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China’s Rising Economic Soft Power

Written by John Wong.

Shortly after consolidating his power to become China’s only real “strong man” since Deng Xiaoping, President Xi Jinping promised national rejuvenation to realize his “Chinese dream”. Externally, Xi has been pursuing an active foreign policy to elevate China’s international standing. The main thrust of Xi’s foreign policy is to cultivate “good-neighbourly relations” with countries on its periphery and closer ties with countries afar. At the global level, China has actively sought to promote a “new type of major-country relationship” with the world’s sole hegemon, the United States. Continue reading “China’s Rising Economic Soft Power”

Cracks in China’s New Silk Road

Written by Michael Clarke.

Francis Fukuyama recently argued that President Xi Jinping’s ‘One Belt, One Road’ (OBOR) strategy ‘represents a striking departure in Chinese policy’ whereby Beijing is ‘seeking to export its development model to other countries.’ The OBOR’s emphasis on ‘on massive state-led investments in infrastructure’ to facilitate trans-Eurasian economic interconnectivity, he notes, contrasts with the largely neo-liberal development model espoused in the West (and by international institution such as the World Bank and the IMF). For Fukuyama, the OBOR, if successful, will determine ‘the future of global politics’ by transforming ‘the whole of Eurasia from Indonesia to Poland’ and generating ‘immense prestige’ for China’s form of authoritarianism.

Fukuyama briefly notes that ‘there are important reasons to question whether One Belt, One Road will succeed’. Most notably, while China’s infrastructure-led development model has succeeded domestically as the Chinese Communist Party (CCP) ‘could control the political environment’, Beijing will not have this luxury across broad swathes of Eurasia ‘where instability, conflict and corruption will interfere with Chinese plans.’

What is striking about Fukuyama’s analysis is his failure to acknowledge the fundamentally problematic nature of Beijing’s infrastructure-led development model within China itself. In particular, the practice of the model in Xinjiang and its implications for the non-Han Chinese ethnic groups that inhabit it should give pause for thought. Xinjiang, as Owen Lattimore famously argued in 1947, historically constituted (along with Tibet and Mongolia) the ‘marginal Inner Asian zone’ of Chinese expansion). The region’s geopolitical liminality between the civilizational zones of East, South and Central Asia combined with the ethno-cultural dominance of Turkic and Mongol peoples to ensure only intermittent periods of Chinese control.

With the region’s “peaceful liberation” by the PLA in 1949, however, Beijing sought to negate such qualities that had oriented the region away from China-based states through encouragement of Han settlement and extension of the institutions of state power and control (e.g. the bingtuan) into the region. After the return of Deng Xiaoping and the launch of ‘reform and opening’ Beijing fundamentally transformed its approach to managing Xinjiang’s liminal qualities. From the 1980s onward, the approach has been defined by an attempt to turn Xinjiang’s geopolitical position to China’s advantage through instituting a “double opening” strategy to simultaneously integrate the region with China proper in economic terms and to establish security and cooperation with China’s Central Asian neighbours.

The core assumption has been that the delivery of economic development and modernization will ultimately “buy” the loyalty of such ethnic groups as the Uyghur – a strategy that was intensified with the institution of the Great Western Development campaign (GWD) in 2000. Under the GWD the region was envisaged as becoming an industrial and agricultural base for the national economy and a trade and energy corridor linking China to the energy and resource states of Central Asia and the Middle East.

This has been amplified with the OBOR. Indeed, the State Council’s National Reform and Development Commission’s (NDRC) March 2015 policy document on building the ‘belt and road’ explicitly identifies Xinjiang’s ‘geographic advantages and its role as a window of westward opening-up’ as key to the success of the OBOR.

While this approach has delivered economic development to Xinjiang it has not alleviated the underlying causes of Uyghur (and other ethnic minority) disaffection with rule from Beijing. Using state-led development to pacify restless frontier regions is not only not unique to China but has also proven to be ineffective in either quelling dissent or assimilating minority groups. Frequently it has had the reverse result of aggravating already discontented populations and such negative results are predictable when the development efforts do not take into consideration local people’s attachment to their historical homelands, to their cultural traditions (including religion), and to their language.

In Xinjiang it has been a long standing grievance of Uyghurs that their cultural traditions and language have not been adequately protected. This has only been compounded over the past three decades by a perception of widening inter-ethnic socio-economic inequality between Uyghurs and the Han Chinese majority and the often harsh repression of Uyghur religious practice.

A further disjuncture between the theory and reality behind the OBOR is to be found through an examination of the ‘new Silk Road’ narrative itself. The narrative that Beijing has constructed around initiatives such as the OBOR purposefully envisage these new ‘Silk Roads’ as establishing ‘a regulated, structural interconnectivity between Eurasian states’ with China at the centre due to ‘its location, economic clout, insatiable thirst for energy, and increasing geopolitical leverage.’

Yet, the core challenge for Beijing is that such transnational connectivity, while holding the potential to enhance China’s influence across its Eurasian frontiers, is also likely to create opportunities for the transmission of unregulated currents antithetical to its core goal of integrating Xinjiang. Moreover, the manner in which Beijing may choose to respond to such challenges may result in unforeseen consequences for its foreign policy.

Two issues loom particularly large here: Uyghur terrorism and its connections to radical Islamism in Central and South Asia and the Middle East.

Chinese authorities have long claimed that Uyghur separatism and opposition has been inspired and supported from external sources with, for instance, Beijing directing such charges during the Cold War at the largely secular Uyghur nationalist exiles based in Turkey and the Soviet Central Asian republics. The 9/11 attacks and the US-led ‘War on Terror’ however fundamentally changed this narrative with Beijing inevitably linking violence or unrest in Xinjiang to regional and transnational terrorist organizations  based in Afghanistan, such as Al Qaeda.

In Afghanistan, it has been clear since the early 2000s that a small number of Uyghurs have been aligned with the Afghan and Pakistani Taliban and the Islamic Movement of Uzbekistan (IMU) along the Af-Pak frontier. Beijing has generally sought to utilise its close relationship with Pakistan and a pragmatic approach to the Taliban (including encouraging a political settlement between Kabul and the group) to prevent the potential spill-over of Islamic radicalism into Xinjiang.

With the rise of Islamic State (IS) and the crises in Syria and Iraq since 2012, China has claimed that hundreds of Uyghurs have travelled to Syria, often via people smuggling networks via South East Asia and Turkey, to fight with various anti-Assad groups. More recently it has been reported that the Turkestan Islamic Party (TIP), a group China has blamed in the recent past for attacks in Xinjiang, has a battlefield presence in Syria and is aligned with Al Qaeda affiliate, Jabhat al Nusra.

China has seized on such linkages as proof not only that Uyghur terrorism is “spiritually supported and commanded by foreign terrorist organizations,” but also to firmly embed counter-terrorism as a pre-eminent national security priority. Indeed, China’s concerns about terrorism in Xinjiang and Uyghur links to conflicts in Syria and Afghanistan played a major role in the creation of China’s first counter-terrorism legislation on 27 December 2015.

The law provides legal basis for the country’s various counter-terrorism organs, including in the People’s Liberation Army (PLA) and People’s Armed Police (PAP), to identify and suppress individuals or groups deemed to be “terrorists” and requires internet providers and technology companies to provide technical assistance and information, including encryption keys, during counter-terror operations. The law also includes a provision by which the PLA or PAP may seek approval from the Central Military Commission (CMC) to engage in counter-terrorism operations abroad.

Under President Xi two of the CCP’s core interests – the security of the one-party state and “stability” in Xinjiang – have increasingly intersected. The former has received enormous attention through nation-wide wenwei or “stability maintenance” campaigns, while the latter has been addressed through renewed yan da or “Strike Hard” campaigns against manifestations of the “three evils” of “separatism, extremism and terrorism” amongst the Xinjiang’s Uyghur population.

Significantly, some of the key elements of China’s national counter-terrorism strategy, as embodied in the new legislation with its emphasis on a nation-wide, inter-government coordination of counter-terrorism operations and expanded electronic surveillance, (ncluding monitoring of cell phones and internet “firewalls”), have been implemented in Xinjiang for some time.

A major problem for Beijing however is that many of the counter-terrorism policies it has implemented in Xinjiang, and which now appear to be the blueprint for a nation-wide counter-terrorism strategy, have been counter-productive and played a role in stimulating instability in the region. The law’s provision for the PLA or PAP to conduct counter-terrorism operations abroad also holds the potential to embroil Beijing in a range of hotspots around the globe (many of which lay within regions lying astride the OBOR) and tarnish its much-touted principle of “non-intervention”.

The problematic nature of the OBOR, then, lies not only in Beijing’s efforts to construct an alternative vision of world order (as alluded to by Fukuyama) but how that dynamic intersects with ongoing challenges to the party-state in such liminal frontier zones as Xinjiang.

Dr Michael Clarke’s research focus is on the history and politics of the Xinjiang Uyghur Autonomous Region, People’s Republic of China (PRC), Chinese foreign policy in Central Asia, Central Asian geopolitics, and nuclear proliferation and non-proliferation. For the past two years he has also provided advice and testimony to the US-China Economic and Security Review Commission on Chinese policy in Xinjiang and China’s foreign policy in Central Asia and Afghanistan. Image Credit: CC by Martha de Jong-Lantink/Flickr.

From disdain to greater interests: China and the rest of the world.

Written by Daouda Cissé.

China is at the heart of the world economy. China’s economy has never been more strongly connected to the global economy than today. Increasingly, China’s economic success or downturn has impact on the global economy. China’s impact on the current crisis of the global commodity market and the recent turmoil in the Chinese stock market and the consequences for different economies are examples in this regard. Continue reading “From disdain to greater interests: China and the rest of the world.”

The Great Fall of China? Insights from a China bull

Written by James Laurenceson.

If China-economy watchers must be labelled as either bulls or bears, I usually identify as the former. For all the dire headlines, the facts are that the volume of purchasing power being added to China’s economy continues to be the same as in the past (in fact, its increased) and in percentage terms China is still growing at more than double the pace of the US.

But there is one other fact that concerns even a bull like me. It’s the same one that confirms China’s economy is revelling in its ‘new normal’ pattern of growth, for now. China’s growth prospects in 2016 hinge on what happens to consumption. The same was true last year when consumption accounted for two-thirds of GDP growth, up from half in 2014.

This reflects a distinct shift away from the old pattern of growth that emphasised investment and exports. It also makes the analogy of China’s economy being akin to a single engine aircraft a bit too close for comfort. As long as consumption keeps firing, the economy will be able to keep a steady altitude.

But is also means that the possibility consumption could be dragged down by weaknesses in other parts of the economy needs to be taken seriously. With China now accounting for around one-third of global growth, it’s also one of the big risks facing the world economy.

So how significant might these consumption spoilers be?

There’s a natural experiment taking place in China today that sheds some light on this question. That’s because weaknesses in China’s economy are concentrated in particular parts of the country. In 2015, GDP for the country as a whole grew at 6.9 percent. But in the rust belt north-east, where the country’s heavy industry and overcapacity problems are at their greatest, the situation is far worse. Liaoning, for example, grew at just three percent.

For other indicators of economic activity the differences are even greater. Industrial output is growing nationally at 6.1 percent. But in Liaoning, it has actually fallen by 4.8 percent. In Shanxi, it’s down by 2.8 percent. In Heilongjiang, it’s up, but by just 0.4 percent.

The flipside of course is that industrial output is growing faster than the national rate in most other provinces. The obvious question to ask is how are consumption indicators holding up in those provinces that are suffering the most?

The answer provides some reassurance. In Liaoning, where industry accounts for 44 percent of GDP, retail sales are still up 7.7 percent; Shanxi, 5.5 percent; Heilongjiang, 8.9 percent.

To be sure, that means retails sales in all of these provinces are growing at slower than the national rate of 10.7 percent.

Looking at data from all provinces suggests that, on average, a one percentage point fall in the growth of industrial output is associated with a 0.35 percentage point fall in the growth of retail sales. So the concerns about consumption are real but probably not fatal.

The same story is confirmed by household income surveys.  Disposable income per capita is growing at nine percent nationally, while in Liaoning, Shanxi and Heilongjiang it is around seven to eight percent.

Then there’s the latest reading of the Westpac-MNI China Consumer Sentiment Index, released on Wednesday. This showed that consumer confidence fell nation-wide in February compared with January. But the optimists still outnumber the pessimists and the current level is roughly the same level as a year ago. And remember, it’s been consumption driving growth since then.

The most instructive finding though was that consumers in China’s struggling north-east were no less optimistic in their outlook than elsewhere.

Put all that together and China’s economic policy-makers will need to keep their eyes open to ensure that the transition to consumption-led growth remains on track. As for me, I’ll be renewing my membership to the China bulls club for another year.

James Laurenceson is a professor at the University of Technology, Sydney and Deputy Director of the Australia-China Relations Institute (ACRI). Image credit: CC by Jack Versloot/Flickr.

E-commerce as the basis of commodity trading markets in China

Written by Jinmin Wang.

China has witnessed rapid development of e-commerce in the past two decades, which has not only created many new business models, but also transformed some traditional business. One typical example is the digitalization of commodity trading markets.

Recently some of the leading commodity trading markets in China have launched cross-border wholesale e-commerce platforms to facilitate international trade. For example, based on the largest commodity trading market in the world, Zhejiang China Commodities City Group Co., Ltd in Yiwu City, Zhejiang Province, launched cross-border B2B e-commerce platform www.yiwubuy.com in October 2015. Zhejiang China Light Textile City Group Co., Ltd, which manages one of the largest textiles trading market in Asia, acquired cross-border Business-to-Business (B2B) e-commerce platform www.globaltextiles.com last year.

The e-commerce platform matches international textile buyers with the textiles suppliers, particularly the local SMEs. The rapid development of cross-border B2B e-commerce platforms is posing great challenges for the massive bricks-and-mortar market. However, in the short term, physical commodity trading markets are unlikely to be replaced by cross-border B2B e-commerce platforms although their trading functions are weakening.

These cross-border B2B e-commerce platforms, which adopt the online to offline (O2O) business model, can provide one-stop cross-border trading services for global buyers, including product demonstration, online payment, speedy logistics and credit guarantee. The unique advantage of these O2O e-commerce platforms lies in the close integration of online and offline operations of suppliers, who are marketing their products in the booths of physical commodity trading markets. Therefore, their online trading behaviour can be closely monitored and regulated by the e-commerce platform.

The bricks-and-mortar commodity trading markets also serve as an important complement to the online marketplace since they are usually connected with the regional SME industrial clusters, which can supply a great variety of commodities to the online marketplace. A relatively stable and complete supply chain for some commodities has already been formed. In addition, after acting as the key trading hubs in China in the past decade, some of these physical commodity trading markets can offer a series of value-added services for online buyers, including quick and efficient customs clearance, competitive global logistics solution and a perfected credit rating system of suppliers.

The rapid development of cross-border e-commerce has brought about international business model innovation. Market procurement trade plus public overseas warehouses on the basis of physical commodity trading markets is a typical example. For instance, Yiwu City has been approved by Department of Commerce, Zhejiang Province, to establish eight provincial-level e-commerce public overseas warehouses to accelerate the pace of fulfilling online orders.

The development of cross-border B2B e-commerce has been constrained by inefficient international logistics. The establishment of e-commerce public overseas warehouses by some of the local trading companies makes it possible for local vendors or SMEs doing business at the commodity trading markets to send some commodities to overseas warehouses in advance. When they receive online orders from international buyers, they will notify public overseas warehouses to dispatch the ordered goods immediately, which saves time and cost of international delivery.

The future development of these cross-border O2O e-commerce platforms is facing the competition from other cross-border B2B e-commerce platforms in China such as Alibaba.com and 1688.com since some vendors or SMEs at the commodity trading markets are marketing their products at several platforms. Therefore, it is important that these cross-border O2O e-commerce platforms on the basis of physical commodity trading markets keep innovating e-business solutions and offer better online and offline trade services for local suppliers and international buyers.

Recalling the past, Yiwu Telecommunication Bureau launched China Sunbu website to undertake e-commerce on the basis of Yiwu commodity trading market in 2000. But it was not successful due to the bottlenecks of secure online payments and the establishment of a trustworthy online credit system for the international buyers. In contrast, Alibaba.com has witnessed a rapid growth with constant online business innovation and launched a series of cross-border B2B and B2C e-commerce platforms since 1999, becoming the market leader in the e-commerce sector of China.

It is expected that e-commerce will continue to flourish at the cities where commodity trading markets are located such as Yiwu City and Shaoxing City. The bricks-and-mortar commodity trading markets have been playing a very important role in fostering e-business entrepreneurship for the local people. According to 2015 China Taobao Village Research Report, Yiwu City was ranked among the national Top 10 Taobao village clusters. Some cross-border e-commerce villages have also emerged. The integration of the physical and digital markets has enhanced the competitiveness of the commodity trading markets in China.

Jinmin Wang is Assistant Professor at the School of Contemporary Chinese Studies, the University of Nottingham. Image Credit: www.yiwubuy.com

 

Tourism and China’s Development

Written by David Airey,

In our book dealing with the development of tourism in China since 1949 we emphasise the significance of the public-policy making context and point to the ways in which, in this policy environment, tourism, at least during the early years of change after 1978, was often in the vanguard of, and pointed the way to, subsequent developments. As China developed as a market economy, tourism has taken a place similar to that found in other market economies. This brief commentary outlines the development of tourism in China in its policy context drawing attention particularly to the ways in which it pointed to change in China during the transitional period.

The developments are outlined in five distinct policy periods. In period 1, (1949-1978) during Mao Zedong’s time of “Revolutionary and Enthusiastic Socialism” tourism’s existence was essentially as a political and diplomatic vehicle. Domestic tourism hardly existed, outbound travel was confined to that organised by the government, and inbound tourism was limited to visitors who could make a political contribution. This began to change under Deng Xiaoping’s leadership (1978-1997) of “Evolutionary and Pragmatic Socialism” when in period 2 (1978-1985) tourism transited to being viewed as economic activity, in period 3 (1986-1991) it was seen as an economic industry, and in period 4 (1992-1997) it was noted as an important industry. By the time of the collective leadership of “Public and Harmonious Socialism” starting in 1997 tourism has been seen as a multifunctional strategic industry.

These developments set the scene for the rapid growth of all forms of tourism with international visitor arrivals growing from 1.8m in 1978 to 128m in 2014, domestic visitor arrivals from 200m in 1984 to nearly 2000m by 2010, and Chinese outbound tourists from 4.5m in 1995 to about 117m in 2014. Similarly, hotel capacity expanded from 137 hotels in 1978 to 14,000 in 2008, tourism employees from 37,000 in 1981 to approaching 3 billion and foreign exchange earnings from tourism rising from 2.7% in 1978 to 7.2% in 1999 before falling back to 3.3% in 2009 as other sectors of the Chinese economy increased their export activities. China is now the most visited country in Asia and the fourth most visited in the world.

Of course this transformation in tourism is very much a part of the transformation of China itself from a planned economy to a market economy. Notably, it is in part the consequence of the three shifts in political ideology from ‘politics in command’ and ‘class struggle’ to ‘economic development and modernisation’; from ‘planned economy’ to ‘market economy’; and from the central role of government to a more people-based approach. As we put it in relation to the third shift “the quality of life of the Chinese people came in for greater attention and tourism, particularly domestic tourism, was acknowledged as an important element of the quality of life.”

As a first step in the transformation starting in 1978, a key driver was the recognition of China’s shortage of foreign exchange with the leadership identifying tourism as potentially the second largest foreign exchange earner, after the energy sector. With abundant tourism resources China was seen to have appeal to international tourists and as one Chinese leader put it, “tourism was an industry characterized by less investment, quick rewards, low costs and high profits.”  What is more tourism development was seen as a strategic component of China’s economic reform and open door policy with travel permission being extended to all foreigners not just to invited guests and selected tourists. Deng Xiaoping himself was central to this change in welcoming international tourists making six speeches between late 1978 and early 1979 on the economic development of tourism – a record for the leader of any country, let alone one whose people had just emerged from the Cultural Revolution.

However, while the policy-makers turned towards economic development, especially related to foreign exchange earnings, they were not at this stage ready for the development of the economy outside the central plan. As a result hotel development could not keep up with international tourist demand. This provides the background to one of the most interesting features of the role of tourism in the development of modern China. The hotel sector was not in fact considered as a part of the planned economy in the same way as the industrial sector hence when Deng Xiaoping initiated the decision to attract foreign investment for hotels from the developed world, this did not pose a frontal challenge to the planned economy. In this position as a key informant for our study pointed out “The first three projects in introducing foreign investment were all tourism related. They were in air catering, the Beijing Jianguo Hotel and the Beijing Great Wall Hotel.” And with the foreign investment came foreign management styles that went on to have an influence in the transformation of China.

Once started on this course the growth of tourism demand, initially from overseas, inevitably put continued pressure on bed capacity and quality with the resulting imbalances demanding institutional reform. Here the almost experimental Jianguo hotel provided a model of modern management that eventually permeated the hotel sector and beyond, albeit not always smoothly. Supervisory government agencies were often reluctant to implement change. In the debate and tension between the centrally planned model and market-oriented economy, tourism, especially international tourism to China, was very much a representative of the latter.  However, as a relatively small service sector in a system that prioritised primary and secondary industries, tourism’s market potential and strong market growth were not enough to establish a market-oriented tourism policy against the dominance of the planned economy. But its exposure to international market norms did lead to the introduction of another change in China – quality standards in the form of hotel star rating – in an attempt to deal with quality issues.

The shift to a market economy for tourism waited until 1992 when the Socialist Market Economy was announced. This provided the framework for tourism to be developed as a market-driven activity. This meant that the policy for growth in tourism was no longer confined to international arrivals with emphasis on the associated direct benefits to the economy but could now extend also to market driven outbound and domestic tourism. At the same time policy toward tourism also extended to other areas such as the development of a regulatory framework for tourism rather than an administrative one; the recognition of tourism’s role in regional development; the importance of tourism in leisure time and life quality more generally; and the role of tourism in consolidating the socialist system and promoting national coherence with for example ‘Red Tourism’ to sites related to the communist revolution. With this background tourism in China is set to play a comprehensive range of functions.

In summary therefore tourism policy in China has gone from a period when there was virtually no policy to foster tourism, initially to one where (international) tourism was seen as a device for economic development and modernization, then to a long period during which tourism moved to a market orientated position in a China that still followed a planned-economy model and finally to much fuller market orientation embracing incoming, outgoing and domestic tourism. In this process tourism moved from being virtually non-existent, to occupying positions that were pioneering in a country engaged in policy transformation, to arrive at a point in which tourism in China, as in most other jurisdictions, occupies a position of great diversity in the policy space, albeit with a stong Chinese flavour.

Professor David Airey is Emeritus Professor at the University of Surrey.  His research interests include tourism education; tourism policy and organisation; economic aspects of tourism.  In 2007 he became co-chair of the UNWTO Education Council. He retired from his full-time post in 2009 but remains as Professor of Tourism Management at Surrey, combining this with other work both in the UK and overseas.  Image Credit: CC by Chris/Flickr.

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