July 2 (Bloomberg) -- When President Barack Obama met Chinese President Xi Jinping last month in California, the relaxed setting beside man-made lakes shimmering in the desert heat was intended to herald an era of cooperation between the leaders of the world’s two largest economies.
Today, those images of solidarity are more like a mirage.
The abrupt departure from Hong Kong of Edward Snowden, the former national security contractor accused of revealing U.S. surveillance programs, with the consent of Chinese authorities, embarrassed Obama and other American officials.
“The president takes it personally,” said Bonnie Glaser, a senior Asia adviser at the Center for Strategic and International Studies in Washington. “There was agreement that this relationship would move forward in a personal way. I think the president probably feels burned.”
That incident underscores the limited pull Obama has over a country that’s increasingly intertwined with U.S. economic fortunes, says Nicholas Lardy, an expert on the Chinese economy at the Peterson Institute for International Economics in Washington. “Snowden is just one more example of where we can’t call the shots,” says Lardy.
The first test of whether Snowden’s case has caused significant damage to the Sino-U.S. relationship will come next week, when Treasury Secretary Jack Lew and Secretary of State John Kerry lead talks with top Chinese officials in Washington.
The fifth Strategic and Economic Dialogue will take place as part of Obama’s so-called Asia pivot, in which he’s seeking to redirect the U.S. diplomatic focus to the Far East. The Chinese view the increasing attention as an effort to contain their military and economic rise.
The two nations alternatively cooperate and compete for global wealth and influence. Bilateral trade grew to $536 billion last year, and China’s $1.26 trillion in Treasury holdings makes it the U.S.’s largest foreign creditor. While they have struggled over currency issues and China’s growing military assertiveness in the South China Sea, they’ve shown signs of mutual interest on issues like climate change and containing North Korea’s nuclear program.
China’s economic rise is intensifying friction over military issues. Though Chinese defense spending is still dwarfed by U.S. outlays, the People’s Liberation Army’s clout is raising concern in the U.S. and with Asian allies. The military buildup, largely directed at dominating regional waters, comes as Chinese territorial claims with Japan, Vietnam and the Philippines have grown bolder.
Topping the issues on the Obama administration’s agenda for next week’s meeting, though, is cybersecurity, a topic the president has repeatedly highlighted as an American concern and one that has been complicated by the Snowden episode.
The president has urged China to agree to what he calls “norms” of behavior on cyber issues. During last month’s talks in California, he detailed for Xi episodes involving Chinese theft of American intellectual property. U.S. officials argued that reports linking hacking attacks on American corporate and government sites to a Chinese military unit gave them the upper hand in negotiations.
“We’ve had increasingly direct conversations with the Chinese,” said Tom Donilon, Obama’s national security adviser at the time of the meeting, told reporters afterward. “It is now really at the center of the relationship.”
Snowden has withdrawn a request for asylum in Russia because of a demand that he stop harming U.S. interests by leaking secret documents. As more revelations appear in the media, the Obama’s administration’s arguments may become increasingly difficult to make to the Chinese.
“The message has been muddled as a result of the whole Snowden affair,” said Glaser. “This is going to be a problem for the administration.”
Adding to the difficulty was a German magazine article this week that said the U.S. is spying on European diplomats, a report that sparked concern among European politicians and prompted Obama to say his staff will review the matter.
Obama, winding up a trip to Africa, declined to say yesterday whether the article in Der Spiegel, which cited classified documents in Snowden’s possession, is true. He said “every intelligence service” in the world uses its resources to try “to understand the world better.”
Chinese officials have seized on Snowden’s revelations about surveillance to argue that the U.S. is engaging in exactly the type of behavior it criticizes abroad.
“The United States, which has long been trying to play innocent as a victim of cyberattacks, has turned out to be the biggest villain,” wrote Xinhua, the state-run Chinese news agency, in a commentary. The U.S. owes “an explanation to China and other countries it has allegedly spied on,” it said.
American officials say there’s no comparison between the U.S. programs, which are overseen by Congress and a secret court, and those in China. Obama has made the case that there’s a difference between international espionage and a foreign government hacker stealing corporate secrets from companies such as Apple Inc.
“That’s theft,” he said in an interview last month with Charlie Rose on PBS. “And we can’t tolerate that,”
Chinese cyberspying has also raised concerns among American officials about their growing investment in U.S. companies, according to emerging market analysts.
In the past 15 months, private Chinese firms spent more on U.S. deals than in the 11 years before combined, according to data collected by the Rhodium Group. In May, Shuanghui International Holdings Ltd., China’s biggest pork producer, agreed to acquire Smithfield Foods Inc., a Virginia-based meat processor, for about $4.72 billion, marking the largest Chinese takeover of a U.S. company ever.
The Smithfield sale has raised questions in Congress and scrutiny from the Committee on Foreign Investment in the U.S., an interagency panel that reviews foreign takeovers of U.S. companies that could have an impact on national security.
In September, Obama ordered Chinese-owned Ralls Corp. to divest its interest in U.S. wind-farm projects near a military base in Oregon.
“The Snowden issue is a very small part of a very large relationship,” said Kenneth Lieberthal, director of the Brookings Institution’s John L. Thornton China Center. “Whether the atmosphere will be significantly more tense because of this, we just don’t know.”
In recent days, U.S. officials have begun dialing back their public outrage against China. Speaking at a June 27 news conference in Dakar, Senegal, Obama defended his handling of the incident, saying he wouldn’t be “wheeling and dealing and trading” on other issues in pursuit of Snowden.
Chinese officials are also eager to stress their desire for continued cooperation.
“Safeguarding the healthy development of Sino-U.S. relations is in accordance with the interests of the peoples of both countries,” Foreign Ministry spokeswoman Hua Chunying told reporters in Beijing last week.
Senate Intelligence Committee Chairwoman Dianne Feinstein of California said she was encouraged by the comments of Cui Tiankai, the Chinese ambassador to the U.S., in a June 26 meeting, on cybersecurity.
“He really showed every evidence of wanting to work closely,” Feinstein said in an interview. “I was delighted.”
Lieberthal said heated incidents like the Snowden case are typical in a complex U.S.-China relationship. In the days before last year’s Strategic and Economic Dialogue in Beijing, American officials gave asylum to blind Chinese dissident Chen Guangcheng in the U.S. embassy.
Though the Chinese demanded an apology from the U.S., they didn’t let the incident undermine the talks.
“It was the kind of thing that normally would have had enormous repercussions, but the Chinese negotiated with us and set it aside,” said Lieberthal. “Neither country can afford to let an incident like this negatively impact our capacity for cooperation.”
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