the Hong Kong Economic and Trade Office Certification Act, aimed at shutting down Hong Kong’s three offices in the United States. The vote, two weeks after the summit, was unanimous, with Democrats joining Republicans.

The next day, China’s Foreign Ministry Commission in Hong Kong warned Washington to “step back from the edge of the cliff.”

In the long run, improved U.S.-China relations must be rooted in better ties between the two peoples.

Meanwhile, the Pelosi incident should provide a lesson, if not to Congress then at least to Democrats that they need to support their president. Without such support, no president can deal effectively with foreign leaders, not to say China’s president.

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Frank Ching

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