U.S.-China Trade

SecState Condi Rice’s visit to Beijing carried a number of items on Washington’s agenda. She and China’s Foreign Minister Yang Jiechi came to the table on a number of current events.

ZIM. With the recent swearing-in of Mugabe for his sixth term as President of Zimbabwe, Bush has called the UN to action against “Zimbabwe’s illegitimate government,” which has been globally criticized for using tactics of violence and intimidation. Bush plans to present an arms embargo and travel ban as response measures to recent events in Zim to the UN Security Council this week. To aid US efforts to put an end to political violence in Zim, it has been growing its outreach to other UN Security Council members for some teeth behind its words (Rice is documented telling reporters that the US is pushing for action and ”not just another statement” from the United Nations).

As it is a permanent member of the UN Security Council, having China’s vote (= veto-wielding abilities) is critical to securing and issuing UN-branded action against Mugabe and violence in Zim. Drawing-up the issue to partners and allies, the Washington is recruiting Beijing in particular to get Zim under its thumb. In a diplomatic and vague response to Washignton’s proposal, Yang Jiechi told reporters at a news conference that “China, as a responsible country, will also play a constructive role in this process,” but that “the most pressing path is to stabilize the situation in Zimbabwe.” He went on to say say that he hoped that the Zimbabwe government and its political opposition will “engage in a serious dialogue to find a proper solution,” adding that China supports the engagement of “African countries in particular” on this issue.

China of course has a long-standing trade partnership with Zimbabwe, and has been reprimanded internationally for its alleged arms supply to African nations, getting tangled earlier this year in the web of tragedy and condemnation surrounding Darfur genocide activities. Yang clarified that a Chinese ship with a “very limited amount of conventional arms” did not deliver the cargo earlier this year after receiving a request from Zimbabwe. With China stepping back from trade that would be perceived as supplying arms to African countries - and Zimbabwe in particular - but not committing to the US’ proposed course of action, it seems that a stalemate has been reached on this particular issue.  Unless of course, another topic or incident comes into play, allowing Washington to leverage this one forward. From this point forward, the US will have to prioritize, choose carefully the topics necessitating Beijing’s weight. In the meantime, both countries will continue to tally its haves and have-nots, dancing with a fluidity as dynamic and changing as its variable platforms and partnerships.

Coming to an informal quasi-agreement, Rice concluded her visit to Beijing on the issue of Zim saying “This is not an African issue alone … it is an issue for the Security Council. . . But I think we are all looking for something out of the African Union.”

NORTH KOREA. Status checks on the progress made on North Korea’s nuclear program were a bright spot during the trip. Both countries took a moment to bask in the afterglow of recent successes in North Korea where it delivered a long-due list of its nuclear activities, as required by a disarmament-for-aid deal reached in talks hosted by China. In addition, North Korea made a symbolic move to show its commitment to the nuclear deal, toppling the cooling tower at its plutonium-producing reactor. 

While China maintains its hosting duties for six-party talks on this issue, it is expected to announce a new round of talks (which include North and South Korea, the United States, Japan and Russia). Rice reported that chief envoys would coordinate leading up to the talks, the objective of which would be to “. . .  get some steps forward on verification” of North Korean efforts to dismantle its nuclear progrm and activities, she said of the negotiations.

CHINA’S QUAKE. Rice showed concern for affected Chinese people earlier Sunday when she visited the site of Sichuan’s quake last month. Numbers now show total 88,000 dead or missing, and a staggering five million displaced.

“I’ve been tremendously impressed with the recovery, with the resilience of the people,” Rice told journalists after touring the wrecked city of Dujiangyan, near the epicentre.  “It is really a sign of how the human spirit can recover from great devastation.”

On the topics of recent natural disasters in greater Asia, Rice said she would investigate ways to persuade China’s close neighbour and ally Myanmar to accept international aid to repair the nation, which suffered catastrophic damage from a cyclone in early May.

TIBET. Rice echoed the US’ concerns about China’s hardline activities in Tibet. This was rebuked by Beijing’s explanation that US views and media have created and exacerbated the problem. Moving forward on the Tibet piece, China announced Sunday that it would revisit fresh talks with the Dalai Lama’s reps. The US’ initiative to bring attention to this issue in face-to-face format is the motivation that China needed to follow-up on an outstanding promise to maintain discussions with the exiled Tibetan leadership, which has long waited to sit down with China’s political leadership.

“I hope there will be some positive developments and some momentum behind the [Tibet] talks,” Rice said, showing support for China’s action. ”This is the way to deal with the issue.”

When: June 17 and 18

Where: US Naval Academy - Annapolis, MD

Who: Co-Chairs US Treasury Secretary Henry M. Paulson, Jr. and Vice Premier Wang Qishan

Why: To strengthen and deepen the bilateral economic relationship through actions to:

• raise questions
• seek consensus
• implement results
• prevent trade protectionism and conservatism from hampering the trade cooperation

What: An overview of China and the US coming to the table to discuss the following areas:

1. Macroeconomic Cooperation and Financial Services.  The countries pledge to work together toward sustained growth, stability in price and financial systems, and agreed to continue a collaborative approach to sharing information on issues of mutual interest.
2. Investment in people and Product Quality and Food Safety. Agreed the need to open up communication regardingt mitigating economic risks associated with aging populations in both countries, and to use this as a platform for investigating ways to provide better healthcare and retirement services. Bilateral efforts to continue activities determined at SED III for product safety on an ongoing basis.
3. Cooperation on Energy and the Environment. Mutual understanding of the importance of cooperating to address challenges. Both countries expressed the desire to strengthen commitments to energy and the environment.
4. Trade and Competitiveness. Challenges of trade were discussed, as well as actions that would support each nation’s economy within the larger picture of globalization.
5. Investment. China and US came to an agreement on a series of actions that will be taken to create a mutually beneficial investment path for and between both.

After the US initiated two WTO cases* against it last year, China has since worked to develop a National IP Strategy, requiring China to “explore the possibility of establishing specialized IP courts to deal with IP-related civil, administrative, and criminal cases.” The strategy was developed by China’s National Working Group for IPR Protection, which was established in 2005. The body is made up of 13 officials from 12 IP-related agencies and ministries, such as Commerce, State Intellectual Property Office, and Customs.

Released June 17, this new, unified system would help to more easily transfer administrative cases to criminal enforcement courts. The new strategy also seeks to realign jursidiction in order to appropriately address cases requiring specific, technical knowledge, such as with patents. Successful implementation of this strategy would result in:

• improved judicial interpretations
• refined litigation procedures
• beefed up subject matter expertise using expert witnesses and technical investigations
• improved patent standards policy
• mechanisms for compulsory licensing

This series of events validates the effectiveness of escalating trade malpractices to the WTO. So long as overarching governance systems are in place to provide check and balances, neutralizing the economic disparaties globally becomes an more approachable issue. Although time will tell whether this strategy truly addresses global concerns of Chinese IP policy and enforcement, steps are being made by the country to advance in the right direction. Engaging its more developed trade partners to share best practices in trade will provide a wider range of perspectives on the matter, while allowing countries like the US feel as though they are being heard.

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* The first case opened against China was in response to an absence of protecting and enforcing copyrights and trademarks, and the second on China’s obstruction of trade of books, videos, music, and films.

At a time of tremendous sensitivity where many of its activities are receiving global attention, China’s investment actions are no exception. The China Investment Corporation (CIC) is China’s firm, which manages its foreign exchange reserves. A sovereign wealth fund, the CIC was established in 2007 in response to enormous state losses, resulting from the rising Yuan and the plummeting Dollar. Despite losing nearly half the value of $3 billion in a Blackstone (a US private equity firm) stock invesment, the CIC is reportedly the fourth-largest SWF worldwide.

Foreign countries have typically been suspicious of China’s foreign investment activities, speculating that its vast wealth could be used to buy majority stakes in companies with hands in western government and policy pots. Americans in particular fear that should China become an unchecked financier, it would become supremely positioned to influence multinational companies such that their policies could be swayed to protect Chinese interests.

To address skeptics in the international community, China has ramped up its PR efforts, with Gao Xiqing, CIC’s President, opening up for interviews and to the media: “Some think we are from a Cold War era and Red China. We are still regarded very much by many countries as a potential threat.” Bristling at all the criticism, he says “Immediately after we announced our existence, then the US government, some European governments, all came out and said, ‘okay, we think of this as - this is a dangerous - we need to do something about it. They probably want to control us. They probably want to do something bad about us.’ “

A huge factor fueling flames of mistrust is the American perception that China has no intention of improving the transparency of its foreign investments. China will claim that its investments are commerically-driven until it’s blue in the face, but when its stock in US financial firms plundered, it held on. The US is simply uncomfortable with being in the dark. To China’s credit, they really can’t seem to catch a break. Every angle is a bad one, it doesn’t matter if the mirror is straight or angled. In response to why China doesn’t want to “touch the military,” Gao says: “Because we are already getting too much, almost unfair amount of attention. You know, the Chinese culture is being self-effacing, try to hide yourself, don’t stick your head out for people to knock on.”

Speaking to the tranparency question, China refutes that as a relatively young SWF, the CIC has not yet had the opportunity to produce and communicate information, as that contained in annual reports. And in tune with China’s commercially-driven investments mantra,  the “but” in China’s pledge to become transparent is that the ceiling will be measured by what is considered to be “commerically-viable.” Can’t really blame them there. What’s the point of trying to make a good investment if everybody knows what’s next, what you can afford, and what you’re looking to get rid of?

China has thus far employed a not unreasonable, middle-of-the-road path forward, shirking investments in sensitive industries and sectors (military factories, tobacco companies, machine gun companies, casinos); aggressively pursuing foreign financial sectors; promising more transparency; and displaying indignation at the notion of leveraging a financial nuclear option*. 

Gao describes the difficulty of navigating from a delicate position between a throng of historically proud Chinese natives (”. . . a lot of other Chinese people are telling us that , ‘Look, you know, you guys should be against it. You should stand up against.’ “) and a frowning foreign populous. Its stance? CIC has walked away from potential investments in unnamed countries after political red flags were waved; “We are trying to get financial returns. If there is too much political pressure and too much unpredictability, you just go away.” How’s that for bottom line?

Another bottom line? The US cannot afford to be without China. Former US Treasury Secretary Lawrence Summers explains the counterproductivity of walking away from China’s money: “It would mean that Americans would pay more for goods. It would mean that our interest rates would be higher.”

With a very American “trust but verify” approach, Summers emphasizes the need to encourage China’s pledge for Norwegian gold-standard transparency. Encourage, but heed with wariness: “I think [China’s investment strategy] is an issue our government does need to pay close attention to,” he adds.

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* Financial nuclear option describes a scenario where China would have a large enough stake in a foreign country’s industries to threaten to pull its money, whereby the country hosting investments would either face an enormous financial collapse or be forced to steer its direction and policy to China’s favor.

This Thursday morning in Beijing, China and Taiwan came to the table for talks to mutually  build confidence despite more than a decade of tense and untrusting exchanges. The last formal talks to take place between Beijing and Taipei occurred in 1999. Facilitating this dialogue was Taiwan’s Straits Exchange Foundation and its Mainland Chinese counterpart.

The first day of the two-day meeting brought an agreement by both parties to participate in a program that will establish offices in each others’ jurisdictions. The Taiwanese Foundation’s Deputy Secretary-General Pang Chien-Kuo says that these offices will be permanent, and that the welcome mat on each side of the divide will open the lines for freer business transactions and “facilitate people’s exchanges and traveling across the Strait.”

Representing their home teams are:

Chiang Pin-Kung, Chairman of the Straits Exchange Foundation for Taiwan. Chiang is leading a 19-member team with the highest-ranking Taiwanese officials recorded to participate in bilateral discussions. As talks were underway, Chiang forecasted that any agreements made would provide the framework for ”a long-term peaceful relationship between the two sides.”

Chen YunLin, Head of Beijing’s Semiofficial Association for Relations Across the Taiwan Strait.  A more tentative Mainland “Semiofficial” body has been sent to advocate for Beijing’s administration, which still vehemently refuses to recognize Taipei as an individual, autonomous government. China’s dismissal of Taiwanese independence means that its side of negotiations must be represented by semiofficial bodies. Chen’s sentiment on the productivity of the talks is less optimistic:  ”Whether cross-strait relations can improve, depends on whether our negotiations can proceed smoothly.”

Despite a history of hostility over the debate on Taiwan’s independence, both sides agree that political opinions can be temporarily sidelined for the prospect of financial opportunity. Fostering growing trade and investment both ways is a bigger priority, with China having absorbed more than $100 billion in Taiwanese investment in the past 15 years. Although the majority of Taiwanese are staunchly opposed to One China, most also understand the dependency of the island’s economy relies heavily on the Mainland.

It is expected that an agreement will be signed on Friday, allowing 36 charter flights to cross the Taiwan Strait every weekend, an activity that has been banned since the 1949 division. The prediction is that these flights will provide access to several hundred thousand Chinese tourists to Taiwan every year, a number which is significantly higher than the current 80,000. On the flip-side, planes to China are typically filled with Taiwanese visiting family members in the Mainland.

Other factors prodding the two countries together for a sit-down may include:

• Sichuan’s recent earthquake, to which Taiwan has responded, offering assistance
• The highly-politicized 08 games, its context which China is eager to neutralize
• An upcoming US administration change, which will likely favor a candidate sympathetic to Taiwanese democracy
• Ongoing criticism of China exercising authority over Tibet and related protest activities - because it’s not really desirable to be tagged the bully of East Asia

Approaching the task of repairing a failed relationship is daunting, but it seems like both parties have worked against all odds to find common ground, and at the very least, are open to exchange. Coordinating cross-strait permanent office locations and flights offers a very physical and visual agreement in the form of access. A willingness to come to an agreement that sends positive messages to the global community, residents and citizens, and opposition. Political heads, business men, and family members are being given a better opportunity to forge (or re-instate) ties that will help to ready these parties to make agreements on more hardline political issues in the future.

This CFR article helps tally the stance of frontrunners on US policy toward China.

  
Obama vs. McCain on:

The best engagement strategy.

BO. In a more outward assessment, O feels strongly about putting some teeth behind the words of the next American administration, and has been quoted saying:

In Asia, the emergence of an economically vibrant, more politically active China offers new opportunities for prosperity and cooperation, but also poses new challenges for the United States and our partners in the region.  It is time for the United States to take a more active role here – to build on our strong bilateral relations and informal arrangements like the Six Party talks.  

O’s focus is to establish and showcase other alliances and potential partnerships (i.e. North Korea) and bring them to the table for multi-party talks to encourage China’s hand. O approaches Sino-American relations cautiously, stating that China is “neither our enemy nor our friend,” adding “. . . we have to make sure that we have enough military-to-military contact and forge enough of a relationship with them that we can stabilize the region.”

JM. Shares a rather conservative approach with Obama, on growing the US’ relationship with China. M has reportedly backed US policy that is quoted to “hedge” against China’s growing global influence. “That doesn’t imply an effort to oppose China’s emergence as an influential power, but it does mean maintaining our military presence in East Asia, strengthening our alliance with Japan and our relations with other Asian countries, and working through groups like the APEC forum to further American interests and values.”

One China.

BO. In response to the March 2008 election of Taiwanese President Ma Ying-Jeou, O expressed hope that China would respond ”in a positive, constructive, and forward-leaning way,” and that China should mirror Taiwan’s promised non-confrontational approach, coming to the table on cross-strait relations “with good faith and progress.” Specific suggestions to improve the relationship between the two countries included the reduction of China’s military deployment in its southeast region, and affording Taiwain with “greater international space” in the World Health Organization. 

JM. Fortified the current Administration’s stance on One China, throwing his full weight behind Taiwan. In response to the island’s 08 Presidential campaign, M was quoted as celebrating this milestone as “testimony to the press freedoms, democratic process and the rule of law the Taiwanese people have worked so hard to build,” adding that the election was “a fine example for the region.”