U.S. – China High Level Dialogue

March 29 – April 2, 2015 Beijing, China

Major Power Relations &

U.S. – China and the Middle East

CAP-CUSEF High Level Dialogue

TABLE OF CONTENTS

Trip Background Information

• Vitals and Trip Information • Itinerary (tentative) • Flight Information • Senior Official Meetings Biographies • PRC Structure • Chinese Participant Biographies (tentative) • U.S. Participant Biographies • Track II Dialogue Agenda

Trip Documents – Major Power Relations: Key Issues for September 2015 White House Summit

1. Calendar of key U.S. – China Events 2. Memo on Regional Security in the Asia – Pacific, (Vikram Singh, Brian Harding, Rudy deLeon) 3. Memo on the New Silk Road, (Ariella Viehe) 4. Memo on Sustainable Development Goals (Molly Elgin-Cossart) 5. Memo on Development Banks (Molly Elgin-Cossart) 6. Memo on U.S. – China Forecast on Energy and Climate Issues, (Melanie Hart) 7. Memo on U.S. – China's Reform Program: Meetings and Background (Melanie Hart) 8. Memo on U.S. – China Climate Finance, (Pete Ogden) 9. Memo on Domestic U.S. Energy and Climate, (Greg Dotson) 10. Memo on U.S. and Iran Relations, (Hardin Lang, Peter Juul) 11. Memo on U.S. – China and the Middle East Cooperation, (Brian Katulis) 12. CAP Paper for discussion in Track II dialogue (draft) 13. SIIS paper for discussion in Track II dialogue (draft) 14. CAP-SIIS Recommendations on Track II

Key Leadership Statements 1. Premier Li Keqiang, “Premier Li Keqiang Meets the Press – Third Session of the 12th NPC.”

March 15, 2015 2. Foreign Minister Wang Yi, “Foreign Minister Wang Yi Meets the Press – Third Session of the

12th NPC.” March 8, 2015 3. Assistant Secretary Daniel R. Russel, “Remarks at the Brookings Institution.” December 16,

2014. 4. Secretary John Kerry, “Press Availability: Remarks on APEC.” Beijing, China, November 2014 5. President Obama and President Xi, “Remarks by President Obama and President Xi Jinping in

Joint Press Conference,” November 2014 6. President Xi Jinping, “Xi Jinping’s Address to the Central Conference on Work Relating to

Foreign Affairs: Assessing and Advancing Major-Power Diplomacy with Chinese Characteristics.” November 28-29, 2014

7. President Obama, “Remarks by President Obama at APEC CEO Summit,” Beijing, China, November 2014

8. President Obama, “Statement by the President to the US-China Strategic and Economic Dialogue,” Beijing, China, July 2014.

China’s Internal Politics

9. Chris Buckley, “X Jinping’s ‘Four Comprehensives’ Give Shape to a Crowded Agenda,” The New York Times, March 2015

10. Elizabeth C. Economy, “China’s Imperial President: Xi Jinping Tightens His Grip,” Foreign Affairs, November 2014

11. David Shambaugh, “The Coming Chinese Crackup,” The Wall Street Journal, March 2015 12. Stephen Harner, “Why David Shambaugh’s ‘Coming Chinese Crackup’ Case is Wrong.” Forbes.

March 2015.

Regional Security in the Asia-Pacific 13. United States Senate, “Letter from Senators McCain, Read, Corker, and Menendez on Chinese

Maritime Strategy,” March 19, 2015. 14. Choe Sang Hun, “Chinese, Japanese and South Korean Ministers to Resume Three-Way Talks,”

New York Times, March 21, 2015 15. Fred Hiatt, “China’s Lawless Path,” The Washington Post, March 2015 16. Shuan Sim, “WWII 70th Anniversary: China To Invite World Leaders For Military Parade,”

International Business Times, March 2, 2015 17. Evan A. Feigenbaum, “The New Asian Order: And How the United States Fits In.” Foreign

Affairs, February 2015 18. Melanie Hart, “Expanding the Frontier of U.S. – China Strategic Cooperation Will Require New

Thinking on Both Sides of the Pacific,” Center for American Progress, November 2014 19. Matthew Goodman and Ely Ratner, “China Scores: And What the US Should Do Next,” Foreign

Affairs, November 23, 2014 20. Rudy deLeon and Blair Vorsatz, “Revisiting the Shangri-La Dialogue: Candid and Heated

Conversation are Encouraged,” Center for American Progress, August 2014

New Silk Road

20. An Lu, “China’s Belt and Road initiatives not solo, but symphony: FM.” Xinhua. March 2015. 21. Assistant Secretary Nisha Biswal, “The New Silk Road Post-2014: Challenges and

Opportunities.” US Department of State. January 2015. 22. Jeremy Page, “China Sees Itself at Center of New Asian Order.” Wall Street Journal. November

2014. Sustainable Development Goals

23. S.R., “Why China is creating a new “World Bank for Asia,” The Economist, November 11, 2014. 24. Lingling Wei and Bob Davis, “China forgoes veto power at New Bank to Win Key European

Nations’ Support,” Wall Street Journal. March 2015. Chinese Economy and U.S.-China Economic Relations

25. David Dollar, “China’s NPC recognizes the “new normal” of slower growth.” Brookings. March 2015

26. Matt O’Brien, “Is China’s 1929 Moment Coming?” The Washington Post, March 2015 27. S.R., “Why China’s economy is slowing.” The Economist. March 2015 28. Michael Pettis, “How might a China slowdown affect the world?” Michael Pettis’ China

Financial Markets. December 2014. Energy, Climate and Environment

29. Armond Cohen, “China’s Power System: The Green and the Black,” Clean Air Task Force, March 24, 2015

30. Yiqin Fu, “China’s National Conversation on Pollution Has Finally Begun,” Foreign Policy, March 2, 2015.

31. Melanie Hart, “Exploring the Frontiers of U.S. – China Strategic Cooperation: Energy and Climate Change,” Center for American Progress, November 2014

32. Pete Ogden, “China’s latest move: a BRICS bank for climate finance?” Points of Order, December 15, 2014.

U.S. Domestic Energy

32. Pete Ogden and Gwynne Taraska, “Opportunities for the Green Climate Fund in 2015,” Center for American Progress, March 23, 2015.

33. Anna Driver, “Insight- US shale oil’s crash diet likely to bring forward output dip,” Reuters, February 23, 2015

U.S. and Iran

34. Ben Blanchard, “China’s Foreign Minister Pushes Iran on Nuclear Deal.” Reuters, February 2015.

35. Michael Singh, “China’s Military Presence in the Gulf.” Wall Street Journal. September 2014. 36. Feng Zhongpeng and Huang Jing. “China’s Strategic Partnership Diplomacy: Engaging with a

Changing World.” June 8, 2014.

U.S. – China and the Middle East

37. Ben Blanchard, “China pushes Iran again to reach nuclear deal with world powers,” Reuters, March 2015

38. Hakim Almasmari, Yemen’s Houthis Seek Iran, Russia And China Ties, The Wall Street Journal, March 2015

39. Edward Wong, “Barnett Rubin on China’s Role in Afghanistan.” The New York Times. February 2015.

40. Jeremy Page, As U.S. Exits, China Takes On Afghanistan Role, The Wall Street Journal, February 2015

41. Xi Jinping Holds Talks with President Abdel Fattah al-Sisi of Egypt, Ministry of Foreign Affairs of the People’s Republic of China, December 2014

42. Mike Flynn, Senior Egyptian Statesman: Obama Is Losing Long-Time Ally Egypt, Breitbart, February 2015

VITALS AND TRIP INFORMATION

CONTACT Melanie Hart China Cell: (011-86) 13522998183

Cell: 202-294-6118 Aarthi Gunasekaran Cell: 202-758-4285 Ken Sofer

Cell: 202-446-7129 St. Regis Hotel Phone: (86)(10) 6460 6688 HOTEL St. Regis Beijing 21 Jianguomenwai Dajie, Beijing, 100020 China TIME DIFFERENCE 12 hours Beijing is 12 hours ahead of EST 9:00PM Beijing time 9:00AM EST 9:00AM Beijing time 9:00PM EST the previous evening CURRENCY Chinese Yuan (RMB) 1 RMB = $0.16 USD 6.26 RMB = $1 USD WEATHER Beijing

Beijing enjoys a mild and pleasant climate in the spring. You need to bring lightweight clothing: long-sleeved shirts or T-shirts, plus one or two jackets and sweaters. It will be particularly warm Sunday and Monday – high of 79 F – and there will be rain showers Tuesday and Wednesday, with a high of 55 F.

Average High Average Low Average Rainfall 68° F 46° F 0.08 inches

Updated 03/27/2015

CAP Delegation Tentative Agenda

Sunday, Mar 29

05:40 Mr. Tony Podesta arrives Beijing via TG 674 (Terminal 3) Pick-up by: Peter Ting

08:00 Check-in at Hotel: St. Regis Beijing 北京瑞吉酒店 21 Jianguomenwai Dajie; Beijing; 100020 Phone: +86 10 6460 6688

14:40 CAP delegation arrives Beijing via UA 807 (Terminal 3) Exit via VIP channel (contact at airport TBC) Pick-up by: Peter Ting

17:30 – 18:00 CAP delegation arrives and check-in at St. Regis Beijing

18:00 – 18:30 Alan meets and greets delegation at Hotel Lobby

18:30 – Foreign Policy discussion with Rising Scholars Venue: Xi He Ya Ju Restaurant 羲和雅居 (TBC) Ritan E Rd, Chaoyang, Beijing, China Phone: +86 10 8561 7643

Monday, Mar 30

08:30 Meet at lobby and depart for meetings

09:00 – 10:00 Meeting with Li Wei, President, Development Research Center of the State Council of the People’s Republic of China 会见国务院发展研究中心主任李伟 Venue: Development Research Center

10:30 – 11:30 Meeting with Wang Yi, Foreign Minister of the People’s Republic of China (TBC) 会见外交部长王毅 (TBC) (Time Spot Open)

12:00 – 14:00 1-to-1 lunch meeting between Mr. John Podesta and Mr. Xie Zhenhua Interpreter needed Lunch venue for the delegation: St. Regis

Updated 03/27/2015

15:30 – 16:30 Meeting with Yang Jiechi, State Councilor 会见国务委员杨洁篪 Venue: Zhongnanhai

17:00 – 19:00 Track II dialog with Chinese scholars Venue: Villa 17, Diaoyutai State Guesthouse Topic: U.S.-China Major Power Relations: Key Issues for September 2015 White House Summit a. Climate and Energy b. Regional Security Issues c. U.S. – China Commercial Ties Chinese Scholars: Lt. Gen. Chen Xiaogong 陈小功中将, Maj. Gen. Yao Yunzhu 姚

云竹少将, Amb. Chen Naiqing 陈乃清大使, Amb. Chen Yonglong 陈永龙大使, Mr. Zou Ji 邹骥, Mr. Cui Liru 崔利如, Mr. Zhou Dadi 周大地

19:00 – 21:00 Mr. C. H. Tung hosts dinner for the delegation and scholars Venue: Diaoyutai State Guesthouse Wan Liu Tang

Tuesday, Mar 31

07:00 – 08:00 Possible time spot for 1-to-1 breakfast meeting between Mr. C. H. Tung and Mr. John Podesta

08:00 Meet at lobby at depart for meetings

09:00 – 10:00 Meeting with Nur Bekri, National Energy Administration Head (TBC) 会见国家能源局局长努尔·白克力 (TBC) (Time Spot Open)

10:30 – 11:30 Meeting with Wan Gang, Minister for Science and Technology 会见科技部部长万刚 Venue: Ministry of Science and Technology

12:00 – 13:30 Possible time spot for 1-to-1 lunch meeting between Mr. C. H. Tung and Mr. John Podesta Lunch venue: St. Regis

14:00 – 15:00 Meeting with Zhang Yong, Vice Chairman, National Development and Reform Commission 会见中国国家发展和改革委员会副主任张勇 Venue: (TBC)

Updated 03/27/2015

16:00 – 17:00 Meeting with either Zhang Gaoli, Executive Vice Premier 会见国家领导人 Venue: Zhongnanhai

18:00 – 20:30 Dinner hosted by Mr. Yang Wenchang, CPIFA President 外交学会会杨文昌会长宴请 Venue: CPIFA

Late night President Chen Dongxiao and Dr. Ye Qing from SIIS arrive in Beijing Contact: Dr. Ye Qing +86 189 1705 7350

Wednesday, Apr 1

07:00 – 08:20 Possible time spot for President Chen Dongxiao to have breakfast with Mr. John Podesta (TBC)

08:30 Meet at lobby and depart for meetings

09:00 Mr. Tom Steyer departs for airport. Flight: UA 888 at 12:00 PM, Terminal 3

09:00 – 10:00 Meeting with Liu He, the Office of the Central Leading Group on Financial and Economic Affairs (TBC) 会见中财办主任刘鹤 (TBC) Venue: (TBC)

10:30 – 11:30 Meeting with Chen Jining, Minister for Environmental Protection (TBC) 会见环保部部长陈吉宁 (TBC) Venue: Ministry of Environmental Protection

12:00 – 14:00 Lunch. Possible time spot for President Chen Dongxiao to have lunch with Mr. John Podesta (TBC) Venue: St. Regis

14:00 – 17:00 Meeting on CAP-SIIS-CUSEF Report on U.S.-China Collaboration in the Middle East. Venue: St. Regis Beijing Oak Room. 北京瑞吉酒店橡树厅

15:30 Mr. John Podesta and Mr. Tony Podesta depart for airport. Flight: UA 808, 06:25 PM, Terminal 3

16:00 Dinner Venue TBC

Updated 03/27/2015

Thursday, Apr 2

Morning Possible CAP delegation meeting with U.S. ambassador to China (TBC) Venue: (TBC)

Morning Possible visit of points of interests for the delegation

15:30 CAP delegation, Alan and Peter depart for airport Flights: UA 808, 06:25 PM, Terminal 3; KA 993, 06:30 PM, Terminal 3

BIOGRAPHIES OF SENIOR PEOPLE’S REPUBLIC OF CHINA OFFICIALS (in order of

itinerary)

LI Wei, President, State Council Development Research Center

LI Wei is the President of the State Council Development Research Center (DRC) and a

member of the 18th Party Central Committee. Prior to his post, in 2010, he was appointed

Party Secretary and vice-president of the DRC. LI Wei has conducted and drafted policy

research in the macro economy, State-owned enterprises reforms, management of State-

owned equity, State-owned enterprises bankruptcy, and management of financial

derivatives in SOEs.

The DRC is the in-house policy think tank of China’s national cabinet. DRC has been relatively

progressive on economic/energy reform and jointly co-authored the “China 2030” report with the World

Bank. They were allowed to serve as a highly-progressive voice in the run-up to the 3rd

plenum; the Party

did not adopt all of their proposals but they can share interesting insights on the reform process.

WANG Yi, Foreign Minister

WANG Yi is Minister of Foreign Affairs and a member of the 18th Party Central

Committee. Prior to this post, he served as the Director of the Taiwan Affairs Office and

as China’s Ambassador to Japan. WANG Yi is a career diplomat and has served in the

Ministry of Foreign Affairs for over 25 years.

YANG Jiechi, State Councillor

YANG Jiechi is the State Councillor with responsibility for covering international affairs

and a member of the 18th CPC Central Committee and State Council Leading Party

Members’ Group.

He served as minister of foreign affairs from 2007 to 2013.

In the party hierarchy, YANG Jiechi falls below ZHANG Gaoli and above WANG Yi.

NUR Baikeli, Head of National Energy Administration (NEA)

Until very recently, Nuer served as Chairman of the restive Xinjiang Uygur

autonomous region. He was recently pulled back to Beijing to head the NEA, which is

just now emerging from a massive corruption-shake up and purge.

WAN Gang, Minister for Science and Technology

WAN Gang is the Minister for Science and Technology. He is an expert on

automobiles and the former president of Tongji University. In 2000, he made a

strategic proposal to the State Council of China to develop a new type of automobile

propelled by new clean fuel and received the attention and support from the Ministry of

Science and Technology and the State Economic and Trade Commission. Dr. Wan is a

member of the standing committee on the 10th Chinese People’s Political Consultative

Conference.

ZHANG Yong, Vice Chairman, National Development and Reform Commission (NDRC)

Until recently, ZHANG Yong served as head of China’s food and drug administration.

He was very recently rotated to NDRC where he now manages multiple portfolios

including both domestic and international climate policy. He takes over China's climate

negotiations from the newly retired NDRC vice-chairman Xie Zhenhua who was the

lead negotiator for China in the last six United Nations Climate Change Conferences

since the Copenhagen summit in 2009. China and the United States, the world's two

largest emitters, reached a historic deal on climate change in November 2014.

ZHANG Gaoli, Vice Premier

Zhang Gaoli is the current first-ranked Vice Premier of the People's Republic of China

and a member of the Politburo Standing Committee of the Communist Party of China,

China's highest ruling council, and deputy secretary of the State Council Leading Party

Members’ Group. ZHANG Gaoli manages the energy and climate portfolio and other

issues relating to economic reform.

LIU He, Deputy Director NDRC

LIU He is widely considered President Xi’s prime architect of China's new economic

reform plan and co-director (together with NDRC Chairman XU Shaoshi) of the party

group tasked with driving economic and energy/climate/environment reform nation-

wide. He is co-head, Specialized Group for Economic System and Ecological

Civilization System Reform (subsidiary specialized group under the Xi Jinping-led

Deepen Reform Leadership Small Group); Office-head for the Finance and Economics

Leadership Small Group; Party Leadership Group Deputy Secretary and Minister-

Level Vice-Chairman, National Development and Reform Commission (NDRC).

CHEN Jining, Environment Minister

Until very recently, CHEN served as dean of Tsinghua University. In early 2015 he was

promoted to Environmental Protection Minister. It was very much a ‘dark horse’

promotion, and it would be interesting to hear from CHEN directly how he plans to

differ from his predecessor on pollution reduction.

BIOGRAPHIES OF CAP CHINA DELEGATION

John Podesta, Center for American Progress

Podesta is the founder of the Center for American Progress. Podesta most recently served as Counselor to President Barack Obama. Prior to founding the Center in 2003, he served as White House chief of staff to President William J. Clinton. He served in the president’s cabinet and as a principal on the National Security Council. Podesta also served as co-chair of President Barack Obama’s transition, where he coordinated the priorities of the incoming administration’s agenda, oversaw the development of its policies, and spearheaded its appointments of major cabinet secretaries and political appointees.

Rudy deLeon, Center for American Progress

deLeon is a Senior Fellow for National Security and International Policy at the Center for American Progress. deLeon’s 25-year government career concluded in 2001 after his tenure as deputy secretary of defense, where he was a member of the Deputies Committee of the National Security Council and the National Partnership Council. He served as Undersecretary of Defense for Personnel and Readiness from 1997 to 2000, and as Undersecretary of the Air Force from 1994 to 1997. He was nominated for these positions by President William J. Clinton and confirmed by the U.S. Senate.

Tony Podesta, Podesta Group

Podesta is the founder and chairman of the American lobbying firm Podesta Group. Podesta has lobbied for a variety of groups, including Bank of America, BP, and Egypt, in addition to political campaigns for Ted Kennedy, George McGovern, Michael Dukakis, and Bill Clinton. He has worked for Pennsylvania Democratic representatives Joe Sestak, Chris Carney, and Patrick Murphy, and chaired former Pennsylvania governor Ed Rendell’s reelection campaign. Podesta has been active for many years with Democratic congressional leaders as well as with many members in both the House and Senate. He is active with the Democratic Governors Association.

Tom Steyer, Center for American Progress

Steyer is a board member of the Center for American Progress and the co-founder of The Next Generation, a nonprofit organization focusing on climate change. He is the founder of Farallon Capital Management. Steyer serves on the Board of Trustees at Stanford University as Vice-Chair and, with his wife Kat Taylor, founded the TomKat Center for Sustainable Energy and the Steyer-Taylor Center for Energy Policy and Finance at Stanford. He has served as a delegate to the Democratic National Conventions in 2004 and 2008.

Vikram Singh, Center for American Progress

Singh is the Vice President for National Security and International Policy at the Center for American Progress. He has served as the deputy assistant secretary of defense for South and Southeast Asia at the Pentagon, where he advised senior leadership on all policy matters pertaining to development and implementation of defense strategies and plans for the regions. Singh was the deputy special representative for Afghanistan and Pakistan at the US Department of State until 2011. He has served as a senior advisor on Afghanistan and Pakistan and a senior advisor for the post-2014 strategic approach to South and Central Asia at the Department of Defense.

Melanie Hart, Center for American Progress

Hart is the Director of China Policy at the Center for American Progress. Before joining American Progress, she was a project consultant for the Aspen Institute and worked on Qualcomm’s Asia Pacific business development team, where she provided technology market and regulatory analysis to guide Qualcomm operations in Greater China. She has worked on Chinese domestic and foreign policy issues for The Scowcroft Group and the University of California Institute on Global Conflict and Cooperation, and as a Chinese-English translator for Caijing Magazine in Beijing. Hart has a Ph.D. in political science from the University of California, San Diego.

Brian Katulis, Center for American Progress

Katulis is a Senior Fellow at the Center for American Progress where his work focuses on US national security policy in the Middle East and South Asia. He has served as a consultant to numerous US government agencies, private corporations, and nongovernmental organizations on projects in more than two dozen countries, including Iraq, Pakistan, Afghanistan, Yemen, Egypt, and Colombia. He lived and worked in the West Bank, Gaza Strip, and Egypt for the National Democratic Institute for International Affairs. Katulis is the coauthor of The Prosperity Agenda, a book on US national security published by John Wiley & Sons in 2008.

Ariella Viehe, Center for American Progress

Viehe is the CFR Fellow for the National Security and International Policy team at American Progress with expertise in conflict and post-conflict stabilization, Afghanistan, and the Middle East. Prior to joining American Progress, she served at the State Department, primarily responsible for coordinating U.S. assistance to North Africa from 2013 to 2014. She has also served in the Office of the Special Representative to Afghanistan and Pakistan (SRAP) where she focused largely on Afghanistan issues, including development of and support to the Afghan National Security Forces, negotiations for the U.S.-Afghanistan Security Defense and

Cooperation Agreement, and regional and international support to Afghanistan. Prior to joining the Department of State, Viehe worked in the Office of the Secretary of Defense as an action officer on Iraq economic and reconstruction policy.

Eryn Sepp, Center for American Progress

Sepp is the Special Projects Coordinator at the Washington Center for Equitable Growth. Prior to joining the center, she served as the Special Assistant to John Podesta while he was Counselor to President Obama. Previously, she was Special Assistant to the Chair at Center for American Progress from 2012 to 2014, and she interned for Brian Katulis on the National Security and International Policy team in 2012. Sepp is a proud Los Angeles Community College transfer student, and she graduated from UCLA with a B.A. in Political Science in 2012. Prior to attending UCLA, she served as a U.S. Army Civil Affairs sergeant in Iraq during the surge, where she focused on women’s and children’s rights, infrastructure projects, and business development.

Ken Sofer, Center for American Progress

Sofer is the Associate Director for National Security and International Policy at Center for American Progress where his work focuses on US policy in the Middle East and the Asia Pacific. In his three years at American Progress, Sofer has authored 35 public policy papers; organized senior delegations to China, the United Arab Emirates, Jordan, and Israel; and conducted original field research on the civil war in Syria. Sofer has been cited in The Washington Post, BBC World, Foreign Policy, and Al Jazeera. Prior to joining American Progress, Sofer completed internships at the US Department of State and the US Embassy in Cyprus.

Aarthi Gunasekaran, Center for American Progress

Gunasekaran is a research assistant with the National Security and International Policy team at the Center for American Progress, where her work focuses primarily on US policy towards Asia – with a particular interest in the U.S. role in Afghanistan and U.S. – India bilateral relations. She graduated from Boston University where she studied international relations and journalism, concentrating on regional politics and cultural anthropology with a focus on Asia. Prior to joining American Progress, Gunasekaran worked as Washington D.C correspondent for regional Massachusetts news outlets covering U.S. domestic energy, economic and immigration issues and at Relief International where she focused on rehabilitation and post-conflict USAID projects underway in Sri Lanka, Myanmar and Bangladesh.

Discussion on U.S.-China Major Power Relations: Key Issues for Sep 2015 White House Summit, Monday, March 30th, 2015

Chinese Participants Biographies (Tentative)

Mr. TUNG Chee Hwa （董建华） Mr. Tung Chee Hwa is the Vice Chairman of the Twelfth National Committee of the Chinese People's Political Consultative Conference, People's Republic of China. He is the Founding Chairman of the China-United States Exchange Foundation ("CUSEF"). Prior to these appointments, Mr Tung served as First Chief Executive of the Hong Kong Special Administrative Region ("HKSAR"), People's Republic of China from July 1997 to March 2005.

Lt. Gen. CHEN Xiaogong（陈小功中将） Lt. Gen. Chen Xiaogong has significant foreign experience, spending six months as a fellow at the Atlantic Council in Washington, D.C., in the late 1980s and leading the first “PLA colonels” delegation to the Harvard Kennedy School in 1997. From the late 1990s to the summer of 2001, Chen was PRC defense attaché in Egypt. He served as PRC defense attaché to Washington between September 2001 and September 2003.

Maj. Gen. YAO Yunzhu（姚云竹少将） Dr. Yao Yunzhu is a Major General of the People’s Liberation Army (PLA) of China, currently the director of the Center on China-American Defense Relations, and senior fellow of the Academy of Military Science (AMS). She joined the PLA in 1970, served in the PLA as an enlisted, a staff officer, an instructor, a researcher, deputy director and director of a research office, and director of a research center. She holds a Master Degree of Arts from the PLA’s Foreign Languages Institute, a PhD in Military Science from the Academy of Military Science. She had been a visiting scholar at the School of Oriental and African Studies, London University from 1995 to 1996, an Eisenhower Fellow in 1999 and a visiting fellow at Harvard University from 2009 to 2010.

Amb. CHEN Naiqing （陈乃清大使） Ambassador Chen Naiqing studied at the London School of Economics and Political Science. She was a staff member, then Attaché, at the Embassy of the People’s Republic of China in the United Kingdom. She was ambassador to Norway between 2003 and 2007, and ambassador to Korean Peninsula Affairs between 2007 and 2008. She is presently the Vice President of the Chinese People’s Institute of Foreign Affairs.

Amb. CHEN Yonglong（陈永龙大使） Ambassador Chen Yonglong was born in Jiangsu Province, China. He joined the Foreign Ministry of the People's Republic of China in 1971 and was assigned as Minister-Counselor in the Embassy of the People's Republic of China to the United States from 1998 to 2001. He took his office of the Ambassador of the People’s Republic of China in the Hashemite Kingdom of Jordan in 2001. He was appointed Ambassador of the People's Republic of China to the State of Israel in 2003. Amb. Chen served as Vice President of the Chinese People's Institute of Foreign Affairs (CPIFA) from 2008 and as Secretary General of China-United States Exchange Foundation (Beijing) from September 2012. He was also Member of National Expert Committee for Climate Change and Director of American Centre, China Foundation for International Studies currently.

Prof. ZOU Ji (邹骥) Prof. Zou Ji is the Deputy Director General of the National Center for Climate Change Strategy and International Cooperation (NCSC). Prior to Joining NCSC, He was the China Country Director of World Resources Institutes and Deputy Dean of School of Natural Resources and Environment of Renmin University of China. Prof. Zou is a globally recognized academic leader in environmental, energy and climate change issues with nearly 27 years of experience. His recent research work and research include: 1) International Climate Regime Research; 2) Research of Energy and Climate Change Strategy by Countries and Regions; 3) Analysis of Energy and Climate Policy Economics, and more.

Prof. CUI Liru （崔利如）

Professor Liru Cui is Senior Advisor to CICIR, a think-tank in China known for its comprehensive studies on current international affairs and prominent role in providing consulting services to the Chinese government. Cui is a member of the Committee of Foreign Affairs of the Chinese Peoples’ Political Consultative Conference (CPPCC) and also serves as a member of the Foreign Policy Consulting Committee of the Ministry of Foreign Affairs. He is Vice President of China National Association for International Studies (CNAIS) and serves as Senior Adviser to multiple institutions for the study of national security and foreign relations. Cui supervises of the Doctoral Program of study at CICIR and holds the post of professor with three universities in China, concurrently. As a senior researcher, his specialties cover U.S. foreign policy, U.S.-China relations, international security issues and Chinese foreign policy.

Prof. ZHOU Dadi (周大地) Prof. Zhou is the director general (emeritus) of the Energy Research Institute (ERI) of the National Development and Reform Commission, where he served as director general for eight years. Zhou had served in ERI for 22 years as research professor and vice director, focusing on energy economics and energy system analysis. Zhou has been a prominent intellectual leader in China’s energy import and export reform policies, energy price reform, energy efficiency policy, and climate change. He serves as the vice chairman of the State Expert Advisory Committee to the National Energy Leading Group of China, a member of the National Expert Team of China for Climate Change, and as vice president of the China Institute of Geo-politics and Energy Strategy. Zhou has served as a consultant to the World Bank, Global Environmental Facility, and many other organizations around the world, and has been a visiting fellow at the Pacific Northwest National Laboratory (PNNL) and visiting scientist at the Lawrence Berkeley National Laboratory (LBNL) in the United States. He co-founded the Energy Efficiency Center in Beijing in 1992 in cooperation with PNNL and LBNL.

Mr. Alan Wong （黄锦辉） Mr. Alan Wong is the Executive Director of China-United States Exchange Foundation in Hong Kong since November 2010. Prior to his appointment with the Foundation, Mr. Wong was the Deputy Executive Director of the Hong Kong Trade Development Council, a statutory organization responsible for promoting Hong Kong’s external trade. In his more than 30 years of service with the Hong Kong Trade Development Council, he had extensive experience working both in Hong Kong and overseas including Los Angeles, Chicago, Dallas, New York, Panama, Paris, London, etc.

Mr. Huang Dizhong (黄砥中) Special Assistant of Mr. Tung Chee Hwa

Mr. Peter Ting （丁奂文） Senior Project Coordinator at CUSEF

CAP Delegation Track II Dialogue – U.S.-China Major Power Relations: Key Issues for September 2015 White House Summit, Monday, March 30th, 2015

Draft Agenda

Date: Monday, March 30th, 2015 Time: 17:00 – 19:00 Beijing Time Venue: Villa 17, Diaoyutai State Guesthouse Participants:

Chinese Side Mr. TUNG Chee Hwa Lt. Gen. CHEN Xiaogong Maj. Gen. YAO Yunzhu Amb. CHEN Naiqing Amb. CHEN Yonglong Prof. ZHOU Ji Prof. CUI Liru (TBC) Mr. ZHOU Dadi Mr. HUANG Dizhong Mr. Alan Wong Mr. Peter Ting

American Side Mr. John Podesta Mr. Rudy deLeon Mr. Tony Podesta Mr. Tom Steyer Mr. Vikram Singh Ms. Melanie Hart Mr. Brain Katulis Ms. Ariella Viehe Ms. Eryn Sepp Ms. Aarthi Gunasekaran Mr. Ken Sofer

Topic 1 – New Model of Major Power Relations (20 min)

Lead Discussants: Mr. John Podesta and Mr. TUNG Chee Hwa

Topic 2 – Climate Change and Energy (30 min)

Lead Discussants: Mr. John Podesta and Amb. CHEN Yonglong Key U.S. Speakers: Mr. Tom Steyer and Ms. Melanie Hart Key Chinese Speakers: Prof. ZHOU Ji and Mr. ZHOU Dadi

Topic 3 – Regional Security Issues (30 min)

Lead Discussants: Mr. Rudy deLeon and Lt. Gen CHEN Xiaogong Key U.S. Speakers: Mr. Vikram Singh and Mr. Brian Katulis Key Chinese Speakers: Maj. Gen. YAO Yunzhu and Prof. CUI Liru

Concluding Remarks by Mr. John Podesta and Mr. TUNG Chee Hwa (30 min)

U.S. – China Major Power Relations: Key Issues for

the 2015 September White House Summit

US-China Calendar Events March 2015: March 4: China Parliamentary Sessions/Annual Sessions (Lianghui) with CPPCC and NPC March 21: China-Japan-South Korea trilateral meeting with all three foreign ministers March 26-29: 2015 Boao Forum for Asia (BFA): Xi is expected to announce implementation plans for the New Silk Road. March 31: AIIB deadline for membership April 2015: April 4: China Tomb Sweeping Day Holiday (清明节) April 24-27: 26th ASEAN Summit Late April: Shinzo Abe State Visit and Congressional Address (DC) May 2015: May 9: 70th anniversary of the end of WWII in Europe: Xi and Kim Jong Un plan to visit Moscow May 14: 28th ASEAN-US Dialogue May 30: Shangri-La Dialogue (Singapore) Late May: Modi’s visit to China SUMMER June 2015: June 4: 26th Anniversary of Tiananmen Square Late June: US-China Strategic and Economic Dialogue (S&ED) July 2015: July 1: Communist Party of China (CPC) Founding Day August 2015: August 14: 70th Anniversary of WWII in Asia: Military parade in China August TBD: ASEAN Regional Forum (Malaysia) FALL TBD: 2015 Shanghai Cooperation Organization (SCO) (Russia): Expected to discuss many New Silk Road activities September 2015: September 3: 50th Anniversary of Japan-Korea normalization: Prospective Abe-Park Summit September TBD: Xi Jinping’s visit to Washington September TBD: Xi Jinping’s visit to NY for 70th anniversary of the UN November 2015: November TBD: East Asia Summit (Malaysia) November TBD: APEC Summit (Philippines) December 2015: December TBD: Climate negotiations in Paris: Deadline to form a post-2020 climate agreement under Durban Platform By the end of 2015: TPP deadline RCEP deadline ASEAN Economic Community deadline US-China Bilateral Investment Treaty (BIT) deadline 2016: Fall: 2016 Central Asia Regional Economic Cooperation (CAREC) (Pakistan)

MEMORANDUM To: CAP Delegation to Beijing From: Vikram Singh, Brian Harding, Rudy deLeon Re: Regional Security and U.S.-China Military-Military Relations Date: March 24, 2015 China faces a complex maritime environment in the East and South China Seas due to unfavorable geography and an array of territorial disputes (maps of territorial disputes and the maritime environment from Beijing’s perspective attached). While the United States is not a party to any territorial disputes with China, its treaty alliances with Japan and the Philippines, its interest in preserving the current international order, and China’s intent to change the status quo, make these key issues in U.S.-China relations. North Korea also remains a major concern for both countries. These regional security issues, as well as the U.S.-China military-military relationship, will likely be raised in MFA meetings. China-Japan Relations and the East China Sea: China-Japan relations have been extremely negative since the Japan’s nationalization of the disputed Senkaku/Diaoyu islands in 2012, exacerbated by revisionist-tinted rhetoric by Abe on Japan’s wartime record and the political utility of negative relations with Japan for China’s leaders. However, Abe and Chinese President Xi held their first summit meeting at the November 2014 APEC summit after intensive bilateral diplomacy centered on acknowledging the complexity of the two countries’ territorial dispute in the East China Sea and tensions appear to be easing. At the heart of the dispute are the uninhabited Senkaku/Diaoyu islands, which lie in the East China Sea, just northeast of Taiwan, astride important sea lanes. The islands are administered by Japan, who laid claim in 1895 when it incorporated Taiwan as a colonial territory. While Japan ceded claims to Taiwan following World War II, the United States administered the islands (as well as Okinawa) until 1972 when it returned them to Japanese control. The islands were privately owned until 2012, when ultranationalist Tokyo governor Shintaro Ishihara sought to purchase the islands and the central government stepped in to purchase them first in an attempt to contain the situation. However, this event inflamed the China-Japan dispute. In November 2013, China declared an Air Defense Identification Zone (ADIZ) that covered the islands, with which Japan and the United States do not comply. U.S. policy states that the U.S.-Japan security treaty applies to the islands, with President Obama explicitly stating this when he visited Tokyo in 2014.

Despite a reduced tensions since November 2014, each day the Japanese and Chinese militaries contest waters and airspace in the East China Sea. From April-December 2014, the Japan Air Self Defense Force scrambled jets 744 times to head off Chinese aircraft entering Japanese airspace. At sea, Japanese and Chinese Coast Guard vessels square off around the islands and Chinese fishing vessels routinely enter Japanese waters. Recognizing that an accident could throw regional security into crisis, in March 2015 Japan and China agreed to establish a “maritime communications hotline” in the first security talks between the two countries in four years. With a common interest in avoiding accidents at sea, these talks will likely lead to a marginally safer operating environment.

South China Sea: China’s nine-dash line in the South China Sea encompasses a vast swath of ocean that includes the Paracel and Spratly Islands, as well as the Scarborough Shoal, and extends within the 200-mile Exclusive Economic Zones emanating from the Vietnamese, Malaysian, Philippine, and Bruniean coastlines. China is deliberatively vague regarding what the nine-dash line denotes because it is not based on international law; China simply states it has a historical claim. The United States is not a claimant and does not pass judgment on any country’s claims, yet the issue has become a major wedge in U.S.-China relations, as China sees U.S. policy regarding the South China Sea to be explicitly anti-China. In this regard, the United States is working closely with the Philippines and Vietnam to build maritime domain awareness capabilities, routinely conducts freedom of navigation patrols in the South China Sea, and supports international legal cases that would bring legal clarity, such as the case the Philippines has brought to the International Tribunal on the Law of the Sea, which seeks a determination on whether China’s nine-dash line claim has a legal basis (the case does not seek judgment on sovereignty). China’s strategy is to take small, incremental steps to create facts on the ground that support its claims, including seizing islands with non-military vessels when opportunities arise (Scarborough Shoal in 2012) and land reclamation projects on islands it controls. Other claimants also engage in similar behavior, but China’s efforts are on an exponentially larger scale. More broadly, with individual actions, such as in 2014 placing and then removing an oil rig 120 miles off Vietnam’s coast, China is attempting to determine how aggressively it can push its claims without widespread backlash. From an environmental perspective, burying reefs is troubling because it destroys habitat that is critical for the region’s fisheries and therefore threatens the livelihoods and well-being of the region’s coastal communities and states. Reclamation and island building completely disregards a science-based or stewardship-oriented approach to marine policy, and fails to acknowledge the dependence on a healthy marine environment shared by China and other claimants states. Considering that the South China Sea is home to approximately 10 percent of the fisheries used for human consumption worldwide, this has major implications. The United States supports ongoing discussions between China and ASEAN on a binding code of conduct for the South China Sea, but an agreement is highly unlikely given fissures within ASEAN. However, China should be encouraged to live up to the principles enshrined in the non-binding 2002 China-ASEAN Declaration of Conduct of Parties in the South China Sea, including “self-restraint in the conduct of activities that would complicate disputes and affect peace and stability,” and to credibly engage ASEAN on a binding code of conduct. In March 2015, Senators Corker, Menendez, McCain, and Reed sent a letter to Secretaries Kerry and Carter urging a more robust strategy to counter China’s maritime activities (attached). It would be useful to suggest to your Chinese interlocutors that the letter represents rising concern in Washington about China’s actions the South China Sea, including land reclamation.

North Korea

North Korea continues to pose a major threat to regional stability, most recently evidenced by its cyber attack on Sony. The Obama administration has pursued a policy of “strategic patience,” refusing to hold talks for the sake of talks, but offering North Korea an improved bilateral relationship if it demonstrates a willingness to fulfill commitments it has made to denuclearization. It has also tightened sanctions and worked to isolate North Korea internationally.

While China continues to value stability in North Korea above all else, funneling assistance to keep the Kim regime afloat, China is extremely unpleased with provocative actions taken by the Kim Jong-un’s government. This displeasure has been highly visible through elevated China-South Korea relations, with President Xi becoming the first Chinese president to visit Seoul before Pyongyang, which he still has not visited. Meanwhile, North Korea is seeking to reduce its dependency on China by forging closer ties with Russia.

U.S.-China Military-Military Relations

U.S.-China military-military relations have improved markedly since 2011, with regular dialogues, senior-level exchanges, and joint exercises, including China’s participation in the multilateral RIMPAC exercise in 2014. The improvement is a direct result of President Xi’s interest in a steady military-military relationship in support of a stable overall bilateral relationship. Far from being the first area to be cut off and the last element to be restored at times of rocky U.S.-China relations, it is now widely seen on both sides to be a highlight of the bilateral relationship.

In DoD’s view, an overarching goal is to develop a solid, durable foundation with the PLA that can weather future U.S.-China turbulence. In practice, this means regular defense policy talks that address disagreements, routine use of an existing defense telephone link, and finding concrete and practical areas of cooperation, such as jointly delivering public goods including counter-piracy operations, humanitarian assistance and disaster relief, and military medicine training.

DoD is equally focused on risk reduction. Bureaucratically, this is largely focused on developing the PACOM-led U.S.-China Military Maritime Consultative Agreement talks into a forum to effectively address operational and tactical concerns. DoD and the PLA are also working to realize Confidence Building Measures proposed by President Xi at the Sunnylands Summit, including mutual agreement to consult in advance of major military actions and to establish rules of behavior for air and maritime activities. On the latter, notably, China has been willing to engage in conversations about conduct outside its territorial waters but inside its exclusive economic zone, an area in which we have different interpretations of military rights.

While working to forge a sustained and substantive military-military relationship with the PLA, DoD remains highly attuned to ensuring engagement does not simply accelerate China’s military modernization and understanding of U.S. tactics, techniques, and procedures.

Talking Points:

• China-Japan: Positive China-Japan relations make the region more stable. Taking practical measures to reduce the likelihood of an accident at sea or in airspace over the East China Sea is in everyone’s interest.

• South China Sea: We do not want this issue to dominate U.S.-China relations. However, China’s actions, including land reclamation, are destabilizing and are attracting significant attention in Washington.

• A good first step to reduce tensions would be for China to clarify its claims on the basis of international law. Restraint in accordance with the 2002 Declaration of Conduct would also be positive for regional stability.

• Beyond the politics, China’s land reclamation activities are devastating for marine ecosystems.

• North Korea: Isolating North Korea is critical to achieving our shared aims of denuclearization. As Presidents Obama and Xi agreed last November, we need to be clear that North Korea cannot have both nuclear weapons and economic development.

• Military-military relations: We should seek to sustain momentum in the defense relationship. Continued development of practical Confidence Building Mechanism is important, as President Xi pointed out when he proposed these measures at Sunnylands.

MEMORANDUM To: CAP Delegation to Beijing From: Ariella Viehe Re: New Silk Road Date: March 24, 2015

The Silk Road Vision – Belt and Road: President Xi announced the New Silk Road Economic Belt and Maritime Silk Road in Kazakhstan in September 2013. Over a year later, the vision still lacks a specific framework and projects. President Xi is expected to announce a framework during the March 26-29, 2015 Boao Forum for Asia, or BFA, China’s version of Davos.

China’s Silk Road project has two components: 1) The Silk Road Economic Belt, the land-based trade routes from as far east as Japan to as far west as Europe; and 2) The Maritime Silk Road, the coastal connections through Southeast Asia, India and into the Middle East. President Xi launched a $40 billion Silk Road Fund, although funding is not yet capitalized. Silk Road efforts are also linked to the $100 billion Asia Infrastructure Investment Bank, or AIIB, and the Eurasian Development Bank. All three funding mechanisms are loans and not economic aid, an approach that will diversify China’s economic interests internationally, but bets on economically underdeveloped countries’ ability to repay.

President Xi has used international visits to increase participation in the Silk Road. Most recently in Egypt, President Xi and President Sisi hailed China’s investment in the Suez Canal project as

a part of the Silk Road. India, Thailand, Myanmar and Sri Lanka have secured Chinese Silk Road investments to bolster projects for ports, infrastructure and highways. The China-Pakistan Economic Corridor, or C-PEC, proposed in May 2013, has started refurbishing Pakistan’s southwest Gwardar port, and is now included in the larger Silk Road project.

In official discussions, the Silk Road is typically linked with infrastructure and trade development. However, in the Track II discussions with CUSEF, Chinese scholars broadened the vision to include three key principles:

1) Economic development, broadly; 2) Security coordination, namely regional confidence building measures; and 3) Social exchanges, to link cultures and education.

U.S. Silk Road: Since Xi’s Silk Road announcement, the United States has publicly stressed complementarity between U.S. and Chinese Silk Road programs. The U.S. Silk Road program predates China’s and was originally envisioned in 2011 as an effort to integrate Afghanistan into the north-south axis between Central Asia and Pakistan. The Chinese Silk Road running east-west and the U.S. north-south routes share interests, particularly in Afghanistan. The United States Silk Road programs are focused on four key areas:

1) Energy (Projects include CASA 1000, electricity transmission project and Turkmenistan-Uzbekistan-Tajikistan-Afghanistan-Pakistan, or TUTAP, pipeline)

2) Transport/trade facilitation (Projects include trade agreements, such as the Afghanistan-Pakistan Transit Trade Agreement, or APTTA)

3) Border and customs facilitation, (Projects include OSCE-funded border guard training) and 4) Business connections (Projects includes the 2013 business matchmaking conference).

Overall, the U.S. Silk Road program has lacked significant funding, in a region that needs an estimated $36 billion in electricity investment alone. The U.S. approach has largely focused on leveraging the multilateral development banks, namely Asian Development Bank, or ADB, and World Bank, or WB, and using convening power to urge political agreement for trade, training and business collaboration.

In practice, however, the United States has sent mixed signals on Silk Road coordination. The U.S’s strong criticism of the AIIB and the reduction in U.S. focus on Afghanistan and Central Asia indicates a U.S. wariness of China’ Silk Road efforts. Yet countries in the region want a clear U.S. position to avoid foregoing U.S. support if they embrace China’s projects.

Potential areas of collaboration: U.S. and Chinese Silk Road efforts are ripe for collaboration. Both efforts include Afghanistan as a crossroads, offering a geographic focus for coordination. Both the U.S. and China are members of the two banks, ADB and WB, who are already working programs in the region. U.S. and China coordination to push both banks for progress on their projects can accelerate development. Finally, China’s focus on physical infrastructure and the U.S. focus on technical expertise can create a powerful chain of support, if done in coordination. Border crossings for example, need significant technological upgrades to expedite inspections; China could assist with the upgrades, while the U.S. completes training and development.

Finally, the historic U.S.-China collaboration on climate change standards could be extended to the Silk Road program. China’s support to energy development, particularly coal-power plants in Central Asia, could accelerate new pollution. Extending emission standards to new Chinese and U.S. Silk Road projects is concrete collaboration that further assuages recipient countries’ pollution and development concerns.

Talking Points:

• Chinese vision: China’s Silk Road Economic Belt and Maritime Silk Road are an impressive and significant undertaking, reflecting China’s deep relationships across the region. Given the deep development needs across the region, investment in significant infrastructure is a critical first step. The quality of the projects and the ability to link projects with the technical training will be essential to ensuring economic impact.

• U.S. position: The United States welcomes China’s Silk Road program and sees it as fully complementary with the U.S. Silk Road projects. Afghanistan provides a natural cross roads where both Silk Road programs intersect and offers an area for collaboration. U.S. support could take the form of technical assistance and convening action to bring about agreements.

• Areas of cooperation: A joint U.S.-China statement of cooperation on Silk Road efforts would mark our collaboration and provide a framework for regional coordination. Combined, the U.S. and China have impressive weight within existing regional and development organizations that could be leveraged to press for progress on projects and trainings in support of the Silk Road. The U.S. and China also share concerns about climate change –joint standards for project development can ensure that new Silk Road energy projects support the U.S. and Chinese global efforts to reduce emissions.

MEMORANDUM To: CAP Delegation to Beijing From: Molly Elgin-Cossart Re: Post-2015 and Sustainable Development Goals Date: March 24, 2015 Background China’s involvement in the post-2015 development agenda has been minimal, and with the exception of explicit orders on a few redlines (notably on the phrase “rule of law” in a goal heading), almost entirely guided by its Mission in New York. These positions are almost entirely ruled by climate negotiation equities, with CBDR as the supreme principle. Though the Ministry of Foreign Affairs (MoFA) is in the lead, very few senior officials are aware of the agenda and its potential import. That may soon change, however, as MoFA is convening high-level discussions about the post-2015 agenda at the end of March, and has sought inputs from various think tanks and organizations, such as SIIS and UNDP, to contribute to the conversations. Vice Minister for MOFA Li Badong appears to be the top official within MoFA who can follow-up on post-2015. Initial indications are that China is unhappy with several aspects of the current OWG proposal, and may decide to intervene to shape the outcome. Once senior officials are brought up to speed on the politics in New York, however, they may be less willing to intervene. The Chinese perspective is that MDGs and SDGs, as they see it, should be separate. Issues such as human rights, democracy, and peace should be left off of the agenda entirely. The Chinese see themselves as champions of the developing world, which they see as largely an MDG agenda, though they are increasingly willing to work with developed countries on the environmental aspects of the agenda. Part of the desire to keep the MDGs separate is to maintain a more focused agenda. The Chinese perspective is that the current agenda is too unwieldy, largely because it incorporates developed country concerns such as peace, governance, and environmental issues. Though they are mostly in agreement with the latter, they see the MDGs agenda as the highest priority and are concerned that the newer agenda areas will attract more attention and more resources. China’s proposal for 10 goals for the post-2015 agenda:

Goal 1: Eradicate extreme poverty and hunger Goal 2: Education and lifelong learning Goal 3: Gender equality and women’s empowerment Goal 4: Fair and accessible medical and health services Goal 5: Water, energy and sustainable development Goal 6: Achieve sustainable and inclusive economic growth Goal 7: Climate change and livable city Goal 8: Promote sustainable industrialization and inter-state equality Goal 9: Sustainable resource management and biodiversity

Goal 10: New global development partnership CBDR (and not CBDR-RC) remains at the top of the Chinese agenda, not least because the Chinese are wary of the possibility that developed countries and poorer developing countries unite to demand that China to contribute more to the global development system. There is explicit concern about taking on more responsibility, especially if it means transparency and monitoring. Potential Areas for Cooperation China will host the G20 in 2016, the first year of the new agenda, and the Chinese have expressed a desire for development to be a central focus of their G20 year. Just as the G7 at Gleneagles in 2005 created the political momentum for the MDGs to succeed, the Chinese should consider the 2016 G20 as an opportunity to solidify political will around implementation of the post-2015 agenda, particularly in the global financial and economic communities. Linking post-2015 and G20 will generate higher-level political interest within China, aligning post-2015 with existing priorities. China is proud of its increased role in global development, having recently made its first contribution to GAVI during this year’s replenishment cycle, initiated the New Development Bank and the AIIB (see separate memo), and having made large investments in Africa, and, more and more, in Latin America. Though the overriding concern is still to do things “the Chinese way,” without rules or regulations such as those required by the DAC, China’s pride in its new role offers an opening towards greater collaboration in the global partnership. Potential areas for constructive U.S.-China collaboration on the post-2015 development agenda:

• As the area that presents the greatest challenge and opportunity for sustainable development, investment in clean energy could be made more relevant for Africa, which has huge energy needs, through an open innovation platform or hub where China dn the U.S. (potentially with other G20 members) work with African countries on developing and disseminating clean energy products and services. African countries have expressed an interest in “promoting greater links among academia, industry, government and civil society organizations with respect to their roles in R&D; marketing and commercialization of R&D; scaling up investments in science and technology parks; and encouraging action-oriented research at all levels of the education and training system (Common African Position para 31).

• Building upon the 2014 announcement by China, The United States, and 11 other WTO members to begin work towards reducing tariffs on environmental goods and services, such as solar panels, wind turbines, and other green technologies. Bringing in other WTO members, expanding the list of goods and services, and/or setting out concrete timetables would increase competition, reduce prices of clean energy alternatives, boost technology dissemination and show that

the world’s biggest economies are serious about the SDGs’ integrated agenda. African countries have expressed a desire to “[d]evelop and maintain reliable, sustainable, environmentally friendly and affordable infrastructure in both rural and urban areas with a focus on land, water and air transport and storage facilities, clean water and sanitation, energy, waste management (CAP para 26).

MEMORANDUM To: CAP Delegation to Beijing From: Molly Elgin-Cossart, Senior Fellow Re: Development Banks Date: March 24, 2015 Context Development banks, in a rare turn of events, have become front-page news. On March 13, the United Kingdom announced it would be applying to join the Asian Infrastructure Investment Bank (AIIB), and was followed by Germany, Italy, and France. U.S. officials have stated that that U.S. will not join the AIIB, and have invested political capital in trying to block allies from joining the AIIB. This “with us or against us” approach has backfired, diminishing U.S. credibility in the region and beyond. South Korea, Australia, and Japan had previously bowed to U.S. pressure not to join the AIIB but all have announced they will reconsider, with South Korea and Australia are almost certain to join. The Development Banks The Chinese government has driven several recent development finance initiatives. In addition to the Silk Road initiative (see separate memo) are the New Development Bank (NDB) also known as the BRICS Bank and the Asian Infrastructure Investment Bank. The U.S. perceives these new entities as threats to the existing multilateral financial order, in particular the World Bank (WB) and International Monetary Fund (IMF). The NDB, along with a Contingency Reserve Arrangement (CRA), was established in July 2014 by Brazil, Russia, India, China, and South Africa at the annual BRICS Summit with $100 billion in authorized capital and $50 billion in subscribed capital. The objectives and financing mechanisms of the NDB and CRA are not particularly new (and in fact the CRA is dependent upon the IMF), but nonetheless are novel approaches to cross-regional intergovernmental financial cooperation. Whether these new entities will gain traction and be able to effectively deploy resources, and how the NDB and CRA interact with existing mechanisms such as the WB and IMF, are the crucial questions. The governance structure of the NDB mimics the World Bank, though with fewer members and a flatter governance structure. In contrast to the WB, the distribution of voting power is equal, with each founding member holding 20 percent of the voting power. Voting is, however, based on each member’s contribution, and thus could change as countries increase their subscription or as new members join. The NDB is structured to heavily favor the founding BRICS members, and any contributions from new members are restricted from reducing the founding members’ voting shares below 55 percent or increasing the new members’ shares beyond 7 percent of the total voting shares. The Asian Development Bank, a Japanese and U.S.-led institution, has similar minimum regional representations. The protected dominance in

voting shares, along with a requirement that the President and Vice President hail from BRICS countries, are likely to discourage other large economies from joining. In contrast, the Chinese approach to the Asian Infrastructure Investment Bank is more open. Any members joining before March 31, 2015 will be considered founding members, thus precipitating the recent rush of announcements, with more than 30 countries applying for membership. To bring the Europeans on board, China purportedly changed the voting structure, giving up a veto, a marked contrast to the WB, where the U.S. maintains veto power. Of course, China will still have significant influence over the AIIB, and its headquarters will be based in Beijing. While open membership has succeeded in dividing the U.S., which is pursuing a de-facto ‘containment’ strategy and remains staunchly opposed to the AIIB, from its allies, the result will be an AIIB with more stringent governance, environmental and social standards. Although the U.S. won’t be writing the rules in the Asia-Pacific, neither will the Chinese. The Chinese have hinted that the AIIB may double its $50 capitalization to $100 billion once all founding members have joined, which would make the AIIB two-thirds the size of the ADB. Given that the needs for Asian infrastructure have been estimated in the trillions, there is scope for complementarity. Non-Asian members will be limited to 25 percent of the AIIB's voting share, lower than their stakes at the founding of the ADB. The Administration has badly bungled its response and messaging, and is now caught in an uncomfortable corner. As the Washington Post points out, the recent events “speak volumes about the ebb and flow of American influence in a region toward which President Obama had promised to “pivot.”” The stakes are now raised for the Trans-Pacific Partnership (TPP) free-trade arrangement, and for the future of U.S. influence in the region and globally. Potential Questions for Chinese Counterparts (though may be better to avoid)

1. How will the new development banks working with the existing international financial structures?

2. What are potential comparative advantages of the new banks? 3. How will the AIIB mitigate the concern that it will lend to irresponsible

borrowers, thus exposing constituent countries to unnecessary risk? 4. How will governance, environmental and social standards be decided?

1

To: CAP Delegation to Beijing From: Melanie Hart Re: China’s Reform Program: Meetings and Background Date: March 26, 2015

Next week we are scheduled to meet multiple Chinese leaders who play integral roles in driving forward China’s macro-level economic (including energy/climate) reform programs. Those leaders include:

ZHANG Gaoli, Executive Vice Premier

• Zhang Gaoli is the highest-ranking vice premier on China’s State Council, which is the national cabinet. He is responsible for implementing major economic (including energy) reform programs throughout the Chinese bureaucracy. Zhang focuses on policy coordination and making trade-offs between competing bureaucratic objectives and competing reform policy objectives. He is intimately involved in making daily decisions on those policy trade-offs.

• Recommended focus for this meeting: China’s strategy for balancing between competing policy objectives, particularly on energy/climate issues and on figuring out how to grow new industries at home without slamming the door on open market competition, particularly foreign competition.

LIU He, co-head of the Specialized Group for Economic System and Ecological Civilization System Reform and Minister-Level Vice-Chairman at the National Development and Reform Commission (NDRC)

• In contrast to Zhang Gaoli’s discrete and specific implementation role, LIU He serves as a strategic guiding hand directing the overall path and vision for China’s reform program. His primary focus is strategic planning. If comparing to the U.S. model, Liu He is like a junior national security advisor, but on economic issues.

• Recommended focus for this meeting: Liu’s vision for China’s 13th five-year plan (2016-2020) for economic development. Liu is currently drafting the broad outlines of that plan which will serve as the framework for Chinese reform through 2020. Our understanding is that internal drafts are due this June/July, with the official opinion to be circulated sometime this fall. The new 2016-2020 development plan will be officially adopted next March at the 2016 National People’s Congress.

LI Wei, President, Development Research Center (DRC)

• The DRC is the State Council’s (national cabinet’s) in-house policy think tank. DRC experts keep an eye on the bureaucracies tasked with carrying out State Council policies and flag actions/regulations that conflict with the leadership’s vision. The DRC also

2

proposes new ideas for next-round reforms. The DRC is generally very forward-leaning and progressive. The DRC partnered with the World Bank to release the ‘China 2030’ report in February 2012 which stated that deep and progressive reform—including major structural reform and green growth—would be absolutely necessary for continued economic growth. That report served as an opening shot in the battle for China’s current reform agenda. The DRC went on record stating that China’s economy was likely to go off the rails without major change; the report then advocated a very aggressive policy program that subsequently made Xi Jinping’s 2013 reform roadmap look somewhat moderate in comparison, particularly re reform time-lines.

• Recommended focus for this meeting: how does the DRC access China’s reform progress at this point? What are their thoughts regarding some of the policy/bureaucracy trade-offs that the leadership is facing?

• Note: LIU He served as DRC deputy director from 2011-2013.

The rest of this brief will provide background information relevant to these meetings.

I. Four Pillars of Chinese Reform

At the third party plenum in fall 2013 the Chinese Communist Party issued a “shock and awe” reform blueprint that included over 300 policy initiatives. Xi Jinping recently boiled that down into what he is calling the “four comprehensives” for “governing China and charting its development path” under his administration. The new short-list includes:

1. Comprehensively build a moderately prosperous society 2. Comprehensively deepen reform 3. Comprehensively govern the nation according to law 4. Comprehensively strictly govern the Party

These comprehensives reflect four shifts in Party thinking and in the Party’s approach to governance that have occurred in the Xi Jinping era.

(1) [“moderately prosperous society”] Economic growth will have to slow down to achieve some of the higher-order goals that the populace is demanding such as clean air and water. China is reaching a new point in its development path whereby 10% growth is no longer feasible. The buzz word in China is “new normal.” Growth is going to slow, and that is ok. That is a natural part of the development process. That is what the leadership wants. Instead of rapid growth based on heavy industries, they want slower growth rates based on expanding service industries and domestic consumption. The type of growth is now just as important as the rate of growth. These new growth industries are more labor-intensive: service sector growth creates more jobs per dollar GDP than heavy-industry growth. Those jobs also tend to pay higher wages. The trick will be making sure that as the heavy-industry sectors wind down the party can actually

3

make the structural reforms that are needed to create a good business environment for service industries and innovation industries such as high-tech. That requires difficult changes such as pulling back the SOEs, utilizing the market to distribute financing and natural resources, improving legal protection for intellectual property rights, etc. Those changes will not be easy. That creates an element of risk: what happens if they succeed in winding down the old stuff but not in fostering the new stuff? There is a risk that growth could slow too much. If so, there will be incentives to use some of the old and comfortable tools—like spurring industry investment—that would slow forward momentum on reform.

(2) [“deepen reform”] The next stage is going to hurt. For reform to work, major vested interests will lose out on benefits they are used to getting. Companies will go out of business. Energy prices will rise until end-user prices are based on actual market rates. Energy pricing is being used as a lever to force structural reform throughout the economy. The previous (Hu Jintao) administration fretted about overcapacity in heavy industry sectors such as steel and aluminum. They knew those firms were consuming a huge amount of energy resources, producing near-zero profits, and only staying afloat due to political favoritism from local governments and state banks. The Hu Jintao administration ordered provinces to close down some of those companies and/or stop approving new ones. The provinces ignored that completely and just hid the factories from Beijing. The Xi Jinping administration is ratcheting up energy rates—and constraining bank lending—so that no matter where these inefficient energy-intensive firms may be hiding, they will be forced out of business if they are not profitable. The new leadership is turning off the tap of state support, and that is what is pulling down growth rates in these old-guard industries. It is important to remember that this is a critical party objective—slower growth means the policies are working.

(3) [“govern according to law”] Whereas the 3rd plenum (2013) focused on economic reform, the 4th plenum (2014) focused on legal reform. The Chinese Communist Party has no interest in relinquishing or weakening its control over the courts. An independent judiciary is not in the cards. However, what Beijing can do is change how party control is exercised. Party leaders increasingly recognize that their traditional model of judicial control makes it nearly impossible for the judiciary to enforce party edicts at the local levels, to provide citizens with a safe outlet for complaints, or to provide the type of predictable legal environment that service industries and innovation industries will need if they are to grow and prosper. At the local level, in particular, local courts have long reported to the local party committee, which made them entirely beholden to local political interests. It was nearly impossible to utilize the courts to hold local officials in check because local officials controlled court decisions. Now the party is tweaking the administrative system to address these problems (as much as they can in an environment where courts still beholden to the party). Recent judicial reforms include:

• China’s Supreme Court will create circuit tribunals to handle complicated cases (including citizen complaints and cross-regional issues that involve multiple administrative districts). Local officials will have no influence over these tribunals.

4

• The party will now track instances of local official interference in judicial decisions and that type of interference will be taken into account during career evaluations and salary decisions. The party also plans to ‘publicly shame’ officials that are caught interfering in the courts.

• For the first time, China is finally allowing public interest litigation (under the new Environmental Protection Law which went into effect January 2015). That opening is currently limited to environmental issues. Formerly, environmental plaintiffs had to prove direct harm in order to have standing in Chinese courts. NGOs could not file lawsuits on behalf of the public, and that was a problem because the citizens who did face direct harm from environmental incidents generally did not have the wherewithal to sue the factories or the local governments responsible for that pollution. Now expert NGOs can do so on the public’s behalf.

(4) [“strictly govern the party”] If Xi Jinping cannot address corruption, the party will be unable to govern and the regime is likely to fall. Over the past decade there has been a huge build-up in public frustration over a growing trend in conspicuous consumption by Chinese officials and their children/wives/mistresses. As China has gotten rich, party and government officials have had first choice at the pickings. In an internet era that is now impossible to hide. Public fury is exacerbated when party corruption manifests not only in wealth accumulation but also in a breakdown in governing ability. Xi Jinping is leading a top-down response to this problem along four fronts: (1) a massive anti-corruption campaign aimed at removing problematic officials and scaring everyone else into obedience; (2) a new crack-down on political actors and activities that could be utilized to channel general public frustration into unified political opposition; (3) cautious accommodation of public debate and criticism that supports rather than contests party objectives – such as the recent ‘Under the Dome’ documentary on Chinese air pollution; (4) a search for new ideologies that can unify the Chinese public around the party in the modern era – this is reflected in the manic zeal with which officials all espouse popular Xi Jinping sayings such as the “four comprehensives.”

It is important to note that the four comprehensives are very much interrelated. The party’s policy strategists deploy multiple levers simultaneously to achieve key reform objectives in a specific issue area.

II. National Security: the Indisputable Fifth Pillar

The official “four comprehensives” slogan does not explicitly mention security issues, but that thread is woven throughout Xi Jinping’s broader development vision and should be considered a fifth ‘comprehensive.’ Xi Jinping personally leads both the new Central Leading Group on Comprehensive Deepening of Economic Reform and the new National Security Committee. Both of those high-level policy coordination groups are critical for consolidating power and

5

maintaining single-party control. They are also both driving forward new macro-level shifts in policy direction.

Chinese security experts describe the foreign policy shift from Hu Jintao to Xi Jinping as a shift from a foreign policy approach that responds to China’s external environment to a foreign policy approach that aims to proactively shape that environment. That manifests most clearly in two areas: (1) China’s increasingly aggressive behavior in regional maritime issues and increasing willingness to actively defend its security interest abroad; (2) China’s agenda-setting maneuvers on economic issues, including the “one road, one belt” initiative and new institutional initiatives such as the Asia Infrastructure Investment Bank (AIIB).

China’s own internal domestic security is also a growing concern. Recent terror attacks—including the November 2013 attack that killed and injured bystanders at Tiananmen Gate—have rattled the party. Beijing’s attempts to squash separatist movements among minority groups in the far western provinces have only escalated the violence in those regions. Chinese leaders perceive a growing risk that China’s Islamic minority groups in the west will unite with terrorist groups active in Afghanistan, Pakistan, and central Asia, and that those groups will launch ever larger attacks on the mainland. These concerns are driving recent changes such as the establishment of China’s first-ever National Security Committee and the new Counter-Terror law.

Domestic security concerns have skyrocketed in the aftermath of the Hong Kong protests. The Hong Kong protest movement was a game-changer because it demonstrated that the party’s traditional tools for protest suppression are no longer effective in a modern technical era. Previously, party leaders always responded to domestic protests by isolating the area before they sent in security forces. Phone and internet lines are generally cut so that whatever happens during protest suppression, the party can control what the rest of the nation hears about it. Cutting off networked communication also undermines protest organization. In Hong Kong, however, when authorities threatened to cut off internet networks, the protestors adopted a new form of “mesh network” communication that sends messages through crowds via direct blue tooth connection among mobile devices. With mesh networks, as long as protestors have a mobile device, the state-supported mobile and internet networks become irrelevant. That completely circumvents the party’s ability to monitor and control citizen communication in the event of a political crisis. These new “mesh network” communication technologies pose a major threat to political suppression in China. There are rumors that at least some mainland activists traveled to Hong Kong during the protests to observe and bring home lessons that could be useful in a future uprising.

6

III. Difficult Balancing Act Underway

The biggest questions surrounding the future of China’s reform program—both near and longer-term—all revolve around how Chinese leaders will manage to balance between competing political objectives. Key dilemmas include:

• Balancing between keeping forward momentum on economic restructuring versus keeping unemployment low enough to prevent citizen discontent over sluggish economic growth. There are different views circulating regarding how high China’s GDP growth needs to be to maintain domestic stability. Chinese officials are signaling that the economy will continue to slow and is expected to come down to 6% growth at some point over the next few years (the 2015 target is “around 7%,” down from 7.5% in 2014). As the economy slows the central government will keep a close eye on unemployment and the nation’s ability to absorb new university graduates. If unemployment stays within safe boundaries they can keep pressing ahead with reform, even if it hurts. If unemployment gets too high, however, they will have to reevaluate. The red line for slowing economic growth during Xi Jinping’s term is probably around 5%. Below that, they are likely to start rolling out course-corrections that could create road bumps for reform.

• Balancing between reducing coal dependence versus not letting energy costs or import dependence jump too high or too quickly. China is working to reduce its coal dependence but the transition is gradual. Best-case scenario is that by 2020 coal will be down to around 62% of China’s energy mix. It is currently around 65%. It is difficult for China to transition more quickly away from coal because: (1) it is cheaper than many alternatives, unlike the U.S. they do not have cheap or abundant shale gas; (2) they have significant domestic production, unlike with oil or gas; (3) there are multiple coal provinces whose economies still depend on a thriving coal consumption market, and those provinces are already hurting from the recent coal price crashes. This is why CCS is so important: coal is not going away in China, but CCS can help bridge the gap. The trick is managing the cost increases from CCS deployment.

• Balancing between ordering SOEs to increase profits/efficiency versus demanding that they achieve political objectives. China’s latest energy plan basically orders the big state-owned oil and gas companies to start drilling everywhere they can—including old low-producing onshore fields and expensive deep-water fields in the South China Sea—because the nation needs to avoid becoming too dependent on energy imports. Coal is set to peak around 2020, after which further fossil fuel expansion will be oil and gas from transport growth and gas-fired power. If China doesn’t start producing at home, import dependence will increase, and the security establishment is not comfortable with that. No one asked Sinopec and CNPC if they thought drilling in old fields was a profitable

7

venture. Yet, at the same time, they are also supposed to be operating more like private companies.

• Balancing between rolling back the state-owned enterprise system versus maintaining political support for the regime. The only way forward is to dismantle the patronage system that is keeping the party in power. In the early 1980s Deng Xiaoping brought local officials under the tent for economic reform by giving them the leeway to run businesses and make money out in the provinces. Now the party wants all the political folks out of the market and for the SOEs to have a shrinking slice of the pie. That creates a difficult political dynamic. Some powerful regional and commercial interest groups are certain to rebel. That is why the anti-corruption drive is so important: strike quickly against the biggest treats within the establishment and hope everyone else is too stunned and nervous to start an uprising. The idea is that by the time the corruption campaign winds down, there will be all new interest groups in place that support the new program.

• Balancing between openness and repression. Chinese leaders know they will need to allow more space for independent social discourse in order to foster innovation and also empower the local people to hold local officials accountable to central government policies. On the other hand, though, they are also extremely paranoid about shutting down any precursors to an ‘orange revolution.’ This balancing act can play out in interesting ways. A few weeks ago, in the run-up to the big National People’s Congress, Chinese leaders seemed to have blessed the release of a ground-breaking documentary on air pollution. As soon as Chinese netizens started utilizing the film to call for mass protests, however, officials immediately pulled it down from mainland websites.

• Balancing between taking aggressive action on internal party corruption versus allowing enough breathing room for officials to try new things. The anti-corruption campaign is making Chinese officials hesitant to be a first mover on new initiatives and new projects out of fears that those actions could run afoul of Beijing. Everyone wants to hang back and wait for someone else to go first. That is a very dangerous dynamic.

IV. Big Deadline on the Horizon

The next major leadership transition will occur in fall 2017. Xi Jinping and Li Keqiang are the only two leaders (out of seven total) on the politburo standing committee who are not set to step down in 2017 to comply with China’s age limits. If Xi and Li can lock in some key reform successes before 2017 that will strengthen their hand for the upcoming personnel transition. Xi will want to maximize his ability to pick a new standing committee that will support rather than

8

oppose his reform program. If the next two years go well that would set Xi up very nicely to bring in an even stronger team to push through more difficult issues in the 2017-2022 time frame.

V. US-China Commercial Tensions

It is unfortunate that at the very moment when Beijing is throwing everything it has into a reform program that could be a boon for both nations, China is closer to losing the U.S. business community than it has been at any other point in the history of the bilateral relationship.

American companies have for many years gambled that the Chinese market would follow a trajectory of increasing openness. When there were set-backs, companies still kept an optimistic view because they thought they had a chance at a great future in China. That dynamic is changing. Many U.S. companies perceive a plateau and/or setback in Chinese market access. That is triggering a change in expectations on the U.S. side that is probably much more dramatic and important than Chinese officials realize. To the extent that the business community brings up China commercial issues in Washington these days, those conversations are almost always negative. Many companies are growing increasingly resigned to a future whereby they either do not engage fully in the Chinese market or do not engage at all.

• Example: anti-monopoly investigations into western firms like Qualcomm and Microsoft. There is a very strong perception on the U.S. side that those campaigns are simply an effort to erode U.S. market position. Chinese leaders have said otherwise, but no one is believing it.

• Example: new banking regulations that require companies (including foreign companies) that sell computer equipment to Chinese banks to turn over secret source code, submit to invasive audits and build so-called back doors into hardware and software.

MEMORANDUM To: CAP Delegation to Beijing From: Pete Ogden Re: U.S. – China Climate Finance Date: March 24, 2015

The United States and China have made significant strides in surmounting the “Kyoto Protocol firewall” between developed and developing countries when it comes to greenhouse gas emission reduction actions and targets. However, the issue of “climate finance” (which I use broadly to mean all overseas public and private clean energy and adaptation investment and assistance) has not similarly evolved: Copenhagen contained only financial commitments for developed countries; the joint announcement with China last November did not signal (at least to the public) any major new understanding on climate finance; and the negotiations for Paris continue to revolve entirely what developed countries will offer there.

The time may be right to start discussing with China not only what it is doing at home to solve the climate challenge, but the increasingly important question of what it is – and is not – doing to advance that objective abroad.

The Green Climate Fund is a notable example of multilateral progress on the climate finance front, having received a number of small but symbolically significant pledges from developing countries at the end of last year (see here for our new issue brief on what the Green Climate Fund should deliver this year, which includes the full list of pledges to date: https://cdn.americanprogress.org/wp-content/uploads/2015/03/GreenClimateFundFINAL.pdf).

At the same time, we are seeing a rapid increase in overseas investment in clean energy by developing countries. While estimates vary and there is no good system of disclosure and measurement, the World Economic Forum found that cross-border clean energy investment originating from non-OECD countries grew by more than 15-fold from 2004 to 2011. Others have estimated that developing country to developing country climate finance reached $10 billion in 2013 (see figure 1 below). And as the clean energy sectors in developing countries grow, there will continue to be new opportunities.

Figure 1

Source: http://www.climatefinancelandscape.org/#internationalflows

Unfortunately, after leading US officials to believe that it too might pledge, China stated explicitly at the Lima COP last year that it would not be contributing to the Green Climate Fund, dismissing it as something that developed countries were responsible for. This was unfortunate in part because a pledge by China would have helped to bolster the case here at home for supporting the Green Climate Fund and for fulfilling our own $3bn pledge. It also would have complemented the US-China joint announcement in November by demonstrating a parallel shift away from the traditional developed/developing country divide.

However, there is a potential opening to begin this conversation: China’s announcement that it would contribute $80 million over 3 years through a new "South-South Climate Fund" that would focus on adaptation (Here’s a short piece I wrote at the time of the announcement: http://pointsoforder.org/2014/12/15/chinas-latest-move-a-brics-bank-for-climate-finance/). This South-South Fund was also touted by Zhang Gaoli in his remarks at the UN climate summit.

Details of how exactly this specific fund will operate are undecided and the budget quite small, but the larger significance is that China for the first time is elevating in major public fora what it is doing to help other countries to combat climate change. This could be an opportunity to open the door to a bilateral discussion of its broader climate responsibilities in its overseas investment and development activities.

For instance, one of the concerns voiced by the Obama administration about the new Asian Infrastructure Investment Bank that China is spearheading is that it will end up with weak environmental and climate safeguards, which would undercut World Bank, Asian Development Bank, and bilateral efforts to provide climate finance, enhance climate resilience, and promote sustainable economic growth.

But that need not be the case: rather than undermining global efforts, China – with the support of the European members who are moving toward joining – is in a position to make the AIIB a part of the climate solution if it so chooses. Likewise, China could use its increasingly important role in the existing international financial institutions to, for instance, work to support World Bank President Jim Kim’s efforts to better integrate climate into the broader development agenda, which it has not done to date.

Given that this has not been a central part of the US-China climate dialogue to date, it would be valuable first step to raise these ideas simply to gauge how they react and find out if there might be channels to pursue further.

MEMORANDUM To: CAP Delegation to Beijing From: Hardin Lang, Peter Juul Re: U.S. and Iran Relations Date: March 24, 2015 • Summary: China’s primary interest in Iran is economic, in particular Tehran’s oil exports. Beijing

appears relatively unconcerned by Iran’s nuclear program or its role in the region. China voted for every UN Security Council resolution sanctioning Iran over its nuclear program, while working to water down sanctions in the process. Overall, China has been somewhat responsive to U.S. sanctions on Iran. It has cut back oil imports from Iran and cut energy investments in the country. Though Beijing would clearly prefer to see sanctions against Tehran lifted, Iran is not important enough to China to risk an open breach in relations with the United States.

• Background. In the 1980s and 1990s, China-Iran relations were based on two pillars: arms sales and nuclear cooperation. On the nuclear side, Beijing provided Tehran with technical assistance, equipment, and, on one occasion, 1.8 tons or uranium ore. Beijing ended this assistance in 1997, promising to end nuclear cooperation with Iran ahead of a U.S.-China summit. Since then, China-Iran relations have focused primarily on energy and economics.

• Chinese oil imports from Iran. In 2013, 8 percent of Chinese oil imports came from Iran – down

from 11 percent in 2011. A further 43 percent came from other countries bordering the Gulf (China imports more than half its oil from the Gulf region). China cut oil imports from Iran in 2012 and 2013 in response to the onset of U.S., EU, and other sanctions. In 2014, China was quick to boost its oil imports (28 percent) from Iran following the signing of the Joint Plan of Action (JPOA) in November 2013.

• Role in P5+1 talks. China does not play a publically active role in the P5+1 talks on Iran’s nuclear

program. It positions itself as a disinterested mediator rather than a real party to the talks themselves. In an mid-February visit to Tehran, Chinese Foreign Minister Wang Yi characterized a potential nuclear agreement as “upholding [Iran’s] own legal rights, including the right to the peaceful use nuclear power, and for the people of Iran to throw off the difficulties of sanctions as early as possible.” Formally, China opposes an Iranian nuclear weapon and supports a WMD-free zone in the Middle East. But Beijing appears less focused on the substance of that agreement than on reaching an agreement that lifts sanctions as quickly as possible.

• Economic interests. Chinese companies have made investments in Iran’s energy sector worth tens of

billions of dollars. The bulk of this investment occurred before the latest round of international and American sanctions. Chinese businesses have benefitted as European and other East Asian nations’ companies left Iran, leaving them as the only international players in Iran’s economy. But China’s room maneuver has been constrained by U.S. sanctions on Iranian financial institutions. These sanctions have made it difficult for Chinese businesses capitalize on their existing investments in Iran. For its part, Iran has indicated a desire to participate in China’s plan for a New Silk Road Economic Belt.

• Arms sales. China served as a major arms supplier to Iran during and after its war with Iraq in the 1980s, selling Tehran small arms, ballistic missiles, and anti-ship cruise missiles. Beijing continues to

export arms liberally to Iran, some of which have wound up in the hands of Iranian proxies in the region Moreover, “entities” in China continue to supply Iran with ballistic missile components despite UN and U.S. prohibitions – and have been subject to U.S. sanctions.

• Iran as “strategic partner.” In May 2014, China announced that it considered Iran a “strategic

partner,” and called for increased military cooperation between the two countries. Four months later, two Chinese warships participated in joint naval exercises with Iran’s navy, and the head of Iran’s navy paid a visit to Beijing in October. But the significance of these joint exercises should not be overblown. China has established “strategic partnerships” with as many as 47 countries, including Saudi Arabia other Gulf states). In 2010, Chinese warships conducted a port call in the UAE in 2010.

• Conclusion: There is little evidence that China is dramatically expanding its relationship with Iran beyond economics and energy. Beijing appears content to free ride off American-led efforts to maintain stability in the region rather than take on regional security responsibilities itself, recent exercises with Iran notwithstanding. Moreover, China remains deferential to strong American concerns over Iran’s nuclear program rather than risk a public row with the United States. Should an agreement between the P5+1 and Iran be reached and sanctions lifted. China will move quickly to invest in Iran’s energy sector and to deepen its economic relationship with Tehran.

MEMORANDUM To: CAP Delegation to Beijing From: Brian Katulis, Rudy deLeon Re: U.S. – China and the Middle East Cooperation Date: March 24, 2015

Draft CAP Papers for Track II Dialogue (draft)

New Anchors for U.S. Egypt Relations Brian Katulis, Mokhtar Awad In the past year, the fight against the Islamic State of Iraq and Al-Sham, or ISIS, and the nuclear negotiations with Iran have dominated U.S. policy toward the Middle East. But Egypt, as the most populous Arab country, remains a central test in the broader battle to achieve stability and progress in the region. Four years after the start of the Arab uprisings, Egypt continues to face many of the same challenges that sparked the initial protests. The United States and Egypt should try to work together to build a set of new anchors for progress and stability at this turbulent time of transition in the Middle East. 2015 offers potential opportunities, but it will require Egypt and the United States to learn some lessons from the past four years and to look to the future. The two countries need to move beyond the old way of doing business—a heavy focus on conventional military cooperation—and look to a future where the bilateral relationship includes expanded economic cooperation and a new, more constructive diplomatic and political dialogue. Doing so will be difficult for the United States absent a major course correction by the new Egyptian government on its political transition. Efforts to enhance cooperation between the two countries will likely remain limited, and relations are likely to be strained as long as Egypt continues down its current path of restrictions on basic freedoms and political pluralism. Given the uncertainty of the moment, the United States should prepare for a wide range of possible scenarios emerging in Egypt in the next year. But it should make a determined effort to work with Egypt to build new anchors for the relationship over the next four years. Egypt remains in the midst of unfinished political and economic transitions. Multiple waves of protests, leadership changes, and crackdowns have traumatized Egyptians. The overall political climate in Egypt is a complicated mix of anxiety, tension, exhaustion, and hope that the country will achieve more progress in the next four years than it did in the past four. If Egypt can build a foothold of stability and achieve economic and political progress, it has the potential to offer immense resources to the cause of regional and global stability. But the only way for Egypt to achieve long-term, sustainable security is by updating its security and economic sectors and ushering in a competitive political environment where basic liberties are protected.

In the past year-and-a-half, many Egyptians’ overriding focus has been security—both basic law and order and economic stability. Ongoing violence in Egypt’s Sinai Peninsula, Libya’s fragmentation to the west, and Syria’s ongoing bloody civil war are seen as vivid examples to avoid. The rise of ISIS and the growth of extremist groups across the region have had an enormous impact on threat perceptions inside Egypt. Next to security, Egypt’s daunting economic troubles are a top priority; there is a dire need to produce economic growth and create jobs. While President Abdel Fattah al-Sisi appears to enjoy broad political support from an exhausted population, important segments of Egyptian society have grave concerns about constraints on basic freedoms and the closure of political space. How Sisi governs and handles his country’s momentous challenges will redefine what Egypt stands for as a country and its role in the region. Since the start of the 21st century, Egypt has seen its regional influence wane, held back by the sheer weight of its internal challenges and mismanagement of national assets. The past four years have taken a serious toll on U.S.-Egypt ties. The Egyptian view of the United States is perhaps the worst it has been in recent history. Many Egyptians think the United States backed the Muslim Brotherhood, or MB, when it was in power, and others believe the United States helped support former President Mohamed Morsi’s removal to stamp out Islamists. There are widespread conspiracy theories that embrace the notion that the United States wants to undermine and weaken Egypt. In the United States, top policymakers increasingly speak of Egypt as a problem to be managed, their attention focused on avoiding the worst-case outcomes of state collapse. Today, the United States looks less to Egypt and more to countries such as Jordan and the United Arab Emirates for regional security cooperation efforts such as the anti-ISIS coalition. Moreover, the central strategic rationale for U.S.-Egyptian ties for the past 35 years—the role of the United States as guarantor of peace between Egypt and Israel—seems to have been undercut. Israeli and Egyptian leaders now tout that their bilateral relations are stronger with each other than with the United States, sending the message that Egypt upholds the peace treaty with Israel out of national self-interest, not because of U.S. assistance. At the government level, Egypt’s current leaders say that they are confused by U.S. policy, which continues to hold back delivery of some weapons systems because of America’s concerns about Egypt’s political transition and human rights record. The Egyptian government argues that its actions against the MB and other Islamist groups are part of Egypt’s fight against the same terrorists the U.S.-led coalition against ISIS is fighting. The continued rift between Egypt and the United States has motivated Sisi to seek to diversify Egypt’s foreign support. Egypt remains in dire need of external assistance. It has received more financial support

from Gulf Cooperation Council, or GCC, countries in the past year than it received from the United States over the past decade—at least $20 billion from Gulf partners in the past year-and-a-half compared with the less than $1.5 billion per year from the United States, or nearly $15 billion in the past decade. Sisi has traveled to parts of Africa and to Europe, Russia, and China during his first seven months in office in an effort to boost support and strengthen ties. Yet Egypt and the United States continue to share common, long-term interests in stability and economic prosperity. To build new anchors for the relationship, Washington and Cairo should use the upcoming strategic dialogue planned for this year to foster more constructive conversations and to look to build a new framework for bilateral relations by 2020. The countries should seek to develop forward-looking joint approaches on three fronts:

1. Security: comprehensive security-sector modernization to meet new threats. The evolving threat from militant terrorist groups challenging state sovereignty requires Egypt to update its overall security approach. Acknowledging that current U.S.-Egypt security cooperation was built in a different era, the two countries should use the proposed strategic dialogue to outline a program for security cooperation tailored to meet today’s threats. In these future strategic dialogues, the United States should offer the prospect of delivering security assistance currently being held back, as well as the restart of joint military exercises contingent upon opening a dialogue on substantial reforms to Egypt’s security institutions.

2. Countering violent extremism: an open dialogue about pluralism and political reform.Egypt’s government has justified restrictions on basic freedoms and closing off political space in its anti-terrorism battle, but guaranteeing these basic liberties is needed to ensure political stability and the ultimate political defeat of extremists. Egypt needs a more sustainable political environment to implement massive economic reforms, and it requires an environment that allows political actors to mature and a new spectrum of voices to emerge that denies space for extremist ideologies to thrive. The limited efforts of the Obama administration to influence Egypt’s political trajectory by holding back some types of assistance have not succeeded. But these issues are important to discuss, as sensitive as they are. The United States and Egypt should seek to expand people-to-people contact, educational exchanges, and more honest discussions on the need for pluralism, countering extremism, and political reform due to these issues’ impact on Egypt’s overall stability and the health of the bilateral relationship.

3. Economy: organized international and multilateral support for Egypt’s

economic reform.Egypt and the United States should work together and in closer collaboration

with regional powers in the Gulf to reform Egypt’s economy to spark inclusive growth and to create jobs, breaking the cycle of foreign-aid dependency and crony capitalism of the past decades. The United States has already gradually begun to reduce its economic assistance to Egypt, and as it continues this shift, it should look to other avenues, including the private sector, to help strengthen economic ties with Egypt.

U.S. Middle East Policy at a Time of Regional Fragmentation and Competition Brian Katulis, Peter Juul The ongoing fragmentation in Iraq and Syria is the latest episode in a series of events that is shaking the foundations of today’s Middle East. The region has entered a fluid period of transition involving the growing power of non-state actors, including new Islamist extremist groups, at a time of increased competition for influence among the key countries in the region. For decades, the United States has grappled with formulating a Middle East strategy that advances both its interests and its values. Under President Barack Obama, the top U.S. priorities in the Middle East have included preventing a terrorist attack on the homeland; stopping Iran from obtaining a nuclear weapon; ending the Iraq War; maintaining a secure flow of energy from the region; and trying to broker Arab-Israeli peace. The United States has struggled to define its position since the Arab uprisings in 2011, which sparked a new era of competition among the leading powers in the region. The role and status of Islamists such as the Muslim Brotherhood, which rose to power after the uprisings in some Arab countries, have been central in this intraregional struggle. Also, violent Salafi jihadists such as the Islamic State of Iraq and al-Sham, or ISIS, seek to break down national borders and establish an Islamic state by force. This report, based on field research conducted by the Center for American Progress in multiple countries during the past year, analyzes the current strategic environment and outlines lessons learned that should inform U.S. policy. Those lessons include: The 2011 Arab uprisings sparked a regional competition in a new “Middle East cold

war.” The leading countries of the Middle East and North Africa are engaged in an intense, multipolar, and multidimensional struggle for influence and power. This competition goes beyond Shia-Sunni sectarian divisions and involves traditional tools of power projection—such as military aid and economic assistance—as well as new forms of power projection, including direct investments in media outlets, non-state actors, and political movements. The region’s wealthier, more politically stable states compete with each other by proxy—and in some cases, directly—on the ground in poorer and politically polarized states. This competition has taken on many features of a cold war: different sides engaged in proxy battles across the region using multiple means of influence.

The status of Islamist movements is central to this regional competition. The Muslim Brotherhood’s empowerment and subsequent removal from power in Egypt has been a main

event and central to this regional struggle. Some states such as Qatar and Turkey back the Muslim Brotherhood, while others such as Saudi Arabia and the United Arab Emirates, or UAE, oppose it. Another new dynamic is the rise of extremist Islamist groups that have challenged the Al Qaeda movement. New political openings, as well as ongoing conflicts such as the civil war in Syria, have enabled a range of political Islamist groups, including the ultraorthodox Salafists, to affect politics in countries such as Egypt and Tunisia and fostered a strand of Islamist extremist groups that has emerged in Syria and Iraq. The regional contest over the status of political Islamists has broad reach; it has contributed to disarray within the Syrian opposition, influenced relations among different Palestinian factions, and affected competition among the various armed groups in Libya.

The United States remains the dominant military power in the region but lacks sufficient diplomatic, political, and economic tools to influence regional political trends. The new and still unfolding regional dynamics limit the effectiveness of a U.S. policy that maintains a heavy reliance on traditional tools of power, such as the military and intelligence. The current U.S. policy approach lacks a nimble and effective ability to engage multiple centers of power in the region politically and economically in strategies that emphasize political pluralism and prosperity. The Obama administration’s engagement with political Islamist organizations such as the Muslim Brotherhood created confusion in the region about U.S. policy priorities and values. The U.S. response to the Arab uprisings and the new Middle East cold war has been uneven and the United States has often appeared as little more than a bystander.

The major changes underway in regional power dynamics point to a need to make U.S. foreign policy in the Middle East and North Africa more adept at understanding and responding to political currents in a way that reflects both U.S. core security interests and values. Simply focusing on questions of how many troops are stationed in a particular country for what period of time or how much bilateral security assistance the United States gives to a particular country is too narrow and inadequate to deal with the historical changes sweeping the region and upending its political balance. A wider range of state actors are seeking to advance their interests and values across the region, and the regional landscape now includes a number of non-state actors that have broader reach and impact than they did in previous eras. The United States will not be able to dictate or control events, but many in the region still examine what the United States says and does very closely. Most of its key governments take active steps to shape the trajectory of U.S. policy. The United

States should make the most of these diplomatic engagements to craft a wiser engagement policy that seeks to isolate and defeat extremist ideologies in the ongoing battle of ideas.

Draft SIIS Papers for Track II Dialogue (draft)

Overview on the Middle East Developments and the New Model of China-U.S. Relations

Jiemian YANG Shanghai Institutes for International Studies

The China-U.S. relationship is one of the most important bilateral relations in the present world and contains rich contexts and contents. In June 2013, Presidents Xi and Obama agreed to build up New Model of Major Power Relations (NMMPR). The NMMRP has since experienced both advances and setbacks. In order to further the NMMPR process, both China and the United States need to find new momentum, for instance, by expanding their cooperation on the Middle East issues.

I. Global and Regional Frameworks for China-U.S. Cooperation on the Middle East issues. The general situation in the world and the Middle East calls for closer cooperation between China and the United States.

First of all, the globalization and information revolution have increasingly bounded the world together as a whole entity, which requires China and the United States to join their efforts to meet the various challenges ranging from climate change to international terrorism.

Secondly, the two countries have already built an all-prevailing network of material interests and cultural exchanges. On the positive side, the two countries could benefit immensely from their cooperation in various fields such as economic and people to people relations. On the negative side, they cannot afford a head-on confrontation as the stake is too high to be bored.

Thirdly, their involvement in the Middle East makes both China and the United States need each other. China is entering a new stage of the China-Middle East relations and confronting with challenges including anti-terrorism, religious extremism and energy security. The United States is being pulled by two opposite forces. On the one hand, the United States should continue the course of withdrawing military forces out of the Middle East and reducing its involvement, thus benefiting the shifting U.S. gravity towards Asian Pacific Region. On the other hand, the U.S. can hardly shift its strategic concerns from the Middle East and concentrate its strategic attention in the Asian Pacific Region. As a matter of fact, the U.S. Secretary of State John Kerry seems to be busier with the Middle East affairs rather than with the Asian Pacific Region.

Fourthly, China and the United States want to ensure more predictability and stability in and related to the Middle East. Both China and the United States are global powers and have the responsibility to ensure peace and stability by responding effectively to such issues as the “Arab Spring”, Palestinian/Arabic-Israeli Conflicts and Gulf Region instabilities and newly emerged ISIS issues.

II. New Developments of the NMMPR. The Chinese President Xi Jinping and American President Barrack Obama formally endorsed the notion of building up a New Model of Major Power Relationship (NMMPR) between China and the United States at the Sunnylands, California, in early June 2013. Since then, the two presidents as well as other key officials have repeatedly confirmed their commitments and worked at translating these notions into reality. Given the fact that the China-U.S. relations have seen

both the positive and negative developments, the two countries need to expel their strategic suspicious and expand strategic trust so as to advance the course of NMMPR in the future.

2.1. The positive developments. The China-U.S. cooperation on the Middle East issues is of strategic importance. First of all both China and the United States have more constructive interaction than some other regions in the world. For instance, China does not intend to rebalancing the U.S. but cooperating with it in the Middle East. The two countries have overlapping interests in the Middle East in maintaining peace and stability of the whole region in general and the Gulf sub-region in particular by promoting Arab/Palestine-Israel peace process, safeguarding the vital energy supply line and supporting orderly and peaceful transitions of political, social and economic systems in the countries concerned.

Moreover, both countries are facing new challenges of international terrorism given the latter’s trends towards re-groupings and even the so-called state building. However, international terrorism is not an isolated phenomena and closely related to economic poverty and social stagnation which make up of hotbeds for radical ideologies and extremist movements. China and the United States have realized the seriousness and damage that terrorism and extremism could bring to the region as well as the world. There has been increasingly awareness of the two countries to join their efforts to tackle with the root causes and symptom.

Furthermore, the two countries cooperate with other actors on the Middle East hotspot issues. China maintains good relations with almost all the countries in the region. The United States is the most important actor there. China and the United States together with EU and Russia succeeded in averting a war on Syrian chemical weapon issue. More importantly, the China-U.S. cooperation facilitated the easing of the U.S.-Iran tensions, thus creating more conducive conditions for the overall improvement of the Gulf Region.

Last but not least, China and the United States conduct regular consultation on the Middle East affairs and further the institution building. According to relevant arrangements of the fourth round of the China-U.S. Strategic & Economic Dialogue, the two countries started the process of Consultations on Middle East Affairs at Vice Foreign Minister Level in August 2012. Although these institutionalized efforts are still at their initial stages, yet they represent a good beginning.

2.2. Difficulties and challenges. Not all the news is good. As to the NMMPR, there is a possible hard choice. Now, the two countries are confronting with the challenge whether they could continue this course or should give it up for lower but more achievable objectives. There are also difficulties and challenges in the China-U.S interaction related to the Middle East affairs.

Firstly, China and the United States have different, sometimes even colliding philosophical and guiding principles. China has kept the principle of non-interference in internal affairs, especially in face of sudden and drastic changes in the so-called Arab Spring. The United States has stressed its leadership and the responsibilities to protect. The two countries differed in their policies in the Second Iraq War, Libya War and Syria Civil War.

Secondly, the two countries differ in their strategic weights and strategic goals related to the Middle East. So far, the United States is the most important outside player with political, economic and military leverages, thus adhering to its dominant positions of international involvements. China’s strategic goals

and actual influence are much smaller and greatly restrained by its limited strength. Therefore, the two countries are actually asymmetries in their interaction in the Middle East.

Thirdly, both countries have problems to readjust their respective strategies and polices concerning the Middle East. The United States has the difficulties of winding down its involvements in the Middle East and maintaining a balance among different geopolitical forces. It also has to contemplate on the extent that it allows China to play a greater role without damaging its vital interests. China is in a dilemma too. China’s stakes in the Middle East have risen in recent years. This calls for China to play a greater role and assume more responsibilities. But this will ask China to change its strategic thinking and actual policies dramatically, and even drastically. Besides, there is a big gap between China’s real capabilities and the expectations from the countries concerned.

III. China’s Strategic Visions and Goals. Despite the fact that the current international situation and the Middle Eastern developments are undergoing tremendous changes with a lot of uncertainties and unpredictability, we still can detect the general trends and set up strategic goals accordingly.

3.1. China’s strategic visions. Looking forward to the next 5-10 years and beyond, there are mainly three trending developments related to China-U.S. interaction over the Middle East issues. The most important trend is the directions of the Middle Eastern developments. The four-year ongoing upheavals in the region are the combined results of political dynamism, economic stagnation, social instability, religious conflicts and terrorism upsurge. These upheavals have deep rooted reasons and profound impacts and will continue to unfold in the coming years. Moreover, these developments would still evolve in a direction of compound complication. In addition to the perennial Israeli-Palestinian Conflict, there witness a new wave of sectarian conflicts, terrorists-controlled regimes and the entangled relations between and among Iran, Turkey and Saudi Arab. Most of all, the Syrian situation could develop either for a more complicated or easing way, which in turn will exert different consequences in the regional as well as international relations.

Another important factor that will determine the Middle Eastern trends is how the outside players would interact among themselves and with the region. The most important single player is the United States. In the remaining two years of the Obama administration, the United States tends to be less active and more cautious. With the possible further shifting of its attention eastward, the United States would reduce its strategic focus and diplomatic inputs, thus leaving the radical forces there to be more dynamic and destructive. The involvements of the European Union and France, Germany and Britain will also exert an important impact on the Middle East situation. The French intervention in Libya is a typical case of outside military interference. The EU’s (un)willingness of pushing forward the Mediterranean Union represents the non-military aspect of outside influence. Russia has special interests and military leverage in the Middle East. Compared with the aforementioned countries, China has less influence in the Middle East affairs. For instance, China is even not a member of the Quartet. However, China is a permanent member of the UNSC and maintains good relations with all sides, which gives it some advantages in diplomatic mediation. Moreover, with its increasing stakes and clouts, China will enhance its responsibilities and involvements.

The would-be new element is the paralleled or even coordinated policies by China and the United States. Based on their common interests and strategic needs, China and the United States could reach strategic understanding that their coordination and cooperation will bring benefits to both of them. The

possible cooperative policies could be in the fields of diplomatic dialogues among the opposing sides in the Middle East, the joint investment in some symbolic projects and the joint efforts in making the “P5+1 Talk” productive, etc.

3.2. China’s strategic goals. The Middle East holds important but not vital position in China’s overall and global strategy. However, in the next decades, China will attach growing importance to the Region. Mainly, China has four strategic goals towards the Middle East as a whole.

Firstly, China strives at maintaining peace and stability of the Middle East. The Regional peace and stability is an important part of the world’s peace and stability. China has a great stake as it needs the security and safety of energy supplies and transportations. With over 55% of imported oil and gas from the Middle East and through the Holms Straits, it is in China’s strategic interests to maintain peace and stability in the Region. China will not fundamentally change its principle of non-interference in internal affairs but will adopt a more proactive posture towards the regional affairs in the Middle East. More deeply, China wants to apply its domestic development-driven stability to the outside world. Therefore, China would further advocate and implement the concept of progresses in stability

Secondly, China wants to promote energy and non-energy cooperation. Admittedly, to ensure energy supply is one of the top priorities of China’s strategic goal vis-à-vis the Middle East. China takes its legitimate right to promote energy cooperation with its partners including Saudi Arab and Iran. Moreover, China wants to transcend its economic relations over energy and extend into non-energy sectors such as investments in infrastructure and manufacturing industries. In addition to the bilateral cooperation, China is seeking for more institutionalized inter-regional cooperation. There are a number of China-Middle East cooperation mechanisms, such as China-Arab Dialogue, China-GCC Cooperation and the Silk Road Economic Cooperation both on the land and the seas.

Thirdly, China wants to enhance cultural inter-changes and civilization dialogues with the Middle Eastern countries. Cultural exchanges have special implication in China -Middle East mechanism. China wants to enhance cultural basis for the economic and social relations with the Arab world. China believes in co-existence and complementarities among various cultures and civilization. Besides, China has a sizeable population of Muslims and ethnic minorities; therefore, external peaceful coexistence also benefits internal social harmony. In addition to China-Middle Eastern cultural relations, China also needs to explore more positive and constructive interaction with the U.S. and the West as a whole. Only by so doing can China achieve win-win solutions in terms of China’s relation with the third parties.

Finally, China has neither intention nor capability to directly involve the knotty issues of the Middle East. According to China’s own calculation, China will not be a full-fledged global power with the end of this century. Besides, the Chinese diplomatic philosophy and theories will continue to guide China to rely on political, diplomatic and economic means rather than direct and military involvements. However, China will take a more productive part in international efforts to build up mechanisms and institutions to maintain peace and stabilities in the Middle East.

The Regional Order in the aftermath of the Arab Upheaval: Implications and Prospects

Ye Qing Shanghai Institutes for International Studies

Since its outbreak in the beginning of 2011, the Arab Transformation that sweeping almost the whole

Middle East has now entered the fourth years with its geopolitical implications beginning to unfold

gradually. When erupted in Tunisia and Egypt, it was driven primarily by internal dynamics and was

regarded as a genuine local, bottom-up movement in general. Much to people’s surprise, incumbent

regimes such as the Mubarak regime in Egypt and Ben Ali regime in Tunisia that once considered to be

durable and unformidable were too quick to be overthrown. That’s why optimism and Triumphalism used

to prevail when people seemed to believe that all the problems would be settled once the regimes were

gone. But three years later, it turned out to be not the case and people come to the realization that it may

be only the start of a grand transition because it is an outbreak of a comprehensive crisis in the Arab

world. The situation in the Middle East is still full of twists and turns, demonstrating typical features of a

regional order in transition. Old hot spot issues remains unresolved while situation in Iraq and Syria

continues to deteriorate, even to the stage of collapse, reflecting that many long accumulated

contradictions in the Middle East region have arrive at a juncture from quantitative change to qualitative

change.

This article will be divided into three parts. The first part is dedicated to the overview of the regional

order and the main drives behind. The second part tries to analyze the basic feature and trends in the

region. The third part is dealing with big powers cooperation. Big powers including United States, China

and others share much in common in maintaining peace and security in the Middle East. It’s time for

United States and China to identify ways to manage their policies in the framework of New Model of

Major-Country relationship.

I. Changes in the Regional Order

The transformation that the Arab world is undergoing is a historic event, which will last for decades.

After three years in turmoil, the goals and aspirations that inspired the Arab Transformation have not been

fulfilled yet. Although the political rigidity has been broken, it is still unstable in most countries with

national building in a halt. Egypt has been entrapped into deep crises again after President Morsi was

ousted by the military force, which was seen as a big setback for the whole process because people used

to place high expectation on it for it was seen as a model for successful transition. The economies keep

declining rather than recovering while people's living standards continue to deteriorate with more unstable

and chaotic social disorder. All the setbacks and unfulfilled dreams constitute the fundamental basis of

current crises in the Middle East, having a duplicate effect on the evolution of regional system while the

system itself has been undergoing profound transitions in recent years, especially after the Iraq war.

The Arab regional system has a unique feature that the line between domestic politics and regional

politics is blurred. As Bahgat Korany and Ali E.Hillal Dessouki pointed out, “there is an intimate

relationship between domestic and external policies in most Arab countries.” 1 It’s just like a family’s

business in many aspects, so internal crises can be easily transformed into pan-regional crises and vice

versa. It becomes more obvious to observe the gradual change of dynamics of the regional order after the

Arab Transformation with old and new issues intertwined with each other because some old issues such

as the Palestinian issue seem to lose part of its centrality while some others such as Kurdish issue and

traditional geopolitical rivalry are waging a comeback or reemerging as new hot spots.

Conflicts and instability are not new to the Middle East and the region has been consumed by wars and

confrontation since the end of World War II. But compared with the past, one remarkable difference

stands out after the Arab Transformation. As Ambassador Dennis Ross and Ambassador James Jeffrey

stated, “it is hard to identify another period that can match the uncertainty one sees in the region today. ”2

In the past, although it’s full of conflicts, the instability is predictable. But the Arab transformation seems

to change the rules of games that we get used to. The collapse of old regimes has set free new forces and

new factors, thus adding more political and security risks to the region. Changes in the situation in the

Middle East is now mainly reflected in three imbalances:

Firstly, the geopolitical balance has been broken, and it is the fundamental factor contributing to the

shift of balance of power in the region. The Arab Transformation has accelerated the pace of regional

transition.

Traditional rivalry between Sunnis and Shiites become more tense and intensified as a result of the

combination of political factors with religious influence. The re-assertion of Iran’s influence in the

Middle East after the Iraq war and Afghanistan war further polarized regional politics. The “Iran threat”,

no matter it’s real or perceptional, become the main theme affecting the security policy of many Sunni

Arab states. Many moves that some Arab countries adopted in the course of the transformation can be

seen as an effort to contain Iran. But ironically, the more emphasis was put on Iran, the more Iran gain its

influence.

1 Bahgat Korany and Ali E.Hillal Dessouki, "Introduction: Foreign Policies of Arab States", in Bahgat Korany and Ali E.Hillal Dessouki eds., The Foreign Policies of Arab States: the Challenge of Globalization, Cairo: The University of America in Cairo Press, 2009, p.5. 2 Dennis Ross and James Jeffrey, Obama II and the Middle East: Strategic Objectives for U.S. Policy, Washington Institute for Near East Studies, 2013, p.1.

The balance of power between Arab forces and non-Arab forces is tipping more toward the latter. The

Arab world as a whole has declined dramatically and the trend will continue for quite a long time. Being

in disarray and disoriented, Egypt can not afford to assume the role as the leader. The monarchies in the

Gulf seem to take a strong position, but it is debatable how long they can maintain the strategy of taking

offensive as a means of defense if the Arab Transformation keeps going. Moreover, the Arab world has

been fallen into historical cycle, entrapped in internal struggles. As Paul Noble observed, changes in

state-society relations in the Arab world dramatically affected international political outcomes. Compared

with decades before, when the states were stronger in the 1970’s and 1980’s, the Arab world was less

characterized by the meddling in the domestic affairs of neighbors.3 But when states become weaker, the

window of opportunity is opened for intervention, which is exact the case in Syria now. Monarchies in the

Gulf are now facing a dilemma, on the one hand, they tend to keep instability away by active intervention

and involvement in the neighborhood, but on the other hand, the more they intervene, the more opposition

rise from the inside.

The trend of regional fragmentation contributes to the resurface of old but new political forces in the

Middle East. For example, the Kurds have become an important political force after it consolidate its

basis in Iraq and will have huge impact on neighboring countries such as Turkey and Syria. The other

example will be Alawites, which may persist even after the collapse of Bashar al-Assad regime. The Arab

transformation created new power vacuum and will help more new forces emerge.

Secondly, the balance between the government and society become more hard to maintain due to the

widening gap between the two. The Arab Transformation swept old regimes away and smashed the old

pattern of governance, but new institutions have not been established. While taking different paths on

their political transitions , some post-revolution countries are now coming to a similar point: social and

political polarization combined with economic difficulties.

It is the growing social polarization that becomes the biggest threat behind political cleavage and

confrontation. Street politics used to be one of the main features defining Arab politics in the past,

reflecting the deep-rooted gap between the state and the society. But now, in the absence of a normal

political order in the context of the ongoing transformation, a triad structure is emerging in the scene.

Take Egypt as an example, the army represents traditional political forces, exerting crucial influence from

behind the scene. As one commentator argued, “ Looking back on the Arab Spring, it is striking how few

3 Paul C. Noble, “The Arab System: Pressures, Constraints and Opportunities,” in Bahgat Korany and Ali E. Hillal Dessouki eds., The Foreign Policies of Arab States, second edition, Boulder, Colorado: Westview Press, 1991，pp.50-55.

personalities were replaced, how few regimes fell, and how much chaos was left in its wake. ”4 The

Muslim Brotherhood represents the second force, who rises to power relying on the social service

network and is embraced by grass-root working class. The third is liberals or constitutional liberals

supported by the West, most of whom are young people or elites educated abroad. What Egypt lacks most

is a political structure that can make political consensus and accommodate a wide spectrum of political

forces. That’s the real danger not only for Egypt but also for the whole Middle East.

Thirdly, the balance between religion and nation state has almost been broken. We have observed a

contradiction in the course of the rise of political Islam. In the beginning of the Arab upheaval, much to

people’s expectation, Islamic party soon rise to the front such as the Muslim Brotherhood in Egypt and

Ennahda in Tunisia. But with the military coup in Egypt that ousted President Morsi, this version of

political Islam that seeks to seize state power through election seems to lose appeal, giving way to the rise

of extremists and terrorist organizations which was represented by the emergence of the Islamic State (IS)

in Syria and Iraq in 2014.

The emergence of IS is not accidental, which should be seen as the reflection of some of the deep-rooted

problems in the region. In another word, it is the symptom of the problem, not the cause of it. There is

always a tension between Islam and state in the Middle East. The failure in national building to

accommodate Islamic values led to the imbalance between state and religion and help contribute to the

rise of extremists and terrorists. If put into historical perspectives, the emergence of IS doesn’t signify a

new wave of Islamic renaissance (al—Nahdah al—Islamiyyah) ,but quite on the contrary, it’s the

manifestation of stagnation and retrogression in the Arab world. It’s more destructive than constructive

and offering no real alternative to resolving the stalemate the Arab world is facing today.

II. Major Features of Middle East Situation

In retrospect, the principal characteristic of the Middle East is the interactions among various

countries and among the political forces of various factions, as well as the two-way impacts between the

interactions and the regional architecture. The relations among big powers, between big powers and

regional powers, among major regional players, between the government and society constitute the main

axis to ignite, reboot or aggravate regional contradictions. Against this backdrop, we can roughly

summarize the main features as follows:

Firstly, the comprehensiveness, uncertainty and fragility of regional transformation are still increasing.

Comprehensiveness refers to the constant emergence of impacts of regional transformation on the Middle

East politics, economy, society and religions. Uncertainty refers to the new change in the interconnection

of the Middle East issues. All issues are inter-wined with each other, so that a change in one will affect

4 “The next Phase of the Arab Spring ”, see http://irconsult.org/en/investigations.php?id=35.

all. As uncertainty grows in every each of the hot-spots issues, it become even harder to predict the

trends. Fragility is reflected in the swift shift of crises in different states. In 2013, the Syria crisis and the

Iran nuclear crisis were eased at the last minute, such ease is temporary without solid foundation. Since a

situation may develop in the positive direction of political settlement, it may also deteriorate into another

crisis. Any accident may become the last straw in disrupting the delicate balance.

Secondly, the fragmentation and disequilibrium of regional architecture continue to develop. By

fragmentation is meant that, in the context of the shrinking US presence in the Middle East and change of

US strategy, the balance of power has been undermined and the trend towards mulitipolarity seems

inevitable both at the level of international system and at the level of regional system. In particular, in the

process of decreasing strength of traditional powers, the competition for regional leadership gets fiercer.

In addition, the original political orders have been broken in many Middle East countries while a new

order has not been established, the strength of non-state actors has been growing steadily. As some

observers rightly point out, the criteria to assess whether the Arab Spring is successful or not is

determined by whether or not an Arab country can complete the rebuilding of an independent political

and social space, and whether or not such a space will appear in any Arab society, rather than by whether

nor not a dictatorial regime is toppled. Obviously this is far from being accomplished. By disequilibrium

is meant that the changing situation in the Middle East has turned the balance of Arab forces and non-

Arab forces in favor of the latter. On the one hand, the political turmoil in Egypt has weakened an

important leading force of the Arab world. The chain reaction of the changing situation has engaged many

Arab states with internal affairs. Using offensive tactics as means for defense, the Gulf states represented

by Saudi Arabia have been actively engaged into regional conflicts in an attempt to prevent external chaos

affecting internal security. On the other hand, the antagonism and division between the forces for change

and conservative camp is sharpening with a focus on hot-spot issues. It is particular true for the Syrian

crisis.

Thirdly, the simultaneous adjustments of both internal and external conditions. After entering the

fourth year the so called Arab Spring, more and more people have come to realize that the Middle East is

only in the beginning of a long cycle of historical transformation. Although the transformation is long

been expected, the transformation itself can lead to nowhere. People’s aspiration for better life and

governance must be matched with hard work on the ground. How to integrate democratic rules with

Islamic values become a big challenge. It fails to impose a western style democracy, resulting in a series

of failures in national building no matter in Libya or in Egypt, even Tunisia can hardly be a successful

model. The real danger still exist that Arab politics falls back to the past as what happened in Egypt after

General Sissi become the president, reminding people of Egyptian tradition of military rule. What’s more,

the transformation of some regional countries has been carried out against the backdrop of drastic

development of political and social pluralism and intermingling of various kinds of contradictions. It’s

people’s aspiration for better life that started the Arab transformation and it requires a stable and

functional political order to fulfill this aspiration. But the Arab spring failed to establish a new political

and regional order after destroying the old order. Although Iran avoided regime change, it is not immune

from the trend. Dr. Rouhani’s overwhelming victory in the presidential election reflected people’s will to

upgrade living standards. In the foreseeable future, the struggle for political power will become the focus

for all political powers, which will exert a fundamental impact on Middle East countries to carry out more

domestic oriented policies.

III. Middle East as a Platform for US-China Cooperation

The Arab Transformation has introduced new uncertainty and instability into the region. In the context of

greater uncertainty, it’s full of challenges, but it is also a moment of opportunity. The rapid development

in the Middle East calls for greater cooperation among major powers to restore both the internal and

external pillar of stability in the region.

Firstly, the necessity and urgency of big power cooperation is on the rise. In the international system’

level, the evolution of the regional system has much to do with the international restructuring. In many

aspects, some of the crises are not Middle Eastern crises per se, rather they are the the result of the

projection of global challenges reflecting the problems and issues of the international system in transition

such as the shifting balance of power between emerging and status quo powers, competition of different

ideas and values. Therefore, it will surely help address and resolve more profound systemic problems in

the process of dealing with Middle East issues. In the regional level, some of the Middle East crises are

explosive, contagious and vulnerable in nature. Take Syria and Iraq as an example, it is now become the

eye of the storm since all the forces are locked into a stalemate while Syria and Iraq itself is caught in the

middle and lose control of its own destiny. If the situation continues to deteriorate, it will be easily

transformed into a pan-regional crisis since interests of all parties are in stake. So to prevent the crises

from spilling over, the international society should cooperate with each other, trying to find a political

solution, rather than offsetting each other’s efforts.

Secondly ,the room and scope for international cooperation has been widened. After more than three

years of turmoil, both regional powers and big powers come to realize that they share much in common in

maintaining the security and stability. Moreover, regional countries needs outside help to go through this

difficulty. So far, the international community has not been able to find ways to deliver meaningful

economic assistance in light of the ongoing political turmoil.

Past experience has shown two important lessons that should be taken by the big powers. The first

lesson is that no single country can achieve the security in the Middle east alone. Second, do not try to

resolve political and strategic issues such as national building and social transforming by military means

which can only be used to achieve pure military ends. If these two important lessons can be well taken, it

will help set up the basis for a consensus for greater cooperation and coordination between big powers.

The Middle East has provided a rare opportunity and unique platform for big powers to cooperate in the

future. It’s time for big power to strengthen cooperation to deal with Middle East crises. As one old

saying goes, you need power to break an old order while wisdom is much needed if you want to set up a

new order.

As the largest developed country and developing country in the world, both the United States and

China share much in common in achieving peace and security in the Middle East. Middle East provides a

unique platform for the two great countries to strengthen cooperation in order to address global issues in

the framework of New Model of Major-Country relationship.

Firstly, both US and China should work out a framework that may reflect the balance of power in the

international system. The trend of power shift from West to the East, from North to the South will

continue for the time to come and it is also projected into the Middle East where regional countries are

increasingly looking to the East, taking emerging countries represented by the BRICS as a resource that

can be relied on. The increasing appealing of BRICS and more complementary cooperation between

BRICS and Middle East countries will render them with greater role and responsibility in managing

Middle East crises. In this context, a new framework for better coordination between big powers is much

needed.

Secondly, China and United States should cooperate more closely to launch new initiatives in

security field under the auspices of UN. The existing regimes such as P5+1 and UN Quartet should be

reformed to cope with new situation and to incorporate more players into the scene. In addition to

resolving old issues such as Palestinian issue, new fields should be exploited such as anti-piracy,

safeguarding the sealine of communication and etc. The basic principle should be integrate longterm

vision with short-term solution. For the time being, the emphasis should be put on maintaining stability to

buy more time for a comprehensive settlement in the future. And in the meantime, more efforts should be

exerted on coordinating aid policies between big powers to help regional countries get through the pains

and suffers of transformation.

Thirdly, China and United States should develop certain rules and confidence building measures

through cooperation in the Middle East. There is an increasing call from both sides to strengthen

cooperation in Middle East affairs, “by increasing trust and interoperability with the United States, such

engagement could pave the way for eventual progress on the most sensitive and contentious bilateral

issues beyond the Middle East. ” 5Middle East could become a touch stone for the New Model of Major-

Country relationship.In dealing with Middle East crises, big powers can advance bilateral relations

through multilateral cooperation, accumulate experience in security fields, enhance mutual understanding

of each other’s core interests, eventually contributing to closer partnership in global affairs.

5 Paul Haenle and James F. Jeffrey, “The Middle East at the U.S.-China Summit”, http://www.washingtoninstitute.org/policy-analysis/view/the-middle-east-at-the-u.s.-china-summit.

China’s energy security concept and relevant Middle East

Zhou Dadi Energy Research Institute National Development and Reform Commission

I. Status and Trends of China’s Energy Development

In this century, with the continuous and fast economic growth, especially the scale expansion of heavy and chemical industry, China’s energy consumption has experienced a rapid increase. The consumption has increased from 1.5 Btce in 2001 to 3.76 Btce in 2013, representing 8% of average annual growth rate, equal to 190 Mtceper years (see Graph 1). The share of China’s primary energy consumption in the world has increased continuously, from less than 11% at the beginning of the 21st century to 21.9% in 2013. At the same time, China’s per capita energy consumption has already exceeded the world average level.

Graph 1 Changes of China’s Energy Consumption (1980-2012)

Source: Energy Statistical Yearbook, 2013

Recently, China’s high-speed energy consumption growth trends have begun to change. The growth rate has sharply decreased to 3.9% in 2013, and may reduce further this year. There are several reasons why Chinese experts generally believe that China’s energy consumption growth will keep relatively slow. One reason is the economic slowdown during the current in-depth economic adjustment. China is recently making an economic transition, from the previous near 10% high-growth-rate period to a moderate-growth period. For the next few years, 7%aroundannualgrowth will be the target for effort. After 2020, third growth rate will drop further, followed by a lower energy consumption growth rate. The other reason is the increase of additional value ratio during the economic growth model adjustment. China’s economic growth cannot any longer rely on investment expansion or capacity growth. Instead, the increase of additional value ratio will become a main driving force. In the aspect of National Income distribution, the share of labors ‘salary income should be increased, enlarging domestic consumption. In production

aspect, industrial structure needs to be adjusted, raising the proportion of tertiary industry in GDP, as well as the proportion of high value-added manufacturing industry in secondary industry. Energy-intensive raw-material-producing industries, such as steel and cement, are enduring output saturation. Their production volume will decline in the future. Industrial sector contributes to near 70% of China’s energy consumption. Among which, energy-intensive sectors, including steel, cement et al, account for 50% of total. Therefore, once energy-intensive industries as a whole come into saturation, the increase of industrial energy consumption, will sharply slow down, consequentially reducing the total energy consumption growth rate.

Among primary energy consumption, coal still accounts for about two-thirds of total, followed by petroleum. Although hydropower, natural gas, nuclear power and other renewable energies all develop fast these years, their increment is still less than coal and petroleum. In this century, China’s fixed-asset investment on energy industry has increased year by year. From 2001 to 2012, the accumulative energy fixed-asset investment has reached 16.7 trillion RMB. In recent years, annual energy investment is over 2 trillion RMB, stimulating domestic energy production capacity. China’s coal production has already exceeded 3.6 billion tons. Natural gas production has also risen substantially, about 117.8 billion cubic meters in 2013, 23 billion higher than 2010. Renewable energy develops quickly, too. Installed capacity of hydropower, nuclear power and grid connected wind power have respectively achieved 280 million kilowatt, 14.6 million kilowatt and 75 million kilowatt, increased by 16%, 36% and 116% respectively than that in 2010. Solar photovoltaic has also grown with leaps and bounds, with installed capacity of 14.79 million kilowatt in 2013. However, PV’s power generation is limited, and only accounts for 0.2% of the total. China’s primary energy production in 2013, which was 3.39 Btce, is about 2.5 times of the production in 2000. Since 2006, China has become the biggest energy producer in the world.

With the slowdown of energy consumption increase, China’s coal industry is faced with excess capacity. At the same time, the international coal market is also in oversupply, and China’s coal imports aggravate her domestic imbalance. As a result, domestic coal price has fallen sharply, and this situation will last for long.

China is more and more dependent on import oil and gas. Although China continuously increases her oil investment, her scarcity of resources, low-grade of reserves, complicacy of geological conditions and high costs of exploration and development together hinder the oil production increase -- from 104 million tons in 1978 to 208 million tons in 2013, only 2% of annual growth. Most of experts estimate that China’s domestic oil production will keep around 200 million tons for a long time. While, increasing quickly, China’s natural gas production still has large growth potential, as its annual added proven reserves were over 400 billion cubic meters for recent 10 years. For conventional gas, it is predicted that before 2020the annual added proven reserves will further increase. For unconventional gas, such as shale gas and coalbed methane, exploration and development will speed up. Therefore, China’s domestic natural gas production will maintain high growth; perhaps achieve over 250 billion cubic meters by 2020.

Transportation industries develop fast in China. More than 20 million vehicles are sold each year, and the number is still in growth. Automobiles have already become an important transport means for Chinese households. Meanwhile, air and waterway transportation grow quickly, too. It is noteworthy that the consumption of petrochemicals, made from petroleum and gas, expands continuously. Because of the more and more severe air pollution caused by massive coal combustion, many Chinese cities naturally

shift their energy consumption from coal to clean natural gas. That is why the consumption growth rate of petroleum and natural gas is much higher than the domestic production growth rate. China increases its oil and gas imports year by year—in 2013, her petroleum net imports reached 291.4 million tons, with 58.3% of external dependence (see Graph 2); natural gas net imports reached 53.4 billion cubic meters, with 31.6% of external dependence (see Graph 3). Import volume of petroleum and natural gas will further increase. Low coal price in the international market promotes China’s energy import. In 2013, net coal imports to China were320 million tons, and the external dependence reached about 8%. There are several reasons that urge China to import different types of energy. For petroleum and natural gas, which are unable to be self-sufficient, China has to import them from international market to satisfy her domestic needs. For coal, in contrast, the competitive international price leads to the import, while also leads to further domestic surplus production capacity. At present, about 85% of China’s total energy consumption comes from domestic primary energy.

Graph 2 Petroleum Imports and External Dependence of China (1980-2013)

Source: Energy Statistical Yearbook, 2013

Graph 3Natural Gas Imports and External Dependence of China (2006-2013)

Source: Energy Statistical Yearbook, 2013

II. China’s Energy Security Concept and Energy Security Strategy

China pays high attention to energy security issues, considering energy security as an important component of economic security and national security, attaching sufficient importance to it, and taking all necessary measures to ensure the energy security. The government aim to supply sufficient energy for economic and social development, and protect people’s production activity and daily life from energy shortage or supply interruption. Energy security also includes supply economy and affordability, avoiding too high energy cost. Moreover, energy security should evaluate energy investment risk, trying to avoid massive loss induced by non-economic factors. In energy security system, investment risk aversion is in the secondary hierarchy.

On the recent National Energy Security Meeting, President Xi Jinping expounded China’s energy security strategy, asking for promoting energy revolution and enhancing international cooperation to ensure energy security. China has already made progress in energy security concept, realized to take both demand side and supply side into security consideration, instead of unilateral supply side, to solve energy security problem. In addition, it should consider environmental security problem caused by energy issue, and challenges for traditional energy consumption and supply system caused by energy technology progress.

To solve energy security problem, China should promote energy sustainable development, and adjust energy development strategy. President Xi has summarized five key points of China’s energy development and security strategies. Firstly, it should promote energy consumption revolution, and restrain irrational consumption. Reduction of too-fast energy consumption growth is set to be the foundation of energy security. Only with reasonable energy demand can it ensure energy supply. Chinese government has identified “impose a cap on total energy consumption” as an important policy target, and will set national and provincial total energy consumption targets. China will insist “energy-saving priority”, and implement it among the whole process and all fields in economic and social development. It should attach great importance to energy saving in the further industrialization and urbanization process. It should establish energy-saving consumption pattern as well as thrifty consumption concept, to build more quickly an energy-saving society. The specific goals will lead to significant decline of China’s energy demand, and to a least energy consumption increment to support economic growth and improve energy services. Lower energy consumption growth rate will be a necessary requirement for China to wean herself off her overdependence on coal and oil import, relieving security pressure from more and more energy import. It will benefit as well the clean and low-carbon energy development. Since the beginning of the 11th Five-Year Plan (2006), China has set the national and provincial valid energy-intensity-reduction targets, as well as a package of laws, regulations and economic measures. Energy consumption intensity of China decreased by 19.1% in 5 years. During the current 12th Five-Year Plan period, energy intensity will be further reduced by 16%. Secondly, it should promote energy supply revolution, and build diversified supply system. China will keep mainly rely on domestic resources, and diversify energy supply to ensure energy security. China will expand domestic oil and gas exploration and development, including unconventional resources, such as tight oil and gas, shale oil and gas, coal bed methane, etc. Also, China will explore and develop offshore oil and gas in those Chinese exclusive economic zones in East China Sea and South China Sea. China is willing to carry on cooperative oil and

gas exploration with other nations, and that may ease and defer territorial disputes on related islands and reefs, which may not be solved easily. China has not set specific goals for offshore oil and gas production. The production volume from South China Sea is not the core issue of China’s energy security. Energy technology progress, especially non-fossil energy technology development, helps China to reduce the proportion of coal in her energy mix, also increase her energy supply at the same time. China will keep expanding the share of non-fossil energy, and then establish a diversified and complementary energy supply system, which constituted by coal, oil, natural gas, nuclear power and various renewables. Nowadays, the coal consumption of China is about 3.7 billion tons, and will still be the main energy type in the next 10 to 20 years. China is making great efforts to develop clean and efficient coal utilization technologies. Besides efficient power generation and other conventional conversion and utilization technologies, China has made great investment in advanced coal-to-natural gas, coal-to-liquids, and coal-to-olefin industries, and successfully established large industrial demonstration projects. The production capacity of coal-to-liquids, coal-to-natural gas, and coal-to-olefin industries will achieve some scale, and will be able to supplement and substitute import oil and gas, if necessary. Thirdly, to realize energy consumption and production revolution, it should promote energy technology revolution, and make technology progress as an important driving force for industrial upgrading. The energy technology development should be green and low-carbon oriented, focusing on high-efficient utilization, clean energy and low carbon energy technology, and improving industrial economic competitiveness. Fourthly, it should promote energy system revolution, and establish competitive market structure and market system. China is going to boost energy price reform, and then market pricing scheme in energy market would guide capital invest into those energy-saving, green and low-carbon projects. Fifthly, it should strengthen international cooperation in all dimensions. Although the precondition of energy security is to base on domestic supply, it is necessary to enhance international cooperation in the whole production and consumption areas, and create a better global market. China will introduce advanced foreign technologies for energy exploitation, conversion and utilization, and further open-up her domestic energy market. Meanwhile, to contribute to international supply capacity and strengthen global supply and demand balance, China will enlarge overseas energy investment in all the places, where are qualified for cooperation. That may increase global energy supply, and enlarge China’s import availability.

To cooperate with other countries, China has made great efforts in many aspects. As long as the counterpart has wishes and meets win-win cooperation requirements, China will actively launch energy cooperation. Based on practical condition, China values energy cooperation with neighbor countries. Russia and Central Asian countries are abundant in energy resources. Oil and natural gas export are important for their economic development. As their neighbor, China can import large-scale energy resources from these countries through land transportation, especially by pipeline. That is why they become the most important energy cooperation partners for China, and they are increasing the more and more important roles in China’s energy import. The Asia-Pacific countries, such as Southeast Asian countries and Australia, are close to China in terms of geography. If conditions permit, they will certainly be China’s energy cooperation partners. The Middle East and Africa, in view of their position in the international oil and gas market, deservedly become the important cooperation regions for China. At the same time, China is willing to cooperate with America. Diversification is a major policy of China’s energy international cooperation, and China does not take political institution or ideology into her cooperation criterion. Energy cooperation must be mutually beneficial, in line with both sides’ willingness and interests. From foreign cooperation experience and more than 20-year increasing energy

import practice, China has fully realized the great interest of energy resources for the local countries. Only mutual beneficial cooperation can be sustainable, so in energy cooperation and investment projects, one must respect the sovereignty and interests of the local region. Moreover, national and regional peace and stability have significance for international energy investment and cooperation. China has deeply experienced huge interference and destruction in international energy market and investment effort, caused by war or turmoil, during her overseas energy cooperation. Adhering to the Five Principles of Peaceful Coexistence, China will never set energy investment and project cooperation as her motivation and condition for interference of other country's internal affairs. It is believed that only domestic people have the right to choose their political institution and governance pattern. Even if the counterparts have different political pattern, China will still respect their choices, and launch the energy cooperation smoothly. Risk control means understanding and analyzing one’s cooperation counterpart. Promote the qualified projects, and reject the others. It is wrong to interfere or change others’ political institute or governance pattern, just for one’s own energy interests.

III. Analysis of the Middle East Issues from the Perspective of Energy Security

The Middle East issues are extremely complicated. There always break out conflicts, and most of wars in the world in recent years are taken place there. It is a difficult subject about how to judge the relationship between the Middle East regional situation and world energy security. However, we can still get some relatively simple phenomenon and conclusion for the Middle East conflicts, from the perspective of energy security only.

Firstly, global energy market is in general balanced, with excessive supply as a whole for a long time. Energy consumption of developed countries has already peaked. In consideration of climate change mitigation and energy security, their oil and gas import demand is declining. Since the beginning of this century, developing countries, including China, have become the major contributors to global consumption increment. Also, their strong demand keeps the international oil and gas price high. Whereas, high price brings large profits for the industry, which pushes investment increase. Because the explored reserve grows faster than consumed, the reserve-production ratio of oil and gas has increased obviously, and the total supply capacity keeps improving. Meanwhile, high oil and gas price stimulates the development of other energy resources and the substitution from traditional oil and gas, promotes the development of renewables at high speed, and the coal production. Oversupply in oil and gas market maybe continues, if the price keeps at high level.

Secondly, all the previous serious conflicts in the Middle East have made huge destruction for the Middle East oil and gas production capacity, about two million or more barrels per day of oil production capacity have commonly been destroyed or out of the market. At present, the Middle East regional tension has already been adapted by the sufficient oil and gas supply in the international market. Some analysts believe that, the international oil capital intend to control the excessive oil supply capacity to keep the higher oil price, thus result the Middle East conflicts. Therefore, unless there is large-scale and allover conflict, the loose-supply situation in international oil and gas market will not be changed fundamentally. The general regional conflict will affect oil price, but not cause large-scale supply interruption.

Thirdly, those Middle East oil producers and exporters are highly dependent on their domestic oil production. No matter who is in charge of the regime, it is crucial for these countries to maintain domestic oil and gas production, and hold its global market share. Oil and gas embargo will no longer be effective or applicable for political means, to the Middle East countries.

For the above reasons, it could be concluded that limited conflicts in the Middle East will not be able to substantially threat global energy security. But it is a huge risk for energy investment.

The Middle East supplies the most of oil for imports of China, and it is also an important destination of China’s overseas energy investment, so its situation attracts China attention. However, China has her own opinions on the reason of Middle East conflicts, on how to release and mitigate conflicts, on how to promote the stability and sustained peace in this region. China does not intend to be a “free rider”. Actually, China is not willing to be involved to handle the problem with current style of forcing intervention. It may be a more effective and long tern alternative that just allow Middle East people to settle the problem by them, with their choice of solution.

As the special and valuable endowment, oil and gas resources should have brought great wealth for local people of Middle East. Rely on them, in a peaceful environment, the Middle East countries could recover and develop quickly. Turmoil and war can only induce destruction and losses, threatening international energy supply. China certainly looks forward to peaceful and stable Middle East, with quick economic development and living standard improvement. Then, the international energy cooperation will have a supportive environment.

US have comprehensively intervened in the Middle East issues, including direct military involvement. The effect is not good up to now. At present, conflicts in Middle East still take place frequently, and there seems no bright prospect in the foreseen future. To resume a peaceful and stable Middle East, previous polices need to be reviewed. Are they reasonable or valid? To the Middle East conflicts, it is sensible for China to stick to “the principle of non-interference in other countries' internal affairs”. That also helps to avoid potential disputes between China and US in this region. China will continue her energy cooperation with Iran, not only for the sake of China’s import diversification, but also for Iran’s basic economic and social stability, as well as Iranians’ necessity of living.

China and WE have broad cooperative space for energy security, in energy-saving technology and policy, oil and gas (including shale gas) exploitation, clean energy and non-fossil energy development, and overseas joint investment in many places. The two nations should enhance policy dialogue, discussing the cause and solution of the Middle East issues. Only then can both sides discover more common interests and launch better cooperation. Without a clear understanding of the reason, or with dissent of the solution, our two parties ‘concerted action will lack the consensus foundation.

CAP – CUSEF – SIIS Dialogue China – U.S. Cooperation towards the Middle East

Draft Joint Recommendations I. Egypt Objective: A stable and economically healthy Egypt that remains a dynamic regional and cultural leader that can emerge as a model of success in a region gripped by turmoil. Overview of Chinese and American interests in Egypt and potential areas for their cooperation China and the United States have some shared interests in Egypt that could serve as a basis for U.S.-China cooperation. Both have a stake in its long-term stability and prosperity. Egypt remains a key strategic partner for the United States due to its role in regional stability in the Middle East, influential trade and commerce passages, and its historical pluralistic society.

1. Economic growth and integration: Both the U.S. and China share a stake in Egypt’s economic growth and integration into the global economy. With a population of 85 million, Egypt is an important African and Middle Eastern market for China with an annual trade volume that exceeds $10 billion. Egypt is a key country for China’s maritime Silk Road aspirations due to the Suez Canal and potential for increased investments in a Suez Canal special economic zone. Exploration of joint investment opportunities into this zone and other massive infrastructure projects may offer the opportunity for collaboration, including better coordination with Egypt’s Gulf partners who may finance such projects. Both China and the U.S. can help Egypt’s economy by jointly financing small and medium sized enterprises (SMEs). Financing SMEs is perhaps one of the most popular tools advocated for by the USG in its assistance to Egypt due to its encouragement of entrepreneurship and stemming unemployment. U.S. led “enterprise funds” projects could possibly work or coordinate with a Chinese partner.

2. Coordination in military assistance: Both the United States and China share an interest in

Egypt developing military capability that contributes to long-term stability of the country and the region. It may therefore be useful to explore the possibility of coordinating the sale of equipment and provision assistance to focus on current asymmetric threats as opposed to altering the regional conventional balance of power. It may also be useful to explore joint maritime exercises designed to maintain freedom of passage.

3. Good governance: In this difficult juncture in Egypt’s transition, transfer of expertise and skills

to help increase bureaucratic efficiency and improve governance are in dire need to achieve domestic stability. Both the U.S. and China can build stronger relations with the different facets of the Egyptian government receiving expertise. Fields where China and U.S. transfer of expertise and management practice can improve include anti-corruption practices, law and order, civil-military relations.

4. Egypt’s regional standing: Despite recent setbacks to its regional standing due to internal turmoil, Egypt’s role as a regional pragmatist and trendsetter in the Arab world can positively

contribute to diplomatic regional affairs. China and the U.S. can coordinate on advancing Egypt’s portfolio in international conferences and back Egyptian proposals that mutually advance the interests of both nations. An area to explore is where both nations stand on supporting Egypt’s bid for a non-permanent membership on the United Nations Security Council.

5. Countering Violent Extremism: To the extent that a shared China – U.S. agenda on countering the spread of violent extremism in the region can be agreed, Egypt could serve as an important test case for cooperation and directly tied to the overall regional CVE agenda. Egypt houses Al-Azhar seminary, the Sunni world’s preeminent and oldest institution of learning. Al-Azhar has a reach into East and Southeast Asia as students from Asia flock there and become among Asia’s Muslim religious leaders and thinkers. Al-Azhar’s school network is only second to the government’s; one possibility includes investment in Egypt’s primary and secondary education system in an effort to broaden access to learning and improve the quality of education in both state and Azhar schools.

II. Extremism/Counterterrorism Objective: To prevent the spread of regional extremism Overview: The threat of terrorism and extremism is a challenge not only for the Middle East, but for the whole world. It will be a long-term struggle without simple solution and will require a comprehensive strategy that will require multiple components, including: intelligence-sharing, the use of military force, political solutions to regional problems, de-radicalization, national reconciliation and economic development.

1. Shared assessment: The U.S. and China should work towards an analytical consensus regarding the root causes of as well as the threats posed by extremism in the Middle East. At the moment, the U.S and China may have different views on both the nature of the problem and the challenges it poses. A shared assessment would be the first step in building the foundation for deeper bilateral cooperation. To achieve this, the U.S. and China should explore the use of high level mechanisms such as the Strategic and Economic Dialogue. As part of this effort, the United States and China should also discuss ways to further share information and analysis by law enforcement and security institutions about the threats posed by transnational terrorist groups.

2. Enhance cooperation on the ideological front. The U.S. and China have a variety of hard

power tools at their disposal to counter the threat posed by extremism and terrorism. However, the challenge posed is fundamentally ideological in nature. The U.S. and China should explore avenues of mutual cooperation to advance anti-extremists discourse and exchange lessons and experiences in creating an atmosphere that is conducive to de-radicalization. As part of this effort, special attention should be paid to initiatives advanced by regional stakeholders in the Middle East who are best placed to understand the nature of the ideological challenge in an Islamic context.

3. Illicit Finance Flows: The United States and China already cooperate to combat illegal financial flows. But the rise of Islamic State of Iraq and Al-Sham (ISIS) and other transnational extremist organizations underscore the need to redouble our shared efforts to identify and disrupt these flows. The United States and China could establish working groups to examine discreet aspects of the problem and propose issue specific recommendations on how best to deepen our cooperation.

4. Cooperation on Development Assistance: As discussed in the Egypt set of recommendations,

the United States and China could work on joint projects to improve the quality of the educational systems in key countries in the Middle East, including efforts to help countries upgrade technical education and schools that help prepare the workforce in the Middle East with skills relevant to the 21st century economy, as a means to counter the religious schools.

5. Coordination on ISIS and support to the Iraqi Government: The United States and China

should discuss ways to counter the ISIS, with a particular focus on Iraq, where the two countries share the same goals and tactics in supporting the Iraqi government to become more effective on law and order and governance. China has been deeply engaged in Iraq's oil industry and these activities help Iraq become more economically viable. The United States and China should discuss ways to better coordinate their respective efforts to support Iraq's cohesion as a country as a means to counter ISIS.

III. The New Silk Road Objective: A converging and complimentary vision for integrated economic trade and regional stability in Asia through the Middle East Overview: The U.S. and China have a shared interest in the development of Afghanistan, Central and South Asia, where economic prosperity can underwrite political and regional stability. China has outlined three key pillars of Silk Road engagement: economic prosperity, security coordination, cultural and people to people exchanges. The United States’ New Silk Road plan shares similar goals, but is primarily focused on unlocking economic potential in the region. The U.S. NSR plan is narrowed to four primary areas of support: customs and border control (security and economic), expanding trade ties (economic), regional energy markets (economic), and linking businesses and people (cultural and social). Based on the U.S. and China’s proposals, we see several projects of common interest. Given Afghanistan’s economic transition, the U.S. and China should consider short-term efforts to bolster existing plans while considering long-term coordination for regional trade and development.

1. Coordinate in multilateral banks to ensure rapid progress on Afghanistan and regional programs. The World Bank, Asian Development Bank and International Monetary Fund have significant medium and long term programs for Afghanistan and the region. However, these programs are proceeding slowly. The U.S. and China can align our support within these organizations to urge action. The U.S. would prioritize World Bank’s support to CASA-1000 and World Bank justice sector reform program in Afghanistan. It would help to review the BRICS and AIIB funding streams related to the Chinese proposed Silk Road Economic Belt.

2. Coordinate regional and bilateral priorities to press for regional transit trade pacts. The U.S. and China to urge regional partners to make progress on transit trade discussions. For example, Tajikistan and Turkmenistan have indicated interest in expanding regional transit trade and therefore they may be effective initial partners in opening transit trade discussions. Together, U.S. expertise, Chinese political and economic support can create the incentives for the region’s governments to develop a regional transit trade. A first step could be adding specific transit trade discussions to the next Heart of Asia conference.

3. Ensure that the Silk Road Economic Belt include support for the four pillars of U.S. NSR

(mentioned above), demonstrating alignment and refuting concerns about competition. Energy Security in the Middle East Objective: Secure uninterrupted commercial access to global energy supplies and improve resiliency to global supply shocks.

1. Ensuring safe and unimpeded marine passage of energy supplies: The supply of oil and natural gas from the Middle East has a vital importance to the global economy and to both the United States and China, two of the top five importers of Middle Eastern oil. In order to prevent sharp fluctuations in global energy prices, the U.S. and China should work together to ensure the safe and unimpeded flow of energy from the region. The United States and China are already cooperating to reduce piracy in the Gulf of Aden.

2. Enhancing resiliency and market flexibility: In the effort to enhance energy security, the U.S. and China should help bring together energy suppliers and consumers by enhancing energy resiliency and improving market flexibility. Such measures could include coordination mechanisms for use of each countries’ strategic petroleum reserve or infrastructure financing for Asian intraregional energy trading (for example, the United States and China could work together to expand regional pipeline infrastructure).

3. Developing and investing in alternative energy sources: Ultimately, energy security will only be achieved by promoting a shift in global energy consumption towards more sustainable sources of energy. One such source of energy that has significant interest in the region and potential for expansion is solar energy. The U.S., China, and various Middle Eastern countries such as the UAE and Saudi Arabia should develop a framework for the financing of new solar projects and purchase of solar technology. For example, the U.S. and China may consider options for expanding the Clean Energy Research Center (CERC) project to include third-party nations.

Key Leadership Statements

Premier Li Keqiang Meets the Press 2015/03/16

The Third Session of the 12th National People's Congress held a press conference at the Great Hall of the People on the morning of 15 March 2015. Premier Li Keqiang of the State Council met with Chinese and foreign press and answered questions at invitation of spokeswoman of the NPC session Fu Ying.

At the start of the press conference, Premier Li Keqiang said: Friends from the press, ladies and gentlemen, you have made tremendous efforts to cover the NPC and CPPCC sessions. The two sessions have come to a close, but your work has not. Today is Sunday yet you cannot take the day off. I want to use this opportunity to express my sincere appreciation to you all. Now I would be happy to answer your questions.

Financial Times: Last year, China's real estate market has been in decline. This has prompted a large number of Chinese to start buying homes overseas. Currently, Chinese customers have become the largest group of home-buyers in New York, Sydney and London. And this has significantly driven up local home prices. Some people have called into question the legitimacy of the money spent there. Are you concerned about a backlash to such massive home-buying by the Chinese overseas? And will the Chinese government introduce new policy measures to boost the domestic real estate market this year?

Li Keqiang: China is working towards full convertibility of renminbi under capital accounts. This shows that China is taking further steps to open up its capital market. You talked about the phenomenon of a large number of Chinese buying homes overseas and said that they have become the largest home-buyers in a number of international metropolises. I suppose more evaluation needs to be done here as to whether that is true. And I'm not in possession of solid information about this. But what I know is that China is still the largest destination of foreign direct investment. And the number last year was US$120 billion. At the same time, the Chinese government will continue to encourage Chinese companies and nationals to make investment and do business overseas. And in doing so, they need to abide by China's relevant laws and the laws of host countries.

You have a Westerner's face, but you speak Chinese so well. I wonder if you have bought home in China. You are welcome to do so. China is still a large developing country. Housing is not just an economic issue, but also one that concerns people's livelihood. The Chinese government needs to help the low-income people resolve housing difficulty. The government will take more steps to rebuild urban rundown areas and dilapidated homes in urban and rural areas. And the plan this year is an additional one million units each. It is the government's responsibility to meet the people's basic housing needs.

The real estate market is governed by its own laws. China is such a large country. There are mega cities, medium- and small-sized cities as well as small townships in this big country. Conditions of these different cities and townships vary significantly from one to another. Hence, the central government has required that local governments fulfill their responsibility to exercise appropriate regulation of real estate markets. Differentiated policies will be adopted in the light of local conditions. At the same time, urbanization is still picking up speed in China. Hence the housing demand in China is here to stay. We also encourage Chinese people to buy homes for personal use or improved living conditions. We hope to see steady and sound growth of the real estate market in the long run.

Bloomberg News: You once said that the government needs to show utmost determination in reforming itself and this process could be a quite painful one. As the Chinese economy comes under increased downward pressure, do you still have as firm determination as before to carry out this reform, and will the Chinese economy continue to slide? Is more pain to come in the future?

Li Keqiang: You asked about the pain caused by the government's self-imposed reform to streamline administration and delegate powers. Let me tell you that the pain is still there. Actually the pain is becoming more acute and is being felt in more places. This is a reform targeted at the government itself. As the government sheds its own powers, vested interests will be upset. This is not nail-clipping, but taking knife to one's own flesh. But however painful it may be, we are determined to keep going until our job is done.

The reform of streamlining administration and delegating government powers helps us get the relationship right between the government and the market. It helps boost market vitality and puts us in a stronger position to cope with downward pressures on economic growth. Last year, in spite of economic slowdown, we managed to add more urban jobs. Much is attributable to this reform.

We have completed the five-year task of cancelling and delegating State Council review items by one third within just two years. With the reform of the business system, on average, up to 10,000 new businesses get registered each day, an increase of 50%. This fully shows that our people represent the largest source of vitality for economic growth, and this reform, by reducing the powers held in the hands of the government, has actually helped us tackle the downward pressures on economic growth.

We also recognize that some measures have yet to be fully implemented, and new problems have surfaced. A couple of days ago, I came across a proposal during the two sessions which said that although government review items have been slashed, to get one project approved, which needed up to 100 stamps from different government departments, still requires some 50 to 60 steps nowadays. The long procedures have driven up the cost of business start-up and dampened people's enthusiasm for making innovations. That is why the government must step up its efforts to streamline administration and delegate more powers.

New steps will be taken this year and our focus is on the following three areas. First, all non-governmental review items will be canceled. We must ensure that government power will not be exercised when it is not stipulated by the law. There are currently over 1,200 review items at the local governments' level mandated by the central governmental departments. Our goal is to cut this number by over 200 this year. The government must not secretly hold on to powers that should be delegated, just like releasing the hand brake but still keeping the foot brake on. Second, all provincial-level governments will be required to release their list of powers and list of responsibilities this year. And this task will be assigned to governments in cities and city-level counties next year. We must keep our people well-informed of what powers their governments hold and put government power under public oversight to prevent the abuse of office. And third, we will explore new models for strengthening ongoing and ex-post regulation. We will expand the trials for integrated law-enforcement and we will establish effective models for exercising regulation over such acts as cheating and swindling of marketplace, violating intellectual property rights, making and selling fake and substandard goods, and cases involving food safety.

Just as shoes must suit the feet, our administration must meet peoples' needs and deliver real benefits.

China National Radio: China's anti-corruption campaign in 2014 brought down several "big tigers" or high-ranking corrupt officials. I would like to know what more steps will be taken to enhance institution building in fighting corruption? You once said that it is also corruption for government officials to be indolent or sloppy in performing their duties. So what steps should we take to resolve the problem involving those "do-nothing" officials?

Li Keqiang: The Communist Party of China and the Chinese government are committed to combating corruption and upholding integrity. Since the 18th National Party Congress, the Central Committee of the CPC with Comrade Xi Jinping as General Secretary has been taking strong efforts to ensure that all acts of corruption will be brought to account. In this process, a number of high-ranking corrupt officials have been investigated and dealt with. Our efforts have yielded good results and won people's support.

To enhance institution building in fighting corruption helps us to address both the symptom and root cause of corruption. First, we must run the country in accordance with the law, and ensure that every one is equal before the law and no one is above the law. Second, we need to press ahead with the reform of the administrative system. Just now I mentioned the reform of the government to streamline administration and delegate powers. This is to eliminate room for rent-seeking to remove the breeding ground for corruption, as rent seeking is a common feature of various kinds of corruption. Third, supervision and educational campaigns will be strengthened. We must make sure that government power is exercised in a transparent way and subject to public oversight. All civil servants must enhance their self-discipline and government power can only be used for public good, not personal gains. There must be no irresponsible action or inaction on the part of government officials, and there is no room for

incompetence or indolence either. No government official should be half-hearted in doing their jobs. Such officials will be held accountable.

Straits Times: Premier Li, my question is about China's economy. China has set a lower GDP growth target this year of around 7%. Some say that it signals that Chinese economy has entered what they call a "new normal" of slower but better quality growth. What are the benefits knowing there are also downsides of slowing Chinese economy? Can you tell us how this new normal will affect China and the world? How should we view this and can we have the confidence that China is still committed to this new normal and can manage it well?

Li Keqiang: China's economic development has entered a new normal. This year we have set the GDP growth target at approximately 7%. The GDP growth target has been adjusted downward, but it will by no means be easy to meet this target. Because China's economic aggregate keeps expanding and now the size of the economy is valued about US$10 trillion. So a seven percent increase in today's economy is equivalent to the economic aggregate of a medium-sized country. We want to upgrade China's economy to a medium-high level of development and pursue a growth with improved quality and performance. This will help maintain China's growth at a medium-high speed and lay a more solid foundation for us to achieve modernization. It will also be China's big contribution to global economic growth.

I sense some elements of concern in your question about China's economic growth and when the journalist from Bloomberg asked his questions, there was also such a worry about slowing growth in China. I have said on many occasions that under this new normal, we need to ensure that China's economy operates within a proper range. And if the growth speed comes close to the lower limit of the proper range and affects employment and increase of people's income, we will step up targeted macro economic regulation to boost the current market confidence while maintaining the continuity of our macro economic policies to anchor long-term market expectations. The good news is that in the past couple of years, we did not resort to massive stimulus measures for economic growth, and that has given us ample room to exercise macro economic regulation and we still have a host of policy instruments at our disposal.

The latter part of my remarks is about a hypothetical situation. At the same time, I recognize that there is considerable downward pressure on China's growth and we still face multiple risks. This requires that the government strike a proper balance between maintaining steady growth and making structural adjustments. In Weiqi, a chessboard game invented by the Chinese, one needs to both plan on the big side and get key moves right. When it comes to the economy, we must meet both ends of maintaining steady growth and making structural adjustments. And this way, we can get a handle on the big situation. This requires that we have vision, perseverance and courage. I have confidence that with joint efforts, we are able to maintain the long-term positive fundamentals of the overall Chinese economy.

China Business News: Mr. Premier, you have stressed the importance of mass entrepreneurship and innovation on many occasions, and see it as a new engine fueling China's economic growth. But some people say that it is a personal decision to start a business and it is a market behavior. So why should the government spend so much time and energy on this?

Li Keqiang: I appreciate your good intention of saving the government time and energy, but this is something the government must do. Mass entrepreneurship and innovation is in itself a reform endeavor. This reform is inspired by the experience we have drawn from the past. Over the past more than 30 years, it is the introduction of household contract responsibility system that has brought into full play the initiative of the vast number of Chinese farmers. It is because our people could move freely across provinces and cities that several hundred million farmers have migrated into cities to find jobs. This has created the miracle of China's economic development.

Last year when the government launched the reform of the business system to streamline its administration, I recall that I paid a visit to one of the local venues for business registration where I talked with a woman who has retired. As you may know, the government has replaced the paid-in capital registration requirement with subscribed capital registration. This has boosted our people's enthusiasm to start their own businesses. This woman is one of them. She

told me that she wanted to register a wedding service company because she was well-versed in the local traditional wedding customs. She told me that some couples wanted to have a traditional wedding, so she believed that though she had not attended university, she had a competitive edge in providing such services. I also visited some ventures cafés and makerspaces where I see that the young people there all have brilliant ideas. When their ideas are put into practice and produce actual products, they are boosting market demand. I believe there are a large number of such people with outstanding talent in China. We must lift all the restrictions so that they can put their talent to best use.

To boost market vitality, the government must eliminate road blocks and pave the way for people to tap their entrepreneurship. The government plans to do more in this regard this year. Market access will be further relaxed. Business license and all the required certificates will be integrated into one. It would no longer take one so much trouble to register a business in some areas of the services sector. The government also needs to foster more favorable conditions for business start-up. There need to be low-rent makerspaces to add wings to the entrepreneurship of our people. The government will also fully leverage the national guidance fund to encourage more seed capital to pitch in. Taxes and fees will be further reduced to ensure that all businesses get to forge ahead with a light pack.

A country could achieve prosperity when its people's initiative is brought into full play. There will be much economic vitality when there are ample business opportunities and choices for consumers. By encouraging mass entrepreneurship and innovation, we want to help more people become better off and enable more to achieve their full potential in life. This will also help us adjust the income distribution structure and promote social fairness. In particular, we want to ensure that young people, especially children from poor families, will have equal access to opportunities for upward mobility.

CCTV: As China's economic development enters a new normal, people are also thinking how we can bring our demographic scale and structure compatible with the new normal. Last year, married couples can have a second child if one of the parents is a single child. During this year's two sessions, many people are calling for fully lifting the second-child restrictions and this is also a hot topic during the two sessions. I would like to ask if this is one of the goals on the government's agenda in reforming its family planning policy. If so, is there a time table for that to happen?

Li Keqiang: About China's population policy, as you said, from last year married couples can have a second child if one of the parents is a single child. Currently we are conducting a comprehensive review of how this policy has been implemented. Based on the outcome of this review and taking into account China's economic and social development and changes in our demographic structure, we will weigh both the pros and cons, and make improvements and adjustments to our policy in accordance with legal procedures.

Asahi Shimbun: This year marks the 70th anniversary of the end of the Second World War. I would like to ask your outlook on history, Mr. Premier. We have also seen that more Chinese tourists have traveled to Japan and bought a lot of things there, but the number of Japanese tourists visiting China as well as Japanese investment in China have both declined. How do you see such a situation? How do you view the possible impact of China's planned commemoration activities, including the military parade, on the sentiments of the Japanese people?

Li Keqiang: This year marks the 70th anniversary of the victory of the Chinese People's War of Resistance against Japanese Aggression and the World Anti-Fascist War. Not only China but also many countries in the world have planned to hold diverse forms of commemoration activities. The purpose of these activities is to firmly bear in mind the hard lessons gained from the past and ensure that that kind of history will never repeat itself. The purpose is to uphold the outcomes of the Second World War and the post-war international order and international laws so as to uphold enduring peace of mankind.

It is true that the current China-Japan relationship is in difficulty. The crux of the issue is how that war and that part of history are viewed. One needs to hold a right outlook on history, meaning one needs to take history as a mirror and look to the future. For leaders of a country, while inheriting the historical achievements made by their predecessors, they also need to shoulder the historical responsibilities for crimes committed by past generations. The

war of aggression imposed on the Chinese people by the Japanese militarists brought untold sufferings, and the average people in Japan were also victims of that war. At such a critical moment this year, China-Japan relationship faces both a test and an opportunity. If leaders of Japan can face history squarely and maintain consistency in how they view that part of history, there will be a new opportunity for improvement and growth of China-Japan relations. It will also create favorable conditions for the growth of business relationship between the two countries.

Xinhua News Agency: Since the beginning of last year, the banks' NPL ratio has been increasing and cases of financial risks of shadow banking have occurred from time to time. Soon many local governments will see their debt come due. As the downward pressure on China's economy grows, how do you see the growing financial risks?

Li Keqiang: I see financial risks are the focus of your questions. It's true that there have been individual cases of financial risks in China, but we are fully capable of forestalling systemic and regional financial risks. China's economy continues to operate within the proper range and there is a fairly high savings rate in China. Moreover, 70% of local government debts are in the form of investment which boasts quite good prospect for yielding returns. We are also regulating the local government financing vehicles to ensure that we will keep front doors open and block back doors. Chinese banks have a fairly high capital adequacy ratio and ample provisions. It's true that there are non-performing loans and the NPL ratio has risen somewhat. Still, the level is quite low internationally.

Let me make clear here: Individual cases of financial risks will be allowed. We encourage the practice of balancing one's book in a market-based way to guard against moral hazard and raise people's awareness of financial risks. This year, we will set up the deposit insurance system and continue to develop multi-tiered capital markets to lower corporate leverage ratio. All these efforts will help ensure that financial services can better serve the real economy.

China Daily: Some people conclude that China has become the number one economy in the world and now poses a challenge to the leadership status of the United States. But they also argue that China is still free riding in international affairs. What is your response to such a view and what are your views on advancing China-US ties?

Li Keqiang: The first part of your question is about whether China has become the largest economy in the world. I have heard such a view during overseas visits. But I always feel there are some elements of misleading exaggeration in it. According to those authoritative standards, China is still the second largest economy in the world and more importantly, our per capita GDP is still behind about 80 countries. Some time before this year's Spring Festival I paid visits to places in China's western region. I visited two rural homes. There are mother and a son in one family who live in a very shabby place where wind can easily be felt in the house. And because the family is so poor, the 40-year-old son has no money to get married. The other home has produced a college student. There is a boy and a girl in that family. To support her brother to go to college, the girl has to work in cities and even couldn't come home for family reunion during Spring Festivals. It pains me deeply to see our people living in such distress. I'm sure there are many more such families in China. By the standard of the World Bank, we still have 200 million people living in poverty. So I can say that China is still a developing country in every sense of the term.

China must manage its own affairs well and maintain development at a reasonable speed. That in itself is China's major contribution to the world. Actually, China is assuming greater due international obligations and responsibilities. Talking about free-riding, for such a big country as ours, how could it get a free ride on anybody's train? What China is doing is to work with other countries to pursue common progress.

Development will remain the top priority for China and we need a peaceful international environment for us to focus on domestic development. When it comes to the China-US relationship, this is a relationship between the largest developing country and largest developed country in the world. We have proposed that China and the United States work together to build a new model of major country relations featuring no-conflict, no-confrontation, mutual respect, and win-win cooperation. This year, President Xi Jinping will pay a state visit to the United States at the invitation of his US counterpart. It will give a strong boost to China-US ties.

Admittedly, there are differences between China and the United States, but what's more important is that the two countries share extensive common interests. When differences are properly handled, the two sides can channel more energy into expanding the convergence of their interests. One highlight in the China-US relationship is that the two sides are advancing negotiations of a bilateral investment treaty (BIT), and the BIT is built around the pre-establishment national treatment and a negative list. This is to break the ceiling on China-US business cooperation and will open up new dimensions for the growth of China-US ties. Naturally the negotiation will take time, but it has already sent a very clear message to both countries and the wider international community that China-US business ties will get even closer and put the overall China-US relationship on a more solid footing.

Foreign Minister Wang Yi Meets the Press 2015/03/08

On 8 March 2015, the Third Session of the Twelfth National People's Congress held a press conference at the Press Center of the Two Sessions. Foreign Minister Wang Yi was invited to answer questions from Chinese and foreign media about China's foreign policy and external relations.

Wang Yi: Friends from the press, good morning. Today is the International Women's Day. At the outset, I would like to extend sincere greetings to the female journalists and all Chinese women who show understanding of and support for China's diplomacy.

On this day a year ago, the MH370 flight went missing. A year has passed, and the plane has not been located, but the search effort will continue. Today must be a tough day for the next of kin of those on board MH370. Our hearts are with you. Malaysia Airlines has started its compensation work. We will provide all needed service to every next of kin and help you uphold your legitimate and lawful rights and interests. With these words, I would like to open the floor to questions.

People's Daily: Mr. Minister, you once said that 2014 was a year of harvest and all-round progress in China's diplomacy. Could you elaborate on that? And what can we expect from China's diplomacy in 2015? What are the keywords we need to watch?

Wang Yi: Indeed, 2014 was a year of harvest for China's diplomacy. It was also a year of forging ahead and breaking new ground.

Under the leadership of the CPC Central Committee headed by General Secretary Xi Jinping, we successfully hosted the CICA Summit in Shanghai and the APEC meeting in Beijing, and left a deep imprint of our own. We took an active part in the resolution of global hot-spot issues, and played China's role in international and regional affairs. We made energetic efforts to expand external cooperation, and our initiative to establish a Silk Road Economic Belt and a 21st Century Maritime Silk Road won support from a lot of countries.

It is particularly worth mentioning that focusing on building a new type of international relations featuring win-win cooperation, we are taking a new path of external relations characterized by partnership rather than alliance. By the end of last year, we had established different forms of partnerships with over 70 countries and a number of regional organizations, and basically established a global network of partnerships. One can say that China's circle of friends and partners has widened and will continue to expand.

In 2015, we will continue to forge ahead and expand all-round diplomacy. While steadfastly safeguarding our national interests, we will work to expand the common interests we have with other countries in the world.

The keywords for China's diplomacy in 2015 will be "one focus" and "two main themes".

Our key focus in 2015 will be making all-round progress in the "Belt and Road" initiative. We will further enhance policy communication with other countries, expand the convergence of our shared interests, and explore effective avenues of win-win cooperation. The emphasis will be on promoting infrastructural connectivity, and building overland economic corridors and pillars of maritime cooperation. We will also promote people-to-people and cultural exchanges and cooperation, and speed up relevant FTA negotiations. We are confident that the "Belt and Road" initiative will win even more support and deliver even more "early harvests", so as to catalyze the revitalization of the Eurasian continent as a whole.

In 2015, we will do a lot under the two themes of peace and development. We will work with the international community to commemorate the 70th anniversary of the end of the world's anti-Fascist war, draw lessons from history, look to the future, and make China a staunch force for peace. The 70th anniversary of the founding of the United Nations will be a good opportunity for us to take an active part in the UN's development summit and international cooperation on climate change. We will play a constructive role in helping to secure a post-2015

development agenda and a new international regime for addressing climate change that are in the interests of developing countries.

Beijing News: In recent years, more and more Chinese citizens have made outbound visits, and we see a good example of that during the just passed Chinese New Year. What will the Chinese Foreign Ministry do to facilitate the outbound visits of Chinese citizens and protect their legitimate rights and interests overseas?

Wang Yi: Last year, for the first time, Chinese citizens made over 100 million visits abroad, making them the largest floating population in the world. There are also more than 20,000 Chinese enterprises which have established a presence abroad, and millions of our compatriots are living and working in different parts of the world. The task and responsibility of protecting their rights is heavier than ever. We are always concerned with the safety and wellbeing of every one of our compatriots, and we will do everything in our power to protect and assist them.

Last year, the Chinese Foreign Ministry's Global Emergency Call Center for Consular Protection set up the 12308 hotline. The hotline is a 24/7, all-time-zone channel of communication between overseas Chinese nationals and their loved ones back in China. Now no matter which part of the world you are in, if you run into trouble, you can dial this number and get prompt assistance from the Foreign Ministry and our diplomatic and consular missions abroad. In the half year since the launch of the hotline, we have received over 30,000 phone calls. Many of our compatriots say that this hotline is very reassuring for them, because they can feel that the motherland is always by their side. We hope more of our compatriots can know about this hotline and make good use of it. When in trouble, please call 12308.

In 2014, we also made important progress in visa facilitation. We signed visa exemption or simplification agreements with 24 countries, equal to the total of the previous four years. And nowadays, Chinese citizens can visit more than 50 countries and territories without a visa or by obtaining a visa upon arrival. You may remember the reciprocal visa arrangement which China and the United States announced last year. It means that if a Chinese or American person has a visa, then for up to five or even 10 years, he or she can travel easily between the two shores of the Pacific Ocean with just a passport and an air ticket. And let me tell you that China and Canada have just reached agreement on issuing visas to each other's citizens with a validity period of up to 10 years. This agreement will go into effect tomorrow.

The effort to protect and assist Chinese nationals overseas is always a work in progress; it is never a mission accomplished. Wherever there is Chinese footprint, consular service must step up and cover that place. We will continue to work hard to improve the value of Chinese passports, so that our compatriots can more directly feel the dignity of being a Chinese and find it easier to travel abroad. We hope more and more of our compatriots can go abroad any time they wish and they can have smooth, safe and worry-free travels.

Lianhe Zaobao: Some people have compared China's "Belt and Road" initiative to the Marshall Plan and say that China is tightening its economic bond with neighboring countries to pursue geopolitical, military and security interests. What is your comment?

Wang Yi: China's "Belt and Road" initiative is both much older and much younger than the Marshall Plan. Comparing one to the other would be like comparing apples and oranges.

The "Belt and Road" initiative is older because it embodies the spirit of the ancient Silk Road, which has a history of over 2,000 years and was used by the peoples of many countries for friendly exchange and commerce. We must renew that spirit and bring it up to date.

The "Belt and Road" initiative is younger because it is born in the era of globalization. It is a product of inclusive cooperation, not a tool of geopolitics, and must not be viewed with the outdated Cold War mentality.

In pursuing this initiative, we will act according to the principle of wide consultation, joint contribution and shared benefits. We will carry out equal-footed consultation and respect the independent choice of other countries. We will be sensitive to the comfort level of other parties, ensure transparency and openness, align the initiative with the

development strategies of other participants, and create synergy with the existing regional cooperation mechanisms. The vision of this initiative is common development and the goal is win-win progress through cooperation. If I may use a musical metaphor, it is not China's solo, but a symphony performed by all relevant countries.

Russia Today News Agency: Against the background of Western sanctions on Russia and the sharp depreciation of the ruble, how will China carry out cooperation with Russia, especially in the energy and financial sectors? And what will China and Russia do to further strengthen their coordination and cooperation in international affairs?

Wang Yi: The China-Russia relationship is not dictated by international vicissitudes and does not target any third party. Thanks to the strong strategic trust the two sides have established, our relationship has become more mature and stable. As comprehensive strategic partners of coordination, China and Russia have a good tradition of supporting each other. And the friendship between our two peoples provides a strong foundation for strengthening strategic cooperation between the two sides.

Practical cooperation between China and Russia is based on mutual need, seeks win-win results, and has enormous internal impetus and room for expansion. This year, our practical cooperation is expected to deliver a series of new results. For example, we will work hard to lift two-way trade to US$100 billion. We will sign an agreement to work on the Silk Road Economic Belt and begin relevant cooperation. We will start full construction of the eastern route of the natural gas pipeline and sign an agreement on the western route of the pipeline. We will accelerate the joint development and research of long-distance, wide-body passenger jets. We will start strategic cooperation on the development of Russia's Far Eastern region. And we will strengthen our cooperation on high-speed railways. At the same time, we will continue to intensify our cooperation in the financial, oil and gas, and nuclear-power sectors.

China and Russia are both permanent members of the UN Security Council. We will continue to carry out strategic coordination and cooperation to maintain international peace and security. This year, both countries will hold a series of activities to commemorate the 70th anniversary of the end of the world's anti-Fascist war. We will support each other and jointly uphold international peace and the outcome of the Second World War.

Xinhua News Agency: This year marks the 70th anniversary of the founding of the United Nations. It is an important historical moment for the international community to reflect on the past and look to the future. Some people say that China wants to challenge and even overturn the current international order, and replace it with a new one dominated by China itself. What is your comment?

Wang Yi: I want to make it very clear that China has always been a constructive force in building the international order. If we can compare the international order and system built around the United Nations to a big boat, then 70 years ago China was intimately involved in designing and building that boat, and China was the first country to put its signature on the Charter of the United Nations. Today we are in this boat together with more than 190 other countries. So of course, we don't want to upset that boat. Rather, we want to work with the other passengers to ensure that this boat will sail forward steadily and in the right direction.

Seventy years have passed. The international situation and landscape has changed dramatically. Naturally, the international order needs to be updated. China supports the reform of the international order and system. Such reform is not about overturning the current system or starting all over again; rather, it is about seeking new ideas to improve it. The general direction is to promote democracy in international relations and the rule of law in global governance. In particular, it is very important to safeguard the legitimate rights and interests of developing countries, which are in the majority, so that we can make the world a more equal, harmonious and safe place.

NBC: Last month, State Councilor Yang Jiechi and National Security Advisor Susan Rice declared that both sides have agreed to strengthen coordination on regional and global challenges. With President Xi Jinping visiting the United States later this year, in your view, how can this strengthened coordination for the new type of great-power relationship help resolve the US-China disputes over, for example, cyber-security or the maritime conflicts in the Asia-Pacific region?

Wang Yi: President Xi Jinping will pay a state visit to the United States this fall at the invitation of his US counterpart. We expect that following their Yingtai meeting last year, the two presidents will have another productive discussion and inject new momentum into our efforts to build a new model of major-country relations between China and the United States.

The undertaking to build a new model of relations is a pioneering effort. It will not be smooth sailing. But it is a logical development, because it accords with the common interests of both sides and the trend of our times. There is a Chinese saying, "Sincerity can work wonders." As long as the two sides show sincerity, buttress the bottom line of "no conflict and no confrontation", cement the foundation of "mutual respect", then we can explore the immense possibility of "win-win cooperation" between China and the United States.

China and the United States are two large countries. It's impossible for there not to be any disagreements between us, and these disagreements will not disappear the moment we commit to build a new model of major-country relations. But we shouldn't magnify the problems through a microscope. Rather, we should use the telescope to look ahead to the future and make sure we will move forward in the right direction.

At the Beijing APEC meeting, President Xi Jinping called for shaping the future through Asia-Pacific partnership. Many countries responded enthusiastically to his initiative. China and the United States interact most frequently in the Asia-Pacific and our interests intersect the most in this region. In our view, the building of a new model of major-country relations should begin with the Asia-Pacific region. If both sides can work to establish and deepen strategic trust and have positive interactions, then we can surely jointly contribute to peace, stability and prosperity in the region.

As for the issue of cyber-security, since both China and the United States are major users of the Internet, we have common interests in upholding it. We hope cyberspace will become a new frontier of our cooperation rather than a new source of friction.

China Daily: In recent months, major terrorist attacks have frequently hit many parts of the world, from Sydney to Paris, from western Asia to western Africa. What is China's position on fighting terrorism and carrying out international counter-terrorism cooperation?

Wang Yi: Terrorism is a common scourge to mankind, and fighting it is a common responsibility of every country. China has always been an active participant in international counter-terrorism cooperation. At the same time, we believe that to uproot terrorism, we must remove its breeding ground. To deny any haven to the specter of terrorism, we have to promote economic and social development, appropriately handle regional conflicts, and advocate equal-footed dialogue between different civilizations, religions and ethnic groups.

China has also suffered at the hands of terrorism. The "Eastern Turkestan Islamic Movement" is a clear and present threat to our security. We would like to work with other countries in the spirit of mutual respect and equal-footed cooperation to jointly address the new threats and new challenges brought by terrorism.

Yonhap News Agency: The top leader of the DPRK has decided to attend the activities to be held in Russia in May to mark the victory of the Great Patriotic War, but he has not yet made a visit to China. Will the leaders of the DPRK and China have a meeting this year? And is it possible that the Six-Party Talks can still be resumed?

Wang Yi: China and the DPRK are friendly neighbors. Chinese people emphasize good faith and value friendship. We cherish our traditional friendship with the DPRK and we seek the normal development of our relations. The China-DPRK relationship has a strong foundation. It should not and will not be affected by temporary events. As to when our leaders will meet, it will have to suit the schedule of both sides.

The situation on the Korean Peninsula is basically stable, and China has played a constructive role in bringing that about. It is in the common interests of all relevant parties to maintain peace and stability on the Peninsula and achieve the denuclearization of the Peninsula. At the moment, the situation there has entered a delicate period. We

call on the relevant countries to exercise calm and restraint, and say and do things that will have a positive effect, so as to continue to foster the atmosphere and conditions for resuming the Six-Party Talks.

China Radio International: The negotiation of a comprehensive agreement on the Iranian nuclear issue has been twice extended and the June deadline is not far away. Can you talk about the prospect of the negotiation? What kind of role has China played in the negotiation? And what steps is China going to take to push forward the negotiation?

Wang Yi: The comprehensive settlement of the Iranian nuclear issue can help to strengthen the international system against nuclear proliferation, promote peace and tranquility in the Middle East, and provide useful experience for resolving major difficult issues through negotiation. We believe the parties should keep at it and finish the negotiation. The possible ramifications of the Iranian nuclear negotiation will go far beyond the negotiation itself. It's not surprising that there might be some ups and downs on the way. At the moment, although there is still some uncertainty about the prospect of the negotiation, we can already see light at the end of the tunnel. In our view, the negotiation has reached a critical point. The relevant parties, especially the main protagonists, should make a political decision as soon as possible.

China is an important party to the negotiation, and we have made a positive contribution to resolving the difficult issues and sticking points in the negotiation. We are prepared to work with other relevant parties to finish the marathon negotiation on the Iranian nuclear issue at an early date.

NHK: China has announced that it will hold a military parade to mark the 70th anniversary of the end of the Second World War. Does China have a plan to invite the Japanese Prime Minister to come to China so that the leaders of the two countries can jointly discuss the future of the bilateral relationship? Many people in Japan believe that maybe China is using the history issue as a tool to denigrate Japan's contribution to international peace over many years and tarnish Japan's international reputation. If China really has the broad mind of a large country, then shouldn't it readjust its policy towards Japan?

Wang Yi: This year marks the 70th anniversary of the victory of the Chinese people's war of resistance against Japanese aggression. As the main Eastern theater in the world's anti-Fascist war, China will hold a series of commemorative activities, including a military parade. This is consistent with the practice of other countries, and is perfectly normal and natural. Our goal is to remember history, commemorate the martyrs, cherish peace and look to the future. We will extend invitations to the leaders of all relevant countries and international organizations. We welcome the participation of anyone who is sincere about coming.

You mentioned the history issue. This issue has been haunting the China-Japan relationship, and we cannot but ask why this has been the case. I remember the words of an elder Chinese diplomat. He said that the more the victimizer is conscious of his guilt, the easier the victimized can recover from the suffering. Actually this is common sense in interpersonal relations and the correct attitude towards history. Those in power in Japan should first ask themselves what they have done on this score. Of course, the people of the world will reach their own conclusion. Seventy years ago, Japan lost the war; seventy years afterwards, Japan must not lose its conscience. Will it continue to carry the baggage of history, or will it make a clean break with past aggression? Ultimately, the choice is Japan's.

Phoenix Satellite TV: I want to ask about China's active involvement in settling international hot-spot issues in 2014. Last year, China called for a special consultation in support of the IGAD-led peace process in South Sudan, and hosted the Ministerial Conference of the Istanbul Process on Afghanistan. And Mr. Minister, you have travelled personally to Iran to mediate the nuclear issue. Does all of these mean that China will take a more active part in helping to resolve international hot-spot issues?

Wang Yi: Last year, we took an active part in the mediation of a series of hot-spot issues and shouldered our share of international responsibility. In the meantime, we have been searching for a uniquely Chinese approach to settling hot-spot issues, and we pay a lot of attention to drawing wisdom and inspiration from China's traditional culture.

Maybe there is a thing or two that we can learn from the profound traditional Chinese medicine. When approaching a hot-spot issue, first, we need to take the pulse. We need to adopt an objective and impartial attitude, understand where the issue has come from, and establish the basic facts. We shouldn't just listen to one side of the story and we shouldn't write out the wrong prescription.

Second, we need to adopt a multi-pronged approach. Rather than willfully resorting to the use of force or sanctions, we should seek a political settlement and try to put forward a comprehensive and balanced package solution that addresses the concerns of all involved.

Third, we need to address both the symptom and the root cause. It is important to know what the heart of the problem is and then suit the remedy to the problem. And we should remove the breeding ground so that there will not be a relapse ever again.

In short, we will continue to follow a non-interventionist approach and respect the sovereign equality of countries. In that context, we will continue to put forward Chinese solution and play China's role in helping to appropriately resolve all kinds of hot-spot and protracted issues.

Nigerian Television: China has a culture of planning ahead and implementing these plans, and this has contributed greatly to how the country has become what it is today. Now that China has presented the 2015 year plan for work in the country, I would like to believe that China also has concrete plans for Africa. I see the deployment of an envoy to the Africa Union in Addis Ababa as a good sign. What concrete plans does China have for Africa, particularly in promoting win-win partnership between those countries?

Wang Yi: It's true that China likes to make plans before we do things, but we are also good at responding to emergencies. For example, when western Africa was suddenly hit by the Ebola epidemic last year, the Chinese government and people felt for them. We were the first to deliver aid, and altogether we provided four tranches of emergency aid with a total value of 750 million RMB yuan. We also deployed nearly 1,000 medical workers to the affected areas. The Chinese medical workers know the risk of infection, yet for the sake of the health of the African people, they are still battling in the affected countries. We want to pay tribute to them and give them the thumbs-up.

Just two days ago, the last Ebola patient in Liberia was released from a Chinese-run medical treatment center. What wonderful news and what a relief!

Speaking of China-Africa cooperation, during his visit to Africa last year, Premier Li Keqiang put forward the idea of working together to build six projects and three key networks. His call received strong support from many African countries. Recently we set up our permanent mission to the African Union, and the first head of the mission has already hit the ground running. This fully shows China's support for China-Africa cooperation and Africa's integration process. Later this year, the Forum on China-Africa Cooperation will hold its sixth ministerial conference. While consolidating all areas of traditional cooperation, we will focus on the urgent needs of Africa and do more in the following three areas: first, industrial cooperation to boost Africa's industrialization process; second, health cooperation to build up Africa's capacity for dealing with infectious diseases; and third, security cooperation to help Africa maintain peace and stability.

China and Africa have always been a community of shared destiny. We are prepared to work with our African brothers and sisters to turn our traditional friendship into results of win-win cooperation and turn Africa's development potential into comprehensive national strength.

Global Times: The situation in northern Myanmar has been tense in recent weeks. Many residents have crossed the border into China. Does this put pressure on the security of China's southwestern border? There are some Chinese citizens caught up in the conflict. What will China do to ensure their safety?

Wang Yi: China and Myanmar have a common border of over 2,000 kilometers. Our two countries are friendly neighbors sharing not just common mountains and rivers, but also weal and woe. In recent weeks, there has been some instability in northern Myanmar. When problems arise in our neighbor's house, of course we follow the

situation very closely. China's position is very clear: what happens there is Myanmar's internal affair, and we hope it can be resolved peacefully. At the same time, stability must be maintained in the China-Myanmar border region as well as in northern Myanmar, because this serves the common interests of our two countries and two peoples.

China will continue to have communication and cooperation with the Myanmar side to jointly ensure tranquility in the border area and the safety of people from both countries.

Press Trust of India: The Indian Prime Minister Narendra Modi is expected to visit China in the course of a few months. How does China view his visit, and what kind of significance does it attach to this? And also, the two countries are scheduled to have the next round of border talks. Is there a breakthrough expected for us to resolve the boundary issue?

Wang Yi: Last September, President Xi Jinping paid a historic visit to India. The picture of the two leaders working the spinning wheel in Gujarat, the home state of the Prime Minister, has spread far and wide in China. The Chinese people believe in reciprocating the courtesy of others. So I'm sure when Prime Minister Modi visits China later this year, he will be warmly welcomed by the Chinese government and people.

Mr. Deng Xiaoping once said that unless China and India are developed, there will be no Asian century. China is prepared to work with India to implement the important agreement reached by our leaders. The Chinese "dragon" and the Indian "elephant" should join each other in a duet to work for the early revitalization of two oriental civilizations, the common prosperity of two emerging markets and the amicable coexistence of two large neighbors.

As for the China-India boundary question, it is a legacy of history. We have worked on it for many years and made some progress in the boundary negotiation. The dispute has been contained. At the moment, the boundary negotiation is in the process of building up small positive developments. It is like climbing a mountain. The going is tough and that is only because we are on the way up. This is all the more reason that we should do more to strengthen China-India cooperation, so that we can enable and facilitate the settlement of the boundary question.

China News Service: According to media reports, China is reclaiming land around its islands and reefs in the South China Sea. Does this signal a change in China's policy towards the South China Sea and even the neighborhood?

Wang Yi: China is carrying out necessary construction on its own islands and reefs. The construction does not target or affect anyone. We are not like some countries, who engage in illegal construction in another person's house. And we do not accept criticism from others when we are merely building facilities in our own yard. We have every right to do things that are lawful and justified.

This said, China will continue to uphold freedom of navigation in the South China Sea. We will continue to peacefully resolve the disputes through direct dialogue and consultation. And we will continue to play a constructive role in maintaining regional peace and stability. China's policy towards the neighborhood is guided by the principle of sincerity, amity, mutual benefit and inclusiveness. It aims to bring harmony, stability and prosperity to the neighborhood. This policy has not and will not change.

CCTV: At last year's Central Foreign Affairs Work Conference, General Secretary Xi Jinping stated that China will pursue major-country diplomacy with Chinese characteristics. Mr. Minister, can you spell that out for us, and talk about its most salient feature?

Wang Yi: The concept of major-country diplomacy with Chinese characteristics is a very rich one. It includes many things, for example adhering to the leadership of the Communist Party of China and the socialist system, following the independent foreign policy of peace, sticking to the path of peaceful development, insisting on the equality of all countries large and small, and striking a right balance between upholding principles and pursuing shared benefits. These ideas originate from the fine tradition of the Chinese nation and reflect the essential property of the socialist system. For our current purposes, let me say that the hallmark of major-country diplomacy with Chinese characteristics is win-win cooperation.

Last year, President Xi Jinping called for building a new type of international relations featuring win-win cooperation. His call echoes the trend of the times and represents an important innovation in the theory of international relations. In a globalized world, the interests of countries are increasingly intertwined. Countries may have different cultures, faiths or systems, but at the very least, we can all accept the idea of win-win cooperation. By building a new type of international relations featuring win-win cooperation, we want to replace the old practice of "going it alone" and reject the old mentality of "the winner takes all".

In short, in contrast to other major countries in history, China has already found a new path of peaceful development for itself. Now we would like to work with other countries to find a new path of win-win cooperation for the world. Under the leadership of the CPC Central Committee, Chinese diplomats will forge ahead and perform our duty to the country and our responsibility to the world.

Remarks at the Brookings Institution Daniel R. Russel December 16, 2014

Many years ago when I worked for Senator/Ambassador Mike Mansfield, I frequently heard him declare that the “next century (the 21st century) would be the century of the Pacific.” I remember thinking at the time that this sounded a little overstated – but fortunately I kept my mouth shut.

We’ve all come to recognize how prescient he was. Mansfield was profoundly interested in Northeast Asia because he believed – as President Obama and Secretary Kerry both believe – that America’s well-being, security, prosperity, and future are deeply affected by developments there. The Obama Administration has placed tremendous importance on our relations with China, Japan and the Republic of Korea, and we too understood the impact that relationships and policies in Northeast Asia have on the region and the world.

Since 1977, when Mansfield left the Senate and became Ambassador to Japan, and certainly since 2009 when President Obama took office, the pace of change in Northeast Asia has been accelerating. While it is stable relative to other parts of the world, as your invitation mentioned, that can not, and must not, be cause for complacency – the stakes for the global economy and regional and global stability are too high. So the individual and collective challenge – for Chinese, Koreans, and Americans – is to help build an inclusive, sustainable order in Northeast Asia.

The question is: What will be the tenets of that order?

And how can we build from that base to preserve the peace, advance human dignity, and promote prosperity and opportunity in the wider region and ultimately the world?

The fact is, our countries have a tremendous ability to shape the future. We are major world economies. We are home to some of the world’s most innovative thinkers and most efficient manufacturers, thanks in part to our investments in each other and our tight financial and supply chain links. Just think iPhone or Samsung Galaxy or ThinkPad.

But we’re not only linked by investment capital – we’re also linked by human capital – over 40 percent of international students in the U.S. are from Northeast Asia.

Likewise, China has risen to become the fifth-most-popular destination for Americans studying abroad. And last year saw significant increases in American students in Japan and Korea.

The blending of our cultures and sharing of knowledge is seen in everything from food to film to music to this very conference.

Now, international relations is not quite “Gangnam Style” – this conference is not going to break YouTube – but I do hope that working together, you’ll be just as creative as PSY. I’m setting the bar high, I know.

Given our commonalities, it is natural that we seek opportunities to collaborate. Plurilateral groups of nations working together are an increasingly important force in world affairs. By definition they’re more inclusive than bilateral partnerships, and in practice they are more nimble than larger regional and global groups.

For example, the U.S., Australia and Japan Trilateral Security Dialogue is more than a decade old. Just last month in Brisbane, I was with President Obama for a leaders’ trilateral meeting. It showed we’re expanding beyond regional issues to jointly confront global challenges, from kick-starting the world economy, to battling ISIL and Ebola, to humanitarian and disaster assistance, to development aid.

The trilateral collective of the Republic of Korea, Japan, and the U.S. is another grouping that does extremely important work together. President Obama hosted a leader’s trilateral meeting in March in The Hague where he, President Park and Prime Minister Abe consulted on the North Korean threat and other concerns.

Those groupings are based on shared values like democracy, human rights, and respect for international law, and they’re based on shared interests – both in the Pacific region and across the globe.

So is the group I’m joining tomorrow when I head to New Delhi for periodic U.S.-Japan-India trilateral consultations.

Those are just a few examples that testify to the possibility – and the utility – of a kind of flexible geometry involving Northeast Asian countries and the United States.

So in that vein, we welcomed President Park’s call last month for a resumption of the trilateral foreign ministers’ meeting among China, the Republic of Korea, and Japan. I think there’s a widespread hope and expectation that

after the meeting of the three Foreign Ministers, leaders’ meetings will resume. That would be a very good sign for peace and stability in the region.

Regardless of the format, I think we can all see the critical importance of communication between South Korea, China and Japan – as well as with the United States. Because we need to build on areas where our interests converge and manage areas where our interests may conflict.

Our collaboration and coordination to counter Ebola, for instance, is a good example. So is the crisis management mechanism that China and Japan agreed to in principle last month. We hope it becomes operational soon.

Conversely, the abrupt declaration of an Air Defense Identification Zone in the East China Sea last year was an object lesson in how not to handle a sensitive issue with overlapping national interests.

The coming year presents us with another particularly sensitive set of issues – the anniversaries we will mark in 2015. It is the 70th anniversary of the end of World War II and the 50th anniversary of normalization between Seoul and Tokyo.

1945 saw the creation of the UN, the dropping of the atomic bomb on Hiroshima and Nagasaki, the United States occupation of Japan, Korea’s independence, but also its division, and Nationalist China’s deal to recognize Mongolia’s independence (a country I’d note that next year will celebrate 25 years as a democracy).

Navigating these anniversaries will require restraint, judgment, skill and good will. And frankly, I welcome your help and advice – not just to handle the anniversaries, but to build on them as well.

The record of the past 70 years in Northeast Asia has been one of extraordinary progress. And as I’ve said before, progress in 2015 – particularly in Tokyo’s relations with Seoul and Beijing – can make historical millstones into forward-looking milestones.

This is not a theoretical proposition. China, South Korea and Japan are major players in the region’s security and economy. All three are increasingly active and influential players on the global stage.

Far from Asia for the Asians, it’s now Asia for the world. We cannot afford to have these three countries operating in anything less than a fully cooperative manner – let alone working at cross-purposes or worse.

One important way to support good relations among these neighbors is to support the well-established regional order. That includes APEC, the East Asia Summit and other ASEAN-centered fora. And of course, it is built on the strong foundation of U.S. alliances and security partnerships that have kept the region safe and stable.

This architecture, and the system that the United States has championed, has fostered trade and investment, economic and political linkages, educational and technological exchange, and rapid development – enriching countries across the region. It has helped lift hundreds of millions out of poverty.

And as each country has developed and found its social, economic and political footing – first Japan, then the R.O.K.– it has paid back into the system and worked to further strengthen it.

Now it is China’s turn. Look at the period from President Nixon’s historic visit, to the normalization of relations 35 years ago, to China’s accession to the WTO in 2001, to the achievements of Sunnylands last year and President Obama’s Beijing visit last month.

For decades, the United States has supported China’s peaceful rise. We’ve worked to avoid strategic rivalry and to narrow – or at least manage – our differences.

But China’s rise is by no means the only development - the entire Asia-Pacific region is changing. India is “Acting East.” ASEAN is becoming more integrated. Indonesia’s democracy is flourishing. Burma’s reformers are pushing forward. America’s rebalance is continuing and our alliances are growing stronger and more capable.

This is all to the good. But the shifting regional dynamics generate tensions as well; tensions that pose serious risks to stability and prosperity for all of us.

Is the construction of large-scale man-made outposts and continual encroachment by ships, planes and oil-drilling rigs going to be the way that Asians resolve maritime boundaries?

Will ASEAN’s longstanding effort to negotiate a basic Code of Conduct in the South China Sea require another decade?

The sharpening of tensions over maritime boundaries underscores the importance of maintaining a regional system based on adherence to rules, not adhesion to rocks… a system where claims are based on international law, not a sense of entitlement or muscle…a system based on interdependence and peaceful dispute resolution.

But while changing dynamics drive some tensions, the greatest threat in the region is a chronic one: North Korea, the dangerous outlier in Asia.

The good news is that North Korea is an area where the U.S. and the rest of Northeast Asia cooperate closely.

We do so because of the risks posed to all of us by the D.P.R.K’.s pursuit of nuclear weapons and ballistic missiles, its rejection of international obligations, its broken promises, and its sudden provocations.

I just gave a speech last week addressing North Korea’s illegal programs and abominable human rights record. I won’t reprise it here, but I wanted to touch on one part of it. The first question I got from the audience was basically: “China’s the problem; China’s preventing progress on North Korea, right?”

My answer was “No.” China has sent unmistakable signals of its displeasure, such as President Xi’s decision to visit Seoul before visiting Pyongyang or even meeting with Kim Jong-Un.

Now of course the U.S. and some partners believe there’s more that China can do to apply pressure. And China believes there’s more the U.S. can do to engage diplomatically.

But overall, I see a broad alignment in strategic interests and a commitment to cooperation. Beijing, Seoul, Washington and Tokyo are united – and Russia as well – on denuclearization.

And at the same time as we pursue a free and whole Korean Peninsula, we’re working with our Northeast Asian partners in other ways. Because each of us has a significant role to play in addressing myriad, ongoing challenges around the world.

In a still-sluggish global economy, we are engines of growth. Working within APEC and the G20, we’re poised to do even more.

Implementing the Korea-U.S. FTA, negotiating an investment treaty with China, and finishing the Trans-Pacific Partnership with Japan and ten other partners will each provide a huge lift to the global economy. China’s FTAs and trade proposals like RCEP are an important part of the conversation as well.

The U.S. and China are the biggest emitters of greenhouse gases, but our recent action on climate targets shows we are determined to address this problem. So do President Obama’s and Prime Minister Abe’s pledges to the South Korean-hosted global Green Climate Fund of $3 and $1.5 billion respectively. And our countries' R&D and manufacturing capacities will keep us at the forefront of the clean energy economy.

We each have public health and infectious disease expertise, and experience from epidemics such as Bird Flu and SARS. Our nations are key contributors to the Ebola response, and likely will be needed even more in the future.

And we’re major providers of humanitarian assistance and disaster relief, from Syria and Iraq, to the Philippines after Super Typhoon Haiyan.

We are also tackling the interrelated issues of food, water, and energy security, which are challenges in the Mekong River basin and the Pacific Islands, just as they are in Africa. Our expertise and our capital are needed to address these issues.

The major Northeast Asian powers and the U.S. need each other – just as much as the rest of the world needs us – to jump start the global economy, preserve regional stability, enhance global security, and protect the global environment.

If I can channel my former boss: U.S.–Northeast Asia relations are the most important plurilateral relations in the world—bar none!

You know that – it’s why you’re having this conference. I look forward to hearing your conclusions.

Press Availability in Beijing, China John Kerry: November 8, 2014

SECRETARY KERRY: Good afternoon, everybody. I want to begin by thanking our Chinese hosts for their very, very warm welcome and for the depth and breadth of the discussions that we’ve been able to have at APEC this year.

This is my ninth trip to Asia and the Asia Pacific in the 21 months since I have served as Secretary of State. And I have returned again and again to this region for one simple reason: The United States is a Pacific nation, and we take our enduring interests here very seriously, our responsibilities likewise. We know that America’s security and prosperity are closely linked to the Asia Pacific, and that is why President Obama began the rebalance to Asia in 2009. It’s why he has asked me to redouble my own efforts in the region over the course of the next two years.

I’ve had a number of very productive bilateral meetings in the course of the last day here on the sidelines of the APEC conference with Foreign Minister Wang Yi of China and other Asia Pacific allies and partners, including Australia, Indonesia, Japan, New Zealand. And both the Japanese and Chinese foreign ministers briefed me on the progress that they announced in their bilateral relations, and we, the United States, very much welcomed the reduction in tension between Asia’s two largest economies. I look forward to continuing these discussions and to deepening our partnerships with APEC economies when President Obama arrives on Monday for the APEC Leaders’ meetings here in Beijing. Excuse me.

To ensure that the partnerships that we talk about here at APEC are able to endure, it is really essential that we reach agreement on the rules of the road. And we need to do so through multilateral institutions where all voices can be heard. APEC is essential to upholding the rules-based system throughout the Asia Pacific. It is the best way to ensure that all of our economies, big and small economies, have a voice. And I am very pleased with the progress that we made this year on the regional economic integration and on strengthening connectivity and infrastructure development. The United States is very committed to working with our APEC partners in order to build stable regional economic order based on rules and norms that are reinforced by institutions. Our goal is to remove barriers to trade and investment so that businesses in all APEC economies can grow and create jobs and compete with other companies and other countries on an equal basis. APEC has and will continue to play a critical role in guaranteeing that.

Today, we also made important progress with China and other APEC economies on promoting women’s economic empowerment, combating corruption, supporting educational opportunities across borders, and advancing our commitment to clean energy. First, we launched the APEC Women and the Economy Dashboard. The dashboard will be a measure of progress across APEC economies on key issues for women’s economic empowerment. And it will allow us the ability to be able to measure education, leadership positions, opportunities for employment, all the different things that contribute to the ability to increase women’s empowerment in the economy. We also launched a Women’s Entrepreneurship in APEC Network. And that will link women entrepreneurs and business owners to each other and to supply chains all across the region. Frankly, that is good for business, it is good for workers, and it is good for all of our economies.

Second, we deepened our partnership with APEC economies on combating corruption. The principles that we adopted are clear and they are compelling. We are determined to prevent, detect, and effectively prosecute foreign bribery. We’re providing guidance to our businesses on how they could help prevent and detect corruption. And we are enhancing our law enforcement cooperation and we’re promoting the adoption of APEC business codes of ethics for small and medium enterprises. And we believe that this cooperation is a major step forward. Corruption not only creates an unfair playing field, it not only distorts economic relationships, but corruption also steals from the people of every country the belief that the system can work for everybody. So it is important that systems are transparent and accountable, and ultimately, that people at every level have an ability to have confidence that that system is working for everybody with the same set of rules.

We also made progress in education and clean energy. We launched an APEC scholarship, an internship initiative, to provide more educational opportunities for students in all APEC economies. We committed to doubling the share of renewables in the region’s energy banks by the year 2030. And we reaffirmed our commitment to phase out

inefficient fossil fuel subsidies. I can’t emphasize enough how critical it is for APEC to lead the way in reducing greenhouse gas emissions. We at last have an opportunity to put ourselves on the path to a clean energy future, and that is a path that is more essential than ever because of the urgent threat of global climate change. The solution to climate change is good energy policy. And we believe today, we helped in APEC to move APEC economies to a commitment in that direction.

These efforts complement and reinforce one another. Curtailing corruption makes our marketplace more efficient and more fair. Cutting fossil fuel subsidies creates a cleaner environment and a stronger economy. Enhanced opportunities for women affect and advance the cause of social justice and prosperity. And these are all separate fronts, but actually, all of them support a single, important goal: securing an equitable and sustainable future for all of our countries.

Finally, we also discussed a broad array of challenges, global challenges – from Daesh or ISIL, from the turmoil of the Middle East, from Ebola, to climate change, to the threat of terrorism in many different places. We all understand that Ebola is a global threat requiring global action, and I particularly want to thank Japan for providing an additional $100 million for treatment, prevention, and broader efforts that will promote stability in the hardest-hit countries. Over the last weeks under President Obama’s leadership, many countries have been coming together in an effort to try to create a greater response on Ebola. Many countries have responded remarkably and they’re contributing healthcare workers, they’re contributing construction materials, medical supplies, doctors, nurses, experts, technicians, laboratories, beds, hospital equipment. Every country has an ability to do something, and we are grateful for those that are, but we need more countries to still do more.

And I want to emphasize, across the board, as a planet, all of us on this globe are not yet doing enough to be able to curb and eradicate the threat of Ebola. There are hundreds of new cases each week, and the UN has identified $1 billion in urgent needs. In my meetings over the past two days, I urged all of our APEC partners to help to meet that need with specific efforts along the lines that I just described. So we hope the response will grow, and obviously, out of that can come an enormous example of the ability of countries to come together. What we do against Ebola can actually be a model for what we can do against any other future challenge of similar kind. So this is not a one-time lost moment; this is something that can serve all of us to build a long-term infrastructure to deal with the potential of any communicable disease that can move across boundaries and borders at any time.

With that, I would be happy to answer a few questions.

MS. HARF: Our first question is from Carol Morello of The Washington Post, and there is a microphone for you too, if you’ll just hold on one second.

QUESTION: Could you provide some more details on your discussions this morning with Mr. Lavrov, specifically about Ukraine and Iran? Did he provide any assurances that Russia is committed to upholding the Minsk agreement, particularly when it comes to sending troops and tanks into Luhansk? And if there is credible evidence to the contrary, how would the U.S. respond? New sanctions or something else?

On Iran, did he assess what he considers the prospects for a November 24th agreement? And what is your sense, given the correspondence between President Obama and Ayatollah Khamenei, that Iran is prepared to make a deal given they – the fact they still refuse to be transparent regarding current and past use of nuclear materials?

SECRETARY KERRY: Well, the meeting with Foreign Minister Lavrov was a very in-depth meeting in which we discussed a number of different crises in the following context: Obviously, the United States and Russia have some clear differences and some clear disagreements about certain policies at this point in time. And we discussed, obviously, those disagreements. But we also know that we need to find the places where we can agree and cooperate because it is important for the world to do so.

With respect to Iran, Russia has been a constructive, engaged, serious partner in the effort to try to find a solution to a problem that is not – that shouldn’t lend itself to other disagreements, but which has enormous impact for everybody and which is strategically important not just to the United States or the P5+1, but to all countries, and

which can have a profound impact on nonproliferation for the long term. So Russia has been working as a constructive participant in the P5+1 process. They have made various suggestions that have helped to move the process along. And we are hopeful that over the course of the next weeks, it will be possible to close real gaps that still exist in order to be able to reach an agreement, but I’m not going to stand here and predict at this point in time what the odds of that are.

I also want to make this very, very clear: No one, to my knowledge, has confirmed or denied whether or not there is a letter or was a letter, and I’m not going to comment on what the President of the United States and a leader of another country may or may not communicate – may or may not communicate privately. I will tell you this, though: No conversation, no agreement, no exchange, nothing has created any kind of a deal or agreement with respect to any of the events that are at stake in the Middle East. There is no linkage whatsoever of the nuclear discussions with any other issue, and I want to make that absolutely clear. The nuclear negotiations are on their own, they are standing separate from anything else, and no discussion has ever taken place about linking one thing to another, one involvement with another, that I am aware of. And I’m confident I am aware of what the President has been doing and saying with respect to this issue.

The issue of Ukraine we discussed, obviously, at length, but we also discussed Syria, we discussed the Middle East peace process, we discussed other issues of concern. Suffice it to say that we do have some disagreements about some of the facts on the ground with respect to Ukraine. We have agreed to exchange some information between us regarding that. And we have also agreed that this is a dialogue that will continue. But the issue of sanctions or other issues obviously have been made clear, are that the choices Russia makes will decide what happens with respect to sanctions in the long run here.

And our hope is still that the process of the Minsk agreements can go forward, that they will be implemented, and that it will be possible over time, with their implementation, to see the border sealed, to see the troops withdrawn, and to see stability restored in a way that allows everybody to move down a path of de-escalation. But it really is up to the events over the course of the next weeks to determine whether or not that happens.

MS. HARF: Great. Our final question is from Hu Ling of Phoenix TV. The mike is coming.

QUESTION: Thank you, Secretary. I come from Hong Kong, Phoenix TV. My question --

SECRETARY KERRY: Okay, go ahead.

QUESTION: Yeah, sorry. My question concern about the China and Japan relationship. You have also mentioned about a little bit in your final (inaudible) speech, and I wonder how you – what’s your comment on the agreement reached by China and Japan, and that they finally made the top leader meeting during the APEC time? And also, do you think it’s come to a release – relief for U.S. and also other Asia country? Thank you.

SECRETARY KERRY: What was the last part of the question? I’m sorry.

QUESTION: Sorry, I do wonder, the meeting – the top leader meeting welcomes to relief for U.S. and also other neighboring country in Asia? Thank you.

SECRETARY KERRY: The top leader meeting in – between --

QUESTION: Yeah, between China and Japan.

SECRETARY KERRY: Well, I discussed this new agreement with both Foreign Minister Wang Yi and also with Foreign Minister Fumio Kishida of Japan. And both of them explained to me what they believe they have achieved in the four points with respect to the agreement between them. I want to be clear that the United States welcomes this initiative. We think that any steps that the two countries can take to improve the relationship and reduce the tensions is helpful not just to those two countries, but it’s helpful to the region.

And I think it’s entirely appropriate that that particular discussion took place here at APEC, which frankly is becoming not just a place to discuss economic ideas, but also to reflect on the fact that today, the ability of economics to work requires stability and a peaceful process in place. So I think that security issues are also automatically on the table. So to have this emerge from this meeting, I think, is important.

Now this agreement is a beginning; it’s not an end. It’s the outline of steps that now need to be taken in order to really define how certain tensions are going to really be resolved. So it will be over time that this will be given a little more meat on the bones. But we absolutely appreciate the initial effort, we think it’s very constructive, and we have hopes that it can lead to a greater definition and to a reduction further of any conflict or tension in the region.

Remarks by President Obama and President Xi Jinping in Joint Press Conference: November 2014

PRESIDENT XI: (As interpreted.) Honorable President Obama, distinguished guests, dear friends from the press, good morning. First of all, I wish to once again warmly welcome President Obama to China for this state visit.

Over the past two days, I had a constructive and productive discussion with President Obama. We had sincere and in-depth exchange of views, and reached broad agreement on China-U.S. relations, major international, and regional issues of shared interest, as well as on global issues.

We reaffirmed the agreement that we reached at the Annenberg estate on developing the bilateral relations. We agreed to continue to advance the development of a new model of major-country relations between China and the United States. We had in-depth discussions on the priority areas for advancing such relationship. We agreed to accelerate the negotiations of the BIT, and we’ll make efforts to reach agreement on the core issues and the major articles of the treaty text, and to initiate the negative list of negotiations in 2015.

We have reached agreement on the ITA expansion negotiations, and we are ready to work together for the early conclusion of relevant plural-lateral talks. We fully recognize the document signed between the two departments of defense on building two major confidence-building measures, and agreed to continue to deepen military exchanges, mutual trust and cooperation on that basis, and develop a new type of military-to-military relations between the two countries.

We issued a joint statement on climate change, and we jointly announced our respective post-2020 targets. We agreed to make sure that international climate change negotiations will reach an agreement as scheduled at the Paris conference in 2015, and we agreed to deepen practical cooperation on clean energy, environment protection, and other areas.

We reaffirmed our firm opposition to terrorism of all forms, and agreed to strengthen counterterrorism cooperation on intelligence sharing, terrorist financing, and cyber-terrorism. And we will work together to remove the threats of various terrorists and extremist forces.

We agreed to make use of such channels as a meeting between the Chinese Ministry of Public Security and the U.S. Department of Homeland Security to have further discussions on law enforcement cooperation, which includes cracking down on transnational crimes, fugitives hunting, and recovery of criminal proceeds.

We have reached reciprocal arrangements on the visa for business travelers, tourists and students. We have agreed to issue 10-year, multiple-entry visas for respective business travelers and tourists, and 5-year, multiple-entry visas for each other's students. This will greatly promote people-to-people exchanges between our two countries and will help to promote our exchange and cooperation in the various fields, and promote the long-term development of bilateral relations.

We agreed to follow such principles as mutual respect, seeking common ground while sharing differences, exchanges and mutual learning, and manage our differences on sensitive issues in a constructive way so as to ensure the healthy and steady growth of the bilateral ties.

I told President Obama that China has proposed the Asian security concept at the CICA summit here in May in order to encourage Asian countries to view common security in an inclusive and cooperative spirit. At the same time, I also said that the Pacific Ocean is broad enough to accommodate the development of both China and the United States, and our two countries to work together to contribute to security in Asia.

These are mutually complementary efforts instead of mutually exclusive ones. China and the U.S. should continue to enhance dialogue and coordination on Asia Pacific affairs, and respect and accommodate each other’s interests and concerns in this region, and develop inclusive coordination.

I also introduced to President Obama China’s initiatives of establishing the Asian Infrastructure Investment Bank and the Silk Road Fund. Underdeveloped infrastructure is the main bottleneck obstructing the economic development in Asia. China has initiated the AIIB in order to offer support and facility to regional infrastructure development. These proposals and initiatives are open and inclusive in Asia; they are not exclusive. We welcome the active participation of the United States and other relevant countries so that together we can promote and share prosperity and peace in Asia Pacific.

We recognize the positive actions both have taken in helping African countries affected by the Ebola virus to fight against the disease. We indicated that, based on the actual needs of African countries, we will leverage our respective strength and work with the rest of the international community to help affected countries to strengthen capacity-building on health and epidemic prevention so as to place the epidemic under control as soon as possible.

I thank President Obama and the U.S. team for their support to China’s hosting of the APEC Economic Leaders Meeting. Both are willing to strengthen coordination and cooperation on multilateral forums, including APEC and G-20, and to play a positive role in promoting global economic recovery and development.

China and the United States have worked closely on the negotiations of the Iranian nuclear issue, and we hope that relevant parties would persist in consensus, address differences, and make political decisions so as to promote the early conclusion of a win-win and comprehensive agreement. China is firmly committed to achieving the denuclearization of the Korean Peninsula and to peace and stability on the Korean Peninsula. We intend -- we should address the Korean Peninsula issue through dialogue and negotiations. The relevant parties should have active contact and dialogue so as to create conditions for the early launch -- for re-launch of the Six Party Talks.

And the two sides also agreed to continue their exchange on the cooperation on the Afghan issue.

Ladies and gentlemen, friends, China is ready to work with the United States to make efforts in a number of priority areas and putting into effect such principles as non-confrontation, non-conflict, mutual respect, and win-win cooperation. And with unwavering spirit and unremitting efforts, we will promote new progress in building a new type model of major-country relations between the two countries so as to bring greater benefits to our two peoples and two countries.

MODERATOR: Thank you, President Xi. I now give the floor to President Obama.

PRESIDENT OBAMA: Well, thank you, President Xi, for welcoming me and my delegation to Beijing and for the extraordinary hospitality that you and the Chinese people have shown to me on this state visit. I also want to take this opportunity to thank the people of China for the warmth and kindness they showed my wife Michelle and our daughters, as well as my mother-in-law when they came to visit China earlier this year -- another sign of the enduring friendship between our peoples.

This year marks the 35th anniversary of diplomatic relations between our two nations. I’m told that Deng Xiaoping said that we must “seek truth from facts.” On this anniversary, it is a fact that the past three and a half decades have seen an extraordinary growth in the ties between our two countries -- more trade, more collaborations between our businesses and scientists and researchers, more connections between the Chinese and the American people, from tourists to our students. And it is a fact that when we work together, it’s good for the United States, it's good for China, and it is good for the world.

As I’ve said many times, the United States welcomes the continuing rise of a China that is peaceful, prosperous and stable and that plays a responsible role in the world. And we don’t just welcome it, we support it. For decades, America’s engagement in the Asia Pacific, including our alliances and our stabilizing presence, have been a foundation for the region’s progress, including contributing to China’s remarkable economic growth. The United States has worked to expand trade and investment with China, and to help integrate China into the global economy. And we want that progress to continue because, as I said before, it benefits all of us.

I believe that President Xi and I have a common understanding about how the relationship between our nations can move forward. We agree that we can expand our cooperation where our interests overlap or align. When we have disagreements, we will be candid and clear about our intentions, and we will work to narrow those differences where possible. Even as we compete and disagree in some areas, I believe we can continue to advance the security and prosperity of our people and people around the world. That’s my vision for how we can develop the relationship between our countries. That’s the vision that we’ve advanced during this visit, which has taken our bilateral, regional and global cooperation to a new level. And I want to thank President Xi for his leadership in fostering that kind of atmosphere of cooperation.

First, President Xi and I agreed on the importance of continuing to exercise -- to increase the trade that helps grow our economies and creates jobs. More U.S. exports to a growing China means more opportunities for American businesses, workers and farmers. We agreed to work actively on a comprehensive bilateral investment treaty with high standards. And that provides the opportunity for Chinese businesses to invest in the United States, as well as opening up the opportunity for more U.S. businesses to invest here in China, creating jobs for both our countries.

We reached an understanding that will allow us to work with other nations to conclude the Information Technology Agreement, which will help us boost trade in the computer and IT products that power the 21st century economy. We agreed to work together to promote innovation in agricultural and food security to help feed a growing planet. And our agreement to extend visas for business people, tourists and students will help fuel growth and create jobs for Americans and Chinese.

I told President Xi that we welcome reforms being discussed here that would give the market a defining role in the Chinese economy. At the same time, I did emphasize the need for a level playing field, so foreign companies can compete fairly, including against Chinese state-owned enterprises. I stressed the importance of protecting intellectual property as well as trade secrets, especially against cyber-threats. And we welcome continued progress towards a market-driven exchange rate.

Second, as the world’s two largest economies, energy consumers and emitters of greenhouse gases, we have a special responsibility to lead the global effort against climate change. That's why today I am proud that we can announce a historic agreement. I commend President Xi, his team, and the Chinese government for the commitment they are making to slow, peak, and then reverse the course of China’s carbon emissions.

Today, I can also announce that the United States has set a new goal of reducing our net greenhouse gas emissions by 26 to 28 percent below 2005 levels by the year 2025. This is an ambitious goal, but it is an achievable goal. It will double the pace at which we’re reducing carbon pollution in the United States. It puts us on a path to achieving the deep emissions reductions by advanced economies that the scientific community says is necessary to prevent the most catastrophic effects of climate change. It will help improve public health. It will grow our economy. It will create jobs. It will strengthen our energy security, and it will put both of our nations on the path to a low-carbon economy.

This is a major milestone in the U.S.-China relationship, and it shows what’s possible when we work together on an urgent global challenge. In addition, by making this announcement today, together, we hope to encourage all major economies to be ambitious -- all countries, developing and developed -- to work across some of the old divides so we can conclude a strong global climate agreement next year.

Third, with respect to regional security, we agreed to a number of new measures to improve communications between our militaries in order to reduce the risk of accidents or miscalculations on the seas and in the air. President Xi and I reaffirmed our commitment to the complete denuclearization of the Korean Peninsula, and we agree that North Korea will not succeed in pursuing nuclear weapons and economic development, that it can’t have both.

While the United States does not take a position on competing claims in the East and South China Seas, I made it clear that we do have a fundamental interest in freedom of navigation, and that territorial disputes in the region should be resolved peacefully, in accordance with international law. And I congratulated President Xi on the initial contacts with Prime Minister Abe of Japan to help lower tensions with respect to that issue.

I reaffirmed my strong commitment to our One-China policy based on the Three Joint Communiqués and the Taiwan Relations Act. And we encourage further progress by both sides of the Taiwan Strait towards building ties, reducing tensions and promoting stability on the basis of dignity and respect, which is in the interest of both sides, as well as the region and the United States.

Fourth, I welcomed China’s contributions to international security. This includes our mutual support for a stable, unified Afghanistan; our mutual interest in seeing the terrorist group ISIL is destroyed; the potential work we can do together in other counterterrorism activities, including those that were raised by President Xi; our mutual efforts as part of the P5-plus-1 to reach a comprehensive solution that ensures Iran’s nuclear program is exclusively peaceful.

We agree that Iran should seize this historic opportunity by making the tough choices that are necessary to achieve a lasting diplomatic solution. And in addition, the United States is very appreciative of China’s important contributions in West Africa in the fight against Ebola. We agreed to expand our cooperation against infectious diseases more broadly and to promote access to electricity across Africa -- more examples of the difference we can make when we work together.

And finally, I reiterated to President Xi, as I have before, that America’s unwavering support for fundamental human rights of all people will continue to be an important element of our relationship with China, just as it is with all the countries that we interact with around the world. And we had a very healthy exchange around these issues. President Xi gave me his sense of how China is moving forward. I described to him by it is so important for us to speak out for the freedoms that we believe are universal, rights that we believe are the birthright of all men and women, wherever they live, whether it is in New York or Paris or Hong Kong.

We think history shows that nations that uphold these rights -- including for ethnic and religious minorities -- are ultimately more prosperous, more successful, and more able to achieve the dreams of their people. In that context, I did note that we recognize Tibet as part of the People’s Republic of China. We are not in favor of independence. But we did encourage Chinese authorities to take steps to preserve the unique cultural, religious and linguistic identity of the Tibetan people.

In closing, I want to say that I am pleased that we continue to expand the ties between our peoples. The new visa extension that begins today will bring more Chinese tourists to the United States and more American tourists to see the magnificent sights of China. That will encourage more exchanges among our students. We welcome more Chinese students to the United States than from any other country. And I’m proud that this summer my “100,000 Strong” program reached our goal of more than 100,000 Americans studying in China in recent years. With these visa extensions, we’ll give more students this opportunity -- both Chinese and Americans.

So every day, our people are coming to know each other better. Every day, our young people are forging friendships that will serve our countries for many decades to come. Every day some of the barriers of mistrust are broken down, mutual understanding is promoted. And that lays the seeds for cooperation, not just today, but for future generations.

So, President Xi, thank you again for your hospitality, for the candid and very productive conversations, for your hosting of an excellent APEC Summit, and for our work together.

As Deng Xiaoping said, we must seek facts from -- “seek truth from facts.” The truth is that we have made important progress today for the benefit of both of our nations and for the benefit of the world. The truth is that even more progress is possible as we continue to develop this important relationship. I am confident that we will be able to do so. So thank you. Xie xie.

We’ve each agreed I believe to take a question from the press.

MR. EARNEST: The first question will be from Mark Landler of The New York Times.

PRESIDENT OBAMA: Where's Mark? There he is.

Q Thank you very much, President Xi and President Obama. My first question is to President Obama. You’ve spoken a lot over the past few days about the potential of China as a partner for the United States and have concluded several agreements this week that attest to that. At the same time, there has been a surge of anti-American rhetoric in China in recent weeks, particularly in the state media. Chinese newspapers have disparaged your leadership style and have fueled speculation that the United States is a black hand behind the protests in Hong Kong. My question is whether you’re concerned that this anti-American rhetoric could impede the kind of collaboration that you wish to have with China. And to what do you attribute that?

And if I may, because I want to make sure I grab my chance with the President of China, ask a couple of questions of him. Mr. President, President Obama has sketched out a strategic pivot to Asia that includes shoring up alliances with American allies like Japan and South Korea, deploying Marines to Australia, negotiating a regional trade pact that at the moment excludes China, and speaking up -- as he did just a moment ago -- on territorial disputes between China and its neighbors. Several months ago in Shanghai at a conference, you said it is for the Asians to run the affairs of Asia. I wonder whether you’re concerned that this strategic pivot represents an effort to contain China.

And then if I may, lastly, on a parochial issue --

PRESIDENT OBAMA: Come on, Mark.

Q On a parochial issue -- several news organizations from the United States have had issues with residency permits in China being denied, including The New York Times. I’m wondering in the spirit of these reciprocal visa arrangements that you’ve agreed to this week with business people and students, isn’t it time to extend that sort of right to foreign correspondents who seek to cover your country?

Thank you both very much.

PRESIDENT OBAMA: I’m not sure I remember the question. (Laughter.) I’m teasing.

First of all, with respect to press attitudes towards America or me in particular, I am always working on the assumption that the press giving me a hard time is true wherever I go, whether in the United States or China. That’s part of being a public official. And I think that it is fair to say that there are differences between the United States and China on a range of issues. On the other end, I’m a big believer in actions and not words. And this summit I think is evidence of the values that China places in the relationship between the United States and China.

On a whole host of issues at this summit, we’ve shown that U.S.-China cooperation can end up not only being good for the two countries, but for the world as a whole. And I do think that one of the benefits of a summit like this is an opportunity for one-on-one conversations between the leaders of the two countries to break down some of the misperceptions and mistrust that can build up over time.

So, for example, on the issue of Hong Kong, which did come up in our conversations, I was unequivocal in saying to President Xi that the United States had no involvement in fostering the protests that took place there; that these are issues ultimately for the people of Hong Kong and the people of China to decide. But I did describe for him that the United States, as a matter of foreign policy but also a matter of our values, are going to consistently speak out on the right of people to express themselves, and encourage the elections that take place in Hong Kong are transparent and fair and reflective of the opinions of people there.

And more broadly, our conversations gave me an opportunity to debunk the notion that you suggested, Mark, just now that our pivot to Asia is about containing China. I have repeatedly reiterated and displayed through the actions of our administration that we want China to succeed. And we actively encourage our friends and allies in the region to foster a strong and cooperative relationship with China.

So, as I mentioned briefly, we applaud the lowering of tensions between China and Japan. We think that’s good for the region and good for both countries. And so what you left out of the list of actions that we’ve taken in this pivot to Asia is the multiple meetings I’ve had with President Xi and his predecessor, and the remarkable scope of agreements that we have reached to deepen economic, scientific, educational and security arrangements between the United States and China.

In other words, a strong, cooperative relationship with China is at the heart of our pivot to Asia. And if the United States is going to continue to lead the world in addressing global challenges, then we have to have the second-largest economy and the most populous nation on Earth as our partner. And the carbon reduction agreement that we just announced is a perfect example of why a strong U.S.-China relationship is so critical.

And just in closing, I want to say that although there are going to continue to be tensions and disagreements between our countries, as is true with all countries, particularly large countries that have a lot of interests around the globe, I’ve consistently found President Xi to be willing to engage on those differences in a frank and candid matter, and we have consistently strived to find ways to narrow those differences.

I think the military-to-military cooperation announcements that we’re making today are a perfect example of how rather than try to tamp down those differences, surfacing them and then addressing them is going to be a centerpiece, a lynchpin for the kinds of cooperative agreements that I hope will continue for generations to come.

MODERATOR: Now, President Xi Jinping will take a question from a member of the Chinese press. China Daily, please.

Q (As interpreted.) China Daily. The world is watching very closely today's summit meeting between you, President Xi, and President Obama. And the China-U.S. relationship has gone beyond the bilateral scope. It is increasingly consequential for the whole world and for this region. As China further develops, how does China see its own position and role in international affairs?

PRESIDENT XI: (As interpreted.) Thank you for your question. There are very wide areas where China and the United States need to and can cooperate with each other. And as the international situation continues to experience complex, fluid and profound changes, there will be even more areas where our two countries need to work together.

In recent years, China and the United States worked together to counter the impact of the global financial crisis. We have also worked together to try and resolve some regional hotspot issues, such as the Korean nuclear issue, the Iranian nuclear issue, the situation in Syria and so on, through dialogue. We've also partnered with each other to address some serious challenges, including climate change, terrorism, and the Ebola epidemic.

The strategic significance of China-U.S. relations is on the rise. China is a participant in, builder of, and contributor to the international system. China's economic development is in itself an important contribution to the global efforts to address the international financial crisis and to promote the recovery and the growth of the world economy.

China has sent more personnel to U.N. peacekeeping missions than any other permanent member of the U.N. Security Council. To date, we have sent over 20,000 of our military personnel to various U.N. peacekeeping operations. And the Chinese navy has combatted 45 escort missions in the piracy-ridden waters of the Gulf of Aden. And China is firm in opposing all forms of terrorism, and we have all along been supportive of international cooperation to fight terrorism.

The Chinese people empathize with the Western African countries that are experiencing the Ebola epidemic. We have so far provided four tranches of assistance that is worth 750 million RMB. And even as we speak, there are over 300 Chinese medical personnel working on the ground in Africa to help the affected areas.

As China continues to develop, we will shoulder more and more international responsibilities that are commensurate with our own strengths and position. We will remain firmly committed to working with other countries to share

China's development opportunity and to address various challenges. And we will make our due share of contribution to maintaining and promoting peace, stability and development in the Asia Pacific region and the world at large.

Both President Obama and I believe that when China and the United States work together, we can become an anchor of world stability and a propeller of world peace. China stands ready to work with the United States to firm up our confidence, exercise our wisdom, and take action to strengthen our coordination and cooperation bilaterally, regionally and globally; and to effectively manage our differences on sensitive issues so that we can make new gains in building the new model of major-country relations between China and the United States, which serves the fundamental interests of our two peoples and the people elsewhere in the world.

China and the United States have different historical and cultural traditions, social systems, and faces of development. So it's natural that we don't see eye to eye on every issue. But there have always been more common interests between China and the United States than the differences between us. Both sides should respect each other's core interests and major concerns and manage our differences in a constructive fashion, full dialogue, and consultation so as to uphold the overall interests of stable growth of China-U.S. relations.

And I had a candid discussion with President Obama on human rights issues. Ever since the founding of the People's Republic of China, and especially over the last three decades and more of China's reform and opening era, China has made enormous progress in its human rights. That is a fact recognized by all the people in the world.

On the question of human rights, we should never consider our work to be mission accomplished. It's always work in progress, and there is always room for further improvement. China stands ready to have dialogue with the United States on human rights issues on the basis of equality and mutual respect so that we can constructively handle our differences, deepen our mutual understanding, and learn from each other.

In my talks with President Obama I also pointed out that the Occupy Central is an illegal movement in Hong Kong. We are firmly supportive of the efforts of the Hong Kong Special Administrative Region Government to handle the situation according to law so as to maintain social stability in Hong Kong and protect the life and the property of the Hong Kong residents. Hong Kong affairs are exclusively China's internal affairs, and foreign countries should not interfere in those affairs in any form or fashion. And we will protect the lawful rights and interests of foreign citizens and business organizations in Hong Kong, as well. And I think it goes without saying that law and order must be maintained according to law in any place, not just in Hong Kong, but also elsewhere in the world.

China and the United States are important countries in the world. It's perfectly normal for there to be different views expressed about us in the international media. And I don't think it's worth fussing over these different views. And I don't see any of the regional free-trade arrangements as targeting against China. China is committed to open regionalism. And we believe the various regional cooperation initiatives and mechanisms should have positive interaction with each other, and that is the case at the moment.

And China protects our citizens' freedom of expression and the normal rights and the interests of media organizations in accordance with law. On the other hand, media outlets need to obey China's laws and regulations. When a car breaks down on the road, perhaps we need to get off the car to see where the problem lies. And when a certain issue is raised as a problem, there must be a reason. In Chinese, we have a saying: The party which has created a problem should be the one to help resolve it. So perhaps we should look into the problem to see where the cause lies.

Xi Jinping’s Address to the Central Conference on Work Relating to Foreign Affairs: Assessing and Advancing Major - Power Diplomacy with Chinese Characteristics: November 28-29, 2014

Xi Jinping’s speech before the Central Conference on Work Relating to Foreign Affairs—held November 28–29, 2014, in Beijing—marks the most comprehensive expression yet of the current Chinese leadership’s more activist and security-oriented approach to PRC diplomacy. Through this speech and others, Xi has taken many long-standing Chinese assessments of the international and regional order, as well as the increased influence on and exposure of China to that order, and redefined and expanded the function of Chinese diplomacy. Xi, along with many authoritative and non-authoritative Chinese observers, presents diplomacy as an instrument for the effective application of Chinese power in support of an ambitious, long-term, and more strategic foreign policy agenda. Ultimately, this suggests that Beijing will increasingly attempt to alter some of the foreign policy processes and power relationships that have defined the political, military, and economic environment in the Asia-Pacific region. How the United States chooses to respond to this challenge will determine the Asian strategic landscape for decades to come.

On November 28 and 29, 2014, the Central Chinese Communist Party (CCP) leadership convened its fourth Central Conference on Work Relating to Foreign Affairs—the first since August 2006.1 The meeting, presided over by Premier Li Keqiang, included the entire Politburo Standing Committee, an unprecedented number of central and local Chinese civilian and military officials, nearly every Chinese ambassador and consul-general with ambassadorial rank posted overseas, and commissioners of the Foreign Ministry to the Hong Kong Special Administrative Region and the Macao Special Administrative Region.

This Foreign Affairs Work Conference (FAWC) followed another important post–18th Party Congress foreign affairs–related meeting: the October 2013 Work Forum on Chinese Diplomacy Toward the Periphery.2 Unlike that meeting, however, the FAWC dealt with all aspects of China’s foreign affairs in the civilian diplomatic realm. As with the 2006 meeting, this FAWC sought to establish “the guidelines, basic principles, strategic goals and major mission of China’s diplomacy in the new era and endeavor[ed] to make new advance[s] in China’s foreign relations,” and to summarize and assess Beijing’s foreign relations since the 18th Party Congress held in November 2012. These tasks were carried out primarily by Xi Jinping, general secretary of the Central Committee of the Communist Party of China (CPC), Chinese president, and chairman of the Central Military Commission, in an “important” address delivered to the conference.3 Hu Jintao delivered a similar address in 2006.4

While Xi also gave important foreign affairs–related speeches at the 2013 Periphery Diplomacy Conference, as well as at the May 2014 international Conference on Interaction and Confidence-Building Measures in Asia (CICA) and the November 2014 22nd APEC Economic Leaders’ Meeting,5 his address to the FAWC was especially notable, given the rarity, size, and scope of the meeting and the comprehensive nature of Xi’s remarks, which covered: (1) China’s recent diplomatic accomplishments; (2) the key features of the international environment at present and in the future; and (3) the top priorities for Chinese diplomacy going forward. The speech constitutes the fullest authoritative statement yet on the current Chinese regime’s views and policies in the foreign affairs arena.

This article will assess the substance and significance of Xi’s FAWC speech, especially as viewed by Chinese commentators. The first part summarizes the main contents of the speech—as described by authoritative sources—and identifies what is new or different when compared to other speeches and remarks by Xi and senior officials, reports by authoritative sources, and the previous 2006 FAWC. As with all central work conferences, the actual text of the speeches delivered to the FAWC is not released to

the public. Accordingly, this article relies on summaries presented by the Ministry of Foreign Affairs and the Xinhua News Agency.6 Although such summaries doubtless omit some elements of Xi’s speech, reliable Chinese sources have indicated that the public summaries are broadly representative of the actual text. The second part of the article examines the authoritative, quasi-authoritative, and non-authoritative Chines assessments of the speech, based on the definition of those sources utilized in past CLM articles.7 …

Remarks by President Obama at APEC CEO Summit: November 2014

PRESIDENT OBAMA: Thank you so much. Xiàwǔ hǎo. (Applause.) Thank you, Andrew, for that introduction. I have had the pleasure of getting to know Andrew very well these past few years. We have worked him hard –- he helped my administration with strategies for growing high-tech manufacturing to hiring more long-term unemployed. He’s just as good at corporate citizenship as he is at running a corporation. Later I’ll visit Brisbane, where I know Andrew spent some of his youth. I’m sure he’s got some suggestions for fun there, but not necessarily things that a President can do. (Laughter.) We don’t know how he spent his youth, but I’m sure he had some fun.

It is wonderful to be back in China, and I’m grateful for the Chinese people’s extraordinary hospitality. This is my sixth trip to Asia as President, and my second this year alone. And that’s because, as I’ve said on each of my visits, America is a thoroughly Pacific nation. We’ve always had a history with Asia. And our future -- our security and our prosperity -- is inextricably intertwined with Asia. I know the business leaders in attendance today agree.

I’ve now had the privilege to address the APEC CEO summit in Singapore, in Yokohama, and in my original hometown of Honolulu, now in Beijing. And I think it’s safe to say that few global forums are watched more closely by the business community. There’s a good reason for that. Taken together, APEC economies account for about 40 percent of the world’s population, and nearly 60 percent of its GDP. That means we’re home to nearly three billion customers, and three-fifths of the global economy.

And over the next five years, nearly half of all economic growth outside the United States is projected to come from right here, in Asia. That makes this region an incredible opportunity for creating jobs and economic growth in the United States. And any serious leader in America, whether in politics or in commerce, recognizes that fact.

Now the last time I addressed this CEO summit was three years ago. Today, I’ve come back at a moment when, around the world, the United States is leading from a position of strength. This year, of course, has seen its share of turmoil and uncertainty. But whether it’s our fight to degrade and destroy the terrorist network known as ISIL, or to contain and combat the Ebola epidemic in West Africa, the one constant –- the one global necessity –- is and has been American leadership.

And that leadership in the world is backed by the renewed strength of our economy at home. Today, our businesses have created 10.6 million jobs over the longest uninterrupted stretch of job growth in American history. We’re on pace for the best year of job growth since the 1990s. Since we started creating jobs again, the U.S. has put more people back to work than Europe, Japan, and every other advanced economy combined.

And when you factor in what’s happening in our broader economy –- a manufacturing sector that as Andrew said is growing now at a rapid pace; graduation rates that are rising; deficits that have shrunk by two-thirds; health care inflation at 50-year lows; and an energy boom at new highs –- when you put all this together, what you get is an American economy that is primed for steadier, more sustained growth, and better poised to lead and succeed in the 21st century than just about any other nation on Earth.

And you don’t have to take our word for it –- take yours. For two years in a row, business executives like all of you have said that the world's most attractive place to invest is the United States. And we're going to go for a three-peat. We're going to try to make it the same this year.

But despite the responsibilities of American leadership around the world, despite our attention to getting our economy growing, there should be no doubt that the United States of America remains entirely committed when it comes to Asia. America is a Pacific power, and we are leading to promote shared security and shared economic growth this century, just as we did in the last.

In fact, one of my core messages throughout this trip -- from APEC to the East Asia Summit to the G20 in Australia -- is that working together we need growth that is balanced, growth that is strong, growth that is sustainable, and growth where prosperity is shared by everybody who is willing to work hard.

As President of the United States I make no apologies for doing whatever I can to bring new jobs and new industries to America. But I've always said, in the 21st century, the pursuit of economic growth, job creation and trade is not a zero-sum game. One country's prosperity doesn't have to come at the expense of another. If we work together and act together, strengthening the economic ties between our nations will benefit all of our nations. That's true for the nations of APEC, and I believe it's particularly true for the relationship between the United States and China. (Applause.)

I've had the pleasure of hosting President Xi twice in the United States. The last time we met, in California, he pointed out that the Pacific Ocean is big enough for both of our nations. And I agree. The United States welcomes the rise of a prosperous, peaceful and stable China. I want to repeat that. (Applause.) I want to repeat that: We welcome the rise of a prosperous, peaceful and stable China.

In fact, over recent decades the United States has worked to help integrate China into the global economy -- not only because it's in China's best interest, but because it's in America's best interest, and the world's best interest. We want China to do well. (Applause.)

We compete for business, but we also seek to cooperate on a broad range of shared challenges and shared opportunities. Whether it's stopping the spread of Ebola, or preventing nuclear -- preventing nuclear proliferation, or deepening our clean energy partnership, combating climate change, a leadership role that, as the world's two largest economies and two largest carbon emitters, we have a special responsibility to embrace.

If China and the United States can work together, the world benefits. And that's something this audience is acutely interested in. (Applause.) We continually have to work to strengthen the bilateral trade and investment between our two nations. America's first trade mission visited China just a year after America's revolution ended. Two hundred and thirty years later, we are the two largest economies in the world.

And the trade and investment relationship we have benefits both of our countries. China is our fastest growing export market. Chinese direct investment in the United States has risen six-fold over the past five years. Chinese firms directly employ a rapidly growing number of Americans. And all these things mean jobs for the American people; and deepening these ties will mean more jobs and opportunity for both of our peoples.

And that's why I'm very pleased to announce that during my visit the United States and China have agreed to implement a new arrangement for visas that will benefit everyone from students, to tourists, to businesses large and small. Under the current arrangement, visas between our two countries last for only one year. Under the new arrangement, student and exchange visas will be extended to five years; business and tourist visas will be extended to 10 years. (Applause.)

Now, of course, that will be good for the businessmen who are going back and forth all the time. But keep in mind, last year, 1.8 million Chinese visitors to the United States contributed $21 billion to our economy and supported more than 100,000 American jobs. This agreement could help us more than quadruple those numbers.

I've heard from American business leaders about how valuable this step will be. And we've worked hard to achieve this outcome because it clearly serves the mutual interest of both of our countries. (Applause.) So I'm proud that during my visit to China we will mark this important breakthrough, which will benefit our economies and bring our people together, and I’m pleased that President Xi has been a partner in getting this done –- very much appreciate his work on this. (Applause.)

Now, deepening our economic ties is why I also hope to make progress with President Xi towards an ambitious, high-standard, bilateral investment treaty that opens up China’s economy to American investors -- an agreement that could unlock even more progress and more opportunity in both of our countries. We’re also working together to put -- in pursuit of an international agreement on the ITA. And we’ll speak directly and candidly, as we always do, about specific actions China can take to help all of us, across the Asia-Pacific, to expand trade and investment, which many of the CEOs I talk to raise in our discussions.

We look to China to create a more level playing field on which foreign companies are treated fairly so that they can compete fairly with Chinese companies; a playing field where competition policy promotes the welfare of consumers and doesn’t benefit just one set of companies over another. We look to China to become an innovative economy that values the protection of intellectual property rights, and rejects cybertheft of trade secrets for commercial gain. We look to China to approve biotechnology advances that are critical to feeding a growing planet on the same timeline as other countries, to move definitively toward a more market-determined exchange rate, and, yes, to stand up for human rights and freedom of the press. And we don’t suggest these things because they’re good for us; we suggest that China do these things for the sake of sustainable growth in China, and the stability of the Asia-Pacific region. And I look forward to discussing these issues, along with China’s concerns and ideas, with President Xi over the next few days.

Now even as America works to deepen our bilateral ties with China, we’re focused this week on deepening our ties with all the APEC economies, including reducing barriers to trade and investment, so that companies like yours can grow, create new jobs, and promote prosperity across the Asia-Pacific region.

After all, Asia’s largest export market is the United States -- that benefits American consumers because it has led to more affordable goods and services. Six of America’s top 10 export markets are APEC economies, and more than 60 percent of our exports –- over $1 trillion worth of goods and services -– are purchased by APEC economies. That supports millions of American jobs.

So the work that APEC members have done together over the years has lowered tariffs, cut shipping costs, and made it cheaper, easier, and faster to do business – and that supports good jobs in all of our nations. We’ve worked together to improve food security, encourage clean energy, promote education, and deliver disaster relief. And all of this has made a difference.

But we can always do more. We can do more to reduce barriers to trade and economic growth. Since 2006, we’ve worked together toward the ultimate goal of a Free Trade Area of the Asia-Pacific, and APEC has shown a number of pathways that could make it a reality. And one of those pathways is the Trans-Pacific Partnership between the United States and 11 other nations. Once complete, this partnership will bring nearly 40 percent of the global economy under an agreement that means increased trade, greater investment, and more jobs for its member countries; a level playing field on which businesses can compete; high standards that protect workers, the environment, and intellectual property. And I just met with several other members of the TPP who share my desire to make this agreement a reality, we’re going to keep on working to get it done. For we believe that this is the model for trade in the 21st century.

Agreements like this will benefit our economies and our people. But they also send a strong message that what’s important isn’t just whether our economies continue to grow, but how they grow; that what’s best for our people isn’t a race to the bottom, but a race to the top. Obviously, ensuring the continued growth and stability of the Asia-Pacific requires more than a focus on growing trade and investment.

Steady, sustainable growth requires making it easier for small businesses to access capital and new markets. And when about one-third of small businesses in the region are run by women, then steady, sustainable growth requires every woman’s ability to fully participate in the economy. That’s true in the United States and that’s true everywhere.

Steady, sustainable growth requires promoting policies and practices that keep the Internet open and accessible.

Steady, sustainable growth requires a planet where citizens can breathe clean air, and drink clean water, and eat safe food, and make a living fishing healthy oceans.

Steady, sustainable growth requires mobilizing the talents and resources of all our people –- regardless of gender, or religion, or color, or creed; offering them the opportunity to participate in open and transparent political and economic systems; where we cast a harsh light on bribery and corruption, and a well-deserved spotlight on those who strive to play by the rules.

Those are all some of the areas we’ll be focused on at APEC this week, and going forward. And obviously every country is different –- no country is following the same model. But there are things that bind us together, and despite our differences, we know there are certain standards and ideals that will benefit all people.

We know that if given a choice, our young people would demand more access to the world’s information, not less. We know that if allowed to organize, our workers would better -- demand working conditions that don’t injure them, that keep them safe; that they’re looking for stronger labor and environmental safeguards, not weaker. We know that if given a voice, women wouldn’t say give us less; they’d speak up for more access to markets, more access to capital, more seats in our legislature and our boardrooms.

So these are all key issues in growth as well. Sometimes we focus just on trade and investment and dollars and cents, but these things are important as well. These ideals aren’t just topics for summits and state visits. They’re touchstones of the world that we’re going to leave to our children. The United States is not just here in Asia to check a box; we’re here because we believe our shared future is here in Asia, just as our shared past has been.

We’re looking to a future where a worker in any of our countries can afford to provide for his family; where his daughter can go to school and start a business and have a fair shot at success; where fundamental rights are cherished, and protected, and not denied. And that future is one where our success is defined less by armies and less by bureaucrats, and more by entrepreneurs, and innovators, by dreamers and doers, by business leaders who focus as much on the workers they empower as the prosperity that they create. That’s future that we see. That’s why we’re here. It’s why we’ve worked so closely together these past several years. And as long as I’m America’s President, I’m going to be invested in your success because I believe it is essential to our success as well.

Statement by the President to the U.S.-China Strategic and Economic Dialogue: July 2014

It is an honor to greet the American and Chinese delegations to the sixth round of the United States-China Strategic and Economic Dialogue (S&ED). I want to thank President Xi, Vice Premier Wang, State Councilor Yang, and the entire Chinese delegation for hosting this year’s S&ED and for their warm reception of the American delegation.

This year marks a special milestone in the U.S.-China relationship—it is the 35th anniversary of the establishment of diplomatic ties between our two great nations. Today, instead of living detached from each other as we did 35 years ago, the United States and China embrace the benefits of strengthening ties and acknowledge the growing interdependence of our economic destinies. This anniversary provides an opportunity to take stock of the deepening exchanges between our two peoples, the range of cooperation between our two countries on shared security and economic challenges, and dealing forthrightly with our differences. It is also an opportunity for the United States and China to reaffirm our commitment to working jointly to build a positive, more secure, and prosperous future for all our citizens.

As the premier mechanism for dialogue between the United States and China, the S&ED offers us a chance annually to exchange views on a diverse range of bilateral, regional, and global challenges critical to both our countries. Building on the accomplishments of the previous five rounds of the S&ED, this year’s dialogue promises to further advance our cooperative efforts to identify solutions to problems that no country can address on its own. Our efforts to promote economic prosperity, cooperation in Asia, energy security, and security in cyberspace, including at the G-20, APEC, and the Nuclear Security Summit, have a significant and positive impact for our citizens and for the broader international community.

The United States welcomes the emergence of a stable, peaceful, and prosperous China. We are committed to the shared goal of developing over time a “new model” of relations with China defined by increased practical cooperation and constructive management of differences. We should use the S&ED to demonstrate to the world that—even in a relationship as complex as ours—we remain determined to ensure that cooperation defines the overall relationship.

President Xi and I have worked hard, including in meetings at Sunnylands, St. Petersburg, and The Hague, and in communications between meetings, to make sure that our relationship is stable, resilient, and delivering results for our peoples.

We have significantly enhanced our cooperation on climate change in the past year, including through our commitment to phase down hydrofluorocarbons, the launch of five initiatives under the U.S.-China Climate Change Working Group, and our policy dialogue on the international climate negotiations. Over the past year we also found new ways to collaborate on shared energy security and sustainability interests, ranging from advancing the safe development of shale gas and renewable technologies to initiating a G-20 fossil fuel subsidy peer review and enhancing our ability to respond to oil market emergencies. On regional security issues, we are working to realize an international solution to Iran’s nuclear program, just as we are working together to achieve the denuclearization of the Korean Peninsula and to bolster political stability and economic revitalization in Afghanistan. And on economic issues, we are working to establish a level, competitive playing field for our firms that is based on internationally agreed upon rules of the road on trade, investment, intellectual property, and cybersecurity. I look forward to addressing all of these issues with President Xi when I visit Beijing for APEC in November. That trip will be my second visit to China, and I can think of no better time to advance our relationship than when we are celebrating our 35th anniversary.

The United States and China will not always see eye-to-eye on every issue. That is to be expected for two nations with different histories and cultures. It also is why we need to build our relationship around common challenges, mutual responsibilities, and shared interests, even while we candidly address our differences. From my meetings with President Xi, to the S&ED meetings you will be holding over the next two days, to the growing number of student exchanges supported by organizations like the 100,000 Strong Foundation, all of these interactions underscore the promise of a resilient and cooperative United States-China relationship.

China’s Internal Politics

Xi Jinping’s ‘Four Comprehensives’ Give Shape to a Crowded Agenda: Chris Buckley, The New York Times, March 2015

Slogans studded with numerals and abstract exhortations are central to the dramaturgy of the Chinese Communist Party, intoned like spells to exalt leaders, cajole citizens and malign enemies. Yet as President Xi Jinping’s latest contribution shows, the magic of a party slogan often works through its supple vagueness.

In comments made in mid-December, Mr. Xi spelled out his four big priorities, and lately party media have acclaimed his “Four Comprehensives” as a profound doctrinal breakthrough. While visiting Jiangsu Province in eastern China, Mr. Xi said the country must:

Comprehensively build a moderately prosperous society, Comprehensively deepen reform, Comprehensively govern the country according to the law, Comprehensively apply strictness in governing the party.

Since last week, People’s Daily and other party newspapers have acclaimed the Four Comprehensives as a visionary guide for China’s future. In implausibly well-worded comments online, citizens have declared their joy that, finally, they have the Four Comprehensives to show the way forward. Scholars have been recruited to laud Mr. Xi as the “designer of China’s road to being a great power,” completing a path set out by Marx and Mao Zedong.

Catching the breathlessly convoluted tone of the orchestrated torrent of praise demands a longer quote.

“This strategic layout incorporates profound strategic thinking,” said one of the many commentaries that have appeared in People’s Daily, in print and on its website. It added:

Each “comprehensive” is in itself a system of thought grounded in reality, forging a way to the future and possessing distinctive features. Combined, the four “comprehensives” complement each other so each shines more brilliantly in their shared company, and this is a new leap in innovating the party’s strategy for governance and wise rule to keep up with the times while combining Marxism with Chinese practice.

The hoopla over the stolid, multi-clause slogans that speckle party leaders’ speeches in China can baffle outsiders. To be sure, the Four Comprehensives read more succinctly in Chinese than English, and they broadly sum up Mr. Xi’s crowded agenda: promoting economic growth and adjustment, cleaning up the flawed legal system while wiping out political and ideological challenges to party power, and rooting out corruption.

But why would bland phrases about well-established goals prompt such a big fuss?

The answer is to be found not in hunting for a single precise meaning or purpose in the words, but in seeing such slogans as tools to help Chinese leaders maintain an aura of invincibility while they navigate shifting imperatives. They are as much vehicles for evasion and elision as for clarification, allowing party leaders to adjust priorities under a protective canopy of rhetorical continuity and coherence.

“I think they try to capture four basic contradictions that they see presently,” Sebastian Heilmann, the director of the Mercator Institute for China Studies in Berlin, said in a telephone interview. “It leaves a lot of room for adjusting these concepts in the policy-making process in the next few years. It sounds like a very tactical slogan.”

Mr. Xi is following the example of his predecessors, each of whom coined defining slogans that helped project an image of confident, unwavering authority, even when confidence faltered and policies wavered.

Mr. Xi’s immediate predecessor as national leader, Hu Jintao, tried his “Scientific Outlook on Development.” Before Mr. Hu, Jiang Zemin offered his “Three Represents” and before that his “Three Stresses.” Deng Xiaoping

first signed on with the “Four Modernizations,” then added the “Four Cardinal Principles” and many other catchphrases, and tried to synthesize them as “One Center, Two Basic Points.”

Mr. Xi’s slogan is, like these, capable of shifting emphasis to ride out political tides, said Perry Link, a professor at the University of California, Riverside, who has written a study of Chinese political language.

“Exactly what it means could be put to various purposes,” Mr. Link said in a telephone interview. “You’re automatically correct even though it’s not clear what you said. It provides, as it were, a theoretical cudgel with which you can pick your own fights.”

Even the rhythms in the slogans, rooted in the cadences of traditional Chinese, can “add some kind of exalted feeling,” and enumeration adds an aura of definitive, scientific truth, he said.

“They finalize the result. One, two, three, four — you absorb things and that’s it,” he said. “It’s got that comprehensive feel about it that, if you’ve got this, then you’ve got everything.”

The timing and evolution of Mr. Xi’s “Four Comprehensives” show how these formulaic party messages are crafted, and recrafted, to give an aura of grandeur to the business of ruling.

In fact, Mr. Xi’s Four Comprehensives were initially three.

Mr. Xi announced his big idea after a busy year in which he sought to combine an intense drive against official corruption with promoting economic adjustment, and a vigorous crackdown on dissent and ideological heterodoxy. Some commentaries have said that Mr. Xi wanted to remind officials and citizens that he had a full-fledged agenda that went beyond purging wayward officials.

“At the same time that everyone is applauding and cheering, some people have begun to worry,” said one commentary in China Youth Daily, a party-run newspaper. “With the intense campaign against corruption, what is the ruling party’s strategy for its next step?”

Indeed, when Mr. Xi first enunciated his “comprehensives” last year, the last one, referring to the continued campaign against corruption, was not on the list. In a visit to the eastern province of Fujian in early November, Mr. Xi laid out the first three items on his list. But that formulation was promptly reworked, apparently after he and his advisers decided that leaving out fighting corruption might send the wrong message.

In December, during his visit to Jiangsu Province, Mr. Xi rounded out his list to four, adding on the promise to strictly govern the party. If that shift looked hasty, party propagandists did not miss a beat.

“The shift from the ‘Three Comprehensives’ to the ‘Four Comprehensives’ carries profound implications,” explained one party commentator in Xingtai, a city in northern China. The addition, he said, created an “even more complete and ever more mature overall framework for governance and wise rule.”

Some have speculated that Mr. Xi might seek to install the Four Comprehensives into the party and state constitutions as his foundational contribution to official doctrine, just as Mr. Hu and Mr. Jiang managed to have their contributions included. It may be too early in Mr. Xi’s decade-long tenure for that.

But the new party formulation will help elevate Mr. Xi and dim even further the profiles of his predecessors. Throughout the five commentaries published last week on the front page of People’s Daily to explain the Four Comprehensives, Mao was not mentioned once, nor was Mr. Jiang or Mr. Hu. There was one passing reference to Deng. Mr. Xi’s name appeared 23 times.

China's Imperial President: Xi Jinping Tightens His Grip: Elizabeth Economy, Foreign Affairs: November 2014

Chinese President Xi Jinping has articulated a simple but powerful vision: the rejuvenation of the Chinese nation. It is a patriotic call to arms, drawing inspiration from the glories of China’s imperial past and the ideals of its socialist present to promote political unity at home and influence abroad. After just two years in office, Xi has advanced himself as a transformative leader, adopting an agenda that proposes to reform, if not revolutionize, political and economic relations not only within China but also with the rest of the world.

Underlying Xi’s vision is a growing sense of urgency. Xi assumed power at a moment when China, despite its economic success, was politically adrift. The Chinese Communist Party, plagued by corruption and lacking a compelling ideology, had lost credibility among the public, and social unrest was on the rise. The Chinese economy, still growing at an impressive clip, had begun to show signs of strain and uncertainty. And on the international front, despite its position as a global economic power, China was punching well below its weight. Beijing had failed to respond effectively to the crises in Libya and Syria and had stood by as political change rocked two of its closest partners, Myanmar (also known as Burma) and North Korea. To many observers, it appeared as though China had no overarching foreign policy strategy.

Xi has reacted to this sense of malaise with a power grab -- for himself, for the Communist Party, and for China. He has rejected the communist tradition of collective leadership, instead establishing himself as the paramount leader within a tightly centralized political system. At home, his proposed economic reforms will bolster the role of the market but nonetheless allow the state to retain significant control. Abroad, Xi has sought to elevate China by expanding trade and investment, creating new international institutions, and strengthening the military. His vision contains an implicit fear: that an open door to Western political and economic ideas will undermine the power of the Chinese state.

If successful, Xi’s reforms could yield a corruption-free, politically cohesive, and economically powerful one-party state with global reach: a Singapore on steroids. But there is no guarantee that the reforms will be as transformative as Xi hopes. His policies have created deep pockets of domestic discontent and provoked an international backlash. To silence dissent, Xi has launched a political crackdown, alienating many of the talented and resourceful Chinese citizens his reforms are intended to encourage. His tentative economic steps have raised questions about the country’s prospects for continued growth. And his winner-take-all mentality has undermined his efforts to become a global leader.

Xi has made a power grab—for himself, for the Communist Party, and for China.

The United States and the rest of the world cannot afford to wait and see how his reforms play out. The United States should be ready to embrace some of Xi’s initiatives as opportunities for international collaboration while treating others as worrisome trends that must be stopped before they are solidified.

A DOMESTIC CRACKDOWN

Xi’s vision for a rejuvenated China rests above all on his ability to realize his particular brand of political reform: consolidating personal power by creating new institutions, silencing political opposition, and legitimizing his leadership and the Communist Party’s power in the eyes of the Chinese people. Since taking office, Xi has moved quickly to amass political power and to become, within the Chinese leadership, not first among equals but simply first. He serves as head of the Communist Party and the Central Military Commission, the two traditional pillars of Chinese party leadership, as well as the head of leading groups on the economy, military reform, cybersecurity, Taiwan, and foreign affairs and a commission on national security. Unlike previous presidents, who have let their premiers act as the state’s authority on the economy, Xi has assumed that role for himself. He has also taken a highly personal command of the Chinese military: this past spring, he received public proclamations of allegiance from 53 senior military officials. According to one former general, such pledges have been made only three times previously in Chinese history.

In his bid to consolidate power, Xi has also sought to eliminate alternative political voices, particularly on China’s once lively Internet. The government has detained, arrested, or publicly humiliated popular bloggers such as the billionaire businessmen Pan Shiyi and Charles Xue. Such commentators, with tens of millions of followers on social media, used to routinely discuss issues ranging from environmental pollution to censorship to child trafficking. Although they have not been completely silenced, they no longer stray into sensitive political territory. Indeed, Pan, a central figure in the campaign to force the Chinese government to improve Beijing’s air quality, was compelled to criticize himself on national television in 2013. Afterward, he took to Weibo, a popular Chinese microblogging service, to warn a fellow real estate billionaire against criticizing the government’s program of economic reform: “Careful, or you might be arrested.”

Under Xi, Beijing has also issued a raft of new Internet regulations. One law threatens punishment of up to three years in prison for posting anything that the authorities consider to be a “rumor,” if the post is either read by more than 5,000 people or forwarded over 500 times. Under these stringent new laws, Chinese citizens have been arrested for posting theories about the disappearance of Malaysia Airlines Flight 370. Over one four-month period, Beijing suspended, deleted, or sanctioned more than 100,000 accounts on Weibo for violating one of the seven broadly defined “bottom lines” that represent the limits of permissible expression. These restrictions produced a 70 percent drop in posts on Weibo from March 2012 to December 2013, according to a study of 1.6 million Weibo users commissioned by The Telegraph. And when Chinese netizens found alternative ways of communicating, for example, by using the group instant-messaging platform WeChat, government censors followed them. In August 2014, Beijing issued new instant-messaging regulations that required users to register with their real names, restricted the sharing of political news, and enforced a code of conduct. Unsurprisingly, in its 2013 ranking of Internet freedom around the world, the U.S.-based nonprofit Freedom House ranked China 58 out of 60 countries -- tied with Cuba. Only Iran ranked lower.

In his efforts to promote ideological unity, Xi has also labeled ideas from abroad that challenge China’s political system as unpatriotic and even dangerous. Along these lines, Beijing has banned academic research and teaching on seven topics: universal values, civil society, citizens’ rights, freedom of the press, mistakes made by the Communist Party, the privileges of capitalism, and the independence of the judiciary. This past summer, a party official publicly attacked the Chinese Academy of Social Sciences, a government research institution, for having been “infiltrated by foreign forces.” This attack was met with mockery among prominent Chinese intellectuals outside the academy, including the economist Mao Yushi, the law professor He Weifang, and the writer Liu Yiming. Still, the accusations will likely have a chilling effect on scholarly research and international collaboration.

This crackdown might undermine the very political cohesiveness Xi seeks. Residents of Hong Kong and Macao, who have traditionally enjoyed more political freedom than those on the mainland, have watched Xi’s moves with growing unease; many have called for democratic reform. In raucously democratic Taiwan, Xi’s repressive tendencies are unlikely to help promote reunification with the mainland. And in the ethnically divided region of Xinjiang, Beijing’s restrictive political and cultural policies have resulted in violent protests.

Even within China’s political and economic upper class, many have expressed concern over Xi’s political tightening and are seeking a foothold overseas. According to the China-based Hurun Report, 85 percent of those with assets of more than $1 million want their children to be educated abroad, and more than 65 percent of Chinese citizens with assets of $1.6 million or more have emigrated or plan to do so. The flight of China’s elites has become not only a political embarrassment but also a significant setback for Beijing’s efforts to lure back home top scientists and scholars who have moved abroad in past decades.

A MORAL AUTHORITY?

The centerpiece of Xi’s political reforms is his effort to restore the moral authority of the Communist Party. He has argued that failing to address the party’s endemic corruption could lead to the demise of not only the party but also the Chinese state. Under the close supervision of Wang Qishan, a member of the Politburo Standing Committee, tackling official corruption has become Xi’s signature issue. Previous Chinese leaders have carried out anticorruption campaigns, but Xi has brought new energy and seriousness to the cause: limiting funds for official banquets, cars, and meals; pursuing well-known figures in the media, the government, the military, and the private sector; and dramatically increasing the number of corruption cases brought for official review. In 2013, the party

punished more than 182,000 officials for corruption, 50,000 more than the annual average for the previous five years. Two scandals that broke this past spring indicate the scale of the campaign. In the first, federal authorities arrested a lieutenant general in the Chinese military for selling hundreds of positions in the armed forces, sometimes for extraordinary sums; the price to become a major general, for example, reached $4.8 million. In the second, Beijing began investigating more than 500 members of the regional government in Hunan Province for participating in an $18 million vote-buying ring.

Treating China as a foe feeds Xi’s anti-Western narrative, undermining those in China pushing for moderation.

Xi’s anticorruption crusade represents just one part of his larger plan to reclaim the Communist Party’s moral authority. He has also announced reforms that address some of Chinese society’s most pressing concerns. With Xi at the helm, the Chinese leadership has launched a campaign to improve the country’s air quality; reformed the one-child policy; revised the hukou system of residency permits, which ties a citizen’s housing, health care, and education to his official residence and tends to favor urban over rural residents; and shut down the system of “reeducation through labor” camps, which allowed the government to detain people without cause. The government has also announced plans to make the legal system more transparent and to rid it of meddling by local officials.

Despite the impressive pace and scope of Xi’s reform initiatives, it remains unclear whether they represent the beginning of longer-term change, or if they are merely superficial measures designed to buy the short-term goodwill of the people. Either way, some of his reforms have provoked fierce opposition. According to the Financial Times, former Chinese leaders Jiang Zemin and Hu Jintao have both warned Xi to rein in his anticorruption campaign, and Xi himself has conceded that his efforts have met with significant resistance. The campaign has also incurred real economic costs. According to a report by Bank of America Merrill Lynch, Chinese GDP could fall this year by as much as 1.5 percentage points as a result of declining sales of luxury goods and services, as officials are increasingly concerned that lavish parties, political favor-buying, and expensive purchases will invite unwanted attention. (Of course, many Chinese are still buying; they are just doing so abroad.) And even those who support the goal of fighting corruption have questioned Xi’s methods. Premier Li Keqiang, for example, called for greater transparency and public accountability in the government’s anticorruption campaign in early 2014; his remarks, however, were quickly deleted from websites.

Xi’s stance on corruption may also pose a risk to his personal and political standing: his family ranks among the wealthiest of the Chinese leadership, and according to The New York Times, Xi has told relatives to shed their assets, reducing his vulnerability to attack. Moreover, he has resisted calls for greater transparency, arresting activists who have pushed for officials to reveal their assets and punishing Western media outlets that have investigated Chinese leaders.

KEEPING CONTROL

As Xi strives to consolidate political control and restore the Communist Party’s legitimacy, he must also find ways to stir more growth in China’s economy. Broadly speaking, his objectives include transforming China from the world’s manufacturing center to its innovation hub, rebalancing the Chinese economy by prioritizing consumption over investment, and expanding the space for private enterprise. Xi’s plans include both institutional and policy reforms. He has slated the tax system, for example, for a significant overhaul: local revenues will come from a broad range of taxes instead of primarily from land sales, which led to corruption and social unrest. In addition, the central government, which traditionally has received roughly half the national tax revenue while paying for just one-third of the expenditures for social welfare, will increase the funding it provides for social services, relieving some of the burden on local governments. Scores of additional policy initiatives are also in trial phases, including encouraging private investment in state-owned enterprises and lowering the compensation of their executives, establishing private banks to direct capital to small and medium-sized businesses, and shortening the length of time it takes for new businesses to secure administrative approvals.

Yet as details of Xi’s economic plan unfold, it has become clear that despite his emphasis on the free market, the state will retain control over much of the economy. Reforming the way in which state-owned enterprises are governed will not undermine the dominant role of the Communist Party in these companies’ decision-making; Xi

has kept in place significant barriers to foreign investment; and even as the government pledges a shift away from investment-led growth, its stimulus efforts continue, contributing to growing levels of local debt. Indeed, according to the Global Times, a Chinese newspaper, the increase in the value of outstanding nonperforming loans in the first six months of 2014 exceeded the value of new nonperforming loans for all of 2013.

Moreover, Xi has infused his economic agenda with the same nationalist -- even xenophobic -- sentiment that permeates his political agenda. His aggressive anticorruption and antimonopoly campaigns have targeted multinational corporations making products that include powdered milk, medical supplies, pharmaceuticals, and auto parts. In July 2013, in fact, China’s National Development and Reform Commission brought together representatives from 30 multinational companies in an attempt to force them to admit to wrongdoing. At times, Beijing appears to be deliberately undermining foreign goods and service providers: the state-controlled media pay a great deal of attention to alleged wrongdoing at multinational companies while remaining relatively quiet about similar problems at Chinese firms.

Like his anticorruption campaign, Xi’s investigation of foreign companies raises questions about the underlying intent. In a widely publicized debate broadcast by Chinese state television between the head of the European Union Chamber of Commerce in China and an official from the National Development and Reform Commission, the European official forced his Chinese counterpart to defend the seeming disparities between the Chinese government’s treatment of foreign and domestic companies. Eventually, the Chinese official appeared to yield, saying that China’s antimonopoly procedure was a procedure “with Chinese characteristics.”

The early promise of Xi’s overhaul thus remains unrealized. A 31-page scorecard of Chinese economic reform, published in June 2014 by the U.S.-China Business Council, contains dozens of unfulfilled mandates. It deems just three of Xi’s policy initiatives successes: reducing the time it takes to register new businesses, allowing multinational corporations to use Chinese currency to expand their business, and reforming the hukou system. Tackling deeper reforms, however, may require a jolt to the system, such as the collapse of the housing market. For now, Xi may well be his own worst enemy: calls for market dominance are no match for his desire to retain economic control.

WAKING THE LION

Xi’s efforts to transform politics and economics at home have been matched by equally dramatic moves to establish China as a global power. The roots of Xi’s foreign policy, however, predate his presidency. The Chinese leadership began publicly discussing China’s rise as a world power in the wake of the 2008 global financial crisis, when many Chinese analysts argued that the United States had begun an inevitable decline that would leave room for China at the top of the global pecking order. In a speech in Paris in March 2014, Xi recalled Napoleon’s ruminations on China: “Napoleon said that China is a sleeping lion, and when she wakes, the world will shake.” The Chinese lion, Xi assured his audience, “has already awakened, but this is a peaceful, pleasant, and civilized lion.” Yet some of Xi’s actions belie his comforting words. He has replaced the decades-old mantra of the former Chinese leader Deng Xiaoping -- “Hide brightness, cherish obscurity” -- with a far more expansive and muscular foreign policy.

For Xi, all roads lead to Beijing, figuratively and literally. He has revived the ancient concept of the Silk Road -- which connected the Chinese empire to Central Asia, the Middle East, and even Europe -- by proposing a vast network of railroads, pipelines, highways, and canals to follow the contours of the old route. The infrastructure, which Xi expects Chinese banks and companies to finance and build, would allow for more trade between China and much of the rest of the world. Beijing has also considered building a roughly 8,100-mile high-speed intercontinental railroad that would connect China to Canada, Russia, and the United States through the Bering Strait. Even the Arctic has become China’s backyard: Chinese scholars describe their country as a “near-Arctic” state.

Along with new infrastructure, Xi also wants to establish new institutions to support China’s position as a regional and global leader. He has helped create a new development bank, operated by the BRICS countries -- Brazil, Russia, India, China, and South Africa -- to challenge the primacy of the International Monetary Fund and the World Bank. And he has advanced the establishment of the Asian Infrastructure Investment Bank, which could enable China to become the leading financer of regional development. These two efforts signal Xi’s desire to capitalize on

frustrations with the United States’ unwillingness to make international economic organizations more representative of developing countries.

Xi has also promoted new regional security initiatives. In addition to the already existing Shanghai Cooperation Organization, a Chinese-led security institution that includes Russia and four Central Asian states, Xi wants to build a new Asia-Pacific security structure that would exclude the United States. Speaking at a conference in May 2014, Xi underscored the point: “It is for the people of Asia to run the affairs of Asia, solve the problems of Asia, and uphold the security of Asia.”

Xi’s predilection for a muscular regional policy became evident well before his presidency. In 2010, Xi chaired the leading group responsible for the country’s South China Sea policy, which broadened its definition of China’s core interests to include its expansive claims to maritime territory in the South China Sea. Since then, he has used everything from the Chinese navy to fishing boats to try to secure these claims -- claims disputed by other nations bordering the sea. In May 2014, conflict between China and Vietnam erupted when the China National Petroleum Corporation moved an oil rig into a disputed area in the South China Sea; tensions remained high until China withdrew the rig in mid-July. To help enforce China’s claims to the East China Sea, Xi has declared an “air defense identification zone” over part of it, overlapping with those established by Japan and South Korea. He has also announced regional fishing regulations. None of China’s neighbors has recognized any of these steps as legitimate. But Beijing has even redrawn the map of China embossed on Chinese passports to incorporate areas under dispute with India, as well as with countries in Southeast Asia, provoking a political firestorm.

These maneuvers have stoked nationalist sentiments at home and equally virulent nationalism abroad. New, similarly nationalist leaders in India and Japan have expressed concern over Xi’s policies and taken measures to raise their countries’ own security profiles. Indeed, during his campaign for the Indian prime ministership in early 2014, Narendra Modi criticized China’s expansionist tendencies, and he and Japanese Prime Minister Shinzo Abe have since upgraded their countries’ defense and security ties. Several new regional security efforts are under way that exclude Beijing (as well as Washington). For example, India has been training some Southeast Asian navies, including those of Myanmar and Vietnam, and many of the region’s militaries -- including those of Australia, India, Japan, the Philippines, Singapore, and South Korea -- have planned joint defense exercises.

A VIGOROUS RESPONSE

For the United States and much of the rest of the world, the awakening of Xi’s China provokes two different reactions: excitement, on the one hand, about what a stronger, less corrupt China could achieve, and significant concern, on the other hand, over the challenges an authoritarian, militaristic China might pose to the U.S.-backed liberal order.

On the plus side, Beijing’s plans for a new Silk Road hinge on political stability in the Middle East; that might provide Beijing with an incentive to work with Washington to secure peace in the region. Similarly, Chinese companies’ growing interest in investing abroad might give Washington greater leverage as it pushes forward a bilateral investment treaty with Beijing. The United States should also encourage China’s participation in the Trans-Pacific Partnership, a major regional free-trade agreement under negotiation. Just as China’s negotiations to join the World Trade Organization in the 1990s prompted Chinese economic reformers to advance change at home, negotiations to join the TPP might do the same today.

In addition, although China already has a significant stake in the international system, the United States must work to keep China in the fold. For example, the U.S. Congress should ratify proposed changes to the International Monetary Fund’s internal voting system that would grant China and other developing countries a larger say in the fund’s management and thereby reduce Beijing’s determination to establish competing groups.

On the minus side, Xi’s nationalist rhetoric and assertive military posture pose a direct challenge to U.S. interests in the region and call for a vigorous response. Washington’s “rebalance,” or “pivot,” to Asia represents more than simply a response to China’s more assertive behavior. It also reflects the United States’ most closely held foreign policy values: freedom of the seas, the air, and space; free trade; the rule of law; and basic human rights. Without a

strong pivot, the United States’ role as a regional power will diminish, and Washington will be denied the benefits of deeper engagement with many of the world’s most dynamic economies. The United States should therefore back up the pivot with a strong military presence in the Asia-Pacific to deter or counter Chinese aggression; reach consensus and then ratify the TPP; and bolster U.S. programs that support democratic institutions and civil society in such places as Cambodia, Malaysia, Myanmar, and Vietnam, where democracy is nascent but growing.

At the same time, Washington should realize that Xi may not be successful in transforming China in precisely the ways he has articulated. He has set out his vision, but pressures from both inside and outside China will shape the country’s path forward in unexpected ways. Some commodity-rich countries have balked at dealing with Chinese firms, troubled by the their weak record of social responsibility, which has forced Beijing to explore new ways of doing business. China’s neighbors, alarmed by Beijing’s swagger, have begun to form new security relationships. Even prominent foreign policy experts within China, such as Peking University’s Wang Jisi and the retired ambassador Wu Jianmin, have expressed reservations over the tenor of Xi’s foreign policy.

Finally, although little in Xi’s domestic or foreign policy appears to welcome deeper engagement with the United States, Washington should resist framing its relationship with China as a competition. Treating China as a competitor or foe merely feeds Xi’s anti-Western narrative, undermines those in China pushing for moderation, and does little to advance bilateral cooperation and much to diminish the stature of the United States. Instead, the White House should pay particular attention to the evolution of Xi’s policies, taking advantage of those that could strengthen its relationship with China and pushing back against those that undermine U.S. interests. In the face of uncertainty over China’s future, U.S. policymakers must remain flexible and fleet-footed.

The Coming Chinese Crackup: David Shambaugh, March 2015 The endgame of communist rule in China has begun, and Xi Jinping’s ruthless measures are only bringing the country closer to a breaking point

On Thursday, the National People’s Congress convened in Beijing in what has become a familiar annual ritual. Some 3,000 “elected” delegates from all over the country—ranging from colorfully clad ethnic minorities to urbane billionaires—will meet for a week to discuss the state of the nation and to engage in the pretense of political participation.

Some see this impressive gathering as a sign of the strength of the Chinese political system—but it masks serious weaknesses. Chinese politics has always had a theatrical veneer, with staged events like the congress intended to project the power and stability of the Chinese Communist Party, or CCP. Officials and citizens alike know that they are supposed to conform to these rituals, participating cheerfully and parroting back official slogans. This behavior is known in Chinese as biaotai, “declaring where one stands,” but it is little more than an act of symbolic compliance.

Despite appearances, China’s political system is badly broken, and nobody knows it better than the Communist Party itself. China’s strongman leader, Xi Jinping, is hoping that a crackdown on dissent and corruption will shore up the party’s rule. He is determined to avoid becoming the Mikhail Gorbachev of China, presiding over the party’s collapse. But instead of being the antithesis of Mr. Gorbachev, Mr. Xi may well wind up having the same effect. His despotism is severely stressing China’s system and society—and bringing it closer to a breaking point.

Predicting the demise of authoritarian regimes is a risky business. Few Western experts forecast the collapse of the Soviet Union before it occurred in 1991; the CIA missed it entirely. The downfall of Eastern Europe’s communist states two years earlier was similarly scorned as the wishful thinking of anticommunists—until it happened. The post-Soviet “color revolutions” in Georgia, Ukraine and Kyrgyzstan from 2003 to 2005, as well as the 2011 Arab Spring uprisings, all burst forth unanticipated.

China-watchers have been on high alert for telltale signs of regime decay and decline ever since the regime’s near-death experience in Tiananmen Square in 1989. Since then, several seasoned Sinologists have risked their professional reputations by asserting that the collapse of CCP rule was inevitable. Others were more cautious—myself included. But times change in China, and so must our analyses.

The endgame of Chinese communist rule has now begun, I believe, and it has progressed further than many think. We don’t know what the pathway from now until the end will look like, of course. It will probably be highly unstable and unsettled. But until the system begins to unravel in some obvious way, those inside of it will play along—thus contributing to the facade of stability.

Advertisement

Communist rule in China is unlikely to end quietly. A single event is unlikely to trigger a peaceful implosion of the regime. Its demise is likely to be protracted, messy and violent. I wouldn’t rule out the possibility that Mr. Xi will be deposed in a power struggle or coup d’état. With his aggressive anticorruption campaign—a focus of this week’s National People’s Congress—he is overplaying a weak hand and deeply aggravating key party, state, military and commercial constituencies.

The Chinese have a proverb, waiying, neiruan—hard on the outside, soft on the inside. Mr. Xi is a genuinely tough ruler. He exudes conviction and personal confidence. But this hard personality belies a party and political system that is extremely fragile on the inside.

Consider five telling indications of the regime’s vulnerability and the party’s systemic weaknesses.

First, China’s economic elites have one foot out the door, and they are ready to flee en masse if the system really begins to crumble. In 2014, Shanghai’s Hurun Research Institute, which studies China’s wealthy, found that 64% of the “high net worth individuals” whom it polled—393 millionaires and billionaires—were either emigrating or planning to do so. Rich Chinese are sending their children to study abroad in record numbers (in itself, an indictment of the quality of the Chinese higher-education system).

Just this week, the Journal reported, federal agents searched several Southern California locations that U.S. authorities allege are linked to “multimillion-dollar birth-tourism businesses that enabled thousands of Chinese women to travel here and return home with infants born as U.S. citizens.” Wealthy Chinese are also buying property abroad at record levels and prices, and they are parking their financial assets overseas, often in well-shielded tax havens and shell companies.

Meanwhile, Beijing is trying to extradite back to China a large number of alleged financial fugitives living abroad. When a country’s elites—many of them party members—flee in such large numbers, it is a telling sign of lack of confidence in the regime and the country’s future.

Second, since taking office in 2012, Mr. Xi has greatly intensified the political repression that has blanketed China since 2009. The targets include the press, social media, film, arts and literature, religious groups, the Internet, intellectuals, Tibetans and Uighurs, dissidents, lawyers, NGOs, university students and textbooks. The Central Committee sent a draconian order known as Document No. 9 down through the party hierarchy in 2013, ordering all units to ferret out any seeming endorsement of the West’s “universal values”—including constitutional democracy, civil society, a free press and neoliberal economics.

A more secure and confident government would not institute such a severe crackdown. It is a symptom of the party leadership’s deep anxiety and insecurity.

Third, even many regime loyalists are just going through the motions. It is hard to miss the theater of false pretense that has permeated the Chinese body politic for the past few years. Last summer, I was one of a handful of foreigners (and the only American) who attended a conference about the “China Dream,” Mr. Xi’s signature concept, at a party-affiliated think tank in Beijing. We sat through two days of mind-numbing, nonstop presentations by two dozen party scholars—but their faces were frozen, their body language was wooden, and their boredom was palpable. They feigned compliance with the party and their leader’s latest mantra. But it was evident that the propaganda had lost its power, and the emperor had no clothes.

In December, I was back in Beijing for a conference at the Central Party School, the party’s highest institution of doctrinal instruction, and once again, the country’s top officials and foreign policy experts recited their stock slogans verbatim. During lunch one day, I went to the campus bookstore—always an important stop so that I can update myself on what China’s leading cadres are being taught. Tomes on the store’s shelves ranged from Lenin’s “Selected Works” to Condoleezza Rice’s memoirs, and a table at the entrance was piled high with copies of a pamphlet by Mr. Xi on his campaign to promote the “mass line”—that is, the party’s connection to the masses. “How is this selling?” I asked the clerk. “Oh, it’s not,” she replied. “We give it away.” The size of the stack suggested it was hardly a hot item.

Fourth, the corruption that riddles the party-state and the military also pervades Chinese society as a whole. Mr. Xi’s anticorruption campaign is more sustained and severe than any previous one, but no campaign can eliminate the problem. It is stubbornly rooted in the single-party system, patron-client networks, an economy utterly lacking in transparency, a state-controlled media and the absence of the rule of law.

Moreover, Mr. Xi’s campaign is turning out to be at least as much a selective purge as an antigraft campaign. Many of its targets to date have been political clients and allies of former Chinese leader Jiang Zemin. Now 88, Mr. Jiang is still the godfather figure of Chinese politics. Going after Mr. Jiang’s patronage network while he is still alive is highly risky for Mr. Xi, particularly since Mr. Xi doesn’t seem to have brought along his own coterie of loyal clients to promote into positions of power. Another problem: Mr. Xi, a child of China’s first-generation revolutionary elites,

is one of the party’s “princelings,” and his political ties largely extend to other princelings. This silver-spoon generation is widely reviled in Chinese society at large.

Mr. Xi at the Schloss Bellevue presidential residency during his visit to fellow export powerhouse Germany in Berlin on March 28, 2014. Photo: Agence France-Presse/Getty Images

Finally, China’s economy—for all the Western views of it as an unstoppable juggernaut—is stuck in a series of systemic traps from which there is no easy exit. In November 2013, Mr. Xi presided over the party’s Third Plenum, which unveiled a huge package of proposed economic reforms, but so far, they are sputtering on the launchpad. Yes, consumer spending has been rising, red tape has been reduced, and some fiscal reforms have been introduced, but overall, Mr. Xi’s ambitious goals have been stillborn. The reform package challenges powerful, deeply entrenched interest groups—such as state-owned enterprises and local party cadres—and they are plainly blocking its implementation.

These five increasingly evident cracks in the regime’s control can be fixed only through political reform. Until and unless China relaxes its draconian political controls, it will never become an innovative society and a “knowledge economy”—a main goal of the Third Plenum reforms. The political system has become the primary impediment to China’s needed social and economic reforms. If Mr. Xi and party leaders don’t relax their grip, they may be summoning precisely the fate they hope to avoid.

In the decades since the collapse of the Soviet Union, the upper reaches of China’s leadership have been obsessed with the fall of its fellow communist giant. Hundreds of Chinese postmortem analyses have dissected the causes of the Soviet disintegration.

Mr. Xi’s real “China Dream” has been to avoid the Soviet nightmare. Just a few months into his tenure, he gave a telling internal speech ruing the Soviet Union’s demise and bemoaning Mr. Gorbachev’s betrayals, arguing that Moscow had lacked a “real man” to stand up to its reformist last leader. Mr. Xi’s wave of repression today is meant to be the opposite of Mr. Gorbachev’s perestroika and glasnost. Instead of opening up, Mr. Xi is doubling down on controls over dissenters, the economy and even rivals within the party.

But reaction and repression aren’t Mr. Xi’s only option. His predecessors, Jiang Zemin and Hu Jintao, drew very different lessons from the Soviet collapse. From 2000 to 2008, they instituted policies intended to open up the system with carefully limited political reforms.

They strengthened local party committees and experimented with voting for multicandidate party secretaries. They recruited more businesspeople and intellectuals into the party. They expanded party consultation with nonparty groups and made the Politburo’s proceedings more transparent. They improved feedback mechanisms within the party, implemented more meritocratic criteria for evaluation and promotion, and created a system of mandatory midcareer training for all 45 million state and party cadres. They enforced retirement requirements and rotated officials and military officers between job assignments every couple of years.

In effect, for a while Mr. Jiang and Mr. Hu sought to manage change, not to resist it. But Mr. Xi wants none of this. Since 2009 (when even the heretofore open-minded Mr. Hu changed course and started to clamp down), an increasingly anxious regime has rolled back every single one of these political reforms (with the exception of the cadre-training system). These reforms were masterminded by Mr. Jiang’s political acolyte and former vice president, Zeng Qinghong, who retired in 2008 and is now under suspicion in Mr. Xi’s anticorruption campaign—another symbol of Mr. Xi’s hostility to the measures that might ease the ills of a crumbling system.

Some experts think that Mr. Xi’s harsh tactics may actually presage a more open and reformist direction later in his term. I don’t buy it. This leader and regime see politics in zero-sum terms: Relaxing control, in their view, is a sure step toward the demise of the system and their own downfall. They also take the conspiratorial view that the U.S. is actively working to subvert Communist Party rule. None of this suggests that sweeping reforms are just around the corner.

We cannot predict when Chinese communism will collapse, but it is hard not to conclude that we are witnessing its final phase. The CCP is the world’s second-longest ruling regime (behind only North Korea), and no party can rule forever.

Looking ahead, China-watchers should keep their eyes on the regime’s instruments of control and on those assigned to use those instruments. Large numbers of citizens and party members alike are already voting with their feet and leaving the country or displaying their insincerity by pretending to comply with party dictates.

We should watch for the day when the regime’s propaganda agents and its internal security apparatus start becoming lax in enforcing the party’s writ—or when they begin to identify with dissidents, like the East German Stasi agent in the film “The Lives of Others” who came to sympathize with the targets of his spying. When human empathy starts to win out over ossified authority, the endgame of Chinese communism will really have begun.

Why David Shambaugh's 'Coming Chinese Crackup' Case Is Wrong: Stephen Harner, March 2015.

David Shambaugh, professor of international affairs and director of the China Policy Program at George Washington University, is one of a group of several dozen academics and think tank scholars, who, together with officials serving in the U.S. Department of Defense, CIA, State Department, and National Security Council, make U.S. policy toward Asia, and particularly toward China.

For this reason alone, we should be reading and interpreting with alarm Shambaugh’s essay in the March 6 Wall Street Journal entitled “The Coming Chinese Crackup.”

In this essay, Shambaugh presents a veritable “end of days” thesis, presaging—if not predicting (“predicting the demise of authoritarian regimes is risky business”)—a collapse of political authority and administrative control in China and hinting at subsequent domestic and international turmoil.

“The endgame of Chinese communist rule has now begun, I believe,” he declares, “and it has progressed further than many think…Its demise is likely to be protracted, messy and violent. I wouldn’t rule out the possibility that Mr. Xi will be deposed in a power struggle or coup d’état.”

What has Shambaugh announcing doom? It is Xi Jinping’s seemingly ever deepening and broadening anticorruption campaign in which, avers Shambaugh, “he is overplaying a weak hand and deeply aggravating key party, state, military and commercial constituencies.”

Let me say here. Anyone who visits for long intervals or lives in China, and, especially, who reads Chinese publications and listens to Chinese broadcasts—as I do, did for 20 years, and do daily—knows that a sense of dramatic, almost revolutionary, change now permeates the air.

There can be no doubt that Xi’s anticorruption campaign is shaking the very foundations of many institutions, breaking many “rice bowls,” and not just threatening but actually attacking deeply vested interests in all the institutions mentioned by Shambaugh.

I nevertheless absolutely reject his conclusion which I find astonishingly ill-informed. The pervasive sense of dramatic change is, I have found, combined in almost all Chinese minds with satisfaction and confidence that the change is urgently needed–indeed long overdue—and in the right direction.

For this reason alone, the most likely outcome of which is a much stronger, more legitimate, and more effective CCP and government at all levels.

Shambaugh presents five “telling indications of the regime’s vulnerability and the party’s systematic weaknesses.” They are all easy to dismiss.

First, he says, “China’s economic elites have one foot out the door, and …are ready to flee.” But hasn’t this “hedging” behavior been characteristic for generations of rich Chinese families wherever they have had an opportunity, and particularly when that opportunity was the U.S.?

Shambaugh cites “birth tourism” in Southern California where pregnant Chinese women stay a few months, give birth, and return to China with a U.S. passport-carrying child. Why is this an indication of doubt about prospects in China rather than a specular risk free investment that will yield free American education, subsidized or free health care for elderly parents, and the rest of the virtually unmatchable benefits of American residence for any family?

Second is that “since taking office in 2012, Mr. Xi has greatly intensified the political repression that has blanketed China since 2009.” Shambaugh lists as targets of the repression “the press, social media, film, arts and literature, religious groups, the Internet, intellectuals, Tibetans and Uighurs, dissidents, lawyers, NGOs, university students and textbooks.” He condemns, in particular, the Central Committee’s Document No. 9 that enjoins party members

to do battle with “universal values” that challenge the system. Shambaugh is arguing that all of this is “a symptom of the party leadership’s anxiety and insecurity.”

I would reply that there is much less “repression” (and for actually repressive actions, much public support) in what Xi and the party apparatus is doing and much more of traditional, Confucian-style moral and philosophical exhortations, including renewed reverence for Confucianism (which contains many “repressive” elements) itself.

The paramount priority for virtually all Chinese is social and political stability. This sensibility is particularly acute now as Chinese society is being stressed by a “new normal” of slower-growth economy. At the same time, Xi is pressing forward with structural systematic reforms with a determination unseen in at least twenty years. In this sense, it is rational and responsible statecraft and leadership, firmly in China’s political tradition, to enforce a certain focus on messages and themes that positively advance the reform agenda.

The third point is that party members are seemingly uninspired by much in Xi’s positive agenda, like his “China Dream” concept or his exhortation to follow the “mass line.” I have spoken with a number of CCP cadres who have, with unfeigned sincerity, expressed profound appreciation and understanding toward this agenda. I believe their sincere support to be prevalent within the party. They see Xi’s agenda and approach as a critically needed return to principles for the party.

Fourth, writes Shambaugh, “the corruption that riddles the party-state and the military also pervades Chinese society as a whole.” He asserts that corruption is “stubbornly rooted in the single-party system, patron-client networks, an economy utterly lacking in transparency, a state-controlled media and the absence of the rule of law.”

This statement reveals an astonishing naiveté about how things work in China. Yes, corruption is part of daily life, in the sense that no one seems to work only for their salary if they have an opportunity to negotiate something more on the side. But the economy and society have developed and hundreds of millions of people prospered within this system. Indeed, it is almost impossible to imagine—given Chinese culture and tradition—a different system. And, to judge by examples in Taiwan, elsewhere in Asia and, indeed, in the United States, it is highly doubtful that the accoutrements of a democratic pluralism that he cites would make any material difference.

Shambaugh’s fifth indicator is China’s economy which “is stuck in a series of systematic traps from which there is no easy exit.”

I have a prediction: For the remaining eight years of the leadership of Xi Jinping, Li Keqiang, and the rest of the CPP Politburo Standing Committee, China will successfully “exit” or at least avoid the “systematic traps” it is economic development path, and will emerge stronger, more prosperous, and more globally engaged and competitive.

This success will have much to owe to the resolute, focused approach being taken by Xi to break down the greatest barrier to development, which is a CCP debilitated by internal corruption and a loss of ideological purpose and vision.

Regional Security in the Asia-Pacific

Chinese, Japanese and South Korean Ministers to Resume Three-Way Talks

By CHOE SANG-HUN, MARCH 21, 2015

SEOUL, South Korea — In their first trilateral meeting in three years, the foreign ministers of South Korea, Japan and China recognized on Saturday the urgent need to stop North Korea’s nuclear weapons program, South Korean officials said.

South Korea’s foreign minister, Yun Byung-se, and his Chinese and Japanese counterparts, Wang Yi and Fumio Kishida, wrapped up a three-way meeting, as well as a series of bilateral talks, in Seoul on Saturday with a joint statement in which they said they would try to reopen six-nation talks aimed at ending North Korea’s nuclear weapons development.

The six-nation talks, which also involved the United States, Russia and North Korea, have been dormant since 2008. The United States, South Korea and Japan have been deeply skeptical about resuming negotiations with North Korea unless it shows a willingness to bargain away its nuclear weapons, while the North insists on talks without conditions.

Analysts and officials in the region fear that while the six-nation talks are suspended, North Korea may be progressing toward building nuclear warheads small enough to fit onto its missiles.

North Korea is also believed to be increasing its stockpile of nuclear fuel through a newly disclosed uranium enrichment program, as well as through its recently restarted reactor that produces plutonium.

“We agreed to continue to exert our joint efforts to urgently stop the advancement of North Korea’s nuclear weapons capabilities and resume talks that can make concrete progress toward the denuclearization of North Korea,” Mr. Yun said during a joint news conference with his Chinese and Japanese counterparts.

In their statement, the three foreign ministers said they hoped their meeting in Seoul, which was intended to try to improve ties that have been strained by territorial and historical disputes, would open “a path for restoring a cooperative system” among the three neighbors. To that end, they said they would try to resume a three-way meeting “at an early date.”

The three countries’ foreign ministers began holding annual talks in 2007, which led to annual trilateral meetings beginning in 2008. But both forums were suspended after the 2012 meeting as persistent regional tensions worsened, notably over competing Chinese and Japanese claims to islands in the East China Sea.

Highly emotional disputes rooted in the countries’ bitter 20th-century history — before its defeat in World War II, Japan ruled the Korean Peninsula as a colony and occupied parts of China — have created rifts that the three governments have tried to mend only in fits and starts over the years.

In addition to the territorial disputes — South Korea and Japan have their own, over a different group of islets — both Beijing and Seoul say that Japan has not fully renounced its past militarism.

In their joint statement, the three foreign ministers simply said they would continue to try to resolve their disputes “in a spirit of looking squarely at history.”

China’s lawless path

By Fred Hiatt March 8, 2015

The biggest beneficiary of Vladimir Putin’s depredations, at least in the short term, may be China.It’s not just that, with his European markets constricting, Putin is easy pickings for Chinese negotiators when he comes selling natural gas.

It’s also that he makes China look good by comparison — which is not easy, given that China is in the midst of a historic crackdown on civil society and freedom. With Russia invading and occupying a neighboring nation, and repeatedly lying about it, China’s bullying in the South China Sea seems tame. And with opposition politicians being gunned down gangland-style within walking distance of the Kremlin, China’s harassment and imprisonment of human rights activists comes across as almost civilized.

Yet for all of Putin’s barbarities, China may pose a greater challenge to the democratic world — and to the next U.S. president — because its turn toward repression has upended the basic assumptions of U.S. policy toward China since it opened to the world decades ago.

The crackdown itself is no longer in dispute. Last year President Xi Jinping and the Communist Party “unleashed the harshest campaign of politically motivated investigations, detentions, and sentencing in the past decade, marking a sharp turn toward intolerance of criticism,” Human Rights Watch said recently in its annual world report.

From the beginning of Deng Xiaoping’s reforms, party control coincided with “an expansion of space for citizens and society,” as the organization’s senior Asia researcher Nicholas Bequelin told me during a recent visit to Washington.

That loosening ended in 2007, as the Beijing Olympics approached, and China began going in the opposite direction. The trend has accelerated since Xi took over two years ago. “The space is not expanding any more, and the walls are getting higher,” Bequelin said.

Party officials are reasserting ideological control in universities. They have reined in media that dared criticize the regime. Tens of thousands of security agents — China’s internal security budget not long ago surpassed the also-expanding military budget — prowl through digital space enforcing loyalty to the regime.

As Maya Wang, another Hong Kong-based researcher for Human Rights Watch, said, authorities are arresting the most respected lawyers and civil activists, people whose activities were previously encouraged or at least tolerated, and who were thought to be invulnerable to arrest. The message, she said, is that “no one is safe.”

Gao Yu, 70, an eminent journalist who has won numerous international awards, was picked up last spring. So was Pu Zhiqiang, 50, a respected lawyer who had defended artist Ai Weiwei and other prominent clients. A Nobel Peace Prize is no shield: Liu Xiaobo remains in prison for his peaceful advocacy of democracy. Age is no shield, either: Huang Zerong, 81, who crossed authorities by publishing memoirs of victims of past Communist purges, recently spent five months in detention on a charge of “causing trouble.”

“As the circle of arrests expands, no one is left to complain, and international concern is numbed,” Wang said.

In the long run, this is a problem for China first and foremost. The increasing freedom of its citizens underpinned its remarkable economic growth, and if their creativity and entrepreneurship are stifled, if they are unable to communicate freely with each other and the outside world, it’s unlikely China can keep growing as fast. Meanwhile, with the most civilized forces crushed — the advocates of gradual, peaceful liberalization — then as the economy slows the ugliest voices of nationalism and intolerance will rise.

All of this disturbs Washington’s comfortable assumption that Western engagement — trade, investment, student exchanges — would inevitably promote China’s gradual movement toward democracy and acceptance of international norms. That was the rationale for normalizing trade under President Bill Clinton, and two subsequent administrations have accepted the premise.

They’ve also assumed that issues of human rights and the rule of law could be steered onto a side track while the economic and political relationship chugged unimpeded on its own more important track.

Now it’s obvious that the two can’t be so easily separated. U.S. technology firms are kept out of China, with political control and protectionism mingled as inseparable motives. Chinese reporters are welcome in the United States, but China picks and chooses who can report from Beijing — and which news sites Chinese people can read. That has business implications, too. State-owned enterprises under party control have more, not less, sway than they did 10 years ago; does it make sense to pretend that they will follow the normal rules of capitalism? On issues ranging from cybersecurity to counterterrorism and beyond, the nature of China’s regime makes cooperation dicey.

Engagement cannot be abandoned; the two nations are way past that, given the economic ties they have forged. But for the next president, finding the right way to engage with a rising power that is writing its own rules may make saving Ukraine seem easy.

WWII 70th Anniversary: China To Invite World Leaders For Military Parade

By Shuan Sim, March 2, 2015

China has announced Monday that it will hold a military parade to mark the 70th anniversary of World War II, and leaders from all majors countries involved in the war will be invited to attend events that will serve as a reminder of Japan’s role in the war, the foreign ministry said, according to Reuters. No exact date has been set yet, but the parade is expected to be held sometime in September, and it will be Chinese President Xi Jinping’s first such military parade since he came to power in 2013, as commemorations are held every five or 10 years.

"We hope these commemorative activities will help remind all kind-hearted people of the aspiration and pursuit for peace, make them work together to prevent a repetition of this historical tragedy and safeguard the outcomes of World War Two," the ministry said in a statement, according to Reuters. Xi will oversee the military parade, a reception and an evening gala, according to the foreign ministry.

Hua Chunying, deputy director of the foreign ministry, said that the parade marks the anniversary of victory in the “Chinese People’s War of Resistance Against Japanese Aggression,” according to state media Xinhua. Hua said that the war played an important part in building confidence among the Allies of China’s role, and that “the Chinese people paid a huge sacrifice.”

The specificity of naming Japan as the aggressor for the name of the event comes as no surprise as Sino-Japan relations have been strained over recent conflicts. Beijing has felt that Japan still has not atoned for its invasion of China during the war, and the recent dispute over the Senkaku/Diaoyu islands in the East China Sea have not helped relations either.

Besides the major participating countries of World War II, including the United States and Germany, other nations in the region will also be invited, though the ministry did not name them. Heads of the United Nations and other international bodies will also be invited to the event. Sources have told Reuters that troops are already drilling in secret on the outskirts of Beijing in preparation for the event.

The New Asian Order: And How the United States Fits In

By Evan A. Feigenbaum February 2, 2015

In November 2012, I found myself at the Trident Hotel in Mumbai—one of a tiny handful of Americans attending a forum, sponsored by prominent Indian and Chinese business organizations, on Asian financial integration.

There is something a bit unsettling about being nearly the only American at a discussion of financial order held not on the Potomac, East, Hudson, or Thames, but near the banks of the Mithi River. And surely there is something deeply symbolic about a forlorn group of Americans listening to power brokers from China, India, Japan, and elsewhere discuss how to remake the financial order on a pan-Asian basis. After all, the United States has dominated global finance in the postwar era, which is a byproduct of the unique role of the U.S. dollar, the United States’ weight in global institutions, and the best-in-class status of so many U.S. financial services firms, among other factors.

Yet Americans should not be so surprised. Heavy symbolism aside, such meetings are the outgrowth of trends that date at least to the Asian financial crisis of the late 1990s. Indeed, they are not new, nor were they invented by Beijing—although China, it is true, has sought to leverage them to its advantage. They will remain a lasting feature of political and economic reality in Asia. And they are almost certain to pose a growing competitive challenge to U.S. leadership in the Pacific.

Washington should not shy away from this competition. The United States can and should adapt and compete. But doing so will require, first, a clear understanding of the depths and origins of change in Asia. Put simply, the United States cannot succeed, in either geopolitics or business, unless it properly understands the sources of its competition in the first place.

Washington runs the risk of appearing hypocritical by insisting, for example, that it can have the North American Free Trade Agreement or seek a Free Trade Area of the Americas while telling Asian countries that they cannot pursue their own intraregional agreements.

NEW ASIA, OLD IDEAS

It has become fashionable to ascribe efforts to build a pan-Asian economic and institutional order to rising Chinese assertiveness or, more precisely, to Chinese ambition. And that is a simple and straightforward enough narrative.

But it is just one part of the story. In fact, contemporary Asian regionalism—the desire to forge at least some cohesion out of the region’s enormous diversity—has found expression not just in China but across Asia and over many decades.

Take postwar Japan. Tokyo has been a close U.S. ally and has a strong trans-Pacific identity. Some in Japan and the United States argue that the two countries should lead a regionwide counter-response to China’s supposedly “new” pan-Asianism. But although both countries are deeply ambivalent about Beijing’s intentions, it is worth recalling that Japan and its bureaucracy have long incubated a variety of pan-Asian ideas and ideologies, especially with respect to monetary integration. It was Japanese officials who, in 1997, proposed the establishment of an Asian Monetary Fund, a proposal that helped give rise to today’s Chiang Mai Initiative, which involves bilateral currency swaps among Southeast and Northeast Asian countries.

And Japan is not alone.

As I have argued with Robert Manning, the 1997–98 financial crisis left a searing legacy on many Asian countries. From Indonesia to Thailand, the United States was widely perceived to be disconnected and aloof, dictating clichéd

solutions to skeptical Asians. Those perceptions were reinforced when, after bailing out Mexico in 1994, Washington refused to do the same for Thailand just three years later.

In response, Asians began to grope for their own solutions, more often than not on an intraregional basis. Their responses included various ideas and proposals, and many of them excluded the United States: Asia-only currency swaps such as Chiang Mai, Asia-only trade and investment pacts, regional bond funds, and so on.

These ideas built on existing concepts and frameworks. Often, they relied on the region’s principal multilateral entity, the Association of Southeast Asian Nations (ASEAN). One example is the Regional Comprehensive Economic Partnership (RCEP), which is the principal competitor to Washington’s preferred trade pact, the Trans-Pacific Partnership (TPP). RCEP includes the members of ASEAN plus six more regional powers—Australia, China, India, Japan, South Korea, and New Zealand—but not the United States.

So too with other pacts and institutions: among others, the East Asia Summit, which Washington belatedly joined, and the ASEAN Economic Community. Even the on-again, off-again trilateral process among China, Japan, and South Korea got a boost on the margins of a 2003 pan-Asian summit in Bali, five years after the crisis.

NEW ASIA . . . NEW GAME

In the 1990s, to be sure, Washington could simply crush this incipient regionalism, working in tandem with G-7 partners. But the 1990s were a different time. The new pan-Asianism poses a tougher challenge, in part because the context has changed.

For one thing, although the United States looms very large in the global economy, it is, in relative terms, not as large as it was in 2008, much less in 1998. The 2008 financial crisis bookended a tumultuous decade: it came almost precisely ten years after the Asian crisis and added fuel to Asian debates about overreliance on Western economies by dampening growth in the West, long the region’s traditional export market.

As Asia emerged from the 2008 crisis, debates intensified about the utility of an intraregional hedge, or cushion, against continued or future volatility in the West. Meanwhile, many of the same countries have emphasized moving away from exports toward domestic, intraregional, and emerging market demand. This is true of China, whose fixed asset investment and export-led growth model is running out of steam, but is evident elsewhere, too—for example, in South Korea, which has been hit by a combination of yen depreciation and volatility in its traditional export markets.

Second, Asia’s relationship to the world economy has changed dramatically. For decades, G-7 countries beat a path to Asia’s door. But the other foot now wears the shoe: many Western economies increasingly rely on Asian consumers. So Asian countries today are much more than traders. They are builders, lenders, investors, and, in some areas, a growth engine.

For illustration, consider the United States: American demand for Asian goods has powered export-led sectors since at least the 1960s, from Japanese and Korean microelectronics to Thai rubber and Vietnamese textiles. But Asians have become major consumers of all things American, including corn and soybeans (for their animal feed), pork (for their tables), and natural gas (for their power plants).

Third, Asia is now a source of capital, not just a capital recipient. Financial markets form wherever capital is concentrated, and increasingly, Asians are buying stakes in Asian companies, but also in companies in the United States and Europe. These purchases have scrambled the calculus in many countries, as Chinese, Japanese, and Korean money flows across Asia, Straits bankers finance deals in India, and Indian corporate money looks for opportunities overseas.

Just take Kazakhstan, a charter member of the new Beijing-backed Asian Infrastructure Investment Bank (AIIB). It is a country whose economic elite has long looked to London and points westward to raise capital. But as the

country’s former central bank governor, Grigori Marchenko, has bluntly put it, Kazakhstani financial and industrial interests are diversifying by looking east, because that is where the money is.

Fourth, Asia’s emerging powers—India and China—are less content to live in perpetuity with an architecture largely built by the West. In 2000, China’s nominal GDP was just $1.2 trillion; by 2014, it was $10 trillion. India’s GDP in 2000 was $463 billion; in 2013, it had surpassed $2 trillion. Countries with economies that have grown ten times larger are, not surprisingly, unwilling to merely settle for institutional arrangements that prevailed a decade ago.

Much has been made of Beijing’s efforts to establish new institutions, but New Delhi, too, has joined the AIIB as a charter member, while lending rhetorical and some substantive support to the BRICS summit, bank, and contingency reserve. This has taken place even as Indian ambivalence about China has grown and even as India continues to pursue revised quotas and shares in the Bretton Woods institutions that Washington prefers. China has likewise pursued a dual-track approach that simultaneously supports both new and established institutions—for instance, giving $41 billion to the BRICS contingency fund in 2014 and $43 billion to International Monetary Fund replenishment in 2012.

Finally, there is China, whose foreign and economic policies are converging in unprecedented ways. With $4 trillion in foreign exchange reserves—larger than the nominal GDPs of India, South Korea, and Thailand combined and equivalent in size to the world’s fourth-largest economy—Beijing’s abundance of capital has become an extension of its foreign policy. Beijing has pledged (and spent) staggering sums of money, leveraging state-backed financial vehicles for diplomatic and economic ends. In addition, China remains the world’s largest manufacturer by gross value added and its largest trader, and it now possesses seven of the world’s ten largest cargo ports.

But Beijing has more going for it than just its capital. Surrounded by rivals, China is often said to be a “victim” of its strategic geography, yet it benefits from very favorable economic geography: China abuts regions either that are capital starved (Central and South Asia) or where capital is abundant but requirements exceed the capacity of the Bretton Woods institutions and private lenders (Southeast Asia’s need for some $1 trillion in infrastructure by 2020).

In time, Beijing could try to do in Asia what the United States has done globally—namely, to be the lender of last resort. The growing use of the renminbi for trade settlement may prove to be an interesting twofer: a tool that complements the building of financial architecture that serves Beijing’s interests.

WHITHER WASHINGTON?

The United States has a long history, deep ties, and vital strategic and economic interests in the Pacific. But now it must face the pan-Asianism of the post-2008 world.

Washington’s first problem is that it cannot simply reject every pan-Asian idea out of hand, however much it may resent its own exclusion from some rooms, conversations, and agreements. Indeed, the proliferation of Asia-only pacts and institutions over the last two decades has won support in more than a few Asian capitals, even in countries that are ambivalent about China’s rise and among U.S. allies and partners.

A strategy of nyet, therefore, is almost certain to backfire. And Washington runs the risk of appearing hypocritical by insisting, for example, that it can have the North American Free Trade Agreement or seek a Free Trade Area of the Americas while telling Asian countries that they cannot pursue their own intraregional agreements. That is why some pan-Asian formations are inevitable. They will move forward regardless of Washington’s views and preferences, so the United States should approach some of what is happening—pan-Asian dialogue mechanisms, for example—much as it supports European institutions.

Beyond that, American policymakers must answer three questions:

The first is, which pan-Asian groups or pacts the United States can live with and which will undermine vital U.S. interests. The groups that merit vigilance are those that pursue functional agendas detrimental to U.S. security,

prosperity, market opportunities, or values. And here, Washington must distinguish between what it must have and what it would merely like to have. For example, bloc-like trade agreements or the use of technology standards as a non-tariff barrier to trade could close off opportunities and frustrate U.S. efforts to build a more open economic architecture. By contrast, a pan-Asian infrastructure bank that finances bridges, roads, and rail links is not inherently exclusionary since U.S. firms also benefit from better infrastructure and Washington does not offer large-scale project finance. Those institutions and pacts that undermine vital interests will require a forceful tool kit, including opposition to partners’ participation and the credible threat of reciprocal treatment. For those that do not, the price of opposition will likely exceed the cost of living with them, possibly working with them, and certainly seeking to shape them.

In either case, Washington needs strategic and tactical coherence. Currently, it has neither. For example, in its first term, the Obama administration argued that U.S. exclusion from the East Asia Summit, a group that is mostly a talk shop, threatened U.S. interests. So it encouraged Australia to join, urged allies to be more assertive, and ultimately joined the group itself. But with the AIIB—no mere talk shop but a vehicle that will finance billions in infrastructure—Washington has discouraged its allies from joining and held itself aloof. Washington has no apparent strategy for deciding where it must be present.

The second question is, which pan-Asian ideas merely supplement U.S.-preferred approaches and which aim to supplant them? This is, admittedly, a fine line, since big things can spring from small beginnings. But as a practical matter, the existing regional and global architecture will not remain frozen forever. In fact, Washington is itself an advocate of new and ad hoc groups, including “minilaterals” in Asia, such as trilaterals and quadrilaterals with its allies, and valuable new mechanisms such as the Proliferation Security Initiative. If the existing architecture were the acme of perfection, there would be no cause for innovation, including such examples of American-endorsed innovation. An Asian contingency reserve fund, and the AIIB, for that matter, most likely will merely supplement existing structures.

The third point is that Washington cannot beat something with nothing, so it has to take steps to up its own game. Here, TPP is perhaps the most glaring example. If an RCEP-like arrangement does indeed threaten U.S. interests, then that is all the more reason to put the full weight of the U.S. government behind TPP, and soon. U.S. President Barack Obama has at last called for Trade Promotion Authority, which he will need to seriously pursue TPP; the administration needs to work with Congress to bring TPP home.

Then there is AIIB: it is unsurprising that Washington has no wish to capitalize a Beijing-backed bank with still hazy governance, but there is no reason it should not ask for an observer arrangement. After all, Washington sponsored China for precisely such an arrangement in the Inter-American Development Bank. And if, as Washington claims, it is really the AIIB’s lack of anticorruption and environmental standards that is of concern, then it makes more sense to try to work with the organization to shape new regulations than to remain aloof. Washington could surely encourage international financial institutions to help shape standards in these new pan-Asian institutions, much as the United States endorsed World Bank efforts to pursue such partnerships with new funds in the Middle East.

Above all, Washington needs to intensify its own economic diplomacy in Asia. The U.S. goal should be not simply to tack an economic component onto its rebalance, or pivot, to Asia, but to encourage a liberal, open, market-based economic order in the region. By that standard, TPP is a very necessary but by no means sufficient condition to meet U.S. goals. A broadened agenda would include bilateral investment treaties with China and India; creative public-private partnerships aimed at injecting the United States into infrastructure developments in Southeast Asia; and sectoral agreements, for example in services and technology-related sectors. Washington could do more in this vein with its allies Japan and South Korea. And Congress needs to put more weight behind reforms of international financial institutions, and soon; otherwise, even partners such as India may throw up their hands and seek alternatives, much as New Delhi has already done through its involvement with the BRICS institutions and the AIIB.

Of course, the United States will not cease to be a Pacific power. It is an essential strategic balancer, and its security-related role has been reinforced in recent years, as China’s choices and actions unsettle neighbors from Japan to India to the Philippines. But as Asians increasingly rely on one another for trade, investment, and other economic

public goods, Washington risks ceding leadership and missing opportunities by tilting at ideas whose trajectory it cannot easily halt and whose historical and ideological roots run deep.

The United States has never feared competition, but to defend U.S. interests, Americans must adapt to the contours of a changing Asia.

Expanding the Frontier of U.S.-China Strategic Cooperation Will Require New Thinking on Both Sides of the Pacific

The U.S.-China relationship is at a critical transition point. In Washington, U.S. leaders are now realizing that some of the judgments the United States made when it first reached out to China almost four decades ago are not holding up over time. U.S. observers have long assumed that as the Chinese economy grew and China became more integrated with the global community, it would also become more like the United States politically, socially, and economically. The assumption was that economic growth would give China new incentives to accept and conform to the prevailing global order. Now, U.S. leaders are finding—to their alarm—that as China rises, its leaders are developing their own ideas about how the international system should operate, and they are increasingly willing to take action to change the system to suit their own national interests, sometimes in ways that directly conflict with U.S. interests. Chinese leaders are making these changes because they are finding—to their own alarm—that China’s growing integration with the global economy has opened the nation up to U.S. influence to a degree that they did not expect.

Leaders in both nations are recognizing that the United States and China are engaged in what is simultaneously the world’s most powerful partnership and arguably the world’s most complex partnership. Because both nations are so influential, it is difficult for either side to make progress on critical international and regional problems without support from the other. Because they are so different, however, that support can sometimes be very difficult to achieve.

One thing that both nations have in their favor is the fact that, despite their current foreign policy challenges, relations at the people-to-people level between individual U.S. and Chinese experts working on these issues have never been better. That is particularly true among mid-career professionals in their 30s and 40s who began working in this space at a time when the two nations were already deeply intertwined. When U.S. and Chinese leaders established official diplomatic relations in 1979, that opening led to the rise of a new wave of U.S. and Chinese scholars who were able to spend more time immersed in each other’s language, politics, and culture than any generation before them. Both nations now have the opportunity to reap the benefit of those deepening ties.

The cohort of foreign policy experts who are now in their 30s and 40s is the first group to begin their careers in an era when the door was fully open and bilateral exchanges were not only allowed but encouraged. Now, both sides can even leverage the Internet to track political developments in both nations and exchange views about those developments in real time. This new generation is also increasingly bilingual, which can help mitigate the noteworthy language barriers that contribute to misunderstandings between the United States and China. These mid-career experts can exchange views without interpreters and switch back and forth between English and Mandarin Chinese to get difficult points across as clearly as possible. As this generation—whether as government officials, scholars, or business owners—becomes a more influential policy voice in Washington and Beijing, their experience and expertise could play a critical role in deepening bilateral understanding.

The Center for American Progress convened a group of these rising leaders in October to take stock of the U.S.-China relationship and delve into some of the most difficult issues that still divide these two great nations. This group—which included eight U.S. experts and eight Chinese experts—engaged in an intense three-day dialogue that included private meetings with former and current U.S. officials. The goal for these exchanges was to be as frank as possible about the doubts and suspicions that undermine cooperation from both sides of the Pacific. Each participant in the mid-career expert group contributed an essay on U.S.-China relations. These essays are compiled in three reports and are publicly available on the Center for American Progress website.

The three-day, closed-door dialogue revealed a set of core challenges that need more attention from leaders in both nations. Those challenges are covered in detail in the essay collections. Common themes that emerged throughout the closed-door dialogue and appear in multiple essays include:

• Both nations should clarify their interests and intentions through actions rather than words. • U.S. and Chinese leaders need to think creatively about how to give China a bigger role in global

institutions without undermining U.S. interests. • Cooperation on energy and climate change has become an invaluable anchor that the United States and

China can leverage to drive progress in more contentious domains.

More action needed from both sides to clarify interests and intentions

Where there is a perceived lack of information about U.S. or Chinese interests or intentions, the other side will assume a worst-case scenario and hedge appropriately. Those hedging actions then trigger a downward spiral of mutual suspicion—and this is particularly pronounced in regional issues in the Asia-Pacific.

The United States and China still have not reached a point where either side is willing to give the other the benefit of doubt. The nations are just too different—which means their interests diverge in some way on nearly every bilateral issue—and the stakes are just too high. Observers from both sides are still constantly looking for areas of potential risk. Where observers perceive a degree of uncertainty about the other side’s interests and intentions, that uncertainty is viewed as a risk that must be hedged against in some way. This pattern is particularly damaging on the Obama administration’s Asia-Pacific rebalance and Chinese President Xi Jinping’s call for a new-model relationship—the two fundamental frameworks guiding policy in both Washington and Beijing.

On the rebalance to Asia, U.S. officials appear to have underestimated the degree to which Chinese observers would interpret that policy as directly targeting China. One of China’s biggest concerns is that the recent strengthening of U.S. alliance relationships in the Asia-Pacific region is intended to contain China and limit its regional influence. U.S. and Chinese scholars have a fundamentally different understanding of what an alliance relationship entails. From a U.S. perspective, those partnerships are a natural manifestation of deep overlapping interests between two allied nations. Chinese scholars, on the other hand, view alliances as two nations teaming up against a third party. Chinese participants in the October dialogue repeatedly stated that allied parties are by definition allied against someone or something else. When looking at the pattern of U.S. alliances relationships in the Asia-Pacific, the only nation those partnerships can logically be allied against is China.

China therefore views U.S. moves to strengthen its alliances as an effort to constrain China’s rise and undermine Chinese interests in the region. As long as the U.S. rebalance includes a strengthening of U.S. alliances in the Asia-Pacific, most Chinese observers will view the overall U.S. rebalancing strategy as a strategy with anti-China elements. U.S. officials cannot counteract that view through official policy statements. A better approach would be to look for actions that the United States can take to directly address Chinese concerns, regardless of whether U.S. observers view those concerns as legitimate.

On the new-model relations effort, Chinese officials appear to have underestimated the degree to which U.S. observers would interpret what is primarily an “avoid war” proposal as a potentially dangerous construct. Chinese participants in the October dialogue frequently pointed out that the new-model relations proposal is a long-term effort to avoid major conflict between China and the United States. From that perspective, it is difficult for Chinese leaders to understand why U.S. observers would object to that endeavor.

From a U.S. perspective, however, the devil is in the details, and thus far Chinese leaders have not demonstrated through their actions what China plans to do proactively to reduce the risk of a future conflict. The messages coming from China are primarily demands for the United States to stop doing things China does not like, such as conducting reconnaissance missions in international airspace over the South China Sea. From a U.S. perspective, when Chinese leaders talk about the new-model relations concept, they are primarily demanding that the United States adjust its behavior to accommodate China’s rise. More specifically, many U.S. observers interpret the new-model proposal as a demand for the United States to stop reacting to Chinese actions that undermine U.S. interests. That is creating a

growing suspicion on the U.S. side that the real goal of the new-model concept is to solve the power transition problem by keeping the United States quiet while China slowly chips away at fundamental U.S. national interests, thus diminishing U.S. power in a so-called peaceful way.

It is important to note that most participants in the October dialogue do agree that the new-model relations concept can serve as a useful exercise. From a U.S. perspective, however, that utility depends on Chinese actions. If Chinese leaders take actions soon that demonstrate in a concrete way what China is prepared to do to reduce the risk of bilateral conflict, that will be a major step forward in reducing current U.S. concerns. As with the U.S. rebalance issue, policy statements will not be enough to demonstrate true intent; it is policy actions that matter most.

No common vision for China’s integration into the global order

The United States and China have not yet figured out how to adapt the current global order to provide growing representation for Chinese interests without threatening those of the United States. The issues in the global arena are vast and complicated, including the thorny triangular relationship between the United States, China and Iran; cybersecurity; differences between Chinese energy interests in the Middle East and U.S. goals for stability in that region; maritime sovereignty; and the U.S. drawdown in Afghanistan and what that might mean for bordering China.

As China rises, its economy is becoming increasingly dependent on the current U.S.-led global order, which creates two problems. First, Chinese leaders fear that dependence exposes them to unacceptable economic and security risks, so they look for opportunities to hedge against those risks, some of which require costly resources to maintain. For example, when the United States resisted giving China and other developing nations more voting power within the World Bank and International Monetary Fund, or IMF, China responded by joining forces with other underrepresented nations to form the New Development Bank, or NDB and the Contingent Reserve Arrangement, or CRA. The NDB and CRA are potential alternatives to U.S.-led financial institutions such as the IMF and the World Bank, and forming those alternatives requires China to spend more time, political resources, and capital than it would to continue investing in and reforming existing institutions.

The second problem is that when Chinese leaders take these hedging actions to protect their own national interests—such as forming new alternative global financial institutions outside the realm of U.S. influence—the United States tends to view those actions as a move to undermine the current U.S.-led global order. From a Chinese perspective, the United States needs to recognize that as China rises, it will need a bigger seat at the table and more room to breathe. The United States, however, is still wary of giving China that bigger seat and breathing space because U.S. leaders are still unsure what Chinese leaders may do with increased global power.

As with all fundamental problems in U.S.-China relations, it is actions rather than words that can turn the tide. The United States should look for opportunities to actively engage China in international decision making in low-risk way, and China should look for opportunities to actively demonstrate that it will use those new opportunities responsibly. The eight U.S. and eight Chinese essays in the three Center for American Progress conference reports offer multiple ideas for both sides to consider.

Cooperation on energy and climate issues serves a critical role that goes far beyond the energy and climate space

Even in private discussions at the track II level, the energy and climate track has become the undisputed anchor for the bilateral relationship. That anchor should be protected against future political shifts in either nation.

On issues regarding security in the Asia-Pacific and U.S. versus Chinese perceptions of global order, the October conference discussions sometimes became rather heated. Even when discussing these issues in a private group and among friends, U.S. and Chinese observers have fundamentally different views. In contrast, on energy and climate change, the divides are primarily technical in nature. To be sure, global climate negotiations can be very heated, but at a bilateral level, U.S.-China commonalities seem to outweigh U.S.-China differences in this space. Even more importantly, U.S. and Chinese leaders have been able to leverage those common interests to make real progress on

pressing challenges. In the past two years, U.S. and Chinese leaders have signed new agreements and launched new projects on issues ranging from smart grid technology to the reduction of hydrofluorocarbons, or HFCs.

The steady progress on energy and climate change serves as an invaluable anchor for a relationship that also covers issue areas where the two nations have less common ground. In the October dialogue, many heated discussions on security issues ended with someone commenting, “Well, at least we have energy and climate.” That comment alone was often enough to shift the group’s mindset from frustration to cooperation, because the breathtaking progress the United States and China have already achieved in the energy and climate space serves as proof that as deep as the differences may be, the United States and China can eventually overcome them.

China Scores: And What the United States Should Do Next: Matthew Goodman and Ely Ratner: November 23, 2014

China is back. Nearly two centuries after it lost its traditional place at the center of Asian affairs, Beijing has begun giving shape and substance to its renewed leadership on the regional stage.

This was on full display at the recently concluded meeting of the Asia-Pacific Economic Cooperation (APEC) forum, a grouping of 21 economies from both sides of the Pacific. As this year’s host, Beijing not only rolled out the red carpet for leaders from the rest of the region, it also announced a series of major initiatives designed to place China at the center of Asia’s economic future.

Chinese President Xi Jinping articulated his vision for an “Asia-Pacific dream” of shared development and prosperity, notable less for its inflated rhetoric than the concrete proposals and resources China is putting forward to realize it. Backed by promises of nearly $100 billion in overseas loans and investments, Beijing used this year’s APEC meeting to establish a new multilateral infrastructure lending bank, launch a “Silk Road Fund” to connect China with its westward neighbors, and advance progress toward a region-wide Free Trade Area of the Asia-Pacific (FTAAP). In doing so, Xi apprised his visitors that, “China has the capability and the will to provide more public goods to the Asia-Pacific and the whole world.”

China’s renewed regional activism is coming more rapidly than anyone expected. Having gone decades without seeing another power quite so capable and confident, Washington will have to adjust accordingly, following four principles.

First, economics is king in Asia and will have to feature front and center in U.S. policy in the years to come. Although the region’s military competitions and territorial disputes are all too real, the fact remains that leadership and influence will flow from the wallet, not the gun. For that reason, the Obama administration is right to be striving hard to conclude negotiations on the Trans-Pacific Partnership, an agreement among 12 countries that would cement high standards in regional trade. To do so, the president will have to work closely with the new Republican Congress to pass Trade Promotion Authority.

But more broadly, U.S. trade policy and economic statecraft can no longer be the sole purview of the U.S. trade representative, or even the Treasury Department. The president, the national security advisor, and the secretary of state should consider economics, trade, investment and development core elements of U.S. foreign policy. That will require the United States to be entrepreneurial in putting forward meaningful initiatives that serve the region’s needs and play to the United States’ strengths, in areas such as clean energy, finance, and higher education. Playing defense against China’s economic activism is a losing strategy.

Second, Washington needs to take more seriously its own pledge—repeated by U.S. President Barack Obama on his recent trip to Asia—that it welcomes the rise of China and is willing to make room at the table for Beijing. Moving from a G-7 to a G-20 world was a significant step in the right direction. But the U.S. Congress’ unwillingness to pass quota reforms at the International Monetary Fund, which would elevate China’s voting share to a level more in line with its economic power, has reinforced perceptions in Beijing that the existing system is stacked against it. Who can blame China for considering alternative or competing institutions if its voice is unfairly blocked in existing ones?

Third, Washington should not be shy about pushing back on Chinese initiatives when they run counter to broadly accepted international practices. But it should do so in ways that are transparent and principles-based. This should be a key takeaway from China’s recent efforts to establish a new Asian Infrastructure Investment Bank (AIIB), which Washington has refused to join until Beijing provides more clarity on how the bank will uphold basic environmental, procurement, and other standards.

Although governments in Australia, South Korea, and across Europe all had similar apprehensions about the bank, U.S. concerns were never expressed with sufficient clarity or volume, leading to exaggerated stories of

Washington’s backroom lobbying and knee-jerk obstructionism to stymie China’s efforts. Next time, leading U.S. officials should be willing to go on the record about appropriate governance and lending standards.

Finally, the United States should be willing to work with Beijing to shape Chinese initiatives. Although leaders in Beijing are loath to admit it, they have a lot of learning to do. In fact, despite the appearance of near limitless Chinese determination and money, the AIIB and the FTAAP fell far short of Beijing’s original ambitions. Both were substantially rolled back as it became clear that they would a butt up against prevailing norms—norms that have served China’s interests well over the past 30 years of rapid growth.

In that sense, both the United States and China should walk away a little bit humbled and a little smarter about how to pursue their interests in the twenty-first century. Washington will have to learn to live with Chinese power and influence, and Beijing should be careful not to throw the baby out with the bathwater as it tries to reshape the global economic order.

Revisiting the Shangri-La Dialogue: Candid and Heated Conversations are Encouraged Rudy deLeon and Blair Vorsatz

The Shangri-La Dialogue, a Singapore-based Asian security summit, is typically a cordial affair in which disagreements tend to be politely couched. However, during the 2014 summit held May 30 through June 1, the delegates were not shy about speaking their minds. While conversations were tense and many nations butted heads, points of disagreement were well illuminated, as was the need to begin bridging these differences to mitigate the risk of conflict. Asian leaders left Singapore with a heightened degree of mutual understanding and a new sense of urgency. When many of these same Asian-Pacific leaders arrived in Myanmar this past Sunday for the Association of Southeast Asian Nations Regional Forum, or ARF, the hope among policy analysts was that they would pick up from where they left off at Shangri-La. Unfortunately, that wasn’t the case.

The Diplomat magazine described the ARF as “one of the most cordial … summits in East Asia this year.” All countries backed down from directly challenging China for its recent conflicts in the South China Sea, and the Association of Southeast Asian Nations, or ASEAN, were particularly guarded in their comments to avoid antagonizing China. While the joint communiqué from the ASEAN ministers said that they “remained seriously concerned over recent developments which had increased tensions in the South China Sea,” China remained unnamed. In fact, the word “seriously” was only added to the final draft at the request of Vietnam. In addition, progress on maritime security was entirely dictated by China. American and Philippine proposals for a moratorium on destabilizing actions in the South China Sea were entirely dismissed, and only China’s proposal for an “early conclusion to the code of conduct” for the South China Sea garnered support. Political analysts have downplayed this progress, anticipating that a Code of Conduct will not be agreed upon—much less implemented and followed—in the short or medium term. If ASEAN wants to accelerate progress on security cooperation, then they may need to revert to the Shangri-La Dialogue template and publically highlight that their security concerns are indeed at an “all time high.” Asia-Pacific nations should reflect on the Shangri-La Dialogue as a guide for how to proceed more candidly in the future.

The nations in the Asia-Pacific region have many opportunities for dialogue, facilitated by an alphabet soup of multilateral regional forums: the ASEAN regional forum; the East Asia Summit, or EAS; the Asia Pacific Economic Cooperation, or APEC summit; the ASEAN Defense Ministers Meeting Plus, or ADMM-Plus; the Shanghai Cooperation Organization, or SCO; and the Conference on Interaction and Confidence-Building Measures in Asia, or CICA. However, by and large, these are stilted affairs, and due to their closed nature, proceedings are opaque. While the now-famous 2011 ASEAN Regional Forum saw former Secretary of State Hillary Clinton and several other ministers calling attention to China’s actions in the South China Sea, fireworks have been the exception rather than the rule, despite heightened tensions in the region.

The Shangri-La Dialogue, convened annually by the nongovernmental International Institute for Strategic Studies, or IISS, has emerged as the region’s most important venue for regional leaders to speak publicly on regional security issues—as well as to meet privately behind the scenes. Its inclusive, public nature makes it an important gathering and a unique standout among a plethora of formal multilateral Asian conferences. While nearly all attendees are defense ministers, senior military and intelligence officials, and nongovernmental experts, a regional head of state is typically invited to give a keynote speech.

Unlike past summits, the 2014 Shangri-La Dialogue was full of pointed exchanges, criticisms, and frustration, including:

• Japanese Prime Minister Shinzo Abe, while not explicitly naming any countries, criticized “attempts to change the status quo through force or coercion.” Analysts believe this comment was directed at China.

• U.S. Defense Secretary Chuck Hagel was more direct, asserting that “China has undertaken destabilizing, unilateral actions asserting its claims in the South China Sea” and warning that “the United States will not look the other way when fundamental principles of the international order are being challenged.”

• Vietnamese National Defense Minister Gen. Phung Quang Thanh demanded that “China withdraw its drilling rig” out of Vietnamese territory and “negotiate with [Vietnam] to maintain peace, stability, and friendly [bilateral] relations.”

• Australian Defense Minister Sen. David Johnston declared that “the use of force or coercion to unilaterally alter the status quo in the East China Sea and the South China Sea is simply not acceptable.”

• Chinese Lt. Gen. Wang Guanzhong accused Japanese Prime Minister Abe of “overtly or covertly, explicitly or implicitly and directly or indirectly condemn[ing] China” and “trying to stir up disputes and trouble.” He also described Secretary Hagel’s speech as containing “tastes of hegemony … expressions of coercion and intimidation … [and] flaring rhetoric that usher destabilizing factors into the Asia-Pacific.” Lt. Gen. Wang even claimed that Prime Minister Abe and Secretary Hagel “pre-coordinated” their speeches and “supported and encouraged each other in provoking and challenging China.”

• Chinese Chairperson of the National People’s Congress’s Foreign Affairs Committee Fu Ying accused Prime Minister Abe of engineering a crisis over the Diaoyu Islands as an “excuse with which to … amend Japan’s security policy.” She also blamed the Philippines for the conflict over the Scarborough Shoal, saying that the Philippines’ decision to send naval ships to press its claims was a “unilateral provocation to the status quo.”

Commentators have focused on what the press described as “heated words exchanged by a United States-allied bloc and China.” But rhetoric aside, the open dialogue provided a valuable opportunity for all Asia-Pacific parties to candidly express their dissatisfactions, national priorities, and goals for regional security. Most importantly, China, the United States, and political analysts welcomed these confrontational comments, which were avoided in the past. Specifically, Lt. Gen. Wang and Fu Ying of China, Secretary Hagel, and William Choong, an IISS senior fellow, have deemed the frank talk in Shangri-La an important step toward de-escalating regional tensions by providing a clear starting point for future negotiations.

During his remarks, Secretary Hagel took great care to emphasize the importance of greater transparency and dialogue, saying that greater openness “reduces the risk that misunderstanding and misperception could lead to miscalculation” and conflict. This appears increasingly important against the backdrop of an Asian arms race; in 2012, for the first time in the modern era, Asian states spent more on defense than Europe. While Secretary Hagel and China’s Lt. Gen. Wang “traded barbs” on stage, Pentagon officials reported that they later had a “cordial and constructive” meeting on the sidelines of the forum.

A war of words might be ugly, but it is an important first step in defusing the distrust and mutual suspicions that could, if allowed to fester, push the Asia-Pacific region toward conflict.

Sources of tension

The discord at the Shangri-La summit was the result of two main sources of tension, one old and one new: territorial disputes in the South and East China Seas and China’s proposal for a new regional security architecture that excludes the United States.

Unlike the 2009 summit, North Korea was not a topic that drew much attention or sparked any controversies. At the special session—“The Future of North Korea: Implications for Regional Security”—the views of most countries were relatively aligned. China’s Xia Liping, vice president of the Shanghai Institute for International Strategic Studies, said that denuclearization was China’s top priority for the Korean Peninsula. America’s Thomas Countryman, the assistant secretary for International Security and Nonproliferation at the State Department, remarked that “the Chinese attitude towards North Korea is evolving in … a positive direction.” However, he urged China to “do more.” Similarly, Secretary Hagel, in his earlier speech, said that “the United States is looking to China to play a more active and constructive role in … [the] denuclearization of the Korean Peninsula.” Aside from the special session and Secretary Hagel’s brief comment, discussions at the Shangri-La summit primarily revolved

around the territorial disputes in the South and East China Seas and the conflicting American, Japanese, and Chinese visions for the future of Asia’s regional security architecture.

Territorial disputes in the South and East China Seas

In the East China Sea, China, South Korea, Japan, and Taiwan all have overlapping claims involving both airspace and land. China’s November 2013 Air Defense Identification Zone, or ADIZ, claimed airspace overlapping with standing claims by South Korea, Japan, and Taiwan. In terms of land, the Senkaku Islands are the center of East China Sea disputes; they are controlled by Japan but claimed by China and Taiwan. The China-Japan dispute over the islands, in particular, has led to an escalation of tensions and “soured China-Japan ties,” according to the BBC News.

Liu Jiangyong, vice president of Tsinghua’s Institute of Modern International Relations, argues that the islands—which were seized by Japan during the Sino-Japanese War of 1894–1895 and ceded to Japan in the 1895 Treaty of Shimonoseki—should have been returned to China with the signing of the Cairo Declaration of 1943. In addition, Chinese maps dating back to the 14th century Ming Dynasty support China’s long-standing use of the islands. However, Japan’s Ministry of Foreign Affairs maintains that the islands were uninhabited prior to Japan’s erection of a marker on the islands in 1895, which formally incorporated the islands into the territory of Japan. Accordingly, Japan holds that the islands were neither part of Taiwan nor part of the Pescadores Islands, which were ceded to Japan under the Treaty of Shimonoseki. Hence, Japan claims they were not included in the territory that Japan renounced in the Cairo Declaration or under Article II of the San Francisco Peace Treaty.

In an April trip, President Barack Obama announced that “the Senkaku Islands are administered by Japan and therefore fall within the scope of Article 5 of the U.S.-Japan Treaty of Mutual Cooperation and Security.” In addition, President Obama stated that the United States “oppose[s] any unilateral attempts to undermine Japan’s administration of these islands.” As Secretary Hagel has previously clarified, the United States does “not take a side on the disputes regarding the areas and the islands that are in question in … [the] East China Sea.” Rather, the United States wants “the disputes to be settled peacefully, diplomatically, within international norms, within the framework of international law.”

Carlos Ramos-Mrosovsky, an international arbitration expert, argues that the failure of international law to offer a clear verdict on these conflicting claims means that the Senkaku Islands territorial dispute may remain a regional hot spot for quite some time.

China, the Philippines, Vietnam, Taiwan, Malaysia, and Brunei all have overlapping territorial claims in the South China Sea. China’s so-called “nine-dashed line,” first published on a map by China’s Nationalist government in 1947, claims that approximately 90 percent of the 3.5 million square kilometers in the South China Sea belongs to China. However, the 1982 U.N. Convention on the Law of the Sea, or UNCLOS, prescribed an “exclusive economic zone” to each nation in the area, which expands outward 200 nautical miles from the coast of each nation’s “territorial waters.” The economic and geopolitical significance of the disputed territory has motivated these countries to press and defend their conflicting claims; the waters and land account for 10 percent of global fisheries’ catch, facilitate $5 trillion in annual ship-borne trade, and contain an estimated 11 billion barrels of oil and 190 trillion cubic feet of natural gas in proved and probable reserves. Specific territorial disputes in the South China Sea include:

• The Scarborough Shoal, which is claimed by the Philippines, but has been patrolled by Chinese ships since a confrontation in 2012.

• The Paracel Islands, which Vietnam claims, but have been occupied by China since 1974. Vietnam protested China’s “illegal occupation” in January 2014, and in May, China moved an oilrig into the area to further press its claim. Vietnam claims the structure is parked on a continental shelf that, under UNCLOS, is part of Vietnam’s exclusive economic zone. This past June, China took its dispute with Vietnam to the United Nations, submitting a position paper that asserts Vietnam’s actions have violated China’s

sovereignty, posing “grave threats” to Chinese personnel on the rig and violating UNCLOS. The U.N. decision could create precedent for China’s other territorial disputes.

• The Spratly Islands, which number more than 100, are claimed in their entirety by China, Taiwan, and Vietnam, while Malaysia and the Philippines claim portions. In addition, Brunei partly claims an exclusive economic zone over the area. Small military forces from China, Malaysia, the Philippines, Taiwan, and Vietnam occupy about 45 of the islands and reefs. In recent months, China has been building new islands in the sea by moving sand onto the reef and shoals to create several new landmasses in the Spratly area. Taylor Fravel, a political scientist at the Massachusetts Institute of Technology, or MIT, believes this is a means for China to “strengthen the merits of its claims.”

In a May 15, 2014, visit to the Pentagon, Chinese Gen. Fang Fenghui expressed China’s unwillingness to back down from its claims, stating “I don’t believe the responsibility lies on the Chinese side.”

The United States, Japan, and China: Competing visions for the future of Asian security

While tensions may be escalating over territorial disputes in the South and East China Seas, this international relations stressor is not new; the feuding countries have already adjusted to the related risks by strengthening security alliances, which has planted the seeds of regional polarization. However, the Shangri-La Dialogue made clear that there is a new challenge that Asian nations must confront—one that could force countries to more explicitly take sides. This new challenge entails competing American, Japanese, and Chinese visions for the future of Asia’s regional security architecture.

At Shangri-La, Secretary Hagel expanded on America’s vision, which he first discussed in an April speech in China. Japan’s Prime Minister Abe kicked off the summit’s keynote address by presenting Japan’s vision. Finally, Lt. Gen. Wang elaborated on Chinese President Xi Jinping’s vision, first debuted in May at the Conference on Interaction and Confidence Building Measures in Asia, or CICA, summit in Shanghai. The three models all propose different providers of Asia’s regional security: Japan advocates that the United States and Japan jointly provide regional security; for its part, the United States proposes itself as the regional provider; and China also proposes itself as the regional provider.

U.S. vision

On April 8, 2014, Secretary Hagel debuted America’s vision for the future of Asian security at China’s PLA National Defense University. According to Secretary Hagel, “the United States believes in maintaining a stable, rules-based order” built on:

• Free and open access to sea lanes, air space, and cyberspace. • Liberal trade and economic policies that foster widely shared prosperity for all people. • Halting the proliferation of dangerous and destabilizing weapons of mass destruction. • Deterring aggression. • Clear, predictable, consistent, and peaceful methods of resolving disputes consistent with international law.

While Secretary Hagel took great care to emphasize America’s intention to honor treaty commitments with allies and deepen ties with members of ASEAN, he also expressed his desire to deepen cooperation and improve relations with China. However, a Chinese senior official suggested that the United States is failing to manage this balancing act, accusing the United States of “taking sides” in China’s territorial disputes with Japan and the Philippines. In response, Secretary Hagel reiterated that the United States does “not take a position on sovereignty claims, but expect[s] these disputes to be managed and resolved peacefully and diplomatically … within the framework of the international order based on international law.” Thus, the United States seeks to remain neutral in the resolution of disputes as long as they are resolved without the use of force.

Secretary Hagel also discussed the importance of what he called a “new model of relations” for the United States and China, a notion first proposed by Chinese President Xi Jinping at the June 2013 Sunnylands summit—an informal meeting held in California between President Obama and President Xi. Secretary Hagel advocated that the two nations continue to increase “openness and two-way communication” in order to promote greater bilateral, multilateral, and regional stability. Secretary Hagel continued:

Managing the competitive aspects of [the U.S.-China] relationship requires us to be more candid, more open, more transparent about our capabilities, our intentions, and, again, our disagreements, even on the most sensitive subjects.

During the Shangri-La summit, Secretary Hagel focused on “four broad security priorities” that the United States is advancing in partnership with “friends and allies” throughout the Asia-Pacific region.

1. Encouraging the peaceful resolution of disputes, upholding principles, including the freedom of navigation, and standing firm against coercion, intimidation, and aggression.

2. Building a cooperative regional architecture based on international rules and norms. 3. Enhancing the capabilities of America’s allies and partners to provide security for themselves and the

region. 4. Strengthening America’s own regional defense capabilities.

Underpinning these priorities is the belief, first voiced by President Obama and reiterated by Secretary Hagel, that “America must always lead on the world stage … if we don’t, no one else will.”

Several Chinese experts and reporters have offered responses to America’s vision for Asian regional security. Zhao Xiaozhuo, deputy director of the China Academy of Military Sciences, believes the U.S. vision is meant to reassure allies of American leadership as America’s “status as a super power… is challenged [by China].” Major General Zhu Chenghu, a professor at China’s National Defense University, responded to Secretary Hagel’s speech by cautioning that “America is making very, very important strategic mistakes” in its approach to China. The China Daily newspaper went so far as to describe Secretary Hagel’s speech as “a proposition that smacks of the Cold War containment mentality.” The newspaper urged the United States to “discard its containment fantasy.”

Japan’s vision

Japanese Prime Minister Abe, who gave the Shangri-La Dialogue’s keynote address, used the opportunity to express Japan’s desire to play a bigger and more proactive role in ensuring regional peace and security. He expressed concern for what he termed regional “elements that spawn instability” and “attempts to change the status quo through force or coercion.” To combat these risks, Prime Minister Abe wants to redefine Japan’s regional role as a “proactive contributor to peace.”

Prime Minister Abe explained that his mission is not just to spearhead a new type of economic policy, but more importantly, to foster “New Japanese”—an entire generation of people who “will shoulder the [regional] responsibilities of the coming years.”

However, Prime Minister Abe’s vision for the future of Asia’s regional security—which uses the U.S.-Japan relationship as the “foundation” and aims to bolster partnerships with ASEAN—appears designed as a counterbalance to China’s rise. As further support of this notion, the three principles advocated by Prime Minister Abe to guide Asian nations’ behavior all appear as criticisms of China’s recent actions. The three principles articulated by Prime Minister Abe are the following:

1. Making claims that are faithful in light of international law. 2. Restraining from the use of force or coercion. 3. Resolving all disputes through peaceful means.

Prime Minister Abe explained his vision as “nothing other than an expression of Japan’s determination to spare no effort or trouble for the sake of the peace, security, and prosperity of Asia and the Pacific.” However, China did view Prime Minister Abe’s speech as a China-containment strategy filled with anti-China rhetoric.

China’s vision

In his May keynote speech at the Conference on Interaction and Confidence Building Measures in Asia, or CICA, Chinese President Xi Jinping called for the creation of a “new regional security cooperation architecture,” proposing that the CICA become the region’s “security dialogue and cooperation platform.” China will hold the CICA chair for the next two years, and President Xi indicated that China would take a leading role in beginning to create a “code of conduct for regional security and [an] Asian security partnership program” during that time period. As Lt. Gen. Wang elucidated at Shangri-La: “We are working to promote the sound interaction between regional economic cooperation and security cooperation, and to maintain both traditional and non-traditional security in a coordinated way.”

While general descriptions may make China’s vision for a so-called “New Security Concept for Asia” sound appealing, the actual details are more concerning, particularly because China’s vision appears to be competing with the American and Japanese visions. The main frictions revolve around the following four concerns:

First, the CICA began as an initiative of the Republic of Kazakhstan and requires that members “have at least a part of [their] territory in Asia.” Western Asian nations now dominate its membership. As a result, eastern Asian nations may have a reduced ability to shape regional security if and when they become members, and non-Asian nations may remain entirely excluded. Notable nonmember states include the United States, Japan, Australia, and 7 of the 10 ASEAN members—Brunei, Indonesia, Laos, Malaysia, Myanmar, the Philippines, and Singapore. Of these nonmembers, only the United States, Japan, Indonesia, Malaysia, and the Philippines are observer states, while the rest have no official CICA connection. Observer status gives nations the right to attend the bi-annual CICA summit, as well as ministerial and senior officials committee meetings. Observer nations are excluded from participation in decision making but are allowed to make oral presentations and distribute written statements pending approval by the member states.

Second, CICA’s membership makes China and Russia its “dual cores,” ruling out the possibility for the United States and/or Japan to play a significant role in any CICA regional-security arrangement. Making this clearer, Chinese Lt. Gen. Wang, while at the Shangri-La summit, emphasized two of the security concept’s core tenets: “neighborhood diplomacy and common, comprehensive, cooperative, and sustainable security for Asia.” Accordingly, non-Asian powers, such as the United States, seem to be entirely excluded from China’s new security framework proposal.

Third, As Lt. Gen. Wang elaborated at Shangri-La, the ideological core of China’s proposed new framework is the belief that “development is the greatest form of security,” which characterizes military alliances as relics of the “outdated thinking of [the] Cold War.” This redefinition of “security” asserts that an antiquated zero-sum understanding of security—not unresolved territorial disputes—threatens regional security. The argument goes that if China’s neighbors continue to treat territorial disputes as the central security threat, then they risk derailing the region’s economic development and integration, which are more important to nations’ overall well being. In many ways, China’s redefinition of “overall national security” seems analogous to Taiwanese President Ma Jing-jeou’s “Three Nos” principle, a security approach that aims to shelve controversies in order to focus on practical and mutually beneficial issues. Lt. Gen. Wang went on to highlight that China accounted for almost 30 percent of global growth and more than 50 percent of Asia’s growth in 2013. If he is indeed correct in asserting that “development lays the foundation for security, which in turn provides the conditions for development,” then China would appear best positioned for the role of regional security provider.

Fourth, China has called for nations to “abide by the basic norms governing international relations, such as respecting sovereignty, independence, and territorial integrity; non-interference in internal affairs; [and] respecting social systems and chosen development paths.” A norms-based order is hard to imagine and is certainly different from the current “rules-based order” that the United States hopes to uphold. A norms-based order could also allow

China to reshape the status quo in Asia, both territorially and institutionally. Institutionally, China hopes that a CICA security framework can replace what has been described as the “U.S.-Japan leadership status quo,” leaving “Asian problems to be solved by Asians alone.” Territorially, Xi advocates “seeking peaceful settlements of disputes with other countries,” implying a preference for diplomatic bilateral dispute resolution without interference by third parties. In practice this may mean downplaying the importance of maritime disputes in order to ensure continued regional economic integration and development. Regarding territory, the general idea seems to be a reversion to President Ma’s ‘3 Nos’ concept, effectively leaving territorial and maritime disputes unresolved and uncontended over the medium term in order to achieve mutually beneficial economic cooperation.

While the CICA is the largest multilateral body dealing with Asian security issues, it is not all-inclusive; most of the nations in attendance at the Shangri-La summit are not current members. Adoption of China’s proposed regional-security framework would make it even more difficult to resolve territorial disputes in the South and East China Seas, a major ongoing source of tension in Asia-Pacific regional relations. Moreover, a new regional-security framework guided by Russia and China—the dual cores—rather than the United States and/or Japan would be a huge change to the status quo, potentially isolating and provoking two of the biggest players in Asia-Pacific relations: Japan and the United States.

While the United States, Japan, and China approach regional security with very different visions, they would seem to be in agreement on the underlying goal, which Chinese Gen. Wang voiced, saying “We need to strengthen coordination on the basis of mutual respect, and oppose the attempt by any country to dominate regional security affairs.” If this goal is to be reached, then it may be unadvisable to adopt a regional security framework with only one or two key regional security providers; after all, this is tantamount to “dominat[ing] regional security affairs.” Accordingly, the United States, Japan, and China may all need to rethink their visions for the future of Asian security and reorient their approach to regional security cooperation.

To devise a mutually agreeable regional security framework, Australian Professor Hugh White recommends that the United States and China should work together to construct what many are calling a “new regional security framework of shared power” with India and Japan as other major players. While it is unlikely that the United States will explicitly accept that its unique leadership role is no longer feasible, regional partnership seems more in line with the notion of a “new model of major power relations.” Moreover, as neither the United States nor China seems willing to back down from the current regional power struggle, such compromise may be preferable to the alternatives. As China continues to grow, White argues, no one can be sure that China “will settle for as little as an equal share in the leadership of Asia.”

Shangri-La in the context of America’s Asia rebalance

As the Shangri-La Dialogue clearly illustrated, tensions are still high when it comes to relations in the Asia-Pacific region, and both the United States and China must tread carefully to avoid conflict. The United States and China risk falling into the “Thucydides Trap,” the historical tendency of a rising nation to clash with an established power. Over the past 500 years, a rapidly rising power has rivaled an established ruling power 15 separate times; 11 of these cases of competitive tension have resulted in war, motivated by one country’s ambition to “rise” and another’s “fear” of being displaced.

Professor Graham Allison of the Harvard Kennedy School notes that the four peaceful cases of power transition required “huge adjustments in the attitudes and actions of the governments and societies of both countries involved.” The current national rivalries between the United States and China, and even between Japan and China, increasingly resemble the rivalry between Britain and Germany that led to the outbreak of World War I. The United States and China will need to drastically reorient their approach to bilateral relations in order to avoid meeting the same fate as Britain and Germany; this is the goal of bilateral efforts to establish a “new model of [US-China] cooperation.”

To achieve this goal, dialogue is needed to promote transparency of intentions and facilitate mutual understanding, which is essential to avoid an escalation of suspicion and conflict. It is only natural that the United States and China have differences; what matters is how they manage these differences. While the two sides have yet to converge on major issues, they are making measurable progress on more micro-level areas of common interest, best illustrated by

the cooperative achievements of Secretary Hagel’s April trip to the Asia-Pacific region. It seems that the fireworks at the Shangri-La Dialogue have projected an overly pessimistic image of Asia-Pacific relations; it should be remembered that disagreements, channeled through productive and constructive forums, are no cause for concern. It is only when dialogue is abandoned and nations look to military solutions to resolve disagreements that the Asia-Pacific region will have cause to worry.

Reassessing the Shangri-La Dialogue: An impetus for follow up

Milton Friedman, renowned American economist, offers a useful lens through which to understand the fireworks at the Shangri-La summit: “Only a crisis—actual or perceived––produces real change. When that crisis occurs … the politically impossible … becomes the politically inevitable.” The 2014 Shangri-La Dialogue may be the Asia-Pacific region’s first ‘perceived crisis’—a sign that regional tensions are not de-escalating despite efforts by all parties. As tensions have recently reached unprecedented levels in the South and East China Seas, the summit’s fireworks were appropriate, even necessary. Shangri-La has created an impetus for the Asia-Pacific nations to begin working toward compromise on difficult issues, not just pursuing cooperation in areas of common interest. After all, the American, Japanese, and Chinese visions for the future of Asian security cannot all be realized. These three great powers, in particular, need to articulate a common vision if a robust system of Asian regional security is to ever be established.

The Asia-Pacific nations should respond to the dustup in Shangri-La by increasing the frequency of their multilateral exchanges. While future heated exchanges will surely follow, this sort of conflict is certainly preferable to an actual crisis of armed conflict. Moreover, frank and open discussion, even talks tinged with heated rhetoric, more often than not tend to produce tangible progress on difficult issues. The United States, China, and Japan can all agree on the need for a new, more effective regional security architecture, and this common interest offers them an end goal to target. Compromise will be difficult to achieve, but the Shangri-La fireworks may have provided the “perceived crisis” impetus to turn the “politically impossible” into the “politically inevitable.”

The Shangri-La Dialogue should be used as a template for future meetings of Asia-Pacific nations. However, as the ASEAN Regional Forum has highlighted, the candid nature of Shangri-La risks being a singular occurrence. Candid conversation will need to be the norm, not the exception, if the Asia-Pacific nations are to begin bridging their differences and compromising on the issues contributing to regional security instability—namely the South and East China Sea disputes and conflicting American, Chinese, and Japanese visions for the future of Asian regional security. The ARF was neither a step forward nor a step back, but without flaring rhetoric or the beginnings of compromise, it could easily be deemed a wasted opportunity. While the ASEAN members couched their comments to “remain amicable with China,” downplaying their concerns will lead to misunderstandings and also diffuse the sense of urgency that came from Shangri-La. If the ASEAN members and the greater Asia-Pacific region hope to make progress in overcoming the obstacles to greater regional security and stability, then they may need to discard their politeness and political sensitivities in favor of more candid dialogue.

New Silk Road

China's Belt and Road initiatives not solo, but symphony: FM: Xinhua: March 2015

China's Belt and Road initiatives are not its "solo," but a "symphony" of all relevant parties, Foreign Minister Wang Yi said Sunday.

The vision of the initiatives is common development, and the goal is win-win progress through cooperation, Wang said at a press conference on the sidelines of the annual session of the National People's Congress, China's top legislature.

"If I may use a musical metaphor, the initiatives are not China's solo, but a symphony performed by all relevant countries," Wang said.

In advancing the initiatives, China will act according to the principle of "wide consultation, joint contribution and shared benefits," he said.

"We will carry out equal-footed consultation and respect the choice of other countries," Wang added.

China will be sensitive to the comfort level of other parties, ensure transparency and openness, align the initiatives with the development strategies of other parties, and create synergy with existing regional cooperation mechanisms, he said.

Wang said the initiatives should not be compared with the Marshall Plan.

"China's Belt and Road initiatives are both much older and much younger than the Marshall Plan. Comparing one to the other is like comparing apples to oranges," Wang said.

The initiatives are older because they embody the spirit of the ancient Silk Road, which had a history of more than 2,000 years.

The Silk Road was used by people of many countries for friendly exchange and commerce, and the country must renew the spirit and bring it up to date, according to the foreign minister.

The initiatives are younger because they are born in the age of globalization, he said.

"They are the product of inclusive cooperation, not a tool of geopolitics, and must not be viewed with the outdated cold war mentality," Wang said.

"Belt and Road" refers to the Silk Road Economic Belt and the 21st Century Maritime Silk Road initiatives proposed by China in 2013 for improved cooperation with countries in a vast part of Asia, Europe and Africa.

The Silk Road Economic Belt is to be established along the ancient Silk Road trade route, stretching northwest from China's coastal area through Central Asia, the Middle East and on to Europe, while the 21st Century Maritime Silk Road will run through the country's south to Southeast Asia.

A 40 billion-U.S. dollars Silk Road Fund has been put into operation since February to offer investment and financing services to economies and private players along the route.

The New Silk Road Post-2014: Challenges and Opportunities

Remarks Nisha Desai Biswal Assistant Secretary, Bureau of South and Central Asian Affairs Washington, DC January 22, 2015

Thank you Michael for the gracious introduction.

It is an honor to speak at the Woodrow Wilson Center, an institution that serves an important and thoughtful role in shaping and advancing our national interest. For the last fifteen years, the Wilson Center has been led by two of America’s foremost global thinkers, public servants, and members of Congress, in Lee Hamilton and Jane Harman.

I am grateful for the chance to speak alongside an eminent panel of experts. No one is more conversant in the historical complexity, cultural richness, and geopolitical significance of Central Asia than Dr. Fred Starr. Few people match Mara Burr’s experience in promoting U.S. trade with South and Central Asia. And I look forward to the views of Jan Kalicki on energy security and trade, honed across a distinguished four-decade career in the public and private sectors.

It is wonderful to see many friends and colleagues from the diplomatic community here with us today. Thank you for being here. I would like to acknowledge Kazakhstan’s Ambassador to the United States Kairat Umarov – who I believe is with us today – for his partnership.

Back in the fall, we decided on the date for this important discussion. Of course, back then, we weren’t anticipating the Secretary of State and the President would be travelling to India in a span of three weeks. As you can imagine, it is a busy time.

Nonetheless, I didn’t want to miss this opportunity to discuss the remarkable prospects and enduring challenges facing South and Central Asia.

With more than 20% of the world’s population, and sitting astride key global trade routes, South and Central Asia can be a key driver of prosperity in the 21st century. This will bring sustainable security and economic development to billions of people across Asia – with positive ramifications felt across the globe.

A more stable and prosperous South and Central Asia is directly in the U.S. interest, and a more economically-connected region will ensure this stability and prosperity is widely shared and endures for generations to come.

The U.S. New Silk Road initiative is a reflection of the Obama Administration’s enduring commitment to the region, a recognition of the vital importance of economic and energy connectivity, and a representation of our belief that shared prosperity can lead to stability and security.

Working side-by-side with the countries in the region, other donors, and international financial institutions, the United States is pursuing a four-pronged strategy to bolster regional connectivity as part of the New Silk Road.

Specifically, we are focused on building a regional energy market, facilitating trade and transport, improving customs and border procedures, and linking businesses and people. The success of these efforts will be critical for securing Afghanistan’s economic ties with its neighbors and creating important ties between Central and South Asian economies.

For too long, Central Asia’s geography has defined its relationships with the rest of the world.

But, in the 21st century, economies can be powered by characteristics less beholden to the constraints of geography. The region is mineral- and gas-rich, at a time when the markets of greater Asia have put an enormous premium on a predictable flow of resources to power its emerging markets.

Central Asia has also played a vital role in support of Coalition efforts in Afghanistan over the last 14 years. Of course, our role in the region pre-dates the events of September 11th. Many in this room recall – and perhaps a few even helped bring about – the early decision by the United States to recognize the independence of the Central Asian states some 25 years ago. Our support continues today with our commitment to enhance bilateral ties from Ashgabat to Astana.

We understand the skepticism in the region when we speak of economic integration and regional connectivity, or the pace of our progress. The region’s political and ethnic diversity may make for complicated politics, but it also underscores its untapped potential. And what some perceive as an isolated economic zone, to others equals one of the last true frontier markets for development, investment, innovation, and growth.

Expanding our view beyond the region, this is clearly a moment of rapid change in the world, where the tectonic plates of global politics and economics are shifting considerably.

The menace of extremism – as seen in Ottawa, Peshawar, Sydney, and Paris – continues to pose a threat to the well-being of societies across the globe.

Concerns with slowing economic growth have forced many developing economies to reassess their key relationships and seek greater diversification. Falling oil prices have posed challenges to countries that rely heavily on energy exports, while import-dependent countries in South Asia benefit from lower manufacturing and consumer costs.

We also see a move to reduce dependency in fossil fuels as the impacts of pollution and climate change exact an ever-increasing toll.

All these global developments, whether they occur in Tashkent or Tokyo, Almaty or Ankara, will have a dramatic effect in this region.

Also, recent political developments – such as new governments taking the helm in India and Afghanistan – are also redefining how the region will co-exist and grow.

For instance, in India, Prime Minister Modi has promised to implement long-delayed economic and investment reforms. I will accompany President Obama to India tomorrow, where he will serve as the Prime Minister’s Chief Guest of India’s Republic Day ceremony. This marks the first time a sitting U.S. President has visited the subcontinent twice. Regional trade is likely to be near the top of the agenda.

The Modi government has put a premium on growing its economy and the markets of its neighbors, including in Central Asia – acknowledging a regional growth imperative that for too long has proved elusive.

India itself boasts the second largest population in the world, and expects 550 million people to occupy its middle class by 2025. According to the United Nations World Urbanization Prospects, in 2014, there were 28 mega-cities, 16 of them in Asia. By 2030, it is estimated the world will have 41 mega-cities, of which many will be fueling Asia’s growth.

It is clear that South Asia can offer Central Asia a predictable and vibrant market for the future in energy, raw materials, or other goods and services.

As we see here, Central Asia is one of the least integrated geographic regions in the world, with only about six percent of total trade occurring within the region.

Looking at the same measure of economic integration, 45 percent of total trade among ASEAN plus Japan, Korea, and China is intra-regional. Meanwhile, India itself is rapidly taking steps to expand trade with East and Southeast Asia.

If you consider foreign direct investment flows – which may best reflect broader integration trends – FDI from Japan, Korea, and China to the rest of Asia, particularly to ASEAN nations, has steadily been increasing.

Conversely, intra-regional FDI flows in Central Asia are paltry, at less than one percent. Also, as you can see from the slide, the region lags in the World Bank’s measurement of how much time it takes to export goods across national boundaries.

In short, this means Central Asia and Afghanistan are being left out of Asia’s economic growth, weakening the region’s resilience and making these countries even more vulnerable to internal and external shocks.

There are a couple reasons for this phenomenon.

China and Russia currently dominate trade patterns that mostly transit east to west. Trade to the rest of Asia through north to south routes is minimal, which means Central Asia and Afghanistan are largely cut off from the growth markets in the rest of South and Southeast Asia.

But, as Kazakhstan’s Foreign Minister Idrissov has said, while Central Asia might be land-locked, there’s no reason for it not to be land-linked.

In that vein, the United States strongly believes that with the right investments today, Central Asian countries and Afghanistan can position themselves to share in Asia’s rise.

Expanding trade ties within the region and points south – through Pakistan and to India – can be a game-changer. By connecting to new markets, trade ties can boost political stability within the region and create additional incentives for countries to work together on shared challenges. Having a diverse set of economic connections also reinforces independence and sovereignty.

President Ghani and his new government recognize that sustaining gains made in Afghanistan over the past decade will require robust growth and linkages with Afghanistan’s neighbors. Indeed, President Ghani was just in Turkmenistan this week, working with President Berdimuhammedov to expand trade and transit of gas, electricity, and expanded rail connectivity. This type of leadership is the key ingredient for any of this to work.

But, economic connectivity by itself is not enough to create enduring peace and prosperity. Countries in the region need to strengthen transparent and accountable governance, adopt environmentally-sustainable growth policies, and create inclusive political and economic systems that provide opportunity for all –especially for women and ethnic minority populations.

Now, let me state up front we are not naïve about the challenges. If this were easy, it would have been accomplished years ago. But we are bullish about the opportunities in front of us.

Let me offer specific examples that highlight progress in some of these areas.

On a regional energy market, tremendous progress has been achieved over the past year on the CASA-1000 electricity project, which will bring surplus summer hydropower from Central Asia to South Asia. This is an important proof of concept project for regional connectivity.

The four CASA countries – Tajikistan, Kyrgyzstan, Afghanistan, and Pakistan – reached an agreement on commercial pricing and are now taking steps to plug the remaining 23 percent funding gap, and sign major construction contracts to build and finish the lines by mid-2018.

The World Bank and Asian Development Bank are also working jointly to ensure complementarity between the CASA-1000 project and the ADB’s TUTAP project, which also brings surplus electricity from Central Asia to Afghanistan.

Uzbekistan is already lighting Kabul through the TUTAP lines, and a major transmission line from Turkmenistan to Afghanistan is in the works. We are working closely with both the World Bank and ADB to ensure a fully-integrated Central Asia-South Asia regional energy market in the future.

The region would benefit from development of the Turkmenistan-Afghanistan-Pakistan-India, or TAPI pipeline, which would diversify flows of Turkmen natural gas to new markets in South Asia. Bringing TAPI to fruition will require the expertise of an international oil company, and we hope progress is achieved this year.

Going forward, we will continue working with Central Asian countries to address their domestic energy needs, especially during winter months when they often face deficits. We will also support efforts within the region to address trans-boundary water management issues, which are increasingly important and have serious ramifications on energy and agriculture.

Turning to trade and transit issues, we are seeing some positive momentum towards breaking down barriers to trade. This is so critical since a 10 percent reduction in transport costs increases trade by 25 percent. As landlocked countries have some of the highest transportation costs, creating corridors that reduce the cost of transport, maximize efficiency, and can evolve to include transport, trade, logistics, and even supply chain corridors must be our collective goal.

In Islamabad recently, Afghanistan and Pakistan met to review APTTA – the historic Afghanistan-Pakistan Transit Trade Agreement. We were pleased to see Tajikistan join these discussions, which we hope provides additional momentum to support additional cross-border trade agreements in the region.

We are also seeing critical developments on rail connectivity. The rail line between Uzbekistan and Afghanistan, which the United States strongly supported, has played an important role in transporting goods in the region. With the right steps, even more can be achieved.

Turkmenistan, Afghanistan, and Tajikistan are also in discussions on a new rail line that could further connect these countries within the region and even provide an outlet one day to the Caspian Sea.

Let me also say a few words about our strong support for CAREC, or the ADB’s Central Asia Regional Economic Cooperation program. CAREC is developing six transport corridors linking Asia, Europe, and beyond through 7,800 kilometers of road and 3,800 kilometers of rail by 2020.

These transport links will build upon 3000 kilometers of roads in Afghanistan and 1000 kilometers of roads in Pakistan the United States has built or improved, including the five main trade routes into Afghanistan.

However, to turn these roads into highways of trade, we will need to see greater improvements in customs and borders. Bureaucratic, time consuming, and expensive customs and border procedures are perhaps the biggest impediments to regional trade.

We are working with other donors on supporting integrated border management and risk management systems. But again, political will to combat corruption, tackle narcotics, and support greater trade across borders will be the real driver that unlocks success.

On the private sector side, thanks to our partners at USAID, we have had tremendous success in sponsoring trade forums that in the past year alone have connected businesses across the region.

More broadly, by supporting trade liberalization through accession to the World Trade Organization, regulatory reform, improving the investment climate, and promoting free market principles, we are helping make these economies more attractive to investors and trading partners alike.

Before I conclude, let me turn briefly to the interest of other countries in greater regional cooperation and connectivity.

As you all know, China is developing what it is calling the Silk Road Economic Belt. Some paint our New Silk Road initiative as being in competition with China’s efforts, but in fact we welcome China’s constructive engagement and see a great deal of potential complementarity in our efforts.

We would only urge China, as it pursues economic cooperation projects, to utilize global standards and best practices in order to ensure sustainable economic growth for the people of Central Asia.

I also want to mention Russia, which of course has deep historical and economic ties to Central Asia. Russia will continue to be a major economic force in the region. At the same time, Central Asia states need the space to make their own decisions on how to further their economic development, preserve their political autonomy, and deepen their integration with global markets.

The expansion of the Eurasian Economic Union, for example, should not come at the expense of countries fulfilling their existing international commitments, including commitments to the World Trade Organization, nor restrict their ability to enter into other bilateral or multilateral trade relationships.

Thank you for your time. I’m eager to hear your views and take a few questions, and welcome your feedback on the opportunities and challenges this dynamic region presents.

China Sees Itself at Center of New Asian Order: Beijing Builds Roads, Pipelines, Railways and Ports to Bind Itself to Region: Jeremy Page, November 9, 2014

In a valley flanked by snow-capped peaks on China’s border with Kazakhstan, a vision of Beijing’s ambitions to redraw the geopolitical map of Asia is taking shape. This remote outpost, once a transit point for Silk Road merchants, is where China is building one of its newest cities.

Covering more than twice the area of New York City, Horgos had just 85,000 residents when it was founded in September, enveloping several towns and villages in an area known for lavender fields.

China’s plan is to transform the sleepy frontier crossing into an international railway, energy and logistics hub for a “Silk Road Economic Belt” unveiled by President Xi Jinping last year to establish new trade and transport links between China, Central Asia and Europe.

Horgos is a small element of China’s wider effort to bind surrounding regions more closely to it through pipelines, roads, railways and ports, say diplomats and analysts who have studied the plans it has made public.

The plans also include an Asian-Pacific free-trade deal, a $50 billion Asian Infrastructure Investment Bank and a $40 billion Silk Road Fund that Mr. Xi announced last week, promising aid aswell as investment from Chinese private and state firms.

In a speech to business executives Sunday, he said China’s plans would boost growth and improve infrastructure across the region to help fulfill an “Asia-Pacific dream,” echoing his domestic political slogan of a “Chinese Dream” to rejuvenate the nation. “With the rise of its overall national strength,” he said, “China has the capability and the will to provide more public goods to the Asia-Pacific and the whole world.”

The push is a counterpoint to China’s recent military assertiveness, which has antagonized many neighbors and prompted the U.S. to launch its “pivot to Asia” strategy of focusing more military and other assets on the region. Beijing is now trying to convince countries in Asia and beyond that it is in their interests to accept China as the alpha power in the continent.

China’s road map for a reconfigured Asian order, centered on Beijing and underpinned by new infrastructure, forms the backdrop to a summit of leaders, including U.S. President Barack Obama, that takes place Tuesday at a specially constructed lakeside complex outside Beijing. Mr. Obama arrived in Beijing on Monday.

The annual Asia-Pacific Economic Cooperation summit, being held in Beijing for the first time, will focus as usual on trade and investment among its 21 members and is set to endorse for the first time a “blueprint on regional connectivity” over the next decade.

But this year, the APEC summit is also about the symbolism of President Xi’s playing host to regional leaders at a time when Beijing is trying to claim a place as Asia’s dominant economic and military power. Mr. Xi also met leaders of Pakistan, Myanmar and five other non-APEC Asian nations Saturday to discuss infrastructure.

“China in a leadership role? That’s not a small message,” Robert Wang, the U.S. senior official for APEC at the State Department, told reporters recently. For China, “It’s pride. We’ve arrived. That has a message. Next time you deal with them, you remember it.”

Some foreign and Chinese scholars, including Zhai Kun, a Peking University international-relations professor, liken China’s push to the U.S. Marshall Plan that helped rebuild Europe after 1945. Others compare it to the tributary system through which China dominated East Asia for much of the last two millennia.

Chinese government representatives didn’t respond to inquiries for this story. Mr. Xi last week said the new infrastructure bank and Silk Road Fund would “complement, not substitute” existing lending institutions.

Still, the plans have stirred debate among Western and Asian governments, with some welcoming China’s development drive and others wary of its strategic designs.

Some Western officials also worry a flood of Chinese development money will undermine governance standards at existing lending institutions like the World Bank, especially if China channels funds to its own companies, to politically motivated projects or to environmentally damaging ones.

In the run-up to the APEC summit, people familiar with the matter say, the U.S. blocked China’s efforts to begin negotiations on a regional free-trade agreement, the Free Trade Area of the Asia Pacific, because it conflicted with a Washington-backed alternative known as the Trans-Pacific Partnership that excludes China. Beijing continued to promote its preferred deal in presummit meetings but won endorsement for the pact only as a long-term goal.

The U.S. also lobbied against some large economies joining the Asian Infrastructure Investment Bank, which was established in October by China and 20 other nations as an alternative to the World Bank—dominated by the U.S.—and the Asian Development Bank, led by Japan.

Secretary of State John Kerry at a news conference in Beijing on Saturday said the U.S. was a Pacific nation that took its regional interests and responsibilities seriously. He also urged countries in the region to establish rules and norms through multilateral institutions “where all voices can be heard.”

A State Department representative said the U.S. saw China’s Silk Road plans as “complementary to U.S. efforts to promote economic connectivity” but considered it critical that any new international financing bodies upheld existing ones’ standards on governance, environmental and social safeguards, procurement and debt sustainability.

China has long sought to extend its influence in Asia through aid and investment, and to gain access to Central Asian energy resources. Some efforts now under way are rebranded versions of earlier projects.

But the push has expanded and taken on greater urgency under Mr. Xi, who has articulated a more expansive role for China in the world than his predecessor did. In speeches over the past year or so, he has laid out a vision that combines continuing infrastructure projects with ambitious new ones that together could tally tens of billions of dollars of spending.

Mr. Xi proposed the Silk Road Economic Belt, one of the effort’s pillars, on a Central Asia visit in September 2013. He called for building a transport corridor connecting the Pacific Ocean to the Baltic Sea and linking East Asia to South Asia and the Middle East to serve a combined market of some three billion people.

On that trip, he oversaw the signing of deals valued at $30 billion in Kazakhstan, including oil and gas projects, and agreed to pump $3 billion into loans and infrastructure in Kyrgyzstan.

During a trip in Indonesia the following month, he put forward another pillar, a maritime trade corridor he called the 21st-Century Maritime Silk Road. It entails building or expanding ports and industrial parks across Southeast Asia and in places including Sri Lanka, Kenya and Greece, along with a goal of expanding bilateral trade with Southeast Asia to $1 trillion by 2020—more than double its level last year.

He invoked the spirit of Zheng He, a Chinese eunuch admiral who sailed a fleet of treasure ships to Africa in the 15th century and is celebrated as the face of an era of Chinese maritime power.

In May, Mr. Xi was more explicit about his goals in a speech dedicated to a “new Asian security concept” at a Shanghai summit of regional leaders.

“It is for the people of Asia to run the affairs of Asia, solve the problems of Asia and uphold the security of Asia,” he said, calling on Asian countries to “advance the process of common development and regional integration.”

Although Mr. Xi didn’t mention the U.S. by name, many Chinese and Western analysts agree his appeal sent a message to Washington that it should accept a lesser role in the region, which, according to the Asian Development Bank, requires infrastructure investment of $8 trillion by 2020.

“He’s taking these concepts that have been around forever,” says Chris Johnson, a former CIA China analyst now at the Center for Strategic and International Studies, “and then actually doing it, putting the bones on it, putting the money behind it and frankly telling everybody in the system, ‘I’m serious about this.’ ”

Mr. Xi’s plans appear to reflect a worldview in which China increasingly sides with developing powers, he says, rather than working alongside the U.S. within the existing Western-dominated international order.

It is far from clear whether all the intended recipients of Chinese largess will embrace the offers. Past Chinese projects have run into trouble in Myanmar, including a $3.6 billion dam that was suspended in 2011, while a proposed rail link to Pakistan has been held up by political uncertainties.

But some individual projects appear to be gaining momentum and new financing sources, including a $100 billion development bank that the so-called Brics nations—Brazil, Russia, India, China and South Africa—agreed in July to establish with headquarters in Shanghai.

In Kuantan, Malaysia, a state-run Chinese company last year began jointly developing a deep-water container port and industrial park and this year agreed through a subsidiary to invest $1 billion in a steel plant there, a project both countries portray as part of the new maritime Silk Road.

On a tour of South Asia in September, President Xi inaugurated construction of a $1.4 billion Chinese-funded port city in Colombo, Sri Lanka’s capital. That month he oversaw the start of construction on a new section of a Chinese-financed gas pipeline through Tajikistan and Kyrgyzstan. On Monday, China and South Korea are expected to announce a free trade deal—one of several bilateral trade pacts that Beijing is negotiating in the region.

China’s initiatives don’t imply a letup in China’s efforts to assert territorial claims. But China is working harder to present itself as a development ally at a time when some Asian nations wonder about Washington’s wherewithal to underwrite infrastructure projects and military security.

In 2011, U.S. Secretary of State Hillary Clinton proposed a “New Silk Road Initiative” designed to improve Afghanistan’s transport links with Central and South Asia, but U.S. officials say progress has been slow.

China, by contrast, has the resources and political will to back up its plans, Chinese experts say.“For China, it’s a top-level issue—all government departments are focused on this,” says Peking University’s Mr. Zhai. “Also, President Xi has 10 years to promote this, whereas Clinton only had two or three.”

The scale of China’s ambitions is evident in Horgos. For years, the border here was closed due to China-Soviet tensions. Although the border reopened in 1983, trade was negligible until recently because of continuing tensions and poor transport links.

That has changed over the past few years. First came a gas pipeline from Turkmenistan that enters China in Horgos. Then China built an expressway to the border here. In 2012, a cross-border railway link was completed, and a free-trade zone spanning the frontier was established.

China upgraded Horgos to a city in September, giving the local government greater powers to develop land. Official maps and statements now describe Horgos as China’s main land port on the Silk Road Economic Belt.

The upgrade expanded Horgos’s surface area by almost 100 times, says Wu Hao, deputy director of the Horgos free-trade zone. He says more than 20 billion yuan ($3.25 billion) has been invested in the Chinese side of the trade zone, which features five multistory wholesale markets where Kazakh traders buy Chinese tires, furs, electronics and other

consumer goods. A luxury hotel and an exhibition center are being built and will be ready by 2017, says Mr. Wu. There are also new warehouses, villa complexes and industrial zones, a fast-track border crossing for large trucks and a new railway station.

The Kazakh side of the free-trade zone has lagged behind, with only a small cluster of cargo containers and tents selling Russian chocolates and other comestibles. Kazakh traders complain that Almaty, the nearest Kazakh city, is a bumpy five hours away.

Kazakh officials say they will start building malls and hotels and finish upgrading the road to Almaty next year. That is one of the last sections of a highway from China’s east-coast port of Lianyungang to Russia’s St. Petersburg, to be opened by 2016.

Trains are already taking cargo from China via Horgos through Kazakhstan and Russia to Duisburg, a German port. It takes about 15 days, compared with about 40 by ship. In September, a shipment of automobiles from Europe entered China by rail for the first time.

Zhang Jian began selling vegetables on the street in Yining, about 60 miles from Horgos, in 1983. Today, he owns a company he says exported $60 million of fruit and vegetables to Central Asia last year.

He plans to build a packaging-and-processing facility next year to export produce through Kazakhstan to Russia, where demand is up, he says, because of sanctions over the Ukraine crisis.

“Horgos used to be a small town with a very low profile,” he says as workers load one of his trucks with garlic to be shipped over the border. “Now it’s changed to a city, its reputation will grow much bigger.”

Sustainable Development Goals

Why China is creating a new “World Bank for Asia,” The Economist, November 11, 2014

TO THE alphabet soup of international development banks (ADB, AfDB, CAF, EBRD, IADB), add one more set of initials: AIIB, or for the uninitiated, the Asian Infrastructure Investment Bank. On October 24th, representatives from 21 Asian nations (pictured above) signed an agreement to establish the AIIB, which, as its name suggests, will lend money to build roads, mobile phone towers and other forms of infrastructure in poorer parts of Asia. China spearheaded the bank and hopes to formally launch it by the end of next year. More money for critical projects might seem unambiguously good, but the AIIB has stoked controversy because Asia already has a multilateral lender, the Asian Development Bank (ADB). Why is China creating a new development bank for Asia?

China’s official answer is that Asia has a massive infrastructure funding gap. The ADB has pegged the hole at some $8 trillion between 2010 and 2020. Existing institutions cannot hope to fill it: the ADB has a capital base (money both paid-in and pledged by member nations) of just over $160 billion and the World Bank has $223 billion. The AIIB will start with $50 billion in capital—hardly enough for what is needed but still a helpful boost. Moreover, while ADB and World Bank loans support everything from environmental protection to gender equality, the AIIB will concentrate its firepower on infrastructure. Officially at least, ADB and World Bank officials have extended a cautious welcome to the new China-led bank, saying they see room for collaboration.

Behind the scenes, though, the Chinese initiative has set off a heated diplomatic battle. America has lobbied allies not to join the AIIB, while Jin Liqun, the Chinese official who will head the bank, has shuttled between countries to persuade them to sign up. At the bank’s inauguration ceremony, Australia, Indonesia and South Korea were conspicuously absent. In public, the concern cited by America and some of the hold-outs has been a lack of clarity about AIIB’s governance. Critics warn that the China-led bank may fail to live up to the environmental, labour and procurement standards that are essential to the mission of development lenders. However, China has insisted that AIIB will be rigorous in adopting the best practices of institutions such as the World Bank. Given that the bank will be placed under such a close microscope, there is good reason to believe China on this.

But the real, unstated tension stems from a deeper shift: China will use the new bank to expand its influence at the expense of America and Japan, Asia's established powers. China’s decision to fund a new multilateral bank rather than give more to existing ones reflects its exasperation with the glacial pace of global economic governance reform. The same motivation lies behind the New Development Bank established by the BRICS (Brazil, Russia, India, China and South Africa). Although China is the biggest economy in Asia, the ADB is dominated by Japan; Japan’s voting share is more than twice China’s and the bank’s president has always been Japanese. Reforms to give China a little more say at the International Monetary Fund have been delayed for years, and even if they go through America will still retain far more power. China is, understandably, impatient for change. It is therefore taking matters into its own hands.

China forgoes veto power at New Bank to Win Key European Nations, Wall Street Journal, March 2015

China has offered to forgo veto power at a new Beijing-led development bank, in a proposal that helped attract European countries to break with Washington and line up as founding members.

Chinese negotiators presented the no-veto position to some of the U.S.’s staunchest allies in Europe in the past few weeks, according to officials from China and Europe involved in negotiations to set up the bank. The offer proved critical in getting the U.K., France, Germany and Italy to join Beijing’s Asian Infrastructure Investment Bank, these people said.

In proposing that no single country dictate decision-making at the new bank, Beijing is making a sharp departure from the long-standing practice at U.S.-backed international lenders such as the International Monetary Fund. The U.S. has a lock on some big decisions at the IMF despite holding less than 20% of its voting shares, a structure that has drawn complaints from the rest of the world.

Negotiations are still taking place over how the bank will be run and how its board will be structured. Beijing still is likely to have the upper hand, even without veto power, over major decisions, said people involved in the discussions. That is likely to fuel concerns—expressed by the U.S., India and others—that the bank will ultimately be a tool of Chinese foreign policy.

The progress China has made so far marks a rare victory for Beijing on the world stage, officials from both inside and outside China said, and the careful planning by Beijing is making the new bank a more serious challenge to U.S. dominance of the international economic system in place since the end of World War II.

“China is playing the long game effectively,” said Cornell University economist Eswar Prasad, a former senior China official at the IMF. “They are in absolutely no rush. They know other countries will come to them.”

Beyond giving up a veto, Beijing is also trying to address concerns from the U.S. and elsewhere about the institution’s transparency and governance.

Jin Liqun, a Chinese official picked by Beijing to set up the bank, has been lining up retired World Bank staffers in Washington to help them work out governance issues and to build up the new bank’s credibility with Western countries. One of his first recruits is Natalie Lichtenstein, a former World Bank lawyer. Ms. Lichtenstein declined to comment on her role at the new China-led bank.

Mr. Jin, interim chief of the new bank, said over the weekend that more than 35 countries will join as the bank’s founding members by the end of this month. South Korea and Australia, U.S. allies in the Asia-Pacific region, are expected to come on board by then, according to Chinese officials involved in the effort.

The Obama administration, with little leverage over the Chinese-led bank, is now proposing that the new entity cooperate in joint projects with Washington-backed institutions such as the World Bank, which use U.S.-approved rules.

“We will continue to engage with China and other countries to encourage the new institution to meet the high standards of the existing multilateral financial institutions,” Treasury Deputy Assistant Secretary Alexia Latortue said.

The new bank is on track to reach its target of $100 billion in registered capital, up from the $50 billion initially announced and that China is providing, according to Chinese and Western officials.

Japan, meanwhile, has maintained a cautious stance about taking part in the bank right away, Japanese officials said, though Tokyo hasn’t ruled out the possibility.

Beijing’s painstaking planning underscores the stakes for Chinese leaders as they try to chart a bigger role for China in world affairs. Just as the World Bank and the IMF has carried Washington’s influence to far-flung regions in the past six decades, the new bank has the prospect of doing the same for Beijing, according to Chinese and Western officials.

President Xi Jinping proposed the new bank in late 2013 to finance infrastructure projects in Asia, where need far outstrips funds provided by the IMF, the World Bank and the Asian Development Bank. Beijing estimates that between now and 2020 about $730 billion would be needed annually to fund infrastructure spending in Asia.

Over the past year, however, the U.S. has urged its allies not to sign up for the bank, saying it would be an instrument of Beijing’s foreign policy and that without proper governing rules it could contribute to debt and corruption in borrowing nations.

China has whittled away at the U.S. arguments by convincing Washington’s allies that it is serious about meeting global standards for development banks and giving Western firms the opportunity to get involved in new infrastructure projects, according to the Chinese and Western officials.

“China won’t bully other members but will work together with them to reach consensus in all the decisions we make,” said Mr. Jin, the Chinese official setting up the bank, at a gathering of international business and political leaders on Sunday. “China won’t brandish its majority shareholder status,” he said.

At the same time, the Obama administration has been unable to get Congress to pass additional funding for the IMF, leaving on hold a revision of voting rights that would give China and other emerging economies more of a say in decision-making. The lack of progress by the U.S. over the IMF has given China an opening to recruit members to its new bank, development experts said. “We have made a complete and total hash of this,” said Ted Truman, a former Obama Treasury official who is now a scholar at the Peterson Institute for International Economics.

Putting together a governance structure absent a veto helps China, people involved in discussions with Beijing said, because it blunts criticism that the bank would be a Chinese preserve used to funnel construction contracts to firms battered by the real-estate downturn within China.

“It’s a smart play to encourage other major economies to join,” said David Dollar, the U.S. Treasury’s former representative in Beijing, who is now a scholar at the Brookings Institution in Washington.

The next formal meeting of chief negotiators is set for the end of this month in Kazakhstan. Beijing hopes to put together the Articles of Agreement—the basic rules governing the bank—by the end of June and to get the bank up and running by the end of this year.

Chief among the unresolved issues is how the voting shares will be split among the bank’s founding members. One option is for the bank’s 27 or so Asian members to have 75% of the voting shares, with the right of each of those members potentially depending on the size of its gross domestic product. The remaining 25% of the voting shares would then go to non-Asian members, according to those individuals.

With such a split and voting shares potentially awarded according to GDP, Beijing could round up a majority vote without much difficulty, one of the individuals said.

Another pending issue is how to structure the board of directors at the new bank. In the World Bank and the IMF, countries are represented by resident directors who are actively involved in the institutions and vote on new projects, programs and policies. Those representatives act as a check on management. The U.S. has been pushing the Chinese to adopt the same structure, according to those involved in the discussions, but Beijing is resisting. Instead, it wants the bank’s management, which will likely mean Chinese officials, to have a more powerful position.

“I can understand why [the U.S.] or other advanced countries prefer the resident board in this case,” said Mr. Truman, the former Treasury official. “We do not trust the likely management.”

Other development experts say resident boards are anachronistic and slow down decision-making. The World Bank is starting a “a fundamental review” of how its governed, said Scott Morris, a former Obama Treasury official who is now a researcher at the Center for Global Development, a Washington think tank.

“To say that [the new Asian bank] should aim for the ‘highest standards’ or ‘best practices’ is kind of an empty target,” he said in an email response.

Chinese economy and US-China Economic Relations

China’s NPC Recognizes the “New Normal” of Slower Growth, David Dollar: March 10, 2015

The big news at China’s National People's Congress (NPC) was that the government set the 2015 growth target at 7 percent, down from 2014’s outcome of 7.4 percent. It also modestly reduced targets for the growth of trade (6 percent versus last year’s target of 7.5) and of fixed asset investment (15 percent versus last year’s 15.7). All of this is a sensible recognition that investment is slowing in the face of excess capacity in many sectors, that the external environment remains soft, and that the slowdown in investment and trade inevitably affects gross domestic product (GDP) growth.

Can China reach these still ambitious targets? Yes, but it will require a careful calibration of macro policies as well as further progress on reform. On the fiscal side, the government has set its stance modestly more stimulative: a fiscal deficit of 2.7 percent of GDP versus 1.8 percent in 2014. This is still quite conservative. At the same time the central government is trying to rein in the borrowing of local government investment vehicles, which amounted to about 4 percent of GDP in 2014. The risk is that too much tightening there will make the overall fiscal stance contractionary. This is China’s version of the “fiscal cliff”—if it stopped the local government borrowing altogether then the fiscal shock would be quite negative. One hopes that the authorities will be pragmatic in their attitude towards local government investment borrowing.

On the monetary side, China in 2015 will need continuing RRR and interest rate cuts, plus domestic liquidity operations, to offset the contractionary effects of net capital outflows. It is striking that China’s balance of payments situation has turned around and in recent months has consistently shown net capital outflows of $50 to $60 billion (USD) per month. The central bank has set the target for M2 modestly lower at 12 percent growth versus last year’s 13 percent. Given the slowdown in real growth plus the very low inflation of about 1 percent, the 12 percent target is generous.

In terms of the reform agenda, I was pleased that some measures are moving ahead, but disappointed about slow progress in other areas. The financial reform agenda seems most advanced. When the central bank recently reduced the deposit interest rate, at the same time it increased the flexibility of commercial banks to offer up to 1.3 times the official rate. Further interest rate liberalization is set for this year, as well as the introduction of deposit insurance. Fiscal reform on the other hand is not moving as fast. There is a need to reform inter-governmental fiscal relations so that local governments have reliable sources of revenue, but progress here is slow.

Another positive development was Premier Li’s announcement that the number of sectors in which foreign investment is restricted would be cut in half. This would be important progress. Unlike the other G20 countries, China is very restrictive about direct investment in the modern services such as finance, telecom, media, and logistics. In a new working paper, I analyze why China should be more open in its service industries. China’s growth will now mainly depend on these service sectors so that having open, dynamic sectors will be beneficial to China.

The rest of the world will feel the shift in China’s growth model away from investment and exports towards more consumption. China will not provide as much demand for energy and minerals as in the past. But it will provide new demand for consumer products and services and that will be a boost, especially to nearby Asian economies. Tourism, for example, has become a major net import for China. Last year, 100 million Chinese traveled abroad, and this year no doubt even more will go.

Is China’s 1929 moment coming?: Matt O’Brien: Washington Post: March 2015

It's weird to worry about China when it's still growing more than 7 percent a year, but it's a little less so when you consider how mammoth its credit bubble has gotten.

The numbers are historic. China's total debt has sprouted from 153 percent of gross domestic product in 2008 to 282 percent today. That, according to Goldman Sachs, makes China's borrowing binge bigger than 96 percent of all others on record. The problem is that, despite all this debt, growth is slowing and profits are falling, which makes it harder for companies to pay back what they owe. So does the fact that inflation is down to just 0.8 percent. It's no surprise, then, that China's central bank just eased policy for the third time in as many months, cutting its benchmark rates by a quarter of a percentage point, to try to avoid the kind of low growth, low inflation trap that the rest of the world has fallen into.

But it might be too late for that.

How did China get here? Well, once upon a time, China got rich by making low-cost things and selling them to rich countries. Now this was always going to run out once its workforce stopped growing and its wages started rising faster, like they already have, and it got undercut by countries with even cheaper labor. But it ran out a little sooner than that because the global financial crisis crippled its customers. So now China is getting rich by making the things it needed to be a rich country. New houses, subway lines, and roads, all sleek, all modern, and all paid for with borrowed money. A lot of it came from unregulated lenders, so-called "shadow banks," and was funneled through local governments and state-owned companies that then plowed the money into the property market.

Housing prices boomed. But maybe too much. Things looked bubbly enough that the government tried to rein in lenders in 2011. But that worked a little too well, because then things looked wobbly enough that the government about-faced and tried to spur lenders on a year later. China can fine-tune its housing market—and, by extension, economy—like this since it has state-owned banks and state-owned companies that it can strong-arm into doing things that private companies might not. The only exception are the shadow banks. They've been feeding money into the property market whether the government wants them to or not. So the central bank has resorted to engineering credit crunches to try to flush out the ones that are the most like Ponzi-like. It's another case of careful what you wish for.

Now housing prices are falling again—5.1 percent in January—but this time the government doesn't want them to. It's already loosening lending standards to try to prop up prices, and says it will do more if that's not enough. It probably won't be. That's because the law of supply and demand, according to one developer, looks like it's finally getting its revenge. China built too much, at least in its biggest cities, and now there's a glut. It's already forced one high-profile developer into default, and now offshore bond markets, where they've raised most of their money, are turning the rest away. It's a problem for local governments, too. They depend on money from land sales for revenue, so now that those are drying up, they're facing a fiscal squeeze. Some of them have stooped to buying up land themselves in a last-ditch effort to push

up prices, and, hopefully, get others to jump in. That's quite literally moving money from your right hand to your left to make it look like you still have money coming in.

China, in other words, is going to have a lot of people looking for bailouts: local governments, state-owned companies, and, last on the list, property developers. Enough of them should get saved that China should avoid a "hard landing"—that is, less than 5 percent growth—but it could still get what, for them at least, would be a lost decade. Its growth, which was always going to slow down, could slow down even more to a relative crawl if lower interest rates aren't enough to get over-indebted companies borrowing again. Even if they did, though, it wouldn't help as much as you'd think. China has so much debt now that it doesn't get as much bang for the borrowed buck as before. That's because more of the money it's borrowing today is going to pay back the money it borrowed yesterday. How bad is it? Well, China's private sector is spending something like 13 percent of GDP on interest payments alone. So it needs a new borrower—the government—to step in and be the one to spend instead. The good news, if there is any, is that China still has a lot of infrastructure needs. It wouldn't have to waste money on bridges to nowhere.

But there's still something ... wrong. It's a bubble mentality that comes out of the fact that China has more savings than it knows what to do with. Now a big part of the problem is that China's banks are only allowed to pay people piddling interest rates, all so that exporters can borrow for less. That means, though, that people don't like to keep their money in banks, since they're really losing money on it once you account for inflation. Instead, they pour their money into property, snatching up empty apartments and leaving them like that, because they think those are a better store of value. Or they buy shadow bank products with names like "Golden Elephant No. 38" that promise 7.2 percent returns, but, it turns out, are only backed by an almost-abandoned housing project. In short, anytime people find anything that resembles a decent investment, it gets bid up until it's unmoored from any kind of economic reality.

And now that's happening to stocks. It's still nowhere near its 2007 highs—in fact, it's barely halfway there—but the Shanghai index has nonetheless been on a tear the last six months, up 50 percent in that time. Why? Well, it's not earnings. Those are down. No, it's the debt. Investors have become so exuberant, perhaps irrationally so, that they aren't just throwing their own money into the stock market, but borrowed money, too. Margin accounts, which let people do this, more than doubled in 2014. And to give you an idea how important this has become to the market, stocks tanked 7.7 percent in a single day after the government announced it wouldn't let the three biggest brokerages open any new margin accounts for the next three months. It sure looks like China is replacing its housing bubble that just popped with a new stock bubble.

The nightmare scenario is that China's stock and housing bubbles both burst at the same time that rates and inflation are low. That's because there wouldn't be any new, shiny bubble for people to get excited about, not that they'd need one when inflation is barely in positive territory. They could just sit on their cash instead—and they might. Psychology is a tricky thing. It's not easy to make people feel confident again, even for a government that has the kind of singular control over its economy that China's does. Especially when that's already become harder than it used to be now that money, for the first time in a long time, is leaving the country. The snag is that China's currency "wants" to weaken, but they're not willing to give up their dollar peg—which

forces them to shrink their money supply at the exact moment that their economy needs a bigger one. China, in other words, has plenty of problems even if its people don't become too scared to do anything with their money. But if they do, watch out.

It could be 1929 with Chinese characteristics.

Why China's economy is slowing: The Economist: March 2015

CHINA has cut its growth target for 2015 to 7%, which would be the slowest expansion in more than two decades. Data this week show it will be a stretch to hit even that. This might not seem much to fret about. Even at its subdued current rate, China's growth is still the envy of most countries. But the slowdown is cause for concern. China is faring worse than many had expected (as recently as 2012, the International Monetary Fund, among others, forecast that annual growth above 8% would continue until 2017). Its deceleration is one of the main reasons for the sell-off of global commodities from iron ore to coal over the past two years. And there are fears it could yet turn uglier. What explains China’s slowdown?

On a basic level, it was inevitable that the Chinese growth rates of the past three decades, whichaveraged 10% a year, would wane. The law of large numbers (financial, rather than statistical) applies to nations as well as to companies: the bigger an economy gets, the harder it is to keep growing at a fast clip. Growth of 7% this year for China would generate more additional output than a 14% pace did in 2007. Structurally, China’s economy faces headwinds. In the long run, growth is a function of changes in labour, capital and productivity. When all three increase, as they did in China for many years, growth rates are superlative. But they are all slowing now. China’s working-age population peaked in 2012. Investment also looks to have topped out (at 49% of GDP, a level few countries have ever seen). Finally, China’s technological gap with rich countries is narrower than in the past, implying that productivity growth will be lower, too.

More recent trends also explain China’s sharper-than-expected slowdown. The single most important development has been its credit binge. Total debt (including government, household and corporate) has climbed to about 250% of GDP, up 100 percentage points since 2008. This debt allowed China to power its economy through the global financial crisis but also saddled it with a heavy repayment burden. Most worrying, much of the credit flowed to property developers. China’s inventory of unsold homes sits at a record high. The real-estate sector, which previously accounted for some 15% of economic growth, could face outright contraction. New property starts fell by nearly a fifth in the first two months of 2015, compared with the same period a year earlier. From this vantage point, the abruptness of China’s current slowdown looks more cyclical than structural. A period of overheated economic growth tends to be followed by a correction. Not all cycles are created equal, however. Working off a credit overhang can take years. Given that China’s financial system is mostly closed, it has little risk of an acute crisis, but the other side of the coin is that it might need even longer to clean up its bad debts.

Whereas previous leaders propped up growth whenever it slowed, Xi Jinping, China’s president since 2013, has instead spread the gospel of the “new normal”, by which he means less emphasis on growth and faster structural reform. The central bank has been hesitant to ease monetary policy. Changes to fiscal rules have made it harder for local governments to spend money. With consumer-price inflation running at a five-year low of 1.1% and producer prices deep in deflation, there is a case to be made that China’s economy, restrained by the government, is performing below its potential. The good news is that neither the cyclical nor the policy explanations for China’s slowdown are permanent. As the cycle turns and policy changes, the outlook should improve. But the structural shifts in the Chinese economy are a different story. They will cap any rebounds. Double-digit growth is most certainly a relic of China’s past.

How might a China slowdown affect the world?: Michael Pettis, December 2014

Two years ago it was hard to find analysts who expected average GDP growth over the rest of this decade to be less than 8%. The current consensus seems to have dropped to between 6% and 7% on average.

I don’t think Beijing disagrees. After assuring us Tuesday that China’s economy – which is growing a little slower than the 7.5% target and, is expected to slow further over the rest of the year – was nonetheless “operating within a reasonable range”, in his Tianjin speech on Wednesday Premier Li suggested again that the China’s 7.5% growth target is not a hard target, and that there may be “variations” in China’s growth relative to the target.

I think every one knows that variations will only come in one direction, and although his stated expectations are still pretty high, most analysts, correctly I think, interpreted his remarks as a warning that growth rates will drop even more. Here is how the People’s Daily described the speech:

Premier Li Keqiang on Wednesday said China can meet the major economic goals this year and policymakers will not be distracted by short-term fluctuations of individual indicators. Li downplayed the importance of some economic data from the past two months when delivering his keynote speech to the 2014 Summer Davos, which opened Wednesday in north China’s port city of Tianjin.

…China has targets of GDP growth around 7.5 percent and a consumer price index (CPI) increase of about 3.5 percent in 2014, with 10 million more urban jobs to keep the urban unemployment rate at a maximum of 4.6 percent.

Inflation is also below target. According to the National Bureau of Statistics Wednesday release, “In July, the consumer price index (CPI) went up by 2.3 percent year-on-year. Prices grew by 2.3 percent in cities and 2.1 percent in rural areas. Food prices went up by 3.6 percent, while non-food prices increased 1.6 percent. Prices of consumer goods went up by 2.2 percent and prices of services grew by 2.5 percent.”

Surprisingly, analysts continue to hail lower-than-expected CPI inflation as giving the PBoC room and encouragement to expand credit – largely I guess because this is what analysts say when US or European CPI inflation numbers are low, and although most of us haven’t thought through the differences between China and the US in the ways prices respond to monetary policy, we don’t want to seem like we don’t know what we are doing. The constraint on monetary and credit growth in China is not CPI inflation and never has been. Monetary and credit growth in China are constrained by the impact of GDP growth on balance sheets.

For me the main information coming out of CPI inflation data is that consumer demand relative to total production continues to be too weak to drive up prices, something confirmed earlier this

week by the August trade numbers, which failed to suggest strong growth in domestic demand. According to Xinhua:

China’s exports in August rose 9.4 percent year-on-year to 208.5 billion U.S. dollars, with monthly trade surplus reaching an all-time high of 49.8 billion U.S. dollars, customs data showed on Monday. China’s imports continued to contract last month, with a year-on-year decrease of 2.4 percent, to 158.6 billion U.S. dollars, the General Administration of Customs said in a statement.

Trade surplus in August jumped 77.8 percent year-on-year and hit a record high again, after reaching an all-time high of 47.3 billion U.S. dollars in July, the data showed.

Although in my opinion the current 6-7% medium-term growth expectations are still far too optimistic, and will almost certainly be disappointed within one or two years, the good news is that most analysts at least recognize that the increasing risk of a “hard landing”, which they mostly seem to define as growth below 6%. The idea that during the rebalancing process Chinese growth can drop as sharply as it has for every other country that has gone through a similar rebalancing is still hard to accept, even though a little digging would make it clear that analysts underestimated the pace of slowdown during each of the previous cases too.

Still, the fact that we have been consistently surprised on the down side since 2010 has alerted most analysts to the possibility that we may continue to be surprised on the down side. A “hard landing” of growth below 6% is still considered unlikely, but no longer possible to ignore.

This worries a lot of people. A hard landing, we are told, would be devastating for the world economy because China is the world’s “growth engine”, and if it falters, growth around the world will also slow. There is also rising concern about a banking crisis within China. An economist at Oxford Economics recently told a Sydney audience that “Chinese authorities were understating the extent of bad loans on their banks’ books and faced tough choices in dealing with the potential bank failure.” In that he is certainly right, but he went on to say: “”We don’t know when there will be a China banking crisis and how it will play out but it is almost certain there will be one,”

I am not sure I agree. Insolvency doesn’t necessarily lead to crisis, as countries like Spain have made clear. It takes a collapse in liquidity to create a crisis, and if insolvent borrowers remain liquid, we are likely instead to see a long, difficult period of slow growth in which the losses are painfully ground out of the system (and always turn out to be greater than they would have been had they been recognized immediately). A banking crisis in China is always possible, and several people I respect are quite certain that there will be one, but I think that as long as Beijing implicitly or explicitly guarantees deposits, and as long as Beijing’s credibility with Chinese households is solid, and I believe it is, I think we are more likely to see many years of Japanese-style “zombie banks” than a banking crisis.

What does it mean if growth slows?

At any rate as far as I can understand, most analysts claim that if growth in China fell much below 6%, we would be likely to suffer the following:

1. The rest of the world would slow, perhaps sharply, as a consequence of China’s lower growth.

2. There would be a crisis in the Chinese financial system, which would spread to the global financial system.

3. Political instability would emerge in China as unemployment surges.

I think most analysts may be overestimating the adverse consequences and underestimating the probability of much lower growth. I continue to expect growth rates to fall substantially, probably by 1 percentage point a year or more for the rest of the decade, so that in the best case, during the expected period of President Xi’s administration (2013-32), growth rates are unlikely to average above 3-4%.

Higher growth rates are not impossible, of course, but to get the arithmetic to work for me it would take some fairly implausible assumptions – mainly that Beijing engineers the transfer of 2-3% of GDP every year from the state sector to the household sector – for China to achieve growth rates anywhere near 6% for the next decade. I would make two further points about the consensus:

1. Even though most analysts who now think 6% is the likely lower end of China’s growth trajectory have already had one or more Damascene conversions, they still think of rebalancing largely as a linear process. It isn’t. The longer unbalanced high growth is maintained (and high growth is always unbalanced), the sharper the reversal must ultimately be.

In the best-case orderly adjustment, growth rates will drop every year, more or less smoothly, as credit growth is constrained and investment growth drops with it. As the reforms proposed during the Third Plenum are implemented, ordinary Chinese households will benefit from direct or indirect transfers from the state sector, so that total household wealth will continue to rise more or less in line with the growth in household income during the past decade. In that case, consumption growth will remain in the 5-8% range.

As this occurs, the consumption share of GDP growth will, of course, rise over the next few years so that much slower GDP growth does not imply much slower growth in the rate at which ordinary Chinese see an improvement in their standard of living. The two biggest risks to a smooth adjustment are, first, that the Chinese elite are successfully able to prevent the implicit transfers of wealth to the household second implied by the Third Plenum reforms, and second, that the wealth effect of a collapse in real estate prices, or a high correlation between consumption growth and investment growth, result in much slower than expected consumption growth. The second risk is the focus of a recent blog posting in which JCapital’s Anne Stevenson-Yang’s more pessimistic consumption expectations are contrasted with mine, with a follow up blog posting, and while we disagree, I don’t completely dismiss the JCapital position.

A disorderly adjustment will have a different dynamic. It is likely to occur after another 2-3 years or relatively high (7-8%) GDP growth rates followed by a very ugly contraction once debt

capacity is exhausted, which will occur when new loans cannot grow fast enough both to roll over existing bad loans (by which I mean loans that funded projects whose returns were insufficient to liquidate the loans) and to generate economic activity. Average growth rates in the case of a disorderly adjustment will be well under 3-4% but the adjustment will be highly discontinuous.

2. So if GDP growth rates are much lower than current consensus and even much lower than what most analysts would consider a “hard landing”, does this mean – especially if China’s economy is, as the New York Times called it, “the world’s main growth engine in recent years” – that the global economy is dire straits?

It depends on how China adjusts. China is not the world’s growth engine and never has been. It is simply the largest arithmetical component of growth, which is a very different thing. Whether China’s economy slows, and how quickly it does, matters to specific sectors of the global economy – positive to some and negative to others – and this will depend primarily on the evolution of China’s current account surplus. An orderly rebalancing will be good for the world on average and a disorderly one bad.

The same is true about the effect of a Chinese slowdown on social conditions. People do not generally care about GDP growth rates. They care about their own income growth relative to their expectations. Rebalancing in China means by definition that Chinese household income growth will outpace GDP growth, after many years of the opposite. A best-case orderly rebalancing should result in little change in the growth of household income, even as GDP growth drops sharply. This for example is what happened in Japan from 1990 to 2010, when GDP growth dropped close to zero but household income grew at nearly 2%.

A disorderly rebalancing, however, could result in negative growth in both GDP and household income, with the former dropping more than the latter. This, for example, is what happened in the US in the 1930-33 period – with GDP dropping by around 35% and household income dropping by around 19%. In the case of China, in other words, while elites will suffer in both scenarios, in the former case there is no reason for popular discontent.

Is China the world’s growth engine?

When analysts say that China is the world’s growth engine – something they said about Japan in the 1980s, by the way – they are implicitly assuming incorrectly the source of growth. If you multiply China’s GDP growth by its share of global GDP, you will find that Chinese growth over the last few years has comprised a larger share of global GDP growth than that of any other country. But this doesn’t mean it is the engine of growth.

An engine of growth drives growth around the rest of the world. If an economy is simply growing quickly, and especially if it is growing at the expense of other economies, it can hardly be called an engine of growth. In that case its growth actually constrains growth elsewhere.

Consider the colonial relationship between Britain and India 200 years ago. During the middle of the 18th Century and well into the beginning of the 19th Century India produced far more textiles

– and usually much cheaper and of better quality – than did England, but a number of measures aimed at undermining Indian textile producers and protecting British textile producers (tariffs that almost always exceeded 50%, for example, and by 1813 were as high as 85%) meant that at some point in the first half of the 19th Century the British textile industry had become the most efficient in the world and was able largely to eliminate the Indian textile industry from global competition.

There is no question that Britain was the largest component of global GDP growth at the time (the US and Germany did not surpass Britain until the 1860s and 1870s), but it would be foolish to say, at least in the Indian context, that the UK was the “engine” of global growth. In the textile industry, its growth came at the expense mainly of India. I am not suggesting that China’s growth relative to the rest of the world is equivalent to Britain’s growth relative to India. My point is only that a country’s contribution to global growth cannot be calculated by measuring its share of global growth.

So what contributes to growth? One of the thornier debates in economics is the debate between supply-siders, who insist that increasing production is the only way to increase growth, and the demand-siders (often Keynesians) who insist that increasing demand is the only way to increase growth, at least it is when resources are underutilized. Each statement is one side of an accounting identity, but causality does not necessarily run only in one direction. Growth can be driven primarily either by supply or by demand, depending on circumstances. When savings are in short supply, it is the latter. When not, it is the former.

To put it more explicitly, when investment is constrained by a lack of savings, the best way to generate growth is to increase investment by forcing up the domestic savings rate, in which case the world’s growth engine is likely to be the country that exports capital to investment-hungry parts of the world. Of course a net exporter of capital is by definition a country that is running a current account surplus.

In the United States during much of the 19th Century, an erratic and unstable financial system combined with the huge infrastructure needs of a rapidly expanding continental economy meant that the US was almost always in short supply of money and capital*, and so to a large extent its growth rate was constrained mainly by British liquidity. When money poured into the US from Europe, and mainly from England, investments in the US grew apace and the US economy boomed, until some event caused the taps to be turned off (the collapse in silver mining in the 1820s during Latin America’s wars of independence, for example, which was followed by the US crisis of the 1830s and, as a matter of interest to those interested in Chinese history, with the replacement of silver exports with opium to the silver-starved Qing government in China). Whereas Britain may not have been an engine of growth for 18th Century India, or at least for the Indian textile industry, it was for much of the 19th Century the world’s engine of growth because it supplied much of the capital that a savings-starved world needed to fund investment.

But when savings rates are excessive, which is often a consequence of income inequality and a high state share of GDP, as I show in one of my earlier blog posts, the problem the economy faces is insufficient demand, not insufficient savings available for investment. In fact as

consumption declines with the rising savings rate, it tends to reduce the need for productive investment, so that both productive investment and consumption tend to drop.

Technically you can never have “excess” savings over investment because savings must always balance investment globally. But as I show in another blog entry, the tendency of rising income inequality to force up the savings rate beyond the needs of productive investment must necessarily be balanced by one, or a combination, of three counterbalancing events:

1. As the savings rate tends to rise (or, which is the same thing, as the consumption rate tends to decline) productive investment opportunities tend also to decline, so that excess savings flow into speculative and non-productive investment, including rising inventories, developing countries, risky technology ventures (which can generate huge positive externalities), real estate, stock markets, etc.

2. Perhaps because rising prices in speculative assets causes a strong wealth effect, ordinary households borrow against their rising wealth to increase consumption faster than their income increases, driving down their savings rate in line with the rise in savings that accompanies rising inequality.

3. Rising speculative investment, rising inventories, and rising debt eventually reach a limit, often followed by a crisis, after which unemployment must rise and, by reducing production faster than it reduces consumption, forces down the savings rate enough once again to maintain the balance between savings and investment.

When the world suffers from too low a level of savings to fund needed productive investment, policies that force up savings are positive for long-term growth. For similar reasons, economies with excess savings create growth abroad by exporting the excess to where it is needed. In that case the supply-side insistence on focusing policy on ways to generate additional savings does result both in more growth and in trickle-down wealth expansion.

However when savings are high enough and mobile enough that balance can only be achieved in the form of high unemployment, the world does not need more savings to fund more productive investment, as the supply-siders argue, but rather more demand, as the Keynesians insist. More sustainable demand (in the form of needed infrastructure or of higher consumption by wealthier workers) will lead to more productive investment by redeploying underutilized resources, including unemployed workers.

If there is such a thing as a global engine of growth, in the latter case, it is the country that is able (or is forced) to import the most amount of capital and export the most amount of demand (i.e. run the largest trade deficit). In that case countries with large trade surpluses that have to export excess savings do not cause growth abroad. As an aside Kenneth Austin recently published in The Journal of Post Keynesian Economics what I think is a very important paper on how capital exports affect the global economy. His paper is summarized in a recent New York Times article.

What will drive China’s contribution to global growth?

So what kind of world are we in – one with excess savings, or one with excess demand? I would be truly surprised if anyone suggested that we are in the latter world and not the former. A world of excess savings is prone to bubbles, and either debt-fueled consumption or high unemployment, and this pretty much describes the world we have been living for the past two decades. For this reason I would argue that countries that are absorbing excess savings – i.e. running current account deficits – are generating growth abroad while countries that are exporting excess savings – i.e. running current account surpluses – are weakening growth abroad.

China, in other words, is not the world’s growth engine. Behind Germany and ahead of some of the oil producers, it runs the largest current account surplus in the world, which means that it is exporting its excess savings in a world that has nowhere to put the money, and so the world must respond either with speculative asset bubbles, unproductive investment, debt-fueled consumption binges or unemployment.

This means that to assume slower growth in China will reduce growth abroad is wrong. As the growth rate of China’s economy drops, the fact that its share of global GDP growth will drop does not presage anything bad for the global economy. What matters is what happens to China’s current account surplus. As long as the world suffers from weak global demand, if China’s current account surplus declines relative to global GDP, China is adding net demand to a world that needs it. This is positive for global growth. If on the other hand China’s current account surplus rises, China will be adding more savings to a world already unable to absorb total savings productively, and the world will be worse off.

This tells us how China’s rebalancing will affect growth abroad. China’s contribution to global growth over the next decade depends on the relative pace at which savings and investment decline. If savings declines faster than investment, China’s excess savings will decline and with it its current account surplus. China in that case, will be adding net demand (or reducing negative net demand, to be more precise) to a world that needs it. If on the other hand China’s investment rate declines faster than its savings rate, its current account surplus will by definition grow, and the world economy will be worse off.

So which will it be? I think it depends on how orderly the rebalancing process will be.

1. In an orderly rebalancing, China will take steps to reduce investment growth. Instead of causing unemployment to surge, however, the reforms proposed during the Third plenum, most of which involve direct and indirect transfers from the state sector to the household sector, should keep consumption growth rates relatively high.

In order to keep the process as stable as possible and to prevent a surge in unemployment, my guess is that investment will decline more slowly than consumption will rise, so that in effect the gap between savings and investment narrows. This is just another way of saying that China’s current accounts surplus will narrow as a share of global GDP and the effect for the world will be positive (this is what occurred during Japan’s rebalancing between 1990 and 2010).

2. A disorderly rebalancing can occur in a number of different ways so it is hard to predict the impact on the current account, but the most likely outcome would be a surge in the current account surplus. Assume, for example, that a disorderly rebalancing occurs because Beijing waits so long to force through the reforms that it runs into debt capacity limits (i.e. the growth in debt cannot exceed the growth in the amount of bad debt that must continually be rolled over). In that case investment will drop quickly. At the same time unemployment will rise, which will partially reduce the savings rate, but worried Chinese households with jobs will cut back on consumption, which will increase the savings rate.

If the combination of the two causes the savings rate to rise, or to fall more slowly than the rapidly declining investment rate, the automatic corollary is a rise in the current account surplus. This would reduce demand in a world already suffering from low demand.

A slowing Chinese economy might be good or bad for the world, depending on how it affects the relationship between domestic savings and domestic investment, and this itself depends on whether Beijing drives the rebalancing process in an orderly way or is forced into a disorderly rebalancing by excess debt. My best guess is that Beijing will drive an orderly rebalancing of the Chinese economy, even as it drives growth rates down to levels that most analysts would find unexpectedly low, and this will be net positive for the global economy.

Energy, Climate, and Environment

China’s Power System: The Green and the Black March 24th, 2015 by Armond Cohen, Executive Director

Consider these two statements:

“China is the world’s biggest market for wind power and solar photovoltaics.”

“China is the world’s largest consumer of coal, biggest emitter of carbon dioxide, has some

of the deadliest air pollution in the world, and is still adding dozens of new coal fired

plants ever year.”

If you follow energy discussions, you will often hear one of these two visions of China’s

energy system emphatically described by various pundits and advocates. At first blush, the

two visions seem fundamentally in conflict. Only one must be true! How can China be both

“green” and “black” at the same time?

As is often the case, the reality is more complicated and nuanced. The short story is that the

sheer scale of China’s energy appetite makes both of the above visions simultaneously true—

and that will likely remain the case for at least the next decade or two. China is

simultaneously going to be the world’s largest market for low-carbon energy over the next 15

years and the world’s largest consumer of coal, continuing to build new coal-fired power

plants and to see absolute coal consumption grow, albeit somewhat more slowly than in the

past, as China enters a long plateau at still-staggering levels of coal consumption.

It’s important that energy observers, policy makers, and advocates are able to

hold bothvisions of China simultaneously in our collective consciousness: China is the

builder of the world’s largest fleet of “green” power, even as China continues to operate

nearly a terawatt of coal-fired generating capacity and single-handedly burn over half of the

entire world’s annual coal supply.

This discussion heated up recently with the news that Chinese coal use fell for the first time

in 2014, dropping 2.9 percent even as the Chinese economy expanded by about 7.4

percent,according to official statistics. That news—assisted by some earnest efforts to craft a

media narrative—has generated a growing media buzz about an allegedly impending “peak

coal” in China.

[First, a caveat on the numbers; China sometimes makes changes amounting to major

revisions to its official coal and carbon statistics. As Robert Wilson cautions, China’s official

coal consumption statistics showed a massive decline in the late 1990s, only to have the

entirety of this apparent drop in coal use revised away in subsequent year’s statistics. Glen

Peters, a post-doctoral researcher on human drivers of climate change at the Center for

Climate and Environmental Research in Oslo also points out that China similarly revised up

their initial 2013 estimate for coal consumption by 8 percent. As China consumes as much

coal as the rest of the world combined—roughly 4 billion tons per year—a revision of that

magnitude is an enormous quantity of coal, equivalent to roughly one third of total United

States coal consumption or the entire annual consumption of Germany and the United

Kingdom combined.]

Image source: US Energy Information Administration

Putting aside the reliability of China’s coal statistics, I wrote recently that there is likely to be

no imminent peak in China’s power sector coal consumption, despite the apparent decline

in coal use in 2014. The reason is simple: China is still building new coal-fired power plants

at a rapid clip.

Image Source: CATF from China National Energy Administration website for GW,

accessed 17 February 2014. Assumed capacity factors: fossil (58% per IEA WEO 2013);

hydro (34% per IEA WEO 2013); wind (33%); solar (15%).

As shown above, despite substantial growth in wind, solar, and nuclear capacity, when

China’s new capacity additions are adjusted for the capacity factor of different resources (or

the amount of annual energy produced per unit of capacity), very generously for wind and

solar, the amount of new coal-fired energy generating capability added to the China grid last

year exceeded new solar energy generating capability by 17 times, new wind energy by more

than 4 times, and even new hydro by more than 3 times.

To put that into perspective, the new coal-fired power plants built in 2014 alone have a

capacity more than double the entire United Kingdom’s legacy coal fleet.

Those new coal plants are brand new, and while they in part help replace older, dirtier, and

less efficient coal plants, which China has been phasing out in recent years, these new plants

will be around and cranking away for many decades, along with the rest of China’s coal fleet,

most of which is less than 15 years old.

John Matthews and Hao Tan of the Universities of Sydney and Newcastle, respectively, take

issue with my focus on new capacity, and wrote a long article recently claiming that China is

“greening faster than it’s getting blacker.” They present a lot of facts and figures, which they

argue show that China is rapidly expanding its “green” power generation sources.

Unfortunately, they prove only that China is slowly expanding the percentage share of

energy from non-fossil sources—or as they put it, “greening on the margins”—not that China

is poised for a real and sustained absolute decline in coal consumption any time soon.

In fact, they show that the drop in China’s 2014 coal-fired electricity generation is almost

entirely due to annual fluctuations in hydro output due to annual changes in hydrological

conditions (i.e. rainfall). As Matthews and Tan’s Figure below shows, hydro output increase

in 2014 by 174.2 terawatt-hours, more than the total increase in annual demand and an

order of magnitude more than the increase in nuclear, solar or wind generation. Combine a

big swing in hydro output with a slow year for economic growth, and you’ve got a slight

decrease in fossil generation on the year.

Year-on-year change in China’s electric energy generation, 2014 vs 2013.

Source: Matthews and Tan, from primary data from China Electricity Council.

In other words, the total contributions of solar, wind, and nuclear to “greening” China’s mix

are unfortunately still small enough to be effectively lost in the noise of hydrological and

economic variations from year to year. “Greening at the margins” is having truly marginal

impact.

In the meantime, capacity additions clearly show which way Chinese state planners expect

the grid to go over the next decades, with 47 gigawatts of brand new coal plants added in

2014 alone (enough to supply nearly all of California’s electricity demand, which peaks at

about 45-50 gigawatts).

So let’s be clear: China’s rapid build-out of wind and solar—and nuclear I might add (with

some some 30 nuclear plants under construction)—is impressive. As I noted in my own

post, China has pledged to peak its CO2 emissions by 2030 and achieve 20 percent of its

primary energy from non-fossil energy sources. Both of these goals will require it to build

out over the next 15 years what will amount to the world’s largest low-carbon power

system. At the same time, Matthews, Tan, and others celebrating a “greener” Chinese power

system downplay the fact that China can still build dozens of new large coal-fired power

plants within that constraint and continue to burn simply staggering amounts of coal.

Even Greenpeace acknowledges we could be far from a true peak in China’s coal

consumption. The graphic below is a projection of China’s electricity generation

mixdeveloped by Greenpeace International’s Lauri Myllyvirta, based on China’s pledge to

obtain 20% of its total energy from non-fossil sources by 2030. As we can see, China’s coal-

fired power generation continues to grow through 2030, even as it expands non-fossil

generation four-fold.

Source: Lauri Myllyvirta from data from China’s State Council Energy Plan for 2014-

2020 and the IEA’s New Policies scenario.

Driving China’s emissions truly downward over the following decades therefore will almost

certainly require an expanded role for carbon capture and storage to reduce emissions from

China’s massive legacy coal fleet, as well as an acceleration in the pace of renewables and

new nuclear plant construction.

I take no pleasure in describing these trends. But, if we are to develop a workable carbon

mitigation strategy, it is very important to understand the full picture and not to overstate

the relative progress of renewables in China. China’s emissions trajectory is enormously

important for global climate mitigation efforts, which will require a near-zeroing of global

carbon emissions from the energy system well before the end of this century.

A variety of recent analyses from the Intergovernmental Panel on Climate Change, the UN

Deep Decarbonization Pathways Project, the Global Commission on the Economy and

Climate, and the International Energy Agency, have all concluded that a diverse portfolio of

low carbon technologies—including enhanced efficiency, many renewables, nuclear energy

and carbon capture and storage—will be necessary to zero out carbon in China and

elsewhere. CATF believes the likely long-run persistence of coal (and gas) in China and

across the developing world makes a focus on carbon capture especially critical in the next

few decades.

For that reason, Clean Air Task Force’s work in China focuses on facilitating early large-

scale carbon capture and storage projects. We are also beginning to explore how China’s

proven ability to bring down energy technology costs might be applied to commercializing

advanced, non-light water nuclear reactors that are potentially safer, less costly, with lower

waste and weaponization risk, and quicker to build.

While we expect and hope that renewable energy such as wind and solar can and will grow

in its share of China’s total energy mix, we also think it would be unwise to base a zero-

carbon strategy entirely or even predominantly on those technologies.

Even as China becomes the biggest user of renewable energy, China’s “black” energy system

will unfortunately continue to grow in absolute terms and be with us for some time. It’s

critical for climate protection that we utilize every tool we can to limit the climate damage

from that system.

Tags: China, CO2 emissions, coal-fired power plants, renewables

This entry was posted on Tuesday, March 24th, 2015 at 6:09 amand is filed under Climate, Fossil

Transition. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and

pings are currently closed.

China’s National Conversation on Pollution Has Finally Begun Yiqin Fu, Foreign Policy, March 2, 2015

China is talking about its pollution crisis — all because of one moving film by a famous television journalist, and a little help from China’s state media apparatus. It started on Feb. 28, when Chai Jing, one of China’s best-known journalists and a best-selling author, unveiled a self-financed documentary, Under the Dome, online. The 103-minute film details Chai’s yearlong investigation into the root causes of China’s now infamous air pollution and touches on the way in which pollution has affected her own family. Even for a country with a population of 1.3 billion, the reception has been nothing short of astonishing. In less than 24 hours, the video garnered over 100 million views across major Chinese video-streaming sites. Tellingly, the film debuted on the website of People’s Daily, a Chinese Communist Party mouthpiece, and major state-owned news outlets have interviewed Chai and promoted discussion of her work, signaling approval from the highest levels of government.

In a style similar to Al Gore’s 2006 influential environmental documentary, An Inconvenient Truth, Chai’s Under the Dome integrates various interviews and statistics with a keynote speech Chai delivered to a live audience this January in a film studio in Beijing. The 39-year-old journalist, who hails from the large, coal-mining province of Shanxi and has lived in smog-smothered Beijing for over a decade, started her January talk by calling the fight against China’s increasingly nasty air pollution “a personal grudge.” In 2004, she said, she went to Shanxi as state media China Central Television (CCTV)’s investigative journalist. In a particularly powerful sequence, Chai asked a 6-year-old girl whether she has ever seen stars or clouds in the sky. The girl said she had not.

Ten years later, with the number of smoggy days increasing in Beijing, Chai said she realized that air pollution was no longer a problem only for her home province, but a nationwide issue that could impact generations.

Chai said she had not been afraid of pollution until she became a mother. Chai said she had not been afraid of pollution until she became a mother. In 2014, after her newborn daughter was diagnosed with a benign tumor unrelated to pollution, she decided to quit her job at CCTV and investigate the pollution’s cause. “Half of the days in 2014, I had to confine my daughter to my home like a prisoner because the air quality in Beijing was so poor,” Chai said. “One morning I saw my daughter banging on the window…. The day will come when she asks me, ‘Why do you keep me here? What is going to hurt me when I go outside?’”

Chai went on to explain the causes of smog by showing interviews with scientists and regulators, factory visits, and myriad charts and statistics. She highlighted the major problems with the burning of coal and oil in China, which, according to Chai, accounts for 60 percent of the country’s air pollution. Chai stated that China is not only burning massive quantities of coal and oil but low-quality, dirty fossil fuel that disproportionally produces pollutants. Existing regulations, Chai added, often aren’t enforced.

In a rare move for Chinese journalists, Chai also criticized China’s two most powerful state-owned oil companies for resisting tougher fuel standards. Chai played a recording of an

anonymous official from the powerful National Development and Reform Commission who said that Sinopec and CNPC, respectively the third and fourth companies on the Fortune 500 list, had threatened to cut off supply when state environmental authorities sought to raise fuel standards, which would also have raised fuel prices. “Shouldn’t Sinopec, a giant state-owned enterprise with more than $400 billion in revenue last year, take some social responsibility?” Chai asked.

Chai’s talk also detailed visits Los Angeles and London, two cities with some success combating air pollution. To her surprise, she discovered that China already possesses clean technology, and similar regulations, at least on paper. Chai said the problem was that Chinese regulators either lacked the power they needed or were lax in their enforcement. Other causes of air pollution include excess heavy industry production and an obsession with building the next “metropolitan city,” a phrase often used by local officials in their vows. Chai urged more grassroots action, like calling China’s national environmental protection hotline in the event of violations and using public transportation whenever possible. At the end of her speech, Chai turned around to face the screen behind her that showed a rotating Earth. “One day, I will leave this world. But my child will still live here,” she said.

The in-studio audience was visibly engaged, and some appeared to have tears in their eyes. The in-studio audience was visibly engaged, and some appeared to have tears in their eyes.

The national online discourse that took place over the weekend is the largest China has ever seen on the issue of environmental protection. Under the Dome has not only been viewed over 100 million times on Chinese streaming sites and become the most-searched term on Baidu, China’s most popular search engine; it’s also prompted an online conversation about Chai’s work. After Chai posted her documentary to Weibo, China’s massive social media platform, users shared it over 580,000 times. One of the most popular comments to the post read, “I don’t need China to be number one. Can we slow down our economic development and really deal with pollution?” In another, a user with almost 2 million followers shared Chai’s words that “history is created” when “individuals stand up to take action.”

State media is also actively promoting Chai’s documentary in what looks like a coordinated campaign. People’s Daily not only dedicated a special feature to the film on its website but also shared it on Weibo and called for more effective governance in an op-ed supporting Chai. Even the hard-line, nationalist state-run paper Global Times defended her. “Criticizing [Chai] for pointing out the problems of state-owned enterprises … is not a patriotic thing to do.”

Signs are proliferatingthat the Chinese government is acknowledging the severity of air pollution and actively trying to curb it. Signs are proliferating that the Chinese government is acknowledging the severity of air pollution and actively trying to curb it. In March 2014, Premier Li Keqiang declared a “war on pollution.” In November, China reached a climate deal with the U.S. that Secretary of State John Kerry called “historic” – China intends to achieve the peak of carbon dioxide emissions by 2030. In a March 1 press conference, Chen Jining, the newly appointed party chief of the Ministry of Environmental Protection, praised Chai’s documentary, which he said he had watched in full and which reminded him of American marine biologist Rachel Carson’s 1962 book Silent Spring.

“Just like [Carson], she did an admirable job of raising public awareness of environmental issues,” he said. “I’m grateful to her.” It was Chen’s first press conference in his new position; he was approved just one day before Under the Dome first aired.

China’s two major political meetings — the National People’s Congress and Chinese People’s Political Consultative Conference, colloquially known as the lianghui — will convene next week in Beijing. The timing of Under the Dome’s release, intentional or not, has led many online to wonder whether the issue of environmental protection will be a focus there. The well-connected and savvy Chai may have engaged a fraught topic, but it’s clear she has done so with no intention of becoming a dissident.

Chai is used to the spotlight: In 2001, she began hosting one of CCTV’s news shows. Throughout the ensuing decade, she was one of the most recognizable frontline CCTV investigative journalists reporting on disasters and social problems such as coal mine disasters, earthquakes, and SARS, the deadly epidemic that killed more than 700 around the world in 2003. Her fame shot even higher in 2013 with the publication of her best-selling memoir Kanjian, or “Bearing Witness,” named after her show on CCTV, that chronicled a decade worth of investigations, interviews, and heartfelt personal reflections about China’s social ills. Chai vanished from the public eye for much of 2013 and 2014, weathering rumors that she had given birth in the United States, a highly controversial choice given her public persona as a compassionate voice for China’s common people.

The outpouring of support for Chai’s work underscores how for the average Chinese, air pollution is no longer a topic of academic inquiry but rather a tangible issue with real, significant consequences. Air pollution has been linked to a spike in lung cancer in Beijing and has been claimed to reduce life expectancy in some regions by 5.5 years. According to China’s official statistics, only eight of China’s 74 major cities met the country’s air quality standards in 2014. (Even that was an improvement from 2013, when only three did.) Severe air pollution plagued not only northern China, the coal-mining region, but also coastal cities in the south such as Shanghai. The manufacture and sale of facemasks and air filters are becoming competitive industries unto themselves, while air quality apps routinely top the Chinese charts in Apple’s online App Store.

It remains unclear how soon needed change will take place, and at what cost. The transition to what officials call a “low-carbon economy” faces numerous obstacles.

Chinese bureaucrats fear hindering growth, which may imperil their career prospects or lead to social instability should jobs in the areas they govern become too scarce. Chinese bureaucrats fear hindering growth, which may imperil their career prospects or lead to social instability should jobs in the areas they govern become too scarce. A 2014 reduction in heavy industry production in Hebei, one of China’s most polluted provinces, was estimated to cost tens of billions of dollars and hundreds of thousands of jobs, consequences state media dubbed “the pains of transition.” Massive state-owned enterprises in heavy industry employ millions and wield great clout.

Indeed, while Chai has enjoyed massive recent support, she’s not without her critics. On social media, some have complained her report merely scratches the surface — surely true, but hardly fair, given the scope of the topic Chai engages. Others have called her a hypocrite for giving birth in the United States and now “pretending” to care about China’s problems. One prominent critique, by no means unique, accused Chai of “reflecting the interests and viewpoints of the urban middle class” and giving insufficient weight to the interests and habits of working-class Chinese, many of whom may depend on high-polluting industries for employment. Yet even many of these critics believe that by raising an important issue, Chai’s documentary will ultimately do more good than harm.

Chai did not respond to a Foreign Policy request for comment, but it’s clear she remains hopeful. During an interview with People’s Daily on Feb. 28, she said she was sanguine because every expert and regulator she spoke to while researching her documentary was open and direct; some were so eager to help that they even sent her article links late at night. “To put it simply, everyone wants to have clean air,” Chai said. “What is a social consensus? There is no consensus stronger than this one. That’s why I’m optimistic.”

Rachel Lu contributed research.

Exploring the Frontiers of U.S.-China Strategic Cooperation Melanie Hart, November 10, 2014

The United States and China have a unique window of opportunity to achieve measurable progress on energy and climate change and to upgrade the U.S.-China relationship across the board. The two nations currently share more interests in this space than in any other. On military issues, for example, dialogue has improved tremendously in recent years. But at a strategic level, the United States and China are still primarily just trying to avoid destabilizing incidents in the Asia-Pacific. On cyber security, the government-to-government working group under the Strategic and Economic Dialogue, or S&ED, has been unable to even schedule meetings, much less think about actual policy deliverables. On economic issues, commercial complaints are growing on both sides of the Pacific and making it increasingly difficult to agree on anything new and concrete that would deepen market integration in the near-to-medium term.

If U.S. and Chinese leaders want their meetings to produce something new and concrete, there is a growing consensus in both capitols that energy and climate cooperation is the only track that can reliably deliver. The range of energy and climate deliverables rolled out thus far is truly breathtaking. Current bilateral projects include cooperation on advanced vehicle technology, clean coal, building efficiency, greenhouse gas-emission monitoring, smart grid technology, shale gas development, and many others. There is virtually no area of this domain where the two nations are not cooperating in some way. Most importantly, this cooperation is in the form of real projects that involve people from both sides getting together to actually do something. By any measure, this area of the relationship has become a true action track, not an empty-talk track.

At the same time, however, it is important to make sure that this growing array of action-oriented projects eventually adds up to something more than a steady stream of deliverables for high-level

meetings. On climate change, in particular, bilateral cooperation will not be considered a true win unless those activities have an impact that goes far beyond the bilateral relationship. Most importantly, other nations around the world are looking to the United States and China to breakdown the current impasse between developed and developing countries and serve as the poles around which the rest of the world could rally to form a new global climate agreement in 2015.

Unfortunately, it is specifically on those big-picture issues where the United States and China are still coming up short. Looking beneath the surface of this new action track, the two nations still do not see eye to eye on issues of principle such as how to divide climate responsibility among nations or how to best structure global energy institutions.

In October 2014, the Center for American Progress convened a group of rising U.S. and Chinese scholars to discuss these and other difficult issues in the bilateral relationship. This essay collection presents the views of the energy and climate experts who led the discussion on these issues. For more detail on critical themes that emerged from the closed-door track II discussions, see “Expanding the Frontier of U.S.-China Strategic Cooperation Will Require New Thinking on Both Sides of the Pacific.”

The scholars in this essay collection all agree that, although recent progress in the energy and climate space has been admirable, that progress has focused primarily on low-hanging fruit, and it is now time to kick cooperation up a notch and start chipping away at the truly difficult issues that still divide us.

China’s latest move: a BRICS bank for climate finance? Pete Ogden, December 15, 2014

At the latest round of UN climate talks in Lima, Peru that concluded yesterday, negotiators representing more than 190 countries lunged and parried their way to an outcome that will guide countries as they scramble to reach a new international climate agreement by December 2015.

But when we look back at this conference in years to come, one of the most notable developments may be something that has received relatively little attention: the announcement by China that it was formally launching a new multilateral south-south climate fund.

This move by China is significant for several reasons. First, it comes in the midst of a drive to capitalize a new fund – the Green Climate Fund (GCF) – that has been in the works for five years, including with China’s direct participation. One of the unique aspects of the GCF is that developed and developing countries collaborated closely on it and that both camps have provided financial support. This mutual engagement was no small accomplishment given the fraught relationship between developed and developing states during climate negotiations.

Many celebrated in Lima last week when the GCF crossed its goal of a $10 billion initial capitalization with the help of some new developing country pledges. But China made clear that it would not be contributing, calling that a job for developed countries. Instead, China drew from the same playbook that it has in advancing the BRICS Bank and the Asian Infrastructure

Investment Bank as alternatives to existing international financial institutions: it announced a new multilateral forum where it will have the latitude to write the rules.

The establishment of a South-South climate fund is not a bad thing. To the contrary, we should applaud China’s entry into this space and welcome the reported $80 million over three years with which it is seeding the fund. The world needs all the help it can get in mobilizing resources to assist countries pursuing cleaner economic growth and struggling with the impact of climate change.

But, as with the BRICS Bank or an Asian Infrastructure Investment Bank, the devil will be in the details: what kinds of projects will the fund support? Will China scale the fund into something bigger and more consequential? What does China mean when it describes the new fund as “market-based”? And how will this new fund interact in the larger ecosystem of climate finance? China has been mum on these questions so far. But its initiative merits close attention, particularly by those interested in China’s evolving role in global governance.

US Domestic Energy

Opportunities for the Green Climate Fund in 2015 Pete Ogden, Gwynne Taraska, March 23, 2015

The Green Climate Fund, or GCF, is an important new multilateral tool for investing in projects in developing countries that reduce their greenhouse gas emissions and enhance their ability to adapt to a changing climate. Its broader mission is to create a paradigm shift in development, so that economic growth is both climate resilient and decoupled from dependence on fossil fuels.

As recently as last year, however, the GCF was almost nothing except unrealized potential. It lacked the resources—or even any firm expectation of resources—necessary to begin delivering on its core mission.

Things look quite different as the board of the GCF officially convenes for the first time in 2015: More than 30 countries—both developed and developing—have made pledges to the fund that total more than $10 billion over the next few years. The United States accounts for $3 billion of this total.

Now is the time to take the next steps. Countries must begin to deliver on their promised contributions, and the GCF must start to showcase its capacity to serve as an essential new tool for the mobilization and delivery of climate finance for years to come.

2015: Time for countries to start delivering

President Barack Obama made an important first move in February 2015, when he requested $500 million for the GCF in his fiscal year 2016 budget. This would constitute an initial installment toward the full $3 billion pledge. It is now Congress’ turn to appropriate funding. The United States has a legacy of bipartisan support for multilateral climate finance, and now is no time to reverse course. In 2008, for example, the George W. Bush administration led efforts to launch a forerunner to the GCF—the multilateral Clean Investment Funds, or CIF—which the United States has consistently funded regardless of which party occupied the White House or had a majority in Congress. The United States has also consistently funded the Global Environment Facility, or GEF—which was established in 1991 to work on climate and other environmental issues—over six renewal periods.

Only when the United States and other countries start to provide these resources at the necessary levels can the GCF begin to make its mark on curbing greenhouse gas emissions; spurring sustainable economic development; creating new opportunities for private-sector investment in clean energy, energy efficiency, and adaptation measures; and helping ensure that the impacts of climate change do not erase hard-won development gains.

Opportunities for the GCF to begin to fulfill its potential

As countries begin to follow through with their pledges this year, the Green Climate Fund must also do its part.

Specifically, it can and should begin to lay the groundwork for two of its most distinctive and important features: its emphasis on financing adaptation and its goal of harnessing the private sector.

First, the GCF is dedicated to addressing the increasing shortfall in adaptation finance due to the growing frequency and severity of climate-fueled weather events. The fund aims to raise support for adaptation to meet its support for mitigation over time, and it will channel at least half of its adaptation funding to countries that are particularly vulnerable, including African states; the least developed countries, or LDCs; and small-island developing states. Cyclone Pam, which devastated the Pacific island country of Vanuatu on March 16, demonstrated the urgent need to scale up resilience funding for vulnerable regions.

Second, a core part of the GCF is its private-sector facility, which will work to leverage private investment. This is necessary if the GCF is to reach the funding level required to cause a paradigm shift in development. The private sector has already shown interest in funding climate efforts: It accounted for 58 percent of global climate finance in 2013. In addition, other multilateral funds, such as the GEF, have shown initial success in engaging the private sector. The GEF facilitated $5.65 billion in private investment over its past two renewal periods—GEF-4 and GEF-5. The Green Climate Fund has the institutional structure to improve on this preliminary success.

The GCF can demonstrate that it is beginning to fulfill its potential as an effective and essential tool to facilitate low-carbon and climate-resilient development by taking the steps outlined in the following three sections.

1. Commit to a suite of projects that demonstrates the GCF’s unique features and breadth of capacity

The GCF should commit to an inaugural set of projects in 2015. While only a fraction of the $10 billion pledged over multiple years will become available this year, the fund should aim to select a set of projects that showcases its versatility and unique attributes. It can do this by:

• Investing in a mitigation project in a developing region that does not result in an isolated improvement but instead instigates a step change toward a clean economy: A singular strategy of the GCF is to identify the critical funding gaps that may be relatively small but will have a ripple effect when filled.

• Investing in adaptation in a low-income region that is particularly vulnerable to climate change impacts: Again, the project should not be an isolated improvement but rather a catalyst for a shift in the region’s resilience level.

• Attracting significant private-sector investment: This is necessary to show that the GCF can mobilize the funding level needed to implement similar projects on a global scale.

Such an initial set of projects would demonstrate that it is possible to decouple development from rising emissions; to make strides in resilience in the least developed countries; and to achieve these aims at scale. It would also establish the GCF as an essential tool for realizing these possibilities.

2. Demonstrate that the GCF has a sustained ability to identify and fund projects with transformational potential

Even if fully funded, the GCF cannot and should not aim to support every project that comes its way. Rather, it should discriminate between projects that would advance its mission and projects—however worthy—that would be better addressed by other forms of bilateral and multilateral support. To do this, the fund will need to complete its investment framework, which contains the criteria by which it will assess proposals. The broad criteria of the framework are already developed and include the potential for impact and the vulnerability of the recipient country, among others. However, the board of the GCF will need to decide on more fine-grained factors in order to enable the fund to consistently determine which projects are most likely to contribute to a step change in clean and resilient development. The board is currently considering a proposed set of these factors. For example, a subcriterion of the vulnerability of the recipient country could be the vulnerability of particular groups within it, such as children or minorities.

In addition, the fund will need to accredit an initial set of entities—regional, subnational, national, or international—to present submissions to the GCF and to channel funds to specific projects. Ensuring that a significant percentage of accredited entities are subnational, national, or regional will help ensure that the GCF is receiving proposals that take into account the needs of a specific area and identify the funding gaps that, when filled, can unlock further progress. To date, the GCF’s accreditation panel has recommended seven applications to the board, four of which are from national or regional entities. This constitutes a progressive departure from the CIF, which disbursed funds exclusively through multilateral development banks. Although the GCF is expanding the pool of entities that will serve as intermediaries, it requires that entities meet strict environmental, social, and fiduciary criteria for accreditation.

3. Buildout the private-sector facility

Through 2015 and 2016, the GCF will need to build out its private-sector facility. The GCF board has before it a set of proposed methods for increasing private investment in the GCF and its projects. These include targeting commercial banks and private wealth; offering a range of products, such as bonds; and pursuing new techniques such as crowdfunding.

In the future, the GCF will need to leverage private finance not only for clean energy projects, but also for adaptation projects in order to reach its goal of increasing adaptation funding over time to equal the scale of its mitigation funding. Although there is little data on the amount of private investment in adaptation, there is an enormous market for clean energy goods and services that can be—and is being—leveraged through targeted public support. For instance, the U.S. Overseas Private Investment Corporation, or OPIC, has had success in recent years scaling up support for U.S. clean energy projects and investments overseas, reaching $1.2 billion in 2013.

Figuring out how to attract private investment in adaptation is a key challenge, but innovative answers are beginning to emerge. For instance, insurance companies are partnering with publicly funded entities such as the Global Facility for Disaster Reduction and Recovery to provide catastrophe insurance to vulnerable Pacific island countries. Going forward, cellular phone

companies might invest in the installation of networks that can facilitate early warnings of extreme weather events. Agribusiness, for its part, could invest in training programs for farmers on techniques to avoid climate-induced yield reductions.

Whether it is used for mitigation or adaptation, the fund’s mobilization of private investment is good for businesses globally. It will help open new markets, as both the GCF and its private-sector facility aim to implement projects in the least developed countries and across a diversity of regions to ensure that development gains are not confined to a small set of middle-income countries. It is also worth noting that past projects of other multilateral funds have presented companies with export opportunities. Amerisolar, Clipper Windpower, AECOM, SunEdison, and Johnson Controls, for example, have supplied technology, equipment, and services for projects spearheaded by the CIF.

Conclusion

This year will be a formative one for the Green Climate Fund. Over the coming months, the fund could start to transform from a promising idea—with promised support from many countries—into a lasting and effective tool for international climate finance. But this will happen only if countries follow through on their pledges and the GCF begins to deliver on its principles.

Insight-US shale oil’s crash diet likely to bring forward output dip Anna Driver, Reuters, February 23, 2015

Shale oil producers are throttling back so quickly on drilling that U.S. crude output could fall sooner than expected, within months, executives say as they slash costs to cope with tumbling crude prices and compete with Persian Gulf rivals.

About a dozen chief executives who talked to Reuters or who spoke publicly, acknowledged they were taken aback by the scale and speed of the cutbacks, noting how this oil price downturn was different from several previous episodes in their careers.

For one, companies are cutting costs deeper and faster than before as Wall Street investors increasingly place a premium on capital discipline rather than just production growth. Some also say the nature of shale makes it easier for companies to defer work and wait for prices to recover. The wells that drove the U.S. energy boom of the last decade rapidly deplete, so overall output will fall unless new holes are constantly bored and oil extracted via hydraulic fracturing, or fracking.

"The thing that has surprised me ... is that companies large and small, financially strong, financially weak have really cut capital spending much quicker than I have seen before," said Bruce Vincent, who retired as CEO of Swift Energy Co this month after 40 years in the industry.

Just few weeks ago, the prevailing view among industry insiders and analysts was that U.S. oil production would keep rising for several months despite falling rig numbers because of rising productivity of active wells and drilling inertia.

In the past, if a producer had a rig contract, they would continue drilling. Now, producers are paying fees to break those contracts, a fact that has hastened the steep drop in the rig count, said Vincent.

LOCKED IN ROCK

In the old days, producers felt compelled to pump in a downturn, fearing competitors with wells in the same reservoir would take the oil. That is no longer a risk as shale is locked in rock.

"(Now) you can leave it in the ground. In the old days you had to produce because everybody was sucking on the same straw," Harold Hamm, CEO of Continental Resources, said at a conference in January.

Already, many companies have announced 25-70 percent reductions in drilling and a total of at least $25 billion in spending cuts.

Some went even further. Magnum Hunter Resources Corp has halted all drilling and told services firms it will not resume work unless its costs fall 40 percent, the company's Chief Executive Gary Evans told a conference in Houston.

Such pullback, combined with shale well decline rates of some 60 percent or more a year, has Evans predicting U.S. production will begin falling "in the next two months."

His view is largely echoed by several other executives, though they say their own output will hold up or rise and expect much of the decline come from the shuttering of older, low-yielding wells known as strippers.

Assuming that many drilling contracts will be carried out, the U.S. Energy Information Administration (EIA) still sees output climbing early this year to peak at 9.42 million barrels per day in May, with a decline starting in June.

After nearly doubling since 2008, U.S. crude production should stabilize, though not necessarily decline, in the second half of this year, analysts at IHS said.

Lower output, along with rising gasoline consumption, would help reduce 1.5 million bpd in estimated global oversupply and might allow crude prices to recover from a 50 percent slide since mid-2014.

While some analysts expect the slide to continue for some time, with Citibank predicting U.S. benchmark prices to bottom out at $20 per barrel, industry insiders count on a faster price recovery because of two factors pulling U.S production down.

One is the much faster than expected decline in the number of active rigs. Oilfield services company Baker Hughes said on Friday, nearly 50 rigs were shed last week, bringing the U.S. land rig count to 1250, about the level EIA had forecast would be reached in October.

"There's been a real rapid response, probably faster than I've ever seen," Jack Stark, president of Continental Resources told an IHS conference in Houston this month.

LEANER AND TOUGHER

The rig fleet alone is not the best predictor of output because well lengths and the frequency of fracks along a well have been rising rapidly to boost output. However, in the past few weeks companies have also started to refrain from fracking wells to bring them online, so-called completion, which normally accounts for 60 percent of a well's total cost.

On its fourth-quarter earnings call, Devon Energy Corp. said it had cut its completion crews working in the Eagle Ford oil basin to four from nine, while Anadarko Petroleum said it reduced its completion crews by a third.

After years of breakneck growth, top shale companies Apache Corp and EOG Resources have said their oil and gas output this year will be flat.

Producers who had grown accustomed to oil at $100 a barrel say they aim to cut costs to profitably drill shale wells at $40 a barrel or less. That is well below the $70 now needed to work in some basins and less than current U.S. benchmark crude prices of about $51 a barrel.

The path to slash costs is to pressure service companies - already cutting thousands of jobs - to lower prices as well as rely on technology to speed up drilling and improve well productivity.

"The services companies have always found a way through time to do business," said Stark. "The shale business will continue to exist and this renaissance will continue."

U.S. executives, some of whom proudly call themselves wildcatting "rednecks" from "cowboyistan," say they will come out leaner and meaner from the downturn and be able to better compete with top OPEC producer Saudi Arabia. Many believe the top OPEC oil producer has let oil prices fall and refused to cut output to squeeze shale rivals out of the market. "The most ironic thing about what we are in today is the fact that when we emerge from this the Saudis will have toughened up the American oil industry," said one prominent shale oil executive who spoke on condition of anonymity. (Editing by Tomasz Janowski)

US and Iran

China's foreign minister pushes Iran on nuclear deal Ben Blanchard, Reuters, February 2015

A deal with Iran on its controversial nuclear program would help it escape from sanctions and allow more efforts to be spent on economic development, Chinese Foreign Minister Wang Yi said during a trip to Tehran.

The negotiations between Iran and the United States, Russia, China, France, Germany and Britain face an initial deadline for a basic framework agreement at the end of March, and a June 30 deadline for a final settlement.

U.S. and Iranian officials suggest those deadlines are unlikely to change. U.S. President Barack Obama said last week extending the March deadline would not be useful if Iran did not agree to a framework assuring world powers it is not pursuing nuclear arms capability through its enrichment of uranium.

"Talks on the Iran nuclear issue face a historic opportunity, and striking a comprehensive deal on schedule is the trend of the times and the desire of the people," Wang told his Iranian counterpart, according to a Chinese Foreign Ministry statement issued on Monday.

"Reaching comprehensive agreement is beneficial to Iran upholding its own legal rights, including the right to the peaceful use of nuclear power, and for the people of Iran to throw off the difficulties of sanctions as early as possible and focus on energetically developing the economy," Wang said.

While Iran denies having any nuclear weapons ambitions, it is subject to wide-ranging Western and United Nations sanctions.

Meeting later with Iranian President Hassan Rouhani, Wang said he appreciated Rouhani's pledge not to develop nuclear weapons and urged Iran to push the talks process forward.

"The Iran nuclear talks have reached a crucial stage," Wang was quoted as telling Rouhani.

The broad goal of the negotiations is to restrain Iran's nuclear capacity to remove any concerns it could be put to developing bombs in return for the lifting of sanctions that have ravaged the Iranian economy.

China and Iran have close economic, trade and energy ties.

China's crude oil imports from Iran jumped by nearly 30 percent last year to their highest average level since 2011, as Iran's largest oil client boosted shipments after an interim deal eased sanctions on Tehran.

Wang said there was still plenty of room for energy cooperation, adding that he also saw "enormous space for cooperation" on industrial projects.

"China is willing to encourage even more Chinese companies to invest in Iran and build factories via the joint development of industrial parks in accordance with Iran's development needs and China's ability," he said.

China’s Military Presence in the Gulf Michael Singh, Wall Street Journal, September 2014

Little noticed amid the tumult in Syria, two Chinese naval ships–a guided missile destroyer, the Changchun, and a frigate, the Changzhou–visited the Iranian port of Bandar Abbas on Monday and began a four-day joint exercise with Iranian naval forces. According to China’s navy, this was the first visit by Chinese warships to Iran.

It was not, owever, the first modern-day port call in the region by Chinese naval vessels; in March 2010, Chinese vessels docked at Port Zayed in the United Arab Emirates. Those vessels and the ones that arrived in Iran this week had been participating in counter-piracy operations in the Gulf of Aden. A few months after the Port Zayed visit, Chinese jets refueled in Iran en route to exercises in Turkey–the first visit to Iran by foreign warplanes since its 1979 revolution. In 2011, observers noted that the Chinese military’s evacuation of thousands of Chinese nationals from Libya demonstrated the military’s expeditionary capabilities.

This growing security presence in the region is just one element of China’s deepening involvement in the Middle East, which has also included stepped-up diplomatic visits and ambitious new economic projects, such as a just-inked deal to build a port in Israel. While Beijing’s interest in the Middle East is largely motivated by its thirst for markets and resources–China’s dependence on foreign oil is increasing as fast as the U.S.’s is decreasing–economics is not the whole story. Reliance on oil imports compromises China’s energy security, which paired with its desire to exercise greater global influence has led it to seek out not just commercial but also strategic partnerships.

Yet Beijing’s path to expanded influence in the Middle East is far from clear. Thus far China has sought to cultivate cordial ties with all states in the region. But as its regional involvement grows, Beijing is likely to find itself pressed by allies and events to take sides, as it has done on Syria by using its veto in the U.N. Security Council to shield the Assad regime.

China’s closest relationship may prove to be with Iran, which offers energy sources that can be accessed by both sea and land and which purchases arms from China. Tehran and Beijing have ties that predate the latter’s need for oil imports. Iran is also the only country on the Gulf littoral not allied with Washington, a crucial fact for People’s Liberation Army strategists who consider the U.S. China’s likeliest adversary. Sino-Iranian cooperation has been tempered somewhat by international sanctions on Tehran but is likely to expand in the wake of a nuclear agreement.

None of this need be cause for alarm in Washington, but it’s a long-term trend to which the U.S. must be attuned amid the Middle East’s short-term demands. Today, China lacks the capacity (and probably the desire) to challenge the U.S. position in the Middle East. Indeed, the U.S. and China even have overlapping interests in the region, including a common aversion to ISIS. But China’s reluctance to join the anti-ISIS campaign–China sees counterterrorism as a veil for American power projection, while the West is concerned by China’s tendency to conflate extremism and political dissent–demonstrates how the starkly different strategies employed by the U.S. and China to advance their interests and broader bilateral tensions make cooperation unlikely.

Michael Singh is managing director of the Washington Institute for Near East Policy. From 2005 to 2008, he worked on Middle East issues at the National Security Council.

China’s Strategic Partnership Diplomacy: Engaging with a Changing World Feng Zhongpeng, Huang Jing, June 8, 2014

The concept of ‘partnership’ emerged within Chinese diplomacy after the end of the Cold War. China established its first strategic partnership with Brazil in 1993. Since then, building strategic partnerships has become one of the most notable dimensions of Chinese diplomacy. For example, China built a ‘strategic partnership of equality, mutual confidence and mutual co-ordination in the 21st century’ with Russia in 1996; a ‘collaborative partnership for the 21st century’ with South Korea in 1998; and a ‘strategic and cooperative partnership for peace and prosperity’ with India in 2005.

Yet, these partnerships remain largely unexplored in academic literature and policy debates, and the concept is still ill-defined. According to the Chinese dictionary Cihai, the word huoban [partnership] refers to those who have joined the same organisation or are engaged in the same activities. The word Zhanlue [strategy], when used in the field of economy and politics, normally refers to a plan, policy or tactic with overarching, comprehensive, and decisive implications.

Chinese leaders have expressed rather clear views on the key features of an ideal partnership. In 2004, during his first European trip as Chinese premier, Wen Jiabao defined the Sino-EU comprehensive strategic partnership as follows:

By ‘comprehensive’, it means that the cooperation should be all-dimensional, wide-ranging and multi-layered. It covers economic, scientific, technological, political and cultural fields, contains both bilateral and multilateral levels, and is conducted by both governments and non-governmentalgroups. By ‘strategic’, it means that the cooperation should be long-term and stable, bearing on the larger picture of China-EU relations. It transcends the differences in ideology and social system and is not subjected to the impacts of individual events that occur from time to time. By ‘partnership’, it means that the cooperation should be equal-footed, mutually beneficial and win-win. The two sides should base themselves on mutual respect and mutual trust, endeavour to expand converging interests and seek common ground on the major issues while shelving differences on the minor ones.

In contrast with this clear-cut ideal-type of partnership, the practice of strategic partnerships has escaped tight criteria or definitions. First, it is hard to argue that all strategic partners are of equal or vital importance to China. Angola, an African country that joined the long list of China’s strategic partners in 2010, does not have the same clout as Russia or the European Union (EU). Second, strategic partnerships often appear irrelevant when describing China’s relations with its close ‘friends’. Neither Nepal nor North Korea is a strategic partner. Pakistan, widely regarded as a ‘long-time friend’ of China, only became a strategic partner in 2005. Third, the precise meaning of partnership usually differs from one association to another, is subject to different interpretations, and can change over time.

In 1997, the then Chinese President Jiang Zemin visited the United States and issued a joint statement with the then US President Bill Clinton in which both leaders vowed to boost cooperation and build a constructive strategic partnership. However, when George W. Bush took office in 2001, Sino-US relations took a step back. At a meeting with the press in Shanghai in 2001, Jiang and Bush expressed only the intention to build a ‘constructive relationship of cooperation’. The word ‘strategic’ has not been included in official documents ever since. In 2013, Chinese and US leaders agreed to build a ‘New Type of Major-Power Relationship’ to guide the Sino-US relationship. Analyses of Sino-US relations are not unanimous as to whether China and the US have a strategic partnership, given the ambiguity of the relationship. While this paper still counts the Sino-US relationship as a strategic partnership in the making, it holds that so far the relationship has largely failed to deliver.

To take another example, China and Russia established a ‘strategic partnership of coordination’ in 1997. But it is not clear why the word ‘coordination’ is exclusively reserved for describing the China-Russia strategic partnership. Besides the label of ‘strategic partnerships’, various definitions are used to describe other important relationships. Beijing has launched a ‘Joint Action Plan for Strategic Cooperation’ with the Philippines, a ‘strategic relationship of mutual benefit in an all-round way’ with Japan, ‘strategic friendly relations’ and an ‘energy strategic partnership’ with Saudi Arabia, and a ‘partnership of global responsibility within the framework of the China-EU comprehensive strategic partnership’with Germany. Nevertheless, among these countries, only Germany has been widely regarded as China’s strategic partner.

There is no official list of China’s strategic partners. Reportedly, an attempt by a government-sponsored newspaper to produce such a list was halted by foreign ministry officials due to fears that it could lead to confusion and unnecessary discontent on behalf of important countries which are not labelled as China’s strategic partners. Following a review of official, academic and media resources available, the authors estimate that China has built strategic partnerships with 47 countries and three international organisations – namely the EU, the Association of Southeast Asian Nations (ASEAN), and the African Union (AU).

All strategic partnerships are publicly announced by the president or the premier. In only two occasions was this not the case: Vice-President Zeng Qinghong launched the strategic partnership with South Africa during his visit to the country in 2004; and Vice-President Xi Jinping that with Angola during his visit in 2010. Most strategic partnerships are established by well-prepared joint statements during top leaders’ state visits and only a few have been the result of impromptu decisions, such as the upgrading of the Sino-Canadian partnership to a strategic one after President Hu Jintao’s arrival in Canada in 2005.

The joint declarations establishing these partnerships vary in form and content. Out of 20 examples reviewed by the authors, all of them mention trade, investment and economic cooperation. All but three (Egypt, Angola and Turkey) mention the ‘One China’ policy or Taiwan. Two of them (India and Mongolia) mention Tibet and one (Mongolia) mentions Xinjiang. All but two declarations (United Arab Emirates and Turkey) mention respect for, reform of, or cooperation in the United Nations. Global issues such as anti-terrorism and non-proliferation, as well as cultural or people-to-people exchanges, are also frequently included. Some topics are more specific to distinct sets of countries. Border issues are raised with

neighbours, human rights with Western countries, and military cooperation with politically close or important countries.

Building a strategic partnership is not a one-off deal. Most such accords are built upon existing ‘friendly relationships’, ‘cooperative relationships’, or ‘partnerships’. It is also commonplace to upgrade the strategic partnership to a comprehensive one a few years after its launch. Usually, a solid record of cooperation can be widely seen as a blessing for further upgrading the partnership, or a good omen for initiating similar partnerships.

US-China and the Middle East

China pushes Iran again to reach nuclear deal with world powers Ben Blanchard, Reuters, March 2015

A nuclear deal with Iran represents the trend of the times and is the will of the people, Chinese Foreign Minister Wang Yi told his Iranian counterpart, pushing Iran once again to reach an agreement with major world powers.

The negotiations between Iran and the United States, Russia, China, France, Germany and Britain face an initial deadline for a basic framework agreement at the end of March, and a June 30 deadline for a final settlement.

"The Iran nuclear talks have reached the final sprint in the marathon," Chinese Foreign Minister Wang Yi told Iranian Foreign Minister Mohammad Javad Zarif in a telephone call, China's foreign ministry said in a statement issued late on Tuesday.

"Reaching an agreement is the trend of the times and the will of the people, which accords with the joint and long-term interests of all sides, including Iran," Wang said.

China will continue to play a constructive role, he said.

Wang made a similar plea during a visit to Tehran last month.

He told U.S. Secretary of State John Kerry earlier this month that talks on Iran's nuclear program must not fall at the last hurdle, and that all sides should meet each other half way.

China and Iran have close diplomatic, economic, trade and energy ties.

China's crude oil imports from Iran jumped by nearly 30 percent last year to their highest average level since 2011, as Iran's largest oil client boosted shipments after an interim deal eased sanctions on Tehran

Yemen’s Houthis Seek Iran, Russia and China Ties

Hakim Almasmari in San’a and Asa Fitch, The Wall Street Journal, March 2015

Houthi militants controlling Yemen’s capital are trying to build ties with Iran, Russia and China to offset Western and Saudi support for the country’s ousted president.

The Houthis’ interim government has sent delegations to Iran in search of fuel supplies and to Russia to look for investment in energy projects, according to two senior Houthi officials. Another delegation is planning to visit China in the coming weeks, they said.

The U.S., France, Turkey and Saudi Arabia were among at least a dozen countries that shut embassies in San’a after the Houthis seized control of the capital in January, leaving their movement isolated internationally.

Since then, President Abed Rabbo Mansour Hadi has fled to the southern port city of Aden, where he is appealing to his allies at home and abroad for financial and political support for an alternative administration. The U.S., the Sunni monarchies of the Gulf and the United Nations have sided with him.

The diplomatic standoff threatens to split the country and trigger a civil war fought along Yemen’s many sectarian, political and geographical fault-lines. The Houthis and Mr. Hadi are the main adversaries in the deepening crisis, but the presence of Yemen’s Sunni Muslim tribes—and the country’s potent al Qaeda offshoot, which Mr. Hadi has fought with U.S. backing—add a layer of complexity to the conflict.

Houthi leaders say their interim government is trying to gain legitimacy abroad.

“We are doing what any new power does, and that is to seek international alliances that can help balance the new face of Yemeni politics,” said Ahmed Bahri, political director for the pro-Houthi Haqq Party.

Yemen, the Arab world’s most impoverished nation, has been afflicted by political unrest since Arab Spring-inspired protests erupted in January 2011. Those protests forced the longtime president, Ali Abdullah Saleh, to cede power to Mr. Hadi a year later in a political deal brokered by its Gulf Arab neighbors.

The country’s latest political crisis began last year, when rebels of the Houthi movement, part of the Zaidi offshoot of Shiite Islam, moved to extend their control southward from their northern stronghold. Estimates suggest Houthis make up roughly 30% of Yemen’s 26 million people.

Houthi militants took over San’a in September and demanded a greater share of power. After a series of compromises and broken cease-fires, Mr. Hadi tendered his resignation in late January and was placed under house arrest. Houthis took control of the government two weeks later.

Mr. Hadi withdrew his resignation after escaping to Aden, 320 miles south of the capital. His bid to reclaim power has heightened tensions among Yemeni political parties and between Iran and Saudi Arabia. Mainly Shiite Iran has long provided political and financial support to the Houthis, while Saudi Arabia, the region’s most influential Sunni Muslim country stands behind Mr. Hadi.

Houthi officials said they have approached Iran, their main ally, and are expecting Tehran to send gasoline to offset supplies cut off by Saudi Arabia. The Houthis also want to replace electricity supplies generated by Western companies with Iranian-supplied generators, they said.

Investment ties with Iran appear to be deepening, too, after two Iranian commercial airlines agreed this month to operate direct flights between Iran and San’a, and Iran was invited to consider energy exploration in the provinces of Al Jawf and Saada, which border Saudi Arabia and are under Houthi control.

“We want Iranians to invest in Yemen and they have the capacity to do so,” a Houthi official said. “The regional or Western boycott of the Houthis won't keep our hands tied but only make us seek new investment options for new countries.”

Iranian officials couldn’t be reached for comment on the trade and investment overtures. An Iranian foreign ministry spokeswoman said Wednesday that Iran opposed foreign interference in Yemen, state-run media reported.

A Yemeni delegation led by pro-Houthi politicians visited Russian members of parliament late last week and discussed potential investments in Yemeni energy projects, according to Houthi leaders.

No deals have been struck, but Leonid Issaev, a Russian expert on Arab affairs who helped arrange the talks, called them a “very productive” attempt to restore Moscow’s relations with Yemen to the high level they enjoyed during the Soviet era. Since the Soviet Union collapsed, he said, they had become weak.

A push for alliances with China is expected soon.

Abdullah Shaban, a member of the Houthis’ Revolutionary Committee, said the stepped-up diplomacy was aimed at securing foreign investment. He played down the need for foreign political support, saying the Houthi government could survive without new allies.

“Yemen is rich with natural resources and an open country for investments,” he said. “We want to give them a stronger role in Yemen and a chance to improve the economic situation of both of our countries.”

Khaled Fattah, an expert on Yemen, said the Houthis’ diplomatic strategy takes its inspiration from another the Syrian regime of President Bashar al-Assad, another Iranian ally that has cultivated ties with Moscow and Beijing to lessen its international isolation and prevent its collapse.

“Reaching out Moscow and Beijing is an attempt at duplicating the success of the regime in securing Russian and Chinese support, which deterred direct Western intervention and cushioned the Syrian regime against international isolation and collapse,” he said.

Mr. Fattah added, however, that the Houthis were unlikely to enjoy similar results, since neither Russia nor China had major interests in Yemen.

Ali Al Jaradi, a senior official in the pro-Hadi Islah party, was also skeptical, saying the Houthis lacked sufficient political experience to win over Moscow and Beijing.

Q. and A.: Barnett Rubin on China’s Role in Afghanistan Edward Wong, The New York Times, February 2015

In recent months, China has made pronouncements that reveal it is willing, perhaps even eager, to grow its engagement with troubled Afghanistan, whose remote Wakhan Corridor abuts China’s western border. On Feb. 12, while visiting Pakistan, Foreign Minister Wang Yi reiterated China’s desire to play a “constructive role” in a hypothetical peace process.

“We will support the Afghan government in realizing reconciliation with various political factions including the Taliban,” Mr. Wang told reporters in Islamabad, according to Reuters.

That follows on other initial attempts China has made to feel out the political landscape there. Late last year, two Afghan Taliban officials traveled with Pakistani officials to Beijing to discuss a potential peace process. In London in December, China, the United States and Afghanistan held a first trilateral meeting to discuss the Afghan future. Present at the meeting was Sun Yuxi, China’s special envoy to Afghanistan.

Any sign of China’s potentially becoming a regional peacemaker is welcome news for the Obama administration, which has supported political reconciliation in Afghanistan. At the center of promoting United States-China dialogue on Afghanistan is Barnett Rubin, a veteran Afghanistan scholar who served for four and a half years as a senior adviser to the American government’s special representative for Afghanistan and Pakistan. He was hired for that position in 2009 by Richard C. Holbrooke, the first special envoy, and worked with two of Mr. Holbrooke’s successors after his death in 2010. Since the summer of 2012, Mr. Rubin, who is also part of the Center on International Cooperation at New York University, has helped to organize seven meetings on Afghanistan that make up a “track two” dialogue between American and Chinese parties.

In an interview, he discussed China’s growing engagement with Afghan politics, what the United States would like to see result from that relationship and China’s concerns over rising Uighur militancy along its western frontier:

Q. As the United States draws down its combat troops in Afghanistan, what kind of role would it like to see China play in the country?

A. While the U.S. is ending its combat role in Afghanistan, we and our allies have pledged a continuing commitment to Afghanistan for at least a decade. So there is no question of China filling any “vacuum” left by the U.S., as people sometimes say. Rather there is a need for China to become a partner of the U.S. in its extensive noncombat roles.

Ultimately, the stability of Afghanistan, a landlocked country in Asia, will depend on its neighbors agreeing to make it a center of cooperation rather than conflict. China is Afghanistan’s largest neighbor and has the world’s second-largest economy. The U.S. hopes that China will become a full-fledged partner in international efforts to support and stabilize Afghanistan.

Afghan President Ashraf Ghani has also asked that the U.S. and China make Afghanistan into the best example of their cooperation.

China is unlikely to provide large amounts of financial assistance, but it has announced plans for a number of large regional economic initiatives, including the Silk Road Economic Belt (both overland and maritime) and the Pakistan Economic Corridor. The U.S. is also supporting major investment in regional economic integration under the name of the New Silk Road Project. These programs can complement each other in creating an economic incentive to cooperation around and in Afghanistan that has not existed before.

Plus China has a unique relationship with Pakistan. U.N. Special Representative of the Secretary General Lakhdar Brahimi used to say, “Afghanistan cannot be stable unless Pakistan wants it to be stable,” and it is still true, but there is immense distrust between the two. Pakistan and Afghanistan both trust China, insofar as the word trust has any application in international affairs, and Chinese and U.S. interests are largely convergent in the region. Therefore, a process of cooperation among these four countries provides the best hope of persuading Pakistan it can achieve legitimate national objectives without the use of militant proxy forces that could ultimately destroy Pakistan itself.

India, Iran and Russia have reservations about such a process, for fear of being marginalized. China is in a better position than the U.S. to reassure Iran and Russia, and the U.S. can work with both India and China to assure that all have a share in regional development and that antiterror efforts target anti-Indian groups as well. I have been encouraged by the efforts of senior Chinese diplomats to engage India and Russia and persuade them that China wants to help support regional security and create economic structures that will be of benefit to both countries.

Q. How willing is China to engage in the politics of Afghanistan? What are its main motivations for getting involved in the internal politics there? What signs of wariness do you detect?

A. The Chinese emphasize that “noninterference” in the internal politics of other countries is a pillar of their foreign policy. China will support Afghan efforts to bring the Taliban and others fighting the current international presence and the government into the political system to provide the regional stability needed for cooperation on counterterrorism and economic growth. But it will do so mainly by cooperation with the governments of Pakistan, Afghanistan and the U.S., not by becoming involved with Afghanistan’s domestic politics.

From what I have seen, China has neither the goal nor the ability to become involved in internal Afghan politics. Chinese have less personal contact and weaker personal relationships with Afghan political actors than officials and others from the U.S., Pakistan, Iran, Russia or India. They are reluctant to deploy people on the ground. Their risk-averse operational doctrines may have to change if they believe that their interests will require deeper involvement than heretofore.

Q. Is China growing its investments in Afghanistan? The Aynak copper mine appeared in many news stories in recent years, but it has not had much success as a business venture.

A. Virtually all foreign investments in Afghanistan, including the Chinese investment in the Aynak copper mine, are stalled by insecurity and uncertainty over the future. At this point, contrary to some outdated impressions, China is not primarily interested in Afghanistan for its natural resources. It is prepared to wait until investments can become genuinely profitable.

China’s main motivations are denying sanctuary to terrorist and separatist groups that target China and creating a stable regional environment to encourage investment, especially in interior and western China. China has increasingly emphasized expanding trade with Central Asia to develop its interior and the western regions, as well as catering to domestic demand rather than solely relying on export-led growth that has primarily benefited its coastal cities.

Q. The peace process in Afghanistan is at a nascent stage now. Could actions by China give it momentum?

A. The main obstacles to a peace process have been the Afghan Taliban’s refusal to negotiate with the Afghan government and Pakistan’s willingness to allow the Afghan Taliban open-ended access to a sanctuary where they can organize and raise funds. The imminent departure of U.S. troops, the transfer of Taliban leaders out of Guantánamo and the transfer of responsibility for all detainees in Afghanistan to the Afghan government are removing the major reasons the Taliban have given for their refusal to meet the government.

The Taliban’s open-ended sanctuary in Pakistan greatly reduced the incentive for the Taliban to talk to the Afghan government. Pakistan wanted to retain the Afghan Taliban as an instrument of pressure against Afghanistan and the United States, given the Afghan state’s many claims against Pakistan and the warming of Afghan-Indian and U.S.-Indian relations.

China’s willingness to cooperate with the governments of both Pakistan and Afghanistan may enable it to reduce significantly the degree of threat that the Pakistani elite sees from Afghanistan and the U.S. Pakistan will be much more willing to provide access to the exiled Taliban leadership on its territory to China than to Afghanistan or the U.S. Since China is a neighbor with permanent reliable interests, its influence is likely to be more enduring than that of the U.S.

Q. What can you tell us about the recent meetings that China has had with officials of the Afghan Taliban? Is China now using channels to communicate with the Taliban that bypass Pakistani agencies?

A. I have no direct knowledge of these meetings. The Taliban leadership lives in Pakistan, mainly around the cities of Quetta, Karachi and Peshawar, but they managed to establish a political office in Qatar outside of direct Pakistani control. The office has no official status, and Pakistan tries to influence and pressure it, but it has a greater margin of maneuver than the leaders in Pakistan. The Taliban have denied that they have had talks with the Afghan government in China or that China is playing any mediating role. They portray their visits to Beijing as part of their longstanding relations with several countries to explain their positions.

It is possible that China, like a number of other countries, including the U.S. in 2011-12, has had direct contact with the Taliban representatives in Qatar, but this is a less salient question than in the past. President [Hamid] Karzai saw reconciliation with the Taliban as a way to undermine Pakistan’s leverage in Afghanistan, and therefore he tried to establish secret direct contacts with them independent of Pakistan. President Ghani seems to have concluded that cooperation with Pakistan is the only way to bring peace to Afghanistan, which is a politically risky position for him to take in Afghanistan, where resentment of Pakistan runs high. But that means he has no reason to bypass Pakistan in making these preliminary contacts and in asking for an end to the sanctuary. Of course, if an actual process of negotiation starts, discussion of future political arrangements will involve only Afghans. But the implementation of any such agreement, particularly of the demobilization and demilitarization of the Taliban, would require cooperation.

Q. What do we know about the presence of militant Uighurs in Afghanistan and the extent to which they are training in Pakistan’s tribal belt? How often do you hear Chinese officials mention concerns over security in Xinjiang?

A. There seems to be broad agreement that there are several hundred Uighurs from the Xinjiang autonomous region engaged in militant activity or training, mainly in Pakistan, but some also in northern Afghanistan, where they may be co-located with the Islamic Movement of Uzbekistan. Chinese officials regularly cite this as a major source of their concern over regional stability. It is difficult to evaluate the reports because Uighurs and Uzbeks are very similar linguistically and culturally, so people reported to be Uighurs may actually be Uzbeks and vice versa.

My contacts in China tell me that there is little or no evidence of direct operational involvement in terrorist acts in China by Uighurs in Afghanistan and Pakistan. The Chinese seem more concerned about online radicalization emanating from the very substantial and nationalist Uighur community in Turkey. Another major concern is the number of Chinese citizens, not all of them Uighurs, fighting with Sunni militant groups in Syria. Some estimates place the number at around 500, but I can’t verify that.

Chinese officials also have a talking point that the U.S. has a double standard on terrorism because nonviolent Uighur nationalist or separatist organizations enjoy freedom of expression in the U.S. The Chinese want to create an international consensus against the “Three Evils” of terrorism, separatism and extremism. The U.S. and European countries explain that nonviolent expression of separatist or even extremist ideas is legally protected in our system.

The main origins of the conflict dynamic in Xinjiang and related terrorist attacks in China are domestic (some Chinese scholars will say this openly), but foreign-based training or

radicalization could make any conflict more violent and difficult to resolve. My impression is that the push from the government to develop interior and western China, leading to labor migration of ethnic Han and the Sinicization of local cities and towns, is the main reason that clashes have increased. It is a challenge for any large and diverse state intent on rapid development to implement it in such a way that it does not give rise to resistance by groups who feel marginalized.

As U.S. Exits, China Takes On Afghanistan Role: After a Decade of Rebuffing U.S. Requests for Help in Afghanistan, China May Be Ready to Do More

By Jeremy Page in Beijing, Margherita Stancati in Kabul and Nathan Hodge in Islamabad February 9, 2015, The Wall Street Journal

In December, representatives of the U.S., China and Afghanistan met for private talks in London, the first time the three countries convened to seek ways to forge peace in Afghanistan, a senior U.S. official said.

The previously undisclosed meeting, which came within days of a visit by the Afghan Taliban to Beijing, was a step on a path long resisted by China, wary of the U.S. military presence in Afghanistan and reluctant to meddle in its neighbor’s affairs. The three countries met again last month at an international meeting on Afghanistan in the United Arab Emirates, one participant said.

China’s move toward the role of mediator signals a foreign policy shift in Beijing—for decades focused on domestic issues—that could recalibrate the geopolitics of Central Asia and test China’s capacity as a regional leader, Western officials said.

“In a certain sense, they’re competing with the U.S. for success in Afghanistan. They want to prove they can do it better,” said David Sedney, a former U.S. diplomat in Beijing and Kabul and deputy assistant secretary of defense for Afghanistan, Pakistan and Central Asia from 2009 to 2013.

U.S. officials declined to discuss the outcome of the talks. But China’s participation is seen as part of a broader diplomatic effort that began around the time Chinese President Xi Jinping took power in 2012 and has since intensified.

The December trip to Beijing by the Afghan Taliban delegation was the second in recent months, Afghan and foreign officials said. And it came weeks after Afghan President Ashraf Ghani’s visit to Beijing, his first official trip abroad.

Beijing has also pledged $327 million in economic aid to Kabul through 2017, and now appears to be exploring ways to enhance Afghanistan’s security as the U.S. and its allies make their exit.

China’s foreign ministry said Beijing wanted to play a “constructive role” supporting an Afghan-led peace process, but didn’t respond to specific questions about the Taliban visits or other diplomatic activities. Afghan officials have said they welcomed a role by China.

The initiative in Afghanistan reflects Mr. Xi’s drive to enhance regional diplomacy and China’s international standing, experts say, as well as challenge the U.S. as the primary underwriter of regional peace and prosperity.

The Taliban last month issued its first statement acknowledging contacts with China, but denied that Beijing was involved in peace talks. It said the recent Taliban delegation’s visit to China was intended to build neighborly relations.

Others familiar with the visit said Beijing hoped to host talks between the Taliban and Afghanistan’s government—and the effort appeared to be gaining traction. A former senior Taliban commander said another delegation would visit China soon and Russia would join those talks. Russia’s foreign ministry said only that it supported an Afghan-led peace process.

Despite reservations about China’s more assertive foreign policy elsewhere, the U.S. has welcomed Chinese involvement in Afghanistan after a decade of being rebuffed by Beijing, current and former U.S. officials said. Washington is waiting for more details about China’s plans, they said.

China has already started training Afghan police, an Afghan security official said, and is considering funding for nonlethal security equipment.

China-Afghan Ties

1980s: China supplies arms to mujahedeen resistance forces against Soviet troops

1996-2001: China forges trade ties, holds meetings with Taliban government

2007: Chinese state-run company wins bid to develop Aynak copper mine in Afghanistan

2011: Chinese state-run company wins bid to develop oil field in Amu Darya basin in Afghanistan

2012: China agrees to start training some Afghan police officers and diplomats

2013: China holds talks on Afghanistan with neighboring countries, U.S.

2014: Taliban delegation visits Beijing shortly after visit by new Afghan president

—Sources: Current and former Afghan and U.S. officials, Afghan Ministry of Mines

It remains unclear whether China has the political will or diplomatic resources to succeed. “It will take a long time to know whether they can achieve a result,” said Mohammad Mohaqeq, a senior Afghan government official.

But Beijing has a strong motive to try. China has long worried that instability in Afghanistan and Pakistan would worsen unrest in its Muslim northwest, where officials blame ethnic Uighur separatists for a recent surge in violence.

These fears have grown as the U.S.-led military involvement winds down in Afghanistan, creating a potential security vacuum.

During Afghanistan’s tumultuous political transition last year, Chinese security officials began visiting Kabul regularly, and expressed concerns about militant havens, according to a former senior Afghan security official.

Franz-Michael Mellbin, the European Union envoy to Afghanistan, said he first noticed increased Chinese interest in Afghanistan in 2013. “They have been looking for an area to expand their foreign policy toolbox,” he said, “but also doing it in a way that would not be seen strategically threatening to the U.S.”

During an October conference on Afghanistan in Beijing, a Chinese general surprised some U.S. participants by suggesting the Pentagon inquire about a joint effort with China to train Afghan security forces, say people familiar with the matter.

Until recently, such a joint venture would have been inconceivable. U.S. officials contacted the Chinese military and after some discussion, concluded there wasn’t serious interest. China was simply testing ideas about what it could do in Afghanistan, a senior U.S. official said.

Past peace initiatives in Afghanistan have failed, including a U.S.-backed effort in mid-2013 to hold talks in Qatar.

But China has some diplomatic advantages, including funds that Afghanistan desperately needs; a strong desire to curb Islamic extremism; and working relations with the main parties, including Iran and Russia.

Mr. Ghani, the Afghanistan president, has long experience dealing with China from his time at the World Bank. He sees Beijing as an important source of aid and investment, say people who have spoken to him.

In addition, Mr. Ghani and other officials see China as a source of influence over Pakistan, a China ally that is home to Taliban havens, and which would have to be involved in any peace deal, they say.

“We hope that China will play a proactive role in bringing peace to Afghanistan, because whatever the Chinese do, they do it according to a plan and with focus,” Mr. Ghani said in a speech last month to mark the 60th anniversary of China-Afghan relations. “Now, as they have become involved, we will witness more steps toward achieving peace.”

China has ruled out sending troops, unless they are part of a United Nations peacekeeping force. One idea by U.S. participants in talks with China is for Beijing to provide Afghanistan with older Russian-designed Mi-17 helicopters, which are similar to aircraft the U.S. has given Afghan security forces.

China’s defense ministry didn’t respond to a request for comment.

Beijing would be hesitant about providing such heavy weaponry, said Hu Shisheng, an Afghanistan expert at the China Institutes of Contemporary International Relations, a think tank linked to the Ministry of State Security.

But he described as “feasible and realistic” the idea of U.S.-China training of Afghan forces outside Afghanistan—helicopter pilots, for example. The two countries are already jointly training diplomats for the Afghanistan government.

Mr. Hu, a participant in many of the recent talks on Afghanistan, said China was asking Pakistan to encourage the Taliban to join reconciliation efforts and was offering more aid to Islamabad.

Pakistan will work with China to support the Afghan peace process, a Pakistani foreign ministry statement said Monday after talks in Kabul between Chinese, Pakistani and Afghan officials.

China has kept a low profile in Afghanistan for the past decade after supplying the mujahedeen resistance against Soviet forces in the 1980s. When the Taliban was in power in the 1990s, China never established diplomatic relations. But it opened trade ties and met Taliban leaders to ask them not to support separatists in the mostly-Muslim northwestern Chinese region of Xinjiang.

Since 2002, China has maintained contacts with Taliban leaders, mostly through meetings inside Pakistan, according to foreign diplomats and Chinese and Western scholars.

As a result, China’s position on Afghanistan has largely mirrored Pakistan’s for much of the last decade, advocating a political role for the Taliban and a swift exit by U.S. troops. But in the past few years, concerns have grown in Beijing about Pakistan’s ability to keep Islamic extremism in check, according to Western and Chinese experts.

“China wants to be a world power. Now it’s going to learn how hard that is, how hard it is to exercise influence and achieve the results you want,” said Mr. Sedney, the former Pentagon official. “I’m not predicting that they’ll fail, but it’s an unknown.”

—Adam Entous, Habib Khan Totakhil and Ehsanullah Amiri contributed to this article.

Xi Jinping Holds Talks with President Abdel Fattah al-Sisi of Egypt, Jointly Deciding to Elevate China-Egypt Relationship to Comprehensive Strategic Partnership

Ministry of Foreign Affairs of the People’s Republic of China, December 2014

On December 23, 2014, President Xi Jinping held talks with President Abdel Fattah al-Sisi of Egypt at the Great Hall of the People. The two heads of state jointly decided to elevate the China-Egypt relationship to a comprehensive strategic partnership.

Xi Jinping pointed out that Egypt is a major Arab, African, Islamic and developing country. The two countries have always enjoyed mutual understanding and respect as well as mutual trust and support. The China-Egypt relationship is a model of China-Arab relations, China-Africa relations and South-South cooperation. China attaches great importance to the relationship with Egypt. We jointly decided to elevate the bilateral relationship to a comprehensive strategic partnership, which is an important milestone and will vigorously promote the bilateral cooperation in various fields to a higher level.

Xi Jinping stressed that China pays much attention to the development of the situation in Egypt and firmly supports Egypt's pursuit of a development path in accordance with its own national conditions. I believe that the Egyptian government and people have the wisdom and capability to deal with various problems in the progress and achieve stability and development.

Sisi said that Egypt and China enjoy a long history of friendly exchanges. Egypt is the earliest Arab and African country establishing the diplomatic relationship with China, which shows Egypt's recognition of and admiration for China's important international status. Egypt appreciates China for its consistent support and assistance, especially its understanding towards the Egyptian people's revolutionary appeal in recent years. Egypt is now working hard to maintain national stability and economic development, and is determined to develop the comprehensive strategic partnership with China and strengthen friendly cooperation in such fields as politics, economy, people-to-people and cultural engagement, military affairs and security. He and the Egyptian people are looking forward to President Xi Jinping's state visit to Egypt at an early date.

Xi Jinping said that I am willing to visit Egypt at a time convenient to both sides. China and Egypt should also enhance exchanges between political parties, legislatures, and non-governmental institutions, and share the experience in governance and administration of state affairs. China is willing to integrate the initiatives of jointly constructing the Silk Road Economic Belt and the 21st Century Maritime Silk Road with major developmental plans of Egypt, enhance cooperation in the fields including infrastructure construction, nuclear power, new energy and aerospace, and supplement it with appropriate investment and financing arrangement. Both sides can also jointly carry out the three-party cooperation with Arab and African countries. China is willing to push forward the exchanges between the two military forces, deepen cooperation in the fields of law enforcement and security, and jointly crack down on terrorism and transnational crimes. China and Egypt are both ancient civilizations. China supports the holding of the "Culture Year" by the two countries in each other in 2016 so as to

expand people-to-people and cultural exchanges. Both countries should strengthen mutual support in international and regional affairs to safeguard common interests.

Sisi said that President Xi Jinping's initiative to jointly build "Belt and Road" has provided an important opportunity for the rejuvenation of Egypt, and Egypt is willing to actively participate in it and render support. Egypt hopes to cooperate with China to develop such projects as the Suez Canal Corridor and the Suez Economic and Trade Cooperation Zone, and create better conditions to attract Chinese enterprises to invest in Egypt. Egypt hopes that more Egyptian students will study in China and more Chinese citizens will travel in Egypt. Egypt is willing to strengthen coordination and cooperation with China in major international and regional issues and jointly cope with challenges such as terrorism.

Sisi expressed his views on the situations in West Asia and North Africa. Xi Jinping pointed out that as hotspot issues in the West Asian and North African regions keep flaring up and remain complicated, it is of vital importance to find a solution that accords with regional realities and covers the interests of all sides in a political way and through inclusive dialogues. The history and tradition in the West Asian and North African regions are special, and the international community should support the independent exploration of the regional countries for a development path suitable for their own national conditions.

After the talks, the two heads of state jointly signed the Joint Statement Between China and Egypt on the Establishment of a Comprehensive Strategic Partnership, and witnessed the signing of cooperation agreements in the fields including economy, trade, aerospace and energy.

Prior to the talks, Xi Jinping held a welcoming ceremony for Sisi at the North Hall of the Great Hall of the People. Vice Chairman of the Standing Committee of the National People's Congress Ji Bingxuan, State Councilor Yang Jiechi, Vice Chairman of the National Committee of the Chinese People's Political Consultative Conference Qi Xuchun and others were present.

Senior Egyptian Statesman: Obama is Losing Long-Time Ally Egypt Mike Flynn, February 2015

While the American media fretted over the career futures of Brian Williams and Jon Stewart, Russian President Vladimir Putin made his first trip to Egypt in a decade, exploiting America’s increasingly tenuous relationship with its long-time ally. In less than two weeks, Chinese President Xi Jinping will visit Egypt and its new President, Adbel al-Sisi. America is on the cusp of losing Egypt.

Breitbart News sat down this week with Mostafa el-Gindy, an Egyptian politician who has played a pivotal role in the revolutions against former President Hosni Mubarak and the Muslim Brotherhood. Gindy said that, under Obama, American foreign policy in the Middle East assumed the Muslim Brotherhood in positions of power. When the Egyptian people threw the Brotherhood out of power, America’s strategy was left in tatters.

“America is losing Egypt,” Gindy said. “We see how you treat Israel, who for 50 years was your closest ally. We see how you treat them and how you are now treating us. Russia and China see it too.”

While the international press noted Putin’s trip to Cairo, the most important symbol of the visit went largely unnoticed. “Look where Egypt took Putin,” Gindy said. “They took him to ‘the tower.’ That was aimed at the Americans.”

The Cairo Tower was built in the 1960s by former Egyptian strongman President Gamal Nasser. The Tower, the tallest structure in Egypt, was partially built with $6 million the US had offered Nasser as a personal gift to curry favor with the leader. Nasser was insulted by the gift, interpreting it as a bribe, and publicly dedicated the funds to erecting the tower.

“The Egyptian people see Sisi and Putin in the Tower and they know what that means,” Gindy said. “Sadat threw the Soviets out of Egypt. Then the Soviets were gone. Now the Russians are back.”

Gindy said the US lost Egypt when President Obama and other American officials called the country’s revolution against the Muslim Brotherhood a ‘coup.’ “A ‘coup’ does not happen with 40 million people in the streets,” Gindy noted. “Coups happen at night, not during the day.”

Gindy reflected that he first came to America soon after President Obama’s landmark speech in Cairo early in his Presidency. “I thought Obama was opening a bridge to Egypt,” Gindy said. “I believed America and Egypt would get closer.”

“Now, Obama calls our revolution a ‘coup?’,” Gindy added. “I don’t understand this guy. One minute he’s good, the next minute he is evil.”

“For 20 years, America has called Hamas terrorists. They are terrorists,” Gindy said. “Now Obama and the Americans say they aren’t terrorists. In one day, Jordan did more damage to ISIS than the Americans have in months.”

Gindy said a reshuffling of power was underway in the Middle East. Russia and China, he says, see the vacuum left by America and are pouring into the region. “Russia is building Egypt a nuclear power plant,” Gindy said. “They are offering us arms and the Emirates [United Arab Emirates] will write the check. Our trade will now be in roubles and Egyptian pounds, not dollars.”

Gindy noted that while Sisi gave Putin a cartoche, an Egyptian hieroglyph denoting royalty, as a gift, Putin presented Sisi with a kalashnikov, the iconic Russian machine gun.

Gindy pointed to an upcoming Egyptian economic conference in March as a critical juncture in relations between Egypt, America and the West. Billions in infrastructure projects and other economic developments will be discussed and finalized in that conference. Gindy said Russia plans to send 900 officials and businessmen. China is expected to send an equal number to the conference. “Where are the Americans?” Gindy asked.

“Sisi has gone to the Egyptian people and in one week they gave him $60 billion to widen the Suez canal,” Gindy add. “Not the World Bank. Not the IMF. The people have given him the money.” Gindy shrugged, “And you call it a ‘coup.”

Gindy said the expansion of the Suez canal will also feature miles of warehouses, industrial parks and commercial development. He said he expects Russia and China to secure most of that development. “There will be Russian and Chinese bases,” Gindy said. “Of course, they won’t call them that. But, they will be bases.”

Towards the end of our visit, Gindy received a phone call. After 15 minutes he hung up. “That was Nasser’s son,” Gindy said, referring to former President Gamal Nasser. “He says everyone is calling him [in reaction to Putin’s visit]. He says ‘My father’s time has come again. The Russians always stood by us.'”

Gindy is returning to Egypt for parliamentary elections this Spring. He is expected to have a major leadership role in the new parliament. Despite the fecklessness of the Obama Administration’s policies, he still believes America and Egypt can be close. “I don’t worry about Egypt,” Gindy said. “God protects Egypt. Abraham, Jesus and Mohammed all sought refuge in Egypt. God protected them. I worry about America.”