APEC 2023: Analysis and Outcomes

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This transcript is from a CSIS event hosted on November 20, 2023. Watch the full video here.

Scott Kennedy: Good morning, or good afternoon, or good evening. Wherever you find yourself, welcome to this CSIS program. I’m happy to welcome you to a discussion of the APEC week last week and, in particular, the Biden-Xi meeting that happened last Wednesday, just before the overall APEC leaders meeting over the following two days on Thursday and Friday.

I am delighted to co-host this with my two China expert colleagues, Jude Blanchette, who is the Freeman Chair in China Studies; and Bonny Lin, who directs the China Power Program here at CSIS. And today, you get all three of us at one time with our views on U.S.-China relations and all things China in one sitting. And I’m really delighted that the three of us and our programs could collaborate on today’s discussion.

My colleagues need no introduction but let me give them a brief one. And you can get all of the details on the CSIS website.

Jude Blanchette, as I said, holds the Freeman Chair in China Studies. He is one of the world’s leading experts on Chinese politics, as well as Chinese policymaking, the leadership, and anything that you need to know about where China is headed. The Freeman Chair has a whole lot of projects going on, including Interpret: China, which translates some of the most important documents about China into English and provides analysis on critical issues that we’re facing, as long as many other projects that Jude and his team are working on.

Bonny Lin directs the China Power Project. She’s been at CSIS for several years now, before was senior analyst at the RAND Corporation, and is an expert on all things China security and defense policy as well, and is just a fabulous partner here for all of us here at CSIS.

So I’m delighted that both of you are joining with me today to give our collective readouts of what happened last week. I think people want to really try to understand why Biden and Xi Jinping wanted to have this meeting, what was agreed to, what was not agreed to, what are the implications for U.S.-China relations going forward for the rest of the world in general, as well as on, you know, political issues, foreign policy, and security policy, and economics as well. We’re going to first turn things over to Jude and get his take, and then Bonny Lin’s. And then I’m going to offer mine. I’m going to then hand the baton to Bonny, and she’s going to moderate the Q&A with everyone who’s watching online. And if you are, if you go to the CSIS website for this event you’ll be able to submit your questions. Those will go direct to Bonny, and she will then moderate the discussion. At the end, we’ll turn things over to Jude and he will tell us definitively exactly what we ought to take away from today’s discussion.

So, Jude, let’s turn things over to you. And look forward to hearing your comments. Take it away, sir.

Jude Blanchette: Great. Well, thank you, Scott. It’s a pleasure to be here. And just for the – what’s unique about this is actually Bonny, Scott, and I don’t see each other that much in person or virtually. So this is this is – this is also – it feels like a reunion.

I will take it as something of a given that an audience for a think tank event about APEC and the U.S.-China bilateral meeting are familiar with a lot of the broad elements here. And so I will use just a short amount of time to offer maybe my own thoughts about what surprised me at the meeting, what was expected that came through, and what that potentially means, and what is standing in front of the relationship now as the two countries look to – look ahead to a year that I think, by any measure, is likely to be difficult.

So starting with the positives of the Biden-Xi meeting, and I will add in one of my negatives later on, the fact that unfortunately, but I think somewhat understandably and unavoidably this meeting happened in a way that largely overshadowed the reason that the two leaders were in the same city, which is the APEC leaders’ summit. I think it’s understandable that this was a moment when the calendars aligned and without having a formal state visit, which I think the politics in both Beijing and Washington, to say nothing about the state of the relationship, would have made that difficult to impossible.

So instead, it was a matter of finding a moment when the two leaders overlapped. And it had been known for better part of the year that APEC was the likely moment when that could happen. But unfortunately, one of the outcomes of that is that the APEC summit itself was somewhat overshadowed by the meeting of these two leaders. I think, however, all of the APEC constituent members would be happy to see an overshadowing if it meant that the U.S. and China have a chance of stabilizing the relationship, such as the both economic importance of China and the United States to the economies of all APEC members, but also the deep concern that ripple through Asia about a possible conflict between the United States and China, or even just a prolonged rivalry between the two, and the amount of uncertainty that that creates.

But the positives, I think, are, first of all, that they met. This was obviously a fairly low bar, but nonetheless it’s one that even a few months ago there was a large number of questions about sort of, would he or would he not – being Xi Jinping – visit San Francisco and join the meeting? There were questions about whether or not the continued sanctioning of Hong Kong’s Chief Executive John Lee Ka-chiu was going to be sufficient to disincentivize Xi Jinping from attending.

And, of course, the Chinese waited until the last moment to formally announce that Xi Jinping would be attending APEC, in part because Beijing was concerned that there might be some sort of competitive action coming out of the United States in between the time that Xi announced he was attending and the summit that would embarrass or put Chinese in a difficult domestic position. So I think such is the state of the relationship that mere attendance and the meeting itself was a positive sign.

I think something that surprised me, and my second point is, the designed optics from the Chinese side were much more positive than I was expecting. By which I mean, just even the visuals of Xi Jinping. He was much – there was much more softness in the tone, the visuals were clearly designed to send a signal that Xi Jinping was happy in and after the meeting. Again, none of this is spontaneous. All of the camera shots and video of the two leaders talking together is by design. But that design, and especially the acquiescence or support on the Chinese side, is in and of itself a political signal.

It does not mean that Xi Jinping’s fundamental view of the bilateral relationship has changed, but it does support the case made by the administration that Beijing wanted this meeting to happen. This was not just the United States going to Beijing and essentially begging for the meeting. The administration has been saying for weeks that they were seeing lots of signs that China actively wanted this meeting. And I think the visuals coming out of the Chinese side, the language from the statement, and even Xi Jinping’s opening statement to President Biden that was captured by news cameras, bore that out.

Third is that there were actually concrete outcomes of this. I’ll get in my negative list about why some of the concrete outcomes, they’re still yet to be seen whether or not these will translate into action. And important to remember that some of the outcomes of this don’t inherently or necessarily alleviate tensions in the relationship. But nonetheless, I think especially on the resumption of military-to-military communication and dialogue. I think the agreement on fentanyl, which I’ll mention in a minute in more detail. And, of course, the meeting between –with Secretary Kerry and Xie Zhenhua that happened just before the meeting and an agreement on climate – again, it’s on paper, but nonetheless those are important initial steps.

And then finally, in the positives is one of the unstated but very clear reasons that the United States wanted a successful meeting with the Chinese is less that they thought this was going to fundamentally and permanently stabilize the relationship, or even that they were hoping to get a very robust set of outcomes or deliverables, but because the administration as a part of its strategy to strengthen and build coalitions that can successfully compete against China’s malign behavior – even those partners in the Indo-Pacific that are extremely worried about China, such as Japan, Australia, and the Philippines, nonetheless want to see a stabilized relationship. And in fact, anything the United States can do to show that it is trying to manage the relationship with China helps America’s ability to strengthen its security coalitions in the Indo-Pacific.

So what looks to some critics like U.S. appeasement by meeting with the Chinese is actually, I think, a White House strategy that is designed more about strengthening competitive coalitions in the Indo-Pacific. And the meeting is the price you pay to be able to then turn around and do more with our allies and partners in the Indo-Pacific. Let me briefly touch on my negatives. Number one is, and this is the banal point that everyone will make but it’s worth bearing in mind, a lot of the fault lines in the relationship were left untouched, necessarily so. And all of those are still before us. So the big, key issues that are driving conflict or rivalry in the relationship around say, technology, or issues about management of tensions in the Taiwan Strait, those are all before us. Those were not fundamentally addressed in any way that led to substantive outcomes. And so while the achievements that were from the summit are good, and we should think of those as early building steps, the hard stuff still lies before us.

Number two and related, and I suspect Bonny will give insight with much more depth than mine, the simple resumption of the military-to-military dialogues, which is a return to where we were just prior to Speaker Pelosi’s visit last August, don’t in and of themselves lead to sort of magic outcomes where the United States and China are going to be able to manage tensions. We had a deteriorating relationship between the U.S. and China, even with the two military dialogues in place as of last – you know, July of 2022. So the return to these don’t necessarily do anything in and of themselves.

And, of course, I think the Chinese view these dialogues with a great amount of suspicion, seeing these as essentially mechanisms for the United States to entrap or freeze in place Chinese actions and gain a competitive advantage. So I think the Chinese bring a high degree of skepticism about these. And, of course, a lot of the areas where the military-to-military dialogue would need to take place are in areas or geographies that China states are its own territory or its own core interests and believes that the United States has no business being there. So I think that can limit some of the utility of these.

Fourth is, everyone, including the administration here in Washington, knew that the Chinese alacrity for the meeting was based in part on some of its own domestic circumstances. One of the ones that had been floated is, of course, around the state of Chinese economy – China’s economy. I think – I don’t think we should over-egg this by saying Xi Jinping was desperate for a meeting, but certainly the economic softness right now in China incentivized the Chinese to come through. The question then is, what happens if and when the Chinese economy sees a cyclical recovery? Do we expect then that you might see a return to some of the Chinese truculence that has been the norm from Zhongnanhai for the past several years? That’s more of a question than a statement.

Final two points. Scott is waving the flag – the shut-up flag, so let me try to be quick here. Another negative for me is I am slightly now confused about where we stand broadly strategically with China. And if I can wave a prop, President Biden had an op-ed in The Washington Post yesterday that was a big strategic outline of the world that the United States faced in light of conflict in the Middle East and Russia. You would have thought that there would be a third part of the discussion in this op-ed about China. China does not come up once in a – in an op-ed that is otherwise about the geostrategic environment that the United States faces. I did a word search on the online version to make sure I didn’t miss it. There is literally no mention of China in this. There is an oblique reference to challenges in the Indo-Pacific, which, hint-hint, means China.

So I think some of the criticisms that were labeled at the administration that a coming to the table and finding a modus vivendi with China would mean that the United States would pull its punches on competitive actions, I don’t buy a lot of that. But I do think it is striking that when President Biden puts pen to paper for a brief outline of the challenges America faces and what we’re going to need to do to meet those, that China is not listed given that for the past several years the Biden administration has been stating that China is one of our greatest strategic challenges. The meeting last week did not change that.

Scott, I appreciate the patience. So let me stop right there.

Dr. Kennedy: Not at all. Not at all. That was super helpful, Jude. Thanks for setting the table for us.

Bonny, over to you.

Bonny Lin: All right. Thank you, Scott. And echoing what you said, it’s really a delight to be able to be here today. I’ll try to cover a bit more of specifically what was said at the meeting. And I think it would be – it’s interesting probably to our folks watching to point out specifically what Xi said, and what does that mean in terms of U.S.-China relations. I’ll also cover a bit more on Taiwan, as well as the military-to-military relations.

Exactly to Jude’s point, we shouldn’t view the most recent meeting with President – between President Biden and Chinese leader Xi Jinping as really fundamentally changing the relationship. If anything, if you look at the readouts from both sides – and I would say particularly on the Chinese side – you’ll see that between the what – how both sides characterize the relationship, it’s still one that faces significant obstacles. And there is significant distrust on both sides.

I found it interesting that when Xi was characterizing the U.S.-China relationship, he basically characterize it as one of little choice between the two sides, right? The two countries don’t have a choice to turn their backs on each other. I think in Chinese, this translated to be a little bit more different to say that they don’t – they basically have no choice but to deal with each other. It’s also unrealistic to expect – for either side to expect that they can remake or remodel the other. And both sides recognize that there will be – conflict and competition has unbearable consequences. So it’s within this broader framework of both have to figure out a way to coexist with each other that we’re having this meeting between the United States and China.

It’s interesting, again, that for both sides there was a need to provide a broad list of guarantees, commitments, whatever – however you want to characterize it. On the U.S. side, President Biden made the same guarantees or commitments to the Chinese side that he made during Bali, which was very high at the strategic level. That we don’t seek a Cold War. We don’t want to change China’s political system. We don’t support Taiwan independence. We don’t – we’re not trying to seek – use our alliances to contain China. And, of course, we don’t seek conflict with China. On the Chinese side, Xi Jinping also made some of those guarantees or commitments, saying that China doesn’t seek a path of colonization and plundering, China doesn’t want to export its ideology, and doesn’t plan to suppress or unseat the United States.

I think the fact that these guarantees or these commitments have to be made at the meeting showcases actually how much each side doesn’t trust that the other side actually abide by these commitments. And it showcases the overall – the areas that both sides still need to work on if we – if we were to actually have a relationship that’s more of a partnership. And what’s interesting from the Chinese side is – I don’t think it’s actually new, but the way it was framed from us from Xi Jinping was the five pillars that he envisioned for U.S.-China relations. None of the pillars are new, but the way they were packaged together, and the aura they presented – I think it’s still – it’s a good – it’s a good framework to keep in mind as we move forward because I suspect the Chinese will come back and constantly referenced this.

One is – the first item was a joint – to jointly develop a right perception. And if you actually read through what that means, it seems to be the right perception is, in order to have a healthy and stable relationship with the United States, China’s interests must be safeguarded, its principles must be upheld, and the United States cannot cross any Chinese red lines. So it seems, in other words, U.S. needs to respect and agree with and protect China’s red lines and its principles. So that’s my understanding of the first pillar.

The second one is to jointly manage disagreements effectively. I don’t think there’s any disagreements there on the U.S. and Chinese side, with both sides calling for more communication, more dialogue, and more consultations.

The third and fourth and fifth are about promoting mutual beneficial cooperation, about shouldering responsibilities in major countries, and then promoting people-to-people exchanges. I think there’s generally probably no disagreement on all – both sides of those, but I think it will depend on what exactly happens with respect to either the cooperation as well as the different positions we may have on different international issues such as Ukraine or what’s happening in the Middle East.

Let me touch briefly on Taiwan. The Taiwan segment was not that – was not a very – we didn’t see too much in the readouts on either side. But it is interesting to note that – not surprising at all that the Chinese side said that Taiwan is the most important and sensitive issue in U.S.-China relations. And specifically, the Chinese side was asking the U.S. to take actions to what they – to, from their perspective, honor a U.S. commitment to not support Taiwan independence, and they specifically listed out two actions. One is to stop arming Taiwan and the other is to support China’s peaceful unification. The U.S. side, of course, did not – (laughs) – state that we support China’s peaceful unification. We reiterated our prior statements on this, which is that we oppose any unilateral change to the status quo and that we expect cross-strait differences to be resolved via peaceful means – and, I would probably add, via means that are supported by the Taiwan people.

What’s interesting is despite the fact that at least the public readouts of the Taiwan was relatively less in both public statements, we did see almost at the – just a couple hours prior to the Biden-Xi meeting that the Taiwan Affairs Office had its semi-regular press briefing, and during that meeting the Taiwan Affairs Office did not – did not adopt the same rhetoric as Xi Jinping. The office – the public spokesperson for TAO was very, very clear about China’s opposition to Taiwan Vice President Lai Ching-te and also made a comment about potential that U.S. – that Taiwan’s representative to the United States, Bi-khim Hsiao, might be joining Lai as his running mate, saying that if that happens it will be two Taiwan independence forces joining together and that would – and Taiwan independence means war. So we might have – we may have had a more moderate tone from – during the U.S.-China meeting at APEC, but that was definitely not the tone that the Taiwan Affairs Office was giving domestically when talking specifically on Taiwan issues.

Let me just conclude by talking a bit about mil-mil. As Jude mentioned, there’s still a lot to be done on this front, and what we – what we saw is a resumption of what actually existed last August.

So we saw the resumption of the Military Maritime Consultative Agreement, MMCA. That agreement has been the critical dialogue for U.S. and Chinese operators to discuss incidents at sea and at air. It’s one of the top dialogues that the Department of Defense has asked for because of the increasing number of incidents that we see. So it’s good that this is back on track. But again, this is a forum to exchange why we have more of these incidents at air; it doesn’t mean that if you have this engagement it will solve or necessarily decrease the number of incidents at air or at sea.

The second one that was resumed was the Defense Policy Coordination Talks. This is also known as the DPCT. This is a DASD-level discussion that we have with the Chinese that helps to set the U.S.-China military-to-military plan for the entire calendar year. So it’s quite important, because then both sides can agree on, OK, we’re going to have this number of exchanges at this particular level. So having this back means having mil-mil dialogues being instituted and agreed to on an annual basis back.

We also have the resumption of communication between theater commanders, but what’s interesting is both readouts only noted that these would be phone calls, right? So these are not in-person meetings. So I think there’s still probably more that could be wanted in terms of communication between our theater commanders.

I would also note at this almost exact same time that we had the Biden-Xi meeting we also had the ASEAN defense ministers plus meeting in Indonesia, in which we actually saw Secretary Austin in the same big meeting room as a Chinese PLA officer, Lieutenant General Jing Jianfeng, who is the deputy chief of staff of the Joint Staff Department. So we had – we had one venue in which we had senior military leaders from both sides in the same big meeting, but I have not seen any reporting that the two defense leaders had a pull-aside. But it’s still a welcome sign that we’re seeing more meetings in which both U.S. as well as Chinese defense leaders are able to be in the same venue.

The last thing I will end on related to mil-mil is that, as Jude mentioned, we are not seeing any signs of limits on our competition, even as these high-level meetings are occurring at the political level. I think what’s most interesting is, looking at the defense side, last week was particularly busy for Secretary Austin as he made a trip to India for our 2+2, South Korea, as well as Indonesia for a range of meetings on the side with a number of ASEAN defense ministers.

As you were seeing – as we saw all of that we also actually saw quite a bit of activity on the Chinese side, including between China and Russia. So right before the U.S.-India 2+2, CMC Vice Chairman Zhang Youxia went to Russia, where he met with his defense counterpart and met with Putin. And right before the India 2+2, we saw Russia and Myanmar have a military exercise. And then right after the U.S.-India 2+2, we saw China and Pakistan have a military exercise. So if I was sitting in New Delhi, I would be looking at this quite – I would be quite worried about the dynamics there. At the same time, during APEC we also saw Putin weigh in with some comments about how China-Russia relations are strong, as well as commentary from the Russian media about how there’s really not much happening at APEC. And today, of course, we saw both Xi Jinping and Putin sending congratulatory letters to the 10th meeting of the dialogue mechanism between the two ruling parties of China and Russia.

So even as we’re seeing engagement at the highest levels between the United States and China, China is continuing to do what we see as competitive actions across the board, including responding to what it views as all of our activities in the region. And I would say in doing so we’re seeing a bit more cooperation on Russia across the board.

So I’ll wrap up there. Thank you.

Dr. Kennedy: Terrific. Thank you, Bonny. That’s very helpful and complements the remarks from Jude.

Let me offer a little bit of my reactions to the meeting last Wednesday. I’m going to do so based in part on a trip that I just took. To get a lot of frequent-flier miles, I went to Tokyo, Beijing, Frankfurt, Berlin, and Brussels, and also supported a lot of different hotel chains in the process. And I come away with that trip with a variety of thoughts, and particularly since I was – got to spend a lot of time in Beijing as well, but talked to allies in Japan and Europe.

So, since 2017 or 2018, I have been a consistent gloom-and-doom analyst on U.S.-China relations. I have – I was very worried that we were – the U.S. was going to launch a trade war and said it would have significant consequences for the relationship. Others thought that the U.S. wouldn’t go ahead. It did. And then we saw the relationship continue to descend and really get worse during the pandemic. And things haven’t looked very bright, particularly as we got to the spring and the balloon incident, and it looked like just something like that would totally derail the relationship or blow it off course.

But now, I think after several months of diplomacy, I’m ready to change my tune a little bit, and I want to – I believe that we’ve achieved at least – at least a fragile stabilization of the relationship, and I might go further to see it as un-fragile. And what I’m talking about isn’t a thaw in the relationship, isn’t an improvement in the relationship, isn’t a return to previous eras; it is a solidification of this competition, but putting – making much less likely the tail risks – the negative tail risks of all-out decoupling and war. And I think that is an important achievement in and of itself, even though the relationship hasn’t improved a lot. And Bonny and Jude gave very good reasons why we shouldn’t expect significant improvement. But simply the achievement of making the downside risks much less likely is an achievement in and of itself. That’s what the administration called building guardrails, and I think now we have some fashion of guardrails in place even though, of course, we could still drive off the road into problems. But I think we ought to welcome the progress that’s been made that was reflected in the meeting.

And the U.S. and China came into the meeting in very different moods.

I think the United States, the Biden administration came in with the wind at its back. The U.S. economy is strengthened. The U.S. has invested in infrastructure and advanced technologies. Relationships with its allies in Europe and Asia are much more improved than they were a few years ago. To some extent, this reflects the U.S. modifying some of its language and approaches. The word “de-risking” is now central in almost every American statement. That’s an EU creation. But in other ways, the U.S. has just emphasized the importance of collaboration with others. But our EU friends and those in Japan have also moved. Not only has their analysis become on China quite as worried as American analysis, but their language and some of their policies have shifted as well. And you’ve seen the U.S., Japan, and Denmark cooperate particularly on semiconductors. So that has helped. The U.S. has also made some achievements on its own in de-risking and just gotten that started. Obviously, there’s still much to go.

On the Chinese side, they’re facing major headwinds, and I found this particularly true talking to people when I was in Beijing recently for over a week. The Xi administration, I got the sense they really needed this meeting and they needed it to go well. There is a very low level of confidence within the government, amongst businesses, amongst scholars, and the sense of worrying about the future and what it holds was pervasive across most of the meetings that I had and people that I spoke with. China’s economy is still growing quite slowly. The private sector still feels like it’s on its back foot. People talked about demography, debt, international tensions. There was conversations over the summer that Xi Jinping wouldn’t go if Chief Executive John Lee from Hong Kong wasn’t invited, as Jude said. There was also some speculation that if the U.S. came forth with the October – updated October 7th restrictions on export controls or new rules on outward investment, that also might make Xi Jinping decide not to go. But he went anyway because he needed – he needed this. He needs – and the – and the need is, I think, mainly to reassure his domestic audience, not stabilize things with the U.S. – because I think he knows where the relationship is with the U.S. – but to get signaling at home that he’s got this and give people a sense that they can check this off as a – as a mega-worry and lead to greater – get the economy going again and get people less worried about his governance.

I think in addition to that, we’ve not – (laughs) – talked about it, as Jude said, very much, but APEC itself was a big deal. And if you remember January 2017, Xi Jinping went to Davos and spoke at the World Economic Forum and gave a big speech about how China was going to be providing global public goods as a responsible international member of the global community, while the U.S. was starting its trajectory towards greater isolationism and unilateralism. This is the bookmark end of that section, and now the U.S. is looking like it is providing public goods and global leadership at the multilateral level. There are a whole variety of outcomes from the APEC meeting that are important at a multilateral stage that were achieved over the past year and last week in San Francisco. Xi Jinping has skipped a few meetings and events, and if he didn’t show up he’d really look like he just had withdrawn from the international community. So he needed this to go well.

I think the U.S. got a lot out of this meeting, even though a lot of it was symbolic – symbolic things matter – the various dialogues on mil-to-mil, on artificial intelligence, more flights, help on fentanyl, the joint announcement on more ambitious climate goals, a(n) agreement to restart negotiations to extend the U.S.-China science and technology agreement. The dinner that the businesspeople had with Xi Jinping, from a PR standpoint that probably didn’t look too well as it – as it came out, but it does reflect an effort by the Chinese leadership to lean more – lean in more to the business community and show that they care. Having a dinner with Xi Jinping doesn’t immediately get any business anything, but next week, the week after you can go to a minister and say: I went to this meeting and we’ve got challenges that we need. And I think that that’s significant if you care about market access in China. And so that’s significant, even though the PR side of that did not go as the companies probably would have liked.

The U.S. gave relatively little. I think, you know, they took one Chinese research institute off the entity list related to fentanyl. Probably the biggest change is in language. For the last few years, the U.S. has been saying the U.S. and China are in a strategic competition. But if you read the readout, the word “strategic” does not appear on that page. It talks about competition with China. And that may be something that helps soften this idea vis-à-vis the Chinese.

Why is this un-fragile? And I’m going to wind up in just a second here. It may be – obviously, things could go very sideways. But I think we’re seeing some structural sources of stability that will keep us, hopefully, from collapsing into war. The high levels of interdependence, the high levels of deterrence, the increase in communication between the executive branch on both sides, the visits – starting visits by members of Congress, the business community, people-to-people diplomacy, I think that all actually makes a difference in providing some stability.

And then I think the engagement of our allies with both sides. We saw Australian leader Albanese visit 10 days ago. We’re seeing the EU-China summit upcoming; Japanese prime minister is going to visit China. There is a lot of – the U.S. needs allied support, and so there are some limits to how far it can go if it wants to be effective.

Finally, although there are, obviously, huge sources of instability and things that could go wrong in 2024 – the Taiwan election, depending on how that turns out; Chinese domestic politics have some sources of instability in them – I think neither are likely, really, to go a hundred percent sideways, although Taiwan, obviously, we need to be as vigilant as possible. But I think the chances of a hot war in the next year are relatively low.

To me, the biggest variable for next year is not the U.S. presidential election campaign; it’s the outcome of the U.S. presidential election. And that could fundamentally change the way the U.S. and China interact with each other because that’s not a subtle change. That would be a huge change, and U.S.-China relations would be the smallest element of that change because it would change the way domestic politics in the U.S. occur as well as overall American foreign policy. That would be the biggest question and thing that I’d be focusing on, watching carefully over the next year. And I would say when I was in China and Europe and Japan, that was the – almost the first question people always asked me, that they wanted to know about. And I’ll say, finally, it’s ironic that there’s a rumor that the Chinese leadership wants President Trump to be reelected despite the fact that wherever you go people are worried about that outcome.

So let me stop there and turn things over to Bonny.

Dr. Lin: Well, thank you, Scott.

I think there’s a lot to unpack here. And I guess, since it’s the three of us – I’m moderating, but also helping to answer the questions – it may be useful that I start with a couple of questions and then rotate it over to Jude and Scott if you have any questions for us.

The first question I’d like to start off with – and I think we – all three of us touched on this – is whether we actually think Xi Jinping left APEC in a stronger position either domestically or internationally, or both. I think this is probably a higher-level question, but one that would be clear from – would be important to understand from all three sides. So maybe starting with you, Jude, what do you think? Do you think Xi left in a better state than he did before?

Mr. Blanchette: I’m trying to think of – yes, I guess I would – I think of it less of did he leave in a better position before – maybe I could rephrase it as: When he got on the Air China plane to go home, did he think he had a successful few days? And I think the answer would be yes.

I found the sight of the – of the business community giving a standing ovation a bit tough to get through. I think there’s a difference between polite applause and standing ovation. But I think, clearly, the optics coming out of that dinner were what Xi Jinping wanted, especially given, you know, I think messages to the domestic economy back in China, messages to the U.S. business and investor community, and then message to the global investment community. Xi Jinping wanted that dinner and those visuals because he wanted to say: We’re open for business. All of this de-risking claptrap you hear, as you can see, companies still want to – want to come.

I think, as Scott just mentioned, the diplomatic calendar for Beijing moving forward is quite propitious from the standpoint of Beijing. So he can go home now saying: Look, I’ve – I have helped stabilize the relationship with the United States. I have shown that the business community is eager to come and invest in the Chinese economy. And whether it’s just having – just prior to the meeting at APEC having hosted a successful summit with the Australian prime minister, and as Scott mentioned you now have an upcoming meeting with Japan, so key U.S. allies and partners are also demonstrating that they still want productive relationships with China. I think all of that, from Beijing’s point of view, indicates that they – that for all of the doom-and-gloom news coverage, they are demonstrating that they are – they still have a lot of strategic momentum behind that.

I don’t think that means the United States should not have gone ahead with the summit. I think both sides can plausibly claim that they achieved core objectives. This is almost always about how do you frame this for your domestic political audiences, and I think the Biden administration can now say we’ve had a slight stabilization of the relationship at precisely the time we’re dealing with an increasingly complex geopolitical environment, so it helps us if we can calm things down slightly in the Indo-Pacific as we deal with events in Ukraine and the Middle East. So I think that completely makes sense, but I also think we have to admit that if you’re looking at this from a competitive, you know, U.S. versus China position, you know, the Chinese came out of this, I think, in a pretty good – in a pretty good stead.

Dr. Lin: And, Scott, over to you. Similar question: Do you think, per Jude’s point, that China will actually have more investment from the U.S. business community or, I guess, broadly the international business community?

Dr. Kennedy: Yeah. The skepticism about Xi Jinping is sky high, particularly inside China. People worry that China’s being dragged back to Cultural Revolution 2.0; and that it’s going to start a war with the U.S. or others over Taiwan, South China Sea, East China Sea, India; and that the futures that they’ve been trying to build for the last 40 years through reform and opening are going to disappear. That’s a lot to overcome.

And so I think he did – Xi Jinping performed as needed to begin to address those kinds of deep concerns. I do think it’s going to require a lot of consistent successes going forward to turn around those expectations.

There needs to be – (laughs) – a third plenum, and Jude maybe will tell us if there will be a third plenum at some point soon, because they’re supposed to focus on economics and what those policies will be to try and reassure business. There will need to be specific policies. I think there will also need to be profits. Companies are going to need to make money doing business in China, and right now profitability is low because demand is low, and also because Chinese interest rates are low and the exchange rate is where it is. You can’t just park money in China and make profits.

And then we’re going to have to get past January 13, the Taiwan election, without some crazy incident, and Beijing’s going to need to show that they’re adults on this. That’s a lot to – and then – and then beyond all the way, you know, through the inauguration in May and beyond.

That’s a lot to fight. I do think that because we’ve got sort of a cyclical business cycle downturn in China, you’ve got – coming out of the pandemic you’ve got private company anxieties, you’ve just got all these other ones, that businesses really have been concerned about investing more in China. This doesn’t on its own turn that around, but let’s see over the next few months what the data begins to look like, and we could see some progress. But I still think, you know, broadly speaking, companies that are looking forward the next 10, 15 years, they’re already adjusting in major ways and pricing in the fact that the U.S. and China are going to be in this competition for a while. And nothing that happened last week suggests that that’s going to fundamentally change, as both of you said.

Dr. Lin:

 Before I relinquish my rotating moderator role – (laughs) – I did want to ask one other question related to APEC, which is IPEF, right? We haven’t had a chance to talk about that, but my understanding was there were ambitious goals from the administration, and some of those were realized and others were not. Just wanted to ask the two of you to weigh in on how do we look at IPEF and what does that mean as we think about China.

Mr. Blanchette: Well, just a few thoughts and then curious to hear what Scott thinks.

Of course, the news just in the few days before the APEC summit was that one of the announcements that the U.S. had been looking to make on the start of negotiations on the trade pillar of IPEF were scrapped at the U.S.’s request. And then, actually, you saw, after months of negotiations and leadup to this event, the U.S. suddenly, in a way that I think frustrated a lot of countries – allies and partners who the U.S. had tried to position to sign on – suddenly walked away from this over some domestic opposition here in the United States from senators like Sherrod Brown.

I think this is problematic for a couple reasons. Number one is it just continues to show that although the administration knows full well – as does, I think, most of the community focusing on U.S.-China relations – that if the United States is going to have a forward-leaning offensive presence in the Indo-Pacific in a way that means the United States can really compete, it has to have a trade/financial/economic component of it. That was, of course, the logic behind TPP. But as everyone now knows and is probably sick of talking about, we walked away from that under President Trump. IPEF was supposed to be a work-in-progress replacement.

I think it’s deeply embarrassing that they pulled back on this. I think we’ll – there’s some autopsies that will be done about how did it get to this point that just a few days before its unveiling they had to walk this back. Is that about the state of their relationship with Congress? And had they perhaps not briefed the Hill about exactly what was happening here?

But we’re in a classic dilemma because we can’t just compete with China on the security front, even if that is critically important, Bonny, as you well know, in thinking about tensions in and around Taiwan. There has to be more to this. And frankly, if the Biden administration can’t find a way to fully commit and drive this, I don’t think this is going to happen in a future Republican administration. So this is really, you know, the clock is ticking on what we can do here.

So I don’t think this is – you know, it would be a bit hypocritical for us to say that this was a fatal blow simply because most of the Washington community had spent the past year pooh-poohing IPEF. So it would be slightly hypocritical to then say that the walk back on the trade pillar was existential. But nonetheless, I think it does – for a lot of, you know, allies and partners watching the United States, it is another sort of forehead-in-palm moment.

Dr. Kennedy: Yeah. I don’t disagree at all with what Jude has said. I would just suggest, you know, it’s going to be a glass-half-full/glass-half-empty analysis, depending on which side you want to focus on.

I would say, you know, there was progress made on supply chains, on trade facilitation, on governance, anti-corruption, a variety of those things. If you see those as small ball and not the big thing, then you’re going to say that this was really not sufficient. But it’s definitely a mixed bag, and it’s – the level of ambition, as Jude suggests, that the administration has on trade is relatively limited. Perhaps if you get to a second Biden term you might see a little bit more ambition beyond what’s been done so far. But nevertheless, that’s just a giant question mark.

I think with – looking before what might happen in late 2024 here in terms of U.S. presidential politics and things like that, 2024, I think, is going to be challenging on the trade front because what we are likely to see is a Chinese economy which is not motoring back at full steam in terms of consumption, but it is in terms of production. And so we’re going to see overcapacity in China in a variety of sectors. And the EU has already highlighted that as a serious concern with their announcement in early October of their trade case on electric vehicles. And they broadly worried about that.

And one region’s efforts to stem Chinese imports are going to then affect how others respond as well. So the U.S. is going to need to coordinate with its allies around the world on trade policy to deal with this potential growing imbalance between Chinese production and domestic consumption. So we had not focused on that for a while, but that could come back to the fore. And so as much as we’d like to make progress offensively on reducing trade barriers, expanding collaboration between the U.S. and its allies in the 21st century like focus, we may be dealing in 2024 more on the defensive side than we had expected. And so that will chew up a bunch of bandwidth for the administration as well, coming in 2024.

Dr. Lin: Great. Thank you.

I’m going to hand over my rotating moderator role to Jude. And sorry about the honk in my background.

Mr. Blanchette: I know we only have a few minutes left. I wonder if I could quickly direct one question to you, Bonny, and then one to Scott.

Bonny, the question for you is, everyone’s now – I think, with APEC over – starting to look to January 13th. First of all, just sense of – it looks like the TPP-KMT coalition that a week ago – that seven days ago was impossible, five days was now possible, as of today now it looks impossible again. So your sense of sort of where the election is but, I think more importantly, if now what looks likely is a coalition will not come together and that doesn’t mean certainty for William Lai administration but it does increase the odds, what’s your sense of Beijing’s reaction to that in light of two factors?

Number one, as you just said, the fact that they have already painted Lai Ching-te and Bi-khim as rabid secessionists, so some sort of negative reaction seems likely. But, on the other hand, we’ve just had this meeting at APEC. There’s probably a marginal incentive for the Chinese to calibrate down their response a notch or two from what they ordinarily would do. But would just love to hear your thoughts on what you think the probable or likely playbook is for Beijing in light of last week’s summit.

And then, Scott, my question for you, which you just basically addressed but wonder if you could unpack it a little bit, is how do you think economic factors next year – early next year play into the incentives for Beijing to continue along a stabilization path? I had just made a guess that if one of the reasons for the meeting last week was the softness of the Chinese economy, if there is modest recovery in the spring do you think that zaps Beijing’s enthusiasm to continue on the modest kumbaya train that that we’re on now?

But maybe, Bonny, you first.

Dr. Lin: Sure, thank you, Jude. Like what you said, I actually was a bit surprised at how positive the Biden-Xi meeting went, and the optics that followed in terms of how China was portraying the lead up and implications of this. So when it comes to Taiwan, previously I think there were three different theories or different arguments for if – for when China may escalate against Taiwan, if Lai wins. One was immediately after the presidential election. One was after his inauguration. And then one was if he does anything significant after inauguration, right? And I think if we use the optics of this meeting as a test of how China views U.S.-China relations, but also cross-strait dynamics, it makes me lean more towards China might wait until after Lai does something bigger, or something that they view – that Beijing views as provocative.

But that doesn’t mean that China won’t escalate coercion against Taiwan after Lai wins. It’s just I think if we’re waiting – if we’re worried about something much more escalatory, at least from the dynamics that we’re seeing, I’m not – my bet at this point would be it would be after he is inaugurated, after Beijing can point to something clear and concrete that he has done. But again, we’re all speculating. There’s still weeks until the election. And there’s still – other things could pop up that could change Beijing’s calculus.

Mr. Blanchette: Thanks, Bonny.

Dr. Kennedy: Jude, that’s a great question. If the Chinese economy improves, does China’s incentive for wanting to keep relations stable disappear or soften? You know, I think we’ve already known that there’s a ceiling to the relationship. It’s a relatively low ceiling, you know, in terms of the diplomacy between the two sides because there’s so many things that they disagree on regarding technology, regarding fair trade, industrial policy, and Taiwan, the role of the U.S. military in the region, its alliance system, et cetera. And those things aren’t going to fundamentally change.

I think if China’s economy improves somewhat, you will see maybe a little bit orneriness from the Chinese. But I don’t think that really fundamentally leads us in a different direction. We already are seeing leading American companies and those in Europe and elsewhere modifying where China fits in their global business. And we’re seeing the Chinese change as well. And I don’t think those things fundamentally shift. Instead of looking for, like, what China’s growth number would be, I would be looking at what are Chinese domestic reactions if there is a third plenum, and what they promise. Looking at the Shanghai/Shenzhen stock indices and seeing if those go up?

And also, is there any particular breakthrough in Chinese technology? You know, we’ve talked recently on semiconductors, that the Huawei Mate 60 Pro, which I got to see in person when I was in China in a shopping mall, was unlikely to signal a big Chinese leapfrog because they were able to use this certain kind of technology, DUV technology for lithography, in a way that people really didn’t expect. And so that doesn’t seem like a Chinese breakthrough. But if they come through with some other breakthrough in semiconductors or somewhere else, I think that might give the Chinese the type of confidence to be less helpful on tech issues than they seem to be right now. And that could change dynamics. But otherwise, I think we’re already somewhere in the messy middle and unlikely to shift dramatically worse or dramatically better.

Mr. Blanchette: We only have two minutes left, so I think what I might do is, Scott and Bonny, can I ask you each the same question for quick answers, and then we’ll wrap up and get everyone on their way? If 12 months from now the relationship has not spiraled, and is at the degree of uneasy equilibrium it is as of today, what will have been the key thing both Beijing and Washington did or did not do to help that stabilization persist? Scott, you first, because Bonny looks like she needs another second to think.

Dr. Kennedy: Yeah. You know, I think the – we ought to give credit to just simply showing up at meetings. And going back to last fall, in September-October the two sides began talking about meetings, and at staff level had meetings. That got pushed aside or slowed down because of the balloon incident. And then we saw a series of meetings since then, Cabinet-level, sub-Cabinet, this summit level. And I think that those range of meetings don’t fundamentally change the concerns that both have about each other, but that communication, I think, has created a foundation for figuring that they can try to at least avoid the worst outcomes and maybe on a few places, like climate and elsewhere, make some modest progress. So I would give credit just simply to the end of the pandemic and the beginning of normalizing communication and recognizing that that isn’t – that diplomacy has value.

Mr. Blanchette: Bonny.

Dr. Lin: Sure. I think, Jude, that’s a very difficult question, because I think my going-in expectation is that’s actually not that easy to achieve for 2024. So I would say for us to get through entire 2024 without a major negative spiraling in U.S.-China relations, I think it actually requires restraint on both sides. Not just increased dialogue, not just increased communication, but also for the – for each side to not respond – feel the need to respond, and necessarily escalate when the other side makes a move, right? Because what we saw with spy balloon incident was we saw something that damaged our interest, and China reciprocated by responding, right? (Laughs.) So unless we can restrain ourselves, no amount of communication, dialogue is going to be sufficient, unless both sides are willing to say: Hey, we saw something that was irritating to us, but we are going to not – be very careful in our response, and not make the situation worse by escalating.

Mr. Blanchette: Thanks, Bonny. That was great.

And we’re banging on 11:00. So I want to thank, first of all, the two of you, and especially all our support teams that make all of this absolutely possible. We just show up on screen, but there’s a whole team which makes the events possible on a technical level and an organizational level. So we’re incredibly thankful for everyone.

Also, thanks to everyone for joining in. It’s probably a busy Monday, as everyone tries to wrap up everything before the Thanksgiving holiday here in the United States. So appreciate time and your interest in this, and look forward to seeing both my two colleagues, but also all of our virtual friends at a future event or in person. So have a great Monday and have a great week.

 (END.)

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Scott Kennedy
Senior Adviser and Trustee Chair in Chinese Business and Economics
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Bonny Lin
Director, China Power Project and Senior Fellow, Asian Security