China reaffirms support for global trade at APEC forum
By Benjamin Cavender
The recent APEC summit held in Vietnam highlights how two global superpowers are approaching trade and economic development in different ways. The United States continues to turn inward, and President Trump used his address at the summit to highlight that the United States would not accept "chronic trade abuses" and would instead focus on negotiating bilateral deals more beneficial to the United States. Meanwhile, China's President, Xi Jinping used the summit as an opportunity to build the case for China's new role as the world champion of free trade and of an open global economy.
Chinese President Xi Jinping (L) is greeted by Vietnamese President Tran Dai Quang before attending a dialogue with representatives of the Asia-Pacific Economic Cooperation (APEC) Business Advisory Council in Da Nang, Vietnam, Nov. 10, 2017.[Photo: Xinhua]
Importantly, the different tones set by the US and China at the APEC forum are not simply a war of words but a real indicator of shifting trade-winds and spheres of influence in Asia. The US has clearly taken a step towards isolationism and closing of borders, as witnessed by its backing away from the Trans-Pacific Partnership deal and would seem to see its influence in Asia as a counterbalance to China waning. At the same time, China continues to aggressively fund One Belt One Road investments, many of which will help to solidify its trade ties in central Asia, south Asia, and east Africa. Further, China is developing the Regional Comprehensive Economic Partnership (RCEP) as a credible alternative to the TPP. For Asian nations looking to boost trade in the coming years China will only increase in importance as a trade partner and as a facilitator for growth as they lack a credible alternative.
With stronger maritime trade routes to Africa, rail to central Asia and Europe, and massive tranches of funding being used to develop infrastructure in neighboring countries including Pakistan and Bangladesh, China is quickly and convincingly establishing its position as the new regional superpower. Developing nations in the region are extremely hungry for development dollars and access to expertise in building infrastructure and the APEC forum confirms that for the forseeable future, China is likely to be the only answer for that development funding and knowhow. Xi's words about open trade coupled with China's continued spending on key regional projects such as development of Pakistan's power grid and Sri Lanka's deep-water ports show that China is serious about building strong conduits for trade and more strongly asserting its own vision of the future world order with China at the head of the table.
Back to the discussion of trade, China still has a long way to go in terms of appeasing trade partners and building a convincing case that it is truly opening its markets and creating a fair and level playing field for foreign firms. If it does want to be seen as a true champion of globalization, it must go further in allowing outside investment into sectors of the economy that are still extremely closed. A big first step would be deregulation of key segments of the economy that have been only partially open to foreign companies. The good news is that China is taking steps in that direction. One key takeaway from the last week of meetings was a plan to gradually ease restrictions on foreign ownership of financial institutions over the next three years. In theory this will allow foreign financial services firms to have equal access to the China market. On the face of it this is a good thing but this in and of itself will not be enough. China will need to clearly show foreign companies that they have open and equal access to the China market across a broader range of sectors including financial services, technology, and other strategic sectors of the economy. China still ranks poorly internationally for ease of doing business and until opportunities for market access truly do improve foreign companies and countries will continue to resist investment from Chinese firms and resist further developing their positions in China. This would be a shame as China needs more market competition in the domestic economy and its domestic champions need to be exposed to more international competition. This will facilitate innovation and ultimately help to strengthen China's domestic economy and help China transition into becoming a wealthy nation.
Xi Jinping's comments at China's NPC and at APEC point to a bright future for China and make it clear that China will continue to take on a greater and more vocal role in global politics and trade over the next decade and that its current trajectory is one that will promote globalization even as the US retreats from global trade partnerships. In the long run this will all be very good for China's economy as China seeks to escape the middle-income trap and shift the economy away from reliance on low value manufacturing and investment in infrastructure projects. By building trade partnerships China will be able to more aggressively export not just Chinese products but also Chinese innovation and the recent APEC forum marks a turning point for China. It will no longer be seen as just the world's workshop but as a champion of economic growth and development at home and abroad.
(Benjamin Cavender is director of China Market Research Group)