China Policy Institute: Analysis



Taiwan and Free Trade Agreements – Missing the Wood for the Trees?

Written by Michael Reilly.

Apart from city-state entrepôts such as Hong Kong and Singapore, Taiwan is probably the most trade-dependent nation in the world. The WTO calculates its current trade/gdp ratio as 130.5, higher than Korea’s at 104.2, much more so the EU’s of 33.9. So it is no surprise that successive governments have placed a high priority on negotiating or acceding to Free Trade Agreements. The flagship policy achievement of the previous KMT administration was the Economic Co-operation Framework Agreement (ECFA) it signed with China in 2010, which was followed by bilateral free trade agreements with Singapore and New Zealand.

Continue reading “Taiwan and Free Trade Agreements – Missing the Wood for the Trees?”

If the backlash against globalisation hurts China, it hurts global growth too

Written by Tony Makin.

Globalisation has contributed to the growth of China for decades but the rise of protectionism in Western economies could curb Chinese trade and investment.

The demise of manufacturing industries in the United States unable to compete against low priced Chinese imports has lead to retaliatory action, most notably on steel imports. The European Union has reacted similarly.

In Australia there has also been strong opposition to the China Australia Free Trade Agreement, particularly by unions concerned that Chinese companies investing in Australia would bring workers from China. Sentiment also runs strongly against Chinese foreign investment in agricultural land and infrastructure. Continue reading “If the backlash against globalisation hurts China, it hurts global growth too”

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.

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