Thorny issues roil relations between U.S., China

Decades of strong economic and cultural ties between China and Washington state mean that Chinese President Xi Jinping will likely receive a warm welcome when he lands in Seattle on Tuesday for two days packed with meetings with government and business leaders.

But his visit comes at a time of deteriorating relations between the U.S. and China, which will come into much sharper focus when Xi continues to Washington, D.C., for his first state visit with President Obama.

Key issues dividing the world’s two leading economic powers include widespread computer hacking, economic tensions, concerns over human rights, pressures on foreign nonprofits in China, and the increasing Chinese assertions of sovereignty in South China Sea shipping lanes vital to global commerce.

It is against this backdrop that Xi is expected to meet in Seattle with CEOs of major corporations including Microsoft, Boeing, Amazon, Starbucks, Apple, IBM, Disney and General Motors, as well as Gov. Jay Inslee and governors from several other states.

Whether the more thorny U.S.-China issues are raised in any substantial way during Xi’s Seattle visit is up in the air.

“I doubt very much whether they (the CEOs) will ask any really contentious questions of Xi personally,” said David Reid, professor of global business strategy at Seattle University’s Albers School of Business and Economics. “They have to show that they’re serious about China and that they respect Xi Jinping. It’s a lot about giving face to Xi and China, and pushing their interests in the China market.”

The CEOs, in turn, will be looking for “comforting noises that everything is going to be well for them and that they should feel confident in continuing to invest in China,” he said.

Overall, Xi’s stop in Seattle is intended to serve different purposes than his visit to D.C.

The trip to the White House will explore ways to reach agreement on fractious issues and slow or stop the deterioration of relations between the two economic giants. Otherwise, the current tensions present “a danger of becoming a self-perpetuating cycle or downward spiral,” said David Bachman, a professor in the University of Washington’s Henry M. Jackson School of International Studies.

In Seattle, the goal for Xi will be to “show that this is what good U.S.-China relations might look like — that there’s much more potential for cooperation than conflict,” Bachman said. “And to mobilize constituents here to be proponents of better U.S.-China relations back in D.C.”

Washington state has a large stake in what direction the U.S.-China relationship takes when Xi and Obama grapple with the major issues between the two nations.

The state counts China as its largest trading partner, with some $29 billion of trade in 2014. Companies including Boeing, Microsoft and Starbucks do extensive business with China and consider it a crucial future market.

Here’s a look at some of the major issues Xi and Obama will likely discuss, and what Washington state’s stake is in each of them.

Cybersecurity

Among the thorniest topics between China and the U.S. is cyberespionage and cybertheft.

The U.S. has blamed China for alleged state-backed hacking into American companies to steal trade secrets to benefit Chinese companies, and also has alleged that Chinese hackers were responsible for breaking into U.S. government personnel records affecting millions.

The White House is considering imposing economic sanctions on Chinese companies and individuals that hack, or benefit from the hacking, of American entities.

The Chinese government, meanwhile, blames U.S.-based hackers for a number of cyberattacks on Chinese entities. It points to revelations from former intelligence contractor Edward Snowden that the U.S. National Security Agency had numerous hacking targets around the world, including China.

Ahead of Xi’s meeting with Obama, the U.S. and China have been working toward a pledge by each country that it will not be the first to use cyberweapons to cripple the other’s critical infrastructure during peacetime, according to The New York Times.The goal is to announce such an agreement when Xi arrives in D.C.

For Washington state, some of the largest companies here, including Microsoft and Boeing, have much at stake in the broader talks on cybertheft.

“Part of our stake is to protect what’s the most valuable in the high-tech industry — the ideas,” Bachman said. “If the Chinese can get this for essentially nothing, it gives them a much more competitive advantage than those firms, like Boeing, that spend billions to develop the technology.”

Despite that, don’t expect to see companies doing business in China to publicly support sanctions. They fear retaliation by the Chinese government that could make it more difficult for U.S. companies to do business there.

Indeed, in a move indicative of its power over foreign tech companies operating there, the Chinese government earlier this summer distributed a document to U.S. tech companies asking them to promise not to harm China’s national security — a commitment that could require them to turn over user data and intellectual property to the government, The New York Times reported this week.

The requirement stems from a law adopted this summer that China says is needed to maintain national security but that American companies fear would infringe on their business operations.

U.S. companies doing business in China “are happy to have Washington, D.C., do the heavy lifting,” Bachman said. “They don’t want to be seen as doing the harsh complaining — anything too strenuous that would get in the way of business relations.”

Presumably, some of these issues will also be addressed at an international tech gathering — the annual U.S.-China Internet Industry Forum — being hosted at Microsoft on Wednesday. Lu Wei, who oversees China’s Internet policies, will attend the forum.

Microsoft declined to comment on these issues.

Boeing declined to comment specifically on the upcoming D.C. talks, but said in a statement that “Boeing and other companies that depend on intellectual property as a competitive advantage take seriously its protection.”

On the cybertheft issue, the U.S. wants to get a sense that “China is engaged in these issues and they’re bringing their own folks under control,” said Kenneth Lieberthal, senior fellow in foreign policy and a China expert at the Brookings Institution.

As for governments spying on each other for intelligence gathering, it’s unlikely an agreement will be reached or even attempted, since “both sides do it,” Lieberthal said.

“The burden is on you to protect your own information, not to get the other guy to stop trying to steal your information,” he added. “Because states steal.”

Economy

The Chinese government’s unexpected devaluation of its currency last month ratcheted up rhetoric about whether China was aiming to unfairly bolster its own global competitiveness. At the same time, the move, coupled with the slowdown in the Chinese economy and its crashing stock market raised fears that a cornerstone of global demand was crumbling.

“I think the Obama administration wants to get an idea of Xi’s own sense of the Chinese economy,” Bachman said. “There’s a lot of uncertainty both here and in China about future prospects. How much growth will there be? What are they going to do about factories that aren’t producing anything now? There’s a lot of the ‘popping of the bubble’ aspects of the economy. What’s the bottom?”

For Washington state, which last year exported $20.7 billion of goods to China and imported $8.3 billion from there, the state of China’s economy has huge significance. Nearly a quarter of all Washington exports go to China, according to Inslee’s office.

At the most basic level, “if the economy slows in China, there will be fewer purchases of our products,” Bachman said.

On the other hand, economic uncertainty in China could also spur more investment here from its now-substantial class of wealthy businesspeople, seeking to put their money in property, stocks or companies in the U.S.

Human rights/foreign NGOs

Human rights is a perennial point of tension between the U.S. and China, which take vastly different stances on issues involving Tibet, Taiwan and democratic reform.

During Xi’s visit, U.S. officials will likely focus on China’s arrest or detention of more than 200 human-rights lawyers and activists in a campaign that began this summer.

There will also likely be discussion of China’s proposed new laws aiming to tighten control over foreign nongovernmental organizations (NGOs) — an issue that would affect Washington state nonprofits that operate in China, including the Bill & Melinda Gates Foundation and World Vision.

The draft of the new laws “is really ugly from the point of view of foreign NGOs,” which could include universities, trade associations, public-health organizations, foundations, humanitarian organizations and others, Lieberthal said.

Under the proposal, supervision of foreign NGOs would switch from China’s civil affairs ministry to its public security ministry — the police.

It effectively means China would be “treating foreign NGOs as potential criminals rather than as folks there, for the most part, to be helpful,” Lieberthal said. More extensive registration and reporting of organizations’ plans for each year also would be required, and fundraising would be restricted.

“It’s made without consideration of how foreign NGOs actually operate,” Lieberthal said.

More than 40 U.S. business and professional groups signed a letter to the Chinese government urging it to modify the draft law, according to The Wall Street Journal.

World Vision, the Federal Way-based Christian humanitarian organization that does development and disaster-relief work in China, “declined to speak on this sensitive topic.” The Gates Foundation did not immediately respond to a request for comment on the issue.

South China Sea

China has been increasingly assertive in its sovereignty claims to 80 percent of the South China Sea, building up artificial islands in one of the busiest shipping routes in the world.

The moves have exacerbated long-running territorial disputes. The Philippines, Brunei, Malaysia, Vietnam and Taiwan also have competing sovereignty claims in the area.

The U.S. is interested in freedom of navigation, including the right of U.S. military vessels to conduct surveillance activities in areas where China says they need its permission to sail.

China has accused the U.S. of militarizing the region. Just last week, an official said it was “extremely concerned” about a suggestion from a top U.S. commander that U.S. ships and aircraft should challenge China’s claims in the South China Sea by patrolling close to the artificial islands, according to a Reuters report.

It’s unlikely that there will be “meaningful movement” on this issue when Xi and Obama meet, though there may be some agreement on ways to deal with smaller conflicts that arise there, Lieberthal said.

Washington state, home to Naval Station Everett and Naval Base Kitsap-Bangor, could be affected if the situation in the South China Sea reaches a crisis point. Some ships from Everett or Kitsap-Bangor could be involved as a “second line that would be called up, after Guam and Hawaii, to respond to a situation in the South China Sea,” Bachman said.

Room for an understanding?

Xi and Obama’s meeting underscores that the U.S. and China “need to reach an understanding of how we see each other in the world,” Bachman said. Otherwise, “the relationship is going to get worse.”

And that relationship “is probably the most important bilateral relationship that exists,” economically and geopolitically, said Reid, of Seattle University. “All Washington businesses that do business in China will be affected by the general state of relationship between China and the U.S.”

Timeline of relations between Washington state and China

Sources: Seattle Times archives, Washington State China Relations Council, HistoryLink.org