China, US deescalate with talks, metals concession
Winning the competition remains the long-term goal of each – but meanwhile they need to ease the pain of combat
The newly-announced establishment of two economic and financial working groups between China and the United States is expected to help push forward a possible meeting between the two nations’ leaders in November.
The US Treasury Department said on September 22 that it will set up an economic working group with the Chinese Ministry of Finance and a financial working group with the People’s Bank of China (PBoC). It said the two groups will meet at the vice-minister level at regular intervals and report to US Treasury Secretary Yellen and Chinese Vice Premier He Lifeng.
This came after the two economic officials met in Beijing on July 8 and agreed to boost communication on economic matters.
Beijing also showed friendly gestures to the US by issuing export licenses to the China-based units of AXT, a California-based semiconductor manufacturing company, so they can export their products that contain China’s gallium and germanium, Reuters reported.
The why
“Why did the two countries set up working groups? It’s simple – they felt the pain caused by their fight, and now they are trying to ease their pain,” a Shanghai-based columnist says in an article published on Monday.
“After several years of conflicts, both sides feel that they cannot win against one another in the short run while they are facing huge risks in their own economy,” he says. “If both sides insist on challenging each other, they will be severely injured.”
He says that, although some compromises can ease pain, the hostile Sino-US relations won’t be changed easily. He says the US will continue to try to suppress China’s high technology sectors but China refuses to remain a low-end manufacturing country forever.
Compromising with each other is necessary in the short term while “beating each other is a final goal,” he says.
Not easy to change course
“Both China and the US hope to push forward a meeting between their leaders during the APEC Summit” to be held November 12-18 in San Francisco, Wang Yong, a professor with the School of International Studies at Peking University, toldChinareports, a media unit of the state-owned CICG Asia-Pacific. “The establishment of the two working groups increased the expectation that top leaders of both sides will meet again after the last meeting a year ago.”
“It’s not easy to turn around the strategic competition between China and the US in the short run. But having dialogues is better than nothing as it can help both sides to understand each other’s policy direction,” Wang said. “This also shows that rational and pragmatic voices are now on higher ground.”
“Since the US-China trade war broke out in 2018, both sides have lagged in developing a mechanism to resolve problems,” said Zhou Mi, a senior research fellow at the Chinese Academy of International Trade and Economic Cooperation. Reducing damage caused by US sanctions to the global economy “will be one of the most important tasks of the economic working group.”
Zhou also said it is necessary for both countries to discuss their macro and fiscal policies, which have been inconsistent for some time.
CHIPS Act guardrails final rule
Meanwhile, the US Commerce Department on September 22 released the final ruleimplementing the national security “guardrails” of the bipartisan CHIPS and Science Act, which was passed by the Congress in August last year.
The rule prohibits CHIPS funds recipients from expanding material chip-making capacity in foreign countries of concern – mainly China and Russia – for ten years, and from entering into certain sorts of joint research or technology licensing efforts with foreign entities of concern.
In August last year, the US announced a subsidy package of US$52.7 billion to boost its chip sector. South Korean and Taiwanese firms can apply for the subsidies but in exchange they would have to limit their expansion in China.
Xi-Biden meeting
Last November, Chinese President Xi Jinping and US President Joe Biden met on the sidelines of the G20 summit in Bali, Indonesia. The two countries agreed to improve their bilateral relations but their political tensions then increased in early 2023 after a Chinese spy balloon was seen flying across North American airspace.
The chip war also escalated as the US on August 9 this year unveiled new rules to restrict American funds and firms from investing in China’s high-technology sectors from 2024. Beijing also started requiring companies to apply for licenses to export gallium and germanium, raw materials of high-end semiconductors, from August 1.
In a meeting in Malta on September 16-17, China’s Foreign Minister Wang Yi and US National Security Advisor Jake Sullivan discussed key issues in the US-China bilateral relationship, global and regional security issues, Russia’s war against Ukraine and cross-Strait issues, among other topics.
The meeting was followed by the establishment of the two new working groups between China and the US last Friday.
US hawks
After a four-hour meeting between Raimondo and Chinese Commerce Minister Wang Wentao on August 28, the US and China agreed to set up working groups to handle their trade and investment disputes. It appears that Beijing wanted to set aside the chip war and focus on resolving other economic issues with the US.
This came after the US compromised on several things in August: unveiling softer-than-expected investment curbs against China’s high-technology sector; agreeing that the Netherlands can continue to ship high-end DUV lithography to China until the end of this year; and removing 27 Chinese entities from its “unverified list.”
But Washington refused to make more compromises, especially after the sanctioned Huawei Technologies launched its flagship smartphone Mate60 Pro on August 29 to show off its chip-making ability.
Representative Michael McCaul, the chairman of the House Foreign Affairs Committee, last Friday said that the requirement that US firms notify the government about their investments in China’s high-technology sectors is not sufficient.
“I’m tired of seeing our technology ripped off and being used in their weapons,” McCaul told Bloomberg News in an interview, adding that sale of high-end chips, AI and quantum computing products from US to China should be banned.
Follow Jeff Pao on Twitter at @jeffpao3