The Politics Behind China’s Free Trade Strategy

On April 10, speaking at the Boao Forum for Asia, Chinese President Xi Jinping delivered a paean to economic openness, arguing that “economic globalization is a historical trend that cannot be reversed.”

“I want to clearly tell everyone: China’s open door will not close, but will only open wider and wider!” Xi proclaimed. Opening to the world, he explained was a “strategic choice that must be made” in order to achieve high-quality development in China.

While Xi’s speech was focused on domestic policy changes – reducing tariffs and foreign ownership restrictions, for example – China’s new position as champion of globalization is also reflected in its diplomacy. Most notably, under Xi’s leadership, China has rapidly expanded its interest in free trade agreements. From 2001 (when China acceded to the World Trade Organization) through 2011, Beijing inked seven FTAs (not including agreements with China’s own Special Administrative Regions of Hong Kong and Macau, or with Taiwan, which China also claims as its territory). Since Xi assumed the top leadership spot in late 2012, China has signed an additional six agreements with foreign countries, including two in 2017 alone.

That’s in line with the official exhortation to “speed up implementation of the free trade zone strategy,” as decreed in 2013 at the third plenum of the Chinese Communist Party’s 18th Central Committee. It’s no mystery why China decided to boost its emphasis on FTAs: in 2011, the former Obama administration in the United States launched its “rebalance to Asia,” with the negotiation of a mega-free trade deal called the Trans-Pacific Partnership (TPP) as an important aspect. China, not among the 12 Pacific nations taking part in the TPP, was suddenly intensely motivated to craft and conduct its own free trade strategy in response.

What does that strategy actually entail? Based on official government pronouncements and speeches, the picture that emerges is a free trade strategy designed to achieve political goals as much as economic ones.

Writing the Rules of Trade

The first goal is increasing China’s clout when it comes to setting the rules for global economic engagements. China is far from unique in this; former U.S. President Barack Obama explicitly said, in defense of the TPP: “[W]e have to make sure the United States – and not countries like China – is the one writing this century's rules for the world's economy.”

China’s own FTA strategy, unsurprisingly, is designed as a counter to that Obama-era approach. By actively engaging in FTA negotiations, China can “put forward more of a Chinese voice and pour more Chinese elements into the creation of international rules,” as Xi put it during a study session of the CCP Central Committee in December 2014. A State Council document from December 2015 hits a similar note, saying that pursuing FTAs allows China to “deeply participate in the establishment of international [trade] rules.”

Of particular interest to China is making sure that the generally accepted scope of FTAs does not exceed the limits Beijing has put on its own “opening up.” The recent wave of FTA negotiations – including the TPP, which was resurrected in a moderated form after the Trump administration withdrew the United States – focused not only on tariff reductions and investment protections but on issues traditionally outside the purview of trade talks, such as labor standards and environmental safeguards. In addition, TPP included more stringent requirements than China is comfortable with on areas like state-owned enterprises and government procurement.

The 2015 State Council document noted that FTAs around the world were not only increasing in number, but in scope. The document identified emphases on intellectual property protection, environmental protection, e-commerce, competition policies, and government procurement as “developing trends” in global negotiations. While it urged China to respond through more ambitious agreements, the document also cautioned that Beijing should only do so as befits China’s “development level and governance capacity.”

The ensuing recommendations made it clear that IP protection is the only of these areas China is even moderately interested in tackling during FTA talks at the moment. That means China has a vested interest in pursuing its own network of more traditional free trade agreements, to make sure that broader, more ambitious talks don’t become the standard by default.

One Belt, One Road, One Free Trade Area?

China’s second political goal in “speeding up” FTA talks is to advance the Belt and Road Initiative. This should surprise precisely no one, as the BRI is the central plank of Chinese foreign policy writ large in the Xi era. The official government parlance for China’s free trade approach describes a network of free trade zones that “radiates from the Belt and Road.” In its most ambitious form, this would eventually lead to the creation of a free trade area that encompasses the entire Belt and Road. At the moment, however, this is a remote dream; even getting the 16 members of the Regional Comprehensive Economic Partnership to agree on an FTA framework has been an uphill battle, much less the 70-plus countries China counts as BRI participants.

In the near term, then, China is focusing on forging bilateral free trade agreements with individual Belt and Road countries. Given the scope of the BRI, arguably any FTA China could sign would be related. But many of China’s current and future FTA partners make little sense unless viewed through the BRI lens. The 2017 agreements with the Maldives and Georgia, for instance, will have little to no impact on the Chinese economy, but do shore up relations with two countries in strategic locations. FTA feasibility studies underway with Fiji, Nepal, Papua New Guinea, and Bangladesh serve a similar purpose.

This is not to say that there is no purely economic benefit to China’s FTAs. Chinese officials recognize that the pursuit of ambitious FTAs can serve as an impetus for domestic reforms that might otherwise be difficult to push through. And as China continues its “going global” strategy, there are undeniable benefits to opening up new markets for Chinese companies. Beijing is particularly interested, as the State Council document makes clear, in ensuring equal treatment for Chinese investors abroad, many of whom have faced headwinds as foreign governments look askance at China’s push to become a global leader in innovation and advanced technology.

But economic explanations only go so far. China’s approach to free trade cannot be divorced from its foreign policy ambitions, especially as the country seeks an expanded role abroad under Xi’s leadership.