In the run-up to the 2018 mid-term elections, then-President of the US Donald J Trump began to ratchet up the intensity of both his rhetoric and policies targeting China – more specifically, the US-China trade relationship. Castigating the trade deficit as one in which China was unfairly taking advantage of China, Trump fired his first shot in July, imposing tariffs on $34 billion worth of Chinese goods.
The resultant Prisoners’ Dilemma and escalatory spiral of trade restrictions contributed towards eventually tariffs on some $550 billion worth of Chinese goods, and $185 billion worth of US goods. Beijing stand its ground – despite nominally agreeing to Phase 1 of the Economic and Trade Agreement, the COVID-19 pandemic and ensuing disruptions to global supply chains fundamentally rendered impossible the fulfillment of the stipulated terms. Indeed, China also turned to trade diversification and creation, that would enable its enterprises – state-owned and private alike – to circumvent the harsh albeit poorly specified tariffs on directly China-exported goods.
Entered an increasingly ubiquitous term in the Chinese business lexicon: chuhai (出海), literally venturing into the open seas, or – in less visceral terms – going out. Over the past six years, Chinese corporations have been establishing an increasingly sizeable number of robust partnerships with counterparts in ASEAN, the Gulf, and Latin America. A mixture of trade rerouting and diversification gave rise to a soar in China’s trade with non-American third parties. For one, China overtook the US to become the European Union’s largest trading partner for goods. The EU replaced the US as China’s largest trading partner, only to be followed by ASEAN – a rapidly burgeoning and highly populous bloc (with a population roughly 50% larger than that of the EU’s) that lies geographically to the South of China.
Such efforts have not been wholly smooth sailing. From allegations of interference with domestic affairs to concerns over a refusal of select Chinese companies to share technologies – even whilst the Americans and Japanese in the region adopt similarly stringent approaches on the same matter, Chinese companies have faced blowback from skeptics across many emerging markets. Such opprobrium despite the fact that Chinese foreign direct investment (FDI) has played an outsized role in facilitating the construction and maintenance of infrastructure, provision of developmental financing and loans, as well as job creation – though critics would allege that Chinese firms can and should do more in empowering skilled labour.
More recently, China has come under increasingly vociferous criticism for its purported “excess capacity” by various developed economies. Such pushback has been mirrored by large emerging economies that are equally keen on developing their own domestic champions. The Mexican and Indonesian governments have announced tariffs on Chinese-made goods, plausibly propelled by a desire to build up their domestic industries and champions, and reduce excess reliance upon foreign providers. Whilst China has sought to position electric vehicles, solar panels, and lithium batteries as its new pillars of economic growth, Chinese manufacturers’ complete technical and financial dominance in the former has been met with a modicum of resistance in Brazil, which has raised the import taxes on imports from China..
All of this brings us to today, as we stand on the cusp of Trump’s return to the White House. The past few years have seen a surge in interest in the so-called “China+1” phenomenon – one in which large, multi-national corporations shifted parts of their supply chains or operations out of China, into cheaper economies that they viewed to be less susceptible to geopolitical and policy risk. Southeast Asian economies, but also India and select Latin American economies, have been prime beneficiaries from these palpable shifts. I would thus argue that Beijing also needs a “China+1” strategy of its own – one that facilitates and strengthens the initiatives of homegrown entrepreneurs and businesses seeking to establish a presence overseas. Indeed, it is vital that the leadership plays a steering role in encouraging strategic, emphatic, and effective supply chain and operational diversification amongst the country’s businesses.
Yet those who are spearheading this new wave of “China+1”, must take seriously and learn from the mistakes their predecessors have made. As noted by Lin Jingzhen, Executive Director of Bank of China, it is vital that authorities such as the National Development and Reform Commission (NDRC) and Ministry of Commerce (MOFCOM) work hand-in-hand with industrial associations in “avoiding the creation of oligopolies, homogeneous competition and excessive waste of resources”. There must also be greater cognisance of the impacts of foreign capital on local companies – and their ensuing reservations and reticence concerning Chinese presence. In short, Chinese companies must be wary of becoming victims of their own success.
A corollary here is that value- and technology-sharing must be for real. Gone are the days when emerging economies are content with being cheap, mass-manufacturing bases specialised in low-tech and low-value-added production; for the very same reasons that Beijing has undertaken gargantuan efforts to reorient the national economy towards advanced, as opposed to catch-all, manufacturing, it is evident that economies in ASEAN, Latin America, and even Central Asia alike are uninterested in being the supplementary “factories” to Chinese “advanced tech”. Only by lifting all boats at once as a rising tide, can China step up to its mantle of providing its counterparts and partners with knowledge and technological goods that are increasingly ratioend by the US and its core allies in an era of intense geopolitical competition. The answer to the ardent tech decoupling efforts by the West, must be greater “unilateral opening-up”, as noted by political scientist Zheng Yongnian.
Promising breakthroughs have been seen on the front of China’s international financing and developmental initiatives. The Ministry of Finance (MOF) has tasked investment banks to facilitate the issuing of USD-denominated bonds in Saudi Arabia, with maturities of three and five years. Crucially, this could be interpreted as a form of financial “China+1”, with the Chinese government serving as effectively a critical nodule and hub in a fledgling yet distinct circuit of USD assets. As emphatically argued by China watchers such as Arnaud Bertrand, the issuance of these bonds allows China to foster deeper ties with strategic lending partners in the Gulf and elsewhere, whilst the raised USD can thus be invested into more systemic infrastructural, developmental, educational, and even technological projects and undertakings in other developing countries; in exchange, China could receive both financial payments or – better yet – repayment in kind via commodities and other critical resources.
On a more provocative note, one could argue that “China+1” need not be a purely outbound initiative oriented towards Chinese companies setting up operations abroad. Indeed, it could also be China-inbound – that is, China should proactively welcome migrants and talents from many of these countries with which it partners, and open up large, coastal cities as repositories for fresh, qualified, and dynamic skilled migrants. The absorption and retention of high-skilled labour is not only integral in replenishing China’s workforce, which is confronted by the prospects of a graying population; it is also vital in bolstering the country’s soft power and cultural ties with partners beyond its vast borders.
One may be tempted to argue that Beijing is unlikely to drastically alter the country’s immigration policies anytime soon – yet with the recent spate of countries with citizens granted visa-free access to China, it is clear that there exists much keenness on the part of Chinese administrators for rendering the country more accessible to the world at large. Long may these winds of progress continue.
