Posts tagged: Foreign Policy

Beijing Air Pollution – A Silver Lining on the Smog Cloud?

By , January 12, 2013

The air pollution reached off-the-chart dangerous levels today in Beijing and will likely remain that way until Tuesday.  Saturday afternoon, the United States Embassy, which has been publicly reporting Beijing air pollution from its monitoring site in the Chaoyang area of Beijing since 2008, recorded Air Quality Index (AQI) numbers of over 800.  AQI of 301-500 is considered hazardous where all outdoor physical should be avoided.  Beijing authorities were advising all residents to stay indoors.  What does 700-800 AQI look like?  Here are some pics:

These pictures of Beijing are gross.  But they aren’t that much different from pictures of New York City in the 1950s and 1960s, or London during the same time.  New York alone had three notorious smog disasters – 1952, 1962 and 1966.  The causes were similar  – a cold winter resulting increased use of coal; factories surrounding the city; and the exhaust from dirty trucks and cars. For New York and the United States, these smog incidents were a turning point.  Five to ten years later, the Clean Air Act was passed with a vigorous enforcement mechanism.  Since the early 1990s, less than a generation later, pollution in New York City remains relatively low (vis a vis the 1966).

So will these pictures serve to bring change to China, specifically in enforcement of its environmental standards?  Perhaps.  What might also bring change is the fact that the Chinese government – a one-party authoritarian regime – can no longer hide extremely hazardous pollution.  This might sound strange to those who don’t follow China regularly, but it was shockingly reassuring to hear that it was the Beijing government that was advising people to stay indoors.  Xinhua even honestly reported that AQI exceeded 900.  It’s rare to see such transparency from the Chinese government.

I believe a lot of this transparency is the effect of one thing: the U.S. Embassy’s hourly publication of Beijing’s AQI.  In 2008, the U.S. Embassy began to measure Beijing air quality, publishing it through a twitter feed.  Although the twitter feed is blocked in China, many popular Chinese websites pick up the feed and publish it inside the Great Firewall.  To call this an thorn in the Chinese government’s side is an understatement.  In 2009, according to Wikileaks, at a meeting with the Ministry of Foreign Affairs (“MFA”), Embassy personnel were informed that the hourly publication of the Embassy’s AQI was “confusing” to Chinese people and could result in unexpected “social consequences.”  MFA requested that access to the feed be limited to only foreigners.  The Embassy did not give in.

Thus, likely in order to restore its credibility, in early 2012, the Beijing municipal government began to publish its own AQI numbers from a site on the other side of Beijing.  While at times these numbers may differ (with the U.S. numbers usually showing a more hazardous level), so far for this smog disaster the numbers have remained relatively the same: both off-the-charts pollution levels.

So while this pollution is horrible, it demonstrates perhaps the impact of seemingly small, stubborn policies – here the U.S. Embassy reporting in real time Beijing’s true pollution – in bringing greater transparency to a Chinese government that otherwise would not have to.  Perhaps now that Beijing is honest with its own people, it will be set on a course to reform its laws and relegate pollution like today’s to  episodes of Mad Men.

 

Gary Locke’s Take on U.S.-China Relations – “Trenton Makes the World Takes”

By , January 13, 2011

I used to think I was the only one who noticed the huge, weird, angry sign “Trenton Makes the World Takes” plastered on the Delaware Bridge just outside the New Jersey city of Trenton.  So imagine my surprise when this slogan was featured in Commerce Secretary Gary Locke’s speech about U.S.-China relations before the U.S.-China Business Council (USCBC) on Thursday.  For Locke, the manufacturing center of Trenton during the early 20th Century is China today; it’s China that now makes and the world takes.

But the status quo must change Locke argued.  While noting some successful U.S.-China commercial relations, Locke raised the issue of market access in China, particularly in light of China’s indigenous innovation policies and its lax protection of intellectual property (which makes one wonder why didn’t he continue to play with the Trenton theme and say “China makes AND takes”; that would have elicited laughs from the USCBC for sure),  Between Locke’s speech, reprinted below, and Treasury Secretary Tim Geithner’s speech Wednesday, there is some serious saber-rattling coming from the American delegation in preparation of President Hu Jintao’s State visit next week.

Commerce Secretary Gary Locke Delivers Policy Speech

on U.S.-China Commercial Relations

Thank you John, for that kind introduction.  And thank you for having me here today.

We are today less than a week away from an important State visit by Chinese President Hu Jintao.

More than two decades ago, on my first trip to mainland China, I could not imagine that the U.S.-China relationship would eventually become so consequential.

Nor could I have imagined a scene like we witnessed a few days ago: Defense Secretary Gates joining together with his Chinese counterpart to stress the need for stronger military ties between China and the United States.

In 1989, I came in from Shanghai’s airport on a rickety, Russian-made bus, and stepped into that city’s dimly lit streets into a world very different than the one I left in the U.S.

There were swarms of bicycles – young men with their dates balanced on handlebars, grandparents pedaling to the market, boys and girls with white-knuckle grips on their parents’ shoulders. Bikes everywhere.

Shanghai then was a gritty, industrial city filled with low-rise buildings.

There were no skyscrapers. Few cars.

There was little sign of what was to come.

Today, Shanghai’s skyline is dotted by more than 400 skyscrapers.  Go to the Shanghai World Financial Center – one of the tallest buildings in the world – and you can stay at a Park Hyatt Hotel with a lobby on the 79th floor.

Those bike paths I saw on my first visit have been replaced by elevated freeways shuttling people and commerce at a frenetic pace.

To see it is to be awed, and I am every time I go back to China.

The explosive growth in places like Shanghai has helped lift almost 200 million people out of poverty.  In the years ahead, hundreds of millions more Chinese citizens will join the middle class.

The United States welcomes this growth, because it’s good for the people of China; it’s good for the global economy; and it’s important for U.S. companies who offer world-class products and service, products and services that can improve the quality of life for the Chinese, while providing jobs for American workers back home.

With the U.S.-China Business Council’s help, this has become perhaps the most important bilateral trading relationship in the world.

China is the top destination for American exports, behind just Canada and Mexico.  And America is the number one national market for Chinese exports.

In the past 20 years, U.S. exports to China have increased by a factor of 12; imports from China have increased more than 30-fold.

However, we are at a turning point in the U.S.-China economic partnership.  Last year, China became the second largest economy in the world.  And the policies and practices that have shaped our relations over the past few decades will not suffice over the next few decades.

So today, I’d like to talk a bit about how we can move forward and ensure that we can unlock the full potential of the U.S.-China commercial relationship in the early 21st century.

The gross trade imbalances between our countries are a good place to start, because they have the potential to threaten global stability and prosperity.

And I think a great illustration of that can be found in, of all places, Trenton, New Jersey.

Many of you have likely taken Amtrak up to New York, and when you pass by the Delaware River in New Jersey, you see that famous sign: Trenton Makes and the World Takes.

Well, replace Trenton with China, and you have a simplistic, but pretty accurate description of the global economy over the last few decades.

China and the United States benefited tremendously from this arrangement in recent years.

American consumers got an impressive array of low-cost goods.  And in its transition into one of the world’s top exporters, China was able to lift millions of its citizens into a fast-growing middle class.

But it’s not sustainable.  The debt-fueled consumption binge in developed countries like America is over.

And countries like China are beginning to realize that there are limits to purely export-driven growth.

That’s why we need a more equitable commercial relationship.  And it is within our reach.

The United States is doing its part to facilitate global adjustments by increasing private savings and exports, as well as taking steps to bring down its long-term fiscal deficits to a sustainable level.

And the Chinese leadership is making the rebalancing of its economy one of the cornerstones of its forthcoming five-year plan.

China is aiming to promote domestic consumption through a variety of measures, such as boosting the minimum wage for its workers and building an improved social safety net. Changes like these will hasten the rise of a middle class that wants the same cars, appliances, fashion, medical care and other amenities that have long been enjoyed by consumers in the Western world.

The Chinese government is also putting an intensive focus on strategic emerging industries, with more high-value work in areas like healthcare, energy and high technology.

And the Chinese have signaled that they want foreign businesses to help develop these sectors by entering joint ventures and by conducting more research and development in China.

This is assistance that U.S. companies are eager to provide, so long as China deals meaningfully with concerns about intellectual property protection, as well as a variety of other issues I will talk about later.

Such cooperative projects can serve as the foundation for a stronger economic relationship between China and the U.S.

But China’s long-term success at addressing the concerns of international businesses will help determine whether it realizes its economic vision – a vision in which China is a leader in innovation and a producer of higher-value goods and services.

Here’s the good news: we are already seeing examples of just how this future could play out, as our businesses and our governments collaborate to tackle some of the world’s greatest challenges.

Just look at what’s happening with the new Energy Cooperation Program that Secretary Chu and I announced while in China in October 2009 to promote more collaboration between Chinese and American companies on energy issues.  One of the founding corporate members of the program, Boeing, is partnering with Air China and Petro China to research a new generation of aviation biofuels that don’t rely on food crops.

If this venture is successful, it could reduce the carbon footprint of airplane travel, and avoid the negative impact that other biofuels have on the global food supply.

Or look at what’s happening with Duke Energy, one of America’s leading utilities, which has signed an agreement for joint research with China’s largest energy company, Huaneng, and with the Chinese government’s Thermal Power Research Institute.

Today, there are scientists and researchers shuttling between the companies and the research institute, working to develop cutting-edge solutions for cleaner-burning coal and carbon sequestration.

The Chinese and American governments are also working together on a variety of transportation issues, including how to spur the deployment of more high-speed rail.  China has embraced high-speed rail and has developed its infrastructure at a tremendous rate.  Starting from scratch, China has constructed and put into service over 4,000 miles of high-speed routes in the last decade – making China’s the longest high-speed rail network in the world.

In meetings last year, officials and experts from the Department of Transportation and China’s Railway Ministry met in Cambridge, Massachusetts, to share information on the development of high-speed rail standards.  And at the state level, the Chinese government has signed cooperation agreements with the State of California on its high-speed rail project to link Anaheim and San Francisco.

There is, however, a sobering side to U.S.-China commercial relations: For every story like Duke Energy’s or Boeing’s, there are many more that are never written.

When I talk to business leaders across America, they continue to express significant concerns – shared by business around the world –about the commercial environment in China – especially China’s lax intellectual property protection and enforcement, lack of transparency in government decision-making and numerous indigenous innovation policies that often preclude foreign companies from vying for Chinese government contracts.  These policies mandate that products must be made, conceived and designed in China.

It’s important to note that since China formally joined the WTO nine years ago, it has made important progress opening its market.  Tariffs have come down, private property rights are steadily evolving and great strides have been made to free the flow of commerce across China’s borders.

On balance, the competitive playing field in China is fairer to foreign firms that it was a decade ago.  And we commend the Chinese for that.

It is also not lost on countries in the West that on our march towards industrialization, we sometimes protected native industries with policies that today would mobilize an army of WTO lawyers in opposition.

But those policies were folly then, and they are surely folly now.  After World War II, the United States and a growing community of nations painstakingly built a global trading system based on the freer flow of goods, ideas and services across borders.

And the creation of the World Trade Organization in 1995 ensured that countries would be held accountable for their commitments to open markets and lower barriers.

China has benefited tremendously from this international trading system, especially since it joined the WTO in 2001.  The United States and other foreign nations have every right to seek more meaningful commitment and progress from China in implementing the market-opening policies it agreed to when it joined the WTO.

From our experience, there are usually five things that need to happen to turn these promises into reality.

It starts with the easiest step: a statement of principle from Chinese officials that action will be taken to solve a market access issue.

Next, that agreement has to be codified into binding law or regulations.

Third, the law or regulation needs to be faithfully implemented by the central government.

And fourth, it needs to be implemented at the local and provincial levels.

Only after all these things have happened can you arrive at the fifth, final and most important step, which is where this new law or regulation becomes a norm – an accepted way of doing business in China’s commercial culture.

When it comes to indigenous innovation, intellectual property or a variety of other market-access issues, an enduring frustration is that in too many cases only the earliest steps are taken, but not all five.

Perhaps an agreement is made, but it never becomes binding.  Or perhaps there’s a well-written law or regulation at the national level, but there’s lax enforcement at the provincial or city level.

A few weeks ago, the Commerce Department and the office of the U.S. Trade Representative welcomed Vice Premier Wang Qishan and other leading Chinese officials for the 21st Joint Commission on Commerce and Trade, where we worked through a variety of specific trade issues.

It was a productive meeting.  Vice Premier Wang and his team were responsive to our concerns and they pledged action in a variety of areas critical to American businesses.

They agreed to remove administrative and regulatory barriers discriminating against American companies selling everything from industrial machinery and telecom devices; to those that restrict U.S. participation in the development of large-scale wind farms in China.

They also agreed to revise one of their major government procurement catalogues to ensure a level playing field for foreign suppliers and to reduce the use of counterfeit software in government offices and state-owned enterprises.

Additionally, Vice Premier Wang asked the Commerce Department and the U.S. Trade Representative to partner with him on a public campaign to reduce intellectual property rights violations in China, which he is leading.

The American government welcomes these commitments from China.

But to be clear, they are only a first step.  What was agreed to at the JCCT were important statements of principle and policy – but they must be turned into concrete action with results.

Take last year’s JCCT, when the Chinese agreed to remove a local content requirement for wind turbine suppliers – a positive step forward.

But soon after, China’s government employed a rule that required foreign businesses seeking to build large scale wind farms in China to have prior experience with such projects in China.  The rule might have been different than the local content requirement, but it had the same effect – making it tougher for foreign companies to compete with China’s domestic companies.

At this year’s JCCT, we persuaded the Chinese to modify that rule as well.

Or look at the issue of intellectual property. We have heard Chinese leaders condemn IP-theft in the strongest terms, and we’ve seen central government laws and regulations written or amended to reflect that sentiment.

But American and other foreign companies, in industries ranging from pharmaceuticals and biotechnology to entertainment, still lose billions of dollars from counterfeiting and IP-theft in China every year.

For example, in the United States, for every $1 in computer hardware sales there is about 88 cents in software sales.  But in China, for every dollar in hardware sales there is only eight cents in software sales.

According to the Business Software Alliance, that discrepancy is largely explained by the fact that nearly 80 percent of the software used on computers in China is counterfeit.

So America welcomes Vice Premier Wang’s pledge to accelerate China’s crackdown on intellectual property violations.  And China will have a very willing partner in this endeavor in the United States.  But we will be focused on meaningful outcomes.

I recognize I’m not the first foreign official to express concern over the commercial environment in China.  But it would be a mistake to portray this concern solely as U.S. self-interest masquerading as advice.

The Chinese economy is increasingly moving up the global economic value chain, where growth is created not just by the power of a country’s industrial might, but also by the power of its people’s ideas and their inventions.

In the long run, economies with poor intellectual property protections and inconsistent application of market access laws will lose out on generating great new ideas and technologies.  And they’ll lose out on the jobs that come with producing new products – jobs critical to an expanding middle class.

The damage won’t happen overnight.  I freely admit that companies and countries can gain short-term advantages from lax rules in the commercial space.

But over time, if innovators fear that their inventions or ideas will be stolen or discriminated against, one of two things will happen – they’ll either stop inventing, or they’ll decide to create or sell their inventions elsewhere.

Ultimately, all that the United States seeks is a level playing field for its companies, where the cost and quality of their products determines whether or not they win business.

That is the ideal we strive for in the United States.

And our commitment to open and competitive markets is a big reason why we remain the number one destination for foreign direct investment in the world.

We understand that China’s modernization and evolution towards a more market-oriented economy is a process that will take time.

China has 1.3 billion people.  Seven hundred million of them still live in rural areas; many with little electricity or running water.  It took the United States over 100 years to build the electrical transmission capacity it has today.

To meet the rising demands of its own consumers, China will have to build a similar amount of capacity in just 15 years.

These are enormous undertakings.  And it’s understandable if, in the past, China’s immediate development goals took precedence over other concerns.

With millions of Chinese coming in from the countryside looking for work, it isn’t necessarily an easy decision to close down a factory producing counterfeit goods, when that factory is providing badly needed jobs.

So what we’re discussing here are real and significant challenges. For market reforms to continue, it will take constant vigilance – not just from the United States, but from all countries and businesses around the world that benefit from rules-based trading.  And from Chinese business and government leaders, who themselves have a strong stake in ensuring that China is friendly to global innovation and international competition.

In front of us is the opportunity for China and the United States to lead the world economy in the early 21st century to create a new foundation for sustainable growth for years to come.

We can’t tell exactly what that future will look like.

But we can be certain that it will be a better future if the Chinese and American governments pursue cooperation over confrontation in the economic sphere.

Cooperation that will put millions of our people to work.

Cooperation that will develop technologies to solve the most pressing environmental, economic and social challenges facing the world today.

This is the great opportunity before China and the United States.  We just have to seize it.

Thank you.

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A Response to Rio Tinto – A Different Opinion from Australia

By , April 20, 2010

Australia-flagOn Monday, I posted my take on the Rio Tinto trial which elicited significant response from China law scholars.  I was lucky to have a very thoughtful response from Prof. Vivienne Bath of the University of Sydney and Director of the Centre for Asian and Pacific Law at the University of Sydney.

Prof. Bath has a different perspective on the Rio Tinto trial and you can find her comments below.  She also points out two mistakes that I made in the original article.  In the original article, I state that foreign press was permitted into the bribery portion of the trial.  This is incorrect.  They were only permitted access to the verdict and sentencing portion.  A second mistake is that I state that there was live witness testimony; there was not.  There was only the presentation of written testimony; not actually live witness testimony.  I have made these corrections to the original article and my apologies to the readers.

I thank Prof. Bath for her response to my article and for giving me permission to post it to China Law & Policy to offer a different perspective.


I was interested in Elizabeth Lynch’s comments on the Stern Hu trial now that it is all over (bar the appeals).  Her post presents an interesting and different view of the trial to that often presented in the press.  Certainly some of the comments by politicians (on both sides) have been fairly unconstructive and some of the press coverage could have been better informed.

In particular, Elizabeth makes some very apposite comments on the process. It appears to be the case that Chinese authorities followed the letter of the Criminal Procedure Law, although their interpretation of the Australia-China Consular Agreement was, in my opinion, completely unjustified.  Regular visits by the consul were allowed as was access to lawyers.  Time limits were strictly observed.  Apparently a 71 page judgment was produced (which is quite unusual!) justifying the court’s conclusions, which is very welcome (or will be, if and when the judgment is made publicly available).

I do not think, however, that the fact that the Chinese authorities complied with Chinese laws should be a matter for particular congratulation.  The content of those laws is bound to be the subject of comment.  The press (and the Australian public), for example, probably took access to a lawyer for granted – they were more interested in the fact that Hu’s wife was apparently not allowed to visit her husband at all during his period of detention.

In addition,  there are still some issues relating both to the trial and to the Chinese legal system itself which are continuing matters for concern regardless of the guilt or innocence of the parties.  First, it appears that the foreign media was not admitted to any part of the trial, although several representatives of the state media may have been present.  See http://www.abc.net.au/news/stories/2010/03/22/2852611.htm;  http://www.theaustralian.com.au/business/media/the-world-watches-stern-hu-case-as-media-coverage-is-gagged/story-e6frg996-1225846613332 .  The Australian press was, as you would expect, very indignant on this point.  News reports were provided by brief comments from the Department of Foreign Affairs and Trade representative, who was quite succinct in his comments.

Secondly, I did not see any references to witnesses testifying in person at the trial and I would be interested to see the links to reports on this.  Indeed, Du Shuanghua’s devastating evidence on the payment of RMB70 million was given in writing, with, according to reports, Wang Yong indignantly asking that Du appear in person so that he could be cross-examined (http://mulrickillion.spaces.live.com/blog/cns!41BA4803555B0DA4!5445.entry ).   The entire trial, involving 4 defendants and a variety of complex charges, took less than 3 days, which is not consistent with the presentation of detailed personal testimony and cross-examination.  The point has been made that written testimony is often presented in trials conducted under the inquisitorial system.   Article 47 of the Criminal Procedure Law, however, does provide for the testimony of witnesses to be questioned and cross-examined in the courtroom.  Although Chinese trials often take less time than this, and, it does not take away from the main point, which is that such a short time period is completely inadequate to allow defendants to conduct cross-examination of witnesses (if they are there) or to present their own cases in detail.

Thirdly, in relation to the length of the sentences, it should be noted that a sentence of 3-7 years for infringing on commercial secrets can only be handed out “if the consequences are especially serious”.  The court justified the sentences as follows: ” ‘The four have seriously damaged the interests of the Chinese steel enterprises and put those enterprises in an unfavourable place (during) the iron-ore negotiations, which led to the suspension of the negotiations in 2009,’ Judge Liu told a packed court room.  He said this behaviour caused overpayment of 1.108 billion yuan by industry players, including Shougang Steel and Liagang Steel. The interest alone on this was more than 11 million yuan.” (http://www.theaustralian.com.au/business/mining-energy/bribes-forced-china-to-overpay-for-iron-ore/story-e6frg9df-1225847190730 ). This is really quite an extraordinary conclusion for any judge to make, particularly in the confused and political atmosphere surrounding the iron ore negotiations.

Fourthly, Australia does have an obligation under its Criminal Code, which codifies its obligations under the OECD Convention, to prosecute bribery of foreign officials.  Although Australia is nowhere near as active as US authorities, Australia has just revised its law to increase the penalties significantly.  The Australian government can hardly prosecute Stern Hu, however, because he has already been convicted in China.  In relation to Rio Tinto, if the Chinese authorities thought Rio was implicated, Article 220 of the Criminal Law provides the basis for prosecution of a “unit”.  The action of the Chinese authorities in closing the trial and failing to produce any evidence publicly on the commercial secrets charge is not helpful for an Australian investigation.  In any event, it  appears that agencies in the US, the UK and Australia are looking at Rio’s behaviour – see http://www.watoday.com.au/business/just-what-is-a-chinese-commercial-secret-remains-a-secret-20100416-skmv.html .  We do not know if the Australian Federal Police have commenced or will subsequently commence an investigation under the Criminal Code.  Rio Tinto’s comments suggest doubt about whether the “commercial secrets” were in fact secret, but it has in any event issued new guidelines to its employees operating in China (http://www.riotinto.com/documents/Media-Speeches/2010AGM_transcript.pdf ).

The final question is the standard of the press coverage.  Without commenting on the press outside Australia, I do not think that the mainstream Australian press can be accused of using “bad facts” making “bad journalism”.  There was front-page coverage of the trial and considerable commentary, as one would expect, since an Australian citizen and one of Australia’s most important companies were involved, but the main Australian newspapers, The Age, The Australian and The Sydney Morning Herald appeared to go to considerable trouble to ensure that their coverage was accurate.  They published reports on the judgment and details on the court findings on bribery with as much enthusiasm as they published reports on the criminal system and the process of the trial itself.  As for the Australian government, given the unease that the timing of the arrests and the lack of transparency regarding the trial caused in Australia, I think that the Australian government’s behaviour and comments were fairly restrained (unlike the Chinese foreign affairs spokesperson, whose comments were quite provocative).  Opposition politicians in Australia were less restrained in criticising the Chinese legal system and the Australian government for alleged inaction and failing to stand up for Australia’s interests, but that is the nature of opposition politicians in a democratic system.

It should be appreciated that this trial touched on a number of very sensitive points in Australia – the influx of massive amounts of proposed Chinese investment in the natural resources area, particularly by state-owned enterprises, has caused considerable public unease; there was considerable publicity about the proposed Chinalco investment in Rio Tinto, with the shareholders and BHP actively campaigning against it,  and front-page coverage of the China Iron and Steel Association’s effort to take over conduct of the annual iron ore pricing negotiations.  All of these issues were widely discussed in the Australian press, not just the business press, due to the importance of natural resources in supporting the Australian economy in the midst of the global financial crisis.  The timing of the arrests – directly after the withdrawal of the Chinalco bid and the collapse of the iron ore negotiations –  combined with the involvement of the Ministry of State Security and the original focus on “state secrets” was guaranteed to attract widespread publicity and encourage the belief that the entire criminal investigation was politically motivated.  Unfortunately, the conduct of the trial – and the fact that the prosecution started with the employees of Rio rather than the employees of the Chinese steels mills – has done very little to dispel that belief.  I do not think that this can be blamed on the press – it is, after all, their duty to report, and the case, and the circumstances surrounding it, certainly gave the press enormous amounts of material.

–Vivienne Bath, Associate Professor, University of Sydney

All expressions of opinion in this comment, and any associated errors, are entirely my own.

Adam Segal Discusses U.S.-China Relations in a Cyber World

By , April 14, 2010

World leaders met this week in Washington, DC to discuss the danger of nuclear war.  But as the world becomes increasingly reliant on the internet and increasingly connected through it, another threat is beginning to loom large – cyberwar.  When noted technology giant Google is susceptible to cyber-attacks, that does not bode well for the rest of us.  How safe is the U.S. from a large-scale cyber-attack?  Today Chinese hackers attack Google’s servers, but what about tomorrow?  Will the next attack be on something more critical, like a U.S. power grid?

Dr. Adam Segal, Ira A. Lipman Senior Fellow, Council on Foreign Relations

Dr. Adam Segal, Ira A. Lipman Senior Fellow, Council on Foreign Relations

To understand the complex issues underlying the world of hacking and cyber-espionage, and how it relates to U.S.-China relations, China Law & Policy sat down with a noted expert on both China and cyber-security, Dr. Adam Segal, the Ira A. Lipman Senior Fellow at the Council on Foreign Relations.   In this exclusive interview, Dr. Segal discusses the nature of the attacks on Google, the involvement of the Chinese government in the hacking world and the danger China poses to the U.S.’ cyber-security.  But as Dr. Segal makes clear, it is not a one-sided affair; the U.S. also plays a very active role in hacking and cyber-espionage, making it difficult to challenge China when something like the Google incident arises.  Dr. Segal also explores the need for international cooperation on these issues and the role that international law can play in containing the threat.  Unfortunately, as he points out, the world community is far from reaching any sort of agreement, leaving all nations susceptible.

Click here to listen to the interview with Dr. Adam Segal (read below for transcript)

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ELCan you just give our listeners a little bit of background on the hacking which lead to Google’s announcement in January that it was looking to leave China?  How widespread and sophisticated was the attack and what was the theft that Google referenced in its press release if you know at all?

AS: Google announced that it was going to be shutting down its business in China.  And what they said drove them to that decision was a hacking incident which seems to have two main components.  The first was, as you said, a kind of attack on Google’s intellectual property, its corporate knowledge and corporate property.  And the second was attacks on the G-mail accounts of human rights dissents.  Google said it traced those attacks back to China; it didn’t implicate the Chinese government.  Others, like the New York Times have traced it back to Shanghai Jiaotong University and a computer training institute but the source of it still remains a bit of a mystery.

There is some debate about how sophisticated the attacks actually were.  They were referred to as the Aurora attacksHacker hackingGoogle has consistently said that they were extremely sophisticated but a number of other security analysts have said that in fact they were fairly basic, that much of the code used has been floating around for a long time.  What the IPR that the Chinese got or were trying to get is unclear, Google hasn’t specifically said.  Some people seem to believe that it was basically that it was the data and databases that Google collects on its own users.  So basically the kind of core knowledge that Google extracts from what Google users do, how they do it, when they do it, which would be one of the most important kind of assets that Google has.

ELIn tracing back, or Google saying that the attacks were traced back to China, why is that difficult to ascertain?  To what degree…Can you put a percentage on how accurate you can trace back an attack?

AS:  The problem is that you can continually trace back the attacks to certain computers or to certain networks or IP addresses, but often once you get there, some more poking around leads you to another computer behind that.  And the other thing is the hackers themselves can spoof the address that they are using.  I think there becomes a fairly high degree of certainty about where the attack might have come within a national network.  In some cases, even down to specific IP addresses.  But even then you don’t know who the hacker was that was involved and you don’t know the hackers relationship to any state organization or anybody else for that matter.

ELAnd in terms of China specifically, the cyber-hacking, how prevalent is cyber-hacking from China compared to other countries like Russia or even the United States?  Is China being singled out here?

AS:  I think China is being singled out in a sense.  I mean given that it was a high profile attack on a company like Google, but also given the state of U.S.-China relations right now, that it fed into a worsening tenor in the bilateral relationship.  But in raw numbers, for criminal activity, clearly Russia is very high up there and we saw the political uses of cyber-hacking in the case of the Georgian war and Estonia and some other high profile political cases.  And there is a large amount of hacking that comes from the United States and that’s actually one of the big complaints on the Chinese side – is that the Chinese are being scapegoated and they themselves are often victims of attacks and many of those attacks come from servers in the United States.  When you look at the number of bad ISP – Internet Service Providers – that are hosting botnets and other kind of zombies that are attacking, there are a large number of them that are in the United States.  So, China is also a victim.

ELJust focusing on just China and the hacking there, can you explain maybe a little bit more what the hacker community is like in China.  Is it an organized community?  And what motivates the hackers – do they do this just for fun or are they ever “hired” for their skills?  And also how do they determine targets – how was Google determined?  Was that just something for fun or for profit?

hacked-computer-june08AS:  I think the community itself is incredibly hard to characterize.  It’s very diverse, it’s, I think, very decentralized.  The community represents kind of the similar community that there is in the United States and Russia.  There are what they called script-kiddies – people, teenagers who are doing it for fun or to show off or to see what they can actually accomplish.  There are criminals – people that are just hacking for financial gains.  There are what are called patriotic hackers – people that hack websites out of a kind of nationalistic feeling.  Then there are hackers that are probably employed by the Chinese government, probably by the military and the security agencies that are used to attack specific targets for political reasons.  And then there are hackers in the military that are thinking about how cyber would be used in an actual military conflict.

Of course, the important question is the relationship about all of these people and I don’t think we really have a very good idea.  Clearly, there is some blurring of boundaries of patriotic hackers and criminal hackers.  The system itself seems to be in many ways a kind of mirror of the system that has made China such a power in the global manufacturing which is that there are kind of contracts and subcontracts and subcontracts of what people do.  Somebody might be in charge of writing a very low-level code and that code is then packaged up and used by people above them, who may then might contract for a specific project or may sell it on the open market.  Certain things are just put out there on hacker websites and you can just download them and buy them just for your own thing.

Why Google was targeted.  If, as Google says that they were part of an attack that seems to have included at least 30 other technology companies, there does seem to be a push from Chinese intelligence community, from its espionage community, to try and get advanced technology from foreign companies.  So we have seen for at least five years, if not longer, pretty concentrated, focused attacks on defense contractors and other U.S. technology providers.  And then, once you add the attack on the dissidents as well, then that also seems to be one of the interests of the attacks.  But who was, who within the Chinese government organized it or put it in a larger strategy, I think that we really have no idea. 

EL:  I guess that raises kind of the other issue that has been floating around there with the Google incident and cyber-hacking in general, is to what degree is the Chinese government involved in some of these incidences?  I know Northrop Grumman issued a report last year to the US-China Economic and Security Commission analyzing the link between, hacking for military purposes, but this general hacking of corporations, could it be that the Chinese government is behind it?  And also, when you make this distinction of political hackers, would that be motivated by the Chinese government or is it just a by-product of the nationalism that seems very active in China right now?

AS:  I don’t think we know.  I think the most we can say is on the espionage side, it just matches, or it pushes in the OLYMPICS/SECURITY-PLAsame direction of a general concern we know that China has about technological dependence and wanting to gain as much technology from the West as possible.  That strategy I think has been in place for fifteen, twenty years.  That includes perfectly harmless, normal technology policy about how China is going to increase its own technological capabilities, goes from that to espionage and theft.  You would expect that that would include the normal type of espionage or bribing, stealing, theft of secrets from corporations, to now including cyber-espionage and attacks and those things.  So I would say that the government has a role in the sense that it has set this general direction of the policy and these concerns about technology and China’s desire for it.

Clearly the intelligence agencies probably have a sense of specific technology that they are concerned about and want to know more about.  So the hacking of the F-35 and the F-22 and those kind of things, those are clearly probably driven by government agencies who are looking at a potential conflict with the United States and want to know what those capabilities are.

But once you get to the level of Google – is there a government official that says, well if we hack Google, then we can give that information to Baidu [the popular Chinese search engine] and we can have a competitor, I don’t think we can know.  That clearly is a possibility but at this point, it may just be criminal.  It may be a criminal that turns around and says to Baidu – we can sell this to you.

On the dissident side, I think it is probably very similar also.  I think in some cases the security agencies may have….are targeting specific individuals who are using those capabilities.  In other cases criminal hackers go after people and then turn around and say to the intelligence agencies – we’ve got this person so either do something for us or pay us for the information.

ELIn the press it has often been the Chinese government attached to this cyber-hacking, but does the Chinese government ever see this cyber-hacking as a threat to its own rule either from domestic hackers or from hackers in the U.S.?  Are the government agencies ever a victim of the cyber-hacking and cyber-espionage either domestically or from abroad?

national-security-agency-sealAS: Yeah, I would think all of the time. I think, from the international perspective the Chinese basically assume that the United States is engaged in cyber-espionage all of the time.  And that given our capabilities, in particular the capabilities that exist in the NSA – the National Security Agency – that they are….we are probably getting more from them then they are getting from us, in the Chinese perspective, and that we are constantly hacking them.  So they point to that as well as to the discussions in the United States about creating a cyber-command in the military and discussions about controlling the commons and all these other things as kind of a representation of American hypocrisy.  We are talking about militarizing cyber-space while they are being hacked.  So I think yes, that’s clearly and issue from outside of China.

On the domestic front I think yes, that Chinese government agencies and corporations are being hacked.  There’s been a number of prominent cases of Chinese hackers spreading malware to try and steal identity numbers and virtual money from these multiple player games.  Very prominent hackers have been arrested and eventually imprisoned.  So I think that is part of the threat.

The other threat is of course is that, dealing with these patriotic hackers is a double-edged sword for the Chinese government.  There is a fear that while they are focusing externally, U.S. corporations or U.S. government websites, in the case of the Olympics on French websites and things like that.  But if their ire is turned inward then those people could hack Chinese government websites.   I think the Chinese government is very concerned and you can see that in discussions about their own cyber-security but also trying to develop new types of software.  The problem is that the Chinese is hyper-reliant in Microsoft, something like 90% of Chinese government offices use Windows.  A lot of that is pirated which means that it is not updated regularly for security patches.  So there is a lot of vulnerability.

EL:  You make this distinction between patriotic hacking, criminal hacking, commercial hacking, but under Chinese law itself, is hacking in general illegal?

AS:  It is.  There are laws on the books against hacking, criminal hacking, privacy laws.  Those were strengthened in

Cute & Cuddly until he infests your computer

Cute & Cuddly until he infests your computer

December 2008 and then again in February of this year I think.  The Chinese announced that they were going again to try to strengthen anti-hacking laws, in particular the kind of punishment for hackers.  Also on-line privacy issues and some tort issues about privacy and defamation.  Like I said, there are prominent cases of hackers who have been arrested and fined.  This guy who wrote this malware called Panda malware I think it was, and was sentenced to I think 3 years and fined $18,000.  So there are domestic laws against it.

ELAnd do you think the domestic laws are sufficient in dealing with this?  And also how do Chinese laws compare to laws in the United States against hacking?

AS:  I think they’re comparable.  I think the issue is with all laws in China has to do with implementation.  Clearly the issue for the United States or other countries, investigating hacking requires more cooperation from the Chinese about, who’s behind the attacks and actually following up on prosecution.  But I think within China, I suspect the issue is not the law per se but expertise….all the things we have in the United States about how do you prosecute cyber-crimes – expertise at the local level, resources, enough people staffing these kinds of issues.  From the Chinese perspective also, the U.S. hasn’t been all that helpful either.  I have heard a number of cases where the Chinese have turned around to the FBI and said –we think this hacking is coming from the United States.  And the United States has not been all that responsive from what I’ve heard.

EL: I guess cyber-hacking, it’s definitely a crime more without borders.  So how do you see international law or treaties coming into play here to battle the threat of cyber-espionage?

AS:  I don’t think there’s much to be done about espionage.  There’s no international treaties against espionage.  We engage in it, they engage in it, our allies engage in it.  I think that is likely to happen.  I think espionage we have to figure out how we are going to defend ourselves against.  The problem with espionage of course though is that it is hard to differentiate espionage from what could become vandalism or an attack.  So I think what we want to kind of agree on with the Chinese is that we know espionage is going to go on, but things like probing electricity grids, that should not be occurring or other kind of critical infrastructure.  We should be working on how do we declare those off limits.

On the criminal front there is a…the Council on Europe has this convention on cyber-crime.  I can’t remember how treatymany countries have signed it now, it’s about I think 20 or 40, I can’t remember exactly.  But part of the problem is that most of the major players haven’t signed it; the U.S. has signed it, Japan has signed it but Russia hasn’t signed it.  Which goes a long way in defining consistent standards across national borders about what a cyber-crime is, how do you punish hacking, create a deterrent.  The problem with Russia, China things that we see as freedom of speech they see as a cyber-crime so that has been a problem in the case of Russia.  But the Chinese seem to be at least studying the Council on Europe convention which often kind of the first sign that the Chinese are moving toward international standards.  So I think that is a way to move forward.  And within Asia itself, ASEAN has had a couple of discussion about creating a similar kind of convention on cyber-crime in the region.

And then the other issue is this international convention on arms control, on cyber-war.  The United States has entered into discussions with the Russians about it.  That I think is very difficult and I think unlikely to be very useful because in the kind of traditional terms of arms control verification, inspection, those are all impossible with cyber-weapons.  So, that I think is useful just for talking for talking’s sake but will not result in any kind of concrete agreements.

EL: Just to follow-up on the convention on cyber-crime, you said that one of the problems is definition of terms.  Is that the only thing that would hold back a country like China or Russia from signing on to this kind of convention?  Or are there other factors?

AS: I think that’s a big one but I do think also that right now at least China and Russia find it politically and strategically useful to kind of have this arms-length relationship with hackers.  As we talked about earlier, this ties the government’s willingness to directly use or indirectly use hackers for their own political purposes makes it….right now that’s a reason for them not to crackdown too hard on criminal hacking.  So that is I think another reason why it has been hard to create a common ground.

ELDo you think that there is any space for having maybe a bi-lateral agreement between U.S. and China or a tri-lateral agreement between U.S., China and Russia about issues of cyber-espionage like not probing electricity grids or things like that?  Or do you think it would have to be global?

AS:  Well I think any convention would have to be global.  But I think there is a benefit for having these bi-lateral discussions only if because this area is newly emerging and policymakers I don’t think are particularly cognizant of all the risks and problems involved in any of these issues.  So just having a discussion with the Russians and the Chinese and others about what the potential rules of the road might I think are probably pretty useful.

EL: Absent any kind of global agreement, how best should the U.S. government and U.S. corporations deal with this issue of their own?  How can they better prevent it from happening?  Or can they?

Howard Schmidt - Cyber Czar

Howard Schmidt - Cyber Czar

AS: That’s what we are struggling with now.  The United States finally has the cyber-czar in place, Harry Schmidt.  I think one of the big things that is still occurring in the United States is kind of a debate about what the best metaphor for this is, how do you think about this cyber-issue.  You have those like, the op-ed in the Washington Post several weeks ago by the former head of NSA, McConnell, about basically cyber-war and we’re losing it and his response was very much a militarization of cyber-space.  In fact he calls for something like the re-engineering of the internet so we can basically see where any attack is coming from.

And then you have Schmidt at a conference a couple of weeks ago saying – I don’t believe in cyber-war, I don’t think cyber-war is the right metaphor.  And you have those people talking about resilience and more of a public health model for how you respond to these things – you have to defend, you have to respond, you have to quarantine.

So I think we have this broad outline, we have this debate to settle in the States.  But the way we are moving is probably closer to the public health, well actually probably both tracks at the same time.  From the defense side I think you are beginning to see more traction on private-public cooperation, about definitions of standards – what does secure actually mean and how should it be implemented, more spending on R&D for cyber-security, more training of people and that’s a major issue is about getting people trained, more public awareness.  These are all domestic issues.

EL: And just a final question.  Since President Hu Jintao is in the United States, in Washington today, do you think in his side talks with President Obama, the issue of cyber-hacking and cyber-espionage will be coming up?  How important do you think the Administration views this issues especially in light of the fact that Secretary of State Clinton has openly talked about it?

AS:  I suspect it wasn’t brought up in these meetings if only because over the last two and a half weeks it has been a clear effort on both sides to try to get the relationship back on track.  Clearly the Administration’s major strategic concern right now is Iran and then with the currency being the second concern.  So those are the two issues, from what I’ve heard, were discussed in the meeting.  I suspect there were no reasons to bring up the cyber-issues because there are no solutions or discussion that is helpful to both sides at this point.  So other than just poking them in the eye with it, I don’t see why they would bring it up.  So I suspect it was not discussed.

EL: Thank you very much.  This was very interesting and I appreciate your time.

AS:  Thank you.

Administration’s Debreifing of Hu Jintao & Barack Obama Meeting

By , September 23, 2009

Subsequent to Presidents Barack Obama and Hu Jintao’s meeting, Administration officials met with the press to answer questions regarding what was discussed between the two. Below is a transcript of that Q&A session. Stayed tuned to China Law & Policy as we delve deeper into some of the issues raised during the two Presidents’ meeting.

THE WHITE HOUSE
Office of the Press Secretary
________________________________________________________________
For Immediate Release September 22, 2009
BACKGROUND BRIEFING BY
A SENIOR ADMINISTRATION OFFICIAL
ON THE PRESIDENT’S MEETING WITH PRESIDENT HU OF CHINAPress Filing Center
Waldorf Astoria

New York, New York
6:00 P.M. EDT

MR. HAMMER: Good late afternoon. We’re going to do one more readout for today, and I know there’s a conference call beginning in about 15 minutes. So that’s the window that we have. We have a senior administration official who will brief on the President’s just concluded meeting with the Chinese President Hu.

SENIOR ADMINISTRATION OFFICIAL: Good afternoon. The President had an hour-and-a-half meeting with President Hu. It had been scheduled for an hour. The meeting I would describe as friendly, warm. It’s the second time the two have met. They’ve spoken often on the phone. It reflects the fact they’ve had many conversations and they’ve now become easy and comfortable with each other. It was a conversation; it was not simply a presentation of talking points on the two sides.

The emphasis was upon common interests, how far we’ve come in building the relationship, opportunities that we have to build the relationship further, discussion about how the President’s trip to China later this year could fit in with that objective, candid discussion of differences.

The principal topics that were discussed were North Korea, Iran, climate change, and global economic recovery and bilateral — the bilateral economic and trade relationship. I think I’ll leave it there and open it up to questions.

Continue reading 'Administration’s Debreifing of Hu Jintao & Barack Obama Meeting'»

Remarks from Pre-Meeting of Presidents Barak Obama & Hu Jintao

By , September 23, 2009

Today, after the U.N. General Assembly meeting, Presidents Barack Obama and Hu Jintao met for a one-on-one meeting to discuss issues pertaining to the U.S.-China relationship.  Although the meeting was off the record, below is the official transcript of their remarks prior to their private discussion.

THE WHITE HOUSE

Office of the Press Secretary

________________________________________________________________

For Immediate Release                        September 22, 2009

REMARKS BY PRESIDENT OBAMA

AND CHINESE PRESIDENT HU JINTAO

BEFORE MEETING

Waldorf Astoria Hotel

New York, New York

3:47 P.M. EDT

PRESIDENT OBAMA:  We welcome your delegation to New York.  I’m sorry that I didn’t have a chance to see you in L’Aquila, but your Councilor Dai did an excellent job representing your country.

I also have to say that I enjoyed seeing Vice Premier Wang as well as Councilor Dai at the SED meeting.  And Vice President Biden and I both had excellent meetings with Chairman Wu two weeks ago in the White House.  I should also mention that Vice Premier Wang showed me his jump shot, which is excellent.  (Laughter.)  How do you say “basketball shot” in Chinese?  (Laughter.)

Continue reading 'Remarks from Pre-Meeting of Presidents Barak Obama & Hu Jintao'»

Jon Huntsman CONFIRMED as U.S. Ambassador to China

By , August 9, 2009

On Friday, the day before breaking for a month-long recess, the Senate finally confirmed Gov. Jon Huntsman as U.S.

Our New Ambassador to China!

Our New Ambassador to China!

Ambassador to China.  In the coming weeks, Ambassador Huntsman, his wife and two youngest daughters will move to Beijing.  In addition to managing the U.S.-China relationship and working with Chinese officials on North Korea, climate change and other difficult issues, Ambassador Huntsman will also be helping to arrange President Obama’s first trip to China, scheduled for this fall.

For more information from the Salt Lake Tribune, click here.

For an analysis on the Huntsman confirmation from the China Daily’s English edition, click here.

Elizabeth Economy Calls for Rule of Law in China to be a U.S. Priority

By , August 5, 2009

In a recent interview with the Council on Foreign Relations (CFR), CFR Senior Fellow and China environmental expert

Dr. Elizabeth C. Economy

Dr. Elizabeth C. Economy

Elizabeth C. Economy analyzes the recent Strategic & Economic Dialogue with China and the U.S.’ changing relation with the emerging global power. While noting that serious differences remain, Dr. Economy stresses the importance of the U.S. and China to work together on a myriad of global issues.

She also pontificates on the changing dynamic in our relationship with China due to the weakened economic might of the U.S. vis-à-vis China and the increase of differing opinions on issues from the Chinese leadership.

But for us at China Law & Policy, where our focus is on the interplay of legal development in China and U.S. policy toward the country, most exciting part of the interview was Dr. Economy’s powerful insistence that the U.S. make rule of law development a priority in its policy toward China.

CFR: What issues should the United States prioritize in its talks with China?
Economy: Off the top of my head, I would say climate change because it is potentially game changing for the entire world in an overwhelmingly negative way. However, my second thought would be the rule of law. The rule of law underpins virtually every other issue. Whether we’re talking about food and product safety, or environmental implementation of anything China might agree to when it comes to global climate change, or trade and investment barriers and intellectual property rights protection, all of them hinge on China having an effective rule of law. Without that, the relationship will continue to founder, because even though we have high-level agreement that we want to work on these issues, if China can’t ensure that it will live up to its obligations, then we’re going to continue to have serious conflict. From my perspective, the most important thing we can do is help them develop the rule of law; it is at the root of most of our conflicts. (emphasis added)

Read Entire Interview Here.

We at China Law & Policy say “You go Liz Economy!”

Musings on Sen. Kerry’s Preparation for the US & China in Copenhagen

By , August 4, 2009

In Friday’s Huffington Post, Sen. John Kerry published a timely op-ed piece, “Who Lost the Earth?” on the need for the U.S. and China to reach some kind of an agreement on climate change.  “Who Lost the Earth?” comes at a point when itDSC04227 appears that any agreements reached during  December’s U.N. Conference on Climate Change will likely not include the two biggest emitters of greenhouse gases: the U.S. and China.

In his op-ed, Sen. Kerry correctly commends China for its efforts in already implementing measures to curb greenhouse gases.  It is in fact impressive that China is already experimenting further than the U.S. with some energy efficient technologies.   Furthermore, Sen. Kerry is right to criticize those in the U.S. who say that China “won’t lift a finger.”  While nervous that it could forestall economic development, China still has a sincere interest in solving its impending environmental crisis.  Every year, over 60,000 “mass incidents” (protests often involving thousands of people) in China are spurred by environmental damage.  The Chinese government views these mass incidents as a very real threat to its rule.

But even in light of these factors which propel China forward on the issue of climate change, Sen. Kerry and his Democratic colleagues still need to be realistic about China’s capacity.  Sen. Kerry notes that there needs to be legal commitments on the international stage and that China needs to be held accountable.  All of this is true.  But at the same time, China’s circumstances must be understood.  While moving forward in some areas, China still lacks the technical capacity to implement many energy-saving measures.  Simple things like an energy audit of a building often elude local officials.  Many industries, such as waste-heat recovery, have yet to be developed.

Another impediment is the difficulty for the central government to implement environmental laws on a local level.  Because China is an authoritarian regime, many believe that whatever the Chinese central government wants to achieve, it can easily impose.  But with this authoritarian government comes a layer of inflexibility.  Rule is from the center out; from top down; for the central government to guarantee that laws are implemented on the local level, it must amass all of its power, and oversee the locality, a very time-consuming and exhausting activity.

Unlike the U.S., China does not have a flexible regulatory state where government authority has been delegated to specific agencies that have almost exclusive jurisdiction over a field.  Nor do laws allow for individuals to enforce the law through lawsuits on behalf of the government (i.e. private right of action).  Instead, the Chinese central government must do all in a country as large as the U.S.  Not surprisingly, its ability to control the local level and guarantee that laws are implemented is not as prevalent.

In moving forward, U.S. policy makers must take China’s circumstances into account.  While they need to push China forward to meet greenhouse gas emission targets, these targets must reflect China’s current capabilities.  If Sen. Kerry and the Democrats do not devise a realistic strategy to help China in terms of technology assistance and implementation skills prior to Copenhagen in December 2009, opponents in Congress will use China’s capacity issues as an excuse to reject any agreement arising out of Copenhagen.  This would not just be a defeat for Sen. Kerry and like-minded Democrats; this would be a defeat for the future of this world.

What Came Out of the Strategic & Economic Dialogue?

By , July 31, 2009

This past Monday and Tuesday marked the sixth Strategic and Economic Dialogue (S&ED) between the U.S. and China.  Formerly just the “Strategic Economic Dialogue” and before under the sole supervision of the U.S. Treasury

Secretary Hillary Clinton & State Councilor Dai Bingguo with the Strategic Track delegation, July 28, 2009 (White House Photo/Public Domain)

Secretary Hillary Clinton & State Councilor Dai Bingguo with the Strategic Track delegation, July 28, 2009 (White House Photo/Public Domain)

Department, the inclusion of  the conjunction “and” to the title brings non-economic issues to the table as well as Secretary of State Hillary Clinton.

On day one of the two-day conference, President Obama spoke to the delegation, stressing the need for the U.S. and China to continue cooperation to guarantee a lasting economic recovery, to lessen the impact of climate change and promote “a clean, secure and prosperous energy future,” and to stop the spread of nuclear weapons in places like North Korea and Iran (these three issues were also the main thrust of an op-ed written by Secretary Clinton and Secretary of the Treasury Timothy Geithner  in Monday’s Wall Street Journal) .

Was the S&ED successful?  Did it produce more than just mere rhetoric?  At first glance, no.  But in the relationship between the U.S. and China, sometimes even rhetoric is a step forward.  See below for a review of the issues in greater detail.

(1) Climate Change

There was definitely paper success here.  The U.S. and China signed a Memorandum of Understanding  to Enhance Cooperation on Climate Change, Energy and the Environment (MOU), but the MOU just puts on paper existing relationships and does little to further climate change cooperation.  Both governments promise to continue with the Ten Year Cooperation Framework on Energy and Environment signed just last year and both promise to promote cooperation on a variety of vague steps, including capacity building and cooperation “between cities, universities, provinces and states of the two countries.”  Perhaps this shows a greater understanding on the part of U.S. policy makers that “capacity” is something that China sincerely needs assistance with (see The U.S. in Copenhagen: Preventing Another Toothless Tiger).  Also, in a nod to the Chinese delegation’s claim of differing responsibilities between developed and developing countries, the MOU states “Consistent with equity and their common but differentiated responsibilities, and respective capabilities, the United States and China recognize they have a very important role in combating climate change” (emphasis added)  Only time will tell if any of this rhetoric becomes a reality and whether the U.S. and China can reach an agreement in time for Copenhagen, an increasingly less likely proposition.

(2) Economic Recovery

Discussion regarding economic recovery was perhaps the most public, and most interesting, of all the talks.  Showing the changing dynamic of the U.S.-China relations, Xie Xuren, the Chinese finance minister, called the U.S. to task and requested that it reduce its budget deficit.  Holding an estimated $1.5 trillion in U.S. Treasuries, the Chinese government is concerned that an increased deficit could weaken the dollar, lowering the value of their Treasuries.  At the same time, for the U.S. to decrease deficit it would need to buy less goods, further decreasing demand on China’s manufacturing sector (an unfortunate Catch-22 here for China).  While Secretary Geithner promised the Chinese delegation that the U.S. would lower its deficit once recovery has begun, he also called upon the Chinese to increase

Who's got the ball?  Vice Premier Wang Qishan with Pres. Obama at the Oval Office, July 28, 2009 (White House Photo/Public Domain)

Who's got the ball? Vice Premier Wang Qishan with Pres. Obama at the Oval Office, July 28, 2009 (White House Photo/Public Domain)

domestic demand and lower the astronomically high savings rate of its people (estimated at 50%) in an attempt to rebalance the U.S.’ trade deficit with China.

(3) Currency

Always a thorny issue, the U.S.’ repeated request that China allow its currency to strengthen was most likely discussed during the S&ED.  However, nothing about currency was mentioned publically.

(4) North Korea

China has taken a much more foreceful approach to North Korea.  In May, when North Korea first began its saber-rattling, China spoke a hard-line against its neighbor, agreeing to abide by U.N. Security Council sanctions.  Less clear is what actions China actually undertook to promote these sanctions.  And although North Korea was a main point in President Obama’s speech before the S&ED, publically, neither the U.S. nor China made any statements on how they will cooperate to contain the country.   Such silence is par for the course since North Korea is a very sensitive issue for China but at the same time, their assistance in dealing with the North Koreans is essential.

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