Contributors

Gregory Chin: Don’t Blame the BRICs!

Don’t blame the BRICs. Roundtable blogger Gregory Chin argues that the trend toward state capitalism is not confined to emerging economies:

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On the Chinese Radar

Experienced insiders on the Canada-China file have noted that, despite the best efforts of Canadian officials, for most of the past two decades we were engaging China more than ever, yet, economically, lower on the Chinese radar than ever.  Despite the Team Canada missions of the previous Chrétien and Martin governments, the broader economic relationship was faltering. 

The first years of the current government did not bring improvements in economic relations.  In some sectors, Canadian companies themselves built growing momentum.  But it was questionable whether government had taken any steps that fudamentally strengthened commercial ties with China. 

Whereas we once were in the top-10 of China’s trading partners (in the 1980s), by the mid 1990s we had fallen behind not only Australia, but also the Italies of the world.  Sure, the Chinese market mattered to us, with China rounding into our number two trading partner (behind only the US, where we have natural geographical complementarities).

But for the Chinese, we were falling on the radar.  Relative to our competitors. More …

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Dear Prime Minister Harper – A Good Time for an Asia Strategy, Part II

It should be said that there has been progress in Canada’s relations with Asia. 

Even without major government support, trade and investment between Canada and China has been growing fast over the past decade – just ask Western Canada.

The new attention on economic ties with India is progress, as well as with Indonesia.  It is less positive that Japan, Korea and ASEAN have fallen off the radar.

It is promising that the government has come to realize that, in terms of Canadian statecraft – just like for other liberal democracies – economic ties have proven as important in relations with China as values.

It is a positive trend that senior Canadian government representatives, including the Prime Minister, have been making more regular visits to China and India, to shore up relations.

However, a qualitative upgrading is needed. Beyond a succession of planned visits, what is needed is a longer-term strategy.

The Asia strategy should be built on five features.

First, it should be anchored on China. The key strategic question is what should we be “pushing for” with China? And with Asia more broadly?

One of the aims must surely be to ensure that Canada secures longer-term access for the key sectors to what is, and will likely remain, the world’s fastest-growing market for the foreseeable future.

We would want to identify which are the key sectors, strategically, from a longer-term perspective.  Debra Steger has called this, “making sure we do our homework” – to think about not only what we want in these negotiations, but also where we’d want to be as a society and economy, 15 to 20 years down the road. Rather than extrapolating simply from where are we today, and moving the yard sticks forward three to five years. This would open up the discussions on energy and the environment with the Chinese to not only what is available immediately, but also shared hedging options in alternative energy solutions.

For Canada, it would be crucial to gain agreement from the highest levels of the Chinese state on the terms and conditions under which Canada and China will further expand economies ties, while Canada also promotes its values.

A key Canadian value – and one that has been passed over in our dealings with China to date in our rights promotion – is “values and ethics in government.” This central feature of Canada’s good governance model is of great interest to reformers in China, under the label of “anti-corruption”. Any advances in this area would bring immediate transparency and public sector accountability benefits to citizens and economic stakeholders alike.

Gregory Chin shows that Canada needs to commit to strengthening relations with China – as the U.S. has –  in Part I of his call for an Asia Strategy. 

John Hancock points to tensions between the U.S. and China and asks, “Whose side – if any – is Canada on?“ 

Second, the economic goal should be gaining preferential access to the Chinese economy.

While ensuring that China adheres to WTO rules will continue to be important, more important for Canada is that the economic playing field for the Canadian side can never really be level in its relations with China, given the inherently asymmetrical nature of the Canada-China relationship.

Achieving a level playing field for Canadian interests, i.e. free access, actually means securing preferential access for Canada in China, especially if the stakeholders are small- and medium-sized Canadian companies. This means going beyond the WTO, and the protection of the multilateral trading system, when dealing with China.

Devising new Chinese procurement and investment rules that are based on transparency and reciprocity is part of the story. Making sure that intellectual property is adequately protected is vital. However, so is gaining preferential access for investment and trade in some sectors that are currently closed or restricted to foreign participants.

Equal access is useful. Preferential access is even better.

However, in order to gain such access, Canadians would probably need to consider whether we would be willing or able to offer any type of preferential access to China. If access to provincial procurement contracts or fed contracts (including defence) has proved to be contentious in negotiations with the EU, with China it would be more so. It would, therefore, be more feasible to think in terms of bargaining over access to Canadian energy, minerals or other raw materials. The Australians have already been pondering such calculations.

At the same time,Canada would want to provide all investors, including Chinese, with a clear set of investment rules so that they could have fair access to some sectors where they currently face restrictions.

Canada should, third, take the lead in promoting changes in the global investment environment that supports growth and stability in the world economy.

Canada would want to backstop its bilateral efforts regarding inward foreign investment with multilateral tools. One step that Canada could take to lead would be to champion a new multilateral (G7?) agreement on investment from sovereign wealth funds and state companies. This would be a useful function that the G7 allies could play for the global public good.

Fourth, Canada should reconsider how its development assistance programs could be restructured and reoriented in relation to Asia’s rising donors, as part of our tool kit of foreign policy.

It is time for Canada to discuss the end of traditional donor-recipient aid relations with China, and to reallocate most of the aid budget to developing new programming where we work with China (and perhaps India) as co-donors, in third countries, to ensure more effective world development. The goal, here, would be building new consensus with the emerging economies, on how to work to reduce income inequality both within each of our countries and regions, and to ensure sustainable economic growth and jobs in this decade and beyond. 

It is also time to reallocate some of the China-related aid resources to those branches of the Canadian government which are more directly responsible for promoting Canadian values and interests in China, in order to strengthen these efforts.

In an article in International Journal (Autumn 2009), I suggested that a fundamental reassessment of Canada’s foreign aid strategy for Asia is needed, and that the reassessment needs to be led by the political leadership and the central bodies of the Canadian government – that a Prime Ministerial Task Force should be struck, to formulate a plan for building a strategic partnership with Asia’s rising donors. This suggestion still holds.

Fifth, effective execution of the longer-term strategy will require that we establish, as the operational norm, that the representatives of Canada’s core leadership will engage directly with the Offices of the most senior levels of the Chinese State. This means at the level of the government Executive – at the Offices of the Chinese Prime Minister and Vice Premiers – and at the senior levels of Party decision-making in China. Without access to these strategic channels, we are left in the Chinese bureaucratic morass.

The overarching foreign policy goal for Canada should be to foster mutual respect and trust in relations with China, as both countries face an increasingly complex and decentralized international system.

Is now a good time to push China? 

Considering the upcoming leadership transition in Beijing, we can expect that there will not be dramatic moves before the new leadership team takes over. 

At the same time, we can expect a high degree of continuity in the aftermath of the transition.

So this would be a good time to start planning – to put in place a new plan and make sure that we’re ready when the new Chinese leadership team takes over.

China would only be the first piece for a new Asia strategy.

Photo courtesy of Reuters.

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Dear Prime Minister Harper – A Good Time for an Asia Strategy

A trip this week to Paris for trans-Atlantic meetings indicated that officials in Europe are getting serious about China, and Asia.  That Europe is searching for leverage with China. 

When Eurozone finance officials gather in Brussels (as they will on November 29) to discuss how they can woo China to invest in the European Financial Stability Facility, they will do so, knowing that Europe’s economic and political credibility are also at stake.

European representatives know that China needs both a stable export market for its goods, and a place to diversify its reserves.  About 25 percent of China’s reserves are in Euros – and Beijing wants security guarantees for its investment.  This gives Europe some leverage.  But are European states prepared to use it, when they are in need of a money infusion?

European officials have yet to devise a long-term strategy for China, but to their credit, at least they are discussing it.  Furthermore, European capitals are considering how to strengthen their ties with the fragile democracies of Southeast Asia, as a counterweight to China’s rise.

 Gregory Chin elaborates on China’s ascent and America’s descent in international affairs. 

Roland Paris argues that U.S. policy toward China is a “politely-veiled” containment. 

Even more important, the U.S. administration has also upgraded its efforts in Asia of late.  This is both understandable and undeniable.  Some might say, “It’s about time.”

Recent outreach from President Obama (at the APEC and East Asian Summits, and in Australia), also from Hillary Clinton, as well as the administration’s efforts to boost the Trans-Pacific Partnership, and the arms-length distance that it has maintained to the European debt crisis indicate that what we’re looking at is more than a series of “Pacific Rim swings.”

Over the past weeks, the US administration has taken concerted measures to harden its stance toward China, from a harder push on the exchange rate and U.S. trade interests, to hard power maneuvers with allies in the Asia-Pacific to firm up the U.S. “hub-and-spoke” security structure in the Pacific.

For Beijing, it definitely feels like what Roland Paris describes as a “politely-veiled containment strategy.”

Behind the US repositioning lays domestic electoral politics.  Barack Obama has decided that he will not leave himself to be painted into a corner as the defender of China by the Republican presidential candidates, including Mitt Romney, who have taken to China-bashing about the Chinese taking US jobs.

At the same time, despite the hardening, US representatives note that the President is committed to strengthening America’s relations with China.  That building a more comprehensive and deeper relationship, including the ‘trust’ that has eluded the two countries to date, is now the priority.  It also means reassuring traditional allies in Asia of the ongoing stake of the U.S. in the region.

There is little doubt that the Obama administration has gotten serious about Asia.

Is it time for Prime Minister Harper to do the same?  To formulate a longer term strategy for engaging Asia, and particularly China?

World circumstances indicate so.

Photo Courtesy Reuters

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Global Leadership at Cannes: China’s Arrival, or What Happened to America?

Much has been made of China’s new global profile at the G20 Cannes.  On the day after the Cannes G20, the lead article in The Guardian wrote that Cannes “showed how power has shifted to Beijing.” The same day, Le Monde reported that China will likely become the second largest contributor to the IMF, following Cannes. The BBC then posted a piece entitled, “How did once-mighty Europe became China’s supplicant.”

The China hype is growing. But the new attention on China only makes sense in relation to the apparent disappearance of U.S. leadership at the G20.

A tipping point may have been reached at Cannes. But it was not that the Europeans approached China and the other emerging economies for support, since these advances started before the Summit. Rather, it was the role of the U.S.

The details of how events unfolded leading into and during Cannes suggest that we are seeing an American state that is now focused heavily on domestic politics, that is increasingly lacking the political will, and arguably the economic capacity, to provide leadership for global economic burden-sharing.

Take, for example, the amount of time and energy that deputy treasury secretary Lael Brainard dedicated at the White House press briefing (at the end of the first day at Cannes, 3 November 2011), to reassuring the U.S. domestic audience that U.S. banks were not overexposed to European debt, and that America’s banks had rebuilt their capital holdings after the 2007-09 global financial crisis. In short, the “point to register” was that American taxpayers would not have the foot the bill for a European bailout, that America’s financial sector is safe.

This response to the European debt crisis bears a marked difference from America’s role in resolving previous cases of sovereign debt restructuring, such as the 1994 Mexican financial crisis, when the Clinton Administration risked annoying U.S. taxpayers by agreeing to shoulder the largest portion of that bailout package. The U.S. administration countered Congressional Republican opposition to loan guarantees by raising funds from its Exchange Stabilization Fund. U.S. support helped Mexico to avoid default.

Also in contrast to the past, the aforementioned White House press briefing revealed that the major objective for the U.S. at Cannes was to make sure that the Chinese agreed to language in the Summit Communiqué about “surplus countries agreeing to increase domestic demand” and agreeing to more “market determined and flexible exchange rates.” If one tracked the statements of the U.S. Treasury Secretary since 2009, one would recognize this goal as another case of elevating U.S. domestic and bilateral trade concerns up to the global multilateral level.

Perhaps we should not be surprised by the U.S. posture at Cannes. As Thomas Wright has noted perceptively, multilateralism and global summitry have been tough sells in the United States for a while.  But for a moment, we thought the Obama presidency might be different.

In fairness, the United States remains the largest contributor to the International Monetary Fund.  And it was reported that the U.S. President Obama did try to encourage German authorities to strengthen the ECB.  It was said that treasury secretary Timothy Geithner also attended all of the European meetings where Euroland officials tried to rework their debt bailout measures for Greece. U.S. representatives shuffled in and out of meetings, trying to nudge and encourage. But without the capacity to offer additional financing, their influence was limited.

What Cannes suggests is that we may be looking at a United States that is starting to suffer a lack of capability and will for global economic leadership. More troubling, we may also be seeing an increasingly inward-looking America, disengaging incrementally from ‘global’ economic problem-solving – and perhaps on the first steps of the steady slope to (economic) isolationism.

Where does this leave the idea of a “G2”?

If by G2 we mean only that the US and China tend to “go bilateral,” and that everyone else will have to live with whatever the Big 2 decide, then we may now be in the era of a G2.

But some mean something more by a G2. That the Big 2 will (hopefully) also provide global leadership by embedding themselves within a G20, or other global institutions, and in so doing, provide needed guidance and direction for global agenda- and priority-setting – to help break international deadlocks, to help build new global consensus. For those with this view of the G2, Cannes was disappointing.

The French G20 Summit suggests that we may not even have a “G2”.

Photo courtesy of Reuters.

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