1 Sino-US tensions simmer on as Washington continues sending ‘mixed’ signals
The Biden administration’s ‘mixed’ China signals
Last week, the Biden administration continued with its efforts to “thaw” relations with the PRC even as it prepares technology and investment curbs.
‘Thaw’
June 27
U.S. Deputy Secretary of State Wendy Sherman held a call with PRC ambassador to the United States Xie Feng to follow up on issues discussed during Secretary of State Antony Blinken’s trip to Beijing.
State Department spokesperson Matthew Miller described Sherman’s call as “substantive” and added that “there are a number of conversations that are happening at the sub-Cabinet level now about following up on some of the issues that the Secretary discussed.”
June 28
1. U.S. Treasury Secretary Janet Yellen told MSNBC that she hopes to travel to China to “reestablish contact” with Beijing. “There are a new group of leaders, we need to get to know one another. And we need to discuss our disagreements with one another so that we don’t have misunderstandings, don’t misunderstand one another’s intentions,” she said.
Yellen added that the U.S. has been and will continue to take actions to protect its national security interests even if it “imposes some economic costs on us.”
A Bloomberg News report on June 26 said that Yellen plans to visit China in early July, citing people familiar with the scheduling. On July 2, state mouthpiece Xinhua reported that Yellen would visit Beijing from July 6 to July 9 Xinhua and meet with senior PRC officials.
2. U.S. Secretary of State for East Asian and Pacific Affairs Daniel Kritenbrink said at a Center for Strategic and International Studies event that the U.S. and the PRC agreed “to look at increasing in a phased manner the number of commercial flights between the United States and China.”
Kritenbrink also said he wanted to see a reversal in the imbalance in the number of Chinese students in the U.S. and American students in China, which he said was 300,000 Chinese students to 350 U.S. students.
June 29
1. The Wall Street Journal reported that the PRC spy balloon that flew over the continental U.S. in February did not appear to send the information that it had gathered with its surveillance equipment back to China, citing anonymous U.S. officials. One of the officials said that the Biden administration has thus far decided not to publicly share its findings on the balloon.
2. Pentagon spokesman Brigadier General Pat Ryder told reporters that the PRC spy balloon “did not collect (information) while it was flying over” the United States.
June 30
U.S. Joint Chiefs of Staff Chairman General Mark Milley said during an event at the National Press Club in Washington that Xi Jinping has not decided to order a military unification of Taiwan in 2027.
Xi “has stated publicly that he has challenged the People’s Liberation Army to develop the military capability to unify Taiwan with China by 2027. So he didn’t say, ‘I’ve decided to attack and invade,’” Milley said. “He said, you generals, you develop the capability to do that; we’ll make the decision later. There’s a very subtle distinction there.”
Restrictions
June 26
Bloomberg reported people familiar with internal deliberations as saying that a Biden administration executive order that would regulate and possibly suspend certain U.S. investments in China is “nearing completion and officials are aiming to have it ready as soon as late July.”
The people said that work on the executive order had “ramped up in recent weeks” and that the final details are “still being worked out.” Also, the White House “briefed key allies on its approach at the Group of Seven summit in May, and all countries broadly endorsed the concept.”
June 27
The Wall Street Journal reported that the Commerce Department could stop the shipment of chips made by Nvidia and other chip makers to customers in China and other countries of concern without first obtaining a license, citing people familiar with the matter. The action, which could be made as early as July, would be part of the final rules codifying and expanding export control measures announced in October 2022.
The people said that the new restrictions being considered by the Commerce Department would ban the sale of chips that semiconductor makers have tailored for the Chinese market that fall below performance thresholds outlined by the Department, such as Nvidia’s A800 chips.
Paul Triolo, a China and technology expert at the Albright Stonebridge consultancy, said updating the October tech restriction rules meant that the Biden administration’s “small yard, high fence” description was “less credible” as the impact would be “broad and increase substantially over time,” according to The Financial Times. White House National Security Advisor Jake Sullivan had earlier said that the administration is looking to build a “high fence” around a “small yard” of critical technologies that are capable of enabling the PRC military to use American technology to harm U.S. national interests.
June 30
1. The U.S. National Counterintelligence and Security Center (NSCS) issued a bulletin warning that the PRC considers outbound flow of data as a national security risk under its new counterespionage law and could use new and existing laws to get locally employed Chinese nationals to assist in PRC intelligence efforts.
“These laws provide the PRC government with expanded legal grounds for accessing and controlling data held by U.S. firms in China,” the NCSC said. “U.S. companies and individuals in China could also face penalties for traditional business activities that Beijing deems acts of espionage or for actions that Beijing believes assist foreign sanctions against China.”
The NCSC added that “any documents, data, materials or items” could be considered by the PRC authorities to be relevant to national security given the ambiguities of the new law.
2. The Pentagon updated its rules to not help film directors who comply with the PRC’s censorship demands. According to a document obtained by Politico, the U.S. Defense Department “will not provide production assistance when there is demonstrable evidence that the production has complied or is likely to comply with a demand from the Government of the People’s Republic of China … to censor the content of the project in a material manner to advance the national interest of the People’s Republic of China.”
Congress maintains ‘tough on China’ stance
June 27
1. Mike Gallagher (R-Wis.), chairman of the House Select Committee on the Chinese Communist Party, and nine other Republican representatives sent a letter to Secretary Blinken urging the State Department not to renew Beijing and Washington’s Science and Technology Agreement. The Agreement, which was signed in 1979 and is renewed every five years, is set to expire on Aug. 27.
“The PRC (People’s Republic of China) uses academic researchers, industrial espionage, forced technology transfers, and other tactics to gain an edge in critical technologies, which in turn fuels the People’s Liberation Army modernization. The United States must stop fueling its own destruction. Letting the STA expire is a good first step,” the lawmakers wrote.
2. A bipartisan delegation led by House Armed Services Committee Chairman Mike Rogers (R-Ala.) landed in Taiwan for a three-day trip. The delegation was scheduled to meet Taiwanese leader Tsai Ing-wen on June 28.
3. Michael McCaul (R-TX), chairman of the House Foreign Affairs Committee, announced the formation of a bipartisan Technical, Industrial, and Governmental Engagement for Readiness (TIGER) Task Force that will work to speed up the delivery of weapons to U.S. allies and partners.
“Our partners, like Taiwan, order American military equipment because they need it. They should receive that hardware as quickly as possible,” said Rep. Seth Moulton (D-Mass.), one of the co-leaders of the task force.
June 28
Mike Gallagher and James Comer (R-Ky.), head of the Committee on Oversight and Accountability, sent a letter to the head of the United States Postal Service Louis DeJoy asking for “documents, information, and data” related to goods from China shipped into the United States.
The letter said, “Chinese companies can take advantage of the de minimis rule and ship products via commercial shipping companies, as well as the USPS, directly to U.S. consumers without paying duties and fees or subjecting their products to investigation by authorities.”
Europe backs off on China
June 28
Politico reported that some Western European governments are trying to tone down even more an “already boring” draft of the end-of-summit concluding statement so that they “wouldn’t piss off China.”
The draft was “less hostile in its tone toward Beijing compared with other recent statements coming from Brussels,” according to Politico. “The European Union and China have a shared interest in pursuing constructive and stable relations,” the draft said. A senior diplomat told Politico that the draft shows “in a bit more detail that we continue wanting to engage with that country, that economic power.”
Politico added that the question of what to say on China would not have come up if “some diplomats” had their way. “If EU leaders spend hours haggling over this text at the European Council, it would show disunity over China,” said an EU diplomat.
Politico observed that “the EU’s softer approach mirrors a broader shift on China policy which is also happening on the other side of the Atlantic,” adding that the U.S. has “dialed down the temperature” with China in recent weeks after “ratcheting up rhetoric” over the PRC’s policy in the South China Sea and on Taiwan.
Buffett sells BYD
Warren Buffett’s Berkshire Hathaway sold 2.53 million Hong Kong-listed shares of the Chinese new energy vehicle company BYD for HK$675.80 million (about $86.3 million) on June 19, according to a Hong Kong stock exchange filing. The sale lowered Berkshire’s holdings in BYD to 8.98 percent, down from 9.21 percent.
PRC passes foreign relations law
June 28
The PRC unveiled a sweeping foreign relations law that takes effect on July 1. The law notes that the PRC has the right to “take corresponding countermeasures and restrictive measures” against acts that violate international law and norms, as well as those that “endanger China’s sovereignty, security, and development interests.”
The law also requires all individuals and organizations to uphold PRC interests in international exchanges. Those who commit “acts that are detrimental to China’s national interests” will be held legally accountable.
June 29
In a People’s Daily article, CCP Central Foreign Affairs Office director Wang Yi said that the PRC should use the law “as a legal tool – through legislative, law enforcement, judicial and other means – to carry out our fight in response to acts of containment, interference, sanctions, and destruction.” He added, “The … law clearly opposes all hegemonism and power politics, and is against any unilateralism, protectionism, and bullying acts … towards China.”
Big picture
The above developments come amid increasing signs of stalemate in the Russia-Ukraine war, recessionary pressures and emerging financial risks in the West, and China’s rapid economic deterioration becoming more obvious and severe.
Our take
1. The PRC’s new foreign relations law affirms our earlier assessment that Beijing believes that the West is out to “contain, encircle, and suppress” the CCP regime, and no amount of Western “engagement” without significant concessions will sway the Xi leadership into changing its antagonistic stance towards the U.S. and its allies.
That being said, Beijing will likely use the foreign relations law in moderation and chiefly for propaganda purposes, as well as refrain from being over-provocative in wielding this “legal tool” as it does not want to worsen the many crises currently plaguing the regime. Yet the introduction of the law could further chill foreign companies and investors who are already very concerned about the regime’s updated counterespionage law, and could convince more foreigners to migrate themselves and their money out of China. The U.S. and its allies could later also point to the law as another example of the PRC being out of sync with the rules-based international order to justify imposing new sanctions and restrictions on the regime.
2. The Biden administration’s consideration of further technology and investment restrictions on the PRC over national security reasons affirms our analysis that “heightened Sino-U.S. tensions will be the norm, and not the exception, as long as Beijing and Washington prioritize national security interests above economic benefits.” The administration’s continued attempts to “engage” China appear to be primarily intended to ensure that the bilateral relationship does not degenerate too swiftly to the detriment of U.S. and global interests amid the global economic downturn and rising geopolitical tensions; the Biden administration refers to this as building “guardrails” or a “floor” in the relationship. Going forward, the Biden administration will likely work gradually to “de-risk” and “diversify” the U.S. away from China.
Sino-U.S. relations could take a turn for the worse depending on how the Russia-Ukraine conflict develops and whether Beijing is found to be providing crucial assistance in backing Moscow’s war effort. Prolonged stalemate in Ukraine and eagerness on the part of the West to push for an advantage could possibly see the U.S. and the EU ramp up pressure on China even if doing so goes against their interests over the short term.
3. The CCP will likely view the “mixed” signals (“intense diplomacy” on the one hand, new sanctions and restrictions on the other, etc.) coming from the U.S. as signs of hypocrisy and a lack of sincerity on the Biden administration’s part. Meanwhile, Beijing will believe that it has succeeded to a degree in swaying some of the European countries into retaining their support for China despite Washington’s efforts to rally allies and partner nations towards countering China. Going forward, the CCP will likely step up its diplomatic efforts in Europe and with sympathetic countries to drive them away from the U.S. and lure them into the PRC’s orbit of “friendly” nations.
Washington should be wary of Beijing’s diplomatic “counteroffensive” and find ways to better expose the CCP threat so that countries will be more guarded in their engagements with the PRC. The Biden administration should also consider adjusting its domestic and foreign policies so that countries will be less reserved about aligning themselves with the U.S. in countering the CCP regime, and will be less tempted to go along with Beijing’s alternative global vision (“community with a shared future for mankind,” Ukraine “peace plan,” etc.).
