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President Xi’s Americas Tour Reveals Economic Leverage as a Driver of China’s Foreign Affairs

by | June 10th, 2013 | 10:33 am
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Following his diplomatic tours in Russia, South Africa, and Latin America after taking office in March, President Xi had a meeting with Barack Obama in Southern California’s Rancho Mirage on June 7 and 8. These visits, besides deepening of bilateral relations with these countries, show three main features:

  • China is adopting a less defensive and more proactive strategy, signaling China’s global ambitions.
  • China’s foreign affairs are showing a more comprehensive and global dimension. China’s growing influence in today’s global affairs reveals a capacity to develop its own strategy of containment, in response to the US strategy in the Asia Pacific region.
  • China’s foreign affairs are increasingly based on economic leverage. China continues to develop a strategy of gaining access to energy and commodity resources while providing technical and financial resources in return, as well as building new infrastructure projects. The use of economic leverage in its foreign affairs will lead to not only to greater collaboration across all economic sectors, but also provide gains in education, research and security.

President Xi’s first visit in Russia to consolidate a global counter power

President Xi flattered his Russian counterparts during his first official visit to Moscow. The visit aimed to show the importance attached by the Chinese leaders to Sino-Russian relations, in particular as a way create a counterweight to western countries in international affairs. Besides geostrategic issues, the summit between China and Russia was used to announce an agreement between Russia’s state-owned energy company Rosneft and the Chinese government, with a planned tripling of oil supplies to China in return for a $2 bn loan. Talks between the two countries also progressed on a gas pipeline project.

President Xi’s second visit in Africa reiterated China’s interests in economic partnership without political interventionism

President Xi pledged more investment in Africa in return for privileged access to commodities and energy. He also pledged $20 bn of loans to Africa over the three coming years. Port infrastructure projects were agreed with Congo, and China will build a port and an industrial zone in Tanzania worth $10 bn. The creation of a BRICS development bank was announced during the BRICS summit of Durban in South Africa, which will aim to reduce the reliance of BRICS countries on western financial institutions.

Premier Li adopted an assertive stance against Europe while showing willingness to collaborate with India and Pakistan

Premier Li has expressed China’s strong opposition to EU’s tariff initiatives against Chinese telecommunications products and duties on Chinese solar panels. The Chinese government has recently announced new probes on European wines in retaliation to the duties imposed by the European Commission. Premier Li also visited India and Pakistan in an attempt to ease border tensions and increase cooperation in the fight against terrorism.

President Xi’s Latin America tour ending with Mexico showed a new global approach in Chinese foreign affairs

Before arriving in the US, President Xi visited several countries in Latin America. Once again, the leverage provided by China’s growing economic power allowed led to the signing of several new agreements. An ambitious new program of economic cooperation between China and Mexico is evidence of this new approach to foreign affairs.

Trinidad and Tobago

Trinidad and Tobago is the leading Caribbean producer of oil and gas, with crude and gas production accounting for 40% of its GDP. Energy exports of this country to the US have significantly dropped as the shale gas industry has quickly expanded in the US. Given its high dependence on the energy sector, Trinidad and Tobago sees China as a core customer. China’s growing demand for energy also makes Trinidad and Tobago an appealing partner. Xi’s visit to Trinidad and Tobago was the occasion to improve cooperation of the two countries in the energy sector, in particular oil and natural gas resources. President Xi and Ms Persad-Bissessar agreed to develop cooperation in infrastructure, new energy, telecommunications and agriculture. The Chinese government also agreed to a new $250 mn loan for the construction of a children’s hospital in the region.

Costa Rica

Six years after the establishment of diplomatic relations, China is now the second largest trade partner of Costa Rica. Rich natural resources and underdeveloped infrastructure in Costa Rica represent a potential for both parties to benefit from their rapidly growing economic connections. The Export-Import Bank of China lent $296 mn to Costa Rica to fund the extension of a road between the central part of Costa Rica and the main port of the country. A second loan of $100 mn was given for the purchase of public transportation vehicles. Nine deals were signed and Costa Rica will apply for a new loan to purchase solar panels. The two countries also negotiated the terms of an upgrade for an oil refinery. China is the second biggest trade partner of Costa Rica after the US.

Mexico

Being the second largest economy and trade partner of China in Latin America, according to statistics from Banco de México, Mexico’s imports from China in 2012 amounted to USD 57 bn while exports reached USD 6 bn, leaving a trade deficit of USD 51 bn. During Xi’s stay in Mexico, the two sides announced that their relationship has upgraded to a “comprehensive strategic partnership” from a “strategic partnership“. The two parties signed MOU and MOA agreements related to energy, mining, education and infrastructure. Xi also expressed interest in importing billions worth of Mexican goods like pork, beer, avocados and tequila. In a speech in front of Mexico’s Senate, President Xi highlighted the opportunities to come for Latin America and the growing importance of China for this continent and all emerging countries. He expressed his confidence on China’s capacity to maintain a rapid pace of growth and mentioned the fact that his country will invest more than $500 bn abroad in the next five years. Xi also advocated for a reduction of global protectionism.

Sino – US relations to produce tangible results while differences remain

The informal meeting between President Xi and President Obama was an occasion to openly discuss sensitive issues and prepare future agreements. Besides discussions on current military conflicts linked to Syria and North Korea, China reiterated its positions towards the US on the following issues:

  • No intervention in territorial sovereignty issues implicating China and other countries in Asia or Asia Pacific including Taiwan, Tibet and maritime disputes. The pivot strategy of the US, refocusing defense capabilities in Asia Pacific, remains a concern for China.
  • To reduce protectionism against Chinese products. Currently more than 2000 Chinese products are affected by US import restrictions.
  • To develop trade in high-tech products. There is a common interest to develop trade in this area, to improve productivity in China, allow transfers of technology, and offer new markets to US products.

For the US side, the main points were the following.

  • Cyber-security and intellectual property are the foremost topics raised by the US president, as US political leaders have recently directly accused China of cyber-attacks and theft of trade secrets.
  • Territorial disputes in Asia Pacific were also a concern for the US given treaty obligations with Japan and the Philippines.
  • The development of US external trade and the reduction of trade deficits remain a top priority of the Obama administration. The US President insisted on potential gains from cooperation for the two countries in energy, agriculture and financial services sectors.

Despite these ongoing differences, the meeting produced tangible results. China and the US agreed to organize regular meetings on cyber security and to bar North Korea from having nuclear weapons. One another important outcome was an agreement on the necessity to reduce the production of hydrofluorocarbons, which significantly contribute to greenhouse gases. A China–US push in this area could potentially lead to a reduction by 90 gigatons of carbon dioxide by 2050, principally by persuading emerging countries to get rid of these chemicals. The Montreal protocol, established in 1987, will be used as a framework to reach this target.

The economic leverage of Sino-US relations to be strengthened via four principles 

China and the US have deeply intertwined interests and great potential for increased cooperation. The two countries will continue to strive to develop bilateral cooperation, as the stability and soundness of the global economy hinges on the development of their trade relations. Key goals include:

  • Strengthening trade relations by removing of trade barriers, increasing cross-border direct investment and promoting cooperation in strategic sectors. A focus on intermediate products such as machinery could be a way to bypass the blockages linked to high-tech products.
  • Promoting common strategic sectors. Both the US and China have an interest to collaborate at the level of healthcare, infrastructure, renewable energy and IT sectors.
  • Rebalancing domestic economies. The respective structural policies of the two countries, consisting of a shift toward consumption and services in China and re-industrialization in the US, are complementary and could give an opportunity to develop joint programs to reduce imbalances.
  • Coordinating policy-mix at the global level. The European sovereign debt crisis is not totally over and the world economy remains dependent on the stability of the economic engines of the US and China.

China and the US are establishing a more pragmatic and equal relationship with a focus on increasing cooperation in healthcare, IT products, infrastructure (urban engineering, commute transports, waste disposals), renewable energy, agriculture products, cultural goods and financial activities.