February 2007
Trade Policy as Foreign Policy: The Evolution of China’s Trade and Commercial Diplomacy
Since the 1990s, China has coordinated its economic expansion with strategic, political, and foreign policy objectives. Through bilateral trade agreements; World Trade Organization (WTO) accession in 2001; greater involvement in regional institutions like the Association of Southeast Asian Nations Plus Three (ASEAN+3), which comprises the ASEAN countries and China, Japan, and South Korea; and numerous soft-power initiatives, the People's Republic of China (PRC) has embarked upon what many scholars have termed a "grand strategy" to expand its influence around the world. What remains unclear are the ultimate aims of this grand strategy, the role China hopes to play in East Asia, and how the PRC intends to manage relations with the United States.
At a February 8 AEI conference, resident scholar Claude Barfield addressed these and other issues in a presentation of a chapter from his forthcoming book, The Eagle and the Dragon: The U.S., China and the Rise of Asian Regionalism (AEI Press, 2007), coauthored with Andrei Zlate. Phillip C. Saunders of the National Defense University and Margaret M. Pearson of the University of Maryland then discussed Barfield’s presentation.
Claude Barfield
AEI
China’s trade policy cannot be understood in isolation from its foreign policy. A common theme in the academic literature is that Chinese leaders are pursuing a "grand strategy" that relates diplomatic, security, and economic policy. While many scholars contend either that this strategy is expressly unified or that it is not unified at all, the reality is probably somewhere in between.
China might not have a definitive step-by-step plan, but it does have a general set of objectives. Chinese leaders intend to expand the PRC's "comprehensive national power." Another core concern for Chinese leaders is regime survival, an imperative that rests on a social contract between the Communist Party and the people after the Tiananmen Square massacre in 1989. Now the party has to deliver social stability and improve living standards. In order to keep power, the regime must maintain high and uninterrupted economic growth. To pursue these domestic and international objectives, Chinese leaders aim to foster a benign international environment, primarily by avoiding confrontation and conflict with the United States.
Chinese foreign policy changed a great deal between the end of World War II and its accession to the WTO in 2001. During the immediate postwar era, China's support of Communist revolutionary movements around the region engendered hostile relations with various neighbors. In the late 1980s and 1990s, however, China's foreign policy took a new direction, with the PRC cooling tensions and resolving or putting off territorial disputes with most of its neighbors and actively fostering economic ties with other Asian countries. Chinese leaders became more open to involvement in international organizations and started seriously training diplomats for Asia and elsewhere.
In terms of trade policy, while the decision-making process in the PRC may seem unified, there were many divisions among government agencies, provinces, and industrial sectors. One element of China's WTO accession was that it joined despite traditional suspicion of international organizations and the fact that the multilateral trading system was changing dramatically, with new sets of rules that would greatly affect the social, political, and regulatory systems of its members. By complying with most of the WTO's strict guidelines, China has become one of the world’s most open economies.
As a WTO member, China's delegation has been very pragmatic and active--making more policy submissions than any other developing country. Despite using the rhetoric of developing countries in Doha round negotiations, China is not interested in the main concerns of developing countries--such as deferential treatment, aid for trade, and remedying certain policies imposed during the Uruguay round.
Finally, China has contributed to the way ASEAN+3 has supplanted Asia-Pacific Economic Cooperation (APEC) as the primary trade-liberalizing institution in the region. This is significant because unlike APEC, ASEAN+3 does not include the United States and Taiwan. China has been active in negotiating free trade agreements (FTAs) with ASEAN countries, in large part to secure raw materials. China has maintained an active commercial diplomacy by providing foreign aid and assistance.
Margaret M. Pearson
University of Maryland, College Park
While the PRC may have a general vision of the desirability of being a great power, this does not translate automatically into a concrete course of action. China has demonstrated a more ad hoc and reactive approach in its behavior toward global trade institutions.
In regional trade agreements, China appears to have a more definitive vision for its role in East Asia. Perhaps this is because so many trade agreements in the region either clearly benefit both parties or come at a low cost.
Phillip C. Saunders
National Defense University
More attention should be devoted to the connections between China's trade policy and its internal economic development. Chinese leaders have used foreign direct investment, economic advice and assistance from the World Bank and the IMF, and accession to the WTO to help reshape its economy and make it more competitive. The large role that foreign firms and global production networks play in the Chinese export sector is also significant, and it would be useful to explore the influence of foreign firms on the making of China's trade policy.
China's efforts to prepare for WTO accession have left it well-positioned to practice commercial diplomacy and to pursue FTAs. In addition to leveraging access to the large PRC market, China can make concessions in FTAs that have relatively low domestic adjustment costs due to the increased competitiveness of Chinese firms. FTAs have become an important tool in China’s diplomatic and security policy.
A key question is whether China's expanding economic ties with Asia will translate into increased Chinese influence on security and political matters, possibly at the expense of the United States. The desire of other Asian countries to keep the United States engaged in the region may limit China’s success in this regard.
AEI intern Manuel Pretel Wilson prepared this summary.
