U.S.-China Strategic and Economic Outlook
Today, the annual U.S.-China Strategic and Economic Dialogue (S&ED) introduces four top officials all new to their posts: Secretary of State John Kerry, Treasury Secretary Jack Lew, Chinese Vice-Premier Wang Yang and State Councilor Yang Jiechi. The dialogue highlights recent positive trends in complex security and economic relations between the two powers where enormous differences remain – cybersecurity, North Korea, maritime disputes, investment and financial policy – though no concrete deliverables are likely.
Security: signs of progress, difficult road ahead:
Cybersecurity working group meets for first time as U.S. military leaders highlight enormous challenges. Politico reports, “top Obama administration officials met with Chinese leaders Monday for a special cybersecurity working group that preceded the official Strategic and Economic Dialogue…Senior administration sources told reporters after the Monday meeting that U.S. participants had ‘raised issues concerning cyberenabled economic theft,’ much as President Barack Obama did last month when he met with new Chinese President Xi Jinping in California…‘We expect this meeting will be the start of substantive and sustained discussions between the United States and China on cyber issues,’ one official said this week.”
Nonetheless, an enormous gulf remains between the two sides. Chairman of the Joint Chiefs of Staff Martin Dempsey recently stated, “China’s particular niche in cyber has been theft of intellectual property and I’ve had some conversations about that with them, and the conversations generally, we tend to agree to disagree…Their view is that there are no rules of the road in cyber, there are no laws that they’re breaking. There are no standards of behavior, and so we have asked them to meet with us in order to establish some rules of the road so that we don’t have these friction points in our relationship.” [Politico, 7/10/13. Martin Dempsey via Defense News, 6/27/13]
Maintaining momentum on North Korea: Kenneth Lierberthal, former Director for Asia at the National Security Council, explains: “The U.S. here is looking to further consolidate a tough Chinese line on the North Korean nuclear program. Things have been moving in what Washington would consider to be a good direction here. Clearly, the new Xi Jinping leadership in Beijing is very unhappy with North Korean policy viewing it as undermining China’s own interest in Northeast Asia. But I think the bottom line is, China has moved from giving pure priority to stability in North Korea with denuclearization very much secondary, to a current position where they accord equal weight to denuclearization in North Korea and stability in North Korea.” [Kenneth Lieberthal, 7/3/13]
Capitalizing on the opportunity for progress on dangerous maritime disputes: Chris Johnson and Matt Goodman of the Center for Strategic and International Studies explain: “Maritime tensions in the region will be another focus area in the strategic discussions. China will look to claim credit for agreeing at the ARF [ASEAN Regional Forum] session to hold formal consultations later this year with the 10 countries of the Association of Southeast Asian Nations (ASEAN) concerning a formal code of conduct on disputes in the South China Sea. On tensions with Japan in the East China Sea however, Beijing is showing few signs of flexibility: at a July 5 formal government briefing on the coming S&ED round, it called for the United States to ‘send correct instead of wrong signals and do more to contribute to the cooling of the situation.’” [Chris Johnson and Matt Goodman, 7/9/13]
Economic interdependence:
Continuing progress on Chinese currency: Robert Keatley, former editor of the Asian Wall Street Journal and the South China Morning Post, explains: “For years, China has manipulated the currency’s value, keeping it low to aid exports and hinder imports. But since 2007, the yuan has risen steadily—if not always noticed—some 35 percent against the dollar, with China also edging toward full convertibility. It’s not there yet and may not be for some time, but this often-neuralgic issue has lost importance,” though U.S. officials are still expected to raise the issue as the yuan remains undervalued. [Robert Keatley, 7/10/13]
An investment treaty is up for discussion with much at stake: Reuters summarizes, “U.S. investors face barriers or ownership limits in about 90 Chinese sectors, restricting their opportunities in the world’s second-largest economy. Chinese companies seeking to invest in the United States fear a political backlash in Congress or rejection on national security grounds by the secretive Committee on Foreign Investment in the United States.” To better address these problems, “Officials are expected to hold preliminary discussions on a bilateral investment treaty during this week’s talks, but any such pact is likely to take years to finalize.” [Reuters, 7/9/13]
Coordination, reform can ensure a soft economic landing in China and a faster American recovery: Eswar Prasad of the Brookings Institution previews each side’s questions about the other’s central bank, starting with the way recent Federal Reserve actions “reduced capital flows into China and other emerging markets and it’s had a negative effect on stock markets worldwide…I suspect they [the Chinese] will be very eager to hear more about what the Fed’s plans…because the Fed’s intentions will have significant implications for China’s capital flows, currency value, and stock market performance. Across the Pacific, of course, the Peoples Bank of China, the PBOC’s actions during the recent liquidity squeeze in China’s financial system have received a lot of attention.” Washington will want to gauge plans to slow the Chinese economy in a way that avoids economic crisis and whether, as Prasad writes, “there is very significant support among the top leadership for financial sector and specifically banking reforms. It will not be an easy process, but I view the signals as being potentially very positive ones.” [Eswar Prasad, 7/3/13]
What We’re Reading
Prosecutors in Egypt have ordered that Muslim Brotherhood leader Mohammed Badie be arrested.
Malta cancelled two flights to return migrants to Libya after the European Court of Human Rights issued an interim measure banning repatriation.
South Korea said talks with North Korea on reopening a jointly-run industrial estate ended without agreement, but the two sides agreed to meet again next week.
A key party quit Morocco’s Islamist-led government, plunging the country into political uncertainty as countries across the Arab world struggle to reconcile religious and secular forces.
A landslide has buried between 30 to 40 people in China’s Sichuan province, state media says.
Canadian authorities have found evidence that a criminal act may have led to a train crash in Lac-Megantic, Quebec, that killed at least 15 people.
The political party linked to Colombia’s left-wing Farc rebels has regained its legal status, meaning it can contest elections due next year.
Czech President Milos Zeman named an interim government, asking it to face down threats from lawmakers to block the cabinet’s legislation and budget plans amid a record-long recession.
A Nigerian court sentenced four members of Islamist sect Boko Haram to life imprisonment for their role in three deadly attacks carried out with industrial explosives near the capital Abuja in 2011.
Colombia has extradited suspected drug kingpin Daniel Barrera to the United States to face charges of drug trafficking and money laundering.
An Afghan soldier has opened fire at Kandahar international airport, killing a Slovakian Nato soldier and wounding six others.
Commentary of the Day
Joshua Kurlantzick discusses whether Indonesia has regional and international foreign policy strategies.
Colum Lynch explores the effects of jihadist influence on European soldiers in Syria.
Stephen S. Roach considers the effect world’s preparedness for China’s slowing economy.
