US-China Diplomatic Row Amid Consulate Closure

Houston Consulate Espionage

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The Chinese consulate in Houston was at the center of FBI investigations into an extensive web of intelligence gathering, with the Houston consulate recruiting Chinese students and researchers to steal scientific and industrial secrets. Many of these “students” were later discovered to be members of the People’s Liberation Army (PLA) who had lied on their visa applications. At least four have since been arrested, including one who fled and was hiding in the Chinese consulate in San Francisco. The US government set a 72-hour deadline for the closure of the Houston consulate, but the Chinese government issued statements, saying that they refused to close. Once the deadline passed, US law enforcement entered the compound.

In response China ordered the US to close its Consulate in Chengdu. This type of tit-for-tat is a common response for China as is the flimsy pretext given. China claimed that the embassy staff were interfering in the internal affairs of China. The reciprocal embassy closures come amidst a string of actions taken by the Trump administration against the People’s Republic of China. The US has been cracking down on intellectual property theft by China, restricting Chinese investment and access to US technology, and passing legislation to bring sanctions against Chinese officials associated with human rights abuses in Hong Kong and Xinjiang. The US has also increased its naval presence in the South China Sea challenging Beijing’s claims of sovereignty, which are in violation of the rulings made by the international Court of Arbitration. President Trump has also restricted non-immigrant visas for members of the People’s Liberation Army (PLA), as a means of preventing them from stealing US technology.

China has released statements explaining that they feel the US is a “bully” and that they are being unjustly persecuted. The allegations of Chinese IP theft, military expansion, and encroachment into the sovereign territory of other nations are not only justified but they are seconded by countries besides the US. In April, the US Navy responded to a standoff between China and Malaysia, when Malaysia accused China of violating their territorial waters. Chinese and Indian troops engaged in two deadly clashes, in May and June, respectively, when Chinese troops crossed into territory claimed by India. In May, China sunk a Vietnamese fishing boat. In July, the two nations’ coast guards were engaged in a standoff near the disputed  Spratly Islands. Chinese fighter jets violated Taiwanese airspace. And in response to all of these aggressions, the US has increased its naval presence in the South China Sea.

China has also laid claim to islands in South China Sea deemed to belong to Indonesia. In July, the Indonesian government issued a statement saying that they would no longer discuss the issue with China. Instead, they began holding large scale naval exercises, focused on defending the islands. After the Australian Navy encountered Chinese PLA Navy ships in disputed waters off of Vietnam, Indonesia and the Philippines, they declared China’s claims on the territory as illegal. China’s aggression against multiple countries has prompted Secretary of State Mike Pompeo to call on “’freedom-loving nations of the world’ to band together and ‘induce China to change.’”

Implications and Fallout

The closure of the Chengdu consulate is significant because its location, in the west of China, provides the US access to Central Asia. It is also the primary source for information about human right abuses in Xinjiang and Tibet. In violation of the Vienna Convention China refused to allow US consulate officials to carry diplomatic pouches out of the embassy without first allowing Chinese officials to inspect them. The actions of the Houston consulate, engaging in and supporting espionage, have been documented by the FBI and were in violation of diplomatic agreements. The accusation that the Chengdu consulate was interfering in the internal affairs of China has yet to be proved, however China considers the gathering of information about human rights abuses in Xinjiang and Tibet to be meddling in the country’s internal affairs.

Beijing’s order, closing the Chengdu consulate drove Chinese stock market indexes down. As US-China relations deteriorate, investors are expected to become more bearish on Chinese markets. President Trump has said that he is not ruling out closing other Chinese consulates in the US, which suggests that the decoupling of the two countries will continue. Meanwhile, China’s imposition of the National Security Law in Hong Kong has prompted the US to bring sanctions against China which may make it difficult for or actually prohibit certain types of US financial and technology firms from operating there.

From the Chinese side, the National Security Law will eliminate many of the freedoms and rights currently enjoyed by US and other foreign nationals in Hong Kong, making it much easier for them to run afoul of the law. Now, being arrested in Hong Kong could result in a US or foreign national being extradited to Mainland China for trial and sentencing. Consequently, some tech firms have already begun moving out of Hong Kong. It seems that the result of the reciprocal embassy closures, US sanctions, and the National Security Law will be a decline in both the Chinese and Hong Kong economies, a decline in both the RMB and the Hong Kong dollar, an exodus of US and foreign companies, and a broadening wedge in US-China relations.

Antonio Graceffo
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