Global Economies

Can you give us a brief background on Sino-Russian relations following the dissolution of the Soviet Union?

There was a period of pretty frigid relations between China and the Soviet Union for about three decades that really only thawed with Gorbachev in the mid-to-late 1980s, culminating with his historic visit to Beijing in 1989. I was a student in Beijing during that visit; it was a very interesting thing to see from that angle.

In the 1990s and 2000s, the China-Russia relationship, while thawed relative to the Soviet period, was not a particularly dense one from the standpoint of diplomatic contact or pragmatic collaboration. Russia was dealing with its own enormous upheavals in the 1990s, culminating in the economic crisis in 1998. Meanwhile, China was really gaining momentum as it embarked on its own economic growth strategy. There weren’t particularly serious diplomatic issues or problems in the relationship.

One of the areas that had been a source of some tension and conflict between the Soviet Union and China was over the correct path of Leninism/Marxism. Once the Soviet Union ceased to exist, the ideological differences that had always been a part of the cool relations between the Soviet Union and the PRC dissipated overnight; there was no longer an ideological competition.

The 1990s and early 2000s were periods of a kind of benign neglect. One phrase that I have used to describe this with reference to how China saw Russia – but I think the same could probably be said vis-à-vis how the Russians viewed China –was “a deficit of strategic relevance.” Simply put, neither country was a top-tier priority for the other during this period.

Do you feel that Russia and China are “balancing” against U.S. power and its partners in Asia?

I don’t think there’s a concerted effort on the part of Russia and China to consciously work together to balance the U.S., per se; but the net effect of the positions that both of these countries tend to take for their own national interest puts them on the same side of a lot of issues in the world, particularly issues before the UN.

Both China and Russia are very proud nations. They’re both great nations. It’s very important to the leadership of both countries—if you look back historically in their foreign policy doctrines—to espouse the notion of non-interference in their internal affairs. This notion of protecting sovereignty, protecting territorial integrity and keeping foreigners out of “our business” and out of “our internal affairs” is a very important theme for both countries. That leads them to a convergence of viewpoints on a lot of issues.

That being said, the reason I say that I don’t think it’s a concerted effort is because there still is a lot of mistrust between the two countries. While things are changing, there’s this long legacy of a neglected relationship and, before that, rather deep distrust. To me, this precludes the notion of a true China-Russia partnership that is sort of designed with intentionality to counter the U.S.

Where might Russian and Chinese interests diverge in the coming years?

They share a long land border, but China is fundamentally an East Asian nation surrounded by 14 countries (it has more border countries than any other country in the world), while Russia is both a European and a Eurasian landmass. Russia is in its own category, but it is much more connected geographically and culturally to Europe. It looks at issues like NATO in ways that are different from China because it’s a stakeholder in those issues similar to the way China is a stakeholder vis-à-vis issues like the South China Sea (which doesn’t particularly affect Russia).

As I discussed, there are many issues where, in matters of foreign policy doctrine and foreign policy principle, there are convergences. But there are disagreements. Take the case of Georgia. Russia has recognized two areas of the nation of Georgia that have broken away from Georgia and declared independence. Russia was the first country to recognize the independence of what it regards as states. China disagrees with Russia on this particular issue because it would set a dangerous precedent vis-à-vis potential breakaway provinces in parts of China. Chinese leaders don’t want to be on record supporting this kind of separatist activity; obviously, that would have implications for Taiwan, but also for Tibet, Xinjiang and other parts of China.

What are the geopolitical implications of the past decade’s heightened level of Sino-Russian trade relations?

Even as recently as 2001, China-Russia trade totaled only about $10 billion. Today, looking at the trade figures for 2012, it’s $88 billion. It’s increased almost nine-fold in a period of eleven years, which is a remarkable growth trajectory. There’s a stated goal on the part of the Chinese and Russian leadership to get to the $200 billion two-way trade mark by 2020; that starts to become a very real number in global international trade. To put it in perspective, U.S.-China trade relations amount to about $500 billion.

This signifies a qualitative change in the way the two countries are dealing with each other. It symbolizes a level of engagement and a comfort level that is new. It also represents a very significant trend in terms of global economics. In the case of Russia exporting to China, it’s mostly energy (e.g., oil, natural gas, minerals). In the case of China, it’s electronics and textiles. There is a real growth here that is having a significant impact on both economies.

China has become Russia’s number one export market, surpassing Germany, which is of symbolic significance; I believe this is the first time in Russian history, or at least in modern Russian history, in which its top export market is in Asia, not Europe – that’s a real milestone. Meanwhile, China is looking West to a greater degree. It sees that there is real potential in that direction further to develop its economy and create opportunities for trade and investment.

Does Sino-Russian cooperation in the UN Security Council and growing trade relations reflect a growing shift in the global balance of power?

I think that China and Russia, again, do often tend to see global issues and issues before the U.N. in very similar terms because of rather similar foreign policy doctrines that place an emphasis on multilateralism and the U.N.. They like the U.N. as a forum for dealing with international issues because, as veto-wielding members, they can control the agenda. They have similar views on the notion of interference in internal affairs and the notion of unilateralism. They both have wariness about U.S. motives and strategic intentions. But again, I don’t think that there’s a concerted effort, per se, to counter the United States.

They probably think of themselves as having somewhat similar positions in the world, which is they’re great powers but not yet (or, in Russia’s case, anymore) superpowers. There’s a certain element of what might be called “triangulation” in the relationship, as well. Bear in mind, the U.S.-China opening in 1972 occurred principally on the basis of the idea that the United States and China should come together to counter the Soviet Union – “the enemy of my enemy is my friend.” That element, that triangular dynamic, is one of the reasons that U.S.-China relations got out of the starting blocks to begin with.

I think that Chinese leaders are mindful of Russian views and vice versa because there is a sense that the world is changing. While the United States remains the world’s sole superpower, it is not as powerful vis-à-vis all the other countries in the world as it was 10, 20, 30, 40 years ago. This notion of a growing multi-polarity is a key theme in both Chinese and Russian foreign policy; and indeed, it’s a goal of both countries’ foreign policies.

China and Russia want an increasingly significant voice in international relations commensurate with their growing economic clout. The notion of a U.S. that is, if you will, less omnipotent is one that is welcomed by the leaders of both nations. In this sense, and in others, China’s and Russia’s interests converge to a much greater degree than they diverge.

Both countries’ leaders – who will each be in place for the next decade or so – have publicly characterized the China-Russia bilateral relationship as the strongest it’s ever been. It seems probable that we’re in for a major growth spurt in China-Russia ties. And that’s going to have significant implications for the world. This is going to be an interesting relationship to watch over the coming years.

EastWest Direct is an ongoing series of interviews with EWI experts tied to breaking news stories.

Some caveats are necessary before pronouncing on the UPA government’s foreign policy, especially the apparent mishandling of relations with Sri Lanka and the case of the Italian marines, as well as the setback in the Maldives. First, no country can have a foreign policy that is seen as being without fault by the public. This is particularly true of democracies where all kinds of opinions get expressed, political partisanship is normal as Opposition parties will always find some reason to contest government decisions, and the civil society has its own views on how policies should be framed on humanitarian and peacebuilding issues in particular.

Second, even countries more powerful than India, better governed, with wider internal debates and inputs from specialists, with greater sense of purpose and more aggressive in safeguarding national interest appear to make serious foreign policy mistakes or manifestly fail to achieve their objectives.

Third, it should not be assumed that big countries can have their way with small countries. The international system presents an obstacle as principles of sovereignty are involved and the reaction of competing powerful countries, in the region or outside, have to be factored into decision-making, especially if the smaller countries have a sensitive geopolitical location.

A further point needs to be made specifically with regard to India. Our foreign policy problems are numerous and complex. Pakistan has been a perennial problem ever since we became independent, confronting us with military challenges, religious extremism and terrorism. Our other neighbours, barring Bhutan, have played external powers against us as a balancing factor. China and Pakistan have boosted the capacity and the confidence of our neighbours to oppose us, and, until the major improvement of our relations with the U.S., the American card has come in handy too. It is not absent even today in the triangular India-U.S.-Pakistan diplomatic equation, with the situation in Afghanistan adding to its complexity.

The issues relating to the presence and treatment of Indian ethnic groups in neighbouring countries makes the management of relations with the latter more difficult. These issues spill over into domestic politics and cannot be treated solely as a foreign policy agenda. Our response to Islamic terrorism from Pakistan, which is essentially a foreign policy challenge, gets embroiled with the secular-communal debate in India as well as electoral considerations because a robust physical and legal response to local linkages of Pakistan-sponsored terrorism is seen as targeting our own Muslim population unfairly.

With all these caveats, our handling of the Sri Lanka issue at the recent UN Human Rights Council (UNHRC) at Geneva deserves to be seen as a particularly low point in our diplomacy. Sri Lanka has not been an easy partner to deal with; its discriminatory policies towards the Tamil population have been the source of tensions with India for long. If Sri Lanka had been wiser, it would have avoided creating a festering domestic ethnic situation that objectively impinged on India and was bound to provoke Indian interference and be a source of mistrust between the two countries. Sri Lanka has not, as a result, been sufficiently cognisant of our security concerns. It has exploited its geopolitical position and our adversarial relationship with China and Pakistan to carve out space for itself to frustrate us in many ways. It has played its cards ably by also cooperating with us in some areas and giving us enough stakes to blunt our responses to its provocations.

Sri Lanka’s failure to resolve ethnic issues after crushing the LTTE, the lack of progress on reconciliation and accountability issues, the reneging on implementing the 13th Amendment, the agitation of the issue of human rights violations of the civilian Tamil population in the final stages of military operations against the LTTE by the Sri Lankan diaspora, amplified by reports of Human Rights Watch and Amnesty International, all led to the stigmatisation of Sri Lanka on human rights issues in a U.S.-sponsored resolution at the UNHRC last year. India departed from its principled position not to back country-specific resolutions at Geneva by voting in favour of the resolution after working to dilute those parts of it that were too intrusive and disrespectful of Sri Lankan sovereignty.

Our positive vote then and this year was a mistake. India has itself been targeted for human rights violations in Jammu & Kashmir by the Human Rights Watch and Amnesty International without any allowance for its democracy, the independence of its judiciary, an alert press and the fact these organisations largely relied on exposures of abuses by Indian sources. The U.S. too has played its part to embarrass India in the past on human rights violations in Jammu & Kashmir in a bid to be even-handed towards Pakistan accused of abetting terrorist attacks against us. We have had to fight attempts by Pakistan to castigate us at the human rights forum at Geneva.

This time too, India worked initially to moderate the resolution on these counts. Having departed from its principled position last year, India could not vote against the resolution or abstain this year without a show of tangible progress by Sri Lanka on pending issues, including on the recommendations of the Lessons Learnt and Reconciliation Commission. What made our diplomacy almost farcical at Geneva was the bizarre attempt by India to work at the last minute to strengthen the very resolution that it had worked to soften earlier, not because any objective external policy factor had changed or the Sri Lankan government had committed a new breach of human rights or that India had not done its diplomatic homework earlier thoroughly enough and new factors had emerged to warrant a review of its earlier position. It was simply a case of internal threats to the UPA government form the DMK, the latter’s demagoguery on “genocide” in Sri Lanka four years after military operations in the island nation have ended that led to this last-minute scramble to appease an internal regional lobby at Geneva.

Worse for us, we got rebuffed by the US as it feared toughening the resolution may reduce the number of countries supporting it. We ended by looking bloody-minded and the US looking moderate. Such conduct erodes the credibility of our diplomacy abroad, besides raising fears at home that the government in New Delhi is losing grip over foreign policy under regional pressures. This has other longer-term implications — unless the primacy of New Delhi in foreign policy is restored — in that foreign countries and missions will start interacting at the regional level in terms of understanding the dynamics of Indian foreign policymaking and influencing it outside New Delhi.

The case of the Italian marines has lost its dramatic edge after their return to India. The Italians were escalating the issue by defying the Supreme Court and treating India with political disdain. The Supreme Court, in return, was escalating a bilateral issue with Italy into a multilateral one with the larger international community by interpreting the provisions of the Vienna Convention on Diplomatic Relations (VCDR) on diplomatic immunity in a way that would uphold its dignity. The government was caught in a vice as it could not give precedence to its international obligations over the views of the highest court of the land. When the Italians protested against the court’s order restraining the Italian Ambassador from leaving the country, it took the plea that while it was aware of the provisions of the VCDR, it was bound by the court’s decision.

The problem might have been avoided in the first place if the government was not so accommodative towards the marines by opposing back-to-back furloughs to them in Italy on unconvincing grounds. The government also did not guide the Supreme Court properly on the issue of diplomatic immunity of the Ambassador and the unenforceable nature of his undertaking, which was political rather than legal in character. Of course, by disowning its word, Italy was guilty of a serious breach of faith. The government can take credit that its firmness compelled Italy to review its decision on the marines, and the Supreme Court even more so by its willingness to reinterpret the VCDR to suit the particular circumstances of the case.

The Italian government has shown political courage in reversing its decision despite potential backlash at home and deserves to be commended for acting sensibly and honourably at the end. It would be wise for India not to claim a diplomatic victory as escalation would have hurt the interests of both countries.

The defiance with which the Maldives have treated Indian interests in the commercial dispute with GMR over the airport contract and later the way the understanding reached with Indian emissaries over the arrest of former president Mohamed Nasheed was violated has provoked a debate on the conduct of the country’s foreign policy reflected in its inability to exercise sufficient weight in its periphery.

Since India looms large in our smaller neighbours and our representatives there get will-nilly involved in their domestic politics, we need to pay greater political attention to even the smallest of them and assign diplomats there with appropriate political skills. Beyond this, of course, we have to keep in mind that even powerful countries cannot easily bully neighbours — the U.S. has tasted the defiance of Venezuela and Cuba. We have also to contend with the China factor in our neighbourhood.

What is important, however, is the assessment countries make of India’s likely responses if its vital interests are undermined. If their experience tells them that India’s tolerance levels are very high and that they can get away with defiance, they will be prone to do so. But if the perception of India changes and it is seen as acting boldly to protect its interests, the inclination to defy India would be less. Our softness towards both China and Pakistan, despite provocations, gives an image of accommodation, prudence, undue caution, a disinclination to be provoked and a reluctance to make hard choices. There is a range of conduct between being aggressive and being pusillanimous. Our foreign policy has to show greater firmness, which has not been the hallmark of the UPA government or those before it.

Click here to read this piece at Tehelka.com.

"What's Wrong with China's North Korea Policy?," Carnegie Endowment. Mar 26, 2013. 

"In China, Soviet Union's failure drives decisions on reform," The Washington Post. Mar 23, 2013.

"China's Xi tells Africa he seeks relationship of equals," Reuters. Mar 25, 2013. 

"China agencies press territorial claims in Asian waters," The LA Times. March 27, 2013. 

"Elite in China Face Austerity Under Xi's Rule," New York Times. March 27, 2013.

Follow EWI on Twitter @EWInstitute for continuing news updates.

Compiled by Michael McShane, Athina Doutis, Alex Schulman and Haolin Liu.

Thank you for this opportunity to address a Fidelity audience here at headquarters in Boston. With the freedom to choose the subject of this talk, I opted for the new strategic project on the transatlantic agenda – the decision of the U.S. administration and of the EU in February to negotiate a comprehensive trade and investment agreement. The President and the EU jointly announced this breakthrough on 13 February. Negotiations are to begin mid 2013 and should – to quote Joseph Biden – not take longer than “one tank of gas."

The idea of such an agreement is not entirely new. The transatlantic economic relationship is already the world’s largest and, with only just over 10% of the world population accounting for half of global economic output and 30% of the world trade, it also supports millions of jobs on both sides of the Atlantic. More than mere trade relations, mutual investment is the real backbone of the transatlantic economy. The U.S. and Europe are each other’s primary source and destination for foreign direct investment. And to compare dimensions: the total U.S. investment in BRIC countries since 2000 accounts for just 7.2 % of total U.S. investment in the EU and is altogether less than U.S. investment in Ireland.

So Europe and America already do a lot of business, and the idea of a comprehensive trade and investment agreement was one of those ideas “that’s always at the wedding party but never catches the bouquet” as the Wall Street Journal wrote on December 4th, 2012.

Why now? What’s changed?

The consequences of the financial and economic crises since 2008 changed the game in 2011/2012.

Governments as well as corporate business on both sides of the Atlantic face similar problems since 2008: weakened economies, unemployment, risk of recession or very slow growth, but high levels of public debt. Stakeholders had to recognize the co - dependence that comes along with the already closely linked economies. And they re-evaluated the potential of even closer integration through a comprehensive trade and investment agreement.

Economic growth and jobs are expected to be the short-term benefits of reducing tariffs and other barriers to trade in goods, services and investment, and of enhancing compatibility of regulations and standards. A trade and investment agreement would be expected to provide pain - free stimulus on both sides of the Atlantic to spur growth without spending taxpayers’ money.

From a global perspective, the global financial and economic crises have demonstrated the strength of new global players, emerging countries with high growth rates who impact economic and political governance. The U.S. and the EU will need to act together to defend their economic interests and to set standards for the rest of the world (e.g. intellectual property, labor and environment standards), as long as they can still do it.

And, as multilateral free trade negotiations – the Doha round – have effectively failed to achieve agreement on global trade issues, bilateral negotiations are seeing their comeback now (U.S. with Transpacific Free Trade Agreement, EU with South Korea and with Canada). This is also a chance for the U.S. and the EU to agree on cooperation to establish new trade rules that are globally relevant.

So, a comprehensive agreement would trigger growth and jobs on both sides of the Atlantic, it would help the world’s largest economic relationship to face new competitors and it would help set standards and rules for global trade that others cannot ignore.

What would the agreement be about?

While there is no official name for the project yet, it is suggested that the agreement should be comprehensive and aim high, especially in the field of harmonizing industrial standards and regulations. Some scenarios foresee additional annual growth by 2027 of 0.5 % in the EU and of 0.4 % in the U.S. (source: German Foreign Ministry)

The agreement would include:

Reduction of tariffs and tariff-rate quotas and of other, non – tariff barriers: tariffs are already fairly low (5-7% on average), some gains.

0% Tariffs would increase U.S.-EU trade by more than $ 120 billion within 5 years and generate combined GDP gains of about $180 billion (U.S. Chamber of Commerce).

Enhancing compatibility of regulations and standards, by harmonizing or at least recognizing each other’s standards would be the big challenge and lead to major gains! Key industries are car manufacturing, chemistry, pharmaceuticals. Progress in this area would be key for establishing a more integrated transatlantic market place.

Restrictions on the basis of health standards, national- security concerns or consumer protection: eliminating half of these non-tariff barriers would increase GDP by 0.7 % in the EU and by 0.3 % in the U.S. (Bloomberg)

Where are the traps?

In February, the announcement of the decision to engage in negotiations was good news that was generally welcomed, without triggering either excitement or criticism. It is the end of a long process, and the beginning of a series of ambitious negotiations which will keep politicial leaders busy for some time.

To name a few key areas of conflict: negotiations are expected to be difficult on agriculture with two highly protected markets on each side of the Atlantic and high sensitivities of consumers. Exports of U.S. chlorinated chicken, hormone- treated beef and genetically modified food (potatoes) are a perennial source of controversy with EU and European consumer associations.

Another minefield: different approaches to data protection, privacy rules and freedom of the internet. While the U.S. seems to be more tolerant about implicit data collection by Google, Facebook and other social networks, EU wants to see this limited in order to protect personal data of internet users.

On the other hand, in 2012, internet activists all over Europe helped stop the Anti- Counterfeiting Trade Agreement “Acta”, meant to protect intellectual property from free downloads. This was perceived to be an attack on “freedom of internet”, the European Parliament disapproved of the bill.

In the services sector, EU competitors face restrictions in the U.S. European airlines cannot offer flights within the U.S. They have few chances to win contracts in public procurement – local “buy American” standards prevent this. Investment does not seem to be a battlefield in these negotiations.

Some of these examples show that these negotiations will not be only conducted in the closed political circles. As they touch the everyday life of people, these may be mobilized easily and voiced in the internet, in traditional media and eventually by parliaments.

Overall strategic gains of this new phase of transatlantic economic relationship The decision to negotiate an ambitious agreement demonstrates the ability on both sides to explore the potential of a strong relationship, to overcome the tendency, in times of economic weakness, to look inward and to go for short term protectionism. Instead, the U.S. and EU have demonstrated their will to focus on growth and on win-win solutions for both economies.

A comprehensive transatlantic agreement will be a model for other players. Together, the U.S. and EU still dominate the world economy. As long as this is the case, they can drive globalisation, they can set standards which will then be adopted by the rest of the world, especially by those emerging markets (e.g. charging stations for electric cars, limits of radiation for smart phones, the admission of new pharmaceuticals, and as some point out: even perhaps the metric system).

A comprehensive agreement will strengthen the position of the transatlantic market place in the world, and help to counter-balance challenges from new players. It is considered to be the most important project on the transatlantic agenda which will impact the standing of “the West”. Many European analysts see the negotiations as a historic chance for the West. In a similar way, though less philosophical, David Ignatius referred to this agreement as the foundation of an “Economic NATO” in December 2012.

Conclusions

The negotiations will start later in 2013, the ambitions are high as to substance and to the timetable. EU Commissioner Gucht would like to conclude the talks even by end of 2014.

There will be many challenges, particularly in a number of sensitive areas which are close to key business interests as well as touching the public at large (consumers, internet users). The public can be easily mobilized, and mass concerns can be voiced directly and through parliaments.

The European Parliament and Congress will sooner or later play critical roles in this. They need to be kept in the loop before the process of final approval and ratification. Beyond compromises by governments and support from corporate business, it will be necessary to engage the civil societies in America and in Europe to form a broad alliance in support of an even more interdependent economy.

The negotiations will be complex and complicated, and they will need to keep focused on strategic gains over particular, if not parochial interest here and there. To be successful, leadership and political will – as Joseph Biden put it – are required. In the end, the prize will be well worth the effort – with a transatlantic economy spanning two continents, from the U.S. Pacific coast to the Eastern borders of the European Union.

Based in the Brussels center, Ambassador Dr. Beate Maeder-Metcalf leads EWI's Regional Security program.

In the economic realm, he explained that both the United States and China are dealing with each other from points of weakness. The U.S. is coming from a position of sustained economic weakness due to the recession, while China is experiencing slowing economic growth relative to the past 30 years.

He also noted that China is moving up the value chain as a producer of goods and services, which in turn reinforces another major shift. The U.S. business community’s support for U.S.-China relations has deteriorated recently, stemming from disillusionment towards the Chinese market for U.S. exports and stiffer competition at home from higher-end Chinese imports.

In the political sphere, Firestein described 2012 as a “tectonic year.” For the first time since the founding of the People’s Republic of China, both the United States and China experienced the possibility of real leadership transitions in the same year, resulting in a lack of restraint in how U.S. and Chinese leaders framed the other country in public remarks.

Additionally, U.S. political leaders have changed the way they view and discuss China in American political discourse. In the past, both Democrats and Republicans framed China in terms of human rights issues, but today, the prism through which U.S. politicians view China is based on trade, investment and—ultimately—national competition. Firestein also noted that congressional sentiment towards China has deteriorated sharply.

He then explained the emerging geopolitical shifts in the U.S.-China relationship. In terms of balance of power, China’s military has made rapid and significant strides in its development, creating a more formidable challenge to U.S. foreign policy-making. The U.S. rebalancing or "pivot" to the Asia-Pacific region is another major geopolitical development. Lastly, Firestein pointed out two unique “firsts” in U.S.-China relations: neither the U.S. nor China are now dealing with each other in terms of sustained economic growth, and the two powers no longer share a grand common objective.

 “Russian Judge Delays Trial of Dead Lawyer,” New York Times, March 11,2013.

“Two-Thirds of Russians Support Banning Foreign Adoptions – Poll” Interfax – Moscow, March 11, 2013 

“U.S. Demands China Block Cyberattacks and Agree to Rules” The New York Times. Mar 11, 2013. 

“China offers to discuss cyber security with US” Reuters. Mar 12, 2013.

"Guns and Butter: How to Prevent a Nuclear Arms Race in Asia" Albert B. Wolf, World Policy Blog. March 13, 2013

“China’s Xi Jinping charts a new PR course” The Washington Post. March 13, 2013.

“China’s New Leader Takes Full Power in Delicate Balancing Act,” The New York Times. March 14, 2013. 

Follow EWI on Twitter @EWInstitute for continuing news updates.

Compiled by Michael McShane, Athina Doutis, Alex Schulman and Haolin Liu.

"Increasingly, U.S. businesses are speaking out about their serious concerns about sophisticated, targeted theft of confidential business information and proprietary technologies through cyber intrusions emanating from China on an unprecedented scale,” said Donilon. “We have worked hard to build a constructive bilateral relationship that allows us to engage forthrightly on priority issues of concern.  And the United States and China, the world’s two largest economies, both dependent on the Internet, must lead the way in addressing this problem.”   

Donilon’s speech came in the wake of a widely cited report by the computer security firm Mandiant, which accused Beijing of sponsoring cyber espionage and theft of corporate secrets in the United States. During his annual State of the Union address on February 12, President Barack Obama presented an executive order to protect U.S. critical infrastructure from cyber threats. 

In his speech, Donilon outlined three requests for Beijing related to the cybersecurity issue. “First, we need a recognition of the urgency and scope of this problem and the risk it poses—to international trade, to the reputation of Chinese industry and to our overall relations,” he said.  “Second, Beijing should take serious steps to investigate and put a stop to these activities.  Finally, we need China to engage with us in a constructive direct dialogue to establish acceptable norms of behavior in cyberspace.”

In response, the Chinese government adopted a defensive posture, while emphasizing its willingness to cooperate with Washington. "China has always urged the international community to build a peaceful, secure, open and cooperative cyberspace and opposed turning it into a new battlefield," said Foreign Ministry spokeswoman Hua Chunying, who argued that China is also a major victim of cyber attacks. 

Hua added: “Cyberspace needs rules and cooperation, not wars. China is willing, on the basis of the principles of mutual respect and mutual trust, to have constructive dialogue and cooperation on this issue with the international community including the United States to maintain the security, openness, and peace of the Internet."

Hua’s response echoes earlier comments by outgoing Chinese Foreign Minister Yang Jiechi, on Saturday, rebutting accusations of Chinese hacking. “Anyone who tries to fabricate or piece together a sensational story to serve a political motive will not be able to blacken the name of others or whitewash themselves,” said Yang. 

Writing in The Washingtonian, Shane Harris argued that Donilon’s remarks, which evoke “carefully tuned language,” bring “the private sector into the problem as a key player, not a bystander.” 

Speaking to CNBC, Michael Chertoff, a former director of Homeland Security and EastWest Institute board member, said he hoped that the Chinese business community could put pressure on Beijing to rein in cyber attacks. “I’ve been in a number of public events recently, where people including myself have been very outspoken to audiences that include Chinese investors and businessmen about what is going on with intellectual property theft,” he said.

Chertoff continues: “I think what may happen is that these business people will go back home to China and they’ll start to tell their government, ‘Look, we’re going to be pushed out of global markets, we’re going to be global pariahs, if we don’t agree to reining in what’s been going on.’ So I’m hoping some business pressure may be part of the solution here.” 

James Lewis, a senior fellow and director of the Technology and Public Policy Program at the Center for Strategic and International Studies, told the Christian Science Monitor that Washington’s message to Beijing was unusually straightforward. “This is really the first time a senior U.S. official has come out and given Chinese officials three specific steps on what we need to do to work on this cyber spying problem,” he said, adding that “no one has ever publicly come out and said this directly to the Chinese before—that we want recognition by them of the scope of the problem, we want direct investigation of these cases—and direct dialogue on international norms.”

While Chinese hacking of U.S. computers remains a pressing challenge, it is important to keep the background of this issue in mind, especially in the wake of the Mandiant report and Obama’s executive order on cybersecurity. As EWI’s Franz-Stefan Gady pointed out in US-China Focus, the Mandiant report, “did not reveal anything new to experts in the field”; many nations, especially the U.S. and China, are known to already engage in significant cyber espionage, he added. 

Beijing’s efforts to that end will likely “continue and intensify regardless of what the United States does,” EWI Professorial Fellow Greg Austin argued in the The International Herald Tribune. “The real issue,” wrote Gady, “is how to avoid that these sort of [cyber] attacks lead to escalating tensions between the two great powers on a strategic level.”

In the kaleidoscopic world of power politics in Asia, the United States’ pivot to that region may yield the unintentional consequences of fostering closer strategic ties between the two Asian giants - China and India – which could result in a strategic alliance ostensibly hostile to Western interests in the region. 

Analysts will be quick to point out that the ‘all weather friendship’ between the two countries, has hit a natural ceiling due to the strategic competition between the (re)emerging powers. For example, China is deepening its ties with Pakistan militarily (both countries signed a military cooperation agreement in September 2012), provides nuclear support, and has finally taken over management of the port of Gwadar on Pakistan’s Makran coast. India on the other hand is trying to counter China’s influence in Asia by fostering closer ties with the countries of the Association of South East Asian Nations (ASEAN), especially in the field of naval cooperation, which adversely affects China’s position in the Indian Ocean and South China Sea. Both countries’ increasing energy demands also put the two giants on a collision course. 

Yet, a ‘diplomatic revolution’ may be in the making should the United States decide to overplay its hand during President Obama’s second term. The United States assigns a key role to India in its turn towards Asia, which in almost its entirety is aimed at balancing China’s influence in the region. Nevertheless, as India’s former Foreign Secretary, Kanwal Sibal, points out: “India is already distancing itself from the pivot by the notable friendly discourse towards China…”. The reasons for this are complex, yet they are in large part based on the gradual waning of US influence in the region and the fact that geographical proximity between India and China mandates some sort of rapprochement for the sake of both countries’ economic development.

The original ‘diplomatic revolution’ occurred in 1756 on the eve of the Seven Year’s War between France and the Austrian Empire. In a reversal of alliances, Austria abandoned its long-term ally, Great Britain, for its most formidable continental rival, France, thereby breaking with its traditional foreign policy doctrine. The principal reason was Austria’s gradual realization that Britain, primarily a sea power, could or would not adequately be able to support its ally militarily in a new European war. Great Britain’s real diplomatic ambitions were overseas. 

The Austro-French alliance was in many ways counterproductive and an unhappy experience for both countries. Because of their divergent interests and continuing rivalry, both parties paralyzed each other, and they could not effectively cooperate during the Seven Years War (1756-1763). Dr. Marco Cesa in his book “Allies Yet Rivals – International Politics in 18th Century Europe” referred to the Austro-French alliance as a “deadlocked alliance”, in which both parties decided to “preserve their union, since their alliance gave each a means with which to control the other, and also because without such an alliance they would probably have ended up fighting each other…”. Paul W. Schroeder called this a “pact for management and mutual restraint of one’s partner, not for capability aggregation and aggrandizement.” 

Similar to Austria’s realization in 1756, India may think that she is better off seeking closer ties to a continental military power and a neighbor, rather than an Asia Pacific sea power such as the United States, which may not have the stomach to compete with China’s power projection capabilities on mainland Asia. However, should China and India move closer together, the result in all likelihood will be a form of a deadlocked alliance in which both countries, similar to Austria and France, will be at loggerheads with each other. 

Yet, there are very good strategic reasons for both countries to move closer. As D.S. Rajan points out: “…Beijing and New Delhi share the same views on two key factors forming the basis for partnership – multilateralism and economic cooperation.” Both are interested in peace in their respective peripheries and a ‘peaceful rise’. Both depend on each other for economic development. For example, 80 percent of China’s total oil import passes in proximity to India’s southern coast through the straits of Malacca. More importantly in the short run are China’s deteriorating relations with Japan and the United States’ grand strategy for Asia during President Obama’s second term, both of which will weigh heavy on Beijing’s motivation to create a Indo-Sino alliance. Already in 2005, China and India have formed a "strategic and cooperative partnership for peace and prosperity” and held various bilateral discussions on their future strategic partnership. In January 2013, during the fifth annual Indo-Sino defense dialogue both countries agreed to resume joint military exercises. 

There are a host of issues that could undermine closer Indo-Sino relations in the years to come such as unresolved border issues, China-Pakistan relations, energy security, cyber-espionage, Tibet, India’s eastward expansion of its economic ties and Myamar just to name a few examples, where both countries’ interests are at variance. For the sake of stability, the United States should encourage closer Indo-China ties. Austria and France were at peace between 1756 to 1792, not a small achievement given the volatility of European power politics at the time. Once the alliance dissolved in 1792 both countries were involved in a life and death struggle, which lasted until 1815. Closer Indo-Sino ties mean a more stable Asian security environment based on mutual restraint, and – because of the inherent nature of a deadlocked alliance – little growth of both Indian and Chinese power. 

Ambassador’s Kanwal Sibal’s mollifying prediction about US-India relations in the next four years should be seen as good news to US Foreign Policy makers:  “All in all, therefore, India and the US will neither enter into an embrace nor disengage; they will continue to shake friendly hands as Obama’s second term unfolds.”

Click here to read this piece at China-U.S. Focus.

"There is the possibility that trade frictions between China and the U.S. will escalate in 2013," said Zhou, noting that protectionist policies might arise out of America's slow-moving economic recovery.

He cited the blocked attempt of an affiliate of China's Sany Group to purchase four U.S. wind farms as an example of such behavior. 

Additionally, Zhou predicted that U.S. efforts to renew domestic manufacturing would have little impact on China's economy.

Click here to read the article in full at China.org.cn.