Throughout the 2000s, Chinese demand for primary goods like oil, iron, copper, and zinc helped Africa reduce poverty more than it had in decades. Even so, China’s total investment in the continent’s natural resources has been smaller than many imagine, and, with growth moving away from manufacturing and toward consumption, China’s appetite for raw materials will continue to diminish. China’s shifting economic growth model aligns with Sub-Saharan Africa’s imminent labor force boom, presenting a significant opportunity for both sides. Maximizing mutual gain will depend on China and Africa cooperating to address a host of challenges: Can African countries limit the flow of Chinese migrants and foster domestic industries? Will Chinese investors adopt global norms of social and environmental responsibility? Where does the West fit in?

This study aims to objectively assess China’s economic engagement on the African continent, the extent to which African economies are benefiting, prospects for the future, and ways to make this relationship more productive. David Dollar marshals evidence about the scale of trade, investment, infrastructure cooperation, and migration between China and Africa, all of which are relatively recent phenomena. In addition, Dollar addresses the question of whether and how China’s involvement differs from that of Africa’s other economic partners. The concluding chapter provides some tentative recommendations for African countries, China, and the West.

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• China's engagement with Africa: From natural resources to human resources

      

 

 

China’s fiscal and taxation system constitutes an important driving force of its economic transition and growth over the last 30 years. The “12th Five-year Plan” has ushered in an era of even more radical change for the country. In his monograph, Zheng Xinye addresses the challenges posed by new economic dynamics to China’s establishment of a modern fiscal system, and illustrates the major elements of its fiscal reform.

Abstract:

In most economies, the major goals of the fiscal system are stimulating economic growth, managing economic fluctuations, improving income distribution and controlling pollution. Thirty years ago, China’s economic cycles were predictable, income gap minimal and pollution yet to set in. Therefore the country’s fiscal system aimed solely at fostering economic growth. Today, however, apart from ensuring growth, China’s fiscal system is expected to resolve challenges of increasingly frequent economic fluctuation, widening income gap and worsening environmental pollution. Policy recommendations were proposed based on the aforementioned goals: first, control government size to relieve tax burden; second, improve income structure by raising the ratio of corporate and personal income tax, establishing inheritance and gift tax and redesigning value-added tax—certain carbon products should be taxed up to 30 percent, whereas other products down to nine percent; third, adjust expenditure structure by increasing the spending on unemployment insurance from 0.07 percent during the “11th Five-year Plan” to 0.5 percent, and expanding social assistance in the form of low-income subsidy; last, reduce transfer payments from central government and change its role from policy maker to public service. provider.

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• Establishing China's Modern Fiscal System (Chinese)

      

 

 

China has gained a reputation as “the smoking dragon” due to its rapidly growing tobacco industry and ongoing smoking-related health crisis. The anti-smoking campaign in China, despite daunting challenges and deep-rooted institutional barriers, has the potential—and the unprecedented opportunity—to change the course of the tobacco epidemic within China and in the world.

In this updated Chinese volume, Cheng Li provides an updated analysis to an earlier English monograph of China’s tobacco industry and its main stakeholders in light of the leadership change after the 18th Party Congress last November and the National People's Congress last March.

EXECUTIVE SUMMARY

The high prevalence of tobacco use in China is not only the country’s single most serious public health problem, but also constitutes the ultimate test case for the global tobacco control campaign. While China’s remarkable economic growth over the past three decades has been one of the most amazing miracles of our time, the country has also gained a reputation as “the smoking dragon” due to its rapidly growing tobacco industry and ongoing smoking-related health crisis. The anti-smoking campaign in China, despite daunting challenges and deep-rooted institutional barriers, has the potential—and the unprecedented opportunity—to change the course of the tobacco epidemic within China and in the world. The drafting of a political map of China’s tobacco industry and its main stakeholders is essential for the next phase of the campaign.

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The fear of slower Chinese growth has significant ramification for the global economy. The importance of China, and the central role of its financial system in fueling that nation’s growth, led Douglas Elliott and Kai Yan to write a comprehensive overview of the Chinese financial system in the backdrop of the 5th meeting of the U.S.-China Strategic & Economic Dialogue.

Key questions this report will address include:

• What is the overall structure of China's financial system?
• Who regulates the financial system?
• How do the state and party influence the allocation of credit in China?
• What are the major challenges for the financial system as China reforms?

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China’s outbound foreign direct investment (FDI) is entering a stage of rapid development. Outbound investment in 2010 was $68 billion, first among developing countries and fifth in the world. However investment has been concentrated in developing countries in Asia, Africa and Latin America. The share of investment in developed countries in Europe and North America has been relatively low. Up to the end of 2009, China’s accumulated FDI to developed countries totaled $18.17 billion, 7.4% of its total stock of outbound FDI. Of this, FDI stock in the United States was $3.34 billion, just 1.4% of China’s total outbound FDI stock. And, in great contrast to China and the United States’ status as one another’s second largest trading partners, China’s stock of FDI in the United States only represents 0.1% of the total stock of FDI to the United States. This is far below the share of FDI stock in the United States by Mexico, Saudi Arabia, South Korea, Brazil and India, and is merely equal to the levels of New Zealand and Austria. According to calculations by the Asia Society, by 2020 China’s outbound FDI will surpass $1 trillion USD, of which a good share will flow to developed countries like the United States.

Many in America view Chinese foreign investments with both hope and concern. On the one hand, Chinese investment plays a positive role in driving local economic growth and in creating job opportunities; many American state governments have established dedicated organizations in China responsible for attracting investment and business from China. According to materials from the Council of American States in China, by now more than half of all U.S. states have established representative offices in China to promote bilateral trade and Chinese investment in the states. On the other hand, differences in the political and cultural traditions of the United States, America remains anxious, worried about the threat to national security that would be posed by Chinese investments controlling some areas of the United States economy. The fact that in recent years Chinese investments in the United States have been repeatedly frustrated by political forces is closely related to this mindset among certain groups in the United States. For example, the attempt by China National Offshore Oil Company to acquire Unocal in 2005, the joint bid by Bain Capital and Huawei Technologies to acquire 3COM in 2007, China Northwest Nonferrous International Investment Company’s bid to acquire Firstgold in 2009, and the 2011 bid by Huawei to acquire the U.S. server technology company 3Leaf all ultimately fall apart on the grounds of national security concerns following interference from various circles in the United States.

Against this backdrop, research on the external environment facing Chinese companies investing in the United States is of critical importance. As we look into the environment for Chinese investment in the United States, we cannot only focus on the commercial risks of natural disasters, unexpected accidents, market changes, mismanagement and currency fluctuations. We must also look more deeply at the external environment facing Chinese investment and the related non-business risks such as political and operational risks. ‘Political risk’ refers to the passive risk posed by a lack of familiarity with laws governing investments by foreigners as well as the active risks posed by the influence of political forces in the review and supervision process. ‘Operational environment’ refers to risks of financial losses or litigation that may be posed after market entry by the substantial difference between the United States and China’s legal systems governing environmental protection, product responsibility, intellectual property, labor and employment and taxation.

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• A Study on the External Environment for the Investment of Chinese Enterprises in the United States

      

 

 

China has gained a reputation as “the smoking dragon” due to its rapidly growing tobacco industry and ongoing smoking-related health crisis. The anti-smoking campaign in China, despite daunting challenges and deep-rooted institutional barriers, has the potential—and the unprecedented opportunity—to change the course of the tobacco epidemic within China and in the world.

In his latest monograph Cheng Li drafts a political map of China’s tobacco industry and its main stakeholders essential for the next phase of the campaign. On October 25, Li will discuss the key findings in his monograph at Brookings.

EXECUTIVE SUMMARY

The high prevalence of tobacco use in China is not only the country’s single most serious public health problem, but also constitutes the ultimate test case for the global tobacco control campaign. While China’s remarkable economic growth over the past three decades has been one of the most amazing miracles of our time, the country has also gained a reputation as “the smoking dragon” due to its rapidly growing tobacco industry and ongoing smoking-related health crisis. The anti-smoking campaign in China, despite daunting challenges and deep-rooted institutional barriers, has the potential—and the unprecedented opportunity—to change the course of the tobacco epidemic within China and in the world. The drafting of a political map of China’s tobacco industry and its main stakeholders is essential for the next phase of the campaign.

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Although both Beijing and Washington consider the U.S.-China relationship to be the most important in the world, distrust of each other’s long term intentions ("strategic distrust") has grown to a dangerous degree.

The coauthors of this path-breaking study—one of America's leading China specialists and one of China's leading America specialists—lay out both the underlying concerns each leadership harbors about the other side and the reasons for those concerns. Each coauthor has written the narrative of his government’s views without any changes made by the other coauthor. Their purpose is to enable both leaderships to better fathom how the other thinks. The coauthors have together written the follow-on analysis and recommendations designed to improve the potential for a long-term normal major power U.S.-China relationship, rather than the adversarial relationship that might otherwise develop.

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• Growing Mistrust between U.S. and China

      

 

 

INTRODUCTION

In 2009 and 2010, China Development Bank (CDB) extended lines of credit totaling almost $65 billion to energy companies and government entities in Brazil, Ecuador, Russia, Turkmenistan and Venezuela. The loans are secured by revenue earned from the sale of oil at market prices to Chinese national oil companies (NOCs), except in the case of Turkmenistan, which is delivering natural gas at undisclosed prices. These energy-backed loans (EBLs) are distinguished by their large size (up to $20.6 billion), long terms (up to twenty years), the relatively short period of time in which they occurred (over a period of less than two years), and their availability at a time when many companies were cancelling or postponing major investments in oil and natural gas development because of cash flow problems and virtually no other financial institutions were willing to lend such large amounts of capital for such long terms[1].

CDB’s EBLs demonstrate the increasingly central role the bank is playing in China’s “going out” strategy, the international expansion of Chinese firms to secure energy and natural resources, build national champions and acquire advanced technologies. Since the mid-2000s, CDB has participated in some of China’s most high-profile cross-border deals, including financing the acquisition of a 9 percent stake in the Anglo-Australian mining giant Rio Tinto by the Aluminum Corporation of China (Chinalco), bankrolling the global expansion of China’s telecommunications firms Huawei Technologies and ZTE Corporation, funding the natural gas pipeline that runs from Turkmenistan to China, and managing the China-Africa Development Fund. CDB also purchased a 3.1 percent stake in Barclays when the British bank was attempting to acquire the Dutch bank ABN Amro in what would have been the largest bank merger in history had it succeeded.

CDB’s EBLs raise the same question that many outside observers ask about the international mergers and acquisitions of China’s state-owned energy and mining companies: to what extent are these deals driven by the strategic interests of the Chinese government versus the commercial interests of Chinese firms? On the one hand, CDB is a wholly state-owned bank with a mandate to advance China’s national interests as the State Council understands those interests at any given time. Currently, those interests include supporting the “going out” strategy and improving China’s access to energy. Moreover, the bank’s chairman and leader for more than a decade, Chen Yuan, serves at the pleasure of the Chinese Communist Party and is the son of Chen Yun, one of the founding fathers of the People’s Republic of China. On the other hand, Chen is an ambitious and entrepreneurial financier who operates with a considerable degree of autonomy. He has transformed CDB from a bank created for the explicit purpose of undertaking policy-driven lending into one of the most dynamic and successful Chinese financial institutions. In addition, Chen has a proven track record of advancing CDB’s own interests in tandem with those of the Chinese government.

The purpose of this study is to contribute to the debate over the extent to which China’s cross-border deals are the product of coordination between Chinese firms and the Chinese government by examining China Development Bank and its EBLs. CDB is a link between the strategic ambitions of the Chinese government and the commercial interests of Chinese firms because the financing it provides to support cross-border deals connects state policy to commercial activity[2]. The bank does this by providing funds to both Chinese companies and entities in energy and resource-rich states. Many outside observers explicitly or implicitly assume that CDB’s deals, including the EBLs, are the work of China, Inc.: China’s government, state-owned banks and NOCs operating as a coherent entity in a global pursuit of energy.

The main finding of this study is that CDB’s EBLs are the result of coordination between government and business but the motive frequently attributed to these transactions—to secure oil and natural gas supplies for Chinese consumers—is just one of the multiple corporate and national interests that drove these deals. CDB, the State Council and China’s NOCs worked closely together to structure and execute these transactions. However, this coordination between the Chinese government and Chinese firms must be understood in the context of two important caveats:

First, each of the state-owned firms involved had its own interests, including profitability, to pursue. This conclusion is especially true for CDB, which has a proven track record of advancing its own objectives, including its long-standing commitment to profitability, in tandem with those of the government. The EBLs did not simply further the State Council’s objectives of enhancing access to energy, supporting the international expansion of Chinese firms and diversifying China’s foreign exchange reserves. They also promoted CDB’s own agenda of increasing profits, expanding its overseas business portfolio, and protecting its privileged position in China’s banking system. In addition, the loans also dovetailed with the NOCs’ strategic priority of expanding their international exploration and production portfolios.

Second, coordination is not synonymous with top-down decision-making. The loans to energy companies in Brazil and Russia demonstrate that cross-border deals that advance both national and commercial interests can originate with any of these actors. Whereas CDB developed the deal with Brazil, the State Council and China National Petroleum Corporation (CNPC) drove the transaction with Russia.

This examination of CDB’s EBLs also demonstrates that crossborder energy deals shaped in part by the strategic priorities of the Chinese government have both positive and negative implications for American interests abroad. Over the past decade, numerous analyses of the implications of China’s growing global energy footprint for the United States have focused on how projects that are motivated—or perceived to be motivated—by the strategic priorities of the Chinese government are undermining America’s influence and interests abroad, including in the Former Soviet Union and Latin America. CDB’s loans have appeared in some of these narratives.

In contrast, this study finds that CDB’s EBLs align with some American interests and run counter to others. Evidence indicates the Chinese did not execute these deals to help or harm the United States. Nevertheless, CDB’s loans have both positive and negative implications for the United States. On the one hand, the loan to Turkmenistan aligns with some US interests in Central Asia, including bringing incremental energy supplies to the world market and supporting the independence of states in the region by providing them with multiple energy export options. In addition, these deals are not removing oil from the world market and reducing the amount of oil to other consumers. Moreover, the bank’s loans to Venezuela, its largest foreign borrower, indicate that CDB, like more established bilateral and multilateral donors, is increasingly concerned about good economic policymaking in recipient nations even if it does not attach the same conditionality to it loans. On the other hand, CDB’s loans to Venezuela and Ecuador are empowering anti-American regimes, and CDB’s lines of credit may give China’s NOCs a competitive advantage over other oil companies, including those domiciled in the United States.

This study is divided into four parts. The first section examines CDB’s transformation into one of China’s most commercial and international institutions under the leadership of Chen Yuan. It details his success in furthering his own ambitions, which first and foremost included making CDB into one of the healthiest banks in China, while serving the interests of the Chinese leadership. The second section analyzes CDB’s EBLs, including their structure and implementation. The third section discusses what the EBLs tell us about the link between national policy and commercial activity in China’s cross-border energy deals. It discusses the multiple national and corporate interests behind the deals and the role different actors played in driving different deals. The fourth section examines positive and negative implications of CDB’s EBLs for the United States.

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Executive Summary

Intelligence analysis seeks to provide necessary information in a timely manner to help policymakers from the president on down make better decisions. The information and judgments must be pertinent to what policymakers need to know but not skewed to support a particular policy outcome. In reality, this is more of an art than a science, especially because the manner and means of most effectively informing the president and other senior policymakers changes with the preferences and working style of each new administration.

The Intelligence Community (IC) of the United States has been undergoing major reforms since 2005 when President George W. Bush signed the Intelligence Reform and Terrorism Prevention Act. Under the new Director of National Intelligence, the shortcomings in intelligence analysis that came to light in the wake of the 9/11 and Iraq WMD intelligence failures are being addressed through revamped analytic standards, increased resources for the IC, and numerous organizational and procedural changes. These analytic transformation initiatives seek to reduce barriers among organizations and individuals across the IC and to more effectively prioritize missions.

As of now, many of these innovative initiatives are in the development stage. Once completed, given their conceptual and technological complexity, it will be important to continually assess whether these initiatives result in a significantly improved analytic product. Mindsets and cultures of various IC components may prove serious obstacles to the kind of open and collaborative environment envisioned in these efforts; these new capabilities may prove most effective among digitally- savvy analysts in their twenties rather than among more senior analysts and managers.

Against this background of ongoing reform, this study assesses the current state of play, identifies systemic concerns, and offers practical ideas to improve analytic transformation and make the interactions between the analytic community and policymakers more effective. Extensive interviews with current and former policymakers and intelligence community analysts and managers reveal that there are flaws in the current system that require dedicated attention. The most consequential include:

• Overemphasis on the President’s Daily Brief (PDB) – President George W. Bush elevated the PDB to an unprecedented level of importance, which had the unintended effect of skewing intelligence production away from deeper research and arms-length analysis to being driven by the latest, attention-grabbing clandestine reports from the field.



• Disappointing National Intelligence Estimates (NIEs) – NIEs are meant to be one of the major products of the IC, yet they are frequently too late, too long, and too detailed to serve high-level policymakers well. Moreover, NIE analytic quality is often compromised by the effort to present a unified analytic position, producing reports that can become the lowest common denominator statement that is able to achieve agreement across the IC silos.



• Analytic Risk Aversion – In the wake of the Iraq WMD fiasco, the pendulum has swung decidedly toward a tendency for analytical products to focus on amalgamating all potentially relevant data and to present only that to policymakers—leaving it up to them to draw the analytic conclusions. DNI Dennis Blair has recently made a welcome commitment to having opportunity analysis— the identification by analysts of unanticipated windows of opportunity to advance U.S. policies—become a key component of intelligence products.



• Insufficiently Deep Country Knowledge – Many of the young IC analysts are trained to follow a particular stream of information from ”their” country but lack the deep immersion in the country’s political system, economy, and modern history necessary to produce nuanced, insightful analytic products. Moreover, very burdensome security constraints make it extremely difficult for them to build that kind of analytic depth.



• Overemphasis on Classified Sources – IC analysts tend to gravitate to information obtained by clandestine means. Yet much of that information lacks context and is substantively rather marginal. As a consequence, analyses overly driven by classified sources may suffer from ignorance of important information in unclassified sources. This is especially notable with the explosion of unclassified material now available on key targets such as China.

• Recruit a greater percentage of the incoming class of analysts from those in their late twenties and early thirties who have had extensive experience related to the country of concern – This change can present a security challenge but the added benefits in terms of maturity, life experience, and deeper country knowledge are worth the additional effort and attention needed to clear these individuals.



• Establish a National Intelligence University with its own campus and faculty – If the vision of a truly integrated analytic corps is to be achieved, there needs to be an academy that allows the IC to not only establish crossagency relationships and cultivate common standards and procedures, but also to better draw lessons from its own historical successes and failures and to incorporate those into training programs.



• Devote greater time and attention to formal training – To address the question of analytic depth, special short-term courses that draw in specialists from outside of the IC and that test participants’ learning in the course should be conducted on a regular basis. Moreover, analysts should be encouraged to attend programs held by various Washington-area think tanks, not (as is now the case for many) discouraged due to security concerns.



• Nurture and reward area specialists – There is no substitute for the key analyst with deep substantive knowledge and experience on a single country or issue. The IC may wish to consider assigning some analysts to conduct in-depth studies of major long-term issues in key countries such as China (e.g. study of the long-term evolution if civilian-military relations in the PRC) in order to help a cohort of analysts develop such depth.



• Break stovepipes in analytic assignments – On National Intelligence Estimates and other key products, consideration should be given more often to assigning individuals from two different disciplines joint leadership in developing the analysis. This would foster, for example, greater integration of political and technical analysis of missile development.

• Provide formal introductory briefings for incoming policymakers on IC capabilities and limitations – Often, new policymakers come into office with very impressionistic and misinformed views on what the IC is able to produce. Senior IC managers should develop introductory briefings that help policymakers think critically about their intelligence needs and how they can best utilize the IC.



• Assign IC analysts systematically to provide on-site support to policymakers at and above the assistant secretary level – This not only can help the policy maker but also can provide invaluable feedback to the IC about the policy maker’s actual intelligence needs.



• Develop regular feedback mechanisms from the policymaker to analysts – Periodic meetings can greatly help the IC understand the look-ahead intelligence requirements of policymakers and garner critical feedback on materials sent over since the last such meeting.



• Allow for NIEs with formal dissenting opinions, similar to Supreme Court decisions – In such NIEs, dissenters can write specific dissenting opinions and even those who agree can pen concurring opinions that articulate a distinctive analytical approach.



• Train analysts in the power dynamic between analysts and policymakers – The desire of analysts to please the most senior intelligence consumers who are driving to a decision based, in part, on intelligence judgment can lead analysts unintentionally to overstate their confidence in the intelligence. Analysts need to be better trained and equipped to understand the subtle effects of power dynamics between analysts and policymakers, and policymakers need to keep in mind that their power and positions are intimidating to many analysts who brief them.

• Encourage policymakers to better articulate their intelligence questions and priorities – Taking the time to think through the analytic question they want answered will pay dividends for policymakers. Requests that do not assume the form of analytical questions too often fail to motivate IC analysts to think through the implications of their data, debate the relative significant of different factors, and make explicit their levels of confidence in their responses.



• Elicit what analysts know, what they don’t know, and what they think is likely to happen – Former Secretary of State Colin Powell told his IC briefers that they would be responsible if he took action based on what they said they know and do not know but that he would be responsible if he took action based on what analysts said when asked what they think is likely to happen. As a result, he incentivized analysts to be both rigorous and thoughtful.



• Provide the IC with the insights the policymakers themselves gain from their meetings with foreign officials – Presidents and many other senior policymakers are experts at “reading” other political leaders—a skill most IC analysts understandably do not share. If such insights are routinely shared they may improve the quality of intelligence analysis, especially as regards elite politics.



• Avoid as much as possible the temptation to declassify NIEs – When NIEs are likely to be declassified, analysts are prone—either consciously or subconsciously—to pull their punches and hedge their analysis. Moreover, the impulse to declassify NIEs or to leak selectively from NIEs is often based on the faulty assumption that the IC’s analysis can and should authoritatively settle a policy debate.

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• Training for the Intel Community

      

 

 

Executive Summary

This report recommends ways to overcome obstacles to cooperation between the United States and China on climate change. The report is intended for senior leadership in each country, with the goal of helping them:

• understand relevant conditions in the other country
• appreciate the priorities and constraints of counterparts across the Pacific
• take action to control greenhouse gas emissions at home
• develop specific avenues of bilateral cooperation
• facilitate agreement in multilateral negotiations on these topics

Opportunities for collaboration in fighting climate change are plentiful, but moving forward at the scale needed will require high-level political support in two very different societies, each with considerable suspicion of the other. This report recommends ways to win such support and sustain it for the long term.

Chapter 1 of the report provides a primer on two topics: climate change and U.S.-China relations. It describes the climate change threat, concluding that every year of delay in responding to it puts both countries—and the planet—at greater risk. Because the United States and China are the world’s top two greenhouse gas emitters, together accounting for more than 40% of annual emissions, any solution requires both countries to transition to low-carbon economies. U.S.-China cooperation on climate change would have not only bilateral but global benefits.

In this connection, U.S.-China relations have evolved and grown enormously since the Nixon visit to Beijing in 1972. But despite this progress, underlying mutual distrust over long-term intentions has grown and can over time make mutual antagonism a self-fulfilling prophecy. U.S.-China relations should now advance to a new stage that has the two countries consult and cooperate to address the most critical global issues of the 21st century. Climate change and clean energy, along with the global economic crisis, offer turning points. Cooperation on climate change can help move U.S.-China relations to a new stage; failure to cooperate can introduce significant new tensions.

Chapter 2 describes the climate change policies and politics in each country. It explains that, in the United States, attention to climate change has exploded in the past five years. Many state and local governments, as well as U.S. companies, have taken significant action to address this issue. President Obama identifies energy policy and climate change as top priorities. Significant action by the federal government on climate change is likely in the years ahead.

In China, energy efficiency has received serious attention, with significant national goals reflected in the current Five-Year Plan as well as various laws and regulations. Growth in renewable energy is also an important objective of national leaders. These and other policies, taken mainly to promote economic growth, energy security and clean air in China’s cities, have significant benefits when it comes to cutting greenhouse gas emissions.

Chapter 3 offers nine recommendations to U.S. and Chinese leaders on ways to cooperatively fight climate change. The recommendations embody the principle that cooperation must serve the interests of both sides.

Recommendation #1: Acknowledge legitimacy of each other’s perspectives

• The U.S. and China bring very different perspectives to the climate issue, reflecting their different histories and circumstances
• Neither side is likely to abandon its perspective, but each can recognize the legitimacy of the other’s viewpoint and avoid making these differences barriers to pragmatic cooperation
• Handling different perspectives well bilaterally can help promote the success of multilateral climate change negotiations

Recommendation #2: Build a clean energy framework for cooperation

• “Clean energy”—a key component of addressing climate change—provides a more politically attractive framework for U.S.-China bilateral cooperation than does climate change per se
• Clean energy evokes fewer ideological differences and nests cooperation in better-established policy and bureaucratic communities
• A focus on clean energy can help highlight benefits in related areas, from economic growth and recovery to local air pollution reduction to national security

Recommendation #3: Highlight one or two major headline initiatives

• When it comes to cooperation on climate change, the U.S. and China should think big and aim high
• It is important to capture the public’s imagination
• Candidates for headline programs include efforts to electrify vehicle fleets, maximize the energy efficiency of buildings, launch pilot projects in carbon capture and storage, and/or bring together millions of volunteers from each country to work in a new “Clean Energy Corps”

Recommendation #4: Emphasize co-development of technology

• The U.S. and China have complementary strengths in technology development
• The U.S. and China should announce one or more major technology co-development projects
• Each side will need to help meet the concerns of the other on difficult issues including intellectual property protection, enforcement of contracts and concessional financing

Recommendation #5: Promote local-to-local cooperation

• Local initiatives in both countries are numerous, dynamic and creative
• National-level cooperation should include as a high priority specific measures to enhance the capacities for local programs in the two countries to link up

Recommendation #6: Promote capacity building

• The United States has technical capabilities in areas such as standards setting, regulation and law drafting, large-scale database management, and instrumentation that can contribute significantly to Beijing’s capacities to monitor and evaluate energy policy outcomes
• Currently, insufficient capacity in these areas is a serious impediment to achieving the desired outcomes from China’s national government initiatives
• Washington should assist in enhancing Beijing’s capacity to monitor and evaluate its energy policy outcomes

Recommendation #7: Seek common ground on the nature of future commitments

• This is one of the most challenging issues in multilateral climate change negotiations, typically dividing developing countries from industrialized countries
• U.S.-China bilateral discussions cannot resolve this issue, but agreement on approaches could help significantly to shape broader multilateral agreements to fight global warming
• U.S.-China dialogue on the nature of future greenhouse gas emissions commitments can thus help promote agreement on this topic in multilateral negotiations

Recommendation #8: Use and improve existing structures for cooperation

• Build on existing agreements and programs
• Create a new dialogue on climate change and clean energy to parallel the existing Strategic Economic Dialogue
• Form a “U.S.-China Clean Energy Partnership”

Recommendation #9: Highlight clean energy in a U.S.-China summit

• Hold a U.S.-China summit meeting as soon as it can be fully prepared
• Make cooperation on climate change and clean energy a key pillar of this summit
• Agreement between the senior leaderships is a critical step toward serious U.S.-China climate change and clean energy cooperation
• Have the declaration of a clean energy partnership and affirmation of shared deep concern about climate change mark the inauguration of a new stage in U.S.-China relations, one that promotes the capacity of both countries to consult and cooperate on the most critical issues on the changing global agenda of the 21st century

Chapter 4 summarizes much of the foregoing in the form of a memo to the presidents of both countries, highlighting the key points in the report as a whole. The memo identifies four principal obstacles to successful cooperation between the U.S. and China on climate change and clean energy:

• mutual distrust
• different expectations on technology
• different expectations on finance
• common expectations of high costs

The memo recommends six guiding principles to shape activities of senior leaders on these topics:

• Respect and work with each other’s concerns
• Think big
• Select several flagship projects
• Build for the long-term
• Do not start with efforts that require substantial new budgetary appropriations
• Focus on economic opportunity

Together, the U.S. and China can make important progress in fighting global warming by cooperatively promoting clean energy. This can become an important foundation for the U.S.-China bilateral relationship in the years ahead. Wise leaders working together can produce great benefits for their own countries and the world.

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