The year ends, experts see huge potential in China-US relations, but thorny issues ranging from cyber security and maritime disputes to arms sales to Taiwan stand in the way of improving the complex relationship, CHEN WEIHUA reports from Washington.

For observers who have witnessed the often bumpy and sometimes roller coaster rides in the 35 years of diplomatic ties between China and the United States, many applauded that the increasingly complex relationship ended in 2014 on a positive note.

The mood looked somewhat somber in the first half of 2014. Headlines were dominated by heightened tensions over maritime territorial disputes in the South and East China seas and disputes in the cyber domain.

Chinese President Xi Jinping shakes hands with US President Barack Obama during the APEC Welcome Banquet at the Beijing National Aquatics Center, or the Water Cube, in Beijing on Nov 10, 2014. Kim Kyung-Hoon / Reuters

That mood started to lighten up in the second half, especially after US President Barack Obama and Chinese President Xi Jinping met in Beijing in November to announce a long list of cooperative agreements from carbon reduction to visa extension.

"President Obama's visit to China and attending the APEC leaders' summit in Beijing has pushed the bilateral relationship to a climax," said Cheng Li, director of the John L. Thornton China Center of the Washington-based Brookings Institution.

Shen Dingli, a professor and associate dean at the Institute of International Studies of Shanghai-based Fudan University, agreed. He described the Xi-Obama summit and the release of their joint statement on climate change, a bilateral notification mechanism on major military actions and a code of conduct for military encounters on the high sea as highlights of China-US relations in 2014.

Cyber security

To Shen, the low point in 2014 was in cyber security, in particular when the US Justice Department announced on May 19 the indictment of five Chinese People's Liberation Army officers for alledged cyber espionage against US corporations for commercial advantage.

While many observers in both China and the US have criticized the Justice Department's move as unconducive to the dialogue on cyber security, the Chinese government protested against what it called groundless accusations and demanded the US revoke the charges. The Chinese also suspended the bilateral working group on cyber security set up in 2013 to tackle the growing challenge in cyber space.

The US has in the past two years revved up its accusation against the Chinese government of sponsoring cyber theft of US corporate secrets, charges that China has denied.

China has voiced deep concern over revelations made by former National Security Agency (NSA) contractor Edward Snowden since June 2013 about the widespread surveillance conducted by NSA against the Chinese government, businesses and universities.

Months after the working group on cyber security was suspended, Lu Wei, minister of China's State Internet Information Office, visited the US in early December to engage in a dialogue with US officials and industrial leaders, including Under Secretary of State for Economic Growth, Energy and Environment Catherine Novelli and Facebook founder Mark Zuckerberg.

To Cheng Li of Brookings, the two countries must resolve the cyber security issue. "It's unimaginable if we don't find a way out," he warned.

Li described China-US cooperation in cyber security as extremely important because of the special features of attacks on that front. "There is a huge advantage for one side to take pre-emptive strike; it is often hard to know where the attack comes from, probably from just a lone wolf; and the consequences of such attacks could also be unimaginable," he said.

Maritime disputes

To Zha Daojiong, a professor at the School of International Studies of Peking University, the most noticeable low point of China-US relations in 2014 came in a highly visible display of mutual acrimony over maritime affairs in the East China and South China seas.

Zha cited that at the Shangri-La security forum in Singapore in early June, US Secretary of Defense Chuck Hagel called China a "destabilizing" actor, and it led to his Chinese counterpart labeling the US as "provocative".

Hagel's words came right after Obama's remarks made at the US Military Academy at West Point at the end of May that China's economic rise and military reach worries its neighbors, according to Zha.

"A series of summits on regional security were due to take place in the latter half of the year. Beijing and Washington were seemingly moving down a sure path of open confrontation, with China's maritime neighbors caught in between," Zha said.

The US has been eager to assure its treaty allies, in particular Japan and the Philippines, both of which have historical maritime territorial disputes with China.

While the US stated that it does not take a position on sovereignty but it does take a position on a peaceful resolution of disputes, many Chinese see US behavior as emboldening those nations to take a confrontational attitude in the disputes.

Zha said the good news is that the joint statements produced at the ASEAN Regional Forum and East Asia Summit did not replicate the same fervor over maritime security. "In addition to efforts by China and the US to tone down the temper, Southeast Asian states demonstrated their capacity to avoid further escalation as well," he said.

Li from Brookings said he would give a grade of "B" to China's performance in the region in the first half of the year and an "A" in the second half.

In Li's views, the Chinese have become more proactive in its diplomacy in the region since the sixth China-US Strategic & Economic Dialogue in Beijing (S&ED) in July, citing the trips by President Xi to Russia, India and South America and the meeting with Japanese Prime Minister Shinzo Abe during the November APEC summit.

"This demonstrates that Chinese foreign policy has become more mature," he said.

However, Li cautioned that problems such as territorial disputes won't be solved anytime soon and will remain a long-term challenge.

Silk Road

While both US and Chinese officials have toned down confrontational rhetoric, many experts have expressed disappointment that that the US has failed to show support to positive roles played by China on the regional and global stage.

Senior US officials raised doubts about the Asian Infrastructure Investment Bank (AIIB) proposed by China, while World Bank President Jim Yong Kim and many countries in the region openly welcomed the multilateral bank that seeks to finance infrastructure development in the Asia-Pacific region.

Many in the US have also seen China's Silk Road initiatives, both the Silk Road Economic Belt and the 21st Century Maritime Silk Road, as aiming to expand China's geopolitical clout rather than serving as a platform for economic connectivity in the region as China stated.

China announced on Nov 8 that it will contribute $40 billion to a Silk Road fund for projects that facilitate connectivity along the belt and road.

Douglas Paal, vice-president for studies at the Carnegie Endowment for International Peace, said the Obama administration made a mistake trying to encourage US friends and allies not to be part of the AIIB.

Paal dismissed the doubt expressed by US officials regarding the governance and transparency of AIIB, saying that Chinese Vice-Minister of Finance Zhu Guangyao has given a lot of assurances.

To Paal, a former vice-chairman at JPMorgan Chase International, the AIIB "has a lot of potential" and the Silk Road "makes a lot of sense".

"It's good for the Central Asians. They need trade routes, and they need places to employ their young people," he said.

Paal said the US should work with China on the Silk Road. "That's a shortfall of American imagination," he said.

Former US Ambassador to China Jon Huntsman also expressed his disappointment at the Obama administration's attitude on AIIB in a Dec 18 talk at the Center for Strategic and International Studies in Washington.

Economic ties

Henry Levine, a senior adviser at the Washington-based consultancy Albright Stonebridge Group and a former deputy assistant secretary of commerce for Asia, said that the negative impact of China tends to be exaggerated in the US, especially on US-China economic and trade ties.

While imports from China hurt certain US companies and industries, Levine believes the positive impact is more profound. He cites raising the standard of living in the US thanks to inexpensive Chinese goods, and the ability for the US Federal Reserve to keep interest rates low because the goods from China keep down inflation pressure.

"There is a natural political process (in the US) to accentuate the negative and downplay the positive," he told a seminar at the Brookings on Dec 19.

A US-China Business Council survey found that 83 percent of responding members said their operations in China are profitable, a figure consistent with prior years. And 70 percent reported that their China operations were performing better or the same as their overall global operations. Almost three-quarters of US firms increased their revenues in China in 2013 while only 15 percent reported a decrease.

David Dollar, a senior fellow at Brookings, agreed. An expert on Chinese economy and US-China economic relations, he noted that a successful Bilateral Investment Treaty (BIT) will greatly help open the Chinese service industry market to US companies.

The Chinese government hopes that a BIT could help better protect the growing Chinese foreign direct investment in the US, which many Chinese see as subject to unfair and nontransparent review by the Committee on Foreign Investment in the United States (CFIUS), an inter-government agency in the US.

Senior Chinese officials have called for an early conclusion of the BIT negotiations, a move that is widely supported by the business communities in both China and the US.

China and the US are now each other's major trading partners with bilateral trade exceeding $520 billion in 2013. Two-way investment exceeded $100 billion, according to China's Ministry of Commerce.

Many, such as Dollar from Brookings, believe China's reform plan rolled out at the Third Plenum of the 18th Central Committee of the Communist Party of China a year ago will not only inject momentum to a sustainable development of the Chinese economy but benefit US companies with huge opportunities.

Dollar said China's reform agenda is not only good for the Chinese economy, but will also set a good foundation for US-China economic relations.

People to people ties

Li of Brookings emphasized that people should not overlook the significance of the reciprocal visa agreement reached during Obama's trip to Beijing when the two countries agreed to extend business and tourist visas to 10 years and student visa to five years.

"It has linked the relationship of the two countries at a higher level and its impact and value may not be able to be predicted at the moment," he said.

There are now about 10,000 people flying between China and the US each day. In the 2013/2014 academic year, 270,000 Chinese mainland students were studying in universities and colleges in the US, up 16.5 percent over the previous year, according to a November report by the Institute of International Education.

Meanwhile, the number of Chinese tourists coming to the US has exceeded 2 million a year. Their average spending of $7,200 dwarfed the $4,500 by the average foreign tourist, according to the US Travel Association.

For many Chinese middle class, the current US holiday season is time for them to come to the US to shop 'til they drop.

Shao Qiwei, director of China's National Tourism Bureau, estimated that there will be 60 million Chinese visiting the US in the coming six years.

US Commerce Secretary Penny Pritzker said in Chicago on Dec 17 that with the change in visa policy, 7.3 million Chinese visitors are expected to travel to the US by 2021, contributing nearly $8.5 billion per year to the US economy and supporting as many as 440,000 jobs.

The year ahead

Shen Dingli of Fudan University believes that he still cannot be very optimistic of the relationship in the year ahead because of the lingering issues of cyber security, disputes over maritime security and the pending US arms sales to Taiwan.

China immediately protested three weeks ago after Obama signed into law authorization for the sale of four Perry-class guided missile frigates to Taiwan.

"All these need to be sorted out, but none of them could be sorted out," Shen said.

"If I say that China shall tolerate the US arms sale to Taiwan, or the US shall stop such sale, or China shall submit its (five PLA) officers to the US, or the US openly withdraws its decision of indictment, or China shall relinquish its maritime claim, or the US shall relinquish its protection over Japan regarding Diaoyu Islands, it is clear that none of these would be expected to work out," he said.

Li of Brookings said he is cautiously optimistic for the year ahead.

While noting that many of the thorny issues will remain, Li said it's worth applauding that despite so many problems in 2014, the two nations' top leaders have still managed to bring relations back on the right track, referring to the Xi-Obama meeting in November.

"Is this coincidental? No. Because they know that going the other direction is toward a dead end," Li said.

Contact the writer at chenweihua@chinadailyusa.com