7th US-China Strategic & Economic Dialogue: Key takeaways

The 7th meeting of the US-China Strategic and Economic Dialogue (S&ED) was held in Washington from June 22 to June 24, 2015, where the two sides deliberated upon a range of issues, including trade and investments, defence, energy, climate change, environment, human rights and education. The S&ED was held against the backdrop of growing tension between the two countries over the issues of cyber security violation, China’s construction of artificial islands and reefs in the disputed South China Sea, and its growing military assertiveness in Asia. In the meetings, though the two sides tried their best to give a positive push to the relationship by avoiding controversial public remarks, they failed to achieve any major breakthrough on the impending issues. The uncertain trajectory of US-China relationship has further thrown serious challenges for the region and India-US strategic relationship. 

In 2009, US President Barack Obama and then Chinese President Hu Jintao established the S&ED. Since then it has been a highest-level of annual meeting between the two countries on bilateral, regional and global strategic and economic issues. The “economic track” of the dialogue under the S&ED, which focuses on a set of thorny issues like trade and investment barriers, intellectual property rights protection and exchange rates, was led by US Secretary of Treasury Jacob lew and Chinese Vice-Premier Wang Yang. The dialogue ended up in each side asking the other to take more measures on boosting bilateral trade and achieving sustainable growth.

While US Treasury Secretary Jacob lew in his opening remarks pointed out that China’s move towards crucial economic reforms will help China in attaining its sustainable growth and also greatly matter for the US and the world economy. Chinese Finance Minister lou Jiwei urged the US to take more responsibilities to boost global economic recovery in accordance with its capacity as the world’s largest economy. Finance Minister lou exhorted the US to accelerate structural reform by saving and investing more and raise its labour participation rate to realise sustainable and balanced growth. As a result, the two sides fell short of achieving any real progress on the pending Bilateral Investment Treaty (BIT). Instead, China urged the US Government to make more investment friendly measures and both sides emphasised on the exchange of negative list by early September 2015 when Chinese President Xi Jinping is expected to visit the US. In addition, they remained silent on the two sides’ ongoing efforts in building separate economic blocks such as Asian Infrastructure Investment Bank (AIIB) by China and the Trans-Pacific Partnership (TPP) by the US, though the Obama Administration had earlier expressed opposition to the AIIB.

The “strategic track” of the dialogue was led by US Secretary of State John Kerry and Chinese State Councillor Yang Jiechi. Cyber security and South China Sea prominently appeared during the meeting, but there was hardly any substantial progress on the issues. Earlier in June 2015, in a biggest national security breach, cyber criminals hacked more than 4.2 million files and sensitive personal details of the US Office of Personnel Management (OPM). Federal Bureau of Investigation (FBI) Director James Comey now believes that nearly 18 million current, former, and prospective federal employees were affected by the attack. In the meeting, Kerry said, “the US has made it ‘crystal clear’ that cyber theft ‘is not acceptable’. Secretary of Treasury Jack lew directly criticised China for carrying out state-sponsored cyber attacks. lew said, “We remain deeply concerned about Chinese Government-sponsored cyber-enabled theft”. However, the Obama Administration has so far not officially accused China of being behind this attack.

Meanwhile, the Chinese Government has strongly reacted to the US Government officials and media for suspecting its involvement in the attacks. State Councillor Jiechi said that China is prepared to work closer with the US on the issue of cyber crime. He further said Beijing supports an “international code of conduct for cyber information sharing.” It may be recalled that in May 2014, the US Justice Department charged five Chinese military officers with hacking into and stealing trade secrets from the computers of several large American nuclear, metal and solar companies. later the Chinese Government furiously denounced the charges and put off a series of discussions with the US on combating cyber crimes. The bilateral dialogue on cyber security is yet to be resumed.

On June 22, senior civilian and military officials of the two countries held the fifth US-China Strategic Security Dialogue. In the meeting, the two sides played down the clear differences that they have on the ongoing dispute over the South China Sea and the Chinese territorial claims. While the US Assistant Secretary of State for East Asian and Pacific Affairs, Daniel Russell, said the United States has “an unwavering determination” to avoid military confrontation with countries in the South China Sea, including China. Chinese Foreign Ministry spokesperson lu Kang pointed out that “the South China Sea issue is not and should not be an issue between the two countries”. The regional countries such as Vietnam, Philippines, Malaysia, Brunei and Taiwan, who have overlapping claims, are increasingly worried about the China’s rapid creation of artificial islands and reefs in the South China Sea and the PlA’s growing military assertiveness. They are evidently disappointed with the Washington’s cooling approach towards Beijing on the issue. 

On June 22, the two sides also held the second US-China University Presidents Roundtable where Chinese Vice-Premier liu Yandong called upon universities of both the countries to play a bigger role in promoting bilateral relations. In her speech, Vice-Premier liu offered a four-point proposal for the universities to boost exchanges and enhance strategic mutual trust between the two countries. The four proposals that she offered are: the universities need to contribute to strengthen cooperation on personal development, scientific research and social services; to enhance the capability of students to engage in cross-cultural communication by maximising opportunities for short-term and long-term exchanges; to contribute in deepening mutual understanding between the people of the two countries by developing a balanced view of each other; and, to serve as a model of cooperation for the rest of the world.

Despite China’s growing “soft power” influence and the rapid growth of US-China economic relationship, there remain fundamental differences in cultural and political system between the two countries. The US education system is also much higher than the Chinese centrally controlled education system. Recognising the apparent differences that exist between the two countries, Vice-Premier liu in her speech stressed that the existing cultural and political differences should not be allowed to affect bilateral cooperation in other areas. 

It is, however, on the climate change and environment that the two sides seem to have made some progress. On June 23, they announced six new “EcoPartnership” programmes to tackle challenges in environmental protection, clean energy, and climate change with the collaboration of private sectors. The six programmes that they announced are: the US Boeing Company and the Commercial Aircraft Corporation of China will establish a pilot plant to convert waste oil into aviation biofuels; Columbia University and the Baotou Iron and Steel group will work on converting iron and steel slag waste; Sea Turtles 911 and Hainan Normal University will focus on sea turtle protection; the University of Kentucky and Jiangsu Wisdom Engineering and Technology Company will sequester 3,000 tonne of carbon dioxide annually; the Wilson Solar power Company and the Shenzhen Enesoon Science & Technology Company will work for a 20 megawatt concentrated solar power project; and, Ramboll Environ, IMACC and the Suzhou State Environment Protection High-Tech Industrial Park will  have an online air pollution monitoring system. This announcement comes after US President Obama and Chinese President Xi reached a historic agreement on climate change last year. This “EcoPartnership” programmes are expected to benefit the two countries and would improve their efforts towards sustainable development.

However, the two sides fell short of making any ground-breaking developments on the impending strategic and economic issues. There was huge expectation from the 7th S&ED especially on the China’s controversial territorial claims and the ongoing construction of artificial islands in the South China Sea and the cyber security theft. The outcomes are clearly disappointing. Even Chinese Vice-Premier Wang Yang conceded that “Dialogue may fall short of expectations and sometimes nothing much is achieved, leaving everybody unhappy”.

India remains cautious and watchful towards the unfolding US-China relationship and the Washington’s evolving strategic and economic engagements towards Beijing. Though India’s own strategic relationship with the US and also with China has significantly improved in recent years, it remains seriously concerned about China’s growing proximity towards its neighbours, the unresolved border problem, its support to Pakistan’s defence building and nuclear programme, and PRC’s increasing military assertiveness. Just last week, New Delhi expressed its strong resentment over Beijing’s blocking of its move in the UN seeking action against Pakistan-based terrorist Zaki-ur-Rehman lakhvi, the mastermind behind the 26/11 Mumbai attacks in which 166 people, including five Americans, were killed.

The US has considerable economic, security and strategic interests at stake in Asia vis-à-vis China and India, but “rebalancing” its Asia strategy remains a huge challenge for it. With the rise of assertive China, Washington has significantly expanded its strategic and security relationship with New Delhi. India-US relationship has further renewed after Narendra Modi came to power in May 2014. In January 2015, the two sides signed a joint strategic vision for the Asia-Pacific and Indian Ocean region reflecting their increasing convergence of interests in the region and their shared interests to protect the freedom of navigation which is central to the continued development of the region and the world. Relations among US-China-India, however, are interestingly poised and the complexity will only unfold in the coming years.

(The writer is a researcher with North American Centre at Institute for Defence Studies and Analyses, New Delhi)