Obama Xi Jinping Summit: Are Rainclouds Forming After the Sunnylands Summit?

It may not appear contradictory or remarkable, but the quiet little gathering of top U.S. and Chinese officials last weekend lived up to its address's name in many ways: a mirage meeting at Rancho Mirage, a high-profile meeting in the low-key Sunnyland setting with cloudy topics included. Although the summit was small and discreet, its implications may have strong ripple effects for future U.S.-China relations.

The Sunnylands estate, dubbed the "Camp David of the West," has been used as an escape for other important leaders before, like Richard Nixon, Ronald Reagan, and even the queen of England. According to most news coverage, the summit did create an initial friendly tone between the nations. So what did Obama and Xi Jinping have to escape from? 


According to the Associated Press, the two leaders' talks included a working dinner of lobster tamales, Porterhouse steak, and cherry pie prepared by celebrity chef Bobby Flay, and a morning walk through the manicured gardens of the 200-acre estate on the edge of the Mojave Desert — quite the welcome for the newly minted Chinese president. It turns out that Obama and Xi got personally closer as they walked casually in the gardens for 50 minutes for the first time and talked in a relaxed manner. Before, strict formality was around with Obama and Hu Jintao, but now the atmosphere was reserved — no ties, and true to the Chinese style of "shirt-sleeves diplomacy" (small, informal talks). Topics of previous concern were expounded upon in a candid tone, signaling cooperation:

-Preventing pollution spread: China agreed to continue aligning itself more with the Kyoto protocol and becoming more environmentally conscious. Fewer greenhouse gases (hydrofluorocarbons) and less contamination. Green cities and air-quality have been a domestic issue for years.

-Renminbi appreciation: China signaled a favorable tendency to appreciate the RMB to the dollar. However, for consumers in the Middle Kingdom, inflation is a major concern and the party sees the currency approaching its fair value. The U.S. would like more renminbi inflation, to narrow the trade gap.

Inside Sunnylands not everything was sunny it seems. The U.S. began to confront China on some real issues, although the meeting stayed cordial in tone. Overall mutual suspicion and mistrust don't seem to have abated, with copyright and cybersecurity theft being especially widespread in recent months.

-Cybersecurity: The theft of American intellectual property puts losses to the U.S. from IP theft at as much as $300 billion per year. Hacking and cyber-espionage are getting serious, as Chinese attacks move from previously purely commercial firms to targeting strategic, U.S. governmental organizations. If this continues (highly likely given Chinese tech advances), it may be a big roadblock in developing Sino-American relations.

-North Korean threat: For a long time the U.S. has wanted China to reign in North Korea. The Chinese Communist Party is the organization with the most ties geographically and ideologically to the renegade state, and has financial and agricultural influence over it. Some argue Beijing actually enables Pyongyang's mischief, by supplying it with intermediate ballistic missiles.

-Chinese buyouts: Although some big buyout deals have gone through in recent years (Shanghai has bought Smithfield Foods, Tengzhong-Hummer, and Wanda Group-AMC Entertainment, among others), the Chinese feels the U.S. is obstructing its firms from entering the U.S. market (telecom and banking) and wants a more level playing field.

It may be a coincidence that the private U.S.-China summit was held almost exactly as North and South Korea reached out to each other after years of silence, but it doesn't change the results. Obama described the outcome of the meetings as "terrific," but there remain major unresolved issues in the most important bipolar relationship of our time: pressing human rights violations in Tibet and other provinces, American trade deficits (over $300 billion), blocked Chinese entries (Huawei, bank buyouts in strategic industries), currency manipulation (renminbi), IP theft on many levels, and a growing U.S. presence around disputed areas in the South China Sea. As these issues mostly relate to China, the bargaining power seems to move to the East.

It remains to be seen if such issues can be addressed and solved by quiet, sunny escapes in the Golden State, or if storm clouds will gather to bring real thunder.

How much do you trust the information in this article?

Andy Bodrog

As a financial services industry professional I have interest in US-China relations, RMB internationalization and emerging market investments. Studied at London Business School and at Renmin University in China.

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