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Top-level talks with China are essential, but not enough

By Nick Consonery

The U.S. and Chinese governments have just wrapped up the third annual Strategic and Economic Dialogue (S&ED) talks, which were a vital opportunity to "tune up" one of the world's most important relationships. With the Chinese delegation now back in Beijing, the United States at least will bill the latest round as a success.

Washington secured a commitment from Beijing that it would follow through on an earlier promise to open up its massive government procurement market. Beijing also gave ground on a few other market-access issues, including in its domestic financial services market. These developments are significant for some companies in some sectors. But despite this progress, the current longer-term outlook for the U.S.-China relationship is muddled at best, and fractious at worst.

There a several areas of concern. The massive trade imbalance that haunts the relationship will not be resolved any time soon, especially given low expectations for meaningful economic change in China over the next few years. Another worry is that commercial relations-which helped smooth over several periods of high tension in the past two decades-will become more fraught, as business competition surges.

In this context, the S&ED talks-while important-are insufficient to ensure that relations stay on a positive trajectory. Sub-national contacts between the two sides must also be expanded more aggressively, in tandem with the S&ED.

Fortunately, both national governments recognize this and are working to bolster sub-national contacts. The leading efforts are the U.S.-China EcoPartnership program (which was expanded during the S&ED), and the newly formed U.S.-China Governor's Forum, which will have its first annual meeting in Salt Lake City, Utah in July this year. Individual U.S. states are also expanding dialogues and connections with China. South Carolina's Department of Commerce, for example, has a permanent representative office in Shanghai. And just this week Virginia opened its own trade office in Shanghai.

Of course, sub-national contact between the United States and China is not exactly new. As a U.S. government fact sheet, agreed on during Chinese President Hu Jintao's January visit to Washington, points out, eight governors led trade visits to China in 2010, and equivalent Chinese politicians made 100 visits to the United States in the same year.

Admittedly, these moves are driven largely by commercial interests. In particular, U.S. states are angling to get their share of a hoped-for flood of Chinese investment into the United States. But this grass-roots contact will also improve the U.S.-China relationship in a way that no high-level bilateral dialogue could hope to accomplish.

There is still a real risk, however, that politics could get in the way of the relationship-as Dan Rosen and Thilo Hanemann point out in their recent report on China's global investments. That may make it harder for states to capitalize on Chinese commercial interests, and reduce the benefits those investments would carry, such as new job growth. In the end, a more robust network of sub-national personal and business relationships between the United States and China will go a long way towards averting that outcome.

Nick Consonery is an Asia Analyst at Eurasia Group.

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