China’s non-cooperation list lives on

Decoding transatlantic relations with Beijing.

By PHELIM KINE and STUART LAU

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Hi, China Watchers. Today we track the impact of Beijing's ongoing suspension of key bilateral cooperation in reprisal for then-Speaker Nancy Pelosi's Taiwan trip last August, dig into the deficiencies of Xi-nomics and rediscover former Chinese Foreign Minister Qin Gang (sort of). And we profile a book that argues Beijing has wielded a winning formula of “authoritarian economic statecraft" to co-opt foreign investors into a censorship system that boosts China's influence worldwide.

Let's get to it. — Phelim

Programming note! China Watcher will go on summer break for the next two weeks. We'll be back in your inboxes bright and early on Tuesday, August 22. Stay cool!

The fallout from a year of stalled collaboration with Beijing

Beijing ain't budging – seven of these eight areas of cooperation are in limbo one year later.

A year ago, Beijing cut cooperation with the U.S. in eight key areas, including climate, counternarcotics and military dialogues as a reprisal for then-Speaker Nancy Pelosi's Taiwan trip.

Beijing refuses to lift its cooperation suspension in seven of those eight areas. A year later, the only hint of progress is in Biden climate envoy John Kerry's renewal of talks last month with his Chinese counterpart, Xie Zhenhua. But Kerry's unwillingness to publicly comment on a follow-up video call with Xie last week suggests minimal progress.

China's diplomatic stonewalling defies the Biden administration’s third month of high-level contacts with Beijing in an effort to stabilize bilateral ties.

In the latest such meeting, Assistant Secretary of State for East Asian and Pacific Affairs Daniel Kritenbrink and National Security Council Senior Director for China and Taiwan Affairs Sarah Beran sat down with visiting Director General of the North American and Oceanian Affairs Department, Yang Tao, on Monday. The meeting rendered a "candid, substantive, and productive discussion," said an otherwise detail-free State Department statement. And Commerce Secretary Gina Raimondo told Bloomberg on Monday that she'll make her long anticipated Beijing trip later this month.

That highlights the administration's eagerness to reduce bilateral rancor fed by irritants including the Chinese spy balloon incident in February, U.S. curbs on high tech semiconductor exports to China and Beijing's saber-rattling at Taiwan. But Beijing still appears to be turning a deaf ear to what Washington considers top bilateral priorities.

Beijing's stiff-arm is fueling resentment on Capitol Hill. "While dialogue with CCP officials is essential, the onus is on the CCP to demonstrate its willingness to engage in a meaningful and productive way," said Rep. Raja Krishnamoorthi, ranking member of the House Select Committee on China.

Here’s a summary of those suspensions and their implications:

Military dialogues

Beijing canceled — and refuses to renew — a trio of military dialogues, including China-U.S. Theater Commanders Talks, China U.S. Defense Policy Coordination Talks and the China-U.S. Military Maritime Consultative Agreement meetings. The Chinese government has also denied Defense Secretary Lloyd Austin's multiple requests to meet with his counterpart, Li Shangfu.

It matters because high level military contact sends a message "that we’re not looking for anything that might lead to an incident. And if you do have a dustup that does call for national level dialogue, it's available and something you can fall back on," said Ret. Vice Adm. Robert Murrett, professor of practice at Syracuse University's Maxwell School for professional public policy.

Beijing blames the ongoing suspensions on U.S. sanctions against China's Defense Minister Li. "The U.S. says it wants to speak to the Chinese side while seeking to suppress China through all possible means and continue imposing sanctions on Chinese officials, institutions and companies. Is there any sincerity in and significance of any communication like this?" said Liu Pengyu, spokesperson for the Chinese embassy in Washington.

Counternarcotics

The Chinese government has dug in its heels and refused to resume cooperation on counternarcotics cooperation despite China's role in fueling America's synthetic opioid overdose epidemic. Chinese chemical firms supply precursor chemicals that Mexican cartels process into fentanyl-like compounds that end up on the streets of U.S. cities.

Secretary of State Antony Blinken signaled a breakthrough in June by announcing that the U.S. and China "agreed to explore setting up a working group or joint effort" on the issue. But two months later, Beijing is stalling. "We don't have … any concrete results. We're not at the point of establishing the fentanyl working group," State Department spokesperson Matthew Miller told reporters on Tuesday.

Beijing is holding counternarcotics cooperation hostage in exchange for a deal to lift sanctions the Commerce Department imposed on China's Ministry of Public Security's Institute of Forensic Science in 2020 for alleged ties to human rights abuses. "The U.S. should correct its mistakes as soon as possible," said the Chinese embassy's Liu.

That's fueling GOP antipathy toward the Biden administration's diplomatic outreach to Beijing. The Chinese government is "using American lives as a bargaining chip to achieve sanctions relief for its human rights abuses," GOP lawmakers including Reps. Young Kim (R-Calif), Michael McCaul (R-Texas), chair of the House Foreign Affairs Committee, and Dan Newhouse (R-Wa.) said in a letter to Secretary of State Blinken and Commerce Secretary Raimondo on Monday.

Repatriation of illegal immigrants

China was refusing to engage with the U.S. on the issue of Chinese illegal immigrants in the U.S. long before it officially suspended such cooperation last year. The Department of Homeland Security had declared China a "recalcitrant" country for its unwillingness to assist in the repatriation of Chinese nationals from the U.S. DHS estimated in 2021 that there were 40,000 Chinese citizens who had violated their visa conditions and were subject to removal from the U.S.

That has domestic security implications. "Beijing's refusal to cooperate forces ICE to release hundreds of PRC nationals, many with convictions for violent crimes, into American communities, jeopardizing public safety and visa integrity," DHS said in a report published in 2021. The Chinese embassy didn't respond to a request for comment.

Battling transnational crime

Beijing also suspended cooperation against transnational crimes and any provision of legal assistance in criminal matters.

That freeze complicates U.S. efforts to combat the production and export of counterfeit products as well as fentanyl-like synthetic opioids, said Louise Shelley, director of the Terrorism, Transnational Crime and Corruption Center at George Mason University. But the cooperation suspension is "a two-way sword" because it denies Beijing U.S. assistance in tracking "illicit financial flows from China — the export of money by corrupt officials which worked to China's advantage," Shelley said.

Transnational crime is a sensitive topic for Beijing. That's because foreign governments are increasingly accusing it of transnational repression — the harassment, intimidation and in some cases abduction of Chinese dissidents and ethnic minorities such as Uyghur Muslims who have gone into exile to escape repression back home. The Department of Justice launched prosecutions against 44 people linked to transnational repression activities in the U.S. in April alone. Beijing has dismissed those charges as "politically motivated."

Neither the Chinese embassy nor the Department of Justice responded to requests for comment.

NOT TO BE MISSED

XI-CONOMICS ISN'T WORKING: "The rise of the East, and the decline of the West” is Chinese paramount leader Xi Jinping's motto. The economic data, however, tells a different story. China managed only weak GDP growth after belatedly liberating itself from pandemic restrictions. The property market is in crisis and youth unemployment has risen to hazardous levels, with one estimate putting it at 50 percent. Don't miss this story Stuart wrote on how Western businesses and governments look at this gray rhino a.k.a. Xi's economic policy.

**Reach beyond the headlines with Power Play, POLITICO's brand-new global podcast bringing you compelling discussions with international power players, hosted by award-winning broadcaster Anne McElvoy. Episodes of the must-listen podcast will drop this September – click here to be notified.**

TRANSLATING WASHINGTON

— WANG YI NABS QIN GANG'S INVITATION: The State Department has reissued an invitation for follow-up talks with Secretary of State Blinken following his visit to Beijing in June to Chinese Foreign Minister Wang Yi. Assistant Secretary of State Daniel Kritenbrink "extended the invitation that had previously been made to the former foreign minister, Qin Gang, and made clear that that invitation did transfer over to [Wang]," State Department spokesperson Miller told reporters on Tuesday. Wang replaced Qin last month following his month-long unexplained disappearance amid a flurry of still-unconfirmed rumors.

— HOUSE CHINA COMMITTEE TARGETS BLACKROCK, MSCI: The House Select Committee on China announced an investigation on Tuesday into whether BlackRock and MSCI — two of the country's most successful investment management companies — have steered dollars from U.S. pension funds they manage into blacklisted Chinese companies. "It is unconscionable for any U.S. company to profit from investments that fuel the military advancement of America's foremost foreign adversary and facilitate human rights abuses," Chair Mike Gallagher (R-Wis.) and ranking member Krishnamoorthi said in letters to the company CEOs, in which they ask for detailed information about their investments. In statements to POLITICO, both companies said they follow all relevant U.S. investment laws. MSCI denied managing investments "in any country," while BlackRock said it would engage with the committee on all the issues it has raised.

— FRESH DHS SANCTIONS FOR FORCED LABOR: The Department of Homeland Security added two Chinese firms to its Uyghur Forced Labor Prevention Act Entity List on Tuesday. DHS barred any products produced by China's Camel Group Co. and Chenguang Biotech Group Co. for "business practices that target members of persecuted groups, including Uyghur minorities," the agency said in a statement.

EUROPE THIS SUMMER

EU'S NEW CHINA HAND GUESSING GAME: As European capitals enter the summer break, it will remain a busy few weeks for the shortlisted candidates vying to be the next Asia chief at the European External Action Service, the EU's foreign policy arm. Stuart was told by two diplomats that EU foreign policy chief Josep Borrell is expected to interview the candidates as one of the first things on his agenda in September. If all goes to plan, a new director succeeding Gunnar Wiegand, who'll be retiring after seven years in the job, will start the position late September. While China knowledge is almost certainly a must for the job, the EU often takes nationality and gender into account for top posts.

WILL TSMC COME HERE? In the tech sphere, all eyes will be watching this summer whether any investment plans will be announced by TSMC, Taiwan's microchip-making giant. Previous reports suggest that it was in talks with the German government, but so far there has been no formal confirmation.

HOW BAD ARE THE EXPORT CONTROLS? As China's export restrictions on germanium and gallium — minerals used to make semiconductors — came into force this month, EU industries will be assessing the impact to see how strictly Beijing would enforce those measures, prompted apparently by the Netherlands' decision to join the U.S. to impose a ban on exports of high-end microchip-making machines to China.

Meanwhile, the European Commission has opened an impact assessment of China's new export restrictions on drones, which Beijing says is for ensuring global security. "We are in the process of assessing their full extent," Commission spokesperson Miriam García Ferrer said on Tuesday. "We need to identify the products impacted by the measures. We are now trying to identify which products are covered by the measures. We are working with Chinese authorities in order to obtain full clarity."

HOT FROM THE CHINA WATCHERSPHERE

Annabelle Chih/Getty Images

—TAIWAN CONFIRMS VP'S U.S. TRANSIT DATES: Taiwan's Vice President Lai Ching-te will transit in the U.S. in New York City and San Francisco on a state visit to Paraguay later this month. Lai will overnight in New York on Aug. 12 en route to Paraguay and do likewise in San Francisco on Aug. 15 on his route home, Taiwan's state news agency reported on Wednesday. Brace for expressions of hurt feelings in Beijing — China's ambassador Xie Feng told a crowd at the Aspen Security Forum last month that his "top priority now is to stop Lai Ching-te’s visit to the United States."

— QIN GANG RETURNS (SORT OF): China's Ministry of Foreign Affairs has partially reversed course after initially erasing all traces of former Minister Qin Gang from the ministry website last week. Qin's photo and bio has been replaced by that of his successor, Wang Yi, but the ministry has restored links to Qin's activities and speeches during his seven-month tenure as foreign minister. The Chinese government maintains silence over Qin's whereabouts and the reasons for his dismissal.

— CHINA'S NEW CIVILIAN COUNTERESPIONAGE CORPS: China's normally secretive Ministry of State Security made a splash on Tuesday with its debut on the WeChat social media platform. That first post laid out a narrative of China beset by foreign subversion that required citizens to step up and defend the motherland. "The national security organs must rely on the support of the people in counterespionage work and mobilize and organize the people to prevent and stop espionage," the post said, quoting a recent law that increases Beijing's power to prosecute perceived security threats. That rule has drawn concern from American officials for its potential to ensnare foreign businesses conducting innocuous market research.

HEADLINES

Salon: China’s Great Leap Backward: So much for the next dominant superpower

The Guardian: 'I don't know if I can ever return': the photographer capturing a forgotten Hong Kong

BBC: China using families as ‘hostages’ to quash Uyghur dissent abroad

HEADS UP

— U.S., S. KOREA, JAPAN TRILATERAL AUG. 18: Just when you think the U.S.-Japan-South Korean diplomatic love-in can't get much cozier! The White House will host a trilateral summit of the countries' leaders later this month. President Biden will convene South Korean President Yoon Suk Yeol and Japanese Prime Minister Fumio Kishida at Camp David on Aug. 18. The three leaders will discuss "expanding trilateral cooperation across the Indo-Pacific and beyond – including to address the continued threat posed by DPRK and to strengthen ties with ASEAN and the Pacific Islands," White House spokesperson Karine Jean-Pierre said in a statement. That's code for a brainstorm session on how to counter China's growing influence in those regions.

ONE BOOK, THREE QUESTIONS

Harper Collins

The Book: Beijing Rules: How China weaponized its economy to confront the world"

The Author: Bethany Allen is the Taipei-based China reporter for Axios

Responses have been edited for length and clarity.

What is the most important takeaway from your book?

The West has largely decoupled markets from values, but China hasn't. Over the past 30 years the Chinese government has successfully implemented a globe-spanning system of authoritarian economic incentives, with remarkably little pushback.

Every CEO of every company in the world with interest in the Chinese market knows they and their employees can’t speak freely about the Chinese government and its policies. Beijing uses remarkably innovative levers of gatekeeping control over its economy to shape defense policies, multilateral institutions, human rights norms, corporate decisions, popular culture and allegiances on the global stage. I call this “authoritarian economic statecraft."

What was the most surprising thing you learned while writing this book?

Democratic governments seem to have given up on the idea of trying to fight Chinese government censorship within China's own borders. No one gets sanctioned for censoring, or for implementing censorship. The U.S. does not use the power of its economy to pressure Chinese companies to stop censoring within their own market because we assume that doing so would have no effect. But doing so would force the Chinese government, Chinese companies and foreign companies with interest in the Chinese market to do a cost-and-benefit analysis when considering censorship.

What does your book tell us about the trajectory and future of U.S.-China relations?

Economic rivalry rather than military struggle is likely to characterize the U.S.-China relationship for at least the next decade or so. Leaders in both countries want to avoid a costly and mutually destructive war, and both Washington and Beijing seem confident, at least for now, that economic leverage can get them what they want if they play their cards right. This could result in something like an economic arms race, with both sides working to out-sanction and out-maneuver each other as international trade becomes more politicized.

Got a book to recommend? Tell me about it at pkine@politico.com.

Thanks to: Heidi Vogt, Stuart Lau, Ari Hawkins, Maggie Miller, Clea Caulcutt, Matt Kaminski, Jamil Anderlini, and digital producers Tara Gnewikow and Fiona Lally. Do you have tips? Chinese-language stories we might have missed? Would you like to contribute to China Watcher or comment on this week’s items? Email us at pkine@politico.com slau@politico.com

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