Tea Leaf Nation

China’s Silk Road Strategy

China’s Silk Road Strategy

As Beijing hosts this year’s Asia-Pacific Economic Cooperation (APEC) forum slated to run through Nov. 11, the United States and China are locked in behind-the-scenes competition over free trade agreements. The United States is promoting the Trans-Pacific Partnership (TPP), a massive free trade agreement including 12 nations but excluding China. Beijing, in a move many see as a push against the U.S. rebalance to Asia, hopes to garner support for the Free Trade Area of the Asia-Pacific (FTAAP), a less sweeping agreement that would include China.

But the modest FTAAP isn’t China’s real answer to the immense TTP and its candid support of market liberalization and minimal government interference. Instead, it’s the "New Silk Road strategy," a sprawling set of trade and infrastructure agreements proposed by Chinese President Xi Jinping, which aims to foster free trade — and bolster Chinese soft power — with China’s neighbors to the west and southeast. The plan, a reference to the trade route connecting China to Europe via Central Asia in the seventh to tenth centuries, aspires to deepen linkages between China and its neighbors via trade, investment, energy, infrastructure, and internationalization of China’s currency, the renminbi. On Nov. 8, Chinese President Xi Jinping announced the establishment of a $40 billion Silk Road infrastructure fund, focusing on building "roads, railways, ports and airports across Central Asia and South Asia," according to Reuters.

The Silk Road strategy’s ambitious vision aligns with Beijing’s goals much more closely than the TPP, which is a reflection of the U.S. international trade model writ large. The TPP’s proponents see it as a new vision for free trade and market liberalization around the world. It would integrate the U.S. economy with Asia to a degree heretofore unseen, providing a backbone for the oft-criticized U.S. rebalance to Asia. In doing so, it would set higher standards for doing business, with clauses intended to protect both the rights of workers and the environment. It may even become more inclusive and authoritative than the World Trade Organization (WTO), a U.S.-shaped body that currently sets the norms for international trade. The WTO is silent on certain hot-button issues like subsidies to the agricultural sector, manufacturing of parts and components, trade in services, and intellectual property rights protections. The TPP would cover all of these. 

Washington insiders had believed the TPP would lead to one of two responses from China, both advantageous to U.S. interests: the TPP’s stringent labor and environmental standards would repel China, freezing itself out of a massive and advantageous trading block in its own backyard. Or, China would clamor to join, and in the process — like in the years leading up to its 2001 ascension into the WTO — become a more economically open nation. Meanwhile, in Asian capitals outside Beijing, there is widespread hope that the TPP would make China more supportive of other regional negotiations, and thus more likely to show restraint in its many territorial disputes with its neighbors.

But there is little evidence that China would adhere to any of these expectations. And why should it? The Silk Road strategy is a far better fit for Beijing than the TPP. With the TPP, the United States emphasizes high standards in market liberalization and openness. China’s Silk Road strategy has no "standards," except for a vague idea of mutual interest and mutual respect. The TPP seeks to reduce the roles of governments in market operations and to restrict the importance of state-owned enterprises (SOEs) in the economies of its members. The Silk Road plan, in contrast, relies on top-level government coordination, and would enhance the power of large SOEs and governments. The TPP focuses on services, intellectual property rights, and domestic regulations. The Silk Road strategy aims to facilitate large-scale infrastructure construction, energy sale and transport, and relocation of manufacturing industries.

It’s not only that the Silk Road plan is a better fit for China. Leading Chinese political thinkers also see the TPP as an enterprise with the potential to weaken China economically and politically — a strategy "to contain China" and to "change or overturn existing institutions in Asia-Pacific and the world," observed Chinese economics scholar Gu Guoda at Zhejiang University in a recent article in the party journal Probe. And the chairman of the APEC-affiliated China National Committee for Pacific Economic Cooperation Council Tang Guoqiang wrote in an early 2014 article in the Chinese journal International Studies that the United States acted as "a selfish hegemon" in the TPP. Some also believe that the changes required by the TPP negotiations — terms on SOEs, labor, environment, digital economy, and supply chain manufacturing — are a potential threat to China’s current political and social systems. 

As China embraces its role as an expanding world power, under Xi’s leadership it increasingly seeks to establish itself as an economic and institutional equal to the United States. The FTAAP cannot fulfill this vision. This year’s APEC may seem to present a dramatic push-and-pull between Obama’s TPP and Xi’s FTAAP, but for the real battle for influence over global trade, look to China’s new Silk Road strategy.