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UPDATED: July 6, 2015 NO.28 JULY 9, 2015
Hard Talk
The seventh China-U.S. Strategic and Economic Dialogue comes at a crucial time in the evolution of the two countries' relationship
By An Gang  

U.S. President Barack Obama meets with Chinese officials participating in the Seventh China-U.S. Strategic and Economic Dialogue and the Sixth High-Level Consultation on People-to-People Exchange in Washington, D.C., on June 24 (XINHUA)

After seven years of run-ins, China-U.S. Strategic and Economic Dialogue (S&ED) has grown into one of the most solid frameworks for dialogue ever existent between the world's largest developed and developing economies. Besides strategic and economic dialogues, the framework also contains a vice-ministerial security consultation for military and civilian officials from both sides to exchange views on everything from maritime affairs and outer space, cyber and nuclear security, as well as bilateral military exchanges.

However, the 2015 S&ED in Washington, D.C., on June 23 and 24 presented a much more complicated situation for both sides. Owing to their rift on the South China Sea and cybersecurity as well as the ever-shifting state of inter-country relationships, feelings of mutual distrust between China and the United States are growing and their relations may be at a tipping point.

Fruitful outcomes

Outstanding issues aside, China and the United States made efforts to emphasize partnership building and allaying public concerns in both countries, ahead of Chinese President Xi Jinping's scheduled visit to the United States in September.

In the joint opening ceremony of the 2015 S&ED and the Sixth China-U.S. High-Level Consultations on the People-to-People Exchange (CPE), Chinese Vice Premier Liu Yandong read a message from President Xi to U.S. President Barack Obama stating that the priority of China's foreign policy is to build a new type of major-country relationship with the United States based on non-confrontation, non-conflict, cooperation and a win-win principle.

In his speech at the opening ceremony, U.S. Vice President Joe Biden compared the "complicated" relationship between the two countries to a marriage--complete with challenges but shared interests. "We all know, like a good marriage it requires an awful lot of hard, hard work," Biden said. "Let me be crystal clear…We do not fear China's rise, we want to see China rise, to continue to rise in a responsible way that will benefit you most. A rising China can be a significant asset for the region and the world, and selfishly, for the United States."

Chinese Vice Premier Wang Yang maintained that dialogue promotes understanding and benefits both countries. "Some believe that the Thucydides trap between major countries is insurmountable. And some even want China and the United States to confront each other. In any case, decision-makers of both countries must always remember that confrontation is a negative sum game in which both sides will pay heavy prices and the world will suffer too," Wang said.

There is no doubt that progress was made during the S&ED. On the economic track, more than 70 agreements were reached, and on the strategic track, 127 achievements were made in nine fields. The militaries of both countries reiterated their intention to implement a reciprocal notification mechanism for military operations and the Rules of Behavior for Safety of Air and Maritime Encounters, and to reach an agreement on a set of rules for air encounters part before September this year. Both sides also made headway in the fields of energy, climate change and the environment. As a part of their proposed civil space cooperation, the two countries agreed to hold consultations to avoid accidental collision of satellites in orbit.

During the CPE, the signs were likewise promising. The two sides reached a consensus on 119 items in seven fields. With respect to education, China will invite 100 young elite American students to visit China over the coming five years, push forward with a talent-exchange program that will involve 1,000 students from leading universities of both countries and send 10,000 Chinese people to study in the United States annually. All of this takes place in the face of mounting pessimism as regards relations between the two countries.

Future challenges

However, even these outcomes could not completely paper over the deepening fissures in the China-U.S. relationship. Biden issued warnings about China's maritime disputes with neighboring countries. During the S&ED, U.S. officials also raised concerns about suspected economic espionage, accusing the Chinese Government of backing such activities. China denied such accusations and called for both countries to work together to develop an international code of conduct for cyber information sharing.

Differences on the issue of human rights also resurfaced during the talks. While the S&ED was ongoing, the U.S. State Department issued its annual global human rights report for 2014, which accused China of lessening its freedom of speech. One day later, China hit back with a report titled Human Rights Record of the United States in 2014, which points out that while the United States often comments on the human rights situations in many countries, it shows little if any initiative to address its own human rights problems, either internationally or in its own backyard.

In Washington, a debate on readjusting China policy after the 2016 general election is being staged publicly, as the fervor of parties formerly bullish about China-U.S. relations is cooling. Some politicians even advocate taking a tougher stance on China.

At the level of macro-economy, reservations held by the two sides with regard to the other have not dwindled despite the end of the recession after the 2008 financial crisis and the U.S. recovery. The United States believes that the Chinese currency yuan, or renminbi, is undervalued and presses China to speed up reform on the exchange rate. However, the U.S. attitude is seemingly at odds with that of the International Monetary Fund, which announced in late May that the yuan is no longer undervalued and it is currently mulling over including the renminbi in the special drawing rights basket of currencies.

Though the China-initiated Asian Infrastructure Investment Bank (AIIB) has upset Washington, it proved powerless to prevent most of its allies from joining. Chinese officials at the S&ED explained to the U.S. participants that the Chinese initiative has no intention of challenging U.S. leadership in global finance. However, the United States appears to be lobbying some of its allies to launch competing infrastructure investment initiatives. Washington is also trying to exert influence over the future operation of the AIIB.

In 2014, China-U.S. trade volume hit a record high of $590 billion. The United States claims that of the pair, China places more restrictions on foreign investment and is eager for China to open its market in industries such as financial service, agriculture and healthcare, all areas in which it is competitive. Meanwhile, the United States' reluctance to remove restrictions on hi-tech exports to China as well as its constraints on large Chinese state-owned enterprises' investment in the United States have ruffled feathers in Beijing and have influenced the official view on Washington's China policy. The United States did, however, pledge to facilitate exports to China of commercial hi-tech items intended for civilian uses.

At present, China and the United States have basically completed text negotiation on a bilateral investment treaty (BIT). They will exchange proposed negative lists on which foreign investment is restricted by host countries and move onto talks on market access--the crux of the issue. Both are optimistic vis-à-vis the conclusion of BIT negotiations at the end of 2016.

While the 2015 S&ED was being convened, the U.S. Congress passed legislation to grant Obama greater authority in negotiating international trade deals, thus removing obstacles for the Obama administration in talks for concluding the multilateral Trans-Pacific Partnership (TPP) free trade agreement. The TPP, which excludes China, is a major pillar of the Obama administration's "Pivot-to-Asia" strategy and indicates to China that the United States is trying to regain its competitive edge in trade terms.

So how may one characterize the current state of China-U.S. relations? A tentative answer might be "not that good, but not as bad as the rest of the world believes." In the future, it will be a given that both intense competition and wide space for cooperation between the two nations will exist side by side. This will become the new normal. The fundamental challenge still lies in how both parties perceive each other's strategic intentions. A solution needs to be reached that will serve both countries' fundamental interests as well as the common interests of the world. 

The author is an op-ed contributor to Beijing Review

Copyedited by Eric Daly

Comments to liuyunyun@bjreview.com

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