Britain has broken ranks with the United States to join China in the founding of the Asian Infrastructure Investment Bank (AIIB). As other nations like Australia and South Korea choose to similarly defy U.S. opposition to the AIIB, and join, it could shake Japan’s confidence in its own position and even in the reliability of its alliance with the U.S.
Though some view the One Belt, One Road strategy as a Chinese version of the Marshall Plan, they are vastly different. Therefore, no single country can dominate its process. There is room to dispel suspicion and build trust by further enhancing transparency of the AIIB institution through reducing China’s shareholding, offering more leadership positions to foreign nationals, and employing international business standards.
The controversial issue of “currency manipulation” has resurfaced. However, Washington and Beijing have very different perceptions about the identity of the “currency manipulator.” The net effect is currency friction that is likely to prevail until the 2020s.
China’s selectiveness of foreign investment reflects its restructuring economy, one that invests less in capital and labor intensive industries to investments in human resources and technological innovation. Some far-sighted multinational companies are actively making use of the new rules, seizing the opportunity of China’s structural transformation and beginning to make active arrangements in the strategic newly emerging industries and the high-end service industry.
Asian states will look at potential partners around the Pacific Rim and determine if they are ready to walk the walk or simply talk the talk. So far the lesson of Canada and Australia is that walking the walk requires sustained, strategic commitment, but has a big potential payoff. Australia has been taking concrete steps to solidify its relationship with Asia; Canada has been talking about it, and is only now starting to put into place an engagement program with substance.
Sudden cases of factory relocation and closures has caused China’s foreign investment communities to worry about a “massive foreign capital flight.” With further investigation, foreign direct investment in China is shifting from manufacturing to service sectors. The focus of concern about China’s FDI situation should not be exaggerations of “massive foreign capital flight,” but on the solid efforts to improve China’s investment environment.
Chinese Ambassador to the U.S., Cui Tiankai, recently suggested ways to further improve China-U.S. economic cooperation, which is the major external factory driving the improvement of bilateral relations. Export restrictions, economic recognition, IMF quotas, and U.S. politicization of economic issues have been some of the major problems hindering economic ties.
As the two largest economies, China and the U.S. are trying to formulate a new-type of major-country relationship. The establishment of a free trade area should be an integral part of such relationship. This will be a challenging mission, but the rewards will be tremendous.
Discussion of whether or not China will lead the world through a “third industrial revolution” ignores the China’s excess supply of low quality products, polluted air and water, and an information sector that isn’t completely integrated with manufacturing. China still has a ways to go in industrializing while facing changing international circumstances.
While the TPP is not attractive to several APEC economies because of its U.S. dominance, the proposed FTAAP, which embraces all of the 21 APEC economies, is meant to be an all-inclusive, all-win trade initiative that represents the largest single trade liberalization in history.
The renminbi has appreciated sharply over the past several years, exports are sagging, and the risk of deflation is growing. Under these circumstances, many suggest that a reversal in Chinese currency policy to weaken the renminbi is the most logical course. That would be a serious mistake.
European quantitative easing policy lead to the depreciation of the RMB exchange rate, but this depreciation is being carefully and intentionally observed by China’s central bank to observe the actual impact on the Chinese economy. A more flexible and internationalized RMB will be better to guard against depreciation.
A Greek exit from the EU would lead to increased instability in Europe. Yet, it may present opportunity for China, the U.S. EU, and IMF to engage together in a summit to safeguard the stability of the Eurozone and shape a global norm on tax evasion and tax heavens that have adversely affected insolvent states like Greece.
China’s “new normal” economic development is necessary to achieve more valuable GDP growth at a more reasonable speed and sustainability. Key components of these reforms will be decreased growth, higher-level manufacturing, narrowing of rural and urban wealth, capital exports, a consumer middle-class, and new small businesses.
China’s economic slowdown fueled by a real estate bubble, excessive debt, and manufacturing overcapacity could benefit from a change of structure. China’s service sector is now a greater percent of its economy than manufacturing and construction sectors, and with some additional government spending on social services, the economy could see long-term growth.