The South China Sea remained the most contentious issue in the US-China relationship in the early months of 2016. North Korea’s fourth nuclear test and missile launches posed both a challenge and an opportunity. After two months of intense consultations, the US and China struck a deal that led to unprecedentedly tough sanctions on Pyongyang. Xi Jinping attended the Nuclear Security Summit in Washington DC at the end of March and met President Obama. Their joint statements called for cooperation on nuclear security and climate change. Relations between the militaries hit a snag as Secretary of Defense Ashton Carter postponed a planned visit to China and Beijing rejected a request for a US aircraft carrier battle group to visit Hong Kong. Talks continued on a bilateral investment treaty, but China failed to submit a new “negative list,” leaving prospects uncertain for concluding a BIT by the end of Obama’s term.

South China Sea continues to cause friction

Tensions between the US and China over the South China Sea simmered throughout the first four months of 2016 as a ruling neared in the case brought by the Philippines against China over Beijing’s maritime claims. The first episode took place at the end of January when a US guided-missile destroyer, the USS Curtis Wilbur, conducted a freedom of navigation (FON) operation within 12nm of Triton Island in the Paracel Island chain. The operation was the second such FON operation since China began building artificial islands in the South China Sea. The first FON operation entailed the transit of a US Navy ship through waters close to Chinese-occupied Subi Reef in the Spratlys in October 2015.

A Pentagon spokesman explained that the operation challenged attempts by China, as well as by Taiwan and Vietnam, “to restrict navigation rights and freedoms around the features they claim by policies that require prior permission or notification of transit within territorial seas.” The spokesman added that the FON operation demonstrated, as President Barack Obama and Secretary of Defense Ashton Carter have repeatedly stated, that the US will “fly, sail, and operate anywhere international law allows.”

China’s Foreign Ministry condemned the action and charged the US with violating the country’s 1992 Territorial Sea law, which requires a foreign warship to obtain prior permission before entering China’s territorial waters. The Defense Ministry described the action as “unprofessional and irresponsible,” and warned that it could cause “extremely dangerous consequences.”

A month later, on Feb. 16, the Chinese military deployed two batteries of eight Hongqi-9 (HQ-9) advanced surface-to-air missiles (SAMs) on Woody Island in the Paracels. The deployment occurred as President Obama was hosting leaders of the Association of Southeast Asian Nations (ASEAN) in Sunnylands, California. Apparently, China had on prior occasions placed HQ-9 missiles on Woody Island as part of a military exercise, but then removed them. This deployment was not associated with a drill, however, and it was unclear whether the missiles would be stationed there for a longer period, perhaps permanently.

China’s Defense Ministry spokesman insisted that the positioning of weaponry and equipment within China’s territory was solely for defensive purposes and accused the US of “hyping up” Chinese actions. Some observers speculated that the HQ-9 deployment was a response to the US FON operation around Triton Island. A few weeks earlier, Commander of the PLA Navy Adm. Wu Shengli warned US Chief of Naval Operations Adm. John Richardson that Chinese decisions regarding the deployment of military capabilities in the region would “completely depend on the level of threat we face.” An article in the nationalist tabloid Global Times subsequently warned China would “respond with countermeasures” to “every provocation from the United States.”

When Foreign Minister Wang Yi visited Washington the following week, the South China Sea was high on the agenda. After discussions at the State Department, Secretary of State John Kerry told the press that he emphasized the need for a diplomatic solution based on the rule of law, saying “We want to halt the expansion and the militarization of occupied features.”  He also urged that territorial and maritime claims be clarified in accordance with international law and reiterated the US commitment to the preservation of freedom of navigation and overflight. Wang Yi asserted Chinese rights to uphold their “territorial integrity and lawful, legitimate maritime rights and interests.” He maintained that China is committed to resolving the disputes through dialogue and negotiation, while stressing that “non-militarization is not the responsibility of one party alone” and insisting that the South China Sea “is not and should not become an issue between China and the United States.” Noting that he and Kerry had agreed to have further dialogue on the South China Sea, Wang noted that “it’s important to prevent miscalculation.”

On Feb. 26, just over a month before Xi Jinping’s arrival in Washington for the Nuclear Security Summit, National Security Council Senior Director for Asia Dan Kritenbrink publicly urged the Chinese leader to extend his pledge not to militarize the Spratly Islands to include all of the South China Sea, including the Paracels. Given that Beijing views the Spratlys as undisputed and began to militarize islands there many years ago, the proposal fell on deaf ears.

The South China Sea was the most contentious issue discussed between Presidents Obama and Xi when they met on the margins of the Nuclear Security Summit at the end of March. According to Xinhua, Xi criticized US FON operations in the South China Sea, telling Obama that China “will never accept any action that impairs China’s national sovereignty and security interests with the excuse of freedom of navigation.” In addition, Xi reportedly urged the US to adhere to its commitment to not take sides in the sovereignty disputes over territory in the South China Sea and to play a constructive role in safeguarding peace and stability.

US, Philippine, and Australian forces engaged in the annual Balikatan military exercises in the first half of April. Defense Secretary Carter visited the Philippines and observed a portion of the exercises. Aboard the USS John C. Stennis aircraft carrier, he told US sailors that China’s actions in the South China Sea “are causing anxiety and raising regional tensions.” He added that both US allies and new partners in the region are “reaching out anew to the United States to uphold the rules and principles that have allowed the region to thrive. And we’re answering that call.”

In addition to visiting the Philippines, Carter stopped in India. Although the US and China had agreed last November that Carter would visit China in April, the trip was postponed, ostensibly due to scheduling problems. Chinese scholars privately expressed dismay that Carter opted to frame his Asia tour as blatantly anti-China and had skipped the opportunity to engage in dialogue with senior Chinese military leaders.

In mid-April, tensions over the South China Sea flared again when China flew a military jet to Fiery Cross Reef, marking the first time that a military aircraft landed on one of China’s newly constructed air strips in the Spratlys. Chinese officials justified the mission as necessary to airlift three injured construction workers to a hospital on Hainan Island. Suggesting that the US suspected Chinese intentions, a Pentagon spokesman said it was “unclear” why the Chinese used a military rather than a civilian aircraft.

Concern surfaced in March that China may be planning to begin dredging operations at Scarborough Shoal (Chinese: Huanyan; Philippines: Panatag), just 125 miles off the Philippine coast, prompting a strong US diplomatic and military response.  CNO Richardson revealed in an interview with Reuters on March 18 that the US had seen Chinese surface ship activity around the shoal, possibly conducting surveys. The Pentagon and Pacific Command remained tight-lipped about whether there was any proof that China would conduct land reclamation at Scarborough Shoal, however. Potential evidence emerged on a China-based military enthusiast Bullet Board System (BBS) forum that included an invitation to bid on a construction project on the shoal. The posting included photos of the proposed project, purportedly sponsored by the Huangyan Island Township of the Sansha City government, and included an airport, a harbor, township government buildings, a residential zone, a water treatment plant, and a resort.

In an effort to deter Chinese island building, the US flew three different air patrols near Scarborough Shoal in the third week of April. The first of the flights coincided with an announcement by Secretary Carter that the US would conduct a series of joint patrols with the Philippines. Days later, four A-10 Thunderbolts and two HH-60 Pave Hawk helicopters “conducted a flying mission through international airspace … providing air and maritime situational awareness,” according to an US Air Force statement. A report in The Wall Street Journal said that the Defense Department canceled a FON operation exercise in the region in favor of conducting the air operations near Scarborough Shoal.

Reacting to the expressions of US concern, Zhang Junshe, a researcher at the Chinese Navy’s research institute, said in an interview with Global Times that if China decides to carry out construction activities on Scarborough Shoal it would be “normal” and within Chinese rights. Zhang accused the US of playing the role of a “troublemaker” and warned that “if anything happens on Huangyan Island that we don’t want to see, the US would bear the responsibility.” In a likely sign of displeasure of US military activity in the South China Sea, China denied a request by the USS John C. Stennis and its escort ships to visit Hong Kong.

At the end of April, the US Defense Department released its 2015 fiscal year Freedom of Navigation Report, which includes a summary of excessive maritime claims that were challenged by US forces during the period of Oct. 1, 2014, through Sept. 30, 2015. The report noted US operations had been conducted challenging excessive straight baselines, jurisdiction over airspace above the Exclusive Economic Zone (EEZ), restriction on foreign aircraft flying through an Air Defense Identification Zone (ADIZ) without the intent to enter national airspace, domestic law criminalizing survey activity by foreign entities in the EEZ, and prior permission required for innocent passage of foreign military ships through the territorial sea.

On the diplomatic front, as the arbitral tribunal prepared to deliver a decision in Manila’s challenge to China’s claims in the South China Sea, Washington and Beijing lobbied hard for supporters of their respective positions on the case. After meeting in Hiroshima, Japan, foreign ministers from the Group of Seven (G7) delivered a lengthy and strongly worded statement on maritime security on April 11 that called on countries to observe international law and “to fully implement any decisions rendered by the relevant courts and tribunals which are binding on them, including as provided under UNCLOS.” Australia and New Zealand joined the ranks of countries issuing statements in support of full implementation of the pending ruling. US officials also ratcheted up pressure on China. Speaking to Congress, Deputy Secretary of State Antony Blinken warned that Beijing risks “terrible damage to its reputation,” and would further alienate countries in the region if it ignores the arbitral tribunal’s ruling. China “can’t have it both ways,” he stated, by being a party to the Law of the Sea Convention while rejecting its provisions, including “the binding nature of any arbitration decision.”

In the meantime, the Chinese Foreign Ministry worked diligently to rally support for Beijing’s position that the territorial disputes should be settled through dialogue and consultations by “parties directly concerned” under the 2002 Declaration on the Conduct of Parties in the South China Sea (DOC) rather than through arbitration. At the end of April, China claimed that the countries it had won over to its side included Fiji, Laos, Cambodia, Pakistan, India, Gambia, Poland, Belarus, Kyrgyzstan, Bangladesh, Brunei, and Russia.

North Korea’s nuclear test presents challenge and opportunity

Pyongyang’s nuclear and missile tests in early 2016 presented an opportunity to strengthen US-China relations, but forging a common approach was challenging. Months of intensive engagement led to a positive outcome that sent a strong signal to North Korea and reaffirmed that the US and China can coordinate their policies toward North Korea effectively despite friction on other regional issues.

Both the US and China condemned North Korea’s Jan. 6 nuclear detonation, which Pyongyang claimed was a hydrogen bomb. The Chinese Ministry of Foreign Affairs released a statement declaring Beijing’s “firm opposition” to the test and reiterating its call for the Korean Peninsula to be denuclearized. White House Press Secretary Josh Earnest cited China’s strong stance as he emphasized the international community’s condemnation of North Korea’s action. Earnest said, “it’s not just our stalwart allies in the Asia Pacific, like South Korea and Japan, who are voicing their disapproval of these North Korean actions, it’s also notable that our collective statements are echoed by countries like China and Russia, with whom we don’t always agree.”

In the following weeks, however, it became clear that Washington was intent on significantly stepping up pressure on North Korea while Beijing hoped to marginally tighten existing targeted sanctions and restart the Six-Party Talks. The day after North Korea’s fourth nuclear test, Secretary of State John Kerry pointedly placed a phone call to Chinese Foreign Minister Wang Yi. Kerry told reporters that he told Wang that China’s approach to managing the North Korea nuclear threat had failed and “we cannot continue business as usual.” According to China’s Foreign Ministry spokesman, Wang indicated Beijing’s willingness to work with other parties to safeguard the international nuclear nonproliferation regime, but also called for countries to “address the issue in a calm way and avoid intensifying contradictions.” China’s interests demanded that denuclearization be pursued in ways that would not threaten peace and stability on the Peninsula.

Persisting differences between the US and Chinese approaches were apparent on the eve of Secretary Kerry’s planned visit to China at the end of January. A high-level US official anonymously told the Dong-A Ilbo that “Given that Kim Jong Un conducted the nuclear test despite China’s opposition, China’s message seems to not have been delivered properly to the regime.” The official added that there are “more things the Chinese government could do” and urged Beijing to use the recent nuclear test “as an opportunity to find a way to deter and restrain North Korea’s nuke ambition.”

In a five-hour meeting in Beijing in which North Korea topped the agenda, Secretary Kerry urged Foreign Minister Wang Yi to support tougher UN sanctions, but ultimately they were only able to agree to pursue a new UN Security Council resolution. Kerry reportedly sought China’s support on measures such as bans on oil exports to North Korea and imports of North Korean mineral resources, while the Chinese emphasized the risk that economic sanctions could pose to North Korean stability and the Chinese economy.

Determined to persuade Beijing to adopt a tougher approach and to enlist Chinese assistance in warning North Korea to not proceed with a planned ballistic missile test, President Obama called President Xi Jinping on Feb 5. A White House statement claimed that the two leaders “emphasized the importance of a strong and united international response to North Korea’s provocations, including through an impactful UN Security Council resolution.” China’s Foreign Ministry statement on the phone call noted that Xi “stressed that the situation on the Korean Peninsula is complex and sensitive” and called for “dialogues and consultations” to preserve peace and stability on the Peninsula. It seemed the two sides were still far apart.

The day after the Obama-Xi phone call, North Korea launched a long-range ballistic missile and claimed to have successfully placed a satellite in orbit. The launch promoted closer cooperation among the US, Japan, and South Korea and may have bolstered the case for tougher sanctions. US and Chinese consultations continued in subsequent weeks. Foreign Minister Wang Yi traveled to Washington on Feb. 24 where he met Secretary Kerry as well as National Security Advisor Susan Rice. In an unusual development, President Obama dropped by the meeting, most likely to underscore the importance of imposing biting sanctions on North Korea. At the end of the visit, it appeared that the two sides were close to an agreement on a UN resolution.

Nevertheless, China remained uneasy about the role of sanctions in persuading North Korea to give up its nuclear weapons. Wang Yi said that “sanctions are not an end in themselves,” emphasizing the need to ultimately return to the negotiating table. Earlier that month, in talks with Australia’s foreign minister, Wang had put forward a proposal to launch peace treaty negotiations in tandem with resumption of the Six Party Talks on denuclearization.  Although the US didn’t reject China’s initiative, it made clear that denuclearization remains a top priority, and that talks on a peace treaty are a nonstarter as long as the North pursues its nuclear ambitions.

On March 2, after almost two months of intense discussions, the United Nations Security Council unanimously adopted Resolution 2270. Prior UNSC resolutions that followed North Korea’s nuclear tests in 2006, 2009, and 2013 had been adopted within three weeks of each year’s respective test. That the new resolution took eight weeks to negotiate was unquestionably due to diplomatic wrangling between Beijing and Washington. In contrast to prior instances, the US held out for a stronger resolution, refusing to exclude economic sanctions. Among other measures, UNSCR 2270 requires all states to inspect cargo transiting through their territory that originates in or is destined for North Korea; prohibits the sale of aviation fuel to North Korea; and bans the import from North Korea of coal, iron ore, gold, rare earths, and other minerals.

Samantha Power, the US ambassador to the UN, called the resolution “comprehensive, robust and unyielding” and recognized the leadership of China, which, she said “has worked closely with us.” Liu Jieyi, China’s UN ambassador, stated his country’s concerns about North Korea’s defiance of UN Security Council resolutions, but said that “the sanctions are not the objective themselves” and urged all nations to “keep calm and use diplomatic wisdom.”  He argued that the new resolution should serve as a starting point for a political settlement of the nuclear issue on the Korean Peninsula.

Cognizant that the effectiveness of the new sanctions rest heavily on China’s compliance, the Obama administration subsequently engaged closely with Beijing on implementation. Two weeks after UNSCR 2270 was reached, Acting Under Secretary for Terrorism and Financial Intelligence Adam Szubin travelled to Beijing. According to a US Treasury press release, the lead item on Szubin’s agenda was to discuss “ways to strengthen US-China coordination . . . to ensure that sanctions targeting the North Korean regime are as effective as possible.” While Szubin was in China, US Treasury Secretary Jack Lew told a House Appropriations Committee hearing that he concluded from his conversations with high-level officials in China a few weeks prior that the Chinese are not supporting the sanctions as a favor to the United States. “They look across their border and it makes them very nervous that they can’t explain some of the actions that are reckless and that are destabilizing…. That’s why they supported the resolution. They’ve indicated an intention to implement it” Lew asserted.

On March 16, President Obama issued a new executive order to implement both UNSCR 2270 and the North Korea Sanctions and Policy Enhancement Act of 2016, providing additional authorities to US agencies to punish North Korean violators and third-party entities that do business with North Korea. China was evidently displeased by the US decision to pass unilateral sanctions. When asked whether Beijing was concerned by the US action, the Chinese Foreign Ministry spokesperson stated that China “always opposes any country imposing unilateral sanctions” and opposes “any moves that may further worsen tensions” on the Peninsula.

The US continued to impress upon the Chinese the importance of strict compliance with UNSCR 2270 and privately urged them to provide data on their relevant interactions with North Korea, including imports of minerals. On April 21, US Special Representative for North Korea Policy Sung Kim met his Chinese counterpart. Afterward, he said “China really has a very key role to play … we want to engage them very closely on all aspects of our North Korea effort.” In a positive move, China indicated on March 19 that it would be “open to three-way talks” with South Korea and the US on implementing the new UN Sanctions on North Korea. This position may signal a willingness by Beijing to explore new dialogue and cooperation mechanisms.

In his annual press briefing after the March 2016 National People’s Congress, Foreign Minister Wang Yi became the highest-ranking Chinese official to refer to ties with Pyongyang as “normal state-to-state relations.” This description, which until then had only been used by a Foreign Ministry spokesman, is a notable downgrade from the traditional characterization of the relationship, as “friendly neighbors,” or “closer than lips and teeth.” Wang’s statement suggests growing strains in Beijing’s relationship with North Korea. Nevertheless, China remains deeply concerned about chaos on the Korean Peninsula and continues to prioritize the preservation of stability. Wang signaled that Chinese policy had not changed in that regard, noting that Beijing would “not sit by and watch a fundamental destruction of the peninsula’s stability.” Given this reality, it is reasonable to question whether China will ease up on implementation of the UN sanctions if it detects signs of instability in North Korea.

Apart from differences over how to respond to North Korea’s nuclear and missile tests, Beijing and Washington remain at loggerheads over the possible deployment of an advanced missile defense system, the Terminal High Altitude Area Defense (THAAD) to protect South Korea and US forces deployed there. The Chinese appear to believe that the system would undermine China’s nuclear retaliatory capability. Speaking in February at the Center for Strategic and International Studies in Washington, Wang Yi, said “we believe China’s legitimate security concerns must be taken into account, and a convincing explanation must be provided to China.”

In late March, Deputy Secretary of State Antony Blinken revealed that the US had offered to hold talks with Beijing about technical aspects of THAAD to reassure the Chinese that the missile defense system would not undermine China’s strategic deterrence. Apparently, China snubbed the offer. The Chinese Foreign Ministry spokeswoman said, “We know the danger of having such a system. While pursuing one’s own security interests, one should take into consideration the others’ security interests.” Beijing’s rejection of US briefings suggest that China views THAAD primarily as a political, not a military, issue, and its opposition is rooted in its concerns about the strengthening of US alliances in Asia.

Meeting on the sidelines of the 2016 Nuclear Security Summit on March 31, President Xi and President Obama highlighted their two countries successful bilateral cooperation on North Korea. Following the summit, US and Chinese media alike noted the two countries commitment to working together, with the handling of the UN Security Council resolution a shining example of effective US-China collaboration.

Climate change cooperation

The US and China took another major step in their joint efforts to fight global warning when Xi Jinping visited Washington at the end of March. Presidents Xi and Obama agreed that both countries would sign the Paris Agreement on Climate Change on April 22, and would undertake domestic measures to join the Agreement as early as possible this year. This pledge was issued in a joint statement released during Xi’s visit, the third joint US-China statement on climate change issued by the two leaders. The statement reviewed the steps taken jointly over the past three years and noted that climate change “has become a pillar of the US-China bilateral relationship.”

As promised, the US and China signed the Paris Agreement in New York on April 22. Secretary of State Kerry and Vice Premier Zhang Gaoli, as special envoy of President Xi, attended the signing ceremony. In a meeting between the representatives of their two governments on the sidelines of the signing ceremony, Zhang stressed that China and the US share common interests and responsibilities and called for strengthened dialogue and deepened cooperation to contribute to the sustainable development of global energy.

Bilateral investment treaty close to completion?

After eight years of negotiations, the signing of a bilateral investment treaty (BIT) between the US and China may be in sight. At least that was the message from former Minister of Commerce Chen Deming, who told the Boao Forum for Asia that most of the key issues have been resolved, raising expectations that a BIT might be signed by the end of this year. However, a week later China missed its own end-of-March deadline to submit a new “negative list” proposal to the US that would reduce the number of sectors closed to US investors. When the list is ready, it will be the third negative list exchange, and, according to the US Trade Representative (USTR) spokeswoman, it will be an important milestone. The prior two lists have been judged as too long by the US, which has insisted on a more liberalization of the Chinese investment market.

USTR Michael Froman confirmed in a statement following the March 31 Obama-Xi meeting that the US did not receive a revised negative list from China during the visit. However, he noted that “the negotiating teams are continuing to engage closely to work toward a high-standard bilateral investment treaty, as agreed by Presidents Obama and Xi in September of last year.”

Chinese Vice Foreign Minister Zheng Zeguang told reporters that the two presidents pledged to accelerate the BIT negotiations and seek “to arrive at a China-US investment agreement that is mutually beneficial and win-win at an early date.” Nevertheless, supporters of the agreement are worried that time is running out to reach an agreement before the end of Obama’s presidency.

In late April, Deputy USTR Robert Holleyman said the Chinese had reaffirmed that they attach priority to negotiating a BIT with the US. That said, he added that the Chinese have not indicated when they will submit “an improved negative list.” James Zimmerman, president of the American Chamber of Commerce in China, told reporters that he believed China would offer a revised negative list ahead of the annual US-China Strategic and Economic Dialogue in early June. A survey of AmCham’s membership found that the majority expects bilateral negotiations to go beyond Obama’s presidency, with an agreement finalized in 2018.

Advancing nuclear security cooperation

On the occasion of the fourth and final Nuclear Security Summit, the US and China highlighted their cooperation to reduce the threat of nuclear terrorism and promote a peaceful and stable international environment. Meeting on the margins of the larger event that included over 50 world leaders, Presidents Xi and Obama released a joint statement outlining bilateral cooperation on nuclear security that enumerated their accomplishments and ongoing engagements. Among the key achievements is the completion and opening on March 18 of the Nuclear Security Center of Excellence (COE) in Beijing. The COE is intended to train Chinese, regional partners, and international representatives in nuclear security as well as provide a forum for bilateral and regional best practice exchanges.

The joint statement also announced the successful completion of the inaugural round of bilateral talks on nuclear security, which were held in Stockholm Sweden on Feb. 20. The talks were co-chaired by Vice Foreign Minister Li Baodong and Laura Holgate, senior director for weapons of mass destruction terrorism and threat reduction on the National Security Council. The two sides affirmed that they plan to hold nuclear security consultations on an annual basis going forward. They also committed to continuing discussions on countering nuclear smuggling.

Looking ahead

The last Strategic and Economic Dialogue of the Obama administration will be held in early June. Concomitantly, the US and China will hold another round of the Strategic Security Dialogue, the joint civilian-military mechanism that focuses on sensitive issues such as nuclear policy, outer space, maritime issues, and cyber security. The second round of the US-China High-Level Joint Dialogue on Cybercrime and Related Issues is also planned for June.

A key upcoming event will be the decision by the arbitral tribunal in the Philippines case against China. That decision is likely to be made in late May or June. There is the possibility that it could be followed by a period of heightened tensions in the South China Sea.

Friction in the South China Sea is likely to be the focus of the Shangri-La Dialogue in Singapore in early June. The Rim of the Pacific (RIMPAC) military exercises will be held in the summer, with the exact dates yet to be announced. The Chinese Navy will be participating for the second time. There is a possibility that Defense Secretary Carter will reschedule his visit to China, although the window for a trip may close after the US presidential elections in early November.