Softer China diplomacy as Xi navigates challenges at home

By James Pomfret and Michael Martina

HONG KONG/WASHINGTON (Reuters) - China has been striking a softer tone in its dealings with the world recently, releasing an Australian journalist from prison, inviting the U.S. military to a defence forum and agreeing to a $4.2 billion debt restructuring deal with Sri Lanka.

The conciliatory approach towards rivals as well as China's partners in the developing world comes as President Xi Jinping gets to grips with the most significant domestic economic problems seen in years.

While welcome for the United States as it focuses on the crisis in the Middle East, the new tone may not signal an enduring change and old tensions are likely to resurface before long, analysts say.

For the time being, China wants to reassure the world that it is business as usual when it comes to commerce, said Noah Barkin, an analyst with the Rhodium Group and expert on China's foreign relations.

"Their leaders are keen to reassure foreign investors that relations with the U.S. and its allies in Asia and Europe are not in a one-way escalatory spiral," Barkin said.

Last week, China released Australian news anchor Cheng Lei after holding her for three years on national security grounds, the latest step in a warming relationship with Australia and clearing the way for a visit by its prime minister.

The U.S. has been invited to an upcoming defence forum in Beijing - signalling a thaw in military exchanges - and Xi had kind words for a U.S. delegation led by Senator Chuck Schumer last week.

As Xi hosts a forum this week marking the 10th anniversary of his Belt and Road Initiative (BRI), Beijing has agreed with Sri Lanka to restructure more than $4 billion of its debt and forged a memorandum of understanding to restructure Zambian debt. Zambia was the first African country to default on its debt during the COVID-19 pandemic.

Beijing hopes that China and the United States can push for "a return to the path of healthy and stable development of U.S.-China relations," said a spokesperson for China's foreign ministry, adding that the country "places great importance on its cooperation with developing countries."

'MAKING NICE'

China's diplomatic shift comes as different pressures build on Xi, including the economic downturn, which has been exacerbated by capital flight, a property crisis and high youth unemployment.

"Xi Jinping is making nice with the Western powers in order to reduce the pace of multinationals leaving China, to counter China being cut off from the global supply chain," said Willy Lam, senior fellow at U.S. think tank Jamestown Foundation.

China has not changed its tone on every issue. It has not backed away from escalating maritime confrontation with the Philippines in the South China Sea.

But at the same time, China wants to deepen political and trade ties with developing countries, both for economic reasons and as part of Xi's push for a multipolar world order that includes the global south.

China wants to counter the idea that the BRI - a scheme to connect Asia with Africa and Europe through infrastructure and other investment - is a form of "debt trap diplomacy", making loans some countries can't repay.

The concessions to Sri Lanka and Zambia on debt could help.

"The purpose of the BRI has always been to help developing countries," said Huiyao Wang, president of the Beijing-based Center for China and Globalization, adding that the project should be seen as akin to a Marshall Plan - the post-World War Two U.S. scheme to rebuild Europe - for developing countries.

Politically, the disappearances of China's foreign minister Qin Gang and defence chief Li Shangfu have complicated Xi's efforts to focus foreign policy and security efforts in response to its growing rivalry with the U.S.

Stabilizing the U.S. relationship, including with a meeting between Xi and U.S. President Joe Biden at an upcoming Asia- Pacific summit, could give China breathing room.

But with a U.S. election next year, and the possible return to the presidency of Donald Trump, some see little room for Biden to concede much - especially on China's core issues, including U.S. curbs on semiconductor exports and trade tariffs.

Any Chinese military exercises ahead of Taiwan's January elections would also create friction with the West.

"The fundamental tensions in the relationship remain, and this is a temporary uptick in engagement, which is likely to be followed almost immediately by another downturn," said Zack Cooper, a U.S.-China relations expert and senior fellow at the American Enterprise Institute in Washington.

(Editing by Don Durfee, Robert Birsel)