Executive Brief

US-China Relations

Beijing believes the Biden administration wants to force China to serve a US agenda. The Chinese leadership perceives Washington’s measures – supporting Taiwan independence, inhibiting trade, increasing military pressure around China, and imposing a technology blockade – as efforts to undermine China’s development.

The 18 February meeting between US Secretary of State Blinken and Politburo member WANG Yi on the sidelines of the Munich Security Conference was the first high-level contact between the two countries since the Chinese surveillance balloon incident. Instead of deescalating tensions, the meeting availed both sides to trade barbs.

• Wang warned Blinken that if the US continues to dramatize and escalate the balloon incident, the US side should be prepared to bear all consequences, and that China does not accept US finger-pointing or coercion targeting China-Russia relations. Wang also urged the US to “follow through on its statement of not supporting Taiwan independence.”
• Chinese analysts warn that China should bear no illusions and prepare for a worsening situation with the United States. They attribute the Biden administration’s limited maneuvering space to US domestic politics.

On 20 February, responding to Blinken’s public assertion that China was considering providing lethal support to Russia, China’s Foreign Ministry said, “It is the US, not China, that has been pouring weapons into the battlefield. The US is in no position to tell China what to do.”

• China’s Party-run Global Times published an editorial the following day accusing the US of creating a “baseless” narrative to “hijack China- Russia relations.” Chinese experts believe the Biden administration wants to use this narrative to 1) sustain US domestic support for continued aid to Ukraine; 2) keep public focus on China as the real adversary; and 3) drive a wedge between Beijing and Moscow.

On 16 February the US Department of Justice (DOJ) announced the creation of a “Disruptive Technology Strike Force” (DTSF) to “target illicit actors, strengthen supply chains, and protect critical technological assets from being acquired or used by nation-state adversaries.” DOJ named China as one such state actor. DTSF will “bring together experts throughout the government, including the FBI, Homeland Security Investigations, and 14 US Attorneys’ Offices in 12 metropolitan regions."

On 16 February China added Lockheed Martin and the missile subsidiary of Raytheon Technologies to its “Unreliable Entities List,” which will prohibit the two companies from doing business with China and will bar senior staff from entering China. Although China said it had sanctioned the two companies for their involvement in US arms sales to Taiwan, Beijing’s move also represents a “symbolic action” in response to the US shooting down of the Chinese surveillance balloon.

• In 2019, 2020, and 2022, China imposed similar sanctions against the two companies for arms sales to Taiwan but has avoided sanctioning the commercial divisions of Raytheon that sell aviation and other components to China.

On 22 February the Chinese government instructed state-owned enterprises (SOEs) to discontinue business relations with the “Big Four” US accounting firms—Deloitte, Ernst & Young, KPMG, and PwC— when their contracts expire, for reasons ostensibly related to data security. In 2021 these companies earned approximately $3 billion from Chinese customers, according to Bloomberg.

Economic Issues

According to US Treasury Department data published on 15 February, China sold $3.1 billion in US Treasury Bonds in November 2022, continuing a five-month selling trend.

In the first 11 months of 2022, China sold a total of $173.2 billion in US Treasury Bonds and retained $867.1 billion in US bonds as of December 2022 (versus $1.04 trillion in December 2021). China remains the second largest foreign US debt holder after Japan, but China’s holdings dropped to their lowest since June 2010.

On 22 February Iraq’s central bank announced that it will accept the Chinese yuan as the settlement currency for oil exports. Iraq is China’s third largest oil provider with 55.48 million tons in 2022. China previously had paid for Iraq oil imports in US dollars.

Chinese industry experts note that the Iraqi announcement marked a major milestone for petroyuan internationalization and a setback for petrodollars. China already has made petroyuan agreements with Saudi Arabia, Russia, and Iran.