At the Asia-Pacific Economic Cooperation forum in Vietnam over the weekend, Trump told the leaders gathered that the United States will no longer enter into large trade pacts that cede U.S. sovereignty with weak trade laws. Chinese President Xi Jinping struck a different tone by calling globalization an “irreversible historical trend” and pledged to pursue a free-trade area in Asia.
At the summit, Trump will have to contend with a self-assured China, that now aspires to build on the internal consolidation of the Chinese Communist Party (CCP) by boosting China’s external influence.
What new challenges does a stronger China pose to the United States? Here are three things to watch:
1) Xi is emboldened by China’s strategic use of globalization.
Xi has strengthened the CCP’s political and administrative authority, building up markets and the state. This builds on four decades of China’s “reform and opening” and entrenchment of deliberate party-state control as part of the country’s global economic integration strategy.
Before and after China’s entry into the World Trade Organization in 2001, the “liberalization two-step” used foreign direct investment and limited state resources and state capacity to develop high-tech, value-added industries like telecommunications, automobiles and renewable energy. These strategic industries, which also have national security applications, have boosted competitiveness and transformed China into a would-be high-tech behemoth.
My research on China’s telecom industry, for example, shows how China built a domestic communications sector from scratch by harnessing foreign investment. At the same time, reinforced state control and changes in bureaucratic organization, industrial structure and regulations nurtured favored equipment makers, such as ZTE and Huawei, and service providers such as Alibaba and China Mobile. These Chinese firms dominate the domestic market and Chinese smartphones are fast making inroads into global markets. But Beijing also kept tight supervision on how information was shared, and imposed strict Internet censorship.
Xi has continued to use markets and the party-state to guide strategic industries and issue areas. New party and state council groups on cybersecurity, oil and gas line security and the management of nongovernmental organizations (NGOs), for instance, guide those sectors.
As my book discusses, China has mixed ownership structures, which first upgraded the state-owned carriers in the late 1990s. Back then, the state courted private and foreign minority shareholders to invest, but later forced them to divest after the state had restructured the sector. Earlier this year, privately owned companies, including Alibaba and Tencent, were asked to purchase shares of state-owned telecommunications companies to help reform the sector further.
2) The new structure of China’s economy tests the region.
But economic decision-making in many sectors in China is not centralized, I found in the course of my research. Local governments and firms can try to attract domestic and foreign investment in industries that fall outside of any national security or technology-related sensitivities. They do this through fiscal incentives and low-cost labor and production.
The state still has a big role to play, though: Xi’s anti-corruption campaign and an extensive apparatus for maintaining social order aim to prevent social unrest, stop bureaucrats from lining their pockets — and tackle corruption, uneven development, industrial overexpansion and runaway pollution.
The Chinese economy no longer grows as it once did, at 10 to 12 percent a year. With Chinese-style capitalism still producing annual growth rates of over 6 percent, Xi does not have to worry too much about economic growth. China’s manufacturing dominance has forced other economies in the region to restructure and search for new niches and markets, as well as accept large amounts of Chinese investment.
On Saturday, 11 Asia-Pacific economies announced a new trade deal, this time without the United States. The new Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is the successor to the Trans-Pacific Partnership (TPP) — the U.S.-led attempt to limit Chinese influence and keep other Pacific Rim countries in the U.S. orbit. Like the original TPP, the CPTPP excludes China. As one of his first acts in office, Trump pulled the United States out of the TPP, which President Obama signed in 2016.
3) China’s regional strategy will challenge U.S. leadership.
It’s likely China will continue to build artificial islands and drill in gas fields in disputed waters of the East China and South China seas. These waterways are an important part of China’s ambitious One Belt, One Road initiative to build up infrastructure networks and trade throughout Asia and beyond.
Indonesia and Thailand, for instance, are increasingly dependent on Chinese Belt/Road investments in railways, real estate and tourism. Last year the Philippines consented to bilateral talks with China and recently halted a construction project in the South China Sea.
Just before Trump’s departure for Asia, China ended its dispute over South Korea’s decision to deploy an antimissile system. China lifted its boycott of South Korean businesses and flight routes. South Korea also agreed not to accept additional launchers — or join a regional missile defense system with the United States and Japan.
The leaders of Asia had looked to Trump to sustain U.S. leadership in the region at a time of China’s growing ambition and assertiveness. The Trump administration has expressed unwillingness to step in; however, the challenges brought forth by China remain.
Roselyn Hsueh is an associate professor of political science at Temple University and the author of “China’s Regulatory State: A New Strategy for Globalization.” A visiting scholar at the Perry World House of the University of Pennsylvania, she is working on a book project that compares the globalization and development of China, India and Russia. Follow her on Twitter @RoselynHsueh.