China expands FTA network to build alternative trading system, Plus Biden targets Big Data and 'smart cars' to protect personal information from China -- China Boss News 3.01.24
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What happened
China has built a “network” of 28 countries and territories that take close to 40 per cent of China’s exports” to help insulate against ongoing and new protectionist measures passed by the U.S. and Europe, Financial Times’ James Kynge and Keith Fray reported in FT’s Big Read last week.
“The architecture under construction revolves around a China-centric network of bilateral and regional ‘free trade agreements’ (FTAs), which allow for trade at low tariffs while also promoting direct investment flows,” they added.
Kynge and Fray also took a stab at relating the geopolitical context for China’s policy.
“Even during the first blush of the honeymoon period that attended China’s accession to the World Trade Organization in 2001, it was clear that Washington and Beijing were — as a Chinese idiom has it — ‘sharing a bed but dreaming different dreams’. Bill Clinton, the then US president, hailed China’s membership as “removing [Beijing’s] government from vast areas of people’s lives’ and promoting political reform. Jiang Zemin, China’s then leader, had a different take. He warned that America’s real motive was to ‘westernize and divide socialist countries’. More than 20 years later, that early friction has metastasized.”
Said differently, no matter how much shade we throw his way, Xi Jinping is not the original architect of China’s plan to reshape world trade on its own terms, as the report is entitled.
But you can still think of Xi as China’s most disruptive leader in decades, and someone the party elite once believed could manage the country’s enormous influence alongside the colossal problems which threatened their power.
Why it matters
Between a rock and scarcity
The party-state is in a bind.
Truth be told, it always has been since it’s a round-the-clock survival challenge to grow global influence while staying afloat financially as productivity in China’s partially-reformed command economy wanes.
(How does Beijing do it? Its foreign-built manufacturing and propaganda global eco-system has been instrumental. But that’s another post.)
The rattrap is made worse - much worse - by a dearth of natural resources which are dismally inadequate to support a billion people.
Damien Ma and William Adams got it mostly right when, in their 2013 book In Line Behind a Billion People: How Scarcity Will Define China’s Ascent in the Next Decade, they predicted that the “achievement” of becoming the world’s biggest economy would “say less about China’s growing strength and influence than conventional wisdom assumes.”
We now know that China overtaking the US’ top spot dangles precariously over a ‘3D’ cliff because of the country’s astronomical levels of debt, a demographic crisis, and a looming deflationary spiral which is robbing the young of their dreams and everyone else of confidence.
But what made Ma and Adams’ book so fabulously prophetic was an insistence that economic, social and political scarcity will cause “Beijing’s mandarins [to] face an unprecedented post-development narrowing of options and acute pressure.”
“Ultimately, a balanced and nuanced portrait of today’s China is one of a nation of great aspirations, great achievements, and great limitations. China will need to make fundamental changes to its economic and political ecosystems over the next decade to prevent its limitations from overwhelming its aspirations. But the dramatic transformations that have sprouted every ten years or so since the founding of the modern Chinese republic are reasons to believe that changes will come, if not willfully, then by the indomitable force of necessity.”
And there, we have arrived.
Xi’s self-sufficiency dreams and Taiwan
Beijing pays great lip service to liberalized, open trade, but it doesn’t practice what it preaches.
That’s because China relies far too much on imports for the leadership’s comfort.
Former Nikkei Asia Senior News Editor Hiroyuki Nishimura last year explained the “contradiction”:
“Beijing envisions a global order that puts itself at the center and the rest of the world relying on it, and welcomes any deepening of this dependence as long as it is conducive to such aspirations. One telling point is how China distinguishes between the terms ‘supply chain" and ‘industrial chain." The former merely refers to a network of commercial suppliers, and what matters is the latter: Beijing's goal of a self-contained, all-Chinese chain with no foreign involvement.”
But why does Beijing need to be the center of the global order rather than a major player? And why spend countless official man-hours and billions of dollars to rebuild the global trade system when the WTO has served China so well?
Regime security.
The WTO system is no longer a means to an end for the country’s ruling elite who must control the direction of money in local and international markets in order to stay relevant.
And China’s policymakers now gape at the international efforts piling up in global multilateral trade and lending organizations, including in the WTO, to cancel Russia’s membership as a punishment for its war in Ukraine. They are also aghast to find at least one strategically important economy Russia thought it had in its energy pockets has cut business entirely and levied sanctions against Moscow.
Worse, as China’s economy continues to sputter, the break-down of its old social contract - where abundant economic opportunity was traded for political freedom - is not only weakening the party-state, but also widening the gulf between plans for reunification with Taiwan and their fruition. The latter, which many think is crucial to Xi’s longer term political future, is unlikely to be achieved without hegemony in the South China Sea and control over its shipping routes.
Although complete indigenization of China’s supply chains is probably impossible, Xi might manage to protect more urgent food and tech supplies. But, with today’s China so deeply woven into the WTO system, he’ll have to require all hands on deck to create an alternative trade network that would stopgap a try for Taiwan while withstanding Western sanctions.
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