Tuesday March 28, 2017

WHAT TO EXPECT FROM THIS YEAR’S U.S.-CHINA S&ED

June 6, 2016

U.S. & China Officials Meet for 8th Annual U.S.-China Strategic & Economic Dialogue (China.com.cn)

U.S. & China Officials Meet for 8th Annual U.S.-China Strategic & Economic Dialogue (China.com.cn)

The eighth U.S.-China Strategic and Economic Dialogue (S&ED) is taking place June 6-7 in Beijing. This year’s S&ED marks the last of President Obama’s term. The agendas of the two countries’ delegations covers a long list of pressing issues, of which the U.S.-China Bilateral Investment Treaty, China’s domestic economy rebalancing, cyber security, and maritime defense are expected to take center stage.

The Economic Track

Sitting at the top of the U.S. agenda is fortifying the economic relationship between the two countries. U.S. policymakers are watching China’s economic reforms closely, those addressing overcapacity in the steel and the coal-mining industries especially. Secretary Lew and his delegation are expected to continue pushing China to cut overcapacity and increase transparency in communication and cooperation between both governments on fiscal and monetary policy. The Chinese government has already signaled its determination to shrink the share of State-Owned Enterprises (SOEs) in these sectors by budgeting 100 billion RMB to alleviate resulting unemployment. That fixed investment in the Chinese private sector lagged in the first quarter might also incentivize China to seek out stronger coordination and advice from the U.S.

Representatives from both sides are also expected to build off the momentum behind the U.S.-China Bilateral Investment Treaty (BIT) to see it through fruition. The Obama administration has stated that the speed with which the treaty might be ratified depends only on its Chinese counterparts; in other words, the hope is to move fast—to sign the treaty into law while President Obama is still in office, especially given the uncertainty around attitudes towards China after the November election in the U.S., with anti-China rhetoric rife in the campaigns. The Chinese government anticipates finalization of the BIT by July or August, yet this timeline would mean that the U.S. Senate could not vote on the treaty until after the  new president and congress has been elected.

The BIT would not assuage all of American businesses’ concerns, however. The latest draft of China’s Market Negative List, released by China’s National Development and Reform Commission (NDRC) in April, lists more than 200, unresolved items that may or may not be addressed by the convocation of the S&ED. Even with the potential for a new trade agreement, many American businesses have indeed been alarmed by recent trends in China’s economic climate, specifically a series of policies curtailing the scope of their operations. The Chinese government passed a law banning foreign NGOs from fundraising activities in China, as well as requiring said entities to register with national security bureaus. Some interpret another law enacted in March as a “complete ban” on foreign media companies within mainland China. With or without the BIT, U.S. business representatives are thus hoping to address these concerns surrounding the country’s reception towards foreign investment.

Though Grievances will not be aired by the U.S. alone. The Chinese delegation, led by Vice Premier Wang Yang and Councilor Yang Jiechi, are expected to bring up the increased scrutiny of Chinese direct investment in the U.S. This will factor into the discussion of increased cooperation between both governments, a responsibility that China could point out ought not fall on its shoulders alone. Without more open communication, China’s Central Bank, PBOC, has begun hedging against the Federal Reserve raising interest rates in June by devaluing the yuan as a precaution prior to these meetings.

The Strategic Track

The two countries still have some ground to cover before they can reach agreements on a number of strategic issues. The U.S. delegations will likely pressure China to accept the forthcoming verdict from the International Court of Justice in Hague on the South China Sea land claim arbitration, despite the fact that the Chinese government has explicitly indicated that it has no intention of doing so. On the other hand, Beijing will surely insist on an explanation from the U.S. on the increased frequency of  its “Freedom of Navigation” exercises over the controversial waters in the South China Sea. In addition, China-Taiwan relations will be discussed, but these types of territorial disputes are not the sole type of strategic issues that will be brought up; the shared responsibility towards environmental protection should also be covered.

The Obama Legacy

The annual U.S.-China Strategic & Economic Dialogue can be considered one of President Obama’s major legacies in bilateral relations between the countries. Launched in 2009, the S&ED has played an increasingly prominent role in addressing relevant issues. Since the two tracks, economic and strategic, have been designed to function independently within the dialogues, tensions in the one sphere have thus far managed not to affect progress in the other.

With the outgoing president as the driver behind this initiative, it is uncertain whether the next American president will continue this program in its current form. Yet such a forum for communication is arguably critical, in light of how the bilateral relationship between the U.S. and China is now viewed as the most important in the world. Facing enormous challenges ahead, notwithstanding those to be discussed at next week’s S&ED, the people and leaders of both countries can only benefit from more these types of candid exchanges.

For further information on the U.S.-China Strategic & Economic Dialogue, please see the following news sources and commentary:

Center for Strategic & International Studies – “Cooperation or Confrontation: U.S.-China Relations on the Eve of the Strategic & Economic Dialogue

The Brookings Institute – “A preview of the eighth U.S.-China Strategic and Economic Dialogue

U.S. Department of the Treasury – “U.S. – China Strategic and Economic Dialogue

U.S. Department of State – “U.S.-China Strategic & Economic Dialogue Outcomes of the Strategic Track

Compiled and edited by Zhengyuan Bo