In recent years, the U.S.-China bilateral relationship has hit historic lows, marked by notable events like the Chinese spy balloon incident in February and former Speaker of the House Nancy Pelosi’s visit to Taiwan in 2021. However, there is reason for optimism as we have witnessed a significant shift in dynamics over the past few months that may present opportunities for some Chinese businesses that have been negatively impacted by the geopolitical tensions.
High-level diplomatic engagements occurring throughout the summer and into the fall have contributed to a notable thawing of tensions between the United States and China. As we approach the Asia-Pacific Economic Cooperation (APEC) Summit, scheduled for next week, there is a unique opportunity for the Biden Administration to build upon this positive momentum. Administration officials know this very well, as they have acknowledged that the meeting between Chinese President Xi Jinping and President Biden at APEC presents a crucial chance to re-establish a foundation of stability in the relationship.
In our view, this stability is particularly important as both major political parties in the United States are expected to heavily incorporate China and U.S.-China policy into their rhetoric during the upcoming presidential election cycle. With this in mind, Chinese business involved in disputes with the U.S. federal government that arise from policy differences between China and the U.S., especially in areas of trade, investment, and technology, should be vigilant. This period may offer a window of opportunity for Chinese companies caught in the middle of such differences to resolve such disputes to mutual satisfaction, provided that the current atmosphere of cooperation endures.
Major Diplomatic Push
Since February 2023, three Cabinet officials—Secretary of State Anthony Blinken, Secretary of the Treasury Janet Yellen, and Secretary of Commerce Gina Raimondo—have visited China, alongside U.S. Climate Envoy John Kerry. These visits have been significant, as they mark the first of their kind by officials of such high rank in years. Given the lack of communication and the attendant high risk of dangerous miscalculation between the two governments over the preceding two years, the Biden Administration’s approach to China in connection with these visits has centered on engagement without preconditions.
President Biden is known for his emphasis on personal diplomacy and the belief that building genuine relationships with foreign leaders is key to resolving disputes. While critics argue that these outreach efforts have yielded little in return, the primary goal of the Biden Administration’s U.S.-China strategy, as originally outlined by Secretary of State Antony Blinken, is the “responsible management” of this crucial strategic relationship.
Secretary Yellen’s mission to Beijing is a prime example of this approach, where she described her role as “setting a floor in the relationship.” Each Cabinet-level trip aimed at specific policy deliverables, but the central objective was to lay the groundwork for dialogue. Despite some initial setbacks, such as China’s withdrawal from the fentanyl working group in response to Speaker Pelosi’s Taiwan visit, the Administration continued to send Cabinet members to Beijing.
China, in turn, has signaled its willingness to engage in diplomatic discussions with the United States. Both the Chinese Ministries of Foreign Affairs and Commerce have described these dialogues as “rational, candid, and constructive,” and President Xi has expressed the desire to improve Sino-U.S. relations. The shift in Chinese diplomatic rhetoric—especially among President Xi’s “wolf warrior” diplomats at the Ministry of Foreign Affairs—away from confrontational language towards a more cooperative tone has been evident.
These high-level discussions have intensified in preparation for the upcoming APEC Summit in November, where Presidents Biden and Xi are expected to meet. Secretary Yellen’s meetings with People’s Bank of China Governor Pan Gongsheng and the formation of the U.S.-China Economic Working Group highlight the importance of these discussions. Additionally, Chinese Foreign Minister Wang Yi’s follow-on meetings with Secretary Blinken and National Security Advisor Sullivan, which we believe will be an especially important relationship in the future, as well as California Governor Gavin Newsom’s visit to China to discuss climate cooperation, have further contributed to the positive momentum. Notably, Newsom endorsed Xi’s principles for the bilateral relationship, marking a unique development in U.S.-China relations.
Subtle But Important Progress—Bilateral Working Groups
Though Secretaries Blinken and Yellen left China without any firm commitments from Beijing, Secretary Raimondo’s visit resulted in slow and steady progress. In August, she announced that she had agreed to stand-up a commercial issues working group and an export control enforcement information exchange, both reflecting pressing issues in the relationship. Throughout those discussions, the Biden Administration expressed that it expects China to ease restrictions on U.S. entities operating in the country and that it will not back down from its export control regime.
In September, the Treasury Department furthered these efforts by establishing its own working groups dedicated to economic and financial issues. These discussions will be held regularly at the vice-minister level, marking a revival of a forum that had been suspended during the previous administration in 2018 due to deteriorating U.S.-China relations.
This ongoing effort reflects a dedication to addressing the complexities of the U.S.-China relationship through diplomatic means. While the visits of Secretaries Blinken and Yellen may not have yielded immediate results, the establishment of these working groups showcases a willingness on both sides to engage in candid and continuous dialogue, even in the face of significant disagreements.
Historic U.S. Senate Delegation
Throughout this period, Congress’ stance towards China has been notably aggressive—with the House Select Committee on the Strategic Competition with the Chinese Communist Party taking the lead.
However, on October 7, a significant development occurred when the first U.S. Senate delegation since 2019 arrived in China. This bipartisan delegation, headed by Senate Majority Leader Chuck Schumer (D-NY) and Senator Mike Crapo (R-ID), engaged in discussions with senior party officials and President Xi Jinping, primarily addressing trade, business conduct, and the issue of fentanyl trafficking. Additionally, Leader Schumer aimed to bring up concerns regarding China’s ban on products manufactured by the U.S. chipmaker Micron Technologies, a matter of particular interest to both Schumer and Crapo due to Micron’s significant presence in both of their states. Importantly, Schumer emphasized that the United States is “prepared to compete but does not seek conflict,” and he called for a “level playing field” for U.S. entities operating in China. This represented an especially productive tone compared to the stance of many other top members of Congress this year.
Both sides expressed optimism about the talks. Notably, President Xi did not reject a request for China to appoint a high-level diplomatic official to address concerns regarding China’s role in the fentanyl supply chain. Although Leader Schumer’s criticism of China’s response to the Hamas attack on Israel initially posed a challenge to the discussions, he welcomed a revised statement from Beijing. In the aftermath of the meetings with President Xi and Foreign Minister Wang, the Chinese Foreign Ministry encouraged “more interactions, dialogues, and exchanges to increase mutual understanding” in the bilateral relationship.
Notably, on November 1, just days after Leader Schumer and Senato Crapo’s delegation visited to China, Chinese Commerce Minister Wang Wentao met with Micron’s CEO to express China’s readiness to welcome the U.S. chipmaker back into the Chinese market, marking a significant change from their previous ban on Micron memory chips in May due to network security concerns. China’s willingness to reconsider its stance on Micron reflects an apparent thaw in U.S.-China relations, with both sides aiming to improve ties in anticipation of the upcoming APEC Summit in November.
Policy Comity Where Possible
Despite the extensive diplomatic efforts between China and the United States over the last few months, both countries continue to take aggressive actions against each other, particularly in trade, technology, and investment, and there are no evident signs of these policies being eased. For its part, the Biden Administration has made it clear that negotiations with Beijing regarding matters of national security are off the table, pledging only to engage in transparent discussions. However, there are indications that neither government is eager to sever its economic ties with the other.
In September, for example, China introduced draft regulations aimed at loosening restrictions on cross-border data transfers from China. This move directly addresses complaints from U.S. industries that China’s strengthened counterespionage and technology transfer laws have made it “uninvestable.” By easing rules related to data flows, China aims to reduce compliance burdens on multinational entities operating within its borders. This policy shift is seen as an attempt to attract foreign investment, and it also signals to U.S. entities that Beijing, led by President Xi, intends to keep its doors open for their operations in China.
On the U.S. side, despite updated export controls on AI chips and semiconductor manufacturing equipment in October, Commerce granted South Korean chipmakers, including SK Hynix and Samsung, indefinite waivers to supply their chipmaking facilities in China with U.S. technology. These waivers suggest that there is room for cooperation, even within the context of the strategic competition between the two superpowers. While these decisions were not solely motivated by improving relations with Beijing, as South Korea had insisted on these licenses being granted, they conferred on China a benefit deemed acceptable to the U.S. even in the context of strong policy concerns by the U.S. moving in the opposite direction.
Major PRC Leadership Changes
Recent leadership changes in both China and the United States may have significant implications for various aspects of their relations, including national security, trade, and technology. China’s decision to replace Li Shangfu, who held important state positions like defense minister, hints at preparing for a new defense minister before the Xiangshan Forum, a significant international dialogue platform focused on Asian security and defense matters. This move might pave the way for renewed military talks, aligning with the Biden Administration’s aim, as Beijing cited U.S. sanctions on Li for rejecting a meeting with U.S. Defense Secretary Lloyd Austin. The absence of a named replacement adds complexity to these impending dialogues. In parallel, the removal of Qin Gang from his state councilor position, primarily focused on foreign affairs, could influence how China manages its foreign relations.
Another noteworthy development is the U.S. Department of Defense’s participation in the Xiangshan Forum, signaling ongoing engagement between the U.S. and China on regional security issues, despite overarching tensions.
Recent leadership changes in key economic and technological positions in China are also worth noting. The emphasis on specialization and expertise in vital policy areas, such as science and technology, led to Wang Zhigang’s replacement by Yin Hejun as Minister of Science and Technology. Additionally, Lan Fo’an replaced Liu Kun as Minister of Finance, underscoring China’s approach to place experts in positions closely aligned with their areas of competence. This approach may result in more efficient and targeted policy decisions, potentially reducing the influence of political considerations in the decision-making process.
How these developments align with transition in several U.S. posts key to the “responsible management” of the bilateral relationship, including Mark Lambert as the new China Coordinator and Deputy Assistant Secretary of State for China and Taiwan in the Bureau of East Asian and Pacific Affairs, that is, the new head of the China House at the State Department, and the expected confirmation of Kurt Campbell, currently the Deputy Assistant to the President and Coordinator for Indo-Pacific Affairs at the National Security Council, as the new Deputy Secretary of State, warrants close attention.
Today, U.S.-China relations remain tense. But there are signs of improvement. Both sides seem ready to embrace a new phase of engagement, focusing on openness and reducing the risk of dangerous misunderstandings, amid strong, even fierce competition.
President Biden’s goal of “responsibly managing” the bilateral relationship doesn’t mean compromising on national security, and President Xi is unlikely to back down on military buildup or South China Sea activities. These issues will persist, but the recent diplomatic efforts have paved the way for structured communication and the establishment of boundaries for competition.
As we observe the state of U.S.-China ties, we can look ahead to the highly anticipated APEC Summit as a potential turning point, solidifying this thaw in relations. While it is important to maintain a realistic perspective on what is possible vis-à-vis the substantial disparities in the worldviews of both nations, today Chinese companies involved in disputes with the U.S. federal agencies that turn on trade, investment, and technology policy differences may want to exercise vigilance. This period may present an opportunity to address these challenges as doing so in a given case may align with the interests that both countries have today in promoting cooperation and enhancing mutual understanding. Nonetheless, in the runup to a presidential election season already marked by aggressive political rhetoric on China and the bilateral relationship, how long this thaw will last is far from certain.