President Xi Jinping would have hoped a much better context for his first state visit in the US than what the present travails of the Chinese economy are creating for him. All the indicators are not only pointing out to a deceleration of growth much more acute than originally anticipated; they combine with developments such as the devaluation of the yuan and the stock market crash in showing a leadership obviously at pains to cope with the difficulties and complexities of a transition fraught with uncertainties, risks and anguishing choices. May be more important, psychologically, is the fact that these latest developments have dented the aura and reputation of a regime which had seemed until now able to keep control - by and large - of the direction in which it was steering the economy.
To what extent could this context impact on the outcome of the discussion between Xi Jinping and Barack Obama? To answer this question one has to look at the two presidents respective agendas. A key priority objective of Xi Jinping is to assert China as the equal to the US. This was the purpose of his proposal during his working meeting in California in the fall of 2013 to create "new model of great powers relationship" between China and the US. Since his elevation as head of state, head of the Communist Party and of the Central Military Commission Mr Xi has openly broken with the policy set by Deng Xiaoping - and strictly observed by all leaders since then - for China to lie low and bid its time in order to focus only on its goal of economic development. In Deng's words, China had "to hide its brightness and nourish obscurity". For Xi Jinping the time of defensive attitude in international affairs has now come to an end: China's new economic power, second only to the US, and the necessity to protect crucial supply lines and increasingly significant economic interests abroad, mean that Beijing has to stand tall on the international scene and needs to make its voice heard.
The Chinese leader - himself profoundly nationalistic - has thus no misgivings in projecting China's growing clout, whether regarding its territorial claims in the South China Sea or in taking the initiative to create an Asian Infrastructure Investment Bank, sending the signal that Beijing will not anymore satisfy itself with international financial institutions such as the IMF and the World Bank which remain dominated by the US and Europe. In the same way, the "one Road, One Belt" project - which is shaping up as Xi Jinping signature initiative - is a remarkably bold and ambitious endeavour in which macroeconomics intersects with geopolitics. If successful, it would allow China to open new fields of expansion for its companies and to create a sphere of influence that will address the present geopolitical weakness of the country and could one day - who knows? - equal the US sphere of influence.
In this context, the Chinese leader will certainly not be induced by the present economic challenges of his country to be more "accommodating". In addition to that the stakes for Mr Xi are also very high from a domestic standpoint. He has accumulated more powers into his hands in the last two years than any Chinese leader since Mao and has antagonised innumerable groups in China with his anti-corruption campaign which has also been a way to eliminate any other potential centre of competing power, not hesitating to hit at people at the highest echelon of the power apparatus. So quite a number of people today are waiting at the first opportunity, the first major setback in the domestic or international domain, to strike back at him.
For Barack Obama, the stakes and the priorities are quite different. First of all, the emphasis put by the US administration on the issue of cyber-attacks originating from China is not only to show determination in countering what is a major strategic threat to US economic, technological and security interests. It is a message to Beijing that Washington will not turn a blind eye to offensive steps taken against its interests. The intention is also to corral China into a set of rules of "acceptable behaviour". The Obama administration is still struggling to formulate a coherent response to the new stance taken by Xi Jinping on the international stage. There are deep divisions inside the Obama administration about what a US strategy - and the ensuing operational steps - should be to counter China's resurgence. The US military is for instance pushing for a green light from the White House to deploy naval units in areas of the South China sea claimed by Beijing to show that the US does not recognise these claims.
Barack Obama knows that he cannot afford to look weak in front of the Chinese leader and one can expect that his entourage will be keen to pass the word that the US president expressed Washington's concerns in a clear and strong enough way.
Beyond that, given the impact that the evolution of the Chinese economy has on the US economic outlook, the US administration wants to get a feel on how the leadership in Beijing assesses the situation of the country and the ability of this leadership to do what it takes to shift towards a more sustainable growth model. Much doubt remains about Beijing will to fulfil its pledge to give a greater role to market forces and the private sector. The guidance issued last week for the reform of the SOEs, while officially aiming at improving their corporate governance and pushing for the development of "mixed ownership" of the SOEs, falls short of what would be required to inject a new efficiency to the state sector. In fact, the official line now is rather on the need to tighten the grip of the Party on the state sector.
Of course the two leaders will be eager to show that the summit has yielded some results in different areas, for instance a greater convergence on fighting climate change. Both sides will want to highlight the need for greater cooperation between the two super powers and the benefits to be gotten from their increasing economic interdependence. In the same way, both sides will stress to label the Chinese leader's visit as a success.
However, the bottom line is that the relationship between the two superpower has entered an era of tensions. This is bound to be the case as China - whatever the difficulties that will accompany its economic transition - will continue to grow in stature and will have more international interests to defend in the period ahead. The challenge for the time left to Barack Obama at the White House and for whoever will succeed him is to find the right balance between accepting that the era of a US-dominated world order is coming to an end while promoting a new global institutional framework. This needs to be able to, at the same time, take Western interests into account while reflecting the aspirations of the new players on the international stage: China, of course, but also India and a whole group of newly emerged countries.
Claude Smadja is President of Smadja & Smadja, a Strategic Advisory Firm
@ClaudeSmadja
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