China trade pact carries price-tag query
By Vincent Wang
China's economic ascent since the early 2000s has generated more equanimity
than the fear its military rise caused in the mid-1990s, which led to
accelerated concerns in the international community about a "China threat".
While the Chinese military continues to modernize and its defense budget grows
by double digits, China's expanding economy is now regarded more as an
opportunity than a threat and helps the country conduct a savvy "new" diplomacy
with confidence.
Nowhere is this shift in perceptions toward China's rise more evident than in
Southeast Asia, especially in terms of the changing attitudes of the
Association of Southeast Asian Nations (ASEAN), which was formed in 1967 partly
as a collective response to China - which supported communist insurgents in the
region - and did not
normalize relations with China until the 1990s.
ASEAN has by now expanded to 10 members, with the addition of Brunei and later
Cambodia, Laos, Myanmar and Vietnam to the founding group of Indonesia,
Malaysia, the Philippines, Singapore and Thailand.
Thus, the plan to create an ASEAN-China Free Trade Agreement (ACFTA) by 2010
for the ASEAN 6 (Brunei, Indonesia, Malaysia, the Philippines, Singapore and
Thailand) and 2015 for the newer members (Cambodia, Laos, Myanmar and Vietnam)
signaled a profound change in the relationship between China and Southeast
Asia. Covering a total population of 1.7 billion people and a combined gross
domestic product (GDP) of about $2 trillion, ACFTA is billed as the largest
free-trade zone in the world. ACFTA is estimated to boost ASEAN's GDP by 0.9%
and China's by 0.3% [1].
China's emergence as an avid pursuer of free-trade agreements (FTA)s happened
in spite of its latecomer status. China did not begin its pro-market economic
reform until 1978-9 and did not join the World Trade Organization (WTO) until
the end of 2001.
Beginning in 2002, China has signed FTAs with Chile (2005), Pakistan (2006),
New Zealand (2008, its first with a developed country), and Peru (2009) and is
studying, negotiating, or implementing FTAs with over 20 countries or regions.
[2]
China's impressive trade offensive typifies its "new" foreign policy thinking.
Yet, it is not clear whether this trade diplomacy represents a long-term and
fundamental shift in Chinese statecraft or only a short-term tactical expedient
aimed at buying the crucial time that Beijing needs in order to become the
pre-eminent actor in the region capable of securing its military interests and
projecting its power.
It also raises the question of whether China's active economic diplomacy in
East Asia will spur commercial competition in this region where great-power
conflict is still possible.
Despite the standard economic rationales offered by Chinese officials (such as
helping increase Chinese exports, ensuring access to markets and raw materials,
and attracting foreign investment), the main motivation for China's trade
activism appears strategic.
In the case of Southeast Asia, China's FTA with ASEAN is driven by a political
logic that responds to challenges posed by competitive regionalisms in the
world economy; to cement growing economic ties with Southeast Asian nations and
to alleviate their fear of a rising China; to secure raw materials crucial to
China's economic development; and to ensure a peaceful and stable environment
close to home so as to buttress China's growing influence and counterbalance to
American and Japanese power. It has thus been interpreted as a concrete example
of economic statecraft employed to bolster the image of China's "peaceful
rise".
ASEAN nations are attracted by the opportunities brought about by China's
economic expansion and trade liberalization; they also seek to leverage their
FTA with China to additional FTAs with important trading partners within the
region (for example Japan) or outside (such as the United States).
Although there are economic benefits for pursuing FTAs, nations often pursue
them for non-economic reasons (for example, to strengthen an alliance, increase
peace and security, enhance collective bargaining power, lock in institutional
reform, and share resources). Regionalism, and FTAs in particular, plays a
critical role in China's current "peaceful rise" grand strategy.
The policy of "peaceful rise" is based on an embrace of globalization as part
of the solution to China's growth imperatives. It relies both on China's
domestic economy and the international marketplace to sustain and fuel economic
growth. To achieve the goal of rising to great power status, Chinese leaders
believe that it must secure a peaceful international environment that is
crucial to sustaining China's economic development and augmenting the country's
power. Ensuring stability in China's periphery and avoiding a premature
showdown with the United States are thus essential. [3]
To achieve the goal of "peaceful rise", China has refashioned its diplomacy.
Rather than continuing to act like an aggrieved victim, China now aspires to be
a responsible great power and is acting increasingly like one. Whereas China
used to distrust multilateralism for fear that multilateral institutions could
be used to constrain or punish it, now Chinese leaders recognize that deeply
engaging these organizations helps to promote the country's trade and security
interests and limit American power.
On many contentious and intractable issues, China has adopted more pragmatic
stances. China is more aware that its rise has consequences for the
Asia-Pacific region and beyond. So it is keen on easing the concerns of various
countries. Moreover, China has become much more actively engaged in, and seeks
to shape, regional affairs. Its hosting of the six-party talks, involving
China, North and South Korea, Russia, the United States and Japan, over North
Korea's nuclear issue is a good example. The major instrument used in advancing
China's objectives is its economic power, which is buoyed by its phenomenal
economic growth, rapidly expanding domestic markets, and is driven by its
appetite for raw materials needed for its economic development.
To sum up, China's "peaceful rise" is a comprehensive long-term strategy
leveraging globalization as a catalyst to accelerate China's economic
development and elevate China's power and stature.
In this context, Southeast Asia is an important arena for China's new economic
diplomacy and a test case of Beijing's credibility as a responsible
stakeholder. Some noted regional analysts are concerned that ACFTA may turn the
region into a "backyard for Chinese raw material imports and manufactured
exports, and hence a natural candidate for a Chinese sphere of influence". [4]
For example, Rodolfo Severino, former ASEAN secretary-general, has warned that
such industries as textiles, toy, and motorcycle manufacturers would be
negatively affected in the short term, although he believed long-term benefits
would follow. Furthermore, because of its almost inexhaustible unskilled labor
and huge amounts of foreign direct investment (FDI), China may pose a special
challenge to the ASEAN-4 in their home or third-country markets.
There are also broader strategic implications of China's success in Southeast
Asia that are worth noting. In light of China's activism in the ASEAN Plus
Three (APT) (the "three" being China, Japan and South Korea) and East Asian
Summit (EAS) initiatives, will a Chinese version of the "Monroe Doctrine" loom
over East Asia?
The EAS is an annual forum attended by leaders of 16 countries in the East
Asian region, and both it and the APT explicitly exclude the United States.
(With the Monroe Doctrine, introduced in 1823, the US basically asserted that
the Western Hemisphere was not to be further colonized by European countries,
with any such attempt being perceived as a direct threat to the US.)
The first reason for this fear is a historical legacy of hierarchy that
characterized China-Southeast Asian relations. Most nations in the region at
one time fell under China's tributary system - "a reciprocal foreign
relationship between superior and inferior" - in which tribute offerings were
normally reciprocated by lavish gifts from the Chinese emperor. Some scholars
argue that "accepting China's supremacy was materially worthwhile" since the
tribute system became the institutional setting and indeed "cover for foreign
trade" early on. [5]
In a modern twist, Chinese President Hu Jintao, in his report to the 17th
Congress of the CCP in October 2007, singled out trade as an important
instrument for China to achieve its goal of "peaceful development". The same
report reiterated that China would accommodate the "legitimate concerns" of
developing countries (hinting early harvest) and support efforts to close the
North-South gap. [6]
The other important reason is the asymmetry in size between China and Southeast
Asia. China towers over each individual ASEAN member and all of them combined.
The ASEAN Free Trade Area intends to create a regional market of over 500
million people. Yet even this combined ASEAN magnitude would only constitute
29% of the population, 32% of the GDP, and 46% of the trade volume, of the
combined ASEAN-China FTA. This is why there is a widely accepted view,
expressed by Singaporean Trade and Industry Minister George Yeo, that an
integrated ASEAN is the only viable response to an economically-rising China.
Thirdly, in contrast to China's coherent strategic goal, ASEAN does not have a
clear picture about its place in the new strategic environment of an emergent
China. Lured by the China market (especially the so-called "early harvest"
provisions for the ASEAN-4), some analysts worry that ASEAN risks becoming a
fringe player on the spokes of China's regional trade architecture, while
further enhancing the attractiveness of China as the hub for regional
investment and production.
In this view, ASEAN will be reduced to a role of auxiliary actor in the main
show - China's rise. China can also turn out to be a fierce competitor - having
already attracted the lion's share of FDI into developing countries and having
posed special challenges to manufactured goods from ASEAN. Furthermore, there
are real concerns that ACFTA may undermine ASEAN's own FTA thanks to China's
"divide and conquer" negotiation tactic, because individual ASEAN members may
now pay more attention to ACFTA than to AFTA.
Admittedly, under the sovereign state system, a return to a modern version of
the tributary system is not very plausible. China's economic diplomacy has
presented opportunities and challenges for East Asia. On the one hand, ASEAN
nations have tried to "bind" China through regional institutions, such as
ACFTA, APT, EAS, and the ASEAN Regional Forum (ARF), which has more than 20
participants, including the United States and European Union, that have an
interest in the area. This raises the cost of Chinese belligerence.
Indeed, China's FTA activism has spurred measures by Japan and India to
strengthen their own economic diplomacy in Southeast Asia. For instance, since
the ACFTA was enacted, Japan has signed FTAs with Singapore, Malaysia,
Indonesia, Thailand, and the Philippines.
In contrast, the interest of the United States in the region, as shown through
the lens of economic diplomacy, pales in comparison. [7] Since 2004, China has
replaced the United States as the largest trading partner of Japan, South
Korea, Taiwan, India, Australia, Brazil, and Chile. Admittedly this is mainly
due to the rise of China as a world trader, but it is also an indicator of
America's relative declining influence. The United States has only signed FTAs
with Singapore and South Korea (the latter still not ratified by Congress). The
United States' hope of engaging in an FTA with the entire 21 members of APEC
(Asia-Pacific Economic Cooperation) also looks less appealing or feasible than
China's bilateral FTAs, especially against the backdrop of the failed Doha
Round of WTO multilateral talks.
China's economic statecraft toward Southeast Asia will provide the material
support for its stated goal of "peaceful rise", augment its stature and
influence in regional and world affairs, and present a challenge to the United
States that calls for the need for Washington to shore up its economic
competitiveness and attention toward this key region.
Notes:
1. Amitav Acharya, "China and Southeast Asia: Some Lessons for Africa?" in
Kweku Ampiah and Sanushu Naidu, eds., Crouching Tiger, Hidden Dragon? Africa
and China (University of KawZulu-Natal Press, 2008), p322.
2. For a list of bilateral FTAs submitted to WTO, see
www.wto.org/english/tratop_e/region_e/eif_e.xls.
3. See Vincent Wei-cheng Wang, "The Logic of China-ASEAN FTA: Economic
Statecraft of 'Peaceful Ascendancy'," in China and Southeast Asia: Global
Changes and regional Challenges, eds, Ho Khai Leong and Samuel C Y Ku
(Singapore: Institute of Southeast Asian Studies, 2005), pp17-41.
3. Ibid, 32-34.
4. Acharya, "China and Southeast Asia," p316.
5. John King Fairbank and Merle Goldman, China: A New History, enlarged
ed. (Cambridge, MA: Harvard University Press, 1998), pp112-3; David Kang,
"Hierarchy and Stability in Asian International Relations," in G. John
Ikenberry and Michael Mastanduno, eds., International Relations Theory and the
Asia-Pacific (New York: Columbia University Press, 2003), pp172-3.
6. Full text of Hu's report can be found at
www.newsgd.com/specials/17thPartyCongress/News/content/2007-10/25/content_4264493.htm.
7. During the author's field research in Singapore in 2007, several informants
compared America's lack of engagement with Southeast Asia against China's charm
offensive.
Vincent Wei-cheng Wang is Associate Professor and Chair, Department of
Political Science, University of Richmond. He has published over 60 scholarly
articles and book chapters on China, Taiwan, East Asian political economy and
security. He is working on a project on the Indian perspectives on the rise of
China.
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