Behind the Mistrust

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A veteran China observer discusses bilateral relations including the volatile South China Sea conflict

Harry Harding recently addressed a group of AmCham Shanghai members and sat down with Insight to discuss the state of U.S.-China relations. Harding is a longtime observer of China. He is concurrently a Professor of Public Policy at the University of Virginia and a Visiting Professor of Social Science and Senior Advisor to the Director of the Institute for Public Policy at the Hong Kong University of Science and Technology.  He has written extensively on China and has worked as a consultant for several multinationals and agencies of the U.S. government. He has also served on the boards of several educational and non-profit institutions including the Asia Foundation. The following are excerpts of the interview.

Insight: So as you mentioned during the talk, it appears that U.S. relations with China are taking a turn for the worse. Why do you think that is? 

HH: “I think it’s more that people fear that it may take a turn for the worse – that it’s on the brink or at a tipping point that could lead toward more serious deterioration. In other words, the relationship has already been deteriorating, but the more serious danger lies ahead. I think that there are two main reasons for this concern. First of all, there are expectations on both sides that are not being met. There’s therefore a sense of mutual frustration and disappointment that is being translated into a fairly deep mistrust on the part of each country towards the other. And if you’re an international political theorist, especially of the realist persuasion, you would then argue that the key underlying problem is the shift in the balance of power between the two countries, and in that kind of dynamic situation, where one country is rising and the other is declining but trying to maintain the status quo, there is also a structural reason for that mutual mistrust.”

Insight: What is the number one challenge facing the U.S.-China commercial relationship today?

Harry Harding: “I would say the biggest challenge is that, despite all of the liberalization that has occurred on both sides, there still are constraints on access to each other’s markets in terms of both trade and investment. Issues involving investment are becoming increasingly important. Both sides impose restrictions on inbound investment from the other. And the American business community believes there is selective enforcement of various Chinese laws and regulations in ways that they feel discriminate against foreign businesses. There are also problems with the protection of intellectual property and trademarks, with cyber security – the list of problems is long and familiar. And we have to continue to work on them.”

U.S. elections

Insight: During U.S. presidential elections, candidates tend to use China as a punching bag. If the candidates start focusing on a special China issue what do you think that would be? 

HH: “One reason foreign policy has not been that big an issue in the United States is that voters have other concerns. They are mainly motivated by dissatisfaction with the domestic economic and political situation in the United States. There are a lot of angry voters. This explains the high level of support for non-mainstream candidates like Donald Trump and Bernie Sanders, even though their policy preferences and philosophical orientations couldn’t be more different. Now I think Trump does focus more than Sanders on the idea that the United States is too weak internationally. That may resonate with his base of support. Sanders, I think, is just the opposite. He feels that we’re overextended, that it was a mistake to go into Iraq.

“The one area where China will be, as you put it, a punching bag, is trade. This is because, as in many other advanced countries in the world, there is a growing skepticism in the U.S. about free trade and a growing skepticism about the costs and benefits of globalization. And to both Trump and Sanders China is an important symbol of these problems.”

Insight: As a professor, if one of your students asks you if Xi Jinping is accomplishing his economic goals, what would you say?

HH: “Xi Jinping, like Obama, inherited a very difficult situation from his predecessors. And we have to appreciate the severity of those problems. Both of them inherited a very imbalanced economy. In the case of Obama, he inherited a financial system that had almost collapsed and an economy that was experiencing a very serious recession. Xi Jinping inherited a seriously imbalanced economy, and now we see a significant slowing of the Chinese economy, and we have worries about a possible financial crisis. My point is simply that these two leaders both face very serious economic problems.

“I respect the problems that Xi faces, and I admire his focus on the need to rebalance the Chinese economy, but I’m not sure how successful he is going to be.”

South China Sea

Insight: I’d like to ask you about the South China Sea. It’s one of the most controversial issues right now facing U.S.-China relations. What do you think is China’s real intention in the South China Sea?

HH: “I think its real intention is to create, as the phrase goes, ‘facts on the ground,’ or in this case facts in the sea, that will assert its territorial claims.  China wants to create a series of faits accomplis by creating islands where they had not really existed before, based on rocks that had not been inhabitable islands. To create these islands, and now unfortunately to place military installations on them, including  radars and various kinds of weapons systems, produces a set of faits accompli that will be very difficult to reverse.

“How China will use that capacity we don’t yet know. The real question is to what extent it will try to limit the freedom of navigation of ships and aircraft of other countries through what it regards as its territorial sea or its special economic zones. That creates the possibility, unfortunately, of military confrontations in the South China Sea. There’s also the possibility of military confrontation over the Senkaku Islands, and that’s another very worrying prospect. Any such confrontation will increase the level of mutual mistrust, which in turn may increase the level of controversy over other issues.”

Insight: Do you think the U.S. and China are on a collision course over this issue?

HH: “I certainly hope not, but that’s a real possibility. Unfortunately, we may be heading towards a game of chicken where each side will threaten the other and hope the other side will back off. It is a very dangerous and increasingly perilous situation. We’ve already had one such episode – the EP3 incident back in 2001, when no shots were fired, but still there was a loss of life. And that had an impact – a serious impact – on the relationship. It added to the sense of mistrust about the United States in China, and contributed to the mistrust of China in the U.S. as well. But we got past it, and that was the fortunate outcome of that incident. But we can’t be sure that future incidents will be handled as well.”

The bank

Insight: Some critics say China started the Asian Infrastructure Investment Bank (AIIB) because it wants to use economic leverage to influence other countries. Some people say they just want to do some good. You said the U.S. made a mistake by not supporting it. Is it now a force to be reckoned with?

HH: “I think that it depends on what it does, it depends on how it’s structured, how much money it actually has at its disposal, how carefully it makes its loans, and the standards and conditions that it imposes. I think that really the jury is out on these questions.  The concern is whether China has a political agenda that involves pumping money into – in the worst case – corrupt dictatorships in Asia to buy goodwill for China. That’s how it’s usually discussed, but I think that another problem is equally important: both the World Bank and the ADB started with the assumption that infrastructure development was the key to economic growth and development but gradually learned that infrastructure was not enough – that countries also needed sound economic policies, effective political institutions, a viable civil society, and even a supportive economic and political culture.

“So, the question is whether the AIIB will face that same learning curve. There is no doubt that Asia needs more investment capital than is available at this point. But as I said, infrastructure investment is necessary but not sufficient for continued economic growth, and I don’t want China to waste its money. I want the AIIB to have the maximum positive impact on the next stage of development in Asia.”

Insight: You read a lot of books. Do you have any favorite books that you’d like to recommend?

HH: “It’s hard to make a choice, but I’ll mention two of them. On China, I really enjoyed reading Evan Osnos’ book, Age of Ambition. I think it develops an insightful set of themes about China, especially the control over the media, which is an increasingly important – and of course to many of us a very worrying – trend. So, of all the many good books by journalists over the past few years, this is one that I think very highly of. In terms of U.S. policy towards China my favorite book is the one by Michael O’Hanlon and James Steinburg called Reassurance and Resolve. But I would add a couple of elements to each of the two concepts in the book’s title. I think reassurance must involve selective accommodation by the United States on issues important to China, and that resolve must involve careful selection of American priorities as well as strengthening our capacity to pursue them, and that both concepts need to be supplemented by cooperation on important global and regional issues.  But I think that the authors managed to get the blend of these two contradictory elements about right and avoided the temptation to focus excessively on either toughening up our China policy or proposing unrealistic grand bargains between Washington and Beijing.”

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