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TRADE WARS
China makes awkward free trade champion
By Benjamin CARLSON
Beijing (AFP) Jan 12, 2017


As the biggest beneficiary of globalisation, China stands ready to proclaim itself the champion of free trade in the face of a more protectionist US, but analysts say Beijing's attitude is much more one of pick and choose.

Since Donald Trump was elected on a platform of tearing up trade pacts that he says have drained American jobs, China has embraced its role as a defender of globalisation and multilateral economic arrangements.

At next week's World Economic Forum in Davos -- to many the unparallelled symbol of globalisation -- President Xi Jinping will make a keynote speech to "contribute China's wisdom" and "encourage all parties to put economic globalisation in the right perspective", according to vice foreign minister Li Baodong.

China always seeks to "advance the well-being of mankind", he added.

But the idea that Beijing could fill the vacancy and lead international trade if the US gives up the job, is a non-starter, say analysts.

The global trade regime has been built around US demand and its large deficits with trade partners; China consistently runs huge trade surpluses with the US and other countries as the workshop of the world -- a mainstay of the decades-long boom that has propelled it to become the world's second-largest economy.

It would be "virtually impossible" for China to lead a global trade regime, said Michael Pettis, professor at Peking University, in a recent analysis, and its partners would be hit by lower demand if it did.

"The consequence of a US withdrawal from global governance, in other words, is unlikely to be an orderly, rules-based global trading system in which leadership has shifted from Washington to Beijing," he said.

Rather, it will be a return to the pre-Bretton Woods days of "trade conflict and beggar-thy-neighbour policies", he said.

- Letter v. spirit -

Since its accession to the World Trade Organisation in 2001, China's share of world GDP and merchandise exports has skyrocketed.

As anti-globalisation sentiment has surged with the shock Brexit vote and Trump's election, Chinese media outlets have spoken out in its defence.

On Wednesday a commentary in the Global Times newspaper argued in favour of globalisation's benefits, saying it allowed developed countries to "buy more products with excellent quality and at reasonable prices", while noting the disruptions created by unemployment.

But China's putative position as free trade champion contrasts with Beijing's restrictions that prevent foreign companies from competing in a variety of sectors, often forcing them to partner with local competitors and share vital technology.

Vice foreign minister Li said accusations of protectionism against China are "unjustified".

Beijing has also shown its willingness to use trade as a cudgel, with Norwegian salmon exports plummeting after jailed dissident Liu Xiaobo was awarded the Nobel Peace Prize, and South Korean entertainers effectively barred from performing in China over Seoul's planned deployment of the US THAAD missile defence system.

"What China has shown is an extreme prowess at using global institutions to its own end in its own way," said Andrew Polk of Medley Global Advisors.

"They're very clever in using the letter of global institutions versus the spirit of global institutions."

- Opening new markets -

Unlike the Trans-Pacific Partnership, arduously negotiated under President Barack Obama -- which calls for imposing high environmental, labour and intellectual property standards on its members -- analysts say a Chinese-led trade regime would feature limited preconditions to tariff-free trade.

"China has shown that if an agreement is expected to bolster profits, partner countries are willing to hold their noses," Brian Jackson of IHS told AFP.

China is the world's biggest trader in goods, and its performance affects partners from Australia to Zambia, which have been battered as its expansion has slowed to levels not seen in a quarter of a century.

Under Xi Jinping the government has moved away from liberalisation on several fronts, with strengthened state-owned enterprises, increased capital controls, and heightened restrictions on free exchange of information and ideas online.

Authorities hope to open foreign markets to soak up Chinese overcapacity through Xi's signature One Belt, One Road policy, which calls for constructing vast rail and infrastructure links connecting Chinese exporters to markets across Eurasia.

But Polk said the aim was less to provide investment for foreign companies but rather "developing export markets so China can send its goods abroad, so the near abroad can be more and more reliant on China".

bfc/slb/amu/hg

IHS Global Insight


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