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US-China Strategic and Economic Dialogue Needs More Substance

Jul 09 , 2013

As the fifth meeting of the

Minxin Pei

However, based on the expressed desires of President Obama and Mr. Xi to sustain high-level engagement between the two countries, the U.S.-China S&ED is likely to continue.  Scrapping it at this stage because of lack of satisfactory outcomes would cause both countries to lose too much face – and is thus unthinkable.  Yet, performing a largely symbolic diplomatic ritual for the sake of appearance is not likely to contribute to maintaining a healthy U.S.-China relationship.  So the challenge for both countries is to try something new and think more creatively to make the U.S.-China S&ED more productive.

Compared with previous S&ED meetings, this one will be quite different.  Nearly all of the cabinet ministers are new appointees, as are the leaders of the two delegations, Secretary of State John Kerry, Treasury Secretary Jacob Lew, Vice Premier Wang Yang, and State Councilor Yang Jechi.  The only veterans of the U.S.-China S&ED are Fed Chairman Ben Bernanke and Governor Zhou Xiaochuan of the People’s Bank of China.  If nothing else, the fifth S&ED meeting will certainly provide a valuable opportunity for freshly minted American cabinet secretaries to get to know their Chinese counterparts.

This process of establishing a working personal relationship can be further improved if the format of the S&ED is fine-tuned.   At the moment, the bulk of the time is devoted to plenary sessions or large group meetings.  This arrangement is not the most efficient way of maximizing the value of the S&ED.  There should be more one-on-one meetings between American and Chinese officials responsible for similar portfolios.  Such meetings will likely facilitate closer personal ties, more in-depth discussion of specific policy issues, better knowledge of each other’s concerns, and early detection of potential problems in bilateral relations.

There is another potential upside of the fifth S&ED.  Unlike the past S&ED sessions, this one occurs in an entirely different macroeconomic context.   When the last four S&ED meetings were held, the U.S. economy was struggling while the Chinese economy was charging ahead.  Today, things are quite different.  After five years of painful economic restructuring and financial deleveraging, the American economy is far more healthy, dynamic, and competitive.  The Chinese economy, unfortunately, is showing signs of financial instability and sagging growth momentum.  The risks of a full-blown financial crisis are negligible in the U.S. and very high in China.  This reversal of fortune poses perhaps one of the most serious challenges to the global economy.  Because of economic interdependence between China and the U.S., a financial crisis and collapse of growth in China will unavoidably hurt the American economy.   This S&ED may be a priceless opportunity for top economic policy-makers from China to learn from their American counterparts lessons that may be useful in crisis management and financial deleveraging.  Conversely, American economic policy-makers can gain some insights from their Chinese colleagues into China’s macroeconomic risks that could spill over into the American economy.

Based on the widely shared concerns in the U.S. about the recent financial turmoil in China, it is almost certain that the fifth S&ED will devote a significant amount of time to China’s macroeconomic stability and proposed reforms.  If American officials see discussions on these topics as frank, substantive and forward-looking, this S&ED will likely go down as among the more successful and substantive sessions.

Bilateral security issues, though taking a backseat this time, will nevertheless require substantial attention at the fifth S&ED.  Topping the list will be North Korea and cyber security.  China’s recent toughening of positions on North Korea has received very positive response from the U.S.  The challenge now is to maintain close policy coordination and make North Korea honor its previous commitments to de-nuclearize.

By comparison, cyber security will be a tougher issue at the S&ED.  At the Obama-Xi summit, discussions on this controversy were unfruitful.  Today, in the aftermath of the Snowden affair, the likelihood of conducting an open-minded and substantive dialogue on cyber security is very low.  But this should not mar the overall tone of the S&ED.  The smart thing to do is to agree to disagree for now, but launch a serious effort to address this potentially dangerous controversy once the political atmosphere is more conducive.

The odds for a really productive S&ED session next week are moderate but real.  Both sides, in particular the Chinese delegation, will have to work much harder than before to prove the skeptics wrong.

Minxin Pei is the Tom and Margot Pritzker ’72 Professor of Government at Claremont McKenna College and a non-resident senior fellow of the German Marshall Fund of the United States.

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