China’s party and state leader Xi Jinping will host the G20 summit of developed and developing economies in the city of Hangzhou on September 4 and 5. The bulk of observable behavior by China’s leadership indicates that President Xi wants this to be a smooth and successful summit, showcasing him as a major figure on the international stage as he prepares for the intense domestic political struggle preceding the Nineteenth Party Congress at the end of 2017.

Douglas H. Paal
Paal previously served as vice chairman of JPMorgan Chase International and as unofficial U.S. representative to Taiwan as director of the American Institute in Taiwan.
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For U.S. President Barack Obama, this should be the last extended encounter with his Chinese counterpart and his last trip to Asia before a new U.S. administration enters office early next year and undergoes a months-long transition. In large measure, Obama’s trip to China and subsequent participation in the East Asia Summit and U.S.-ASEAN leadership summit in Vientiane, Laos, underscores the legacy of his rebalance to Asia.

This is a major moment for both the U.S. and Chinese leaders to communicate their priorities, concerns, and bottom lines about the mix of competition and cooperation that has recently characterized bilateral relations. Repeated direct communication between these leaders has helped prevent disputes from becoming crises, even as frictions have multiplied and intensified. Given the way China is ruled and the greater personal authority Xi has assumed since taking office, there is no realistic substitute for these direct and deep communications at the top.

Neighborly Outreach and Assertive Sovereignty Claims

Leading up to the G20 summit, China has been sending decidedly mixed signals. On the one hand, Xi has initiated the One Belt, One Road concept of deepening China’s infrastructure and related commercial ties with its neighbors in Central and Southeast Asia. Funding mechanisms— such as the Silk Road Fund, the New Development Bank, and the Asian Infrastructure Investment Bank—are falling into place. Xi hosted two major foreign policy conclaves in 2013 and 2014 respectively, ostensibly to invigorate and improve relations with states on China’s periphery. In response to President Obama’s rebalance to Asia, Beijing has appeared to be courting neighbors who might be enticed by the United States with a Chinese counterbalance to the Obama rebalance. Today, this is exemplified in China’s preparations to host a smooth and successful summit of the G20 leaders.

On the other hand, since at least 2008 the world has observed a China that is quite bold in asserting its sovereignty claims in the South China Sea, constructing seven artificial land forms since 2015, and defying vehemently the Philippines’ resorting to the UN Convention on the Law of the Sea (UNCLOS) arbitration mechanism to resolve disputed interpretations of territorial claims.

The United States received demand signals from allies and partners for Washington to counterbalance China’s pressures. So the rebalance to Asia was announced in 2011, as the United States raised its voice repeatedly to assert alliance interests and press for the rule of law; stepped up its activities, including freedom of navigation operations; and amplified its rhetoric criticizing Chinese behavior. An active security dilemma emerged, with each side behaving out of a belief that it is defending its interests, and the other alleging aggressiveness.

China took a loud, rejectionist stance against the Philippines’ pursuit of arbitration of its territorial and maritime disputes with China under UNCLOS. But since the July 12 award of the UNCLOS arbitration panel, which comprehensively rejected Chinese claims and activities in the South China Sea delineated by its so-called “9-dash line,” China has confined its responses to rhetoric. Even an officially reported flyover by a Chinese bomber near Scarborough Shoal, symbolizing defiance of the award, turned out to have occurred well before the arbitration panel made its ruling, according to U.S. officials, evidently to appease angry domestic opinion without drawing a response from the Philippines or the United States.

Many observers suspect that Beijing will not reveal its true intentions until after successfully hosting the G20 summit, seeking to avoid public arguments or provide excuses for important leaders not to participate. Some commentators have speculated that Beijing will eventually try to undertake construction of a new artificial facility on Scarborough Shoal, declare a South China Sea air defense identification zone, or take other aggressive actions to demonstrate its defiance of the arbitration outcome. In this sense, China’s real response to the arbitration award will probably remain unknown until sometime after the G20 summit.

Meanwhile, the Philippines introduced a wild card with the election of new President Rodrigo Duterte, who vigorously defends Filipino sovereign interests, but who also is focused on domestic development and willing to explore negotiations with China. Beijing sent informal representatives to meet in Hong Kong with Duterte’s choice of envoy, former Philippines president Fidel Ramos, to try to establish a basis for formal negotiations. The arrival of Duterte thus provides a possible avenue to a decrease in South China Sea tensions, after the intensification of recent years under former Philippines president Benigno Aquino.

Now that the region has entered a calm period between the arbitration panel’s award and the still uncertain aftermath of China’s hosting of the G20, Washington has sensibly and wisely lowered the pitch of its rhetoric to reduce the likelihood of further stirring nationalistic anger in China that might push leaders even deeper into confrontational stances. U.S. National Security Advisor Susan Rice made an ostensibly constructive visit to Beijing’s leaders in late July 2016 to shift the focus to the impending G20 and President Obama’s participation. The United States has seemed to be giving China’s leaders space and time to find an off-ramp from the high rhetorical posture they had assumed. One hopes that Beijing will seize the opportunity, pocket its gains in having built artificial facilities in the South China Sea that continue to demonstrate its stake in the area, and pursue accommodation on navigational access, fishing rights, and other sources of disputes with rival claimants.

China’s Security Challenges

But a range of Chinese leaders have doggedly pursued the country’s claims in the sea for a long time, suggesting a deep strategic ambition to control the region that will not be lightly deflected. It is worth recalling that China first seized the Paracel Islands from South Vietnam as long ago as 1974, in Mao Zedong’s last years, after Washington signaled its waning interest in continuing the fight on behalf of Saigon. Beijing, under Deng Xiaoping, seized reefs and shoals from Vietnam in 1988, after the Soviet Union’s President Mikhail Gorbachev withdrew the Soviet fleet from Cam Ranh Bay. And China under Jiang Zemin occupied the Philippines’ Mischief Reef in 1995 after the U.S.-Philippines basing agreement expired in accordance with a 1991 termination agreement. There are historical disputes about what precipitated each of these actions, but in general orphaned nations have not done well against Chinese ambitions. It will take a lot to persuade China’s neighbors that things have really changed.

This again raises the question about the visible contradictions in China’s conduct of its foreign policy. Standing in the White House Rose Garden in September 2015, President Xi Jinping pronounced that China “does not intend to pursue militarization” in the Spratly archipelago, shortly after completing the landfill projects there. Now multiple sources have revealed that China proceeded in recent months to construct hangars at the airfields on four of the landfills. Is this not militarization? If not, Beijing is not saying so clearly.

Looking back on China’s sweepingly unsuccessful and entirely negative management of the Philippines’ pursuit of arbitration under UNCLOS, one has to wonder how Beijing painted itself into such an unavailing corner. Why were alternative approaches not tried that might have enhanced China’s voice in the process? Which institutions or individuals devised the strategy? Will they pay a price internally? Were lessons learned?

More recently, China made another diplomatic mistake in its management of security on the Korean Peninsula. Beijing compounded years of accommodation to North Korea’s provocative behavior by repeatedly and publicly warning South Korea not to agree to the installation of Terminal High Altitude Area Defense (THAAD) air-defense systems and radars to guard against the North’s rapidly increasing missile capabilities. Presumably among China’s more able diplomats there are people who would recognize that democratically elected leaders like South Korean President Park Geun-hye cannot ignore threats to their population and reject the means to protect it. Going public, Beijing left Park no real choice but to press ahead or appear to cave before Chinese pressure. This was especially so after she went out of her way to give face to President Xi by conspicuously attending his massive military parade in September 2015.

Now that THAAD is to be deployed in South Korea, Beijing says it will constitute a threat to its strategic forces by allowing the United States greater access to information on Chinese test firings of missiles, warheads, and decoys. Other Chinese commentators focus on the deepening integration of South Korean, Japanese, and U.S. efforts to forge a counterweight to China. This has ushered in an incipient security dilemma in Northeast Asia, where efforts to defend against a rising North Korean security threat are perceived by China to be aggressive and to demand a Chinese countermeasure to defend its security.

As if this were not enough to manage, China has significantly increased its intrusions into Japanese-administered waters around the Senkaku (or Diaoyu, in Chinese) Islands since the beginning of August. The origins of this uptick remain murky and unexplained, even apparently to Chinese diplomats who claim to be uninformed on the subject. Japan has protested, but the activities continue. What appeared just two months ago to be a stabilized, low-intensity security dilemma now is at risk of escalation. Yet amid this recent escalation, Tokyo and Beijing exchanged visits by top foreign policy officials in part to facilitate a meeting between Japanese Prime Minister Shinzo Abe and President Xi in Hangzhou.

Finally, relations across the Taiwan Strait deserve mention, not because tensions are suddenly rising there too, but because they have the latent capacity to do so. Elected in January 2016, Taiwan’s President Tsai Ing-wen has proceeded cautiously and flexibly in managing cross-strait relations, while refusing to yield to Beijing’s demand to pronounce commitment to a one China principle or the previous Taiwan government’s ambiguous formula of the 1992 Consensus. Chinese officials are giving Tsai time to come around, but there is no likelihood she will ultimately accept the terms Beijing is demanding. Therein lies a potential reemerging security dilemma with Taipei for Beijing to handle.

Beijing has daunting challenges at home, most importantly the intense political jockeying that will precede the Nineteenth Party Congress in late 2017, a gathering that should unveil the next generation of national Chinese leaders. It would seem prudent for China’s leaders to prioritize the security challenges they face. Previously, they have shown pragmatism in choosing their battles with neighbors. A logical outcome might be to lay low on the South China Sea and let the world’s attention drift away, find a less confrontational approach to Seoul, reduce intrusions in the Japanese-administered waters around the Senkaku Islands to the previous practice of three times a month, and continue to cultivate ordinary Taiwanese voters with economic inducements. The positive G20 summit atmosphere could keynote the months ahead. But there are reasons to question that.

Unpacking Beijing’s Mixed Signals

There are structural changes in Asia’s international relations caused by China’s expanding economic and military power that can be expected to exacerbate frictions with the United States and China’s neighbors. U.S. economic and alliance interests in the Asia-Pacific region are enduring in nature, and China’s new capabilities are bumping up against them.

China’s internal politics are more divisive and challenging than they appear because they are opaque or hidden, and President Xi’s reform agenda is meeting with uneven results. Sweeping reforms of the People’s Liberation Army appear to be getting done. The financial sector has seen significant reforms. But the state-owned sector continues to be costly and inefficient, and Xi’s own reform goals appear to be contradictory. There was a two-line struggle over debt, subsidies, and economic stimulus through the summer. Foot dragging appears commonplace among lower-level officials. Xi’s rather effective anticorruption campaign is sometimes offered by officials privately as an excuse for inaction. In this uncertain atmosphere, leaders who do not appear to protect Chinese sovereign interests passionately can add to their political vulnerabilities.

Another reason for the contradictory impulses in Chinese foreign policy appears to be institutional. Previous Chinese leaders have had go-to people who bridged the important gap between policy implementers, such as the state councilor and the foreign minister, and the leading decisionmaker. Xi does not have such a right-hand assistant, and he has also reduced the collective decisionmaking of the country’s top leaders on the Politburo Standing Committee. He has created a new National Security Commission to coordinate policy, but it hardly seems to function, and primarily on domestic security when it does. This may help explain why Chinese officials tend to default to hardline nationalistic positions in dealing with China’s neighbors and the United States, perhaps in the absence of more nuanced guidance. It also accounts for why the accumulation of negative outcomes in China’s relations with its neighbors does not seem to produce a change in behavior until the top leader gets directly involved in the process, as Xi has done in the run-up to the G20 summit.

Xi himself may prove to be the kind of leader who sees merit in keeping everyone guessing and off balance, sort of like Richard Nixon. He seems willing to control the international thermostat around China, turning the heat up and down as it suits his agenda.

A Crucial Dialogue

This reinforces the importance of seizing the opportunity of extended direct discussions between Presidents Obama and Xi next week to introduce or reinforce guardrails and confidence-building measures in U.S.-China relations. The Chinese leader is outspoken in asserting territorial and maritime sovereignty claims, and President Obama continues to need to be clear about which actions in pursuit of those claims will provoke a U.S. and allied response. The United States has been clear about reinforcing the rule of international law and norms to preserve peace and stability, and it needs to be clear about the penalties and costs for violations. An important contribution of President Obama’s summit activity will be to force China to reassess the balance sheet of continuing to press the envelope with the United States and its Asian neighbors. For President Xi, meanwhile, this is an opportunity to demonstrate a steady hand and pragmatic reserve. Given the shake-ups coming in both U.S. and Chinese policy circles, the region is in need of a display of adult supervision.