The State Department, concerned about upsetting diplomatic ties, blocked a White House plan to restrict Chinese government construction in Washington until China allowed needed repairs to the U.S. Embassy in Beijing.
The two-year dispute reached a peak last summer with China's refusal to permit the sending of parts needed to fix the air conditioning system and an elevator at the new Embassy annex building, said Trump administration officials and people familiar with the dispute.
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The breakdown of the air conditioning forced embassy officials to work in overheated conditions in a capital with some of the worst air pollution in the world.
Disclosure of the internal debate over China comes as President Donald Trump is set to leave this week for an 11-day visit to Asia that includes his first visit to China as president.
Trump has been critical of U.S. trade and economic policies that have favored China at the expense of the United States.
The president also has made reciprocity with China a new element of American policy, specifically pressing Beijing to grant American businesses in China similar access and benefits granted to China in the United States.
The Chinese government prevented the U.S. government from sending parts needed for repairs by demanding close inspections of all materials brought in by government contractors, even though the materials sent should be free from such inspection under diplomatic protocols.
The Chinese demand was opposed by American security officials concerned about the risk China would implant listening devices in the parts during the reviews.
By contrast, China's major construction project of an embassy residence on Connecticut Avenue has gone on unimpeded by such inspections, including the importation of numerous large shipping containers through China's diplomatic pouch.
China's circumvention of inspections also has raised domestic security concerns about what goods China has brought into the country through the uninspected large metal boxes.
The Chinese container imports circumvented a 2009 agreement with the United States on mutual embassy construction, the officials said.
The Chinese successfully avoided U.S. inspections by shipping construction goods through the diplomatic pouch at the Chinese mission to the United Nations in New York—rather than the embassy in Washington, officials said.
Additionally, China has failed to follow U.S. building codes for its construction work, an issue that has not been pressed by the State Department, also over concerns about upsetting relations with Beijing.
The new residence in Washington has been built with imported Chinese material and laborers, many of whom are currently residing on the grounds of the former Walter Reed Army Medical Center that was closed in 2011.
In seeking a remedy for the dispute, White House National Security Council officials Matthew Pottinger and Ezra Cohen-Watnick pressed during interagency discussions for demanding that construction work on the Chinese diplomatic residence in Washington be subjected to reciprocal restraints.
"The Chinese were not allowing us to properly maintain our embassy that is in dire need of repairs," said one person familiar with the dispute.
The reciprocity plan, however, was scuttled by State Department officials, led by Susan Thornton, acting assistant secretary of state for Asia Pacific affairs, said the officials familiar with the dispute.
Thornton and other officials argued that imposing strict reciprocity on the Chinese would be too disruptive of U.S.-China relations, ties that many in State Department bureaucracy regard as the most important diplomatic relationship.
However, some on NSC staff have questioned whether the U.S.-China relationship if valuable if it is characterized by the mistreatment of American personnel by the Chinese government.
Thornton did not return an email seeking comment.
Larry Wortzel, a former military attaché in China, said the dispute over the new embassy, which is 10 years old and needs maintenance, is long-running and has been underway for a couple of years.
"There should be strict reciprocity on these things," Wortzel said. "And to make it worse, the Chinese know the president is supposed to travel. This should be elevated far beyond a holdover acting official. The NSC and White House should insist the materials go in or retaliate in kind."
State Department spokesman Justin Higgins declined to comment on the dispute. In a statement, Higgins said the new embassy compound, used by some 700 people in Beijing, opened last year and includes a consular section, Beijing American Center and State Department, and federal agency offices.
The glass eight-story annex is the centerpiece of the eight-building compound in Beijing used by 20 agencies.
"It remains open and operational, and is an integral part of the embassy compound," he said.
On the Chinese construction, Higgins said the building was authorized by the 2009 Agreement Between the Government of the United States of America and the Government of the People’s Republic of China on the Condition of Construction of Diplomatic and Consular Complexes in the People’s Republic of China and the United States of America.
A former U.S. official said the American Embassy annex in China was built with an eye toward avoiding a repeat of the disastrous case of U.S. Embassy in Moscow during the 1980s.
Poor security by the State Department resulted in the entire new building bugged with electronic and acoustic listening devices by the then-Soviet KGB.
Construction was halted in 1988 and re-construction of a more secure facility was completed in 2000.
The new Chinese residence is a 130-unit apartment complex located at 2300 Connecticut Avenue NW where the embassy was located from 1973 to 2008, when a new embassy opened near Van Ness, up the avenue.
"This annex was reciprocally linked via this agreement to the construction of the now completed annex of the U.S. Embassy in Beijing," Higgins said.
As part of the agreement, the Chinese Embassy in Washington was not authorized or permitted to import containers either as diplomatic pouches or in any way that would prohibit the United States from inspecting the shipments.
"Inspection of such shipments is part of this project," he said.
However, security officials said the containers and other shipments related to the construction have not been properly inspected.