China’s new trade strategy seeks to build on export boom amid fresh coronavirus lockdowns in the West

Push to expedite trade agreements comes as Chinese factories are running at full capacity due to demand for medical and work-from-home supplies in virus-hit countries
But analysts warn that Beijing’s new game plan may not succeed until China takes major steps to open up its economy and reduce restrictions on capital flows

China economy

Karen Yeung

Published: 7:06pm, 12 Nov 2020

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Building on China’s success in getting its economy back up and running after the coronavirus pandemic, the government will push ahead with plans to create more secure trade links with other countries in response to the United States’ ongoing attempts to economically decouple the world’s two largest economies.

The new trade strategy, released this week by the State Council, the government cabinet, does not mention the United States directly, but its strong focus on expediting new trade agreements with other countries and cultivating conditions to tap into new foreign markets underscores Beijing’s growing preoccupation with realigning its economic sphere of influence because of the increasing rivalry with Washington.

But analysts continue to question whether the strategy can succeed unless China fundamentally reforms the access that foreign firms have to its domestic economy and increases the ability of firms and investors to move money into and out of the country.

“[China should] accelerate the set-up of international market penetration,” said the statement from the State Council on Monday. “Additionally, [it should] cultivate new strengths for international cooperation and competition under the new circumstances.”

In the meantime, Chinese trade looks to capitalise on the resurgence of the coronavirus in the US and Europe, such as by increasing demand for medical supplies that Chinese companies produce. This point was emphasised at a media briefing on Thursday by Ren Hongbin, assistant minister with China’s Ministry of Commerce, who was discussing the new trade strategy.

“China was the first to get its industries back to business,” Ren said. “The pandemic has hit global supply chains and industries severely. Our production recovered quickly, [leading to] some orders and production from other countries returning to us. This demonstrates that China has been at the centre of the supply chain in the last few years.”

Given that the pandemic is still spreading, along with weak global demand and growing protectionism, Ren said there is still uncertainty surrounding the outlook for Chinese foreign trade in the coming months, but he added that the nation is prepared for the coming challenges.

In its outline of the new trade strategy, the State Council also said negotiations for a new China-Japan-Korea Free Trade Agreement should be accelerated, along with talks on a trade pact with the Gulf Cooperation Council.

The Regional Comprehensive Economic Partnership Agreement (RCEP), the world’s largest free-trade agreement, involving 15 countries in the Asia-Pacific region with China at its centre, is expected to be signed at the weekend.

China and 14 other nations ready to sign RCEP, world’s largest trade deal, before change of leadership in US

Meanwhile, the State Council said China should enhance its international trade competitiveness through its free-trade zones on the mainland, while continuing to develop the Guangdong-Hong Kong-Macau Greater Bay Area.

The Greater Bay Area development plan is the Chinese government’s top policy initiative to link the cities of Hong Kong, Macau, Guangzhou, Shenzhen, Zhuhai, Foshan, Zhongshan, Dongguan, Huizhou, Jiangmen and Zhaoqing in a global economic and business hub to compete with Silicon Valley and Tokyo Bay.

China’s decision to push ahead with measures to support its exports comes as its share of the global trade is being bolstered by fresh lockdowns in several overseas markets.

In October, China’s exports rose by 11.4 per cent from a year earlier, even though global trade in 2020 is forecast by both the World Trade Organization and the International Monetary Fund to fall by around 10 per cent from 2019.

“Lockdowns and other restrictions are still largely in place in many countries. This is bad news for the rest of the world, but good news for Chinese exporters,” said Huang Tianlei, a research fellow with the Peterson Institute for International Economics. “Global demand for Chinese goods is coming back.”

China aims to keep its status as the world’s top exporter amid concerns that many economies will try to cut their reliance on critical items from China in the coming years, particularly as the pandemic has exposed how dependent they are on China for supplies of medical and personal protective equipment, analysts said.

But questions persist as to whether Chinese policymakers will be willing to implement the domestic reforms and liberalisation measures needed to reach agreements on broader regional trade deals.

As it stands, analysts say Beijing’s preference for centralised leadership and a dominant role for its state-owned enterprises in the economy is unlikely to level the playing field for foreign firms.

“The Chinese government can issue as many guidelines as possible on its trade-development policy, but at the end of the day, whether these measures really matter depends on the final implementation,” said Alex He Xingqiang, a research fellow at the Centre for International Governance Innovation. “It’s very difficult for powerful central government agencies, such as the National Development and Reform Commission, to let go of their authority.”

Kevin Lai, chief economist for Asia ex-Japan at Daiwa Capital, said that China’s strategic plan for free ports and trade zones began many decades ago, but they still have not resulted in much success.

China is likely to see even more pushback from some foreign economies such as Japan, India and Australia because trade relations are built on diplomacy

Kevin Lai, Daiwa Capital

“Trade deals and free ports are not new ideas. China is likely to see even more pushback from some foreign economies such as Japan, India and Australia because trade relations are built on diplomacy,” Lai said.

China and Australia, for example, have been involved in a seven-month conflict involving both trade and non-trade matters, with new restrictions on imports of a list of Australian products, namely barley, sugar, red wine, logs, coal, lobster, copper ore and concentrate, believed to have come into force on Friday.

China’s plan to develop the Pudong area of Shanghai into an international financial centre by 2020 has also fallen short of expectations, mainly because of draconian controls over capital flows into and out of the country.

According to Shanghai government data, foreign investment in its free-trade zone fell 3.5 per cent to US$6.77 billion in 2018, compared with a 13.5 per cent rise to US$7.02 billion in 2017.

Additionally, whether the RCEP deal will lead to additional trade for China will depend on the extent to which member countries agree to remove non-tariff barriers to allow the flow of human capital between countries, as well as the use of the yuan in trade settlements to reduce foreign exchange risks, said Professor Terence Chong Tai-leung with the Department of Economics at the Chinese University of Hong Kong.

“As long as the root problem of allowing capital to flow in and out of the country freely is not solved, it will be difficult for China’s free-trade zones to succeed,” Chong said. “The signing of trade pacts is also unlikely to boost trade between countries immediately next year.”

Additional reporting by Amanda Lee

This article appeared in the South China Morning Post print edition as: Beijing poised to pursue fresh trade agreements as economy steams ahead

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