Since 2009, the US-China Strategic and Economic Dialogue has become the key platform for the two powers to exchange ideas and smooth over disagreements. Approaching the eighth dialogue of the series, hosted this time by Beijing, the US seemed particularly careful to not irk the host. US Defence Secretary Ashton Carter, speaking at last weekend's Shangri-La Dialogue, adopted a moderate tone on assertive Chinese actions in the South China Sea. He took care to stress that the US was not a claimant party in the dispute. Even so, the Chinese reaction at the forum, delivered by an admiral, bordered on truculence. What was signalled was unease over an arbitration tribunal's examination of its maritime claims, a decision it has vowed to ignore.
In the event, a benign tone was injected by Chinese President Xi Jinping at the US-China talks when he urged both sides to "work hard to cultivate a mutual - not exclusive - circle of friends". No remarkable results were yielded but some progress was made. China allowed American banks to clear yuan-denominated transactions, joining those from Singapore, Hong Kong, Britain and France which are allowed this facility. There were also baby steps towards clinching a Bilateral Investment Treaty that was due in 2014, but has missed several deadlines, thanks to foot-dragging over a so-called negative list that spells out the domestic sectors barred to foreign investors. While China agreed to cut some of the excess steel it produces and dumps on global markets, there was little progress on aluminium.
These, while important, are less salient than the No. 1 issue that bedevils the relationship - Beijing's moves to turn the South China Sea into a private lake and push the US back into the East Pacific. Thorns in the flesh are China's island-building on reefs and shoals in the South China Sea, its defiant stance that it will not subject itself to scrutiny over its claims, and its refusal to rule out announcing an Air Defence Identification Zone over the area. Consequently, many who have quarrels neither with Beijing nor Washington, have increasingly looked to the US for protection. Chinese complaints that the US has "militarised the region" therefore do not get much traction. The US rebalance is a demand-driven development.
President Xi's circle of friends offers a way for China to rebalance its own position. No Asian state wants to put itself in a situation of having to take sides. US President Barack Obama has told China their nations should "jointly undertake the duty of strengthening the international order". One way to do that, as Defence Secretary Carter suggested, is for China to use the arbitration ruling as an opportunity to sign up to a "principled regional order". If not, he said, China risked "erecting a Great Wall of self-isolation". Asians would prefer China to reach out and be friends with all.