June 1, 2021 | Competition Between Autocracies and Democracies

Periodic update on the status of US-China relations

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Relations between the United States and China are evolving as the Biden administration’s China policy begins to take shape. At last week’s 2021 Oksenberg Conference, Kurt Campbell, US Coordinator for Indo-Pacific Affairs on the National Security Council (AKA “Biden’s Asia Czar”) boldly proclaimed “the period that was broadly defined as engagement as come to an end” and that “the dominant paradigm is going to be competition.”

As a quick refresher, we’ll define the period of US-China engagement as roughly the time between the 1970s until as recently as 2018 where the United States sought closer economic integration with China with the hope of influencing China’s internal policy apparatus to produce geopolitical outcomes that would be favorable for the United States.

In hindsight, many in the US view engagement as a strategic failure. China leveraged close economic and technological integration with the US to greatly enhance its own economic and technological authority without political liberalization, which the US ultimately desired most. Understandably, the PRC and the Chinese Communist Party do not view engagement as a failure.

Fast forward to 2021. Although a rough outline of the Biden administration’s China policy is beginning to take shape, it’s still too early to conclude what “the end of the era of engagement” really means. It’s important to avoid confusing the Biden administration’s conception of Strategic Competition with that of the Trump administration.

As stated by several members of the Biden China team, including both Laura Rosenberger and Kurt Campbell, the underlying architecture of the Biden administration’s China policy consists of three core precepts:

  1. Outcompeting China

  2. Demonstrate that democratic values can really deliver

  3. Put values at the center of our foreign policy

Considering these core tenets, it’s clear Biden and Trump’s vision of Strategic Competition is completely different.

Trump’s China policy had no real vision aside from treating China as an external enemy to deflect attention from the administration’s failures. Trump’s China policy didn’t value competition by strengthening US core capabilities as much as it valued devising crude and self-defeating methods to knee-cap China’s core capabilities.

As far as demonstrating that democratic values can really deliver for Americans and US allies, Trump and his political allies (referred to by some as the Authoritarian minority) seem to have little interest in democracy itself, much less in promoting democratic values globally.

American democratic values appear to have some meaning for the Biden administration — at least rhetorically and conceptually. An executive administration with some semblance of bona fide principles makes for a more coherent foreign policy. There’s room for hope that US-China relations will improve, as reflected by Kurt Campbell’s sober and rational assessment of China’s core interests and how it views its role in the current world order:

“China, as a rising power, takes issue with certain elements of the existing system, and would like to revise elements of that system.”

While the United States is ostensibly toughening its diplomatic posture towards China, Chinese paramount leader Xi Jinping has signaled a shift away from China’s highly abrasive Wolf Warrior Diplomacy by urging Chinese officials to create a “trustworthy, lovable and respectable” image for the country.

Xi’s desire to develop a global image of a friendlier and more trustworthy China is a response to China’s decidedly diminished global image in the wake of the global COVID-19 pandemic.

Although many perceive China’s growing assertiveness as a natural byproduct of China’s conception of authoritarianism, I’m more inclined to view China’s erratic diplomacy as an incompetent response to the Trump adminstration’s destabilizing rhetoric.

I predict that as the Biden administration continues to act as a far more predictable counter-party vis-a-vis China, China’s diplomatic engagements will gradually become more subdued and less vitriolic. Naturally, Xi’s calls for an update to China’s standard diplomatic protocols will hasten this development. We may be moving close to what seemed to be an impossibility just six months ago: improving relations.

Both the United States and China are revising their policy prescriptions as we steadily transition into a post-pandemic world. We can view these evolving conceptions of US-China relations in Beijing and Washington as signals that the world’s two largest economies are reaching a short-term equilibrium. Both sides have incentives to revert some bilateral components, such as a trade to the pre-2017 status quo ante.

Fundamentally the sheer gravity of the US-China relationship means this dynamic literally covers more territory than any other bilateral relationship in the world. The structural sea-change we’re witnessing between the two countries will continue to drive a fundamental shift in the existing world order in the years, decades, and even centuries ahead.

That concludes today’s notes — I’m back from my May holiday, and you can expect to receive my daily notes in your inbox 2-4 days per week through the rest of the summer.

Cheers,

Kevin


Current Events and Additional Reading

US-China Relations

Biden’s Asia Czar Says Era of Engagement With China Is Over

“The period that was broadly described as engagement has come to an end,” Kurt Campbell, the U.S. coordinator for Indo-Pacific affairs on the National Security Council, said Wednesday at an event hosted by Stanford University. U.S. policy toward China will now operate under a “new set of strategic parameters,” Campbell said, adding that “the dominant paradigm is going to be competition.”

Wall Street’s new love affair with China

Zhao Lijian, foreign ministry spokesperson, accused the US of “political manipulation” and of “stigmatising” China — the sort of regular spat that has prompted growing comparisons to the cold war.

But just a day earlier, another announcement told a different story about the ties between the world’s two leading powers. Goldman Sachs, an emblem of the globally dominant American finance industry, unveiled a wealth partnership with the state-owned Industrial and Commercial Bank of China. The deal could allow the Wall Street firm to draw on the savings of hundreds of millions of the bank’s Chinese customers.

In an era that is increasingly defined by geopolitical competition and a push towards economic “decoupling”, American finance has never been closer to Chinese wealth. Seduced by untapped savings and a growing asset management market, worth an estimated Rmb121.6tn ($18.9tn) last year, Wall Street’s most storied firms are embedding themselves more deeply than ever into the country.

How Should the U.S. Respond to China’s Military-Civil Fusion Strategy?

Over the past four years, the U.S. government has invoked military-civil fusion (MCF) to justify a range of policies. For instance, MCF was among the rationales for the reform and expansion of export controls to include certain “emerging” and “foundational” technologies, as well as for the addition of companies and universities to the “Entity List” and “Unverified List” that the Department of Commerce maintains. The Trump administration partially justified attempts to ban WeChat and TikTok from the United States through initial claims about the companies’ alleged linkage to MCF. Moreover, a presidential proclamation on Chinese students and researchers studying in the United States cited students’ proximity to entities engaged in MCF as grounds for denying or revoking visas.

Can Biden Keep the Peace in Southeast Asia?

“America is back,” U.S. President Joe Biden has announced to the world—but in Southeast Asia, the United States is playing catch-up again. And it has much to recover. The last four years witnessed Washington’s dwindling diplomatic and political capital in the region.

The United States has no regional initiative of significance. It has excluded itself from two economic groupings: the Regional Comprehensive Economic Partnership and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. In 2017, then-President Donald Trump did attend a special Manila summit between the United States and the Association of Southeast Asian Nations (ASEAN) but missed out on all four meetings of the East Asia Summit during his term. U.S. embassies in four ASEAN countries (Singapore, Brunei, Thailand, and the Philippines) have been operating without ambassadors, and the United States is the only major country that does not have a permanent representative to the ASEAN Secretariat. In the Philippines and Indonesia, getting too close to Trump was seen as a political liability—which explains why Indonesian President Joko Widodo, the leader of Southeast Asia’s biggest economy, never visited Trump at the White House. U.S. support for the region during the COVID-19 crisis has been modest at best.

Xi Seeks ‘Lovable’ Image for China in Sign of Diplomatic Rethink

President Xi Jinping urged Chinese officials to create a “trustworthy, lovable and respectable” image for the country, in a sign that Beijing may be looking to smooth its hard-edged diplomatic approach.

Xi told senior Communist Party leaders Monday that the country must “make friends extensively, unite the majority and continuously expand its circle of friends with those who understand and are friendly to China,” according to the official Xinhua News Agency. Beijing needed “a grip on tone” in its communication with the world, and should “be open and confident, but also modest and humble.”

The remarks suggest that Xi may be rethinking his communication strategy on the global stage as President Joe Biden works to bolster U.S. relationships weakened under his predecessor’s “America First” policies. Xi has cast aside the party’s decades-old “hide-and-bide” strategy of keeping a low international profile in favor of a “big country diplomacy.”

U.S. agency not doing its job to halt tech to China's military -congressional report

The U.S. Commerce Department is failing to do its part to protect national security and keep sensitive technology out of the hands of China's military, according to a U.S. congressional advisory report seen by Reuters.

The U.S.-China Economic and Security Review Commission report, due to be published on Tuesday, said the Commerce Department had been slow to create a list of sensitive technology that should be scrutinized before export to China.


Taiwan

It’s Not Just China: Population, Power Generation, Political Polarization, and Parochialism Are Also Long-term Threats to Taiwan’s Success and Survival

Although it is under constant threat from Beijing, Taiwan has four major structural issues that urgently require solutions, including population decline, power generation, political polarization, and parochialism. If they are not successfully addressed, a marginalized and divided Taiwan may find itself falling deeper into China’s orbit. While remaining within America’s one-China policy, the U.S. can help by increasing exchanges of students, faculty, and professionals, reaching a bilateral trade agreement, and assisting Taiwan to restructure its current manufacturing economy by creating new greener industries and higher value-added services. It can also facilitate Taiwan’s efforts to work with like-minded partners on the global stage. More immediately, Taiwan’s early successes and more recent challenges during the COVID-19 pandemic highlight how isolated it is even when Taiwan and the world need each other. Here the U.S. can help Taiwan acquire more vaccines and then share its experiences with the rest of the world.


China Economy

China’s central bank tries to stop surge in currency’s value

China’s central bank is trying to restrain the surging exchange rate of its currency, temporarily backtracking in efforts to make the tightly controlled yuan more flexible and market-oriented.

On Monday, commercial lenders were ordered to hold more of their foreign currency as reserves in the central bank to limit sales after the yuan hit a four-year high of 6.3674 to the U.S dollar.

The People’s Bank of China is trying to deter speculators after the yuan rose by about 12% against the dollar since May.

The ruling Communist Party said in 2015 it planned to make the yuan a “freely tradable and freely usable currency” by last year. But it has kept controls in place due to concern about swings in the exchange rate and the flow of money into and out of the world’s second-largest economy.

Teneo SVP & China Analyst Gabriel Wildau on Yuan, China's Economy

Gabriel Wildau, SVP and China Analyst at the global CEO advisory firm Teneo discusses China's latest moves to rein in the surging yuan. On Monday, China's central bank raised the foreign-exchange reserve requirement ratio for banks by 2 percentage points to 7%. Gabriel discusses if this latest move by the PBOC will slow yuan's rise. He speaks to David Ingles and Tom Mackenzie on 'Bloomberg Markets: China Open'.


Photo by eberhard 🖐 grossgasteiger on Unsplash