By Matt Spetalnick, David Brunnstrom and Michael Martina
WASHINGTON/BEIJING (Reuters) - China’s economic powerhouse is slowing, destabilizing global markets. Beijing’s neighbors, unnerved over its pursuit of territorial claims, are increasingly cozying up to Washington. A threat of U.S. cyber sanctions looms over Chinese companies.
It might seem an ideal time for U.S. President Barack Obama to take advantage of Beijing’s troubles and get tough when he hosts Chinese leader Xi Jinping for a state visit on Sept. 25.
Obama is expected to press Xi on issues that have strained relations between the two countries, but his approach will be tempered because for better or worse the world’s two biggest economies are inextricably bound together.
That will mean a difficult balancing act for Obama.
He is under pressure to send a strong message to Xi over cyber spying, Chinese economic policies and South China Sea disputes, but he does not want to upend a summit that could set the tone for relations for his last 16 months in office.
"The test for Obama is whether he can leave this very important relationship in better shape than he found it," a senior U.S. diplomat said. "And the jury is still out."
Critics have said that Obama’s strategy of alternately prodding and cajoling China to play by international rules has yielded little but defiance from Beijing. Calls for a harder line have echoed from Congress to Republicans campaigning for the 2016 presidential election.
On Wednesday, Obama sought to dispel any notion that he would be soft on Xi.
Speaking to members of the Business Roundtable, Obama warned of "countervailing actions" if China persisted in cyber espionage, said it must not wield protectionism like a "Third World country" and urged China to stop "pushing around" its smaller neighbors.
At the same time, with nationalistic sentiment rising at home, Xi can ill afford the appearance of an economically weakened China making concessions to America.
"As long as Xi shows he defends China’s interests and does not surrender to U.S. pressure it will be perceived as successful (domestically)," said Jia Qingguo, dean of the School of International Studies at Peking University and an adviser to the Communist government.
NARROWING THE GAPS
No policy breakthroughs are likely during Xi’s U.S. trip, which is due to begin with meetings with high-tech executives in Seattle early next week and end with a speech at the United Nations General Assembly in New York on Sept. 28.
The best hope is to narrow some gaps and stress more modest achievements, U.S. and Chinese sources have said. Those could include progress toward a bilateral investment treaty, building on the countries' climate change commitments and new rules to cut the risk of confrontation in the Asia-Pacific region.
When the two men met in previous years, the Chinese economy was riding high and the U.S. economy was struggling. Now, with global markets unsettled by China’s slowing growth, Xi’s economic stewardship is in question.
"Those dynamics put Xi in a more difficult position because he comes into the summit on his back foot," a former senior administration official said.
Washington has threatened sanctions against Chinese individuals and companies that have been accused of hacking U.S. corporate databases.
"We are preparing a number of measures that will indicate to the Chinese that this is not just a matter of us being mildly upset," Obama told business leaders at the meeting.
U.S. officials said any announcement would be made only after Xi’s visit.
The Chinese, too, have made clear that they would prefer to avoid any diplomatic blowups.
One area in which Obama will likely have little leverage is over China’s military build-up, widely seen as an effort to challenge U.S. naval dominance in the western Pacific.
A senior U.S. official insisted that Obama would not shy away from areas of disagreement.
"We’re not going to pull any punches," the official said, adding, "When we can’t narrow differences (we can) at least manage them effectively."
(Reporting by Matt Spetalnick and David Brunnstrom in Washington and Michael Martina in Beijing; Additional reporting by Lisa Lambert and Roberta Rampton in Washington; Writing by Matt Spetalnick; Editing by David Storey, Toni Reinhold)