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I recently attended the China Development Forum (CDF) in Beijing, an annual gathering of senior foreign business leaders, academics, former policymakers and top Chinese officials. This year's conference was the first held in person since 2019, and it offered Western observers the opportunity to meet China's new senior leadership, including new Premier Li Qiang.

The event also offered Li his first opportunity to meet foreign representatives since taking office. While much has been said about Chinese President Xi Jinping appointing close loyalists to crucial posts within the Communist Party of China and the government, our conversations with Li and other senior Chinese officials provided a more nuanced picture of their policies and leadership style.

Before Li became premier in March, he was secretary of the CPC in Shanghai. An economic reformer and supporter of private enterprise, he played a crucial role in convincing Tesla to build a mega-factory in the city. During the COVID-19 pandemic, he enforced Xi's strict zero-COVID policy and oversaw a two-month lockdown of Shanghai.

Fortunately for Li, he was rewarded for his loyalty and not scapegoated for the policy's failure. His close relationship with Xi also allowed him to convince the Chinese president to reverse the zero-COVID restrictions overnight when the policy proved untenable. During our meeting, Li reiterated China's commitment to "reform and opening up," a message that other Chinese leaders also conveyed.

Concealed threat

Li's remarkable wit contrasted sharply with the more reserved attitude of former Premier Li Keqiang, whom we met in earlier years when he was prime minister. During our meeting, he made Apple CEO Tim Cook laugh out loud by attributing his upbeat mood to the viral video of Cook being cheered on by the crowd during his visit to an Apple store in Beijing. He even joked about a video of U.S. lawmakers berating TikTok CEO Shou Zi Chew, which had also gone viral that week. Unlike Cook, he noted, the beleaguered TikTok boss did not laugh during his hearing. Li's joke contained an implicit warning that while American companies are still welcome in China, the Chinese government may play hardball if its companies and interests in the United States are harshly targeted.

Li's veiled threat accurately reflects the current Chinese attitude toward the US. Although senior economic policymakers in China often talk about opening up, Chinese policy still prioritizes security and control over reform. Qin Gang, China's new foreign minister, took a hawkish stance during his CDF speech. With an implicit lashing out at the U.S., Qin warned Western attendees that while China is committed to an open world trade system, it would react forcefully to any attempt to draw it into a new cold war.

In a recent speech, US Treasury Secretary Janet Yellen tried to allay China's concerns that the US is trying to "rein in" its rise and decouple its economy. Recent U.S. moves to restrict trade with China, she clarified, were based on national security concerns and not an attempt to impede the country's economic growth.

"Decoupling rather than decoupling"

But reassuring China will be difficult when the U.S. reportedly plans to introduce far-reaching restrictions on Chinese investment in the U.S. and on American investment in China. So far, Chinese officials have not been receptive to the efforts of Yellen and Foreign Minister Antony Blinken to establish a dialogue on how to maximize cooperation, minimize confrontation and manage escalating strategic competition and rivalry between the two powers.

European Commission President Ursula von der Leyen recently delivered a similarly pragmatic speech, arguing that Europe should focus on "decoupling rather than disengaging" from China. Her speech was not well received in Beijing, and she was effectively snubbed when she visited China with French President Emmanuel Macron in April, while the more accommodating Macron received a red carpet welcome.

China is currently trying to drive a wedge between the European Union and the US. Since EU-based companies have significant interests in China, many European CEOs attended the CDF, in contrast to the limited presence of U.S. business leaders. And Macron's controversial remarks during his April visit, particularly his statement that Europe should not become a "vassal" of the U.S., suggested that the effort may have succeeded. But a subsequent G7 communiqué reaffirmed the West's position on Taiwan and condemned China's aggressive policy toward the island, and China's tacit support for Russia's brutal invasion of Ukraine is likely to deter Europe from succumbing to a charm offensive.

The new normal

The run-up to the U.S. presidential election, along with China's suspicion that the U.S. is trying to curb its economic growth, will hamper efforts to build trust and ease tensions between the two countries. With both Democrats and Republicans competing to be seen as tough on China, the Sino-US cold war is likely to intensify, increasing the risk of an eventual war over Taiwan.

Despite US officials' efforts to manage strategic competition with China and Chinese officials' insistence that they have no interest in economic decoupling, the prospects for cooperation appear increasingly dim. Fragmentation and decoupling are becoming the new normal, the two countries remain on a collision course, and a dangerous deepening of the current "geopolitical depression" is all but inevitable.

Nouriel Roubini, professor emeritus of economics at New York University's Stern School of Business, is chief economist at Atlas Capital Team and author of MegaThreats: Ten Dangerous Trends That Imperil Our Future, and How to Survive Them (Little, Brown and Company, 2022).

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