Driving commercial and political engagement between Asia, the Middle East and Europe

  • Asia House
  • 63 New Cavendish Street
  • London W1G 7LP
  • enquiries@asiahouse.co.uk
  • +44 (0) 20 7307 5454
  • Driving commercial and political engagement between Asia, the Middle East and Europe

    China’s Relationship with the US – The Window of Opportunity to Defuse Tensions

    Published On: 24 July 2023

    Ahead of the November Asia Pacific Economic Cooperation (APEC) summit in San Francisco, Zhouchen Mao, Head of Research and Advisory at Asia House, shares his analysis of recent visits by senior US officials to Beijing, which have indicated both opposing views, but also opportunities for closer engagement.



    Asia House Analysis

    Key messages:

    • The slew of visits by senior US officials to Beijing did not achieve any significant outcomes but managed to stabilise bilateral relations.
    • The US and China have less than six months to lay the foundations of a more collaborative relationship before the presidential election in Taiwan and the start of the US presidential campaign.
    • Climate change, journalist visas, commercial flights, and enforcement of illegal drugs laws are areas both sides can cooperate on in the near-term to rebuild trust.
    • The current state of the Chinese economy means that Beijing may seek to continue to mend ties in order to restore investor confidence.
    • On the domestic front, stimulus measures to boost the economy are likely to be announced following the July Politburo meeting.

    China’s relationship with the US – the window of opportunity to defuse tensions

    Efforts to de-escalate tensions and re-establish consistent senior level contact between the world’s two largest economies are on track following visits by senior US officials to Beijing in recent months. The broadly positive response to the visits has laid the foundation for a more stable relationship, paving the way for a meeting between presidents Joe Biden and Xi Jinping at the November Asia Pacific Economic Cooperation (APEC) summit in San Francisco.

    However, as we move into 2024, two key events – the Taiwan presidential elections in January and the beginning of the US election cycle ahead of the vote in November – will inevitably escalate tensions, threatening to derail the US-China diplomatic thaw. The remaining months of 2023, therefore, present the best opportunity for the two countries to install political and economic guardrails and to identify areas in which they might work together. This includes working-level dialogues on topics such as issuing journalist visas, increasing commercial flights, and restricting the flow of illegal drugs. Climate change is also an area for potential cooperation which, given the shared interest, may offer a pathway to rebuild trust. That said, success will depend on whether the two countries can insulate these areas from the inevitable flare ups in the relationship.

    In June 2023, US Secretary of State Anthony Blinken arrived in Beijing to restore the consistent communication that US President Joe Biden and his Chinese counterpart, Xi Jinping, agreed to in Bali last November. While Blinken’s trip was not expected to fundamentally change the competitive nature of US-China relations, it did provide both countries an opportunity to increase the frequency and broaden the scope of high-level dialogue to help build a floor and prevent a further downward spiral in bilateral relations.

    This was followed by a visit from US Treasury Secretary Janet Yellen, who met with Chinese Premier Li Qiang, Vice Premier He Lifeng, and Finance Minister Liu Kun. Yellen’s more conciliatory approach was well-received by the Chinese leadership and the state media. As with Blinken’s visit three weeks earlier, however, Yellen’s visit did not yield any policy breakthroughs. In fact, recent high-level talks were instead framed as “communications”, downplaying expectations of any concrete deliverables.

    As a part of the Biden administration’s efforts to improve relations with China, Special Climate Envoy John Kerry’s four-day visit to Beijing ended on 19 July. Despite clear differences, both sides viewed cooperation on climate change positively. More specifically, Vice President Han Zheng indicated that both countries could make new contributions to tackling climate change, hinting at possible cooperation through a working group and new commitments from China under nationally determined contributions. Most recently, an unofficial trip by Henry Kissinger to Beijing, during which he met with President Xi and the defence minister, will likely further contribute to the thaw in bilateral relations.

    An increase in high-level communication does not mean the fundamental positions of the two countries will change. Both Beijing and Washington will continue to prioritise national security concerns in their respective economic policies, while increasing self-sufficiency in key technological sectors. Meanwhile, export control remains a key tool to further strategic interests. The US Commerce Department imposed strict export controls in 2022 designed to thwart the development of China’s semi-conductor industry. Beijing also announced export restrictions of gallium and germanium, two key raw minerals used in the production of semiconductor chips, just before Yellen’s arrival.

    A key question is what issue will define US-China relations going forward? At the moment, it is easier to say what will not. In particular, any relaxation of existing tariffs and exports and investment controls are unlikely despite raised hopes of rolling back Trump-era tariffs following Yellen’s trip. Both countries are also unlikely to agree on how to describe the bilateral relationship, with the US insisting on Beijing’s acceptance that the two countries are in competition, and that cooperation on issues such as climate change and global macroeconomic stability (including debt restructuring in frontier markets) can still occur despite that competition. The Chinese leadership has rejected this framing and stresses that cooperation on specific issues is contingent upon Washington recognising China as a constructive player in international affairs.

    Looking ahead, US policy on China will continue to be a contest between security-oriented lawmakers and those advocating a more nuanced approach. While a near-term thaw in the US-China relationship will continue, improvement in bilateral relations may be stalled as the 2024 US presidential election cycle kicks into gear, generating more uncertainties as Republican presidential candidates will likely attack incumbent President Joe Biden over the administration’s China policy. Such criticism already emerged prior to Blinken’s visit, with the chair of the House Select Committee on China Mike Gallagher and House Foreign Affairs Committee Chair Michael McCaul criticising the trip as a sign of weakness.

    Furthermore, tensions in the Taiwan Strait are likely to escalate in 2024. In Taiwan’s January presidential poll, voters could elect incumbent Vice President Lai Ching-te from the Democratic Progressive Party (DPP), whose pro-independence leaning could further exacerbate cross-strait relations. This is of particular concern given the lack of formal mechanisms in place to manage a crisis after military dialogue froze following the Nancy Pelosi visit last year. And with Defence Minister Li Shangfu under US sanctions, there is even less incentive for Beijing to resume talks.

    Additional risks, such as the looming executive order that will restrict outbound investments in Chinese companies involved in quantum computing, artificial intelligence, and semi-conductors, and a pending update of semiconductor export controls announced in October 2022, could all undermine the restored channels of communication.

    With economic growth faltering, Chinese officials will continue to seek ways to boost growth.  When it comes to US-China relations, the optimistic view is that both countries will allow economic engagement in non-technology sectors to continue. Both sides have incentives to do so. For Beijing, as the domestic economy struggles, and its growth continues to rest heavily on integration with the global economy, re-engaging with the US and broader Western markets serves to restore investor confidence. Washington, on the other hand, has recognised the significance of the Chinese market for its multinational corporations, as well as the limits of its tech restrictions and the economic costs associated with deteriorating relations. For example, in April, US National Security Advisor Jake Sullivan outlined the “small yard, high fence” strategy to tech restrictions, representing a less aggressive approach than the export controls announced in October 2022. This shift derives from both Washington’s effort to stabilise relations and an acknowledgement of the constrains linked to the restrictions.

    Domestically, the weak economic data could translate to more decisive policy intervention in the second half of 2023, with stimulus measures in the form of support for consumers and fiscal spending on infrastructure projects likely to be announced following the July Politburo meeting.

    While it is not clear where the US-China relationship will be by year end, the recent diplomatic outreach has managed to stabilise the overall relations. Deepening cooperation on climate change and positive progress on working-level dialogue may provide some insulation against what is almost certain to be a turbulent 2024.

    Asia House provides a range of advisory services to help organisations meet their objectives. To find out more about China-focused advisory services at Asia House, please contact Charlie Humphreys, Director of Corporate Affairs: Charlie.Humphreys@asiahouse.co.uk

    Join our mailing list to receive Asia House research, analysis and event information direct to your inbox.