China – US relations after APEC Summit in San Francisco

The Asia-Pacific Economic Cooperation (APEC) Leaders’ Week 2023 with the theme of “Creating a Resilient and Sustainable Future for All” was held in San Francisco, November 11-17, 2023.

Member economies of APEC 2023 are: Australia, Brunei, Canada, Chile, People’s Republic of China, Hong Kong, Indonesia, Japan, Republic of Korea, Malaysia, Mexico, New Zealand, Papua New Guinea, Peru, Philippines, Russian Federation, Singapore, Taiwan (Chinese Taipei), Thailand, United States of America, Vietnam.

On the sidelines of APEC Summit, President Joe Biden and President Xi Jinping met first time this year and this was Xi’s first visit to America in six years.

The polite way to characterize Joe Biden’s meeting with Xi Jinping is that it cleared rather low expectations but failed to achieve any new heights for the most important relationship in international politics.

Biden told to the media after his meeting with the Chinese leader as “constructive and productive” and “blunt.” He once again made a gaffe by naming Xi as a dictator. Xi went to work — attending a high-stakes dinner with top CEOs, who have recently become cautious on investing in China.

Yet, President Xi was leaving San Francisco after a broadly positive visit that saw him agree with President Joe Biden to better manage tensions and reassure Americans that China wants friendship, not war. That could reduce the risk of a crisis that raises military tensions at a time, when Xi is struggling with a major property-market slump and a shakeup in senior leadership positions.

Global Times: Key takeaways from Xi-Biden summit in San Francisco

By Deng Zijun Published: November 16, 2023 

Xi’s agenda at the Asia-Pacific Economic Cooperation forum also featured a warm welcome from some of the most important US business leaders — offering the world a valuable reminder of his nation’s economic clout in the face of a drop-off in foreign investment. Xi said more “heart-warming” measures were coming to make China more attractive to companies.

However, no radical turnaround has taken place, The US took no step toward lifting tariff hikes or export controls, for example and there’s no guarantee the week’s glow will last. Biden’s “last minute gaffe” again calling Xi a “dictator” showed the entrenched divisions that could again upend relations.

Despite the dictator remark, Biden wasn’t drawn on questions over Taiwan scenario planning and instead simply reiterated the so-called one China policy after his meeting with Xi. US officials said they believed the Chinese leader indicated he wasn’t readying plans for a mass invasion of Taiwan.

The relationship between China and the United States, despite its challenges, has consistently moved forward. Attempting to remodel one another is unrealistic and the consequences of conflict and confrontation are untenable for both sides. In today’s world, major-country heated competition is the prevailing trend but it cannot offer sustainable solutions to the challenges faced by China, the United States, or the world at large.

China’s extended hand of friendship and cooperation, symbolized by President Xi’s visit, offers an opportunity for the United States to display responsibility and collaboration. Looking beyond the immediate meeting, the cooperation between China and the United States holds immense global significance. As the world’s two largest economies, their collaboration is essential for providing global public goods, advancing science and technology, fostering economic growth in developing countries and contributing to global peace.

The APEC meeting in 2023 is a crucial moment for China and the United States to reengineer their cooperation, counter the notion of a Thucydides trap, and pave the way for a shared future and prosperity for all. The world eagerly awaits the positive outcomes that can emerge from this significant diplomatic engagement.

Biden held a four-hour summit with Chinese counterpart Xi Jinping ahead of the annual conference for the 21-nation APEC. It was highly notable that Biden and Xi did not hold a joint press conference following their lengthy discussions. Nor did the two leaders issue a joint statement.

The notion that the US can easily repair relations with China is naive. All the signals indicate that Washington is still on a collision course with China. Provocative name-calling of China as a threat, the relentless arming of Taiwan and the pursuit of aggressive trade war policies all spell out confrontation.

Business is business, as usual

Sino-American economic relations have been under heavy stress in last several years. Economic sanctions and trade-war type other measures, imposed by the US as well as China’s domestic problems in the real estate/property markets have caused decreasing trend in China’s economic growth. The US administration will continue to tighten the screws on China’s economy through investment restrictions. Meanwhile, China’s government has taken domestically some heavy measures.

The Chinese government is reportedly drafting a white list of around 50 major property developers that will be allowed to borrow from banks more easily to maintain their construction work, a move that has at least temporarily lifted beleaguered property company shares.

A veteran Chinese banker Zhu Hexin, has been appointed China’s new forex party chief of the State Administration of Foreign Exchange (SAFE). This is a vital role in helping to guard against the economic headwinds of US rate hikes while managing the world’s largest foreign exchange reserve. Zhu Hexin will oversee US$3 trillion in reserves while trying to stabilize the yuan.

China’s stockpile of US Treasuries is at its lowest level in 14 years ($778 billion), which means that China has dumped US bonds by value of half of trillion dollars.

Military matters

There is a lot of irrational hostility in Congress towards Beijing as well as among the US military. Pentagon once again labelled China as a growing military threat to American global interests and accuses Chinese PLA of intimidating actions during US “freedom of navigation” operations.

The Biden White House has continually provoked China with false claims of Chinese expansionism in the Asia-Pacific, while the US relentlessly builds up its own military power in the region, which is very easy to see when looking at the map of the region showing locations of US military bases. Washington is also recruiting regional allies to gang up on China in the event of war. The AUKUS coalition with Australia and Britain armed with nuclear submarines is a particularly tendentious development. So too is the Quad group involving the US, Japan, South Korea and India.

Under Biden, the US has significantly intensified military and political interference in Taiwan. The Biden administration has proliferated weapons sales to Taiwan despite China’s warnings. High-level political delegations from the US to Taiwan have gone hand-in-hand with the increasing American militarization of the island.

The breakdown in military communications between the US and China was instigated by the visit to Taiwan in August 2022 by Nancy Pelosi, the then Speaker of the House of Representatives, which is the third most senior political office in the US after the president. This week’s summit between Biden and Xi declared a resumption in military communications between the U.S. and China.

Amid rising tensions over Taiwan, a looming nuclear arms race and tit-for-tat espionage allegations, the US and China have agreed to crucial talks on the future use of artificial intelligence (AI) in sensitive military areas.

Both presidents affirmed the need for bilateral government talks to address the risks associated with using advanced AI systems in sensitive military functions. But it was not clear from post-meeting statements that the two sides are anywhere near making a joint declaration.

Breaking Defense reported that while the specifics of Biden and Xi’s AI-military talks were not publicly disclosed, with both sides releasing bare-bones press releases, there is a clear movement towards establishing norms on the military use of AI, particularly in autonomous weapons.

China’s show of force in the Taiwan Strait has been sustained for three years now and shows no sign of abating. Meanwhile, Beijing’s navy continues to hold hard hand over the South China Sea.

Political framework, “Enduring rivalry”

In San Francisco, Xi made a point to stress that China respects the “historical, cultural and geographical position” of the US, while hoping that the US would respect the “path of socialism with Chinese characteristics.”

There were smiles for the camera, handshakes, warm words and the unveiling of a couple of agreements but beyond the optics, not a lot had changed: There was nothing to suggest a “reset” in US and China relations that in recent years have been rooted in suspicion and fierce competition. China and the US are enduring rivals, not engaged partners and that won’t change any time soon.

The relationship between the two countries can be best described as an “enduring rivalry” – a term used in researching international relations. Over the past two centuries, such rivals have accounted for only a small fraction of the world’s international relationships but the majority of its wars. History suggests these rivalries last around 40 – 50 years and end only, when one side loses the ability to compete or when the two sides ally against a common enemy. Neither scenario looks likely any time soon in regards to China and the US.

China “is a communist country … based on a form of government totally different than ours,” Biden said after his meeting with Xi.

That comment gets to the heart of why diplomacy alone cannot reset the US-China relationship. Washington and Beijing are not rivals due to any misunderstanding that can be sorted out through talks alone. Rather, they are rivals because of the opposite reason: They understand each other only too well and have come to the conclusion that their respective world outlooks cannot be reconciled.

The same is true for many of the issues that divide the two countries – they are framed as zero-sum / win-lose scenarios. Taiwan can be governed from Taipei or Beijing, but not both. Similarly, the East China and South China seas can be international waters or Chinese territory; Russia can be crippled or supported. For the United States, its Asian alliances are a force for stability; for China, they’re hostile encirclement. Both countries are right in their respective assessments. Diplomacy alone is insufficient to resolve a rivalry. At best, it can help manage it.

Part of this management of the US-China rivalry involves finding areas of agreement that can be committed to. Moreover, focusing on what was agreed to in talks also highlights what wasn’t agreed to without a substantial shift in power that forces one side to concede to the other.

China wants the US to stop selling arms to Taiwan but Washington has no intention of doing this, as it knows that this will make the disputed island more vulnerable to Beijing. Washington would like China to end its military displays of strength over the Taiwan Strait; Beijing knows doing so risks seeing Taiwan drift toward independence.

This isn’t to say that diplomacy and face-to-face talks are pointless. They do, in fact, serve a number of interests. For both men involved, there is a domestic upside. Moreover, summits like the one in San Francisco signal that both the US and China are jointly committed to at least keep talking, helping ensure that a rocky relationship doesn’t descend into anything more belligerent – even if that doesn’t make them any friendlier.

One day after San Francisco, the heart of the action moved to Shanghai and a high-level Russia-China conference; Valdai club is a kind of meeting where the strategic partnership formulates paths ahead in the long march to multipolarity.

Meaning of the US-China meeting

High-level diplomatic visits can achieve much when they include meaningful sacrifices combined with a united domestic political environment.

The pressures and incentives behind current tensions remain present and are even strengthened by recent developments. This meeting instead appears to be a political exercise to signal to American and Chinese audiences rather than an indication of real progress toward fixing issues in US policy toward China.

The Sino-American competition is rooted in ideological differences and shared ambition for economic and military dominance, especially in Asia. In order to end the potential spiral, both sides would have to make historic concessions involving the alteration of fundamental policy and even the nature of key alliances. It seems unlikely a US-China summit means a sudden willingness on either side to consider important sacrifices to end the rivalry.

There is speculation that Xi’s visit is meant to “keep communication channels open” for use in times of crisis, but this, too, is doubtful. If China and the United States want to preserve or promote lines of communication, they can do so without big announcements and high-profile summits. This means, if they draw attention to communication, it’s probably for different reasons.

The real reason for the meeting can lie in very mundane matters, like “this meeting is meant to score political points at home”, something both Biden and Xi need, considering America’s upcoming elections and China’s economic problems. Whatever the reason, any outcomes that cool tensions will likely be no more than short-lived secondary benefits.

Framework of great power relations

The problem of the US is that adopting a confrontational policy toward two major powers (China, Russia) simultaneously violates a cardinal principle of foreign policy theory. The costs and risks of undertaking such a mission are daunting. It also tends to drive otherwise disparate powers together by making the United States their common enemy.

Taking on two adversaries at the same time creates a potentially catastrophic situation for the American people, yet the Biden administration is in the process of making exactly that blunder with respect to relations with Russia and China. Making situation even more challenging, two other adversaries are also coming up – Iran and North Korea.

Henry Kissinger emphasized that Washington should always seek to be on better terms with Moscow and Beijing than they are with each other. US officials beginning in George W. Bush’s administration have ignored that advice and the US gradually commenced trying to wage a two-front cold war.

The Biden foreign policy team seems incapable of making the crucial decision about which country, Russia or China, is America’s primary adversary. Washington has seemingly gone out of its way to antagonize both countries. Not only does such an approach court the risk of creating a very dangerous case of strategic overextension, it is driving Moscow and Beijing together. In essence, current US policy is creating the opposite of Kissinger’s model, a situation in which Moscow and Beijing develop closer ties to each other.

Just as the United States has antagonized Russia and given the Kremlin compelling reasons to cooperate with China on multiple fronts against the United States, US leaders have given Beijing compelling reasons to boost strategic and economic collaboration with Russia.

Now, something deeper and more significant than expanding bilateral ties on energy policy is taking place. Russia and China (along with Iran and some other actors) are making efforts to dilute the US dollar’s status as the world’s reserve currency, de-dollarization process is in full swing worldwide.

Sino-Russian cooperation on strategic issues is increasing as well. Joint military exercises have taken place on several occasions over the past several years. Both the pace and scope of such war games are also increasing.

If the US leaders are determined to have the United States confront a potential rival and contain its power, China is the strongest challenger to America’s position. That means the US should move to repair relations with Moscow as soon as possible. Bilateral relations are now poisoned because of the Russia-Ukraine war and the West’s twin measures of aiding Kiev militarily and imposing draconian sanctions on Russia’s economy.

Secretary of Defense Lloyd Austin’s indiscreet admission that NATO’s real goal in the Ukraine war is to weaken Russia, effectively eliminating it as a serious international player, likely has generated extensive suspicions and animosity among the Russian people. 

Attempting to conduct a two-front economic and military confrontation, is the worst possible option. Unfortunately, that appears to be Washington’s de facto strategy. Washington’s policy ineptitude already has created a two-front cold war and if the United States continues on this path that the situation could become a two-front hot war with nuclear implications. 

China and the United States are different in history, culture, social system and development path. They have encountered, are currently encountering, and will continue to encounter differences and disagreements. How to view these differences and responsibly manage the disagreements tests the wisdom of both countries. Over the past decades, the relationship between China and the US has experienced ups and downs and the US side should have a clear understanding of this.

Taiwan question remains the most important and most sensitive issue in China-US relations. The US side should take real actions to honor its commitment of not supporting “Taiwan independence,” stop arming Taiwan and support China’s peaceful reunification.

Aftermath of the summit for Xi Jinping

President Xi Jinping has formulated “three grand ambitions” for his tenure. First, he firmly believes that China should follow a development path distinct from the mainstream of world civilization. Second, he sees the future reunification of Taiwan as his legacy achievement. Finally, Xi has global ambitions to challenge the dominance of the United States.

Western media has characterized Xi Jinping’s foreign political paradigm as a “wolf warrior diplomacy”, which is now transformed to “panda diplomacy” virtually overnight. This took place after the official APEC Summit and the much-hyped Biden-Xi Summit, in the major gathering with American CEOs and other businessmen.

Of particular note is the change in tone of the Chinese state media around the summit, which shifted from a hostile stance to actively promoting Sino-American friendship, especially economic relations. Chinese leader Xi Jinping, both in his meeting with Joe Biden and during his dinner with American business leaders, displayed a friendly demeanor and even a softer posture.

A year ago, at the Group of 20 (G-20) summit in Bali, Indonesia, Xi met with Biden, shortly after being reappointed for a third term during the 20th CCP Congress. At the time, the achievement of his three goals seemed within reach, with a sense that “the East is rising and the West is declining.”

Over the past year, however, Xi’s ambitions have suffered setbacks. Shortly after returning from Bali, he faced nationwide protests known as the White Paper Movement, which diminished his political authority. The expected strong economic recovery following the lifting of pandemic restrictions failed to materialize. The real estate market faced a comprehensive collapse, youth unemployment soared and confidence among domestic and foreign entrepreneurs continued to erode.

His new administration introduced various market support measures to restore confidence and drive the “three engines” of economic growth: investment, foreign trade, and consumption. However, these engines still starting to gain momentum.

Without sustained robust economic growth, he lacks the confidence to realize his three ambitions. The economic challenges Xi Jinping faces aren’t just about the size of China’s economy, but more crucially, the structure of its economy. China’s economy has long relied on the real estate sector, leading to high leverage and potential financial risks. Even if the real estate market doesn’t collapse, it has lost its ability to drive sustainable economic growth.

To unleash the long-term potential for economic growth, China must transition from a “brick and mortar” economy to a digital and semiconductor economy. If China cannot compete with or surpass the United States in high-tech fields, Xi will find it difficult to realize his three grand ambitions. The US has recognized this and has increasingly imposed restrictions on the export of high-tech products to China.

If the crackdown on China’s real estate market is carried out too quickly and forcefully, it will inevitably trigger a financial crisis and a debt crisis for local governments that have long relied on land financing. A sharp drop in housing prices would accelerate the shrinking of the middle class and in turn pose a political challenge to Xi.

As a result, Xi needs to balance the two things: firstly, the necessary transformation to digi-oriented business and secondly, stability in the property market. The key to a smooth transition during this period is financing. Therefore, Xi Jinping was wearing a smile, when he arrived in the United States on November 14. During his summit with Biden, Xi made several concessions on US priorities, from counternarcotics to military-to-military talks and seemingly gained little for himself. However, the real action took place offstage.

That night, at a dinner with US business leaders, Xi went on a charm offensive, emphasizing China’s commitment to being a partner and friend of the US, highlighting the friendly China-US relationship and China’s huge market with opportunities in many sectors. From China’s perspective, this was the main event; the summit with Biden was intended to set the stage for Xi to woo a renewed influx of foreign direct investment from US companies.

Market rumors reportedly were telling that China needs about $900billion bailout capital injection to stabilize the property market and Chinese economy. Was this financial bailout package the real reason behind the China – US summit in San Francisco, remains to be seen.