LOGICS OF CHINA’S ECONOMIC DIPLOMACY SINCE REFORM AND OPENING-UP

LI WEI

Associate Professor, School of International Studies, Renmin University of China

President Xi Jinping pointed out at the Boao Forum for Asia Annual Conference 2018 that “China’s open door will not be closed but will only open wider and wider”.The picture shows the Boao Forum for Asia international conference center.

As China grows into the world’s second largest economy, the country moves formally to the center of world economic arena. In its diplomatic practice, China frequently applies economic means to achieve important strategic objectives in national security, political stability and social development, takes an active part in global and regional economic governance and endeavors to promote the deepening of bilateral economic cooperation.Economic diplomacy has become an important content of China’s overall diplomacy.

As President Xi Jinping observed at the Boao Forum for Asia Annual Conference 2018, “What has happened proves that opening-up was key to China’s economic growth over the past 40 years and in the same vein, high-quality development of China’s economy in the future can only be achieved with greater openness.”“China’s door of opening-up will not be closed and will only open even wider!” It is beyond any doubt that a China that integrates into world economy on a still more profound level will emit even more glaring radiance in the arena of international economic diplomacy.

HISTORICAL EVOLUTION OF CHINA’S ECONOMIC DIPLOMACY

In a long period of time after the founding of New China in 1949, owing to the fact that the country pursued a self-sufficient economic development model under state planning while it was also constrained by a perilous international political environment, China did not take a significant part in international economic activities. Since 1970s,the international environment has relaxed, resulting in that China has faced new opportunities for developing its economic diplomacy, whose evolution is roughly in four stages as follows.

The first stage features contact-making economic diplomacy. In the early days of reform and opening-up, China’s economic diplomacy aimed at breaking economic isolation, making contact once more with the outside world thus creating a more favorable external environment for reform and open-up.Freshly deciding for opening up to the outside world, the Chinese Government entertained a very high degree of enthusiasm to learn about the outside world, sending various study teams aboard on “scouting” missions, the most famous one of which was the delegation led by Vice-Premier Gu Mu to visit five West European countries of France,Switzerland, Denmark, Belgium and West Germany. It was the first government economic delegation sent by PRC to visit capitalist countries in the West,which directly facilitated China’s economic contacts with the outside world.

At the same time, China began to actively seek accession to various international economic organizations.In 1980, the country recovered its seats in the IMF and the World Bank and their affiliated agencies. From 1981 on,China began to take loans from the World Bank and gradually cooperated with it on building infrastructura projects and training of personnel. In 1986,China became a member country of the Asian Development Bank. In trade area,China applied for rejoining the General Agreement on Tariffs and Trade (GATT)in July 1986, thus beginning a long and tortuous process of GATT and later World Trade Organization (WTO) negotiations.

“China’s door of opening-up will not be closed and will only open even wider!”

China’s economic diplomacy made headway in bilateral field as well. As a result of active diplomatic activities, the United States comprehensively let up its technological export control to China in the 1980s, the US technological exports and transfers increasing markedly. Set up in 1983, the Sino-US Joint Commission on Commerce and Trade (JCCT)became one of the earliest diplomatic dialogue mechanisms in economic and trade area between the two countries.

As China’s economic reform just began, the country was less than familiar with rules of international economic games, its overall economic strength then being very limited. Consequently,China’s economic diplomacy during this stage was in the main to build bridges of communication with the international economy and to learn in a gradual manner basic rules of the international economic system, which can be characterized by probing.

The second stage is marked by integrative economic diplomacy. In face of international economic sanctions after the“political turbulence” of 1989, China adopted an approach of cracking the hard nuts one by one in the 1990s and took economic cooperation for a “stepping stone”. It improved relations first of all with Japan, followed by enhanced relations with the EU, Canada and other Western countries and international organizations and ultimately by improving relations with the United States.In the whole process, China’s effective economic diplomacy had a crucial role to play.

China also further quickened the pace of integrating into regional economic system. For instance, China acceded to the Asia-Pacific Economic Cooperation (APEC) in 1991 and participated in the first APEC economic leaders’ meeting in 1993. In 1997, the ASEAN-China, Japan and South Korea("10+3") cooperation mechanism came into being against the backdrop of economic globalization and post-financial crisis era. Not only did China take an active part in “10+3” dialogue mechanism on various levels, it also actively facilitated its maturity and improvement.

On global plane, a core measure of China’s economic diplomacy was the protracted diplomatic GATT and WTO negotiations, the most important among which were Sino-US bilateral economic negotiations. In the end,China formally acceded to the WTO in November 2001, marking the beginning of a new era for China’s economic diplomacy. During this stage, economic diplomacy displayed a strong rulelearning character, i.e., to keep learning modestly the playbook for integrating into the international economic system in an all-round way.

The third stage is marked by “participatory economic diplomacy”. Signified by its WTO accession, China began to be a full member of the international economic system, also an equal participant in the arena of international economic diplomacy, participating in the construction of international economic order and mechanisms. The position of economic diplomacy rose further in the overall diplomacy of the country. In the first decade of the 21st century, China’s economic diplomacy was quite fruitful.

First of all, China took an active part in promoting economic governance on global plane. During the Doha round of negotiations, China emerged as a staunch guardian and executant of multilateral trade system. In global financial governance, after the financial crisis in the United States in 2008, China actively promoted the elevation of G20 from ministerial meeting to leaders’meeting, in which it played a constructive role.

Secondly, China pushed for the construction of free trade area (FTA) on regional plane and actively promoted the establishment of East Asian regional monetary order. In 2000, then Chinese Premier Zhu Rongji put forward for the first time the idea of setting up China-ASEAN FTA, the construction of which was completed by 2010. At present,China has constructed a huge FTA network with dozens of countries across the globe. To reach FTA agreements with other countries is an important integral part of China’s trade diplomacy, which also has become an important measure for the country to extend the width and depth of opening to the outside world,to raise the level of economic openness and to participate in the economic globalization in a profound way.

In regional financial diplomacy,China took an active part in the Chiang Mai Initiative under the 10+3 mechanism. This agreement on establishing a regional currency swap network substantially induced to the formation of a regional financial rescue mechanism,which has become a most important institutional achievement in financial and monetary field for countries of East Asia and even countries of Asia as a whole. It further attested to the fact that starting with regional cooperation and by increasing on its economic strength and accumulation of its financial managerial experiences, China gradually transcended participatory economic diplomacy and began to play a role of economic leadership matching its national strength.

The fourth stage features leadership economic diplomacy. Marked by the US Financial Crisis in 2008 and China becoming the world’s second largest economy in 2010, China came to be a leader in the international economic diplomacy. Burdened by financial crisis or debt crisis, the traditional leadership of the United States and Europe was weakened, and by its huge economic size and its influence on the world economy, China became one of the top three leaders in the arena of international economic diplomacy alongside the USA and the EU. Such a leadership mainly took the form of leading in four areas of agenda making, talented people, planning and ideas.

In sum, through more than thirty years of practice and development,China’s economic diplomatic capacity and level of sophistication improved immensely, which laid a solid foundation for the country to conduct still more proactive economic diplomatic activities in the years to come.

CHINA’S ECONOMIC DIPLOMACY SINCE THE 18TH CPC NATIONAL CONGRESS

In 2008, the Financial Crisis broke out.In 2010, China overtook Japan to occupy the second place in world economies.In 2013, it surpassed the US to become the largest trading nation of the world.As the above said three events made up an important watershed in China’s economic diplomacy, China formally became a major global player in economic diplomacy. Since the 18th CPC National Congress, China has made strategic planning and arrangements in economic diplomacy, made steady headways and kept moving forward.

First, it has pursued more proactive trade diplomacy to meet doubled pressures from the US making a new generation of international trade rules and the disappearance of WTO accession dividend of its own. After Obama took US presidency in 2009, the US attempted to reshape international trade rules by launching three major trade negotiations respectively on Trans-Pacific Partnership Agreement (TPP),Transatlantic Trade and Investment Partnership Agreement (TTIP) and International Trade in Services Agreement (TISA). To rise up to the occasion,China has defended its central role in the international trade system by proactive trade diplomacy.

One, China endeavored to advance the Doha Round of negotiations so as to prevent the US from rejecting the global system of multilateral trade. In December 2013, the Doha Round eventually reached Bali Package Agreement after 12 years of stalemate with China playing a key role in the process by urging for negotiation, reconciliation and conclusion. In 2017, the Trade Facilitation Agreement formally came into effects, and the WTO trade facilitation negotiations lasting for 13 years eventually came to conclusion, which was the largest achievement of the WTO since the advent of the Doha Round. At the Summer Davos Forum 2017, Premier Li Keqiang reiterated China’s determination to promote trade and investment liberalization and facilitation and to reform and improve international economic and trade rules.

Two, China accelerated its efforts in carrying out its strategic planning and layout for regional FTAs, constructing its FTA network with sufficient resolve and determination so as to prevent shifting effects of US FTA development from occurring. Its concrete measures included to forge an upgraded edition of China-ASEAN FTA, to conclude China-South Korea and China-Australia FTA negotiations and to be four squares behind the ASEAN efforts in advancing Regional Comprehensive Economic Partnership (RCEP). At the APEC Leaders’ Meeting 2014 in Beijing, China spurred the meeting to make important decisions on launching the process for Asia-Pacific FTA and on approving the Beijing Roadmap, taking the first substantial step in constructing an Asia-Pacific FTA. By the end of 2017, China had signed up 16 agreements on FTAs.

Second, it has continued to strengthen financial diplomacy, promote financial and monetary cooperation and to serve its financial rise and internationalization of the RMB. Since 2009, financial diplomacy has come up forcefully in China. The country put in place a series of international initiatives and practice for financial governance and reform, including in concrete terms promoting reform on international financial and monetary system through G20 and BRICS mechanisms on global level, promoting multilateralization of the Chiang Mai Initiative through the framework of ASEAN+3 cooperative mechanism and making it a success to set up Foreign Exchange Reserves in East Asia and in turn realizing regional financial self-help on regional level, and promoting bilateral currency swap and initiating settlement in local currency,helping the RMB go globe and become an international currency on bilateral level. All of the financial diplomacy activities above have greatly improved China’s international financial environment and significantly raised international financial status of the country.Besides, the Asian Infrastructure Investment Bank and the BRICS New Development Bank going into business,the Silk Road Fund coming into being and the SCO Development Bank undergoing preparation, by such forceful measures financial diplomacy helped Chinese capital go global, facilitated the internationalization of the RMB and helped enhance China’s political relations with countries concerned, thus becoming an important part of China’s assistance-oriented economic diplomacy.

In monetary field, since the 18th CPC National Congress, China has clearly quickened the pace of promoting settlement in local currency with friendly countries, serving the internationalization of RMB more directly. In May 2014,when Russian President Putin attended the Conference on Interaction and Confidence-Building Measures in Asia, he signed a joint-communique with President Xi Jinping, pledging to further promote the expansion of the scale of settlement in local currency in Russia-China trade, investment and credit loans, including that of most substantially meaningful oil trade between the two countries, which poses a major challenge to the petrodollar system. On top of this, with the efforts of the Chinese Government, the RMB was formally taken into the SDR currency basket of the IMF in October 2016, which can be regarded as the greatest achievement of the Chinese Government in financial diplomacy since the 18th CPC National Congress.

Third, by investment diplomacy, it opposes investment protectionism and spurs Chinese companies to go global and protects China’s overseas interests,of which a key content is to quicken the pace of the Bilateral Investment Treaty (BIT) negotiations. China has gradually turned from a major trading nation to a major investor. By 2016, the accumulated overseas investment of the country rose to the second place in the world. Against the background of lacking a global investment protection framework, to conclude investment treaty through bilateral diplomatic negotiations becomes an important means to protect China’s overseas investment.

At present, it is the most important part of China’s investment diplomacy to conduct China-US and China-EU BIT negotiations. Due to the enormous size of investment involved and the international weight of concerned parties to the negotiations, both of the talks attract the world’s attention, their significance being comparable to China’s WTO negotiations in the past. In 2013,China accepted, for the first time, the two principles of “pre-establishment national treatment” and “negative list”as basis for BIT talks, paving the way for the talks. Furthermore, with China’s efforts, the G20 Hangzhou Summit endorsed the G20 Guiding Principles for Global Investment Policymaking, being the first global framework of multilateral investment rules and an important document for global investment governance.

Finally, it has, in an all-round way,proposed and implemented the Belt and Road Initiative, a comprehensive grand strategy for economic diplomacy. The Belt and Road Initiative involves various fields like trade, finance, investment, energy, science and technology, communication and infrastructure construction,geographically covering several regions such as Asia-Pacific, Eurasia, Middle East and Africa, concerning dozens of countries, being the most important innovation of the Chinese Government since the 18th CPC National Congress.

The connotations and considerations of the Belt and Road construction are in two aspects: one, the Belt and Road Initiative helps China expand international cooperation with countries in its neighborhood on a profound level and seek new international dynamics for economic growth. In concrete terms, it includes achieving road connectivity by infrastructure construction, which falls into the area of investment diplomacy,facilitating trade of goods by reducing trade barriers, which falls into the area of trade diplomacy, and achieving currency circulation through settlement in local currency, which falls into the area of monetary diplomacy. Therefore, the Belt and Road Initiative is a comprehensive economic diplomatic action.

Two, the Belt and Road Initiative is an important strategy for China to stabilize geopolitical environment in the neighborhood and construct a community with a shared future for the neighborhood by seeking common economic development, which places the policy of“creating an amicable, secure and prosperous neighborhood” in more concrete terms. In May 2017, the First Belt and Road Forum for International Cooperation was held in Beijing with active participation of neighboring countries. The Forum ultimately produced a list of 279 results. As President Xi Jinping pointed out at the Forum, the Belt and Road is a“road for peace” and a “road of prosperity” built by China together with other Belt and Road countries.

In general, sitting on a more solid foundation of economic strength, China’s economic diplomacy in the new era seems more proactive and aggressive in behavior and more mature in practice.China’s economic diplomacy is taking the country to the center of world arena, becoming once more a leader of the international community.

CONCLUSION

Economic diplomacy combines economy and diplomacy. By reviewing the historical process of China’s economic diplomacy, this Essay points out that from the late 1970s to present,China’s economic diplomacy is on a development curve moving from making contact to being integratory to being participatory and on to providing leadership. Since the 18th CPC National Congress, China’s economic diplomacy has displayed great vigor for development and intense drive for advance,having achieved important results in quite a few areas. Looking ahead,China’s economic diplomacy is at a new historical starting point and enters into a promising new era.