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U.S.-China Relations: Challenges for the 114th Congress


By Charles Freeman III


EXECUTIVE SUMMARY

This brief addresses key issues in the U.S.-China relationship and identifies specific actions that the 114th Congress can take to address them.

Main Argument

The 114th Congress has a crucial role to play in stabilizing the all-important U.S.-China relationship. There are few examples in history in which a de facto superpower like the U.S. faces a rising power like China and does not enter into direct conflict. The relationship with China has an undeniable component of competition. Glossing over disagreements and competing interests is thus not an option for policymakers. At the same time, the fact of competition should not be the predicate for a devastating self-fulfilling prophecy.

Recommendations for the 114th Congress

  • Democracy and human rights. The Chinese system does not share in many important U.S. values. Although “standing up” for values such as democracy and human rights is a sine qua non of U.S. diplomacy, Congress should be clear that promoting U.S. norms is not the same as seeking to undermine China’s political stability.
  • Economic relations. The U.S. economic relationship with China has been the glue holding the countries together during difficulties in the overall relationship. Support for trade and investment has, however, frayed as the relationship has become more complex and internal dynamics have altered China’s support for the role of foreign institutions and investment in its economy. Recognizing these changed circumstances is important, but so too is acting to restore a healthy trade and investment relationship.
  • Strategic interaction. China is not the Soviet Union, and the U.S. is trying neither to contain China nor begin a new Cold War. But the desire of other Asia-Pacific countries to avoid being bullied by a rising China is drawing the U.S. into a potentially hostile military posture with respect to China. Finding ways to ensure that U.S. interests are served in the relationship, rather than yielding uncritically to the interests of U.S. allies and partners in the region, is critical to reducing tensions with China.


U.S.-CHINA RELATIONS: CHALLENGES FOR THE 114th CONGRESS

For decades, policymakers have struggled to define the U.S. relationship with China. Are we “partners”? “Strategic partners”? “Strategic competitors”? Is it, to quote Chinese president Xi Jinping, a “new kind of big power relationship?” Or, as President George W. Bush noted toward the end of his administration, is the relationship best described simply as “complex”?

The consensus among most U.S. China watchers in 2015 is that the United States and China are competitors. There is far less consensus, however, on what exactly the two countries are competing for. China is not a geostrategic rival like the former Soviet Union. Nor is China absolutely hostile to U.S. policy in the Asia-Pacific. Indeed, far from sowing open competition, U.S. engagement with China since the 1970s has sought to bring China into the ambit of U.S.-led global institutions and encourage Chinese support for a U.S. vision of global governance. That policy has yielded remarkable dividends: China has gone from being an isolated, poor country that was openly hostile to the United States and its vision of the global order to become one of the primary stakeholders in that order.

To many policymakers in Washington, U.S. engagement has perhaps been too successful. Few would have imagined that the economic backwater that was China in the 1970s might become the world’s biggest economy less than 50 years later. The miracle of China’s success thus has spawned an active effort in Washington to hedge against the possibility that China uses its newfound clout to undermine and destabilize the U.S.-led regional and global order in ways that lead to direct conflict. Such hedging has yielded a two-headed policy approach that seeks to draw China diplomatically and economically closer while preparing for a disastrous military contingency.

Viewed through this bifurcated policy prism, Beijing’s actions can simultaneously confound and confirm U.S. assumptions and suspicions of Chinese intentions. For all that the U.S. policy community thinks it knows about the role China desires for itself on the global stage, it really is not sure. Why is China expanding its blue water navy, if not to challenge U.S. primacy on the high seas? Why did Beijing unveil an air defense identification zone in the East China Sea, if not to deny the ability of the United States and its allies to access and control China’s periphery? Why would Beijing engage in a charm offensive in other Asian capitals, if not to compete with Washington for their hearts, minds, and economic interests? Why would Beijing seek to create development institutions like an Asian Infrastructure Investment Bank that are separate and distinct from those established under the Bretton Woods architecture, if not to challenge the normative global leadership of the United States?

Beijing sees similar ambiguity in U.S. intentions. True, constructive engagement with the United States has been a key enabler of China’s rise. But U.S. activities on China’s periphery—the maintenance of northeast Asian alliances, military assistance to Taiwan, the strengthening of relationships with previously unfriendly countries in southeast Asia, and the warming of relations with that other Asian giant to the south, India—smack to many in Chinese policy circles of a Cold War–style containment policy. Moreover, the Obama administration’s “rebalance to Asia,” although articulated in terms that are at best neutral to China’s emergence, is frequently couched in the language of managing China’s rise, which is not, on its face, reassuring to Beijing about U.S. intentions.

The lack of clear understanding and trust between the two countries has hastened a drift toward a self-fulfilling prophecy of strategic rivalry, even as the economic and geopolitical stakes in U.S.-China cooperation become more deeply rooted and fundamental. The relationship is no longer as asymmetric as it was when the basic framework of U.S. policy toward China was formed, and the corresponding levers the United States could pull to channel Beijing’s behavior are no longer as available or effective. Yet the need to solve problems in the relationship has never been more important, even as the United States faces a domestic political divide and grim fiscal realities affecting its ability to manage multiple global crises and China stands at an economic (and possibly political) crossroads in its own domestic development.

Rather than drawing China into the orbit of U.S. global leadership or “managing China’s rise,” the challenge for U.S. policymakers in the 114th Congress and beyond has become one of charting a path to peaceful coexistence: defining a world order in which U.S. and Chinese interests coincide as much as possible, and conflicts are managed with a view toward striking a balance between competing interests. This is no simple task, particularly given the natural inclination in both countries to sniff out evidence of accommodation as a sign of weakness in political leaders. The two sides must avoid a zero-sum approach that is neither wise nor tenable. The trick will be achieving meaningful compromise without sacrificing core values and interests, and that presents the 114th Congress with a number of critical normative, strategic, and economic challenges.

Normative Differences: Democracy and Human Rights

Hong Kong

The 114th Congress begins as China’s Hong Kong Special Administrative Region faces an ongoing predicament over the right of its citizens to directly participate in the election of the chief executive beginning in 2017. During the latter half of 2014, many Hong Kong citizens reacted negatively to the decision of the Standing Committee of the National People’s Congress to limit candidates for chief executive to a few preapproved “patriots.” A number of sites in Hong Kong became grounds for a pro-democracy protest movement dubbed "Occupy Central" that continued for weeks.

Despite any clear evidence of a U.S. or other official foreign instigation of the Occupy Central movement, suspicions in Beijing were that this was a U.S.-directed “interference in China’s internal affairs,” an effort to subvert Beijing’s oversight of Hong Kong. But the understanding of many in Hong Kong and the international community at the time Beijing and London negotiated the handover of the former British colony back to China was that Hong Kong would ultimately be accorded full democracy under China’s protection. Hong Kong now faces a dilemma: accept Beijing’s terms for the election and effectively resign itself to partial democracy, or continue to challenge Beijing and risk losing the partial benefits being offered.

In reality, the United States and other democratic countries can do very little to change Beijing’s mind on the Hong Kong election issue. Clearly, a perception in Beijing that Washington is orchestrating political change in a Chinese territory would not be helpful to the cause of democracy in Hong Kong. President Obama reportedly assured President Xi at the Asia-Pacific Economic Cooperation Summit in Beijing in November 2014 that the United States did not support the Occupy Central movement. But supporting the rights of people in Hong Kong and elsewhere to strive for universal suffrage is a core value of the United States. Striking a balance between calling for greater democracy in Hong Kong and respecting China’s sovereignty over the territory is an important task for Congress in the run-up to the 2017 election.

Taiwan

The Occupy Central protests and their aftermath also have had an impact on attitudes in Taiwan regarding its long-term relationship with Beijing. Beijing has long articulated a cross-strait policy that calls for reunification of Taiwan with the Chinese mainland based on a version of Hong Kong’s “one country, two systems” model that would grant relative political autonomy for Taiwan. The election restrictions handed down by Beijing for Hong Kong did little for Beijing’s cause with the people of Taiwan. In spring 2016, Taiwan will hold presidential elections that will largely be a referendum on the policies of President Ma Ying-jeou, which have built closer economic ties between China and Taiwan. If, as many analysts predict, the opposition Democratic People’s Progressive Party candidate is successful in defeating the candidate of the ruling Kuomintang Party, that could signal a rechilling of relations between Beijing and Taipei, and tensions in the region could spike.

Taiwan has always been the biggest challenge to U.S.-China relations. The United States is obligated by the Taiwan Relations Act to provide Taiwan with the opportunity to acquire arms to defend itself in the event of an attack from the mainland. If the relationship between Beijing and Taiwan sours badly, U.S. arms sales to Taiwan will be closely scrutinized for the degree to which they embolden those who advocate de jure independence from Chinese rule. Congress will invariably be drawn into the debate on arms sales. It will be important for policymakers to understand and weigh in on what package of arms will contribute to stability across the Taiwan Strait. There is an element of symbolism to exactly what weapons Taipei requests (and what it actually purchases if those requests are approved). Getting the package right will take considerable technical and diplomatic skill.

Whatever the outcome of the Taiwan election in 2016, Congress should be at the forefront of international efforts to support the continued impressive evolution of democracy on this island of predominantly Chinese-origin citizens. In particular, the long history of inter-parliamentary relations between Congress and the Legislative Yuan in Taipei merits rekindling. More frequent exchanges between members of Congress and their counterparts in Taiwan would be an important demonstration of the U.S. commitment to democracy in a Chinese context.

Human Rights

Finally, but far from being of least consequence in the United States’ normative relationship with China, is the issue of U.S. support for the basic human rights of the people of China. In recent years, and particularly since President Xi came into office, the number of people imprisoned for political dissidence has increased dramatically. Many observers assert that rising political repression suggests that Beijing is increasingly concerned about political stability as the Chinese economy cools and issues such as official corruption, income inequality, and environmental degradation drive public disaffection. Regardless of the root causes of the crackdown on individual rights, it is not a good sign for the longer-term direction of Chinese Communist Party rule in China. The party at times makes feints in the direction of more transparency, inclusiveness, and pluralism, but it bristles when outsiders “interfere” in Chinese governance by calling out human rights abuses. This, however, should not stop Congress from taking a lead role in calling for greater protection of human rights in China.

Economic Reform and Commercial Relations

China’s economy in recent years has begun to show the strain of its 30-year economic boom. The tools on which it has relied to fuel its growth—capital investment, improved productivity, and exports—are increasingly less effective in delivering the returns the country has counted on since the early 1980s. These factors are making the maintenance of the current Chinese growth model impossible, especially as demographic realities change the composition of China’s workforce.

These are matters of political life and death to the Chinese Communist Party, which has staked its legitimacy on the successful stewardship of China’s modernization. A failing economy is not a viable option for President Xi and his team, and they have outlined a path to reform that would rely on greater consumption as a factor of growth, as well as on the development of new sectors—in particular, services and technology.

China has reformed its economy before, both in the late 1970s and again in the late 1990s, in order to launch and maintain its development. But the stakes involved and vested interests aligning against the reform efforts in previous eras are dwarfed by those facing the current leadership. President Xi has been flexing his muscles through a series of power plays—an anticorruption campaign and a recentralization of decision-making authority being chief among them—but whether these initiatives will be successful precedents to genuine economic reform is still far from certain.

Impact of Exports on Economic Reform

In earlier reform periods, China was less reliant than it is now on external markets for both commodities and exports. Modern China is inextricably linked to the outside world, and that creates certain vulnerabilities that complicate President Xi’s domestic agenda. China does not, for example, currently have the capacity to secure sea lanes for the imported energy, particularly from the Middle East, that is the life blood of its economy. It relies on the U.S. Navy (and faith in projecting a benign external image) to ensure that others do not disrupt its trade with the outside world.

While China seeks to alter its economic growth model, exports still constitute a significant percentage of its GDP growth. On its face, the explosion in intra-Asian trade may suggest that the developed world is less important to China’s trade agenda than it may have been in the past. However, many of the goods traded within Asia are intermediate goods traded between nodes in a supply chain that ends with exports from China to the developed world. At a time when the European Union, China’s largest export market, is in the doldrums, the United States continues to be a critical market for goods manufactured in China.

Beijing is thus dependent on external stability to create a climate conducive to domestic reform, and in this regard it is reliant, in significant part, on the cooperation of the United States. This is not a comfortable state of affairs for Beijing, which, as noted earlier, is suspicious of U.S. support for China’s long-term success under its current political system.

International Financial Institutions and China’s Reform Strategy

China’s ambivalence about its relationship with the United States and skepticism of U.S. willingness to accommodate China’s rise within the existing world order can lead to policies that seem to challenge U.S. primacy. For one thing, reliance on the U.S. dollar as the primary international currency has hastened Beijing’s interest in developing the renminbi as an alternative. For another, China’s championship of the Asian Infrastructure Investment Bank or a Brazil, Russia, India, China, and South Africa (BRICS) bank as a development institution separate and distinct from the Asian Development Bank and World Bank seems like a direct challenge to U.S. leadership under the legacy of the Bretton Woods agreements. But the failure of the United States and other countries to ratify changes to the International Monetary Fund (IMF) to accommodate Beijing’s new economic clout seems, not without justification, like an effort to minimize Beijing’s role within the existing architecture. Congress could help alleviate this problem in the interest of preserving the longer-term relevance of the international governance structure that has served U.S. interests so well for so long. For one thing, congressional approval of reforms to the IMF that reflect China’s global economic clout is long overdue.

China has in the past used external pressure, such as that during the process of accession to the World Trade Organization, to push through difficult reforms over the objections of entrenched interests. There is some evidence that today’s reformers are seeking to use external pressure from trade and investment negotiations with other countries to drive the internal reform agenda. But there is also evidence to suggest that the Xi government is using foreign competition and dependence on foreign markets and firms as a bogeyman to drive reform efforts.

China’s effort to stimulate reform of its innovation policies is a particular area of concern. China has long sought to develop a domestic technology base as a key plank in its development plans. Yet China is heavily reliant on foreign technology in its domestic economy. One long-time technology analyst in China recently commented: “I don’t know of a single successful technology firm in China that does not employ a set of foreign-sourced technologies at its core.”

This is a matter of great frustration to Beijing. As a result, many U.S. and other foreign technology firms are now finding themselves squeezed by a Chinese government that resents their dominance in the marketplace, even while no realistic alternatives currently exist. China is attempting to provide new enterprise capital and research funds to nascent Chinese technology companies, but similar efforts in the past have not borne much fruit. Perhaps most controversially, efforts emanating from China (whether or not with state sponsorship directed from the top in Beijing) to seize technology from foreign sources through industrial espionage, including cybertheft, have been remarkably successful, even if the stolen technologies have not as yet been widely deployed within China. Congressional attention to the matter, including creative legislation that encourages U.S. corporate victims of cybertheft to come forward to regulators and establishes U.S. trade remedies for deployment of stolen technologies, is more than appropriate.

Trade and Bilateral Investment

The U.S. business community has long been a primary champion of strong commercial and diplomatic relations with China. That support is fraying as a result of perceived bullying by Beijing and the cyberespionage scandals. Companies are no longer as willing as they once were to speak out on behalf of China on Capitol Hill or in discussions with the administration. The assumption in Beijing seems to be that U.S. companies need China more than China needs them, or that the United States needs access to China more than the other way around. This is a miscalculation by Beijing, and Congress has a role to play in reminding China that support for open markets between China and the United States is not to be taken for granted.

The primary means of government-to-government discussions about problems in the commercial relationship have been the Joint Commission on Commerce and Trade and the Strategic and Economic Dialogue. These forums have in the past been successful in resolving disputes between the two countries, but in recent years their deliverables to U.S. commercial interests have come fewer and farther between. This may be due in part to the Chinese perception that accommodating U.S. requests is less important to China: China wants less from the United States, so it is willing to give up less.

Negotiations leading up to the signing of a potential bilateral investment treaty (BIT) present an important opportunity to stabilize U.S.-China commercial relations. China is genuinely interested in successfully concluding a BIT for two reasons: First, the standards in a BIT would provide useful external pressure within the Chinese economic reform process. Second, Chinese firms are increasingly investing in the United States, and a BIT would provide greater security for their investments. China is also carefully watching negotiations of the Trans-Pacific Partnership (TPP), with a view to possible accession if the TPP is not directed at building a trading bloc that excludes China.

Congress has a critical role to play not just in ratifying a BIT with China but in demanding the sorts of protections in the treaty that will benefit U.S. firms in China. Congress would also do well to reiterate that Chinese investment is welcome in the United States and that in most cases the existence of Chinese investment in a given sector does not present unique national security risks. Finally, if the 114th Congress does take up trade legislation that ultimately approves the TPP, language that affirms the interest of Congress in providing for the ultimate membership of China under certain circumstances would be valuable. This latter goal may be difficult to achieve, especially because a critical part of the administration’s legislative strategy may be to invoke the TPP as a tool to avoid losing economic ground to China.

The U.S.-China Strategic Relationship

U.S. Pivot to Asia

While there is no U.S. containment strategy toward China—if there is, Washington is doing a pretty lousy job of it—there are elements of truth in Chinese concerns. If the Obama administration’s rebalance to Asia is not directed against China, the policy is certainly, at least in part, a response to concerns of countries on its periphery about China’s rise. For much of the last ten years, Washington has been visited constantly by diplomats from nearly all of China’s neighbors who wring their hands about the regional power balance. While these countries are benefiting greatly from their economic partnership with China, they are nervous about its strategic intentions and newly found coercive power. The rebalance to Asia in this regard is a somewhat unintended response to the requests of China’s neighbors that the United States serve as a counterbalance to China’s rise.

Whether China’s neighbors are correct in being nervous about its longer-term strategic intentions, U.S. efforts to hedge against a potentially hostile China, coupled with squabbling over obscure territorial claims both between China and Japan and between China and a number of ASEAN countries, are increasingly drawing the United States into a confrontational posture with China. U.S. military surveillance of China at its borders is increasing, as is the number of border patrols by the United States and its allies, even as China steps up its own efforts to control the seas near its borders. China’s declaration of an air defense identification zone in the East China Sea, occupation of or military exercises near disputed territories, and increasing deployment of new power-projecting vessels can all be viewed as provocative. In China, however, these measures are viewed as reactive. In either case, opportunities for conflict by accident, such as the 2003 EP-3 episode in which U.S. and Chinese military aircraft collided, are on the rise.

Military-to-Military Relations

Key to managing this situation is ensuring that U.S. and Chinese militaries (and other militaries in the region) cultivate better direct relations and an ability to manage crises if and when they occur. The United States has been pushing for closer military-to-military relations for years and has made some good progress. However, efforts to create a structure based on conflict avoidance are hampered by a variety of factors, including the imbalance in objectives (China is not at this point seeking reciprocal ability to patrol the U.S. coast, for example); a fundamental lack of trust between military establishments; and the fact that the People’s Liberation Army embraces nontransparency as a strategic tenet.

China will almost certainly continue to build a stronger military, including a stronger blue water navy, as well as nontraditional weaponry. That is natural for any growing country. It is also in part a prophetic self-fulfillment resulting from a reaction to U.S. strategic hedging, closer U.S. military relations with China’s neighbors, and an increasing sense of vulnerability in China owing to reliance on external markets for energy and other commodities that drive its rapacious economy. The United States is not yet in an arms race with China akin to that with the Soviet Union, but there are plenty of Chinese strategists who believe that U.S. capacity to compete for military superiority in Asia will be limited by both the United States’ more global defense architecture and fiscal realities.

The 114th Congress will have the opportunity to set an important tone in military relations with China. Although a potential China threat is certainly worth guarding against, a defense policy that sets as a primary criterion the ability to meet all the hypothetical contingencies posed by China’s rise would court an arms race that neither the United States nor China can afford. Congress should be wary of an appropriations program that overemphasizes the China threat. After all, the U.S. effort to bring China into a rules-based international order has been remarkably successful, even if China does not always seem to play by the rules. There are other international challenges to U.S. power and prestige that are openly hostile to the status quo in which both the United States and China have important stakes.


Charles Freeman III is a Senior Fellow with the Brookings Institution and a Senior Advisor to the Center for Strategic and International Studies. He also directs international affairs at Forbes-Tate, LLC. Mr. Freeman previously served as Assistant U.S. Trade Representative for China Affairs, where he oversaw efforts to integrate China into the World Trade Organization. He is a director of the Harding Loevner Funds and the National Committee on U.S.-China Relations.