As one door opens another closes

By Digby Wren

In a speech at this year's Boao Forum, President Xi Jinping left no doubt that China would continue the reforms and opening up first initiated during the Deng Xiaoping era forty years ago. The setting was the tropical island of Hainan. Xi's timing could not have been better and his speech to the gathered delegates at the Boao forum outlined the continuation and expansion of what Deng Xiaoping had promised to the nation 40 years earlier - once the East was rich, the benefits would flow to the West and poorer regions of the country. 

The first cross-border e-commerce freight train launched by JD Logistics of Chinese online retailer JD.com linking Xi'an with Hamburg of Germany is pictured after arriving at a terminal station in Xi'an city, northwest China's Shaanxi province, May 21, 2018.[Photo: dfic.cn]

On the sidelines of the forum, Xi had visited the island to announce that visa-free travel to Hainan had been extended to the citizens of 59 countries and that a stimulus package designed to enhance aviation, tourism and infrastructure development would include horse racing, sport lotteries, and expanded duty-free shopping. Xi's message was on target. From the sunny tourist industry of tropical Hainan to the Golden West Triangle of Chengdu, Chongqing and Xi'an, cities which anchor the Belt and Road activation deep into Eurasia, China was initiating a new round of structural reforms designed to ensure a smooth transition into newly invigorated 'opening' policies. 

Importantly, Xi outlined policy adjustments that gradually, but surely, open sectors of the economy to global capital and investment at a time when: 1) China has an established and expanding domestic industrial capacity; 2) seeks increased competitiveness to engender greater innovation; 3) many trading partners are offering China greater access to their markets; 4) Belt and Road Initiative partner economies are gaining export access into China and; 5) existing trading relationships with the US and others may be exposed to trade imbalances.

Currently, the US and China are embroiled in competition over the newest technologies in media, AI, digitization, robotics, and space. However, the contest to dominate global industrial, supply and value chains is perhaps even more important. Add to that the domestic economic and international security priorities and technology transfer has once again become the focus of dispute for global commercial dominance and regional military supremacy. Historically, the US has not actively reviewed investments and/or mergers and acquisitions from overseas and, it is only recently, that the government has attempted to compel the Committee on Foreign Investments in the United States (CFIUS) to be more discriminant.

For Europe and the US, innovation, capital and wealthy consumers had meant technology was developed and transferred only for economic or political gain and to keep prices low at home. Japan and South Korea were the first to benefit, and China, Russia, India, Brazil, Mexico and Indonesia have also staked a claim in global markets. Notably, it is East Asia's economic miracle that has most transformed global prosperity and moved the centre of wealth and power to Eurasia. Today, China, Japan, South Korea, India and ASEAN account for 50% of world population and over 40% of global economic growth

Meanwhile, in Washington and Canberra, restrictions, barriers and containment are driving economic and political discourse. The differing approaches highlight just how much the global trading environment has changed since a once supremely confident US controlled the largest portion of global economic output. The axiom, 'as one door opens another closes', springs to mind. The US economy is currently running at or near full capacity. Conversely, China's economy and that of its neighbors still possess exponential growth potential. Thus, China has room to open and extend opportunity across multiple sectors supported by structural reforms and the mega-development initiative of the Belt and Road. The US on the other hand, is unwittingly increasing its dependence on the massive markets of China and Asia as it closes the door on market access for Chinese capital and investment.

In the current environment, short-term domestic US politics are driving its global trade policies while deep long-term policies are driving China's. At every turn US policy is about immediate benefits to the bottom line. Like a fish on the hook, the Trump administration is acting to avoid bankruptcy. Low savings, high debt, increasing global competition, rising bond yields (to finance $21 Trillion of debt and rising), historically low interest rates (to incentivize lending and borrowing) and years of vast military expenditure (to pump money into the economy and finance wars) are taking their toll. Trump's mercantilist approach is effectively alienating the trading partners the US needs most to increase exports. The underlying problem for the US lies with its continued inability to unhinge ideological evangelism from economic and security perceptions. 

Withdrawal from both the Paris Climate Accord and the Iran nuclear deal and continuing sanctions against Russia are the most recent examples of how the intertwining of US geo-strategic policies are stretching relationships that effect trade and economic security. US taxpayers are essentially funding a neo-conservative vision of continuing global hegemony while increasing dependence for economic security on trading partners that are continually cast as either threats (China, Russia) or are in no position to argue (everyone else). Unwittingly, these policies and their implementation appear to be national 'strength' to many US voters. There is a growing dislocation between the 'real' global trading and security environment and what elected officials present to voters. 

US Senator Marco Rubio and National Trade Advisor Peter Navarro are two prime examples of disconnect between US policy makers and the realities of international relations. Neither has any real expertise in China or the Asia Pacific, yet both are in important positions to set US policy for those regions. Likewise, the President is also proving to be overwhelmed by the intricacies and vagaries of international relations. America First is turning into America Last for its erstwhile neighbours, trading partners and allies. 

Australian Foreign Minister Julie Bishop, who recently attended the G20 in Argentina, characterised her meeting with China's Foreign Minister Wang Yi as "very warm and candid and constructive." China's Foreign Ministry released a statement with a very different account, "Australia needs to take off its biased, coloured glasses and stop recoiling from China for the relationship to return to the right track." This followed a much quoted article by former Australian Ambassador to China Geoff Raby, in which he had roundly criticised Bishop for not visiting China in two years, and had called for her sacking. The view in Beijing, which Raby understands well, is that Australia is continually jeopardising its trade relationship with China due to its lack of foreign policy independence from Washington.

Washington however, seems lost in the time before the oil shock, China's opening, the collapse of the USSR and the 9/11 attacks. One could categorise the Washington perspective as that of a spoiled child, always receiving 'yes' as an answer and then suddenly, being told 'no' for the first time. What else can explain US avoidance of multi-lateral frameworks (set-up by the US) to resolve international issues and instead resorting to domestic law in an effort to control external problems. Extra-territoriality is only workable when hegemony is real. And that ship sailed a long time ago.

The emerging world order is profoundly impacting the cycle of innovation, development and trade that deliver economic growth. Massive markets and consumer bases combined with manufacturing and labour advantages mean emerging economies can now out-compete the former giants of Europe, Japan and the US. For the first time, more patents are granted to China than the US, Asian universities are displacing European and American institutions in global rankings and critical technologies such as electric vehicles, battery tech, AI, digital media, autonomous vehicles, IoT, fin-tech and bio-tech are being led or challenged by China and to a lesser degree India. 

In the 'new era', as innovation is replaced by systematic research and amassed knowledge based on big data and the IoT and as wealth accumulation is increasingly centralized, it is essential that trade, security and technology transfer move beyond narrow national interests and unfettered corporate greed to embrace a truly Global vision that benefits all mankind. The alternative is great power conflict, regional rivalries and technology purposed for power not prosperity.

(Digby Wren is an Australian scholar from Deakin University. He now serves as a visiting scholar at Sichuan Normal University)