US-China ‘Recoupling’ On The Agenda As Biden & Xi Are Set To Meet

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By Chris Devonshire-Ellis 

“Build Back Better World” and “Global Gateway” both need to collaborate, not compete, with China

The United States and China have agreed in principle for their presidents to hold a virtual meeting before the end of the year, a senior U.S. administration official said yesterday, following high-level talks aimed at improving relations between the two countries.

The closed-door meeting in Zurich between U.S. national security adviser Jake Sullivan and China’s top diplomat Yang Jiechi was their first face-to-face encounter since a mutually aggressive airing of grievances in Alaska in March.

U.S. officials had suggested that the meeting was a follow-on from President Joe Biden’s September 9 call with Chinese President Xi Jinping, prior to which the world’s top two economies appeared to have been locked in a diplomatic stalemate. The White House said Sullivan raised concerns about contentious issues such as China’s actions in the South China Sea, as well as Beijing’s stances on Hong Kong, Xinjiang, and Taiwan.

Both Beijing and Washington said the talks, which lasted six hours, were constructive and candid.  The U.S. side said “We do have out of today’s conversation an agreement in principle to hold a virtual bilateral (summit) meeting before the end of the year.”

White House spokeswoman Jen Psaki said: “We’re still working through what that meeting look like, when and of course the final details we don’t quite have them yet.”

Early speculation had been that the two might meet in person at the G20 summit in Italy in October, but Xi has not left China since the outbreak of the pandemic early last year.

“Today’s conversation, broadly speaking, was a more meaningful and substantive engagement than we’ve had to date below the leader level,” the official said, adding that Washington hoped it would be a “model for future encounters.”

The official said “What we are trying to achieve is a steady state between the United States and China where we are able to compete intensely but to manage that competition responsibly,” the official said.

China’s Foreign Ministry said in a statement that Yang told Sullivan that confrontation would damage both countries and the world.

“The two sides agreed to take action … to strengthen strategic communication, properly manage differences, avoid conflict and confrontation,” the ministry statement said.

The White House said Sullivan will also visit Brussels for meetings with NATO and European Union officials, as well as Paris, and will brief the Europeans on his meeting with Yang.

With trade tensions also at the top of the U.S.-China agenda, U.S. Trade Representative Katherine Tai, in Paris for Organisation for Economic Co-operation and Development meetings, has said she hopes to hold discussions soon with Chinese counterparts.

On Monday, Tai unveiled the results of a months-long “top-to-bottom” review of China trade policy, pledging to hold “frank” talks with Beijing about its failure to keep promises made in former President Donald Trump’s trade deal and end harmful industrial policies.

Bilateral Trade & Tariffs

That signals that elements of realism are beginning to filter down into US (and therefore EU and UK) trade policy towards China as overall trade had fallen between them. US bilateral trade with China decreased from US$600 billion in 2017 to US$558 billion in 2018 at the height of the trade war rhetoric, a decrease of roughly 10%. Since then, it has rebounded and is expected to reach US$680 billion in 2021, with July 2021 bilateral trade growing by 45.7%. Meanwhile, the trade deficit with China continues to grow. What has occurred then is a rebalancing of the types of commodities traded between the two partners, with the US managing to slow down China’s growth in certain key hi-tech areas (5G is one example). The tariffs and import ban the US has imposed on these products have given the US breathing space to catch up. That now appears to have been achieved, although tariffs in certain key sectors will remain for the same reason. If China and the United States can plan together in terms of who does what then ‘trade development’ may recommence on a more measured basis rather than the quick blast of Trumpian temper that instigated the tariff war in the first place. China wants differences to be thought out, not suddenly imposed. A more pragmatic and shared approach to global trade may result in some trade thaws between the two – although neither Biden or Xi will admit such to their respective citizens. Rhetoric may appear tough, but underneath all that, the US-China trade position is robust.

The Three Global Initiatives

Another dose of reality has been the financial and practical understanding that the US ‘Build Back Better World’ and EU’s ‘Global Gateway’ are not going to be able to compete with China’s Belt and Road Initiative, and despite the recent media rhetoric, probably cannot nor should. There are several good reasons for this. Firstly, President Biden is struggling to get his proposed ‘Partisan Infrastructure Bill’ through Congress. Secondly, as the EU is starting to find out with its ‘Global Gateway’ program, rather than go it alone and hold all the risks in financing overseas infrastructure developments, it will be preferable to spread both finance and the risk among syndicated arrangements with other international banks, including Chinese banks such as AIIB.

This means that a more realistic route for the US and EU to take with their global schemes is to participate in co-ventures involving Asian, African, LatAm, Middle East and Sovereign funds, as well as with Chinese banks and investors. Both B3W and Global Gateway are going to have to interact with China.

Thirdly, any infrastructure projects are at some point going to have to interact with China’s Belt and Road infrastructure builds. They’ve been constructing roads, rail, ports, and related infrastructure on a worldwide basis since the launch of the Belt and Road Initiative in 2013 (and in fact far earlier than that) and at some point, the twain must meet.

Finally, there is the pressing concern of the global environment. For three large global initiatives to be competing doesn’t make sense and would be a disaster. Collaboration, not competition is required here.

US-China Recoupling: New Terms

For these reasons, although for respective domestic consumption issues it may not appear this way, the proposed meeting between Biden and Xi is more likely to result in rapprochement than not. China has already shown what can happen if its wishes for cooperation and collaboration are not met: it will invade Taiwan and create an Asian bloc distinct from the US where what Beijing, not Washington says is the rule of law. The message is clear – cooperate. That will introduce a more sustainable division of global responsibilities – albeit one where China has more say in global affairs than Washington has previously allowed it to possess. Signs that this is happening would be for example a move to increase China’s shareholding within the World Bank, where despite being responsible for 15% of world trade, it holds just 5.05% equity. Hawks in Washington may not like it – but I expect them to be bypassed given the need for more pragmatic solutions and collaboration after all the recent growling.

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About Us

Silk Road Briefing is written by Dezan Shira & Associates. The firm has 28 offices throughout Asia, and assists foreign investors into the region. For strategic advisory and business intelligence issues please contact the firm at silkroad@dezshira.com or visit www.dezshira.com

 

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