Wednesday, Mar 29, 2017, 7:02 PM CST – China

Special Report

APEC

PARTISAN PARTNERSHIPS

Despite landmark deals reached between the US and China during the recent APEC summit in Beijing, the world’s two largest economies remain in competition for leadership in East Asia

President Xi Jinping and his wife Peng Liyuan host the leaders of the APEC nations in Beijing, November 10, 2014 Photo by Xinhua

Banquet tables are made ready for delegates at the APEC CEO Summit at the China National Convention Center in Beijing Photo by IC

Yanqi Lake resort, the venue for the APEC summit in Beijing Photo by IC

Beijing Olympic Park, November 2, 2014 Photo by CFP

President Xi and President Obama take a relaxed stroll in Zhongnanhai, Beijing’s central government compound, November 11

A fireworks display illuminates Beijing’s National Stadium, known as the Bird’s Nest

Russian President Vladimir Putin drapes a shawl around the shoulders of China’s First Lady Peng Liyuan

When Barack Obama left Beijing on November 11 in the wake of the Asia Pacific Economic Cooperation (APEC) summit, he had every reason to claim an unexpectedly productive diplomatic victory.

Unexpected

Among some 20 agreements signed with China was a landmark deal on climate change. While the US promised to accelerate its plan to cut carbon dioxide emissions to 26-28 percent of its 2005 levels by 2025, China, now the world’s number one polluter, made its first-ever commitment to cap its own emissions by 2030, an abrupt departure from its previous stance.

Moreover, the US and China also agreed to expand the scope of the global Information Technology Agreement (ITA) pact to reduce tariffs on 200 categories of products to zero. According to the US authorities, the agreement, if implemented, could support up to 60,000 new American jobs and eliminate tariffs on nearly US$100 billion of made-in-America products.

The two sides also agreed to extend the length of tourist and business visas granted to each other’s citizens to ten years from the current limit of one year. Analysts believe the development could not only remove some long-standing impediments to exchanges between the two countries, but could also pave the way to a bilateral investment treaty, which both countries have made a priority.

Furthermore, to avert potential military clashes in the waters off the Chinese coast, the two sides also signed a military accord to “regulate behavior” for encounters in the air and at sea, and to notify each other of major military activities, such as military exercises.

But for all the talks of collaboration between Washington and Beijing, the two countries clearly continued to compete for the supreme leadership role in the Asia-Pacific region.

Competition

As the host country of this year APEC Summit, China’s agenda was to push forward the Free Trade Area of the Asia Pacific (FTAAP), a trade liberalization framework first proposed in 2006, which includes all 21 APEC member countries.

Despite its initial support for the FTAAP, the US later shifted focus to the smaller Trans-Pacific Partnership (TPP), which aims to adopt “higher standards” in establishing a trading bloc of 12 countries including Japan, Australia, Canada and Mexico, but notably excluding China.

According to a report in the Wall Street Journal, during negotiations prior to the summit, the US successfully pressured China to drop two provisions regarding the FTAAP from its draft APEC communiqué.

One provision called on the APEC bloc to launch a feasibility study on the FTAAP, which would be the first formal step towards kicking off negotiations on the framework. The other provision was a target date of 2025 for cementing the deal.

Despite these concessions, however, it seems that China won enough support by the end of the conference to claw back some of the ground lost to Washington.

During his closing remarks at APEC to an audience that included President Obama, President Xi Jinping announced that member states had reached an agreement to launch a two-year feasibility study on the FTAAP.

Calling the agreement “an historic step,” though making no mention of the previous 2025 target China had pushed for, Xi urged members to speed up talks and to “turn the vision into reality as soon as possible.”

China has long considered the TPP an attempt to check China’s growing economic power, as many in the US have claimed that the existing multilateral trade order favors China over the US.

For example, according to estimates from the Peterson Institute of International Economics cited by the WSJ, the US would gain about US$191 billion in export volume under the TPP, much less than it would gain under the FTAAP (US$626bn).

In comparison, China would stand to lose about US$100 billion in exports if the TPP were agreed, but would gain US$1.6 trillion under the FTAAP.

From China’s perspective, the US preference for the TPP over the FTAAP indicates that Washington has increasingly adopted a “zero-sum” mentality as it becomes more sensitive about its economic gains relative to China, and is willing to forego profits so long as Beijing ultimately loses more.

From a US perspective, China’s firm advocacy for its own agreement over the TPP at a time when TPP negotiations have stalled, is tantamount to directly challenging US free trade supremacy in the Asia-Pacific region.

New Approach

However, in contrast to its increasing confidence in pushing forward trade and financial initiatives in recent months, China appears to have taken measures to reduce tensions regarding its territorial disputes with surrounding countries during these various international summits, which many analysts see as an obvious and unexpected departure from its earlier assertiveness.

Besides a military accord with the US designed to avert conflicts, Xi met with Japanese Prime Minister Shinzo Abe in Beijing during the APEC summit, their first meeting in two years. The two countries earlier reached a four-point consensus within which Japan acknowledged the dispute between China and Japan over the sovereignty of the Diaoyu/Senkaku island chain for the first time since 2009.

During the ASEAN summit in Myanmar, directly after APEC, in which President Obama also took part, Chinese Premier Li Keqiang said China and ASEAN are working towards the “earliest possible” consensus on a code of conduct in the South China Sea, something Beijing has been trying to avoid in recent months.

Li also raised a seven-point proposal on a framework for China-ASEAN cooperation in the next ten years, which includes the signing of a treaty of “good-neighborliness and friendly cooperation” with ASEAN countries, establishing mechanisms for meetings between China-ASEAN defense ministers and improved maritime cooperation.

Then, in a speech to the Australian parliament in Canberra on November 17 following the G20 Summit, Xi reasserted that China is “committed to peace and peaceful development.”

“China will not develop at the expense of others,” Xi said. Stressing that China has settled land boundary issues with “12 of its 14 neighbors” through “peaceful consultation,” Xi said China will continue to work in this direction in its territorial disputes with other nations. The new approach may indicate a policy adjustment in response to a more serious and assertive stance taken by the US to counter an ascendant China.

Besides the FTAAP, the US effort also extends to a variety of China-led initiatives. Earlier in October, for example, three of Asia’s biggest economies –  South Korea, Indonesia, and Australia – were absent when China announced the establishment of the Asian Infrastructure Investment Bank (AIIB) along with 20 countries, although all three countries had initially expressed interest in the scheme.

It is reported that South Korea and Australia at least had withdrawn support under pressure from the US, which sees the AIIB as a direct challenge to both the World Bank and the Asian Development Bank (ADB), which are largely under the control of the US and Japan.

In the meantime, US and Chinese strategists have raised the possibility of potential military clashes between the two rivals.

In his speech made at the University of Queensland on November 15, President Obama reasserted that Washington is determined to maintain its military pre-eminence in the Asia-Pacific region. “The US... will deploy more of our most advanced military capabilities to keep the peace and deter aggression [in the region],” he said.

Although Obama did not mention China in his speech, these remarks were taken as being directed at China. “By the end of this decade, a majority of our Navy and Air Force fleets will be based out of the Pacific, because the United States is, and will always be, a Pacific power,” he added.

China has been concerned that the US “Pivot to Asia” is aimed at causing China’s territorial disputes with surrounding countries to flare up in order to strengthen US regional alliances and legitimize enhancing Washington’s military presence in the region.

It is believed that China’s new approach aims to limit competition with the US to trade and economics, areas in which it currently has an advantage, and to avoid direct confrontation with the far superior US military machine.

With its recent high-profile diplomatic blitz to launch various trade and financial initiatives in the spirit of regional cooperation, China appears to be confident that its initiatives, which advocate “win-win” situations and a “common destiny” will be able to counter the Pivot to Asia.

Although the TPP negotiations are so far still ahead of those on the FTAAP, China can afford to be more flexible than the US in its negotiating position. If the US were to be successful in blocking the FTAAP, China could switch to the Regional Comprehensive Economic Partnership (RCEP), a trade bloc which would include the ASEAN member states plus Australia, China, India, Japan, South Korea, and New Zealand, and is based on the bilateral FTA already signed between these countries.

On November 10, Beijing secured an FTA with South Korea, followed on November 17 by a similar agreement with Australia – both close US military allies. In the meantime, Indonesia, which chose not to become a founding member of the AIIB, has expressed a subsequent interest in joining.

Moreover, to reduce US pressure in the Asian-Pacific region, China has begun overtures to the less integrated states of Central Asia with its New Silk Road Initiative which has gained momentum in recent months.

In an interview with the People’s Daily Online, Zhang Zhaozhong, a military theorist at the PLA National Defense University, said the APEC Summit has a symbolic meaning – China’s status as a major power has been acknowledged by regional powers including, crucially, the US.

Zhang and many other analysts share the same view that economy, definitely not military, will be the major theme of the competition between the world’s two major powers for the next decade.

Experts on both sides of the debate are likely to hope that a zero-sum result isn’t the only possible outcome of enhanced interaction between the world’s two largest economies.

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