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Sanctions will not hurt Beijing

By Jörg Wuttke

US President Joe Biden and his Chinese counterpart Xi Jinping spoke on the phone for the first time on February 11. After the conversation, it seemed that USA-China relations were now back on track. The two leaders had drawn clear lines and opted for a no-nonsense, pragmatic approach. The belligerence and bluster of Biden’s predecessor seemed passé. On Thursday, high-ranking representatives of the US and China met in Alaska for the first time since Joe Biden was sworn in. The tone was frosty, the talks lacked substance – both sides served the home front with strong gestures.

Cooperation, dialogue, conflicts

The official White House report on the February phone call between Biden and Xi indicated that Washington agreed to the “three-list approach” proposed by Beijing. This involves the two countries defining a list of issues on which they can cooperate constructively. A second list includes issues that require dialogue. The third list includes points of conflict that the two countries must manage. The White House report specifically identified four points of criticism – corporate coercion, Hong Kong, Xinjiang, and Taiwan – and four areas of cooperation: COVID-19, health security, climate, and arms proliferation.

The implied emphasis on balance seems consistent with Biden’s general approach to policy. For example, the South China Sea and Tibet – two issues that are no less important to US strategic interests and values – were not specifically mentioned in the announcement. However, Beijing’s announcement on the phone call warned the US to be cautious on issues related to China’s core interests: Taiwan, Hong Kong, and Xinjiang.

Compared to Trump’s China policy, which has been characterized by pushing for concrete results and unilaterally imposing broad sanctions, the Biden administration has so far seemed guided by a higher purpose: Answering China’s development model with a liberal-democratic alternative. According to national security adviser Jake Sullivan, to win such a contest, the US first needs domestic renewal to “renew the (…) fundamental underpinnings of our democracy,” followed by “investment in allies” to “modernize those alliances to deal with the threats of the future”.

USA not on the winning side

Right now, America is not on the winning side. From pandemic control to infrastructure investment, Beijing’s centralist approach seems far more effective. On the international stage, Washington’s traditional alliances, marked by the shared pursuit of a “free world” that characterized Biden’s generation, are not sacrosanct either. China’s enormous market appeal and political consistency, guaranteed by a leader freed from the burden of uniting a divided country, pose difficult choices for US allies in Europe and the Asia-Pacific.

It is hard to imagine what short-term, tangible results the Biden administration could achieve in this environment. For Beijing, the goal is quite simple. It doesn’t want to outmaneuver the United States, but it does want to prove that there is more than one “right side of the story.” China’s goal is to ensure that its political model gets a permanent and uncontested seat at a table dominated by liberal democracies.

Support in the party for Xi’s policy

With regard to Hong Kong and Xinjiang, Beijing sees no need to compromise, as neither issue offers much room for escalation. Any potential sanctions involved won’t really hurt China, and Xi’s strong backing in the party means he has no pressure from within to give in to foreign criticism. For Xi, it is necessary for the “revitalization of the Chinese nation” that the West respects Beijing’s sovereignty and full authority over domestic issues such as Hong Kong and Xinjiang.

On Taiwan, the immediate risk of armed conflict is low. Xi may aspire to resolve the Taiwan issue once and for all, but he is in no hurry to take drastic action. Xi can stay in office until at least 2027, and possibly even 2032, which means he has many more years to find a solution for Taiwan without military invasion.

On the economic front, China will indeed continue to buy agricultural and energy goods from the USA – not necessarily to comply with the Phase 1 trade agreement, but rather because of the strengthening domestic economy. At the same time, Beijing will likely propose to resume negotiations on the Bilateral Investment Treaty (BIT) and use it as a framework for continued economic engagement. The EU-China Comprehensive Agreement on Investment (CAI) could serve as a blueprint for dialogue between Beijing and Washington, and the Phase 1 agreement would serve as a basis for future negotiations.

Delicate balance of power

For now, there is a brief window of opportunity for Beijing and Washington to reset the rules of the game. But that delicate balance of power can shift rapidly if either side grows impatient and opts for shortcuts in the pursuit of victory, such as those suggested in the so-called “Longer Telegram”, reportedly written by a former senior US official who advocates the elimination of Xi Jinping as the goal of a “new China policy”.

For China, Washington’s explicit or implicit push for regime change is a fundamental threat that no climate agreement or investment treaty can offset. It will ultimately be up to President Biden to weigh the competing voices within Washington – a test he has faced since 1973.

Jörg Wuttke has been President of the EU Chamber of Commerce in China since May 2019 – he previously held the post from 2007 to 2010 and from 2014 to 2017. Wuttke is Chairman of the China Task Force of the OECD’s Business and Industry Advisory Committee (BIAC) and a member of the Advisory Board of the Mercator Institute for China Studies (MERICS) in Berlin. He has lived in Beijing for more than three decades.

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