The Obama-Xi Summit: Collaboration or Confrontation With China?

On the eve of Chinese President Xi's visit to Washington to discuss what has been called a new era of cooperation between the two countries, the climate is more akin to expanding a new orientation toward confrontation.
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The state of Sino-American relations can be neatly summed up by recounting four things that happened last week. The U.S. government accused the Chinese government of massive cyber-hacking against government, military and commercial targets. At the Shangri-La Dialogue, China accused the U.S. of wanting to 'contain' China through its 'pivot' toward Asia. 25 years after the fact, the U.S. chose to reopen the events in Tiananmen Square by demanding China account for those killed, detained, or missing. And China declared that it will commence regular naval patrols within the U.S.'s 200-mile exclusive economic zone, as the U.S. has done for many years within China's EEZ.

In short, on the eve of President Xi's visit to Washington to discuss what has been called a new era of cooperation between the two countries, the climate is more akin to expanding a new orientation toward confrontation. The two leaders can put whatever wrapping they like on the purpose and outcome of the talks, but China and the U.S. are entering a period of confrontation unlike any in recent history, for the following reasons.

First, China's leadership position in the global economy and its now massive financial resources have given it options it did not have before. It has succeeded in making numerous natural resource-rich countries dependent on it for their own economic well-being, has strengthened its own economy in the process, and has amassed the world's largest foreign exchange reserves -- almost three times that of Japan (its closest foreign exchange rival) and 23 times that of the U.S. (yes, 23 times, as of December 2012) .

At the same time, it has in essence bypassed much of the U.S. dollar-denominated global trade regime by putting into place bilateral trading arrangements that utilize the yuan -- thereby putting pressure on the dollar as the world's predominant currency.

All this gives China influence over economies throughout the world, and with it, political leverage to pursue its own agenda on the global stage. And it has done so masterfully in the world's multilateral institutions - whether behind the scenes at the UN or through its increasingly powerful position in the multilateral development banks. Whether the U.S. wishes to admit it or not, little gets done in these institutions without China's approval, providing insight into what the evolving global order will look like.

Second, China has started to emerge from its shell from what I have previously referred to as a 'reluctant superpower', hesitating to step up to the plate and assume its obligations to the global community as the world's second largest economic power. While, by its own admission, China's foreign aid as a percentage of GDP is just .07 percent ($6.4 billion), dispersion of foreign aid is now a more significant component of China's relations with the developing world. This has bought it influence it did not have before.

Third, China has been aggressive in building up its military. According to the SIPRI Yearbook for 2013, China accounts for almost 10 percent of all global military spending, second only to the U.S. And China is busily engaging its neighbors with its growing military capability, from the Spratly Islands to the Senkaku Islands, and throughout South Asia through the use of ports in Myanmar and Pakistan. With ambitions to build a blue water navy, a fleet of stealth fighters and state-of-the-art drones, China has made clear that its military power will ultimately reflect its economic and political power.

America's pivot to Asia is of course a direct response to this. But it is also due in part to a realization that America's various engagements in the Middle East have not borne much fruit over the past decade, and with the future very much pointed in Asia's direction, the U.S. has wisely decided to focus on what is in its long-term economic interest. At a time when the U.S. remains economically challenged, having such an orientation to its own economic health is sensible. But it is at the same time disingenuous to say with a straight face to the Chinese that the pivot has nothing to do with China.

With China having become the world's second largest economy, with the yuan fast becoming a currency of choice in global trade, and with China nipping at the heels of the U.S. economically, politically, and militarily, it is hard to imagine the two countries becoming more collaborative. Indeed, cyber-hacking is now the defining feature of Sino-American relations. So let's call this week's summit with Presidents Obama and Xi what it is -- a meeting between the leaders of the world's two most powerful countries, both of which want to be predominant in this decade and beyond, and have conflicting interests and objectives. Look for more conflict, not collaboration, between the two.Daniel Wagner is CEO of Country Risk Solutions, a cross-border risk advisory firm based in Connecticut, and author of the books Managing Country Risk.

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