Xi Jinping's Boao Forum speech: Chinese president soothes concerns about US trade war, gives economists food for thought

Rarely has a speech by a foreign leader been awaited with such eagerness. Speculation on the content of President Xi Jinping’s speech at the Boao Forum for Asia was rife long before the event with media, diplomats and businessmen, among others, wondering whether the Chinese leader would use the forum to announce new economic reforms. The forum is attended by representatives of some 29 countries, as well as chambers of business and commerce, not to mention international financial institutions, and is seen as the high watermark for economic policy makers who look to the forum as a window into the future on matters monetary.

File image of Xi Jinping. AP

File image of Xi Jinping. AP

Two issues made this year's meeting even more significant. First, that the meeting was being held against the backdrop of a corrosive trade war between the United States and China. Second, the newly strengthened president—now with a virtual lifetime tenure under his belt—was expected to announce the direction of China’s economic destiny. Remember that Beijing used the forum in 2015 to announce the hugely ambitious Belt and Road Initiative (BRI) that now has the world in a twist.

The president’s remarks were on the lines evident from the title of the forum this year which was “An Open and Innovative Asia for a World of Greater Prosperity”. On the face of it, there were significant concessions designed to lower the temperature of the trade war and also keep global business reasonably satisfied.

Among a host of proposals was a promise to broaden market access, open up the insurance and financial sector, and lower import tariffs on autos as well as on other products. He also affirmed stronger protection of Intellectual Property Rights (IPR), with new measures to address the issue. The IPR issue has long been a sore point with not just the US but also other major manufacturing countries, who accuse China of siphoning off technology towards its own far cheaper production lines, and thereby undercutting foreign manufacturers.

Apart from a broad promise to open up further to the world, there was little in terms of significant economic reform. Manufacturing in China has only partially opened up, with restrictions likely to be lifted in select areas like automobiles and ships. Once among the top ship builders, this sector has been declining at an annualized six percent, hit by recession and overcapacity.

A revival of ship building is integral to the maritime BRI, with its tentacles—or corridors depending on how one is looking at it—stretching well into the Indian Ocean. Xi’s speech was also peppered with statements designed to be taken with a pinch of salt; for instance that Beijing did not desire ‘spheres of influence’. However, with the IMF director Christine Lagarde taking notes from the front row, there is clearly enough in Xi’s speech for economists to ponder.

The issue at the heart of the trade war stems from the contours of the ambitious "Made in China 2025" which was announced in 2015. This was a programme aimed at increasing market innovation and boosting home grown products. Implementation guidelines by the State Ministry of Industry and Information Technology, assisted by some 20 state councils provided specific assistance to industry, to increase domestic market share of Chinese suppliers of basic core components and materials, first to 40 percent and then to 70 percent in 2025.

This is an ambitious plan given that significant sections of Chinese manufacturing are almost entirely dependent on foreign content. That programme began to worry European and American manufacturers who observed that state assistance would further hamper competitiveness in an already uneven playing field. In this speech, it is clear that even while China will retain the thrust of that plan, it is giving ground in some areas under US pressure.

As India faces the heat on tariffs as well , there is much to learn from China in terms of the precision with which it is forging ahead to implement its strategy. An expert analysis of the programme also reveals that Beijing’s weaknesses include lack of infrastructure and poor education standards. Prime Minister Narendra Modi’s own ‘Make in India’ programme also treads the same path in its final objectives and is therefore likely to face the same headwinds.

Even as China and India work towards reducing the skewed trade deficit, it would be useful to look for complementarity in terms of the strengths and weaknesses of each in implementing their respective core programmes.

Which then brings matters back to the BRI, the key driver for China’s future economic growth and which India opposes, as of now. Diplomatic circles in Russia and China have urged India to join the BRI so as to fructify its own infrastructure plans for the region.

India’s initial opposition to the BRI seemed to be primarily due to the fact that its flagship programme, the China-Pakistan Economic Corridor, (CPEC) made its entry into Pakistan through Occupied Kashmir. However, the formal statement by the Ministry of External Affairs just hours before the BRI Summit in May 2017 seemed to add other issues including a lack of consultation and transparency.

Unlike the Asian Infrastructure and Development Bank, which India joined after a period of dialogue and discussions with Beijing, it appears that the extent of the BRI—and its implications—have taken India by surprise.

China can very easily provide formal appropriate guarantees on its position on Pakistan-occupied Kashmir and thus attenuate our concerns on the “sovereignty and territorial integrity” issue. A detailed dialogue on BRI will also probably be welcomed by the Chinese side. The issue, however, is also the overweening influence China is beginning to have in Pakistan, in what is truly a zero sum game: China’s own power gains as against loss of Pakistan’s sovereignty in the face of massive Chinese investment and physical presence. It’s rather like a bull mastiff taking a poodle for a walk.

A reduction in China’s footprint in Pakistan—including a complete cessation of assistance to its missile and nuclear installations—in return for a larger role in BRI is a thought.

It is complex, but a “BRI a la carte” that straddles the entire South Asian subcontinent, including Afghanistan, is no bad thing, particularly if India can work itself into it as a competitive manufacturing hub.

As the then foreign secretary S Jaishankar put it, China and India’s rise can be mutually supportive. All this requires is a Chinese respect for India’s red lines in the subcontinent, both on land and sea. Those red lines may not be seriously affected by recent reports of a possible Chinese military base in the Pacific island of Vanuatu. But they unquestionably reinforce the message of a threatening rise, which no polished speeches can assuage.


Updated Date: Apr 10, 2018 20:12 PM

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