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Hu visit a time to pressure Beijing
By Dean Cheng and Derek Scissors
As US President Barack Obama prepares to receive Chinese President Hu Jintao
(胡錦濤) on a state visit to the US, expectations are muted.
For Beijing, the summit is primarily intended to cap Hu’s career as China
readies for next year’s transition of power to Xi Jinping (習近平) and Li Keqiang
(李克強). A trip with no real issues would be in keeping with the goal of
celebrating Hu and facilitating a smooth change of leadership.
For the US, however, this outcome would represent a major mistake. The US has a
long list of concerns about Chinese policies, from North Korea to mercantilist
economics. These concerns reflect fundamental conflicts of interest between the
two countries, not misunderstandings to be settled by rolling out the red carpet
and helping Hu achieve the appearance of a harmonious relationship.
Given Beijing’s interest in an uncontroversial, cordial visit, Obama has an
opening to press Hu to explicitly move forward in several key areas. The idea is
not to demand huge concessions, but to seek high-level and, critically, public
commitments to better policies on certain issues. Bilateral coordination is
needed and Chinese policy can feasibly improve concerning the economic role of
the state, freedom of navigation in the Western Pacific and nuclear
proliferation.
There are three places to start.
One, Obama should push for a renewed Chinese commitment to market-oriented
reform, featuring a reduced role for state-owned enterprises in the economy.
Heading toward the dual transition next year, the most politically dangerous
elements of the Sino-US relationship are economic. It is perceived in the US
that Chinese policies are causing serious harm to the US economy, yet US
economic retaliation could devastate China’s economy.
At the core of the problem is the role of the Chinese state. On the US side, the
federal budget deficit has added considerably to the bilateral trade deficit,
among other harms. Chinese state intervention is more extensive and intractable,
incorporating the pegged exchange rate, the set of policies aimed at encouraging
“indigenous innovation” and the compulsory purchasing of US bonds. Nearly all
the factors that cause economic tension between the two countries stem from
state action.
The best place for the US to begin discussions is the extent of support given to
state-owned enterprises in China. Centrally and provincially controlled
enterprises receive overwhelming regulatory protection from competition, huge
subsidized loans, free land, cut-price energy and other forms of assistance.
These block US exports to China because state firms can produce below costs.
They enable Chinese purchases of foreign assets by putting billions of dollars
in the hands of state firms that could not earn them in a competitive market.
They are also part and parcel of a strategy to force technology transfer.
The Obama administration is not going to achieve a quick, dramatic decrease in
state intervention. However, it may be able to win a commitment to partly
reverse the waxing of the state role that has occurred under Hu and Chinese
Premier Wen Jiabao (溫家寶).
China can now be toasted as the second-largest economy in the world. In that
vein, more state-owned enterprises should be able to compete freely without
guaranteed market share or a slew of subsidies.
A clear public statement by Hu to this effect would be an excellent basis for
what will be long-term discussions on how much and how fast the state role
should be reduced. Progress on this front would be the single best way to
address the widespread belief that China is an economic predator, not a partner.
Two, Obama should make it clear that the US will defend freedom of navigation
throughout the waters of the Western Pacific. Another area of growing tension
between the US and China is their fundamentally different views regarding
freedom of the seas, especially in waters beyond the territorial limit of 12
nautical miles (22.2km) in the East China and South China seas and in the Yellow
Sea.
The US defines maritime rights in these waters as qualitatively and
quantitatively the same as those rights and freedoms applicable on the high
seas. The Chinese claims are a mix of idiosyncratic readings of the UN
Convention on the Law of the Sea and direct assertions of sovereignty over
islands, rocks and waters far from its shores. Beijing holds the view that,
although foreign naval forces may transit these waters, China has the right to
restrict their activities while doing so — a perspective that is wholly
antithetical to traditional concepts of freedom of navigation and the way an
overwhelming number of nations interpret international law.
Obama should make clear to Hu that there is no principle more deeply engrained
in US history and foreign policy than freedom of the seas. It is an absolutely
non-negotiable “core” interest.
Three, Obama should press the Chinese on nuclear proliferation concerns,
especially regarding Iran and North Korea. With the exception of the perennial
issue of Taiwan, there may be no greater divergence on national security
concerns between Washington and Beijing than the question of nuclear
proliferation by nations such as Iran and North Korea. The development of an
Iranian nuclear capability is of concern to the US and many of its allies and
friends in the Middle East.
Of even greater concern is North Korea, which in recent months has assumed an
increasingly aggressive stance, first by sinking a South Korean frigate and
later in the shelling of Yeonpyeong Island by North Korean artillery batteries.
The leadership in Pyongyang may feel that it has approval, or at least
acquiescence, from the Chinese leadership because Beijing has done little to
constrain them.
Indeed, the Chinese protests regarding the George Washington carrier group are
likely to have been interpreted by North Korea as supporting their actions, even
if that was not the intent of the Chinese. It is essential that Beijing
understand that further North Korean actions will trigger a firm US and South
Korean reaction and that it is in China’s interest to discourage North Korea
from pursuing this dangerous path.
The upcoming summit is not a place for historic breakthroughs, but neither
should it be a route back to business as usual. China wants an elaborate, smooth
and globally recognized visit for Hu. The US should take this opportunity to
press for public Chinese commitments to a small set of important principles that
will guide the bilateral relationship through what could be rough waters ahead.
Dean Cheng is a research fellow in Chinese political and
security affairs and Derek Scissors is a research fellow in Asian economic
policy in the Asian Studies Center at The Heritage Foundation.
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