November 08, 2023
Welcome back to Axios China. Today we've got a scoop about the potential Biden-Xi meeting next week. We're also looking at the first-ever decline in foreign direct investment in China, more Chinese people viewing the U.S. as "friendly," and lots more.
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Today's newsletter is 1,559 words, a 6-minute read.
1 big thing: Scoop... Biden and Xi prepare to restart military-to-military channels
President Biden and Chinese President Xi Jinping are preparing to announce the resumption of military-to-military communications between the two countries when they meet on the sidelines of the APEC summit next week, according to three people familiar with the matter, Axios' Hans Nichols and I write.
Why it matters: The Biden administration wants to inject more stability into the U.S.-China relationship and lower the risk of a military misunderstanding.
- Reestablishing military communication channels with Beijing, which China suspended in 2022 to protest the visit of then-House Speaker Nancy Pelosi (D-Calif.) to Taiwan, is a key priority for the White House.
- When Secretary of State Antony Blinken visited Beijing in June, he failed to get an agreement from Chinese officials on reestablishing the channels.
- During his recent visit to Washington, China's Foreign Minister Wang Yi indicated that China was prepared to reopen the lines of communication, according to two people familiar with the matter.
- A White House official declined to comment. The Chinese Embassy did not respond to a request for comment.
What they're saying: "The Chinese are signaling that they will resume military-to-military communications, which is significant," said Bonnie Glaser, the managing director of the Indo-Pacific Program at the German Marshall Fund of the United States. "It's a key priority for the Pentagon."
- "But it remains to be seen whether they are willing to take meaningful steps to reduce the risk of accidents or discuss ways to preserve strategic stability," she said.
- The military communications channels canceled last year by China include the Defense Policy Coordination Talks and the Military Maritime Consultative Agreement, which the U.S. and China signed in 1998 to enable ship and aircraft operators from both sides to communicate regularly.
The intrigue: China has not officially confirmed the Xi-Biden summit, which has been months in the making, or even Xi's attendance at the APEC summit in San Francisco.
- Still, there are signs that China wants the meeting to be a success, with China's Vice Premier He Lifeng scheduled to arrive later this week to meet with Treasury Secretary Janet Yellen and participate in APEC.
What we're watching: Recent developments indicate U.S.-China military communications are already improving.
- Cynthia Xanthi Carras, China country director in the Office of the Undersecretary of Defense, attended China's annual defense forum last week.
- On Nov. 3, Chinese and U.S. officials met in Beijing for maritime consultations, led by China's Ministry of Foreign Affairs and the State Department with military officials attending, to discuss maritime security and strengthen dialogue about maritime incidents.
- U.S. and Chinese officials also held a rare meeting this week to discuss nuclear arms control.
Between the lines: China has demanded the U.S. lift sanctions against Gen. Li Shangfu — who served as China's defense minister but was reportedly detained in September and then officially dismissed in October, as a precondition for restoring high-level communication between the two militaries.
- Li's departure removes an awkward obstacle to the resumption of talks. The U.S. is no longer actively seeking to engage with a defense minister who is also under sanctions.
- China hasn't announced Li's successor.
Zoom out: Ahead of most high-level summits, diplomats have already discussed many of the potential deliverables that might emerge from the face-to-face talks between the leaders.
- For the Biden-Xi summit, the U.S. goal is to give the leaders the opportunity to finalize agreements on a range of issues, from fentanyl, arms control, artificial intelligence and climate change.
2. What to expect from a Biden-Xi meeting
Biden and Xi's expected meeting next week could help stabilize the relationship, but major obstacles stand in the way of true diplomatic breakthroughs, experts tell Axios.
The big picture: Xi's authoritarian worldview and deeply divided U.S. domestic politics mean that neither leader may be able or willing to make significant compromises.
- "Xi is now engaged in a charm offensive, but still equates reciprocity and compromise as hallmarks of weakness rather than as essential tools of diplomacy," Orville Schell, director of the Center on U.S.-China Relations at the Asia Society in New York, told Axios.
- Xi has also concluded that the U.S. and other liberal democracies are determined to overturn China's political system, a mindset that makes it "difficult for him to be flexible enough to change the fundamentally antagonistic nature he's incubated in the U.S.-China relationship that killed 'engagement' as a viable bipartisan policy in Washington," Schell added.
Between the lines: Biden and Xi are operating within the context of the domestic politics of their respective countries, which can shape their options and behavior.
- "Both leaders have a domestic audience that they have to deal with. But Biden is more subject to the domestic political constraints due to the U.S. political system. Xi Jinping is far less constrained by domestic audience," Yun Sun, director of the China Program at the Stimson Center, told Axios.
- "Congress and Biden will not want to do anything that can be seen as weak, as Congress will be intensely critical," Joshua Kurlantzick, senior fellow for Southeast Asia at the Council on Foreign Relations, said.
Yes, but: Despite the challenges, simply holding the meeting is a win.
- "I think just having real communication is the biggest deliverable and possibly a step toward a situation in which if there is a crisis the two sides can agree to actually talk immediately," Kurlantzick said.
What to watch: What both sides say about Taiwan.
- "Managing Taiwan is likely to be top of the agenda for China, and China may seek additional reassurances from the United States," Bonny Lin, director of the China Power Project at the Center for Strategic and International Studies, told Axios.
- "President Biden could reiterate points that he also already said to Xi, but the Biden administration is likely wary that any new formulations or reassurances could be taken out of context and could impact the upcoming Taiwan presidential election."
3. Catch up quick
1. Polling group Gallup is closing its offices and pulling out of China amid growing scrutiny of foreign consultancies, the Financial Times reports.
- Gallup had attracted particular criticism from Chinese authorities due to its global polling showing negative attitudes toward China.
2. The International Monetary Fund has upgraded its China GDP growth forecasts to 5.4% (from 5%) in 2023 and 4.6% (from 4.2%) in 2024, Reuters reports.
3. Taiwan is in talks with Estonia to open an unofficial trade office there, the South China Morning Post reports.
- Lithuania faced Chinese trade sanctions after it opened a similar office in its capital city Vilnius in 2021.
4. Goldman Sachs' David Solomon, Morgan Stanley's James Gorman, Citi's Jane Fraser and other power players in global finance are in Hong Kong this week for a conference hosted by the city's government, the Financial Times reports.
- The Hong Kong government is trying to keep and attract global business at a time when the city's political system and judicial integrity are facing intense criticism for succumbing to China's authoritarianism.
4. Poll: Hostility toward the U.S. has declined as China's economy has slowed
Why it matters: After several years of spiraling bilateral relations and deepening distrust, the shift in views could help support a thaw as both U.S. and Chinese leaders work to improve dialogue and stabilize relations.
By the numbers: In April 2022, more than 80% of Chinese respondents said they viewed the U.S. as an enemy. But by October 2023, that number had fallen to less than 50%.
- Meanwhile, China's economy has slowed to its lowest level of growth in decades amid real estate and debt crises, sky-high youth unemployment, and declining foreign investment.
- More than 75% of Chinese respondents said they were concerned about U.S.-China tensions, and more than 75% also said both sides should work to resolve tensions.
5. Foreign investment in China goes negative for first time in decades
Foreign investment into China turned negative for the first time on record in the third quarter, Axios' Matt Phillips writes.
- Why it matters: The outflow of foreign direct investment, or FDI, is a reflection of the sharp deterioration in China's economic prospects. The world's second-largest economy continues to struggle with a sluggish COVID recovery, a deterioration in consumer and business confidence, and ongoing decoupling and deglobalization trends.
State of play: A broad measure of FDI published by China's State Administration of Foreign Exchange on Friday showed an outflow of $11.8 billion in the third quarter, the first negative print since the agency began compiling the data in 1998.
What they're saying: "Some of the weakness in China's inward FDI may be due to multinational companies repatriating earnings," Goldman Sachs analysts wrote.
- 💭 Matt's thought bubble: These capital outflows reflect collapsing corporate confidence in China's state-led economic model under the leadership of President Xi Jinping. Xi has shifted the focus of the ruling Communist party toward restoring China to the top ranks of global power, rather than delivering meaningful improvements to Chinese standards of living.
The bottom line: This doesn't mean China's economy is doomed. As the world's second-largest economy, it doesn't need foreign investment the way it once did.
- But the outflow of foreign investment reflects just how quickly expectations about Chinese growth have shifted.
6. 🐼 1 fun thing: Why pandas captivate us
Axios made a comic to mark a milestone: Today, the National Zoo in Washington, D.C., will say goodbye to three pandas when they return to China.
- Axios' Shoshana Gordon spoke with experts in the U.S., Canada and China to understand why we love pandas so much.
A big thank you to Alison Snyder and Justin Green for edits, Sheryl Miller for copy edits, the Axios visuals team, and Hans Nichols and Matt Phillips for contributing.