Hawke_New Zealand_China_Economics

Written by Gary Hawke.

Like many countries, New Zealand has invested heavily in the concept of the “Asia-Pacific.” It now has to consider if that remains the optimal strategy.

The term “Asia-Pacific” originated in Japan. It is a loose term but centres on the Pacific coastlines of North-east Asia, South-east Asia, Australia and New Zealand, and because of the importance of the US-Japan alliance, it includes the United States. From the foundation of APEC in 1989, it was common to refer to the West Pacific and the East Pacific. Canada was always included and from the 1990s, so was Pacific Latin America, especially Chile and Mexico. “Asia-Pacific” is now best defined by the 21 members of APEC or the mostly overlapping 23 members of the Pacific Economic Cooperation Council, PECC.

China is not challenging the concept of Asia-Pacific as Trump is, but the policies of President Xi Jinping place pressures on it.

Asia-Pacific was always pre-eminently an economic conception. In the politico-security field, the ASEAN Regional Forum and the Council for Security Co-operation in the Asia-Pacific had a focus on the Malacca Straits and the relevant geographic reference extended to India. The concept of “Indo-Pacific” competed with “Asia-Pacific.” But despite India’s “Look East” and “Act East” policy initiatives, and despite India’s FTA with ASEAN and its participation in negotiations for a Regional Comprehensive Economic Partnership agreement (RCEP), with ASEAN, Australia, New Zealand, China, Japan and Korea, India remains too wedded to ideas of public sector-led development and import-substitution industrialization to participate fully in regional norms and processes. The economic unit remains the Asia-Pacific rather than the “Indo-Pacific.”

Economics remains pre-eminent in Asian thinking about the Asia-Pacific. The conventional “community-building” of the last 30 years has largely been subsumed by “connectivity” – the interconnections of infrastructure, physical and digital; interconnections of institutions especially regulatory co-operation, whether to permit effective use of connected infrastructure or more generally; and person-to-person connectivity, including shared histories like the “Silk Road” and shared elements of popular culture. Thoughts about a resurgence of “hard security,” and “strong leaders” substituting national rivalry for the tradition of frequent meetings and search for consensus have some validity, but they owe most to practitioners of the disciplines of International Relations and Strategic Studies trying to wrest public prominence from students of economic interdependence.

The Asia-Pacific faces challenges, the two most obvious being political developments in the US and China.

President Trump challenges conventional thinking in a great many ways. Fundamentally, his actions question whether policy is a matter of intellectual analysis and confrontation of logical implications with empirical observation. He pursues dealmaking, a good bluff having equal status with a fact, and a dubious television presentation being weightier than professional expertise. Uncertainty rules. And uncertainty does not facilitate economic progress.

In more concrete terms, Trump challenges the multilateral trading system, which has been at the heart of Asia-Pacific economic thinking and institutions. The WTO has not been able to adjust international rules and norms to new technology as much as hoped, but it has preserved those rules and norms and adjudicated on disputes about them. Trump has questioned whether that will persist. The multilateral system has been increasingly supplemented by regional and bilateral agreements as groups or pairs of countries have sought closer integration than provided for in the international framework. Trump questions regional agreements, especially in withdrawing from the Trans-Pacific Partnership (TPP), and while his administration claims it wants to pursue bilateral agreements, it also arrogates to itself a power to unilaterally abrogate completed agreements. That is hardly likely to encourage bilateral partners.

The United States has been a key element in the Asia-Pacific world. Asia-Pacific without the US is a new concept.

China has also been central to the concept of the Asia-Pacific. The earliest agendas of APEC were securing the participation of the “three Chinas” – PRC, Chinese Taipei and China-Hong Kong. The early 1990s were unusually propitious, as shown by the terminology of “three Chinas” which at any other time would have met with fierce insistence on the doctrine of One China. China is not challenging the concept of Asia-Pacific as Trump is, but the policies of President Xi Jinping place pressures on it.

Xi Jinping’s “China Dream” and reversing the Century of Humiliation after the Opium Wars of the 1840s are significant because they negate the idea that China will follow the development path pioneered in Europe, America and Japan. China will become richer and more powerful but whereas Deng Xiaoping and his immediate successors allowed it to be thought that its political and social systems would also become more like those of existing developed countries, Xi Jinping leaves no doubt that China will follow its own path. “The End of History” has been negated.

Secondly, Xi Jinping takes seriously a challenge to extend China’s growth experience from the seaboard to Central and Western China, and to make China’s development a vehicle for collaboration with neighbouring countries. China looks westward rather than to the Asia-Pacific. The Belt and Road Initiative is presented as extending via Southeast Asia to Australia, New Zealand, the Pacific and even to the Americas but that is clearly very much subordinate to the main Maritime Silk Road which leads through Southeast Asia to South Asia and Africa as well as to the Belt which links China to Central Asia and Europe. China’s principal development focus is not towards the Asia-Pacific.

China has not abandoned the Asia-Pacific. The importance of economic relations between China and the US are as well understood in China as anywhere else, and China seeks to maintain the bilateral relationship within a regional setting. So its promotion of the Free Trade Area of the Asia Pacific is genuine. So is China’s participation in the ASEAN-led RCEP which was always envisaged as facilitating trans-Pacific economic integration.

While the weakening of Chinese and US commitment to the Asia-Pacific is well known, a less recognised development is the changed stance of Japan. In the middle of 2016, the Japanese Ministry of Economy, Trade and Industry contemplated a strategic outlook built on responding to Japan’s ageing population, ensuring that Japan was the preferred location for technical developments as digitalization reshaped both social services and economic production. It envisaged Japan as a leading partner in Asian collaborative development. The draft thinking gave the US alliance a subordinate place. Contrast that with Japan’s recent advocacy of a TPP without the US (waiting for the US to come to its senses), and specifically a TPP which China would be unable to join for many years.

This Japanese thinking looks destined to be futile. Revising the TPP to reflect the absence of the US would be a major task and the 11-member grouping is unlikely to justify the negotiating cost. For some members, access to the US market was important for incurring the cost of change. Even more important, the economics of TPP always looked to the eventual participation of China. New Zealand and Australian ministers were explicit about this, and it has recently been repeated by a different New Zealand Minister of Trade.

The rhetoric of “high standards” and “twenty-first century agreement” was always more about persuasion than about the contents of TPP. Its provisions have a general theme of strengthening national institutions – rules and processes – to facilitate implementation of commitments, and to make government decisionmaking more transparent to the domestic private sector and to participants in international trade and investment flows. It does not create new barriers to Chinese participation. The labour, environment, and SOE chapters which are often thought to be barriers to China, are likely to be less important than the apparently conventional investment chapter which mandates “national treatment” which is likely to create tension between China’s central and provincial governments. But even that is similar to some of the institutional challenges facing other member governments.

Furthermore, the ambition for TPP to be a testing ground for regional and international rules for economic integration is inconsistent with any thought of TPP as a device for promoting a regional order which essentially excludes China. China is simply too big for any international rule-making to be possible without its participation.

TPP will probably be only a resource which is mined for provisions in other agreements which strike a new balance between national autonomy and international collaboration. RCEP provides the best available route towards an East Asian understanding, and agreement between RCEP and the Pacific Alliance is the best available route to Asia-Pacific collaboration until the US allows FTAAP to proceed.

In the meantime, security issues like the South China Sea and DPRK are problematic mostly for the way they undermine Japanese confidence about China’s direction and prevent a genuinely collaborative approach to Asia Pacific issues generally.

Gary Hawke has participated in NZPECC since 1987 and chaired it from 2002-09. He is a member of the Academic Advisory Council of the Economic Research Institute for ASEAN and East Asia and represents the NZ Institute for Economic Research on its Research Institutes Network. Image credit: CC by New Zealand Trade & Enterprise/Flickr.

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