US CEOs are too cozy with Beijing, says US Ambassador to Japan Rahm Emanuel.
At the APEC summit last November in San Francisco, heads of state and diplomats from nations in the Asia-Pacific met to address a wide array of strategic interests and challenges. But no other meeting was as closely watched as that between US President Joe Biden and Chinese President Xi Jinping. As successful as that meeting may have been on a PR level (at least according to the delegations of each leader), one man present took special note of what happened afterward. US Ambassador to Japan, Rahm Emanuel, told Ian Bremmer about that summit during an exclusive interview in the latest episode of GZERO World, filmed at the Ambassador's residence in Tokyo, Japan.
"President Xi goes to have a meeting with American CEOs who give him a standing ovation, though he hasn't yet said anything," recounted Ambassador Emanuel. "The President of the United States goes to an event, and all the heads of state are there. That tells you about alliances, that tells you about the interests of China."
Bremmer then noted that it also tells you something about the interests of American CEOs. to which Emanuel responded: "I think the American CEOs are way too influential in American foreign policy in this region, way too influential."
Catch GZERO World with Ian Bremmer every week at gzeromedia.com/gzeroworld or on US public television. Check local listings.
Hard Numbers: Half of Hamas, SpaceX’s stratospheric valuation, George Santos talks for a price, China charges for “deception”
50: How effective has Israel been at killing Hamas fighters? Israeli Prime Minister Benjamin Netanyahu claims that the IDF has eliminated around 50% of Hamas’s mid-level battalion commanders after two months of fighting. Israel has so far failed to assassinate senior leaders like Yahya Sinwar, leader of Hamas in Gaza, and Mohammed Deif, head of Hamas’ armed wing. According to the Hamas-run Gaza health ministry, the overall death toll in Gaza has now surpassed 17,000.
400: George Santos may have been expelled from the US congress, but a hustler’s gonna hustle. Blazing new trails post-politician life, he’s now offering pay-to-play personalized video messages to the world on the video-sharing website Cameo. For a mere $400 USD, you too can have a personalized message from the disgraced ex-congressman. Sen. John Fetterman has already had Santos troll his scandal-plagued colleague from New Jersey. In just a few days, Santos’ earnings on the platform eclipsed his $174,000/year congressional salary. On the other hand, Cameo is a lot less risqué than that other pay-to-play video site Santos was accused of spending campaign donations on.
175,000,000,000: Elon Musk’s SpaceX is looking to sell shares at a price that values the company at a whopping $175 billion. That would rank the company above media juggernauts like Comcast and Disney, but still well behind the trillion-dollar club that includes Apple, Microsoft, and Amazon. Still, this is good news for Musk: The valuation of his other company, X (the artist formerly known as Twitter), has dropped to $19 billion, less than half the $44 billion he paid for it last year.
100,000: The popular Taiwanese rock band Mayday faces a 100,000 yuan (more than $14,000 USD) fine for something that would cripple some of your favorite Western acts (be careful out there Ashlee Simpson). A viral video on Weibo accuses the band of lip syncing at least five songs at a concert in China in November. A rarely enforced law in China actually bans artists from lip syncing before paying audiences since it is “deceptive.”
Since October, China has been tracking an outbreak of pneumonia cases among children that has seen thousands of daily hospitalizations in major cities. A children’s hospital in Beijing reportedly admitted, on average, 7,000 children daily, in late November. But Chinese health authorities, responding to a data request from the World Health Organization, say they see no evidence of links to new germs.
Still, the illnesses have China’s neighbors on edge. Vietnam, India, and Taiwan are taking proactive preventative measures – asking pediatricians to monitor for pneumonia cases and conducting preparedness tests of their healthcare systems.
Beijing’s light-touch approach at home, and relative transparency with the WHO, suggests it believes the outbreak is under control. There have been similar upticks in pneumonia among children in Denmark, the Netherlands, and in a county in Ohio, but data from the US Centers for Disease Control suggests they are not linked to China.
No lockdowns. China isn’t responding with drastic measures – doctors, after all, know how to treat pneumonia-causing bugs. Besides, Beijing really can’t afford a COVID-style lockdown right now, politically or economically.
“Beijing was badly burned economically and socially by the policies that they imposed on themselves during COVID-19,” says Eurasia Group Senior Analyst Dominic Chiu. “Unless there's a very, very strong reason to do so, they're not gonna reimpose them.”
Already facing a sluggish growth outlook and with no end in sight for the local debt problem or property market turmoil, discretion looks like the better part of valor.
The US shrugs it off. While five Republican senators called for a travel ban to and from China last Friday, the Biden administration didn’t bite. The White House isn’t keen to disrupt the delicate stabilization it seeks with Beijing.
But the US and China have also missed out on an opportunity to build some trust. Public health was not among the subjects that Washington and Beijing agreed to establish communication channels over when Joe Biden and Xi Jinping met last month. There isn’t sufficient mutual trust to improvise, according to Chiu, and thus the opportunity to work together has been lost.
“US-China relations are at a point where direct collaboration and coordination is impossible and has to be done through a third party like the WHO,” he said.
But Chiu is watching for any signs of Congress trying to go around the administration to enact a travel ban on its own. GOP lawmakers don’t have much to lose by being tough on China, but Democrats in Congress don’t have much reason to back them — and Biden can veto any such attempt. He’s not about to throw out over a year of hard work building back relations with China.
All belts are off now in Italy. On Wednesday, Rome officially withdrew from China’s Belt and Road Initiative, Beijing’s signature global infrastructure, trade, and investment scheme.
Flashback: In 2019, Italy – then governed by a strongly euroskeptic coalition– became the only G7 country to officially join BRI. For China, it was a coup to bring aboard Europe’s third-largest and the world’s seventh-largest economy. Rome, for its part, hoped for a bonanza of trade and inbound investment from Beijing.
Spoiler: It didn’t pan out. Italy’s trade deficit with China soared, and debates raged about Chinese access to key Italian firms and infrastructure. Meanwhile, the EU and Italy’s NATO allies saw BRI participation as both a strategic risk and a symbolic blow to Western unity in the face of growing challenges from Beijing.
Italy’s current prime minister, right-winger Giorgia Meloni, sees BRI membership as a mistake but has sought to delicately exit the scheme without angering the world’s second-largest economy. While the Italian government will not renew its BRI agreement when it expires next year, local governments and some companies will continue to work with China under BRI terms.
The timing is telling. Meloni’s move comes on the eve of a big EU-China summit, the first since 2019, where the two sides will seek to manage an increasingly contentious and competitive relationship. (Read our Viewpoint about that here.)
As I look ahead to 2024, there is one phrase that keeps coming back to me: The wheels are coming off.
For years I’ve been warning that our G-Zero world – characterized by a lack of global leadership and the geopolitical conflict that grows as a consequence – was gathering speed. That acceleration is only increasing today, while channels of international cooperation – multinational institutions, traditional alliances, and global supply chains – are losing their ability to absorb shock.
Today, when we mention war, we have to specify which one we’re talking about. The war that ended the peace dividend, remaking the security architecture of Europe? Or the war destabilizing the Middle East, threatening global religious conflict? Serious doubts have emerged about the economic well-being of China, the nation that along with the United States has done most in recent decades to power the global economy. Serious doubts have also emerged about the political well-being of the United States.
These urgent challenges make for an unprecedentedly – in my lifetime at least – dangerous state of global politics.
The now two-month war that has followed the terrorist attacks of Oct. 7 is expanding without guardrails.
Hamas is responsible for the murder of 1,200 Israeli citizens, more than 90% of them civilians, and it continues to assert the right to kill more Israelis in the future. In response, Israel’s government feels rightfully entitled to eradicate Hamas, but it is doing so with little regard for the more than two million Palestinian civilians who can’t escape the line of fire.
The United States has at least some leverage over its ally Israel (though given political challenges at home, it’s less than many would think), and it is trying to influence the conduct of the war and the scale of its carnage. Working with Qatar and the United Nations, the Biden administration has helped bring humanitarian aid to Palestinians trapped in Gaza as well as secure the release of some Israeli hostages and Palestinians in Israeli custody. The US government has also pressed Israel to minimize civilian deaths as it works to destroy Hamas. Yet for much of the world, these moves are too little too late. As a result, the US today finds itself nearly alone in supporting continued war. Indeed, the US is as isolated on this issue globally as Russia was when Vladimir Putin invaded Ukraine nearly two years ago (!).
President Joe Biden has so far had more success in avoiding an expansion of the war beyond the borders of Israel and Gaza. But that work will become more difficult as the next phase of the war in Gaza advances. As we’ve seen over the past week, the Iran-backed Houthis in Yemen are already stepping up their attacks on American military vessels and commercial transit. More escalation from them, Hezbollah, and other Shia militant groups in Iraq and Syria is sure to come.
Under no circumstances will Biden renounce the US alliance with Israel – but Israel has permanently lost some of its traditional support inside the United States. US public opinion has shifted with the nation’s demographics. Younger voters increasingly side with the Palestinian position, and more and more Americans are publicly questioning Israel’s continuing occupation of the West Bank and even its commitment to democracy. These concerns will only grow as Palestinian civilian casualties rise.
We are no closer to a resolution of this war today than we were six weeks ago. Indeed, the war is set to escalate further, and there are no snapback mechanisms in place to stop that from happening.
Then there’s the war no one asks me about anymore – the one still raging in Ukraine. Around this time last year, I noted that Russia controlled about 20% of Ukraine’s territory and Ukrainian forces were unlikely to ever fully evict Russian fighters. Twelve months later, almost nothing has changed – and that which has has changed for the worse.
In the past year, Putin followed through on threats to exit a UN-brokered deal to allow Ukrainian grain exports through the Black Sea. Higher oil prices have helped boost Russia’s domestic production of missiles and ammunition to greater volumes than before the war. North Korea is sending Moscow more of both, and Iran continues to provide drones. Failed mutiny aside, Putin’s strategic position has improved over the past year – and certainly over the last two months.
Questions have emerged about the staying power of Kyiv’s main backers in America and Europe. In the US, Republicans increasingly don’t want to spend money on Ukraine. That will be even more true once Donald Trump gets his party’s nomination and makes ending support for Ukraine an electoral battle cry. In Europe, support for Ukraine remains high, but countries now have much less capacity to absorb refugees or to help fund Ukraine’s war effort. Europe’s economic support and America’s military support for Ukraine are becoming less certain simultaneously.
Meanwhile, Ukraine’s counteroffensive has moved the front line less than 25 kilometers since the summer – and with its installation of defensive fortifications in the past few days, it’s safe to say the operation is now over. In recent weeks, Russia has expanded missile strikes across Ukraine to the highest levels we’ve seen this year. If Putin orders an additional troop mobilization in the fall, President Volodymyr Zelensky will struggle to match it, making it entirely possible Russia could take even more territory from Ukraine. Zelensky, not Putin, now faces increased pressure to move toward a negotiated settlement.
We know what the outcome will be: partition. Ukraine simply can’t get its land back. Of course, nobody is going to formally announce that (well, other than me). It’s unacceptable to the United States, Europe, and most of all the Ukrainians. But we live with lots of things that are unacceptable – a nuclear-armed North Korea, Assad in power in Syria, the end of democracy in Venezuela. This is just one more such thing.
Ukraine is at risk of losing, but Russia has no way to “win.” Whatever longer-term gains its forces can make on the ground in Ukraine, NATO is now strengthened by new members Finland and Sweden. This month, the EU will open a membership process for Ukraine, Georgia, and Moldova, an outcome that wasn’t on the table before Putin ordered his invasion. Russia has faced 11 rounds of sanctions, with more on the way. Half of its sovereign assets have been frozen. Europe will no longer buy Russia’s commodity exports, which instead must be sold to China, India, and others on the cheap. Moscow has been rendered permanently dependent on Beijing. All of this, just to get pieces of eastern and southern Ukraine that will take years and years to consolidate …
Which leaves us with a bigger problem: Russia is on the road to permanent “rogue state” status. It’s the first time that’s ever been true of a G20 economy, never mind one with 6,000 nuclear weapons. We won’t be talking as much about Ukraine in another year, but I fear we’re going to be talking a lot more about Russia.
China’s economic challenges
The China “growth engine” no longer works the way it used to.
Youth unemployment stands at record highs. Manufacturing activity is contracting. The property sector is in serious trouble. Exports have declined on the back of inflation and historically high interest rates in the US and Europe. Foreign investment into China has turned negative for the first time since we’ve measured it. Property prices are declining, household wealth is contracting, and borrowers are no longer willing to underwrite property construction. Developers and lenders are defaulting. Revenues for local governments are drying up just as their debt servicing costs are rising. Domestic demand is stagnant, consumer sentiment is down, and growth is slowing.
China’s government response has been limited and incremental. Large-scale bailouts for distressed developers, shadow banks, and local governments are off the table for now. Headline growth may well come in at 5% this year, but the economy faces deflation caused by persistently weak consumer spending, slowing private investment, overcapacity, and mounting financial stress. The IMF now expects the Chinese economy to grow under 4% a year for the coming years; absent reform, this number could go lower, especially in light of unfavorable demographics, chronically high debt, and intensifying geopolitical competition with the US and its allies.
For the first time since the 1980s, the Chinese people fear that the next generation will not be better off than the present one. And the increasingly centralized, opaque, and capricious nature of Chinese policymaking – not to mention a series of disruptive policies such as tech crackdowns, the zero-COVID lockdowns and abrupt exit from them, and raids on foreign firms – has undermined the public’s confidence in Beijing’s ability to fix the problem.
The good news is that China remains a highly competitive economy, with an educated workforce, increasingly world-class infrastructure, and advantages in manufacturing, renewable energy, and electric vehicles as well as leading-edge innovation in frontier industries like advanced computing, AI, and biotechnology. China is also very politically stable, allowing President Xi Jinping to avoid the temptation to revert to unsustainable debt-fueled growth if he chooses. Only a systemic financial contagion or mass protests, neither of which looks likely in 2024, could force his hand. Instead, he will simply add stimulus at the margins and call on his people to persevere as they attempt to shift toward new drivers of growth.
The bad news is this means that Chinese growth is going to remain slower for longer, dragging down global growth with it. And the wrong policy choices could still leave China’s economy in a scenario of prolonged deflation, stagnant growth, and high indebtedness – much like what Japan experienced in the 1990s, but at a much lower level of development. That would be a massive problem for the world given China’s outsize role in the global economy.
America’s political dysfunction
Despite having a booming economy, the world’s most powerful nation has become the most politically divided and dysfunctional democracy of all the G7 countries (though the United Kingdom is competitive).
How dysfunctional is it? Earlier this year, personal rivalries among Republican lawmakers left the US House of Representatives without a leader – and, therefore, unable to pass legislation – for the longest period in 160 years. The last time divisions within the House stopped business in this way, the main issue dividing them was the legal status of slavery.
Now we face the 2024 presidential election, where we’re on track for the most unwanted sequel since “National Lampoon’s Christmas Vacation 2: Cousin Eddie's Island Adventure.” Polls paint a bleak picture for the incumbent: Just 37% of Americans approve of Biden’s performance as president. More than 70% of likely voters say the 81-year-old Biden is too old for the job, and about 65% of voters don’t want him to be president again.
On the other side, there is the twice-impeached, twice-acquitted Trump. After he was defeated for reelection in 2020, the former president refused to concede, created a plan to remain in power, and incited a violent insurrection to stop the certification of Biden’s victory. He has been indicted on 91 charges in four separate criminal cases, and unless he’s elected next year, he faces prison time. Just 38% of Americans approve of his four years as president, and 60% don’t want him back in the White House. Yet he now leads all other Republican 2024 presidential candidates by more than 30 points.
Can Trump be president again? Absolutely. If the election were held today, Trump would win. The outcome a year from now looks more like a coin toss. But Biden does have one important advantage: There has never in American history been an election in which the challenger’s reputation matters at least as much as the incumbent’s. And that will make this race unusually – perhaps uniquely – difficult to forecast.
In the meantime, other governments – allies and rivals of the United States – are already calculating the opportunities, costs, and risks that US elections might create for them. In Beijing and Moscow, in Tel Aviv and Tehran, and in Kyiv, Pyongyang, Tokyo, and Brussels, policymakers must reckon with an unprecedentedly uncertain US election outcome that will dramatically impact the global role of the world’s most powerful country.
These crises are worrying enough to cause even the calmest among us to lose sleep. But do not despair: Despite all the bad news, there is still good news out there. We just need to look for it since it doesn’t usually make the headlines. New international players and even newer technologies are creating opportunities that deserve our attention, too. I’ll cover these in next week’s column.
Ratings agency Moody’s officially downgraded its outlook for China’s state credit ratings on Tuesday from “stable” to “negative” as Beijing struggles to trim out-of-control domestic debt without idling the engines of its economic growth.
Moody’s announcement warns that Beijing may struggle to find the money to support local governments and state-owned firms that are drowning in debt. Local governments alone are over $12 trillion in the hole, an amount equal to more than three quarters of annual GDP.
Still, the country’s actual credit rating (as opposed to the outlook, which is a lookahead) hasn’t changed yet. Moody’s still considers Chinese bonds to be A1 — not top-shelf like a good ol’ US 10-year Treasury note, but hardly a fool’s wager.
But if China’s debt woes do lead to a downgrade – as happened in 2017 – it could set off a vicious cycle: to compensate for higher perceived risk Beijing would have to raise interest rates, but higher borrowing costs would make fewer investments viable, and fewer viable projects would mean diminished economic growth prospects. At a minimum, slower growth means less revenue for the state to bail out indebted companies, but — and here’s the crucial bit — a sluggish economy also risks political unrest.
European Commission President Ursula von der Leyen and European Council President Charles Michel will visit Beijing on Dec. 7 for in-person meetings with President Xi Jinping and Premier Li Qiang. The two sides want to show a commitment to dialog at a time when their relations are coming under mounting strain, as underscored by the recent opening of an EU probe into unfair Chinese competition in the electric vehicle sector.
Similar to last month’s meeting between Xi and US President Joe Biden, this week’s EU-China summit is not expected to produce any major breakthroughs. To find out more, we spoke with Emre Peker, a director for Eurasia Group’s Europe practice, and Anna Ashton, a director for the China practice.
Why is this meeting happening now?
Emre Peker: The last time Xi and the EU’s top two officials met in person was in 2019 in Beijing, before the pandemic struck. They have met virtually a couple of times since. This week’s in-person gathering is meant to showcase Brussels and Beijing’s willingness to maintain a healthy dialog despite their growing differences.
Anna Ashton: Both sides have sought increased engagement since Beijing began lifting its strict COVID policies toward the end of 2022. The EU-China trade and investment relationship is crucial for both. Other issues of common concern include climate change, global health, and the Russia-Ukraine conflict.
What does the EU want to achieve at the summit?
Peker: Among other issues, the EU wants to address growing imbalances in its economic relations with China as well as the war in Ukraine. A key priority is to highlight the EU’s willingness to take measures to protect itself against Chinese industrial subsidies and overcapacity, which are contributing to a record-high trade deficit with China. Brussels will also seek greater Chinese collaboration on enforcing sanctions against Russia by presenting a list of Chinese companies that will be targeted for penalties unless Beijing helps halt the trans-shipment of dual-use goods. Lastly, the EU will seek to convince Beijing that Europe’s stance on China is distinct from that of the US, particularly on economic matters, to obtain more cooperation and avert escalating tensions.
What does China want?
Ashton: Protecting trade and investment ties with the EU has grown more important for Beijing given the economic headwinds it faces at home. Moreover, Chinese authorities worry about the EU’s drift toward China policies resembling those of the US and want to hammer out a distinct and more cooperative path for China-EU relations. But progress is likely to be limited given their differences on a range of issues. These include the flood of Chinese EVs entering the EU; EU steps to bolster export controls on dual-use goods — particularly tech products — and consider outbound investment screening; the obstacles faced by European companies to doing business in China; and European accusations of Chinese circumvention of sanctions on Russia.
What are the best-case outcomes we can expect?
Peker: On the economic front, a best-case outcome would be an agreement from Beijing to immediately remove trade barriers for certain EU products (such as medical devices and infant formula) and take steps that would facilitate greater market access and investment opportunities for European companies generally. On the diplomatic front, China would proactively collaborate in enforcing sanctions on Russia and commit to more diplomatic engagement on Ukraine’s 10-point peace plan.
Ashton: China’s ties with the EU are strained, but not as fraught as those with the US, so theoretically there is potential for deliverables that equal or surpass those of the Biden-Xi summit, where the two sides agreed to cooperate on bilateral irritants such as fentanyl precursors and military-to-military dialogue. China could offer narrow concessions on market access, but given the limited receptiveness shown to EU trade and investment concerns, does not appear likely to offer broad concessions. Though China and the EU continue to harbor sharply different views about the causes of the war in Ukraine and essential terms for its resolution, Beijing could signal a willingness to participate in future rounds of talks.
How do you expect EU-China relations to evolve over the medium term?
Peker: Given the expectation that the summit will not deliver any major breakthroughs, the EU will likely continue to harden its stance against China, raising the risk of Chinese commercial retaliation. The EU will not likely be able to convince Beijing of its autonomy from the US on China policies, hurting EU ambitions to establish more constructive engagement with China. Therefore, the EU is likely to seek open communication channels and stable commercial ties in the medium term, while trying to reduce dependencies on China in the long run.
Ashton: Beijing is unlikely to shift the EU away from its assessment that China has become an economic competitor. Therefore, China will continue its efforts to drive a wedge between the EU’s and the US’s approaches to relations with China, but its success in this regard will largely be determined by the politics of EU member states and the policies of the next administration in Washington.
Edited by Jonathan House, senior editor at Eurasia Group.