Reuters: The five most important issues in U.S.-China relations

By William Johnson
June 23, 2015

This week, the United States will host the seventh annual U.S.-China Strategic and Economic Dialogue (S&ED), the capstone piece of more than 90 high-level meetings between American and Chinese officials. Treasury Secretary Jack Lew and his Chinese counterpart will lead the economic track, while Secretary of State John Kerry and his counterpart will co-chair the strategic track. All four will be acting as the direct representatives of their respective presidents.

This year’s dialogue has special significance because it will set the stage for President Xi’s state visit in September. U.S.-China relations have been rocky recently, owing primarily to tensions in the South China Sea, China’s new law governing foreign non-governmental organizations, and friction over membership in China’s Asian Infrastructure Investment Bankand the U.S.-led Trans-Pacific Partnership (TPP). In addition to these issues, Chinese and American leaders will devote substantial attention to cybersecurity and the recently disclosed hack of the Office of Personnel Management’s database, as well as the ongoing negotiations toward a U.S.-China Bilateral Investment Treaty (BIT).

Chinese Foreign Minister Wang Yi (R) and US Secretary of
State John Kerry hold a joint news conference following
meetings at the Ministry of Foreign Affairs in Beijing May 16,
2015. REUTERS/Saul Loeb/Pool

The diplomatic community has expected previous dialogues to produce substantial agreements, but they have lower expectations for this round — due partly to recent difficulties in the relationship, as well as an inclination on both sides to save major announcements until President Xi’s state visit.

I’ll briefly explain the significance of these five major issues.

1. The South China Sea

The South China Sea issue has been front and center for the last 18 months, as China carried out major land reclamation efforts. While the issue stems from territorial disputes between China and various Southeast Asian nations, which don’t intrinsically involve the United States, the United States sees China’s island building activities as a potential threat to freedom of navigation along a critical trade route. China, on the other hand, sees U.S. involvement in the region as meddling in bilateral disputes with China’s neighbors. It sees enhanced U.S. military cooperation with Vietnam and the Philippines, and increased Japanese military activity in the region, as part of a U.S. strategy to contain China. The 2015 dialogue provides an opportunity to ratchet down the recent level of confrontation in order to smooth the way to a successful state visit by President Xi.

2. China’s New Law Governing Foreign NGOs

China’s new draft law on NGOs will substantially limit the ability of a wide range of organizations to work in China. The key sticking point in the new law is that it places regulatory authority over foreign NGOs with China’s State Security Bureau, rather than the Ministry of Civil Affairs, which regulates domestic NGOs. Police will be allowed to enter and inspect offices, and seize documents and equipment. The United States has long been critical of China’s record on human rights, and this proposed law, which was released for comment on June 8, will be a focal point in that discussion.

China’s response to U.S. pressure on this issue will likely turn on its view that foreign elements are stirring up trouble in China. This is the same argument that China used to explain theOccupy Central pro-democracy demonstrations in Hong Kong. Reading between the lines, it is clear that in both instances, when China says “foreign elements,” it means the United States and its allies.

3. Friction Over Membership in China’s Asian Infrastructure Investment Bank

Economic alignments in East Asia will likely be a central focus of this year’s dialogue. China is in the process of starting the Asian Infrastructure Investment Bank, which is intended to provide more streamlined funding than the World Bank or the Asian Development Bank can currently provide. The United States opposed the establishment of the AIIB – and lobbied its allies to decline membership — on the grounds that it had unclear governance standards, inadequate environmental controls, and might not be sufficiently capitalized to sustain its loans. But in the week before a March deadline, the United States suffered a stinging defeat as its allies, led by the United Kingdom, became founding members of the bank, leaving the United States and Japan on the outside looking in. Governance of the AIIB, and a means for coordinating its efforts with the World Bank, will be key elements of the economic discussions.

In a similar vein, the U.S.-led TPP includes the United States and Japan as the key members of what would be the largest trade agreement ever. The difference here is that China is the outsider. China has complained that the TPP is yet another instance of the United States trying to contain China. President Obama’s recent remark that the U.S. must write the rules for trade, or China will, didn’t dispel this notion.

4. Cybersecurity

Cybersecurity, which has been a simmering point of dispute at every dialogue, will become even more heated in light of the recently disclosed hack of the OPM personnel database, as well as the database containing security background data for nearly every federal employee and military member. The United States, while not directly accusing the Chinese government, has claimed that the hack was the work of Chinese actors. Couple that with the indictment of five Chinese military personnel for cyber-espionage against U.S. corporations and labor organizations in order to gain economic advantage, and there is little doubt that the meetings will be fairly rancorous.

Still, not everything on the cyber front is gloomy. The United States and China have made a great deal of progress in cooperating on cyber-tracking of illicit movements of funds and people. The Chinese will be pressing hard to get the United States to cooperate in disrupting the illegal flow of cash from China to the United States, and in repatriating both the funds and the fugitives who stole them. This discussion will likely bleed over into the human rights arena, as evidenced by the case of Yang Xiuzhu, who is wanted on corruption charges and applied for asylum in New York after being detained by Interpol.

5. Bilateral Investment Treaty

The least contentious of the major issues is the Bilateral Investment Treaty (BIT), which would establish rules for foreign investment in each country. After hitting roadblocks in previous years, the two countries have made concrete progress in the run up to this year’s dialogue. They’ve exchanged “negative lists” that designate areas of the economy where foreign investment will not be allowed — the first step toward winnowing each country’s lists to a level acceptable to the other side. Experts are optimistic that this deal can be completed during President Obama’s tenure. Don’t expect instant success, but this is the most likely area for the dialogue to come up with some sort of major agreement.

The dialogue will set the tone for U.S.-China relations for the next year. These issues will be central to those relations. All of them bear watching.

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