Friday, 24 February 2017

Why are China and Trump Playing Nice

Last week saw the Trump Administration soften its public stance on China. After months of an openly hostile approach, President Trump changed his stance and acquiesced to Chinese President Xi Jinping’s request to honour the prevailing One China Policy that has ruled Sino-American diplomatic relations for the past 40 years.

Both the White House and Xinhua reported that the call was “lengthy” and an “extremely cordial chat” where Presidents Xi and Trump agreed that they would work on strengthening the “mutually beneficial cooperation in trade and economy, investment as well as international affairs”.

Trump Administration Anti-China?

The sudden rapprochement in the previously frosty relations has caught many by surprise. After the demise of the TPP trade deal, political analysts had been focusing on the possibility of a pacific war between the two nations. Primarily this was due to President Trump’s public comments on China prior to his inauguration and the appointment of Steve Bannon as the White House Chief Strategist and Rex Tillerson as Secretary of State. Both of these men have made comments citing the need to militarily engage China, such as the following made by Tillerson at his confirmation hearing.

“We’re going to have to send China a clear signal that, first, the island-building stops and, second, your access to those islands also is not going to be allowed ... They are taking territory or control or declaring control of territories that are not rightfully China’s.”

However, all may not be as it seems. According to Paul Haenle, a veteran US diplomat and director of the Carnegie–Tsinghua Centre in Beijing, the Trump administration’s tough talk on China was all part of a hardball strategy Trump’s team implemented to get China to soften up to Trump’s trade demands.

“Trump had been toying with the notion of trying to use it (One China Policy) to get leverage with the Chinese but was convinced that it was in the US interests to abide by it … Trump was convinced, and rightly so, that the ‘One China’ policy is not something we do because it is good for Beijing. It is in America’s interests.”

Haenle went onto to argue,

“This will open the door now for the US and China to begin to develop the relationship that will allow them to tackle some of the more difficult and contentious issues…… that really need work such as trade, North Korea and the South China Sea.”

Supporting this argument are the statements made by Wang Yi, China’s Foreign Minister, on February 7th in Australia. Wang pointed out that ‘the China-US relationship has defied all kinds of difficulties and has been moving forward continuously,” he continued on to state that any ‘sober-minded politician’ would ‘clearly recognise that there cannot be conflict between China and the United States because both will lose, and both sides cannot afford that.’

Keeping Face or China in Real Trouble

Certainly the quick resolution of these tensions on China’s part is surprising. In recent months the Beijing-run media, a mouthpiece for the Chinese Communist Party, have been highly critical of the new administration.

They have lambasted President Trump for his twitter diplomacy and stated that the U.S. would need to "wage war" to stop the Chinese from accessing their currently disputed South China Sea Island Initiative.

Thus it is questionable as to what caused this sudden change of heart. Although this may have been just a case of keeping face, the pressing domestic problems currently besieging China may point to a different reason.

Political Turmoil

Behind the scenes the Communist Party is far from stable. The current anti-corruption campaign led by President Xi is ripping apart the elite segments of the ruling party as Xi seeks to eliminate former leader Jiang Zemin’s coterie who had tried to oust him.

Investigating over a million party faithful, the Anti-Corruption Agency has purged over 200 elite members from government bodies, the military, and state-owned enterprises. Very powerful elites, such as the former security czar Zhou Yongkang, and the retired military vice chairs Guo Boxiong and Xu Caihou, were probed, prosecuted, and imprisoned for life.

The fallout of this purge has left the Chinese Communist Party in a state of flux. To avoid further destabilisation President Xi currently needs to focus on keeping his and his supporters position secure. A situation that may prove difficult given the current economic outlook for China.

Economic Collapse on the Horizon

Domestically, the Chinese economy is at a crossroads according to John Minnich from Market Watch. Thanks to the governments monetary and fiscal stimulus measures the country’s debt has swelled to almost 250% of the nation’s gross domestic product (GDP).

Likewise, corporate debt, the largest portion of China’s total debt, has surged by more than 60% to make up 165% of the GDP. This has created the perfect conditions for a nationwide debt crisis as businesses default and bankruptcies increase along with falling industrial profits and the declining returns on investment.

When combined with the 188 billion dollars of capital that has left the country in the past year, this signals that there is a significant economic readjustment on the horizon.

To offset this potentially devastating downturn, China needs capital investment, in particular America’s trade and foreign direct investment (FDI) in China, to continue. This investment is now in doubt thanks to the cancellation of the TPP and the Trump administrations’ promise to impose tariffs on all Chinese goods coming into America.

Play Nice

President Xi Jinping needs the Sino-American bilateral relations to return to a stable working platform as soon as possible. Without America, Xi could be faced with a destabilised China, on the brink of economic and political collapse. A situation that the Soviet Union demonstrated so clearly in the 1990s is clearly the death knell of authoritarian centralised states.

What is the One China Policy

Essentially the foundation of Sino-American diplomatic relations the One China Policy was created in 1979 when the U.S. severed its official diplomatic relationship with the Republic of China also known as Taiwan in favour of recognising the People Republic of China and the Chinese Communist Party as the government of the territory encompassing Taiwan and China. While the Chinese Communist Party insists it is the legitimate government, nations like the United States avoid supporting this declaration by simply acknowledging the CCP’s position.