By Alvin Cheng-Hin Lim

While Xi Jinping’s 2015 visit to the United States counts as his first state visit to the country, this was not the first time he had visited the US as Chinese president. In June 2013, following his first state visit as Chinese president to Latin America, President Xi traveled to the US to meet US President Barack Obama for an informal summit at the Annenberg Retreat at Sunnylands in Rancho Mirage, California. At this two-day summit, Presidents Xi and Obama started a dialogue on key issues like cybersecurity, climate change, and the disputes over the South China Sea and Taiwan. At this informal summit, President Xi connected his vision of the Chinese Dream with the American Dream, and both the US and China agreed to pursue deeper economic, trade, and military cooperation.1

Following the informal summit at Sunnylands, US Secretary of State John Kerry and Chinese State Councilor Yang Jiechi met in Washington DC in July 2013 to lead the US-China Strategic and Economic Dialogue (SED), which focused on the key issues raised by Presidents Xi and Obama. The SED opened key working groups on these issues including cybersecurity, energy, and climate change.2 The Chinese and US presidents met again in November 2014 when President Obama arrived in Beijing for a state visit and to attend the Asia-Pacific Economic Cooperation Economic Leaders’ Meeting.

At both this meeting in Beijing in 2014 and President Xi’s state visit to the US in 2015, the Chinese and US presidents both pledged to push forward Sino-US economic cooperation, and in particular to continue negotiations on the Sino-US Bilateral Investment Treaty (BIT), which had begun in 2008. Indeed, White House officials noted during President Xi’s 2015 state visit that completion of the BIT was now a “top economic priority” for both China and the US.3 Between 2013 and 2014, Sino-US bilateral trade increased from 520 to 555 billion USD, but their bilateral investment only rose from 100 to 120 billion USD. Successful completion of the BIT is expected to increase this bilateral investment volume.4

At the subnational level, which is a key zone of practical cooperation for China and the US, 42 US states have enjoyed triple-digit growth in their exports to China. China and the US currently have 43 pairs of sister provinces and states, as well as 200 pairs of sister cities, further facilitating practical cooperation at these subnational levels.5 Such practical cooperation can be seen in the area of climate change, where, for instance, Los Angeles will be working with Beijing, Shenzhen, and Guangdong on emissions reduction projects including carbon market training.6 Sino-US practical cooperation on climate change can be expected to deepen following President Xi’s announcement during his state visit on China’s strengthened commitments on climate change, which will be discussed later in this paper.

“New Model of Major-Country Relationship”

President Xi’s state visit coincided with the news that the preliminary Caixin Manufacturing Purchasing Managers’ Index (PMI) for September had fallen to a 78-month low. The PMI offers a measurement of industrial activity in China, and its continued decline comports with China’s ongoing transition to a “new normal” of single-digit growth as it shifts from an industrial- to a consumption-based economy.7 As such, the Chinese government’s challenge of nurturing new engines of growth remains important, and during his state visit President Xi sought to achieve this through win-win cooperation between China and the US. The Chinese government recognizes this mode of Sino-US cooperation as the “new model of major-country relationship.”8

Speaking to a high powered group of CEOs at the US-China Business Roundtable in Seattle, President Xi encouraged the US business community to increase its investments in China, and noted that the Chinese government is facilitating such investment by removing existing restrictions to market access by foreign investors. President Xi stated that this constitutes China’s “new round of opening-up.” China became the world’s top destination for foreign direct investment (FDI) in 2014, receiving 128.5 billion USD in FDI, but the Chinese economy has room for further investment.9 In addition, as Chinese enterprises have been encouraged by the government to go global, they offer a way for foreign investors to partake in the Chinese mode of globalization.10 It is in the light of this historic opportunity that President Xi invited the US government and US businesses to participate in China’s “Belt and Road” global development initiative.11

In the week before President Xi’s state visit, there came the sudden announcement of a joint venture between a Chinese consortium led by China Railway Group and the American rail company XpressWest for the construction of the 370 km high-speed Southwest Rail Network between Las Vegas and Los Angeles. This joint venture was formed after 4 years of negotiations. The Chinese consortium, China Railway International, has provided the initial capital of 100 million USD, and construction could begin in September 2016.12 While this will be China’s first high-speed rail project in the US, China’s first non-high speed rail project in the US was China CNR Corporation’s 567 million USD contract in October 2014 to supply the Boston subway with 284 cars.13 These subway cars will be assembled in a factory that was set up in September 2015 by China Railway Rolling Stock Corporation in Springfield, Massachusetts. This factory is expected to become a major source of local employment for Springfield.14

A different instance of win-win cooperation that was announced during President Xi’s state visit was an aerospace deal between China and the Boeing Corporation. Boeing will establish a 737 final assembly center in China in exchange for China’s 38 billion USD purchase of 300 of its aircraft, including 190 Boeing 737s. This will be Boeing’s first aircraft assembly plant outside of the US, and Boeing’s aviation partners in China will be upgraded to the company’s tier-one suppliers. Boeing will also be involved with other aerospace cooperation projects over the next 5 years to help develop China’s civil aviation industry. The European aerospace giant Airbus had earlier established a similar final assembly plant in Tianjin in 2008, and this plant had its 200th aircraft completed there in December 2014. China’s partnerships with these major aviation companies represent instances of win-win cooperation, as both Airbus and Boeing are positioning themselves to benefit from China’s transformation over the next 20 years into what experts predict will be the world’s largest aviation market.15

In the technology sector, President Xi’s state visit coincided with announcements that the giant Chinese transportation app Didi Kuaidi has formed partnerships with the US ridesharing app Lyft as well as the US professional social media giant LinkedIn. These constitute win-win cooperation for all the partners: not only will these partnerships allow Lyft and LinkedIn to expand their presence in the growing Chinese market, these partnerships will also allow Didi Kuaidi to expand its presence in the US market.16 The US technology giant Microsoft also announced during President Xi’s visit that it had signed several partnerships with Chinese technology companies and government agencies. These include an agreement with the Chinese search portal Baidu to make Baidu the default search engine and home page for Microsoft’s new Edge web browser in the Chinese market, in exchange for Baidu’s offering of a software tool to its users to facilitate their installation of Microsoft’s new Windows 10 operating system on their computers.17

During his state visit, President Xi urged the US to cooperate with China’s fight against corruption and to deny safe haven to Chinese economic criminals who had escaped to the US. While the US did repatriate two such economic criminals to China before and during President Xi’s visit, too many other Chinese economic criminals continue to enjoy safe haven in the US.18 Their successful repatriation would facilitate the building of trust between the Chinese and US law enforcement agencies. Trust-building was indeed a key challenge for President Xi, especially with regard to the intractable issues of cybersecurity, human rights, and the South China Sea dispute.19 This was especially since President Xi’s visit coincided with the start of the US election cycle, which is traditionally a period of heightened China-bashing in the US media.20 A key trust-building measure that was announced during President Xi’s state visit was the signing of defence agreements between the Chinese and US militaries to establish procedures for safe conduct in instances of military encounters in the air. These procedures are especially important given recent intercepts over the western Pacific that could have triggered military hostilities between China and the US.21 Also, in order to facilitate further trust-building, China and the US have agreed to increase their military-to-military exchanges. The US Pacific Command has hence invited the People’s Liberation Army Navy to participate in Exercise RIMPAC 2016.22

Cybersecurity continues to persist as a key issue affecting Sino-US relations. Following the Sunnylands summit, Chinese and US negotiators have been working towards a cybersecurity agreement pledging each country to refrain from cyberattacks on each other’s critical infrastructure.23 Some observers expected this agreement to be signed during President Xi’s state visit, but the agreement that was announced instead was a pledge by the Chinese and US governments to refrain from cyberattacks for commercial purposes, including the cyber-theft of intellectual property. Both governments also pledged to continue working towards a global code of conduct for activities in cyberspace.24

In the period leading up to President Xi’s state visit, the US press reported on speculation that the US government was about to impose sanctions on China for its alleged cyberattacks on US government and commercial interests. As of this time of writing, this speculation has not panned out, and President Xi has strongly denied Chinese state involvement in the alleged cyberattacks.25 At any rate, the US cannot portray itself as an innocent victim of cyberattacks, for the Snowden leaks have revealed the involvement of US government hackers in acts of cyber-espionage on behalf of US commercial interests.26 In addition, the US government has been implicated in cyberattacks on critical nuclear infrastructure belonging to the sovereign state of Iran. The sophisticated software techniques used in these US-sponsored cyberattacks have since been adopted by criminal hackers, resulting in increased vulnerabilities for computer users around the world.27

Climate Change and South-South Cooperation

It was the issue of climate change that saw the most progress during President Xi’s state visit. The Chinese president announced that China will establish a national emissions trading system (ETS) in 2017, covering a range of polluting industrial sectors including energy, chemicals, and iron and steel. This national ETS will be built on seven regional ETS pilot programs that were established in 2011.28 The initiative will be supported by ongoing efforts to shift the preferences of Chinese consumers toward environmentally-friendly products.

In the past two years, for instance, subsidies and tax cuts have increased Chinese demand for electric vehicles, with sales increasing 270% from January to August 2015. To further increase public demand for these vehicles, China’s State Council has decreed that public car parks and parking facilities at new residential compounds and large public buildings will have to include charging points for electric vehicles.29 At the global level, China has pledged 20 billion RMB (approximately 3.1 billion USD) to establish a China South-South Climate Cooperation Fund that will assist developing countries with climate change. Capacity building through the China South-South Climate Cooperation Fund will also enable the recipient nations to access additional funding through the Green Climate Fund, to which the US has reaffirmed its earlier pledge of 3 billion USD.30 In the related issue of wildlife conservation, China and the US have pledged to ban the commercial trade in ivory. This is expected to significantly reduce the demand for ivory that supports the illegal poaching of African elephants.31

Apart from the China South-South Climate Cooperation Fund, President Xi announced at his address to the Sustainable Development Summit at the United Nations that China will establish a separate 2 billion USD fund to promote South-South cooperation. Also, to accelerate the development of the world’s least developed countries (LDCs), China will increase its investment in these LDCs to 12 billion USD by 2030. China is also offering debt relief to LDCs and landlocked and small island developing countries on their interest-free loans from the Chinese government that are due this year.

In addition, China will move forward with the launch of its “Belt and Road” development initiative and its associated financing instruments—including the Asian Infrastructure Investment Bank and the BRICS New Development Bank—to accelerate economic growth in the developing world through the strategic construction of key infrastructure. President Xi also announced that over the next 5 years, China will offer developing countries a range of programs in key aspects of development including poverty reduction, agriculture, trade, climate change, health, education, and job training. To promote education and human resource development in the developing world, the Chinese government will offer scholarships and training opportunities in China.32 In longer-term perspective, these initiatives can be seen as China’s latest contributions in its long history of South-South cooperation, and they reflect China’s global leadership in promoting international development.33

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Notes:

1. Philip Rucker and Ellen Nakashima, “Obama says U.S. and China must arrive at ‘firm understanding’ on cybersecurity,” Washington Post, June 8, 2013, accessed September 21, 2015, http://www.washingtonpost.com/politics/obama-begins-summit-with-xi-as-china-agrees-to-cyber-framework/2013/06/07/57765828-cf99-11e2-8845-d970ccb04497_story.html. “First Xi-Obama summit ‘positive,’” Xinhua, June 10, 2013, accessed September 21, 2015, http://www.chinadaily.com.cn/china/2013xivisit/2013-06/10/content_16601893.htm. “Xi, Obama meeting meaningful in forging relations,” Xinhua, June 9, 2013, accessed September 21, 2015, http://news.xinhuanet.com/english/china/2013-06/09/c_132444842.htm. Richard C. Bush III, “Obama and Xi at Sunnylands: A Good Start,” The Brookings Institution, June 10, 2013, accessed September 21, 2015, http://www.brookings.edu/blogs/up-front/posts/2013/06/10-obama-xi-sunnylands-bush.

2 Alistair D. B. Cook, The 2013 China-United States Strategic and Economic Dialogue: An Assessment. EAI Background Brief No. 841 (Singapore: East Asian Institute, National University of Singapore, 2013), i-ii.

3 “US, China Pledge to Speed Up Work Toward Investment Treaty,” VOA News, September 25, 2015, accessed September 27, 2015, http://www.voanews.com/content/united-states-china-pledge-speed-investment-treaty/2980125.html.

4 “China marks six priorities for new type of major-country relations with U.S.,” Xinhua, November 12, 2014, accessed September 23, 2015, http://news.xinhuanet.com/english/china/2014-11/12/c_133785465.htm. “China-US cooperation benefits both countries, world: Xi,” Xinhua, September 23, 2015, accessed September 24, 2015, http://www.globaltimes.cn/content/944005.shtml.

5 “Xi calls on China, US to enhance local-level cooperation,” Xinhua, September 23, 2015, accessed September 24, 2015, http://www.globaltimes.cn/content/944073.shtml.

6 Jackson Ewing and Juan Wei, “The US and China Go Local on Climate Cooperation,” The Diplomat, September 24, 2015, accessed September 25, 2015, http://thediplomat.com/2015/09/the-us-and-china-go-local-on-climate-cooperation/.

7 Wang Yuqian, “China Manufacturing Weakening, PMI Data Show,” Caixin, September 23, 2015, accessed September 23, 2015, http://english.caixin.com/2015-09-23/100855341.html. Grace Zhu, “Economists React: China Caixin Manufacturing PMI Fell To 78-Month Low,” Wall Street Journal, September 23, 2015, accessed September 23, 2015, http://blogs.wsj.com/chinarealtime/2015/09/23/economists-react-china-caixin-manufacturing-pmi-fell-to-78-month-low/. Alvin Cheng-Hin Lim, “China’s Transition to the ‘New Normal’: Challenges and Opportunities,” Eurasia Review, April 2, 2015, accessed September 23, 2015, http://www.eurasiareview.com/02042015-chinas-transition-to-the-new-normal-challenges-and-opportunities-analysis/.

8 Chen Heying, “Xi’s visit achieves key outcomes,” Global Times, September 26, 2015, accessed September 27, 2015, http://www.globaltimes.cn/content/944659.shtml.

9 Wu Jiao and Hezi Jiang, “Xi pledges more access to China’s markets,” China Daily, September 25, 2015, accessed September 25, 2015, http://www.chinadailyasia.com/nation/2015-09/25/content_15321565.html.

10 Alvin Cheng-Hin Lim, “Africa and China’s 21st Century Maritime Silk Road,” The Asia-Pacific Journal 13 (2015), accessed September 27, 2015, http://japanfocus.org/-Alvin_Cheng_Hin-Lim/4296/article.html.

11 “Full text of Xi Jinping’s speech on China-U.S. relations in Seattle,” Xinhua, September 24, 2015, accessed September 26, 2015, http://english.cntv.cn/2015/09/24/ARTI1443048313423768.shtml.

12 Julie Makinen and Dan Weikel, “A high-speed rail from L.A. to Las Vegas? China says it’s partnering with U.S. to build,” Los Angeles Times, September 17, 2015, accessed September 21, 2015, http://www.latimes.com/local/lanow/la-me-ln-vegas-la-chinese-high-speed-rail-20150917-story.html. “China, U.S. Reach Agreement on High-Speed Rail Before Xi Visit,” Bloomberg, September 17, 2015, accessed September 21, 2015, http://www.bloomberg.com/news/articles/2015-09-17/china-u-s-reach-agreement-on-high-speed-rail-before-xi-visit.

13 “Coming to a Boston Subway Near You: Made-in-China Trains,” Bloomberg, October 23, 2014, accessed September 21, 2015, http://www.bloomberg.com/news/articles/2014-10-23/coming-to-a-subway-near-you-made-in-china-trains.

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