By: Tomas Penfold Perez
In 1977, China’s 11th National Congress elected Deng Xiaoping to succeed Hua Guofeng. This ruling has proved to be one of the most important economic decisions in recent Chinese history as the economic policies adopted by Deng were radically different than the socialist policies proposed by Mao and his chosen successor, Hua Guofeng. Deng’s economic policies set a foundation for economic reform and growth that are peculiarly evident to historians and economists alike.
Deng’s ambitious reform was particularly focused on raising foreign investment in China by encouraging trade and investments through the international market. While looking outward for investments, Deng implemented domestic policies that stimulated Chinese development; such as ending collective farming, which in turn freed farmers to choose which crop they wanted to grow and sell, in addition to encouraging the formation of rural enterprises and private businesses.
During Deng’s tenure, Chinese economic growth rocketed. Before the economic reforms of 1979, the average annual real GDP growth rate in China was 5.3 percent. It continued to increase until reaching its pinnacle in 2007, when it was reported to be at an unprecedented 14.2 percent, before declining roughly 4 percent in 2008 because of the global recession. Deng’s economic reforms have proven to be incredibly successful as China is now the second largest economy in GDP terms, the most popular destination for Inward Foreign Direct Investment and the fourth largest commercial services exporter.
Current President Xi Jinping has hinted at reaching new economic heights through several different means. With globalization affecting the development of countries and trade so drastically, there are certain measures that President Xi believes are necessary in order to prevent Western rivals like the United States from challenging China’s regional hegemony in the Asia-Pacific region. President Xi has proposed three measures that would counter any Western thought of regional hegemony in Asia.
1. Finalize the Regional Comprehensive Economic Partnership (RCEP)
2. Facilitate the use of the Asian Infrastructure Investment Bank (AIIB)
3. Create the ‘One Belt, One Road’ Infrastructure project
Finalize the Regional Comprehensive Economic Partnership (RCEP)
Wary of the prospect of having the West dictate the Asia-Pacific economy of the future, China lobbied against the U.S.-spearheaded Trans-Pacific Partnership (TPP) and has announced their own rival trade agreement, the Regional Comprehensive Economic Partnership (RCEP). Proposed in 2012 at the East Asia Summit in Cambodia, the Regional Comprehensive Economic Partnership is a free-trade agreement between ASEAN and ASEAN’s free trade partners -- Australia, New Zealand, China, South Korea, Japan and India. Like the Trans-Pacific Partnership, the objective of the free trade agreement is to achieve a comprehensive and mutually beneficial economic partnership that will entail trade in goods and services, drive investment and regional competition while lowering trade barriers such as tariffs.
Although the Regional Comprehensive Economic Partnership may not be as ambitious as the Trans-Pacific Partnership with regards to labor and climate standards, it could represent roughly half of the global market and about a third of the world’s economic output. When finished, the Regional Comprehensive Economic Partnership aims to deliver tangible benefits through improvements in market access, more coherent trade facilitation and regulatory rules and cooperation. China’s interest in enacting a free trade agreement has much to do with its economic benefits which may make exports and business more competitive in several ways, including reducing the impact of trade diversion resulting from competing free trade agreements, helping Chinese business to access international markets and lowering tariffs which would in turn reduce the export and import costs.
Most importantly, however, is that the United States would not partake in Regional Comprehensive Economic Partnership, arguably allowing China to set the standard for future free trade agreements in the Asia-Pacific region. China’s geopolitical strategy going forward is concentrated on having multilateral relations with its neighbors which would be difficult to develop if the Trans-Pacific Partnership is enacted. The Chinese perceive the Trans-Pacific Partnership as being a geopolitical tool that can compromise Chinese economic and social development. By proposing a free trade agreement that ignores American interests in the region, the Chinese hope to influence the region at the expense of the U.S.
Facilitate the Asian Infrastructure Investment Bank (AIIB)
China has introduced several proposals that would rebalance the world economy. Aside from Regional Comprehensive Economic Partnership, which could rival the Trans-Pacific Partnership, the new Chinese-led investment bank, Asian Infrastructure Investment Bank (AIIB), seeks to rival the Bretton Woods international organizations (IOs) implemented by the U.S. after World War II. China is hopeful of using the Asian Infrastructure Investment Bank to write the rules for 21st century commerce through massive investments in infrastructure. The fifty-six founding members have contributed 100 billion USD and the bank's investments will predominantly focus on ports, roads, railroads, power plants, etc.
China has been adamant in expressing their concern with the Bretton Woods organizations, such as the World Bank (WB) and the International Monetary Fund (IMF), arguing that the governance structure of these institutions evolve very slowly and the voting shares offset Chinese investment ideas by prioritizing U.S. votes through the quota systems. For example, the International Monetary Fund is funded by member states according to the size of their economy which in turn determines the weight of their vote. As a result, the U.S. has 17 percent of the vote (veto power) because it is the largest economy in the world. Contrary to the Bretton Woods organizations, the Asian Infrastructure Investment Bank disallows China, which is responsible for 26 percent of the total votes, from exercising veto power to undermine infrastructure proposals by member nations.
The Asian Infrastructure Investment Bank is concerning for Washington because their non-membership prevents them from participating in any economic development in the Asia-Pacific region through the bank. The U.S. is also wary of China and the AIIB member states disregarding environmental protection, and anti-corruption measures, among others. However, China has stated that the Asian Infrastructure Investment Bank will be rigorous in adopting the best practices of the Bretton Woods institutions. The Asian Infrastructure Investment Banks infrastructure proposals lend themselves nicely to China’s most ambitious plan to rebalance the world economy -- the “One Belt, One Road” initiative.
Create the ‘One Belt, One Road’ Infrastructure Project
The ‘One Belt, One Road’ infrastructure project creates a land and maritime link to China’s developing neighborhoods. The proposal would be somewhat of a time-lapse, as China has laid out a vision for close relations with dozens of countries across Eurasia that was connected along the Silk Road centuries ago. This proposal may prove to be historic in two different facets; the economic impact it would have on China and its trading partners and the unhindered Chinese geopolitical expansion as a result of trade, which would have a negative geopolitical ramifications to the West, most notably the United States.
Establishing both land and maritime routes, the corridors would run through China-Mongolia and Russia; China and Central and West Asia; China and the Indochina Peninsula; China and Pakistan, in addition to Bangladesh, India and Myanmar. The 900 billion USD proposal would include 65 countries, 4.4 billion people and about 40 percent of global GDP. The countries around the corridors will experience a boost in trade that will undoubtedly lead to their economic development, as China hopes to expose the comparative advantages of its neighboring countries in order to create the most beneficial and efficient trade initiative in modern history.
China may have a tremendous geopolitical impact on the world as it will extend its commercial trade to countries that were unable to associate themselves with Chinese goods prior to the development of the initiative. Additionally, Chinese soft power may influence regions where they had not been associated with prior to the proposal. The Chinese geopolitical development is of concern to Washington as they see this as another proposal from China to develop relations with the rest of Asia, in addition to many American allies in the European Union. The Chinese proposal would challenge world trade as we know it today, as it treats Asia and Europe as a single entity rather than continents where, historically, different trade agreements were established.
If President Xi’s proposals are enacted, they will threaten the so-called U.S. “Asian Pivot” initiated by President Barack Obama. The Obama administration acknowledges that the most pressing issues of the 21st century, both economically and politically, will be in the Asian-Pacific region. Exposing untapped market of the developing countries in the Asian-Pacific region and implementing Chinese foreign policies in the region will allow China to establish itself as a global hegemon. Chinese infrastructure proposals facilitated through the ‘One Belt, One Road’ and the Asian Infrastructure Investment Bank initiatives will allow China to have lasting geo-political effects on countries throughout the world, giving them access to global goods and enabling them to trade goods at a level of efficiency that is foreign to the modern world.
Tomas Penfold Perez is a communications intern for the EastWest Institute. He is a Fordham University senior majoring in International Political Economy and Communications & Media Industries.