(August 24, 2011)
By Kandaswami Subramanian
It was an unusual visit undertaken by an unusual person at an unusual time to meet with an unusual person. The reference indeed is to the just concluded visit of U.S. Vice President Joseph R. Biden to China. In recent times, no diplomatic visit was covered so extensively or so critically as this one. Rumour mills lost no time floating or generating issues that would (or would not) come up for discussion. Self-appointed specialists were large in number drawing attention to a spate of issues and differences causing fear on both sides and adding to tension, which might not be resolved. It was truly a field day for the pink papers specializing in financial issues.
The mood was sombre and the expectation low. Dr. Elizabeth C. Economy of the Council on Foreign Relations captured [i] it aptly: “All of these views from some of China’s most prominent U.S. watchers suggest that Vice President Biden is unlikely to hear anything in China that he hasn’t heard before – either from the Chinese or from advisers and analysts here in the United States. The challenge, of course, is what he is going to do about it.” While posing the question this way, just nine days before the visit, there was a mist of pessimism over it. In retrospect, Joe Biden has performed a diplomatic feat even as he moved from Hall to the Palace, from city-to-city and mingled with people high or low. On the part of China’s leaders, there was remarkable restraint marked by a rare display of joie de vivre to honour their guest. It did not prevent them for expressing their own concerns directly and frankly. Biden claims to be a person who is straightforward in his speeches and he would have noticed it in good measure among his hosts. The Chinese had planned the itinerary with meticulous care seeking to provide an idea of the transformation or churning that is taking place within China’s interior. On his side, Biden did carry a load of history and sympathy.
It was not one of those diplomatic flip-flops. It was planned in January during President Hu Jintao’s visit to Washington D.C. Both the Americans and the Chinese attach much importance to that visit. It was held at a time when their relations had hit low levels marked by tension in several fronts such as currency value, trade and defence. There were U.S. concerns over China’s ‘aggressive’ postures in global arena and China’s misgivings over U.S.’ overtures to set other Asian countries on it to check its growing influence in the area. Both sides worked hard to dispel the rancour that was building up. As Xinhua [ii] put it, “During Hu’s visit in January, both countries committed to building a cooperative partnership based on mutual interests and to address the 21st century’s opportunities and challenges.” Hu’s meeting with the top executives of U.S. multinational corporations with large investments in China when he explained China’s economic policies, in particular in respect of foreign investors, led to better understanding and trust. During this visit, it was agreed that Vice President Biden would visit China and meet Xi Jinping, his Chinese counterpart. It was also agreed that the visits would continue in future on a reciprocal basis. The intention indeed was to build on the goodwill created by Hu’s visit. Fortunately, Joe Biden had the right background and the credentials to carry it forward.
Xinhua was rather effusive over his credentials. It explained [iii], “Biden’s current visit to China may well be considered a continuation and extension of his China tour 32 years ago. It is a relay of the drive to deepening the U.S. China relations.” The reference was to his first visit to China as a member of the U.S. Senate Foreign Relations Committee that led to Nixon’s New China policy and to the opening of U.S. China trade and economic relations. Biden then wrote, “A rising China is a positive, positive development, not only for China but for America and the world at large.” While addressing the opening session of the U.S. China Strategic & Economic Dialogue (SED) in May this year, he affirmed those words expressed three decades earlier. By any measure, it was a great advantage and Biden capitalized on it. China’s leaders also made repeated reference to it in the pleasantries exchanged during the tour. But who is Xi Jinping and why was it considered necessary that Biden should meet with him? That is only part of the story.
Xi Jinping is the Vice President of the People’s Republic of China. He also holds the Vic Chair of the Military Affairs Committee, which oversees China’s forces. He has risen in the Chinese political (Party!) hierarchy stage by stage and by 2007 it was evident that he would succeed Hu Jintao when his term ends in 2012. He has a rich and varied experience in both Party and state governments. As a report in the Guardian explained,[iv] “ he is an “apparatchik who come from a group of senior figures in their 50s known as the “princelings” whose fathers pioneered the People’s Republic of China.” His father Xi Zhoingxun was a long time communist and was a deputy prime minister in the old regime. He was jailed during the Cultural Revolution and Xi Jinping had to discontinue education and become a farm hand. He continued his studies in later years like many other leaders of the communist party. It is reported, “he was the most broadly acceptable member of the new fifth generation of Chinese leaders, not just to the present styanding committee but to big business, entrenched interest groups and the former party chief, Jiang Zemin.” Xi Jinping is said to have cultivated links with business community and it is not surprising in the background of CCP’s policy of Three Represents. The Party itself accommodates business community and entrepreneurs in its plenum. The assessment is that Xi would continue with the consensus style of leadership, which was evolved under Hu Jintao. There was every hope that Xi and his team would be able to move forward with Joe Biden once mutual trust is built. There is strong evidence that this has been achieved.
Biden was visiting China at a tumultuous time when the U.S. economy itself was caught in a tailspin with a double dip depression looming in the horizon. To add the misery, on 2 August, S&P had downgraded it rating to AA+, the first time ever since 1917. For many, it was like the virtual collapse of a fortress, which was vital to the strength of the global economy. China had more reasons to worry than others viewed against the fact it held two thirds of its foreign exchange reserves in US bonds. The U.S. Fed’s monetary easing through QE-2 or the next -QE-3- in the anvil posed another worry coming through dollar depreciation and inflation in commodity prices. Earlier, there was the crash of the high-speed rail much publicized as China’s achievement. There was unrest in western areas like Xinjiang. The Internet and Twitter masses were growing, expressing serious doubts over the ability of the Chinese government to defend national interests. As Minxin Pei described [v], it was “China’s Summer of Discontent.” Public opinion is turning assertive as was noticed during the Dalian agitation over the chemical factory. Several analysts including Pei observed “internal contradictions of developmental authoritarianism.” Even within China there are debates among academics and policymakers whether the development model based on capital-intensive infrastructure and massive export orientation was sustainable. On all issues such as on Yuan rate, dollar asset value, bank credit, monetary policy, etc. there was greater participation of the public than was seen in the earlier decade. In short, China’s leaders had to take into account the national sensitivities, which in an earlier era they could have brushed aside. These sensitivities became clear in the course of Biden’s tour.
The uppermost concern among the leaders as also the public was over the safety of China’s dollar assets. In the wake of dollar downgrade, there was excessive fear bordering on panic and growing lack of faith in the ability of the U.S. authorities to maintain financial stability. The haggling over budget ceiling in Congress and Senate until the zero hour was quite disturbing to officials in China’s Finance Ministry and its central bank. Thus, the top item on the agenda of Biden was to allay Chinese fears over the safety of their dollar assets. He seems to have handled it deftly.
On landing in Beijing on 17 August, he said, “We are determined to put U.S.-China relations on a steady and sustainable track for the coming decades. In his long interview with Caijing [vi] he handled the issues with bare hands. It is a skillful and honest exposition of U.S. policy in various fronts including the notion of U.S. decline and the rise of China. It was direct and devoid of ambiguity or diplomatic sophistry. Nor was there was any sign of defensiveness or apology when it came to sensitive issues like the Congressional debate on debt ceiling. He exuded confidence in the American institutions, its economy and the ability of Congress to enact substantial deficit reduction. He parsed the ball back to China and said their cooperation was necessary to handle global challenges, which affect the U.S. economy. The reference was to the debate on “rebalancing” which is being held in the IMF, G-20 and several other international forums.
On dollar assets, his explanation is masterly. He said, “Obama administration is deeply committed to maintaining the fundamentals of the U.S. economy that ensure the safety, liquidity, and value of U.S. Treasury obligations to all its investors. This is first and foremost a firm commitment to U.S. citizens, who hold the large majority of all outstanding Treasury obligations and, also, to our foreign investors, including China.” He went on elaborate this theme in every forum and with every person he met with. He would add politely that China holds 6 per cent of Treasuries and its own citizens hold over 85 per cent! The message was given on the first day in Beijing and in formal meetings with the President and Prime Minister of China. It was given on the last day to the students of the university at Chengdu in his lecture. He said, “We are still the single bet in the world, in terms of where to invest…. ..Please understand that no one cares more about this than we do since Americans own 87 percent of all our financial assets and 69 percent of all our treasury bonds.” He repeated his message that China and the U.S. faced many of the same threats and shared many of the same objectives and responsibilities.
His meeting with Premier Wen Jiabao was; marked by an informal air and laced with banter and pleasantries. Premier Wen prefaced is remarks with the message Biden was promoting and urged him thus: “It’s particularly important that you send a very clear message to the Chinese public that the United States will keep its word or .. its obligations with regard to its government debt. It will preserve the safety, liquidity and value of U.S. treasuries.” Biden seized the opportunity saying, “… I point out U.S. Treasuries, we’re going to take care of very closely not merely because China owns 8 percent of them, but because the Americans own 85 percent.” It is not surprising that Premier Wen wanted the message to go from Biden. Wen himself said on Friday [vii] that he was “fully confident” that the U.S. economy would overcome difficulties and return to prosperity. He went on, “You have clearly told the Chinese people that the United States is committed to preserving the integrity including its safety, liquidity and inflation resistance, which will undoubtedly enhance investors’ confidence……”
The controversy over Yuan rate was not in the laundry list! Biden seems to have raised it with the Chinese but in passing. This was more as a sop to Senators back home than as a critical issue. It is an overworked issue, which has lost relevance in recent months. For one thing, in recent months Yuan has been appreciating against dollar. Further, currency wars have tended to become more common among countries and become a proxy for trade protection to gain competitiveness. More importantly, trade data did not show that U.S. deficit was reduced when the value of the Yuan rose against dollar. The International Monetary Fund had also pointed out in report last month on China’s economy that “a stronger renminbi would not necessarily bolster job creation in the United States.”
Lastly, at a time when the U.S. dollar is depreciating as a consequence of the Fed’s monetary policy (QE-2), U.S. would be ill advised to suggest revaluation of Yuan.
Surprisingly, when Biden met 20 of the U.S. and Chinese business leader representing corporations like Coca-Cola, Caterpillar, etc., Mr. Erin Ennis who is the President of the U.S.-China Council said, “Our members do not think currency is the tope issue in our relationship. Bigger concerns are over ‘level playing field’ issues like opening up the Chinese market to U.S. exports and protecting intellectual property rights.” They were happy over the growth of their business in China and their growing profits.
On their part, the Chinese did not lose any opportunity to put their own grievances against the U.S., which had imposed restrictions on import of high tech items. They also referred to the difficulties they have in making investments in the U.S. as a part of their strategy of diversifying their reserves. In recent years, especially with the emergence of sovereign wealth funds owned by governments like China, western countries, especially the U.S. are neurotic about state directed investments and bring undue concerns over their security implications. (Of course, they did not mind getting their money to bail out bankrupt banks!) Biden enthusiastically endorsed more Chinese investment in the American economy, telling Mr. Xi, “It means jobs. It means American jobs.” One hopes that Senators will take note of this!
By and large, talks over economic and financial issues have been mimicking the ongoing dialogue under the Strategic & Economic Dialogue (SED). No brownie points were made or attempted. The overall mood seems to have been conciliatory. As some of the Chinese analysts have written, the only hope is that these words would be followed by action.
One of the most contentious issues affecting China – U.S. relations is in regard to supply of arms to Taiwan. The latest trigger was about supply of more advanced F-16 C/D fighters. Last year when the offer of F-16 came up, it led to a near break down of diplomatic relations between them and to the suspension of defense talks and training exercises. They were resumed after a year and better relations have come about as a result of recent exchanges at the levels. In fact, the SED has been expanded to include defence issues and military officers participated in the last SED. However, news about sale of F-16 seemed to unsettle the waters. There were rumours that sale of F-16 to Taiwan would be taken up by Biden during his visit. U.S. officials had pledged that it would not be raised. However, there were continuing contradictions in the reports. The Taiwan lobby was active and did not want the issue to be negotiated with China. It was keen that the U.S. should stand by its “six assurances” made in 1982 to Taiwan, in which the US promised not to discuss or consult with China prior to arms sale decisions involving Taiwan. The Chinese on their part were so incensed over the reported sale that the editor of China Daily wrote [viii], “Now is the time for China to use its “financial weapon” to teach the United States a lesson if it moves forward with a plan to sale arms to Taiwan.”
Reports began to appear suggesting that the U.S. had decided to deny Taiwan new F-16 fighters. The report was [ix] that instead the U.S. would offer a retrofit package for older F-16A/Bs, i.e. up scaling them. It is not clear whether this was done under pressure from the Chinese are not. Perhaps, the U.S. decided that at a time when China’s cooperation and goodwill were necessary to tide over the economic difficulties it would not be prudent to create bitterness by selling new weapons to Taiwan. However, the WSJ [x] had a different story saying that the U.S. had accepted Taiwan’s formal “letter of request” for the upgrades, whereas one for the new fighters had been rejected three times since 2006 and a new one was yet to be issued because U.S. officials had advised against it.
There is evidence that the Chinese side raised the issue and Biden responded to them. Details of the response are not available. It is very likely that he would have informed them about the decision to upgrade and not sell new F-16 fighters. This should have satisfied them. However, what are more significant are his remarks as reported by Taipei Times. [xi]. The Chinese side that they were deeply concerned over the issue in their relations with the U.S. and asked the U.S. to regard it seriously. Biden seems to have responded saying, that they welcome the progress made in China Taiwan relations and hoped that the important process would continue into the future. There could not have been a more amiable note on this thorny issue.
Throughout the visit there was a relaxed and informal mood, which is rather unusual for high-level diplomatic exchanges. There were incidents like the one at the basketball between a U.S. team and a local team drawn from the PLA. It ended in a fistfight like in many such events. If China had been prickly, it could have bristled and created bitterness vitiating the progress of talks. The incident at an alley restaurant leading to Twitter exchanges was another that was played down. Then there were security hiccups in the first meeting between the two Vice Presidents.
On the whole, it was a successful tour where both the parties played their role with consummate skill and grace as in a tango. It is a sign of our times that two big economic powers are no longer suspicious of each other and seem to turn more into “stakeholders” than into rivals and begin to perceive common purpose. Indeed, as emphasized by Biden repeatedly, there will be competition and it is a necessary part of the game. In this process, if the U.S. has become less brash in its diplomacy, can we suggest that the Chinese are becoming more mature? If this inference is correct, it is the beginning of a new era in global relations.
[i] Elizabeth C. Economy, What Will Vice President Biden Find in China? August 8, 2011, Council on Foreign Relations, available at http://blogs.cfr.org/aisa/2011/08/what-will-vice-president-biden-find-in-china/
[ii] Xinhua, Will Biden’s visit turn a new leaf for China-U.S. ties? 16 August 2011, at http://news.xinhuanet.com/english2010/indepth/2011-08/16/c_131053522.htm
[iii] Xinhua, Biden’s significant China tour after 32 years, 16 August 2011, at http://news.xinhuanet.com/english2010/indepth/2011-08/16/c_131052969.htm
[iv] Jonathan Fen by, Xi Jinping: The man who’ll lead China in a new age, 7 November 2010, at http://www.guardian.co.uk/theobserver/2010/nov/07/xi-jinping-china-david-cameron/print
[v] Minxin Pei, China’s Summer of Discontent, The Diplomat, 20 August 2011 available at http://the-diplomat.com/2011/08/20China-summer -of-discontent
[vi] Caijing, Biden: America is not in decline, 08-17-2011 available at http://english.caijing.com.cn/ajax/ensprint.html
[vii] CHINAdaily, Chinese premier expresses confidence in U.S. economy, 2011-08-17 at http://www.chinadaily.com.cn/bizchina/2011-08/19/content_13153948.htm
See also New York Times, Chinese Premier Sounds Confident on U.S. Economy, August 19, 2011 at http://www.nytimes.com/2011/08/20/world/asia/20china/20China.html
[viii] Ding Gang, China must punish US for Taiwan arms sales with “financial weapon”, China Daily, 2011-08-08 at http://www.chinadaily.com/opinion/2011-08/08/contgent_13069554
[ix] Wendell Minnick, U.S. to deny Taiwan New F-16 Fighters, DefencseNews, 14 August 2011 at http://www.defensenews.com/story.php?I=7378123amp;c=POL&s=TOP
[x] Jeremy Page and Paul Mozur, Biden Visit to Seek a Window on Xi, The Wall Street Journal, August 17, 2011 at http://online.wsj.com/article/SB10001424053111904253204576512053506646070.html
[xi] Tauipei Times, China brings up arms sales with Biden,, August 20, 2011 at http://www.taipeitime.com/News/front/print/2011/08/20/2003511174