Xi Jinping first pledged ‘institutional opening’ in 2017, but rolling it out was hindered by trade war and the pandemic. Now back at the top of the trade agenda—notably as core to developing pilot free trade zones—it is set to feature heavily at upcoming diplomatic events. 

The conventional approach of lowering tariffs to free up commodity and resource flows fails to meet current demands, says Wei Jianguo 魏建国, former vice-minister of commerce. Improving institutions, providing needed regulatory frameworks that encourage competition, innovation and collaboration, and help drive sustainable economic growth, is now the aproach that is needed. High-standard economic and trade rules that better coordinate border and ‘behind-the-border’ measures will result.

So far, RCEP represents the PRC's highest level commitment to opening the financial sector, laying a base for expanding institutional opening, says Cao Yu 曹宇 CBIRC (China Banking and Insurance Regulatory Commission). The ‘gold standard’ sought is typified by the CPTPP (Comprehensive and Progressive Trans-Pacific Partnership Agreement) and the DEPA (Digital Economy Partnership Agreement), both actively courted by Beijing (see CPTPP and DEPA). 

Its own initiatives are promoted as well. On BRI's 10th anniversary, Qin Gang 秦刚, minister of foreign affairs, confirmed that a third BRI International Cooperation Forum will soon take place. The Boao Forum for Asia will take place on 30 March.

With these initiatives in mind, we survey developments in trade in Q1 2023.

unquiet on the Southeast front

Talks for China-ASEAN Free Trade Area 3.0 launched on 7 Feb 2023. FTA version 1.0 cut tariffs; 2.0 expanded access. Plans for scheduling the next negotiations are underway. Trade in goods, investment, digital economy, and green economy will be covered.

ASEAN (Association of Southeast Asian Nations) states feature in customs data for Jan-Feb 2023 as Beijing's prime trading partners. Given its growth potential, young population and abundant resources, the value of deeper ties with ASEAN via RCEP (Regional Comprehensive Economic Partnership) and the PRC-ASEAN Free Trade Agreement (FTA) is hard to miss. While at the same time, China-US trade hits new highs. 

Trade cooperation with ASEAN seems set to prosper: replacing the PRC in some labour-intensive manufacturing in the short term, ASEAN states may still need to import upstream raw and intermediary materials from the PRC, argues Lin Caiyi 林采宜 China Chief Economist Forum Research Institute. Moreover, as Europe and the US expand trade with ASEAN, Chinese firms see the possibility of linking supply chains via ASEAN countries, curbing the impact of US and EU measures that target the PRC's established export channels—e.g. EU’s CBAM (carbon border adjustment mechanism) and the US Indo-Pacific Economic Framework.

midway in the Middle east

Since President Xi’s Middle East visit in Dec 2022, Beijing has been striving to expand its influence in the region, deepening trade with Iran and smoothing relations with Saudi Arabia. The PRC has been Iran’s biggest trading partner for a decade. Twenty cooperation agreements were signed during President Raisi’s visit in mid-February, promoting trade in agriculture, industry, e-commerce, renewable energy, investment, tourism and infrastructure. The PRC will manufacture more in Iran and import more from it. The two will collaborate on food security, building modern ag laboratories and raising Iran's solar power capacity. Iranian firms will be afforded trade exhibitions in the PRC, all building on existing agreements on agriculture, industry and a US$400 billion 25-year cooperation scheme.

With Xi’s pledged ‘China solutions’ via global security, development and civilisation initiatives, it would be surprising to see the pace drop in PRC-Iran relations. 

bananas, cocoa, balsa 

After barely a year of negotiations, the PRC and Ecuador concluded an FTA on 16 Feb 2023. The PRC is Ecuador's leading non-oil trading partner; they have been BRI partners since 2018. Over 100 PRC companies now operate in Ecuador.

Trade ties between the two will be enhanced via tariff reductions and improved market access via trade facilitation and quarantine easing measures. In addition, 99 percent of Ecuador's exports to the PRC are to be granted preferential market access. Bananas and cocoa, as well as goods like balsa, of which Ecuador is the world’s largest exporter, are included. (Used in generating power from wind turbines, balsa is notoriously wasted in the chopsticks used in the takeaway food industry).

Oil, mining, telecoms, energy, civil infrastructure, logistics, green industries, digital innovation and e-commerce are further cooperation fields.

from Beijing to Minsk

President Lukashenko’s state visit to Beijing in March 2023 resulted in a bilateral Declaration, confirming the main provisions of a draft Agreement on Trade in Services and Investment; talks on market access will follow.

Trade facilitation, bilateral investment and cooperation in high-tech industry R&D were pledged in the Declaration. Financial services will integrate further, not least in greater use of each other’s currencies. A China-Belarus Industrial Park will include manufacturing and high-tech. The estimated value of the visit totalled over US$3.5 bn.

Whatever the outcome in Ukraine, the PRC and Belarus stand to benefit from partnership. Sanctions risks and concerns with the efficiency of PRC-Europe freight trains remain, but further ties may be expected. 

future negotiations

Other trade agreements are on track this year, forecasts MofCOM. FTA talks with the Gulf Cooperation Council and Israel will continue. Efforts to upgrade FTAs with Peru, South Korea and Singapore are underway. Negotiations will be carried on at the regional level, supported by domestic reforms to develop the Free Trade Area of the Asia-Pacific (FTAAP), and in hope of qualifying for the above-mentioned CPTPP and the DEPA.

Trade policy is ever less a realm unto itself. An impending summit of China and five Central Asian states (Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan and Turkmenistan), all of whom are critical to the Belt and Road Initiative, is likely to reflect US-related tensions. 

Newly-elected Brazilian president Lula, keen to strengthen ties, is scheduled to visit Beijing and Shanghai with a large trade delegation in late March. Spanish PM Sanchez will also visit at the time of Boao Forum, and French President Macron is expected in early April. France has booked a seat at the BRI Forum, flagging renewed interest in PRC initiatives. Putin has also been invited to the forum, a mark of global ambition, but inviting many abstentions.

who is shifting policy?

He Lifeng 何立峰 | vice premier

He Lifeng assumes the vice premiership with major responsibility for trade, following his long stewardship (since 2017) and deputy stewardship (since 2014) of the National Development and Reform Commission. This afforded him the broadest possible view of the economy. Now as the new trade czar, he must steer between the economy's trade dependence and the Party's stubborn dreams of self-sufficiency. Grounded in economics at Xiamen University under ‘national distribution theory’ founder Deng Ziji 邓子基 (and co-student of current Finance Minister Liu Kun 刘昆), He went on to work closely with Xi Jinping, planning Xiamen’s Special Economic Zone. Later promoted through Party positions in Fujian, he made a mark developing Tianjin’s Binhai New Area, which later suffered a massive explosion due to lax regulation. 

He joined the Politburo in October 2022, assuming Liu He’s 刘鹤 vice-premier portfolio at the 2023 Two Sessions. Holding Liu’s Central Financial and Economic Affairs Commission seals of office, those of the State Council SOE Reform Leading Group seem within his grasp as well. He has recently sounded the dominant policy theme, expanding demand. Chairing the important Comprehensively Deepening Reform Commission office and the Belt and Road Construction Leading Group office, his credentials in Party (read ‘Xi Jinping’) affairs could hardly be better.

• 2014-22 Deputy Director and later director of the National Development and Reform Commission
• 2009-13 Deputy secretary and later chairman of the Political Consultation Committee of Tianjin Municipality
• 1984-2009 various positions in Fujian Province.
•  born Fujian 1955, deemed of Guangdong heritage

Lin Caiyi 林采宜 | China Chief Economist Forum Research Institute vice-director

With lacklustre economic growth in Europe and the US cooling demand for PRC exports, argues Lin, the PRC should look to Southeast Asia. She adds that market opportunities will be plentiful, as ASEAN states’ consumption and economic growth now outpace many in the West. However, they still lag behind the PRC in logistical efficiency and infrastructure. But as these improve, they may overtake the PRC’s lead in labour-intensive production. To remain competitive, the PRC must foster high-quality development and upgrade its industrial chains to export more high value-added goods, such as new energy vehicles and smart devices. Speaking of consumption and domestic demand, Lin once said that ‘spending money is one of the best ways to show patriotism’.

A Fudan University PhD, Lin has worked in the public and private sectors. Starting at Guotai Junan in 2011, she was chief economist by 2013. She is also a member of CF40 and the China Chief Economist Forum.

Gao Yuning 高宇宁 | Tsinghua University Institute of Service Economy and Digital Governance vice dean

Gao argues that the arrangement of our global supply, value and industry chains has seen a paradigm shift. The former focus on supply chain efficiency, is now on stability, and maintaining it uninterrupted. Similarly, while production costs were once of primary concern for value chains, national security has become just as important. And Industry chains, once guided by innovation capacity, now need to strike a balance between innovation and competition in many countries. Given these radical changes, Gao stresses that the PRC needs to uphold trade multilateralism and promote high-standard institutional opening to attract foreign investment.

An associate professor at the School of Public Management, Gao is an Institute of Service Economy and Digital Governance vice dean. He is also a researcher at the Tsinghua Institute for Contemporary China Studies. Gao holds a PhD in Economics from the University of Cambridge (UK), a Master's in Management, and a Bachelor of Engineering from Tsinghua. He works on international economics, development policy and global supply chains. And comments regularly on the PRC’s international trade policy and the digital economy.