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reflections

Apr 11, 2018 | 20:52 GMT

6 mins read

At the Boao Forum, Xi Unveils His Vision for the Global Economy

Senior East Asia Analyst, Stratfor
Zhixing Zhang
Senior East Asia Analyst, Stratfor
Chinese President Xi Jinping speaks at the Boao Forum for Asia on April 10, 2018.
(-/AFP/Getty Images)
It can be difficult to separate the important from unimportant on any given day. Reflections mean to do exactly that — by thinking about what happened today, we can consider what might happen tomorrow.
Highlights
  • Since Chinese President Xi Jinping indirectly addressed some of the concerns the United States has expressed in its escalating trade dispute with China, Washington will once again have to choose between escalating and easing tensions with Beijing.
  • The island province of Hainan, home to the town of Boao, is poised to compete with 11 other provinces and cities for China's first free trade port, which will boast a more liberalized trade environment than Shanghai's free trade zone.
  • As Xi renews China's economic opening, he will also concentrate more power under his office in an effort to correct the country's severe socio-economic imbalance.

China's leaders want the world to know that they are serious about economic reform and opening. Speaking April 10 at the Boao Forum for Asia — his first major international event since extending his rule — Chinese President Xi Jinping outlined some of his biggest reform initiatives yet. The changes include measures to liberalize his country's restrictive financial, services and automotive industries; to increase imports by "significantly" lowering tariffs on goods such as automobiles; and to strengthen protections on intellectual property. In addition, Xi announced the establishment of a free trade port that will offer a more relaxed regulatory environment than even the free trade zone in Shanghai. Xi used his measured reform agenda to answer, albeit indirectly, some of the concerns the United States has expressed in its escalating trade dispute with China. But the speech wasn't just Beijing's response to Washington; it was a message to the world about Xi's larger aspirations for his office, and for his country.

Big Picture

The 2018 Annual and Second-Quarter forecasts said that U.S. trade pressure and the spread of protectionism worldwide could compel China to adjust its economy. The country will use tit-for-tat measures to hedge its bets, while also building out its own intellectual property protections, promising to ease its technological transfer requirements and opening up select sectors in its economy to discourage Washington from applying more pressure.

Unveiling his latest reforms at the Boao Forum, Xi positioned himself as the heir to the economic opening that former leader Deng Xiaoping began in China 40 years ago. But Xi is no Deng — at least not yet. Deng led his country to prosperity in the global market after decades of inwardness, isolation and political chaos. The current Chinese president, on the other hand, inherited a much different China. Xi faced a highly challenging economic and political situation when he took power in 2013. As he continues China's push toward economic openness, he will have to contend not only with the risk of social instability thanks to a slowing economy but also with unprecedented levels of pressure from international markets, and from the United States in particular. Concern is growing, meanwhile, over the business environment in China, where the government has ramped up its support for domestic firms and seems increasingly comfortable with the consequences of trying to dictate foreign companies' actions.

And though Xi's reform initiatives may seem significant at first glance, many of them are simply repackaged versions of previous promises. The proposals to open up the securities and banking sectors and to increase foreign access to the auto market, for instance, have been on the table since November 2017. The significance of the carefully crafted, yet vague, reforms lies only in the fact that they are part of a five-year plan to consolidate political power under Xi and the Communist Party as the government forges a path to restructure the economy.

Nevertheless, the announcement represents an acknowledgement on Beijing's part that China's economic transformation is inexorable and that as the country moves up the value chain, it will have to embrace greater global integration. One need look no further than Hainan province to see the central government's logic in action.

Hainan, China's smallest province (and only island province), is in many ways a victim of the country's first phase of economic opening, which concentrated on the coast. Its economy, built largely on tourism and on the precarious real estate industry, has repeatedly collapsed, dragging the province down with it. Furthermore, its geographic isolation and remoteness from the political center have made Beijing leery of the province as a potential rival power base, while depriving Hainan of the opportunities that Southeast Asia's steady economic growth has to offer. Yet the strategic competition playing out in the South China Sea and the country's efforts to reconfigure and further open the economy have kept Hainan from falling off the map. Over the years, the province has benefited from more funding to bolster its infrastructure and financial bases and from policies specifically designed to liberalize its service industry. And today, it is poised to compete with 11 other provinces and cities such as Zhejiang, Tianjin and Fujian to host the new free trade port.

Candidates for the Proposed Free Trade Port

In the meantime, Hainan can enjoy the international spotlight as the home of the once obscure town of Boao and its annual economic forum. The forum strives to promote regional integration and interests in an age of increasingly global trade. As institutions and treaties such as the European Union and the North American Free Trade Agreement began to emerge in the 1990s, the countries of the Asia-Pacific region scrambled to find a similar economic solution. One answer was the Boao Forum for Asia. Leaders from Australia, the Philippines and Japan first conceived of the event in 1998 as an Asian version of the World Economic Forum in Davos, Switzerland, that would overcome the inherent differences of the region's states and support them in the event of another financial crisis. Its original objectives aside, however, the forum has helped embolden China to take a more ambitious view of its role in the world.

Since the first convention in 2001, the Boao Forum has turned from a talk shop among business and political leaders into an important policy forum, at least for China. The event offers Beijing the perfect opportunity not only to conduct the necessary diplomacy to help further expand its sphere of influence but also to convey its economic vision. And as Xi's wide-ranging address revealed — touching on a range of subjects from the importance of free trade to the pitfalls of a Cold War mentality — that vision is a global one. The institutions that first inspired countries in the Asia-Pacific to create the Boao Forum are faltering as more and more world leaders turn toward protectionism. Xi, in turn, is offering up China's quest for openness as a counterexample in defense of free trade.

Of course, whether China practices what Xi preaches is another story. The country's lingering protectionist habits, after all, are still a point of contention for the rest of the world. Equally uncertain is whether Xi's newly announced reforms can ease tensions with the United States. Even if they keep a trade war at bay, the measures will fall short of addressing Washington's concerns about China's trade imbalance, its intellectual property practices and its industrial overcapacity. Beijing's perception of a long-term U.S. campaign to inhibit China's economic development, meanwhile, will only deepen the central government's commitment to achieving technological independence and dominating the high-tech industry.

As he rolls out his carefully orchestrated reforms, Xi will confront a dilemma familiar to his predecessors in ancient imperial China: The strong centralized economic and political systems required to enact revolutionary reforms may by their very nature impede the measures. But between Deng's economic opening up four decades ago and the numerous failed reforms of this century, Xi at least knows what he's up against.

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