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U.S.-China Policy Update, May 1, 2023

Brownstein Newsletter, May 1, 2023

What to Watch: May 1 - 5

China Sends Peace Envoy to Ukraine after Xi and Zelenskyy Speak: Chinese President Xi Jinping spoke with Ukrainian President Volodymyr Zelensky on Wednesday, marking the first time the two leaders have spoken with each other since Russia invaded Ukraine more than a year ago. In a tweet, Zelensky wrote that the two had “a long and meaningful phone call” and he added, “I believe that this call, as well as the appointment of Ukraine’s ambassador to China, will give a powerful impetus to the development of our bilateral relations.” In a statement after the call, the Chinese government announced it would send senior diplomat Li Hui as a special peace envoy to Ukraine “to conduct in-depth communication with all parties on the political settlement of the Ukrainian crisis.” Li, once China’s ambassador to Russia, has close ties to Moscow, raising concerns among Western allies about his neutrality in potential peace negotiations. President Xi has continued to push his own peace initiative to resolve the conflict between China’s ally Russia and Ukraine. While the peace proposal has been dismissed by the United States and Europe, the peace envoy announcement is a sign that China is continuing with its attempt to assert itself as a peace broker.

Outbound Investment Rules Might Come Soon: The Biden administration is said to be nearing a decision on issuing rules to screen outbound investments in certain sectors. Details of the final rule are being closely guarded. While interagency review continues on a final order, the latest intelligence suggests the White House is focused on steering away AI, semiconductors and other technology-related investments. If the administration is able to agree on a rule, recent reports suggest President Biden is looking to time the signing of the executive order with the next Group of Seven Summit, which is scheduled to take place in Japan at the end of May. The administration, through the National Economic Council and the Department of Commerce, is meeting with key firms and associations this week to discuss their plans.

Potential GOP Presidential Candidates Visit Asia: Virginia Gov. Glenn Youngkin and Florida Gov. Ron DeSantis conducted separate trips to Asia last week to discuss trade policy. The trips came as the 2024 presidential election is about to begin in earnest. While neither of the two Republican governors have formally announced their candidacy for president, the trips were seen as an effort to bolster their foreign policy credentials in the lead up to a potential campaign announcement. Gov. Youngkin visited with Taiwanese President Tsai Ing-wen as well as leaders in Japan and South Korea as part of his trip. DeSantis met with Japanese Prime Minister Fumio Kishida, and he visited South Korea, Israel and England. The trips highlight the significant role foreign policy, and especially U.S. policy toward China, will play in the upcoming election.

Biden Hosts Philippines Leader Marcos: President Biden will host Philippines President Ferdinand Marcos at the White House this week to discuss relations between the two nations. Marcos told reporters he was “determined to forge an ever stronger relationship with the United States in a wide range of areas that not only address the concerns of our times but also those that are critical to advancing our core interests.” The two nations recently completed their largest ever war drills in the South China Sea, just as concerns grow about China’s harassment of Philippine vessels. The meeting also comes after President Biden hosted South Korean President Yoon Suk-yeol for a state visit last week, and as the White House prepares for Biden to visit Japan and Australia later this month. U.S. relations with China will be a critical part of all of these meetings as the United States looks to increase its military presence in the region to tamp down China’s increasingly hostile stance toward Taiwan.

Schumer Hints at New China Legislation: Senate Majority Leader Chuck Schumer (D-NY) is floating the possibility of a legislative package aimed at economic and national-security challenges posed by China. According to reports, Schumer has asked committee chairs to identify bipartisan issues to include in a comprehensive China bill that he hopes to release this summer. The bill would be a follow-up of sorts to the CHIPS and Science Act that the House and Senate passed last August, as many senators continue to believe that the bill should have included additional items that had bipartisan consensus. Interest remains high in both the House and Senate to pass China-related legislation, but the fate of such a broad package remains unclear at this early stage.

Highlight Reel: April 17 - May 1

White House

South Korean President Yoon Visits White House: On April 25, South Korean President Yoon Suk-yeol traveled to Washington, D.C., for a state visit commemorating the 70th anniversary of the U.S.-South Korea mutual defense treaty. China’s role in the Indo-Pacific region and its growing economic influence were key themes surrounding the visit, with both President Yoon and President Biden emphasizing alignment in their respective Indo-Pacific strategies to address global challenges and preserve regional stability. In particular, both officials reaffirmed their commitments to preserve freedom of navigation in the South China Sea and peace across the Taiwan Strait, both areas where China’s increasingly aggressive actions have drawn a high level of concern from the United States and its partners in the region. Both leaders also announced the creation of a Nuclear Consultative Group (NCG) to formalize communications channels between the two countries on nuclear contingencies and plans to counter the security threat posed by North Korea. As part of the NCG, the U.S. military announced it would station a nuclear submarine in South Korea for the first time since 1981 and follow South Korea’s guidance on a nuclear response strategy for a potential conflict with North Korea, while South Korea in turn committed to not pursue a nuclear weapons program. During the visit, the two officials also acknowledged efforts to address South Korean businesses’ concerns about the impacts of the CHIPS and Science Act and Inflation Reduction Act (IRA), as well as restrictions on advanced semiconductors sold or manufactured in China on Korean private entities.

National Security Advisor Sullivan and Secretary Yellen Give Remarks on U.S.-China Policy: On April 27, National Security Advisor Jake Sullivan gave remarks on the Biden administration’s international economic agenda at a Brookings Institution event, with China taking a prominent role in the speech. Among other aspects of U.S.-China relations, Sullivan noted that the administration believes significant public investments by Western governments would be necessary to lessen their reliance on an increasingly malign-acting China. Sullivan also noted that U.S. economic policies of the past that promoted globalization and entailed lower tariffs and less government influence in the market failed to deliver on promises of inclusive economic growth, describing “deep trade liberalization” as “a promise made but not kept.” These remarks follow a speech given by Secretary of the Treasury Janet Yellen on April 20, which also focused on U.S.-China relations. In her remarks, Secretary Yellen emphasized the importance of maintaining healthy trade and economic relationships with China while also protecting U.S. economic and security interests, noting that recent targeted actions by the U.S. government toward China were “motivated solely by our security and values,” and not aimed toward stifling China’s economic growth. Secretary Yellen also noted that while the U.S. government would not tolerate violations of international trade practices by China’s government, it would seek to cooperate on pressing issues, including foreign debt and climate change. In her remarks, Secretary Yellen said that she planned on traveling to China to “lay the groundwork for responsibly managing our bilateral relationship and cooperating on areas of shared challenge to our nations and the world.” She did not, however, give an official timeline for the visit.

The remarks by Secretary Yellen and Jake Sullivan aligned closely in taking a dovish approach to the administration’s China policy, with both officials relaying that the administration will act to hold China accountable for violations of international trade practices while also preventing the U.S.-China economic relationship from subsiding completely. Both officials also raised export controls in particular as a tool the administration could use to protect certain technologies from the Chinese military, which, due to China’s civil-military fusion strategy, will bear implications for many Chinese private sector entities. To read more on the remarks by Secretary Yellen and Jake Sullivan and their potential ramifications for the Biden administration’s policy on China, please see Brownstein’s client alert.

China Climate Envoy Invites Ambassador John Kerry to China: During the Major Economies Forum hosted by the White House on April 20, U.S. Special Presidential Envoy for Climate John Kerry met with China’s Climate Envoy, Xie Zhenhua to discuss U.S.-China cooperation on climate change mitigation. During their virtual meeting, Xie reportedly invited Ambassador Kerry to visit China in person to continue their discussions around climate change, potentially creating an opportunity for the two officials to resume discussions on a key priority of the Biden administration’s engagement with China. While the administration has worked to isolate climate change-related engagement from the broader U.S.-China relationship, climate discussions between the United States and China slowed significantly as part of the broader diplomatic separation following then-Speaker Nancy Pelosi’s (D-CA) visit to Taiwan in late 2022. It is unclear whether a meeting between Ambassador Kerry and Xie will occur in the near term, however, as ongoing tensions related to Taiwan and China’s balloon surveillance program complicate the U.S.-China relationship. Xie reportedly suffered from a stroke in January 2023 and has not attended any trips outside of China since, creating further uncertainty around what could be discussed in a meeting with Ambassador Kerry. If the meeting does occur, it is likely that talks will center around growing renewable energy investments, as well as reducing methane emissions and deforestation, recurring themes of the Biden administration’s climate discussions with China.

Congress

House of Representatives

Ways and Means Committee Approves Resolution to Enforce Solar Tariffs on China: On April 21, the House of Representatives voted 221-202 to pass H.J. Res. 39 - “Disapproving the rule submitted by the Department of Commerce relating to Procedures Covering Suspension of Liquidation, Duties and Estimated Duties in Accord With Presidential Proclamation 10414.” The resolution would rescind waivers issued by the Biden administration in June 2022 for solar-energy materials shipped by China to the United States through countries in Southeast Asia in order to avoid U.S. solar tariffs. The vote took place largely along party lines, with eight Republicans voting against and 12 Democrats voting for the resolution. In an April 18 statement, Ways and Means Committee Chair Jason Smith (R-MO) noted the resolution followed a December 2022 Department of Commerce report finding that China had circumvented U.S. tariffs on solar products by rerouting Chinese-origin products through Cambodia, Malaysia, Thailand and Vietnam. Chairman Smith characterized these trade practices as “unfair,” adding that rolling back the temporary waivers implemented by the Biden administration would “hold accountable bad actors in global trade and, in particular, Chinese wrongdoing.” The resolution will face multiple obstacles on its way to enactment, with President Biden noting on April 14 that it would create “deep uncertainty for jobs and investments in the solar supply chain,” and threatening to veto the resolution if it were to pass the Senate.

Select Committee on the CCP Hosts War Game: On April 20, the House Select Committee on Strategic Competition between the United States and the Chinese Communist Party held a bipartisan wargame exercise to craft a response to a hypothetical Chinese Communist Party invasion of Taiwan. The exercise, focusing on a supposed invasion by China’s military in 2027, followed “pointed CCP aggression across the Taiwan Strait and blatant CCP provocations to use force against the island,” as part of an effort to ascertain the military, humanitarian and economic impacts such an invasion would bring, according to a statement released by the committee. Among other findings, the wargame assessed that U.S. forces would sink 80 Chinese naval vessels but be limited by a shortage of precision missiles within as little as seven days of a full-scale military invasion of Taiwan. The exercise also predicted that China’s People’s Liberation Army (PLA) would conduct missile strikes against Guam and Japan as a precursor to an invasion, gaining an approximately 80,000 troop lodgment on Taiwan after the initial phase of the invasion had subsided. Members of the committee predicted that such an invasion would result in a severe and global economic depression, with Committee Chair Mike Gallagher (R-WI) noting that it would bring “trillions of dollars of loss and real pain to the global economy ... even if [the invasion] stays confined to a blockade scenario.” Following the wargame, the committee recommended taking several steps to ensure the deterrence threat posed by the United States and its allies would prevent a war, including clearing the $19 billion backlog of arms sales to Taiwan, surging U.S. military production of long-range and precision-guided missiles, pre-packaging sanctions to be implemented in the event of an invasion, eliminating the dependence of critical supply chains on China, and strengthening the United States’ and Taiwan’s cyber defenses, among other actions.

House Passes Bill to Hold China Accountable for Balloon Incident: On April 17, the House voted 405-6 to pass the Upholding Sovereignty of Airspace (USA) Act. The bill, sponsored by Rep. Greg Meeks (D-NY), would implement several measures meant to respond to the flyover of a Chinese surveillance balloon through U.S. airspace in early February. Among other measures, the USA Act would authorize the White House to impose sanctions on “any PRC individual” determined by the president to be “managing and overseeing” China’s surveillance balloon program. It would also direct the secretary of commerce to evaluate the effectiveness of various export control measures for aerospace-related items that are used by China’s military. The bill would also direct the Department of State to form a diplomatic strategy to inform U.S. allies and partners of the scope of China’s global surveillance program and “build a global consensus to address the Chinese government’s [surveillance program].” The bill was referred to the Senate Foreign Relations Committee on April 18.

Congressional Committees Hold Multiple China-Focused Hearings: Congressional committees held a number of hearings devoted either exclusively to China or to issues where China featured prominently over the past two weeks, continuing the bipartisan focus on U.S.-China relations that has been a consistent feature of the 118th Congress. On April 18, the House Select Subcommittee on the Coronavirus Pandemic held a hearing on the origins of the COVID-19 pandemic. As part of his testimony before the subcommittee, former Director of National Intelligence John Ratcliffe noted that “a minority opinion ... is currently holding back the CIA from concluding that ... COVID-19 was the result of experiments at the Wuhan Institute of Virology,” lending further support to the COVID-19 lab leak theory. On April 18, the House Foreign Affairs (HFAC) Subcommittee on Africa held a hearing entitled “Great Power Competition Implications in Africa: The Chinese Communist Party.” The hearing focused on U.S. competition with China across the African continent, including in the mining of critical minerals such as cobalt and interference by China’s government in democratic processes in African countries. HFAC held two other hearings focused on China in the same week,: on April 18, “Surrounding the Ocean: PRC Influence in the Indian Ocean,” which focused on China’s use of the Indian Ocean as a key transport route for goods such as oil and natural gas, among other issues—, and on April 20, “China’s Political Prisoners: Where’s Gao Zhisheng,” which centered around China’s detainment of Chinese human rights attorney Gao Zhisheng, as well as other political prisoners. China was also a focal point in a House Ways and Means Committee hearing entitled “The U.S. Tax Code: Subsidizing Green Corporate Handouts and the Chinese Communist Party.” Among other issues, the panel discussed the potential for the U.S. government to rejoin the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and negotiate further trade agreements with countries in the Indo-Pacific to counter China’s growing influence in the region.

Senate

Republican Senators Urge Biden Administration to Sanction Chinese Cloud Service Providers: On April 25, Sen. Bill Hagerty (R-TN) led a group of nine senators in a letter to the Department of the Treasury, Department of Commerce and Department of State urging the Biden administration to impose sanctions against Huawei Cloud and other People’s Republic of China (PRC) cloud service providers. The letter was coauthored by Sens. Thom Tillis (R-NC), Marco Rubio (R-FL), Steve Daines (R-MT), Ted Cruz (R-TX), Joni Ernst (R-IA), Katie Britt (R-AL), Kevin Cramer (R-ND) and Dan Sullivan (R-AK). The letter called on the Biden administration to administer “sanctions, export restrictions, and investment bans” among other provisions against PRC-based cloud computing services. The letter cited links between companies such as Alibaba Cloud and the Chinese government, noting that “Alibaba Cloud is widely known to provide services to the PRC military, security, and intelligence agencies.” The letter also notes that Huawei’s cloud services subsidiary, Huawei Cloud, was found to have used its technologies to enable Chinese government surveillance, including to “monitor political dissidents, manage ideological reeducation and labor schedules for prisoners, and help retailers use facial recognition to track shoppers.” The letter also urged the Biden administration to further investigate Huawei Cloud, Alibaba Cloud, Baidu Cloud, Tencent Cloud and other similar companies based in China for their operations in the United States that may “negatively impact [U.S.] national security and foreign policy interests.” On April 26, Secretary Raimondo said that Chinese cloud service providers posed a threat to U.S. national and economic security, testifying at a Senate Appropriations Subcommittee on Commerce, Justice, Science, and Related Agencies hearing on the Department of Commerce’s FY24 budget request. Secretary Raimondo noted she was in “broad agreement” with a question posed by Sen. Hagerty, who asked whether PRC cloud service providers posed threats to U.S. security “given the far reach of China’s national security related laws and their military-civil fusion strategy.”

Agencies

Department of Commerce

Republican Senators Call on Commerce Department to Include Chinese Aerospace Manufacturer in MEU List: On April 25, Sens. Rick Scott (R-FL) and Marco Rubio (R-FL) authored a letter to Under Secretary of Commerce for Industry and Security Alan Estevez, urging the Department of Commerce to include Commercial Aircraft Corporation of China (COMAC) on the Military End User (MEU) List. The letter notes that COMAC is a critical component of China’s “military-civil fusion,” which allows China’s government to utilize technology and research findings gained by joint activities between Chinese and Western private companies. Citing that China’s government continues to acquire dual-use aerospace technologies “through trade as well as forced joint venture and partnerships,” the senators urged the Department of Commerce to add COMAC to the MEU List, adding that multiple COMAC parent entities were already included in the list. The MEU List includes entities that have been determined to be “military end users,” and prohibits added entities from receiving items subject to Part 744 of the Export Administration Regulations (EAR) that may be used for military purposes without a license from the Bureau of Industry and Security (BIS).

On the Calendar

Congress

House Select Committee on Competition Between the United States and Chinese Communist Party
Technology and Economic Comparatives
May 17, 7:00 p.m.

Private Sector

Stimson Center
Conversation with Nicholas Burns, U.S. Ambassador to China
May2, 8:30 a.m.

Woodrow Wilson Center
The Future of Central Asia’s Development: Between Russia and China
May 2, 10:00 a.m.

Woodrow Wilson Center
Tackling Climate Super Pollutants in China
May 9, 9:00 a.m.

Peterson Institute
Will China’s Financial Sector Remain Forever State-Dominated?
May 10, 9:00 a.m.