trade policy will remain in wait and see mode
On the cusp of the next 5-year plan, this series follows the themes and debates in play across sectors. This week we examine trade priorities.
Trade policy planning is not short of clashing priorities in search of solutions, including
- positioning for rival trade agreements
- building ties/reducing risk across BRI
- adopting overseas standards vs. promoting Beijing's own
These tensions amount to buying time, waiting to see how the PRC economy fares with the results incorporated in the 14th 5-year plan for trade to be released in 2022 (detailed sectoral plans come out over the initial years of each 5-year plan period). Positive outcomes are likely to tip official thinking towards more ambitious goals.
With renewed hesitancy around quantitative targets, none are expected in the plan. The previous plan’s sole trade target (16 percent of trade value to be in services) is a further five years away, projects China Centre of International Economic Exchanges.
promoting ‘inclusive’ trade
Creating a ‘favourable trade environment’ is set to be the new priority of the 14th trade plan. ‘Unfavourable’ trade norms (legacies of deals in which Beijing was a latecomer) are to be addressed via bilateral and regional talks. Once a low priority, the November 2020 State Council advice on trade development is raising the stakes on such deals. WTO engagement, with multilateralism the leading theme, will remain on the official agenda, but reform is deemed impossible for the foreseeable future.
Now thematic among Beijing analysts, the image of an ‘inclusive’ global trading system (i.e. friendlier to state-led economies) may well find a vehicle in RCEP. GATT began with only 23 signatories. The rival regional trade model, CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership), notes Xu Feibiao 徐飞彪 China Institute of Contemporary International Relations, has less flexibility, higher entry standards and overall poorer prospects for global outreach.
Entering ‘high-standard’ free trade negotiations (embracing labour and environment standards), is the alternative to tackling ‘unfavourable’ trade norms head-on. Beijing is ‘actively considering’ joining the CPTPP, Chairman Xi told the virtual APEC economic leaders meeting (begging the question of whether an offer would be forthcoming). Accession would allow Beijing greater influence in making trade rules, while also implying mending fences with the US.
But outcomes favourable to China will require tough negotiations. Controversial SOE support will remain off limits, hints Huang Qifan 黄奇帆 long-time pro-CPTPP opinion leader, but special consideration on such issues may be secured via tariff concessions. Yet Beijing is careful not to raise expectations: US pressure on Japan is to take any blame for failure.
finding stability in Belt and Road
Hope of solace is placed in BRI, whatever the perceived or real hostility of advanced economies. This supports China's dream of Asia as the next global economic centre, equipped with shorter, pandemic-proof regional supply chains. China looks to ASEAN, the ‘apple' of Xi’s eye.
The 14th 5-year plan will shore up international supply chains. New country-specific negotiation teams will tackle roadblocks, with free trade talks on the agenda. Yet these are unlikely to be as problem-free as the Cambodia negotiations that wrapped up in three months. Standardising e-commerce rules across BRI partners will be critical.
These hopes are now hostage to Beijing's throttling back of investment. COVID-19 disruption has bumped BRI risk management to a top spot in the 14th plan. Engaging third-party partners is an explicit priority. Strong track records position South Korean, Japanese and French firms as likely candidates. Expansion, according to the plan proposal, should be market-led, and international sustainable debt principles followed. Infrastructure remains core, frustrating those who deem it a costly means of strengthening ties. Foreign aid has fallen out of favour.
upgrading the export economy
The 14th plan’s ‘dual circulation’, coupled with an ever more digitised global environment, adds new dimensions to the quest for new export advantages. Uncovering these amid rising production costs was a major theme in the 13th plan for trade.
Beijing hopes that exports, like the rest of the economy, will benefit from its vast domestic market, lowering costs via scale, and providing alternatives to fickle external demand. To blend domestic and overseas markets, Beijing is warming to adopting international standards. Yet this sets back its ambition to position its own standards as international norms. Tweaking standards so as to protect domestic industry via technical trade barriers would then be needed.
As digitalisation picks up pace globally, cross-border e-commerce is paramount. Over 30 percent of PRC trade volume may be e-commerce-derived in ten years, foresees Huang Qifan. Above all the emerging B2B market may disrupt traditional export patterns and secure bigger profit margins for Chinese producers. Customs and forex reforms have been launched; overseas logistics facilities and new industry associations will be supported. Regulations should now integrate B2B and B2C exports, says Huang, allowing vendors and cities to pursue both. Yet, growth is still stymied by incongruent rules across nations and rocky transaction processes, problems with no immediate solutions in sight.
tactics vs. strategy
Clashing priorities will likely only persist while cost/benefit is weighed up, or until inherent contradictions become too big to ignore. Beijing pins its hopes on a strong domestic economy providing a springboard to tougher, but ultimately more rewarding, long-term visions. Institutionalising RCEP, strengthening BRI supply chains and internationalising Chinese standards will remain on the cards.
what are the experts saying
Wang Wentao 王文涛 Ministry of Commerce Party Secretary
The newly appointed Party Secretary will assume leadership from Zhong Shan 钟山 current Minister of Commerce who faces retirement at 65. A Shanghai university bureaucrat, Wang rose through local government ranks in Yunnan, Shanghai, Jiangxi and Shandong. As Jinan party secretary, he was lauded for putting the city back on track in merely three years following his predecessors’ poor governance. As chief of Heijongjiang, heavy industry and agricultural province with a rustbelt economy, he stressed improving the investment environment. Part of a new generation of Chinese cadres in their late 50s promoted to ministerial and provincial positions, this is his first central government stint.
Huang Qifan 黄奇帆 | China Centre for International Economic Exchanges vice chairman
Former deputy chair of the National People’s Congress Finance Committee, and famously Chongqing mayor 2010–16, Huang survived the downfall of city boss Bo Xilai 薄熙来. A respected policymaker, he champions accession to CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership). Huang also defends ‘three zeros’ (tariffs, trade barriers and subsidies) in pilot free trade zones. ‘Zero subsidies’, he states, means more targeted subsidies in R&D and employment. By employing the ‘dual circulation’ buzzword, he tactfully renders arguments against BRI infrastructure investment politically appropriate.
Wang Xinkui 王新奎 | Shanghai WTO Affairs Consultation Centre president
Consultant on trade to the Ministry of Commerce and Shanghai government, Wang directed trade research at Shanghai University of International Business and Economics for over two decades, becoming vice chairman of the All China Federation of Industry. All for Asian integration, he advocated strongly for a regional trade agreement (similar to today’s RCEP). The future global trading system, he argues, should be built on ‘least common multiples’ in order to foster long-term co-existence.
context
March 2021: National People’s Congress will launch the 14th 5-year plan when it convenes in early 2021
9 Nov 2020: State Council ‘Opinions’ on innovative trade development
3 Nov 2020: 14th-5 year plan proposal
22 Jun 2020: State Council calls for helping exporters sell domestically
4 May 2020: ‘Dual circulation system’ first mentioned at the Politburo Standing Committee
29 Nov 2019: State Council ‘Opinions’ on high-quality trade development
9 Jan 2017: foreign trade development 13th 5-year plan