Prognostications for the US-China Relationship in the Year of the Dragon

Saturday, February 10 marks the beginning of the Lunar New Year, a time when many of our Page China members spend with their families and friends, as they reflect on the year past and prepare for the year ahead. This past Lunar year, started as a challenge; however, given focused efforts by both governments, the U.S.-China relationship grew and improved over the year and today is on much more solid ground. 

According to the South China Morning Post, the Year of the Dragon is a period where growth, progress and abundance is possible. The Dragon is an important year in the Chinese calendar, considered to be lucky and intelligent, while also straightforward and tough.

In advance of this coming year, Page has been working to inform our membership on the latest movements and events related to the U.S.-China Relationship, to guide our organizations accordingly. 

Dispatch from December 20 Conversation

These efforts began on December 20, 2023, with a Page Conversations discussion with the well-known and respected China counsellor, Jim McGregor, Greater China Chairman of APCO Worldwide. McGregor, who spent 30 years working in China as a reporter and consultant, spoke about the mid-November 2023 Xi-Biden Summit Meeting held during the Asia Pacific Economic Conference (APEC). He commented on what happened at APEC, and shared views on movements in Washington since the APEC meeting.  

McGregor began by sharing a description he heard that came from David Ignatius, the Washington Post Columnist, who said it ultimately came from Xi before the meeting: during this meeting, “they would be like two boxers in a clinch, just kind of holding on to each other and saving their strength for later rounds.”

According to McGregor, “That’s kind of how they were. They were friendly. Nothing momentous happened. They showed a friendly face, and given how hostile and distant the relationship has been, that is important.”

McGregor then shared a few things that were accomplished:

• Military-to-military communications being restored. Such communications were cut off after Nancy Pelosi’s visit to Taiwan in August 2022. Having military-to-military discussions restored with so many of our airplanes and ships coming close to each other in the South China Sea and East China Sea, we must have these discussions, McGregor explained.  
• The precursors of Fentanyl were cut off. In 2019, China shut down direct shipment of Fentanyl to U.S., but the ingredients were going to the Mexican drug cartels. After the discussions, China moved very quickly to cut off precursors which is important because 74,000 Americans died last year from Fentanyl, McGregor added.
• Biden and Xi Talked about jointly working to understand the risks associated with Artificial Intelligence, which according to McGregor, would be much more complicated and something to watch closely.  

In addition to the above, having 12 working groups discussing various things that impact both countries, led by Treasury and Commerce in the U.S. and their counterparts in China, is a hopeful sign, McGregor continued. “It was clear from the beginning they wanted a positive spin on the meeting.”

McGregor pointed out there was not more business discussed, as the US was not willing to talk about the tariffs and other outbound investment controls, so China decided it was not going to talk about trade and business at all. “China only likes to make reciprocal concessions and all of that was off the table,” he added. 

McGregor shared views from a cross section of experts and officials from both the U.S. and China, which reinforced the positivity of what transpired, and also raised the risks ahead leading into 2024.

McGregor continued, “Business needs to be a bridge.  Why do most foreign businesspeople working in China have a more positive view of China? Because their view comes from the Chinese people they work with every day. From the relationships they have, the trust they have with these people, and the admiration they have for their hard work and intelligence. That is my view also from the hundreds of people I have worked with. We must focus on that, and we have to keep that bridge strong because that is one of the last win-win ties we have.”

McGregor made a final comment about the importance of the China market. He observed that while business used to be in China because of the size of the market and the opportunity that exists, today, businesses need to be there because their next global competitors are going to come from China. He also mentioned the speed and quality of innovation in China, and how that helps everyone that is part of the ecosystem.

Dispatch from January 24 Conversation

We followed the December discussion with a Page Conversation event on January 24 entitled, “Economic Prognostications For the Year of the Dragon”, featuring Qian (Louise) Liu, Managing Director of the Economist Group in Greater China; and Dexter Roberts, Director of China Affairs at the Maureen and Mike Mansfield Center at the University of Montana, and author of The Myth of Chinese Capitalism. The two experts took different, and provocative, views on the current state of affairs in China.

We began with Louise Liu, who shared the following predictions for China in 2024.

• 2024 projects mild growth. Current predictions show China’s economy to grow at 4.7% in 2024. That compares with a global growth at 2.3%, similar to 2023.
• Economist Intelligence Unit predicts 10 top risks for the world, and these include but are not limited to a change in the U.S. administration, climate change, Artificial Intelligence, the Israel-Hamas conflict, and supply chain challenges in Asia, just to name a few.
• The political polarization in the U.S. in an election year will most likely heighten tensions between U.S. China relationship, as the one thing that unites the U.S. right now are bipartisan views on China.   
• Looking at China, its economic growth is returning to a more sustained recovery path. Private consumption, being impacted by income growth, unemployment rate, housing prices and more, will be important to watch, given in 2023 nearly 40% of China’s growth comes from this.  
• According to Liu, 2024 U.S.-China ties, if gone wrong, would cast even more clouds over business, particularly given the sensitivities that exist in the forthcoming presidential election in the U.S.
• Liu concluded by sharing “Lack of confidence is critical for the Chinese economy at the moment. Yet, positivity exists in industries such as Artificial Intelligence and electric vehicles. Also, China will not be replaced as a manufacturing powerhouse,” she emphasized.

Dexter Roberts took a different perspective in his remarks, highlighting the ever-increasing competition between the U.S. and China. He noted: 

• China, under Xi Jinping, is very much pushing towards a much more politically-driven economy and business sector, even though we have seen a different face of China more recently.
• China, under Xi Jinping, has eschewed its previous “hide and bide” approach to global affairs. That’s hardly surprising for a rising superpower like China, that some have predicted will surpass the U.S. and become the world’s largest economy, if not at least remain strongly in second place, in terms of economic strength.  
• We are seeing more and more dual messaging, externally and internally, often separated that way to reach global audiences and internal audiences in China. And, this is coming from both Xi Jinping and Premier Li Qiang.
  • Externally we are hearing about market openness, and also about global opportunity. 
  • In internal speeches we are hearing a lot, particularly from Xi Jinping, about the necessity of self-reliance, and also national security. 
• According to Xi, China’s national security needs to be front and center, including in making business and economic decisions.
• Win-win rhetoric is disappearing, as the conversations move toward competitive language. As China grows, Xi sees the world as having winners and losers.  We have heard frequently from Xi Jinping that the ‘East is rising and the West is declining,’ and ‘time and momentum are on our side.’ 
• This rhetoric is mirrored in the west, as many in Washington, D.C. take combative stances against China.

Roberts continued sharing views on interpreting movements in China, and shared statistics related to drops in foreign investment that took place in Q3 of 2023, risks associated with declining birth rates and a growing elderly population. He commented on Li Qiang’s openness at Davos, while cautioning Page members to understand the current challenges. Taiwan was discussed briefly and Roberts emphasized how all eyes are now watching how the new Taiwanese government proceeds and China responds.

Page in China conversations in December and January were interesting, enlightening and insightful, and as we enter the Year of the Dragon on February 10, 2024, the future is up to us in terms of how we manage the opportunities and complexities in front of us.