Assessing American Foreign Policy Toward China
Melanie Hart, Director of China Policy at the Center for American Progress, testified before the Senate Foreign Relations Committee’s Subcommittee on Near East, South Asia, Central Asia, and Counterterrorism on September 29, 2015. Below is her statement.
Chairman Corker, Ranking Member Cardin, Subcommittee Chairman Risch, Subcommittee Ranking Member Murphy, Sen. Gardner, and members of the committee, thank you for this opportunity to discuss U.S.-China relations.
We are witnessing a period of great change within China and in China’s behavior abroad. Under President Xi Jinping’s leadership, the Chinese Communist Party is launching a wave of policy reforms that aim to fundamentally restructure China’s economy and move the nation away from the “hide your strength, bide your time” foreign policy strategy it has adhered to since the Deng Xiaoping era. Beijing is demonstrating a new assertiveness across multiple policy fronts. That assertiveness creates new opportunities and new challenges for the United States.
The United States has pursued an engagement strategy toward China for almost four decades. Regardless of party affiliation, every U.S. president since Nixon has aimed to integrate China into the international system. That decision has been and continues to be one of the greatest American foreign policy successes of the post-World War II era. The U.S. engagement strategy toward China and alliance relationships in the Asia-Pacific region made it possible for Asia-Pacific nations to focus on economic development at home instead of strategic competition abroad.
Now, nearly 37 years after U.S.-China normalization, China is an upper-middle-income nation. China’s economic growth is allowing it to expand its military capabilities and foreign policy ambitions. That is a natural expansion. Beijing is increasingly unwilling to sit on the sidelines and watch other nations shape international norms. Today, instead of biding their time, Chinese leaders are experimenting with new ways to use their nation’s growing strengths to shape the international environment in China’s favor. On some issues, those efforts dovetail with U.S. interests, so China’s new assertiveness is opening up new opportunities for cooperation. Where U.S.-China interests are not aligned, however, Chinese actions are reheating old frictions and creating new ones. Those frictions—most notably in the South China Sea—are triggering new debates in the United States about overall foreign policy strategy toward China. Some U.S. observers discount the new opportunities for cooperation and argue that because some challenges in the U.S.-China relationship appear difficult to navigate, the United States should scrap the entire engagement strategy and begin treating China as a strategic rival. Those arguments are misguided.
The fundamentals of the U.S.-China relationship are the same today as they were in the 1970s when the United States first reached out to turn this former rival into a strategic partner. Chinese leaders still prioritize domestic economic growth and stability above all other policy goals; they still view the U.S.-China bilateral as China’s most important foreign policy relationship and want that relationship to be peaceful and cooperative. The Chinese military still focuses first and foremost on defending the Chinese Communist Party’s right to govern the Chinese mainland and its territories. These fundamentals have not changed. What has changed in recent years is China’s capabilities and the tools Beijing is using to further its domestic and foreign policy interests. Those changes call for some tactical adjustments on the U.S. side. Those changes do not warrant an abandonment of the engagement strategy that has brought, and can continue to bring, decades of enduring peace and economic growth for all Asia-Pacific nations, including the United States.
My testimony will cover four main points:
- Economic and political challenges within China are still Beijing’s top priority, and those challenges trigger a new assertiveness from Beijing.
- China’s new assertiveness is constructive in some areas of U.S.-China relations and problematic in others.
- The current U.S. engagement strategy excels at expanding cooperation in constructive areas and is achieving incremental progress in problematic areas.
- The United States should maintain this engagement strategy but expand its tactical toolkit for addressing problematic Chinese behavior.
The Chinese economy has reached an inflection point. It is not yet clear whether the Chinese Communist Party can successfully traverse these changing circumstances and maintain its hold on power. The growth model that pulled more than 400 million Chinese citizens out of poverty over the past three decades is running out of steam. Chinese wages are rising and eliminating China’s prior price advantages in global export markets. Fixed infrastructure investments are producing diminishing returns. Chinese citizens no longer accept the pollution costs associated with heavy industry, and even if they did, the global market cannot continue to absorb more Chinese steel and cement at double-digit annual growth rates. In order to keep the economy growing and maintain ruling legitimacy, Chinese leaders must downshift from the old growth model and foster new industries based on technological innovation, domestic consumption, and services.
This will be a difficult transition to execute. Chinese leaders must eliminate benefits flowing to state-owned enterprises and other vested interest groups that have supported the party for decades. Growth will slow, and businesses will close their doors. In theory, new businesses and new political supporters will emerge to take their place. However, it is uncertain how long it will take for growth to pick up and create new pillars of support—for example, business and local government leaders that thrive under the new model—for the Chinese Communist Party. As China undergoes this transition there is a risk that disenfranchised groups will challenge the ruling regime and push for political change. To guard against those risks, Chinese leaders are strengthening defenses against forces that have triggered political change in other nations—namely, domestic and foreign nongovernmental organizations, journalists, and networked communication.
Chinese leaders are behaving more assertively at home because they view a more forward-leaning policy stance as the only way to successful traverse difficult waters. Policy stasis would likely lead to a massive political crisis. The only way forward is massive change, and that depends on the leadership’s ability to overcome powerful vested interest groups—some within the party itself—that either oppose economic rebalancing or believe it should proceed at a more gradual pace. From a U.S. perspective, Chinese leaders should pursue and achieve aggressive market economic reform, and in that respect, Beijing’s new assertiveness can be a positive development not only for China but also for the United States.
Chinese leaders are also demonstrating a new assertiveness on foreign policy issues. That is partly because they recognize that their upper-middle-income status and overall economic strength bring new capabilities; it is also because Beijing wants to use foreign policy to shore up political support at home and support the nation’s economic transition. For example, Beijing’s new Belt and Road initiative is primarily an economic growth strategy. Chinese leaders hope to improve regional economic integration and create new markets for Chinese products, thus giving the Chinese economy new legs to stand on as it move through the transition phase. On regional maritime issues, many Chinese scholars argue that their nation has too long bided its time and watched other nations make territorial gains at China’s expense. They believe that since China now has the capabilities to push back and assert its territorial claims, Beijing has a responsibility to do so.
The U.S. challenge: Dealing with a more assertive China
China’s new assertiveness creates new opportunities and new challenges for the United States. On the positive side, China is showing an increasing willingness to play a leadership role among nations outside the highly industrialized democratic block. China played a key role in the Iran nuclear negotiations, helping the process through shaky moments, and Chinese nuclear experts helped Iranian officials redesign the Arak plutonium reactor so that it will never produce nuclear fuel. On climate change, China’s willingness to issue bold climate targets with the United States last November challenged other developing nations to follow suit and knocked down a firewall that has hindered global climate negotiations for decades. China also appears to be leaning harder on North Korea. China supported the U.N. Security Council effort to sanction North Korea in response to that nation’s February 2013 nuclear test. Earlier this month, after North Korean officials announced plans to launch another long-range rocket, China’s foreign minister warned against “taking new actions that could lead to tensions” on the Korean peninsula and called for all nations to take a “responsible attitude.” On all of these issues, Beijing’s ability to speak to a different audience and from a different angle than the United States has made China a valuable diplomatic partner.
On the commercial front, Chinese companies are venturing outward, which creates new partnership opportunities, most notably in China-to-U.S. direct investment. For many Americans, China-to-U.S. foreign direct investment, or FDI, projects provide their first opportunity to directly engage in and benefit from the U.S.-China economic partnership. A recent survey conducted by the Rhodium Group reveals that 340 of the 435 American congressional districts have at least one China FDI project. Many of those projects are providing jobs for American workers: More than 80,000 Americans are now directly employed through a Chinese investment project in the United States. Economic competitiveness has always been an issue in the relationship, including U.S. concern that American jobs will migrate to China. Now the reverse is happening: Chinese companies are finally creating jobs in this nation—a trend that leaders in both countries should support.
On the other side of the Pacific, if Chinese leaders successfully rebalance their economy, it should, in theory, create new overseas commercial opportunities for American businesses. China is already the United States’ fastest growing export market: U.S. exports to China have grown nearly 300 percent over the past decade. Beijing’s new reform program aims to boost consumer buying power and expand the nation’s dependence on high-tech products, two trends that should boost Chinese consumption of U.S. goods and services.
Unfortunately, Chinese leaders are also moving forward with initiatives that undermine U.S. interests via tactics that evade current international governance mechanisms and U.S. attempts to counteract and deter these actions. Problematic areas include:
- Cybersecurity: Recent cyberspace intrusions at health insurer Anthem and the U.S. Office of Personnel Management are reported to be Chinese intelligence-gathering operations. Those two incidents affected an estimated 100 million Americans, and they follow a string of commercial cyberthefts targeting American businesses. It is difficult to quantify with precision the costs to the United States from a steady drain of U.S. commercial secrets and other private information—including federal government information—but those costs are likely to be significant, both in terms of U.S. economic competitiveness and U.S. national security. In the absence of an international cybergovernance mechanism or common cyberspace norms, it is difficult for U.S. leaders to craft an effective response. That problem is particularly acute with commercial cyberespionage because many American businesses prefer to keep cyberthefts private to avoid undermining investor confidence.
- Commercial concerns: Trade complaints have plagued the U.S.-China economic relationship for decades. U.S. companies have confronted intellectual property theft, export subsidies that appear to violate World Trade Organization regulations, and overt market access barriers in China. More recently, Chinese regulators are applying anti-monopoly legislation in a biased manner against American firms to force those firms to surrender market share to Chinese competitors and license or sell their intellectual property at sub-market rates. The underlying legitimacy of the anti-monopoly rules that Beijing is manipulating for protectionist purposes makes it very difficult to counter these actions.
- Infrastructure construction in the South China Sea: China is building new outposts on disputed reefs and rocks in the South China Sea to strengthen its hand in ongoing maritime territorial disputes. This activity raises new questions about China’s intentions toward its neighbors and willingness to abide by both the letter and spirit of international law. Of particular concern for the United States, the Chinese military has ordered U.S. and Philippine aircraft to stay away from some of these new outposts. Those actions indicate that China may be aiming to block foreign military navigation in the seas surrounding these new infrastructure projects, a move that would violate the U.N. Convention on the Law of the Sea.
- National security regulations: China’s ongoing internal political tightening is directly affecting American businesses and other interest groups with a presence in mainland China. Chinese regulators are drafting a new banking security law that would force banks to utilize more Chinese technology products and force U.S. technology vendors to share sensitive source code with Chinese regulators. In the academic realm, Chinese legislators are drafting a new law that if implemented in current draft form, would impose new administrative restrictions on American universities and think tanks that send scholars to conduct policy research in China.
Multitrack engagement strategy
Under the Obama administration, the United States is conducting the U.S-China relationship along multiple parallel tracks. The administration formulates China policy on an issue-by-issue basis. Where interests converge, the administration seeks to expand concrete cooperation. Where interests diverge and China pursues actions that impose direct or indirect costs on the United States, the administration seeks to counter and deter those actions. This multitrack approach enables the United States to push back against problematic actions as needed without curtailing overall U.S.-China cooperation. This is a realpolitik, eyes-wide-open approach to engagement. Engagement need not be predicated on the assumption that China will not seek to undermine U.S. interests in some areas. The United States can work constructively with China while accepting that we have different principles, that we are not perfectly aligned. We can work along multiple tracks at the same time: expanding cooperation in one area while confronting differences and exchanging threats in another. That dynamic was on display through the most recent U.S.-China presidential summit, which aimed to achieve three distinct goals.
First, where interests converge, aim to work constructively on concrete initiatives that provide tangible benefits for both nations and lay groundwork for even bigger and more beneficial cooperation in the future. Successes from the recent summit include:
- Securing a $3.1 billion climate finance commitment from China that exceeds what the United States has pledged thus far via the Green Climate Fund, or GCF. In addition, prior to the official presidential meeting, U.S. and Chinese climate negotiators convened a climate leadership summit during which 11 Chinese city- and provincial-level governments formed an Alliance of Peaking Pioneer Cities, or APPC, under which all are committing to peak carbon emissions earlier than the nationwide 2030 target announced last November. Since China issued its commitment to peak in 2030 and to make its “best efforts” to peak earlier, new economic data have opened the possibility that China could peak well before the current deadline and possibility as early as 2025. All of the APPC cities believe that with the right policy mix, they can beat the 2030 target and serve as models for the rest of the nation. Early-peak targets vary by location based on individual capabilities. Beijing, Guangzhou, and Zhenjiang have committed to peak around 2020, 10 years ahead of China’s official national target.
- Working collaboratively with China to expand the international reconstruction effort in Afghanistan. Afghanistan’s peace and stability are critical to both U.S. and Chinese national security objectives. The United States and China co-chaired a high-level U.N. General Assembly meeting on Afghan reconstruction during which Chinese Foreign Minister Wang Yi called on other nations to join the United States and China in supporting Afghan peace, development, and integration into the global community. The United States and China are already partnering on capacity-building programs in Afghanistan, and China has committed to provide $150 million in development assistance. Such collaborative efforts are bringing China forward on the diplomatic and development stage at a time when U.S. funding is diverted to other pressing crises. Furthermore, such collaboration should become the foundation for greater Chinese development assistance to Afghanistan’s long-term development.
Second, where interests diverge, take actions that decrease the risk of inadvertent conflict with China and increase the costs China pays for problematic behavior. Successes from the recent summit include:
- Establishing new annexes on air-to-air safety and crisis communication under the military-to-military confidence-building measure, or CBM, framework launched in November 2014. The 2001 collision of a U.S. EP-3 and a Chinese J-8 aircraft and recent incidents between U.S. and Chinese aircraft underscore the need to establish better operational standards and best practices for military aircraft and military vessels operating in close proximity in the Asia-Pacific region.
- Launching a new high-level dialogue on cybercrime and securing what appears to be a new presidential-level commitment on commercial cyberespionage. The new high-level dialogue will hold its first meeting before the end of 2015 and, if the mechanism works as intended, will give U.S. officials new tools for investigating and prosecuting cyberattacks and intrusions attributed to Chinese actors. In addition, according to the U.S. fact sheet on the recent summit meetings, the two presidents agreed that neither the United States nor China “will conduct or knowingly support cyber-enabled theft of intellectual property, including trade secrets or other confidential business information, with the intent of providing competitive advantages to companies or commercial sectors.” This agreement is not likely to completely eliminate those activities on the Chinese side, but if the White House did secure a personal commitment from President Xi on this issue, that will increase the reputational damage Chinese leaders will face if their nation continues to engage in commercial cybertheft and those activities are reported by the United States. Within China, a presidential-level commitment of this nature would likely add new administrative restrictions on these activities. Chinese leaders will have an incentive to improve their awareness of and control over what is happening at the operational level. They may apply new restrictions and require higher-level approvals for cyberspace intrusions targeting U.S. commercial entities. If so, those controls may reduce the scope of this activity and therefore reduce the associated harm to U.S. commercial interests.
Third, when Chinese behavior poses a direct and serious threat to American interests, take actions, as necessary, to signal that the United States will not withhold punitive action in one issue area to pursue promising opportunities in another. When pursuing U.S.-China relations among multiple tracks, there is a risk that China will assume that if there are good cooperative opportunities on the table, the United States will not risk losing those opportunities by taking punitive action on more-controversial issues. Clear U.S.-China communication is necessary to avoid this dangerous misperception, which could lead Beijing to underestimate the probability the United States will take punitive actions in response to provocative behavior. In the run-up to the most recent summit, the Obama administration utilized public and private channels to signal that the United States was seriously considering levying cybersanctions against China and that the White House was willing to issue those sanctions right before the September presidential summit regardless of the impact that would have on President Xi’s state visit. Beijing took those threats seriously and dispatched a high-level delegation to Washington to discuss cyber issues two weeks before the official presidential visit. This presummit communication likely played a role in the new U.S.-China cybercrime mechanism and new commercial espionage commitment mentioned above.
Expanding the tactical toolkit
The current U.S. engagement strategy is achieving breakthrough cooperation on issues of common interest ranging from climate change to development cooperation. Where interests diverge, however, progress is more incremental. Going forward, the United States should maintain current momentum on the cooperative side and simultaneously seek to expand its toolkit for addressing problematic areas of U.S.-China relations. If progress on difficult issues does not become more concrete, those problems are likely to fester and undermine positive cooperation. For example, if China does not take steps to substantially reduce the scope and frequency of its commercial cyberespionage activities, those activities will likely reduce U.S. willingness to engage in joint technology development projects that benefit both nations but also give Chinese companies more knowledge about and access to U.S. technology development projects.
U.S. experience with prior difficult issues in U.S.-China relations suggests that three approaches can be particularly effective at deterring problematic behavior.
1. Using smart statecraft and institution-building to expand common interests and turn a difficult area of the relationship into a new pillar of cooperation
The climate arena provides an excellent model to follow. Climate change started out as an area of U.S.-China contention rather than cooperation. When U.S. and Chinese leaders met to discuss climate change during the first round of the Kyoto Protocol negotiations in the mid-1990s, the United States was on one side of a global divide, China was on the other side, and the two nations struggled to figure out how to work in concert. That dynamic persisted through the Copenhagen climate negotiations in 2009. However, since then, U.S. and Chinese leaders have worked proactively to change that dynamic. Leaders on both sides made a critical observation: Although the two nations were always on opposite sides of a developed versus developing country divide in multilateral negotiations, the United States and China had many common interests on energy and climate issues at the bilateral level. U.S. and Chinese leaders decided to nurture and expand those common interests by identifying a set of common goals in this space and launching a new framework of bilateral mechanisms designed to rally U.S. and Chinese officials, businesses, and nongovernmental experts to work together to achieve those goals. That effort has been enormously successful. Over the past few years, bilateral energy and climate projects have helped both nations expand clean energy deployment and reduce climate pollution. Progress at the bilateral level has also made it possible for the two nations to redefine their roles in multilateral negotiations and work together to shape a new global climate regime. The increasingly positive U.S.-China energy and climate dynamic reflects a natural interest alignment between the two nations. However, careful diplomacy was required to identify those commonalities and lay the groundwork for joint action. The United States should apply this model in other areas of the U.S.-China relationship.
2. Working multilaterally with other nations and, where available, through international institutions to address issues that affect not only the United States but also a broader array of international interest groups
The United States should not rely on the bilateral U.S.-China relationship to solve problems that are multilateral in nature. Where Chinese behavior is a common concern for multiple nations, the best way to address that behavior is to make the issue a broader multilateral discussion. In the past, it has been much easier to change Chinese behavior on issues relating to international norms rather than a U.S.-specific complaints. When the United States is the only party challenging a particular action, Chinese officials often suspect that the United States is doing so as a tactic to block or contain China’s rise. That can lead China to harden its positioning rather than accommodate American interests. When the United States works in concert with other nations, the dynamic changes, and Beijing can view the issue as a wide-ranging problem rather than a U.S. containment strategy. For example, on the commercial front, engaging partners in Europe and the United Kingdom played a critical role in convincing China to table a controversial cyberbanking law earlier this year. To be clear, this is not about the United States furthering its own interests through third parties; rather, this is about recognizing that when an issue affects multiple parties, it is generally not helpful to frame that issue as a U.S.-China problem.
In the maritime domain, ratifying the U.N. Convention on the Law of the Sea would better enable the United States to work with other countries to push back against China’s unlawful actions in the South China Sea. Until the United States does so, we stand outside the international system and have a limited capacity to leverage international law to counter Chinese actions.
3. Shoring up defenses and strengthening capacity at home to reduce U.S. vulnerabilities to and costs from problematic Chinese actions
Cybersecurity is now a high-priority issue in U.S.-China relations. It is important to do what is possible to reduce the frequency and scope of Chinese intrusions, and the U.S.-China relationship appears to be making progress in that direction. However, if hackers are breaking into U.S. networks on a regular basis, then better security is necessary. Improving security should be a top priority for federal government systems, as well as for the private sector. Americans should not be receiving multiple notices every year telling them that their information has been stolen. This is a problem. It is a U.S. problem and a global problem. This is not just a sticky issue in the U.S.-China relationship. The U.S. federal government needs to do a better job at driving progress in this area at home. China and Russia are hacking into U.S. federal government networks, and that is a concern, but what happens if a group such as the Islamic State of Iraq and al-Sham, or ISIS, develops those capabilities? If policymakers do not close these loopholes, then they leave the nation open to unacceptable security risks.
One of the most important steps the U.S. Congress could take to strengthen U.S. cyber response capabilities is to pass cybersecurity legislation that facilitates information sharing between the American companies targeted in these attacks and the U.S. government agencies with the expertise and capacity to assist. Closing current security loopholes should be the first priority. Figuring out how to respond to these attacks should be the next priority, and that is where this becomes a U.S.-China issue.
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Senior Fellow; Director, China Policy