In the 1980s, Deng Xiaoping’s economic reforms and opening-up policies enabled China to industrialize through investment and export-led growth.
After Beijing’s Third Plenum, the new grand strategy by President Xi Jinping and Premier Le Keqiang allows China to move toward post-industrial society and consumption-led growth, along with increasing regional integration.
How Washington responds to these reforms has far-reaching implications in Asia, as well as across the globe.
Series Of Economic & Strategic Reforms
In the past few months, China’s new leadership has provided glimpses of economic reforms, which have now been officially enacted. Based on the “3-8-3 Plan,” they comprise tripartite reforms, focus on eight sectors and involve three reform packages.
The tripartite reforms cover the market, government and companies. In each case, the goal is to reduce the government’s role in the economy. The eight core sectors comprise finance, taxation, state assets, social welfare, land, foreign investment, innovation and good governance. In turn, the reform packages seek to relax control over market access, launch social security and allow sales of collectively-owned rural land. The household registration system (hukou), which continues to discourage migration, will be phased out by easier access to urban hukou for third-tier cities.
These proposals have been shaped by Chinese think-tanks, but the broad outlines have been authored by Li Wei, the ex-secretary of the former premier and tough reformer Zhu Rongji, and Liu He, a reformer who serves as the economic adviser to President Xi Jinping. The new growth model draws from policy blueprints shaped by "China 2030" project, which Liu He’s team has developed in cooperation with the Chinese State Council and the World Bank.
Since early fall, these reforms have been fueled by Shanghai’s free-trade zone (FTZ). The reforms come with increasing financial deregulation. Meanwhile, China is opening doors to foreign investors and financial institutions. The reformers seek to make the renminbi fully convertible and into a major international and a reserve currency within a decade.
Most new reforms, which will be spearheaded by a central leading team, are likely to be phased into policy over the next 5-10 years. While the team may be led by Premier Li Keqiang, it could be headed by Vice-Premier Wang Yang, known for his reforms in Guangdong, and be assisted by Han Zheng, Shanghai’s party secretary.
Beijing will also institute a national security agency to coordinate efforts of various government departments covering intelligence, the military and foreign affairs. The initiative has been considered since 1997, when then-president Jiang Zemin visited the U.S. National Security Council (NSC). Inspired by the visit, the new agency represents an effort to ensure the sharing of vital security information across agencies. It can also be seen as a response to the U.S. National Security Agency’s (NSA) extensive cyber spying globally, as disclosed by the ongoing Snowden debacle.
Rebalancing From Southeast Asia To The BCIM Economic Corridor
As the momentum of economic growth is shifting from the transatlantic axis to Asia, Washington and Beijing are rebalancing their foreign policies in the region. While the buildup of U.S. forces in Asia has intensified since 2011, America’s combat ships in Asia will double by 2020.
In turn, China’s pivot concentrates on trade and development across Asia. In the past, Chinese foreign ministers were U.S. or Russia experts. Now the emphasis is back in Asia, as evidenced by the new key actors. State councilor Yang Jiechi is focusing on China’s grand strategy in the region. Asia expert Wang Yi serves as chief of foreign ministry, while Washington ambassador Cui Tiankai, is also an Asia specialist.
Recently, President Xi Jinping proposed joint efforts with the 10 ASEAN member states to develop a ”Maritime Silk Road.” In Brunei, Premier Li Keqiang outlined China’s 10-point ASEAN initiative for friendship and cooperation, security exchanges, bilateral trade to 1 trillion U.S. dollars by 2020, an Asian infrastructure investment bank, and cooperation in maritime and regional finance.
After the May election victory of Nawaz Sharif and the Pakistan Muslim League (PML), Pakistan is moving toward development. Economic cooperation has accelerated with a free trade agreement and China’s assistance in the development of Pakistan’s infrastructure. Beijing is Islamabad’s third-largest trading partner and its largest supplier of arms. It has helped in building the Khushab reactor and is the largest investor in Pakistan’s deep-water port at Gwadar, located at the mouth of the Strait of Hormuz.
While Sino-Pakistan relations have served to balance India’s power in the region, the Sino-Bangladesh relations serve as a bridge to India. Trade between Dhaka and Beijing exceeded $8 billion in 2012, and it has been coupled with increasing defense procurement. Recently, Bangladesh’s foreign minister Dipu Moni met his Chinese counterpart Wang Yi in Beijing to push forward the Bangladesh-China-India-Myanmar (BCIM) Economic Corridor, which comprises Bangladesh, China, as well as Myanmar and India.
The BCIM reflects China’s rising maritime power, which is encountering its U.S. counterpart along the sea lines that connect China to energy resources in the Middle East and Africa. In the West, critics see the BCIM as a “string of pearls” that could one-day fuel China’s bid for regional primacy. In the East, the BCIM nations see regional integration as potential insurance for stability and prosperity.
The Chinese pivot extends from South and Southeast Asia to Central Asia. During his first trip to the region since assuming the presidency, President Xi Jinping attended the Shanghai Cooperation Organization (SCO) summit in Bishkek, Kyrgyzstan.
Today, the SCO’s six full members account for 60 percent of the landmass of Eurasia and a quarter of world population.
In the West, many observers see the SCO as a counterbalance to NATO, in addition to the United States. In the Xi-Li era, however, the new SCO trend toward economic development is likely to strengthen.
Chinese Grand Strategy As U.S. Opportunity
What emerging Asia needs is broad and deep cooperation through security, trade and investment, and shared prosperity. Indeed, nothing reflects the rivalry for regional integration better than the race toward free trade.
Washington is in a hurry to complete a Trans-Pacific Partnership (TPP), which includes advanced economies in Oceania, all NAFTA partners, advanced ASEAN states, two Pacific nations and East Asia, minus China. The TPP, in turn, has intensified Asian-Pacific cooperation in which China does have a role, particularly through free trade talks among the 10 ASEAN member states, and their FTA partners. These talks aim at a Regional Comprehensive Economic Partnership (RCEP), which excludes the United States. Nonetheless, the Chinese concern remains that the RCEP will be less driven by upgrading and innovation than TPP.
What U.S.-China relations need is deeper cooperation, which, in turn, has the potential to support Chinese reforms and innovation. In the first nine months of 2013, Chinese firms spent a record $12.2 billion in the U.S. However, America is coping with a massive $8 trillion infrastructure investment bill. The debt-burdened U.S. local governments are courting Chinese investors to pay for the massive modernization.
Indeed, China’s new grand strategy – market-driven economic reforms coupled with deeper regional integration – is very much in the U.S. interest.
By Dr. Dan Steinbock
Dr. Dan Steinbock is Research Director of International Business at the India, China and America Institute (USA) and a visiting fellow at the Shanghai Institutes for International Studies (China). For more, see www.differencegroup.net
This commentary is based on Dr. Dan Steinbock’s extensive research as Visiting Fellow at Shanghai Institutes for International Studies, a leading think-tank. The original version was released by China-US Focus (November 14, 2013).
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