Forty years ago, China adopted reforms that set it on the path to economic rejuvenation and the reclaiming of its position as a regional and global power. This month, China marked that momentous decision with forums and pledges to use its growing strength responsibly. At the same time, however, Chinese President Xi Jinping warned elsewhere about the downsides of interdependence and called for increased self-reliance — a seeming contradiction to the promise to safeguard the global economic order. Which policies will prevail is a matter of grave consequence for the world.
In 1978, Chinese leader Deng Xiaoping made the most important decision in Chinese history. He abandoned the autarkic policies of his predecessor, Mao Zedong, and adopted economic “reform and opening up.” Xi toured southern China a few weeks ago, visiting many areas that served as pilot projects for Deng’s experiment and promising to continue the policies that he launched.
He repeated that pledge this week at the China Import Expo, a massive event designed to showcase Chinese intentions to be a boost, and not a bane, to the global economy. Speaking to representatives from over 170 countries, Xi said China will purchase $30 trillion in foreign goods over the next 15 years, and another $10 trillion of services in the same period. China would also open restricted sectors such as domestic health care, education, financial services, telecoms and mining to foreign investors. He promised “to lower tariffs, facilitate customs clearance, reduce institutional costs in imports, and step up cross-border e-commerce and other new forms and models of business.” More special import zones will be created, existing ones expanded and intellectual property rights protected.
While that sounds encouraging, experts are skeptical. The targets look good, but they do not depart from current trade figures. The European Chamber of Commerce noted that “much of the content in (Xi’s) speech … echoed what was previously announced at Boao in April,” and added that “constant repetition, without sufficient concrete measures or timelines being introduced, has left the European business community increasingly desensitized to these kinds of promises.”
They are waiting for reform that ensures that all businesses — Chinese and foreign — are treated equally under Chinese law. Market access is important, but it is not the entire story. There is concern about forced technology transfer and privileges for large Chinese companies, especially its state-owned enterprises.
Foreign officials and business professionals also note that even as Xi pledged to foreign audiences that he would open China’s economy, he was telling domestic listeners that the country’s future depends on self-reliance. Two months ago, Xi said China will “stick with the path of self-reliance amid rising unilateralism and protectionism,” and noted even during his southern tour the centrality of “self-reliance” to China’s future.
The “Made in China 2025” plan for economic development is premised on the idea that China must lead in critical technologies. So, for example, the official Xinhua News Agency reported that Xi told a Politboro study group artificial intelligence “is a vital driving force for a new round of technological revolution and industrial transformation,” and China must “control” artificial intelligence and ensure that it is “securely kept in our own hands.” There is profound irony at work. Attempts by foreign governments to press China for reform, and especially U.S. efforts that include tariffs and legal sanctions, reinforce Chinese sense of insecurity and the perceived need for self-reliance. It is precisely because foreign trade partners can cut off access to critical components and know-how that China feels compelled to promote autarkic policies.
Getting China right is a particularly acute concern for Japan. After anti-Japanese protests in China a few years ago, Japanese companies adopted a “China plus one” strategy that promoted investment elsewhere in the region. Now, however, many companies again see the Chinese market as a source of growth. In fiscal 2017, Chinese operations were the main earnings driver for many Japanese manufacturers. Alibaba, which dominates China’s online market, has established an organization to purchase goods from Japan. At the Import Expo, the Chinese food group COFCO signed a memorandum of understanding with Japanese rice company Shinmei and the National Federation of Agricultural Cooperative Associations, among others, to study purchases of polished rice from Japan.
Those companies also worry about the trade war with the United States and the impact of sanctions on Japanese supply chains that cross China. They worry about unfair treatment and the potential theft of intellectual property. In short, they, like all who deal with China, are struggling to predict which set of economic policies will prevail and whether China will be a partner or a peril.
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