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THIS WEEK:

Cai Qi signals interest in rebuilding Sino-U.S. ties, German Chancellor Scholz visits Beijing, and guest contributor Jane Perlez, former New York Times Beijing Bureau Chief, on Apple’s China conundrum.

1. Cai Qi Emerges as a Key U.S.-China Interlocutor

What Happened: On April 12, Cai Qi, chief of staff to Xi Jinping and the top secretary of the Communist Party’s powerful Central Secretariat, met in Beijing with Asia Society Global Co-Chair John L. Thornton. Cai also met with Asia Society Global Trustee and Blackstone leader Stephen A. Schwarzman on the sidelines of the China Development Forum on March 25.

Between the Lines: Cai’s meetings with Thornton and Schwarzman are notable for a Chinese leader with his portfolio. Cai’s only other meetings with foreigners have been with politicians from Japan, Mongolia, Mozambique, North Korea, and Vietnam.

The Profile: Readouts of both meetings were published on the front page of The People’s Daily. Previous Central Secretariat heads consulted with U.S. executives, but these meetings were rare and given less profile. Wang Huning met Apple CEO Tim Cook in December 2017, and Liu Yunshan saw then-Qualcomm president Derek Aberle in November 2016.

Why It Matters: Cai is Xi’s most trusted lieutenant, and his involvement in high-level non-government diplomacy suggests that Beijing is serious about restoring stability and rebuilding connections in U.S.-China relations. Cai asked Thornton to “enhance all types of exchanges and friendship between the two countries.” Expectations for U.S.-China relations should remain modest, but Cai’s meetings imply Beijing does not want to escalate bilateral tensions. Cai is probably now the most reliable conduit to Xi, and Washington could leverage these unofficial channels to send sensitive diplomatic messages and explore possibilities for cooperation.

By: Neil Thomas, Fellow on Chinese Politics, and Jing Qian, Co-Founder and Managing Director, Center for China Analysis

Read More: Stay up to date with the people, institutions, and networks that matter in Chinese policymaking with the Center for China analysis’ flagship Decoding Chinese Politics project.

2. Chancellor Scholz in China: Ukraine and EU Trade Frictions

What Happened: In China this week, German Chancellor Olaf Scholz engaged Xi Jinping on a “just peace” in Ukraine — the EU’s top security concern — and signed a joint declaration on connected vehicles.

On Ukraine: Xi was non-committal, claiming to support “all efforts conducive to peaceful resolution and the convening of an international peace conference with the equal participation of all sides,” a reference to the talks the Swiss are hosting in Lucerne in June. As in previous exchanges with European leaders, he refused to criticize Russia, and appeared unwilling to go beyond China’s 12-point “peace plan,” which does not explicitly demand a Russian withdrawal.

On Trade: Xi reassured his guest that “China’s complementarity with Germany is not a risk.” BMW, Mercedes, and Volkswagen are big investors in China and hope to continue to export China-made cars to the EU — despite the European Commission’s apparent commitment to sanctions. Other EU members, including France, support action on EVs, as analysts forecast an inevitable slow death for the European car industry.

Why It Matters: Germany’s strong trade relationship with China was apparent during the visit, but the Scholz government stands alone in trying to push back against de-risking — a key element of the EU’s China strategy. Convincing fellow EU leaders of Germany’s goodwill will be hard.

By: Philippe Le Corre, Senior Fellow, Center for China Analysis, and Senior Advisor on Geopolitics, Asia Society France

Learn More: Read Philippe’s article on why Germany and France Have to Form a Common Front Toward China.

3. Apple Loses More Ground in China

What Happened: Apple forfeited the top spot as the world’s leading smartphone maker as softening demand for iPhones in China contributed to a 10% drop in global sales last quarter.

The Squeeze: Apple has been under stress in China as Huawei and Xiaomei gain domestic market share and government employees are told to leave their iPhones at home. U.S.-China tensions have pushed the company to diversify its supply chain, moving some production to India and Vietnam.

The Sauce: Managing these competing pressures has a high cost. In 2016, after China closed down iTunes Movies and iBooks, Apple reportedly concluded a secret, five-year, $275 billion deal with the Chinese government. The deal covered investments, research and development, and funding for start-ups, including $1 billion for Didi, the ridesharing company.

Why It Matters: On the outs with many Chinese consumers, and getting heavy flak from both Washington and Beijing, Apple faces a tough road ahead, and risks becoming a casualty of decoupling.

By: Guest Contributor Jane Perlez, former New York Times Beijing Bureau Chief and host of the podcast Face-Off: The U.S. vs. China.

Learn More: Jane delved into Apple’s troubled marriage with Beijing in this podcast from Face-Off: The U.S. vs. China, and Kishore Mahbubani and Orville Schell considered the global impact of U.S.-China relations in this Asia Society Policy Institute podcast.

 4. Beijing Walks Fine Line on Iran's Attack on Israel

What Happened: China’s response to attacks on Israel over the weekend elicited disappointment from the Israeli government, which lamented China’s unwillingness to condemn Iran for the military action. 
 
China’s Statements: On Sunday, the Ministry of Foreign Affairs called for the immediate implementation of a United Nations Security Council resolution calling for a ceasefire in Gaza, but stopped short of directly condemning Iran. Foreign Minister Wang Yi later stated he believed Tehran can “handle the situation well” and “spare the region further turmoil.”

Israel’s Reply: Yuval Waks, Deputy Chief of Mission at Israel’s Embassy in Beijing, said his country had been “hoping for stronger condemnation” from the Chinese Foreign Ministry, and that China’s response was “not as strong as expected.”

Why It Matters: China’s response to the attack, and Israel’s disappointment, highlight the tightrope Beijing is walking. As in the Ukraine crisis, China’s failure to directly condemn military aggression by a country it has close relations with will continue to expose it to criticism from Western nations seeking a more forceful and united stance against military aggression. 

By Lyle Morris, Senior Fellow on Foreign Policy and National Security, Center for China Analysis

Learn More: Read how China’s “New Era” Changes the Game for Global Actors in this new issue paper from Diana Choyleva, Senior Fellow on Chinese Economy, Center for China Analysis.

5. Plumbing New Depths in Search for Oil

What Happened: China’s deepest mobile oil rig has commenced operation on the northern rim of the South China Sea.
 
A Long Way Down: Developed by the China National Offshore Oil Corporation (CNOOC), the rig’s horizontal drilling technology is cheaper and more efficient to operate and can overcome extraction barriers. It has a maximum drilling depth of 9,508 meters and a horizontal displacement of 8,689 meters.
 
The Numbers: The rig has the capacity to produce over 50,000 barrels per day. China’s oil consumption reached a record 16 million barrels per day last year, and the government targets to reach a "peak plateau" by 2030. Because China imports 70% of its crude, it is subject to supply constraints and price volatility.
 
Why It Matters: Strengthening domestic energy resilience and minimizing reliance on foreign producers are top priorities for China’s leadership. CNOOC’s new rig is an example of how China is leveraging its emerging strengths in technology and advanced manufacturing to achieve these goals.

By: Taylah Bland, Affiliated Fellow on Climate and the Environment, Center for China Analysis

Learn More: Check out More renewables, more coal: Where are China’s emissions really headed?, by ASPI China Climate Hub Senior Fellow, Lauri Myllyvirta.