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  • Writer's pictureBrent Yap

China's Economic Strategies: Make Friends, Not War

The China Laws Series. 31 March 2023


Introduction


The Chinese government has outlined clear strategies that foreign friendships and investments will remain as resolute and strong as ever. Today's article will look at some of these strategies and geopolitical investment policies of the Chinese in recent years.


i. The BOAO Forum


The BOAO Forum for Asia is an annual conference that brings together business leaders, politicians, and academics from across Asia and the world to discuss economic and social issues, and has sometimes been touted and referenced as Asia's answer to the World Economic Forum's meetings in Davos. The conference is utilised as a platform for China to showcase its strategies to woo foreign investors.


At the 2023 edition which was just concluded last week, China's newly appointed Premier, Li Qiang was keen to reiterate that 'China is open for business' in his key note address to the Boao Forum attendees and participants which include some of ASEAN's leading nations such as the Singaporean and Malaysian Prime Ministers.


One of the key themes of the conference was China's commitment to openness and reform. Chinese President Xi Jinping has emphasized the importance of "deepening reform and opening up wider" in order to promote economic growth and development. Xi also announced that China would be further opening up its markets to foreign investors, particularly in areas such as services, manufacturing, and agriculture.


To support these efforts, China has implemented a number of measures designed to make it easier for foreign investors to do business in the country. These measures include reducing barriers to entry, simplifying regulations, and improving intellectual property protections. Additionally, China has established a number of Special Economic Zones (SEZs) and Free Trade Zones (FTZs), which offer a range of incentives and benefits to foreign investors.


At the BOAO Forum, China also sought to promote its role as a global leader in the digital economy. The country has made significant investments in areas such as artificial intelligence, 5G networks, and cloud computing, and is home to some of the world's largest technology companies. China has also implemented a number of policies to support the development of its digital economy, including measures to promote e-commerce, online payments, and the sharing economy.


The conference also provided an opportunity for China to promote its Belt and Road Initiative (BRI), a massive infrastructure development project aimed at connecting Asia with Europe and Africa. The BRI includes a number of large-scale projects, such as the construction of ports, railways, and highways, and is expected to generate significant economic growth and development in participating countries.


China has implemented a number of strategies to attract foreign investors and establish external trade agreements. These strategies have been driven by the country's desire to expand its global economic influence and to enhance its role as a major player in international trade.


ii. Special Economic Zones


One key strategy that China has used to attract foreign investment is the establishment of Special Economic Zones (SEZs). These zones are designed to offer investors a range of incentives and benefits, including tax breaks, streamlined regulations, and access to skilled labor. SEZs have been established in a number of locations throughout China, including the cities of Shenzhen, Zhuhai, and Xiamen.


Another strategy that China has employed is the development of its infrastructure. The country has invested heavily in building new airports, highways, and high-speed rail links, as well as expanding its port facilities. This infrastructure development has helped to improve connectivity within the country and between China and its trading partners, making it easier for businesses to operate and transport goods.


iii. RCEP and other Free Trade Agreements


China has also pursued external trade agreements to help support its economic growth. One of the most significant agreements that China has entered into is the Regional Comprehensive Economic Partnership (RCEP). The Regional Comprehensive Economic Partnership (RCEP) is a free trade agreement (FTA) that was signed on November 15, 2020, by the 15 participating countries in the Asia-Pacific region. The RCEP is one of the world's largest FTAs, covering about 30% of global GDP and population. In this article, we will discuss the status of the RCEP, its goals, benefits, and challenges. The RCEP participating countries are Australia, Brunei, Cambodia, China, Indonesia, Japan, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, South Korea, Thailand, and Vietnam. The agreement aims to strengthen economic cooperation between the participating countries by eliminating tariffs and non-tariff barriers to trade, enhancing investment, and promoting economic growth in the region.

The RCEP negotiations began in 2012, and after eight years of intense negotiations, the agreement was finally signed in November 2020. The RCEP aims to create a comprehensive, modern, and mutually beneficial economic partnership in the region. The agreement covers a wide range of areas, including trade in goods and services, investment, intellectual property, e-commerce, and competition policy. The RCEP's goals are to increase trade and investment flows among the participating countries, facilitate the movement of goods and services across borders, and promote economic growth and job creation.


The agreement also aims to promote regional economic integration, reduce trade barriers, and enhance cooperation in the Asia-Pacific region. The RCEP is expected to provide several benefits to the participating countries. For example, it will reduce trade barriers, promote the liberalization of trade and investment, and increase market access for goods and services. The agreement will also help to create a more predictable and transparent business environment, which will encourage more foreign investment in the region.

Moreover, the RCEP is expected to promote regional economic integration by creating a unified market among the participating countries. This will lead to more efficient production and supply chains, which will help to reduce costs and increase competitiveness. The agreement will also help to promote economic growth in the region by creating new business opportunities, increasing trade and investment, and creating jobs.

However, there are also some challenges associated with the RCEP. One of the main concerns is that the agreement could lead to the loss of jobs in some industries, particularly in the less developed countries. The agreement could also lead to increased competition in some sectors, which could negatively affect small and medium-sized enterprises. Another concern is that the RCEP may undermine existing multilateral trade agreements, such as the World Trade Organization (WTO). The agreement could also create new trade imbalances, particularly between the developed and developing countries.


Moreover, there are concerns about the environmental and labor standards in some of the participating countries, which could lead to a race to the bottom in terms of labor and environmental protection.

In conclusion, the RCEP is one of the most significant FTAs in the world, covering a large part of the global economy. The agreement aims to promote economic cooperation, increase trade and investment, and create new business opportunities in the Asia-Pacific region. While the RCEP provides many benefits, it also faces several challenges, including the potential loss of jobs in some industries, increased competition in some sectors, and concerns about environmental and labor standards. Overall, the success of the RCEP will depend on how well the participating countries can address these challenges and implement the agreement's provisions effectively.


In addition to the RCEP, China has also pursued bilateral trade agreements with a number of countries, including Australia, South Korea, and Japan. These agreements typically involve the reduction of tariffs and other trade barriers, making it easier for businesses to sell goods and services in these markets.


To further attract foreign investment, China has also implemented a number of measures to improve its business environment. These measures include streamlining regulations, increasing transparency, and improving intellectual property protections. China has also sought to strengthen its legal system, and has established a number of specialized courts to handle intellectual property and commercial disputes.


iv. Economic Reopening Relationships


China has been actively expanding its economic relationships with countries around the world, including ASEAN, European Union, the United Kingdom, the Middle East, Africa, the United States, and Russia.


ASEAN


China's economic relationship with ASEAN has been growing rapidly in recent years, with ASEAN now China's second-largest trading partner after the European Union. In 2020, trade between China and ASEAN reached $731.9 billion, a year-on-year increase of 7%. The two sides have also signed the Regional Comprehensive Economic Partnership (RCEP), a free trade agreement covering 15 Asia-Pacific countries, including China and the 10 ASEAN member states.


China's investments in ASEAN have also been on the rise, particularly in infrastructure development. Chinese companies have invested in major projects such as ports, railways, and highways, which have helped to improve connectivity and promote economic development in the region. Additionally, China has established a number of Special Economic Zones (SEZs) and Free Trade Zones (FTZs) in ASEAN countries, which offer a range of incentives and benefits to foreign investors.


EU and UK


The EU and UK are among China's largest trading partners. In 2020, China's trade with the EU reached $706.2 billion, while its trade with the UK reached $83.5 billion. However, there have been tensions between China and both the EU and UK, particularly over issues such as human rights, intellectual property rights, and fair competition. In addition, the EU and UK have taken steps to protect their markets from Chinese investment, citing national security concerns.


Middle East


China's economic relationship with the Middle East has been driven primarily by its need for energy resources. The region is a major exporter of oil and gas, and China has become a key customer for Middle Eastern oil. In addition to energy, China is also investing in infrastructure and construction projects in the region, including the construction of ports, railways, and highways.


China has also been actively pursuing free trade agreements with Middle Eastern countries. In 2019, China signed a free trade agreement with the United Arab Emirates, which is the first such agreement between China and a Gulf Cooperation Council member country. China has also expressed interest in joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which includes several Middle Eastern countries.


Africa


China's economic relationship with Africa has been growing rapidly in recent years, with trade between the two sides reaching $208.7 billion in 2019. China is Africa's largest trading partner, and the two sides have signed a number of economic cooperation agreements covering areas such as infrastructure development, agriculture, and mining.


China's investments in Africa have also been on the rise, particularly in infrastructure development. Chinese companies have invested in major projects such as ports, railways, and highways, which have helped to improve connectivity and promote economic development in the region. Additionally, China has established a number of SEZs and FTZs in African countries, which offer a range of incentives and benefits to foreign investors.


United States


China's economic relationship with the United States has been marked by both cooperation and competition. The two sides are each other's largest trading partners, with trade between the two countries reaching $559.5 billion in 2019. However, the relationship has also been strained by trade disputes and tensions over issues such as intellectual property rights and technology transfers.


Russia


China's economic relationship with Russia has been growing rapidly in recent years, with trade between the two sides reaching $107.1 billion in 2019. The two sides have signed a number of economic cooperation agreements covering areas such as energy, transportation, and high-tech industries. Additionally, China and Russia have established a number of SEZs and FTZs, which offer a range of incentives and benefits to foreign investors.


v. A Key and Growing Relationship in the Middle East


In recent years, the economic partnership between the Middle East and China has experienced significant growth and development. China's Belt and Road Initiative (BRI) has played a crucial role in promoting trade and investment between the two regions. The BRI is a development strategy that seeks to connect China with Asia, Europe, and Africa through infrastructure development and investment in key economic sectors.


One of the most significant opportunities for the Middle East in this economic partnership is the potential for increased investment in infrastructure. China has shown a keen interest in investing in infrastructure projects in the Middle East, including ports, railways, and highways. These projects can not only improve connectivity between the two regions but also support economic growth and job creation in the Middle East.


In addition to infrastructure investment, there are also opportunities for increased trade between China and the Middle East. The Middle East is home to abundant natural resources, including oil and gas, which are highly sought after by China. At the same time, China can provide the Middle East with high-quality manufactured goods and services, such as technology and telecommunications.


Another area of opportunity is the development of the digital economy. China is a leader in digital technology, and the Middle East has shown a growing interest in developing its own digital economy. There is potential for collaboration between the two regions in areas such as e-commerce, fintech, and smart cities.


Despite these efforts, there are still challenges that foreign investors face when doing business in China. One of the biggest challenges is the country's complex regulatory environment, which can be difficult to navigate. Additionally, there are concerns around intellectual property theft and other forms of unfair competition.


vi. A Growing Role in the Gulf through BRICS


BRICS is an acronym for an association of five major emerging economies, Brazil, Russia, India, China, and South Africa. The term BRICS was first coined in 2001 by Goldman Sachs economist Jim O'Neill to refer to these five economies, which he predicted would become the world's dominant economies by 2050.


Since then, the BRICS countries have formed a political and economic alliance, aiming to promote cooperation and development among their member countries and with other developing countries. The BRICS countries represent about 42% of the world's population, 23% of global GDP, and over 16% of world trade.


The BRICS alliance has become increasingly important in recent years due to several factors.


Firstly, the BRICS economies have been growing at a faster pace than many developed economies, which has led to the group's increasing economic power and influence. Secondly, the BRICS countries have become major players in international politics, with a shared vision of a more multipolar world order that challenges the traditional dominance of Western powers. The BRICS alliance has also been important in promoting trade and investment among its member countries. The group has established several initiatives to promote intra-BRICS trade and investment, including the BRICS Business Council, which brings together representatives from the private sectors of each country to explore business opportunities and investment projects.


Furthermore, the BRICS alliance has played an important role in promoting development and cooperation among its member countries and with other developing nations. The group has established several development banks and funds, such as the New Development Bank and the Contingent Reserve Arrangement, which aim to provide financing for infrastructure projects and other development initiatives.


The BRICS alliance has also been an important platform for addressing global issues, such as climate change, energy security, and terrorism. The group has held several summits and meetings to discuss these issues and develop common strategies for addressing them.


The partnership between Saudi Arabia and China, as well as the BRICS (Brazil, Russia, India, China, South Africa) group, has been a subject of increasing interest in recent years. Saudi Arabia, the world's largest oil exporter, has been looking to diversify its economy and reduce its dependence on oil, while China has been seeking to expand its economic influence globally. The BRICS countries, on the other hand, have been seeking to strengthen their economic ties with other countries in the developing world.


The partnership between Saudi Arabia and China has been growing steadily in recent years, with the two countries signing several agreements in various sectors. In 2019, the two countries signed a $10 billion deal to develop a petrochemical complex in China, and in 2020, they signed a memorandum of understanding (MoU) on cooperation in the energy sector. The MoU includes cooperation in areas such as crude oil trade, refining, petrochemicals, and natural gas.


China has also been investing heavily in Saudi Arabia's infrastructure, with Chinese companies involved in several major projects in the country, including the construction of a high-speed railway line between Mecca and Medina. The two countries have also been cooperating in other areas, such as renewable energy and technology.


The partnership between Saudi Arabia and the BRICS countries has also been growing in recent years, with the country seeking to diversify its economy and attract investment from emerging economies. In 2020, Saudi Arabia was invited to attend the BRICS summit as a guest country, where it signed several agreements with the member countries. These agreements covered areas such as energy, investment, and technology.


The partnership between Saudi Arabia and China and the BRICS group is expected to bring several benefits to all parties involved. For Saudi Arabia, the partnership offers the opportunity to diversify its economy and reduce its dependence on oil exports. It also provides access to new markets and investment opportunities.


For China, the partnership offers access to Saudi Arabia's vast oil reserves and a strategic foothold in the Middle East. It also provides an opportunity for Chinese companies to invest in Saudi Arabia's infrastructure and other sectors.


For the BRICS countries, the partnership offers the opportunity to expand their economic ties with a major regional power and access to new markets and investment opportunities. It also provides an opportunity for these countries to increase their influence in the Middle East. However, there are also some challenges associated with the partnership. One of the main challenges is the potential for geopolitical tensions, particularly between Saudi Arabia and China. The two countries have different approaches to several issues, including human rights and democracy, which could lead to tensions in the future.


More pertinently in recent months, China successfully brokered a restoration of full diplomatic relations Saudi Arabia and Iran which could reduce tensions in the region. This includes for Saudi Arabian and Iranian reopening their embassies and diplomatic missions within the coming two months.


In conclusion, the partnership between Saudi Arabia and China, as well as the BRICS group, has been growing in recent years, with several agreements signed in various sectors. The partnership offers several benefits to all parties involved, including access to new markets, investment opportunities, and strategic footholds in different regions. However, there are also some challenges associated with the partnership, which will need to be addressed to ensure its success.


The China Laws Series in our ongoing weekly series published every Friday to talk about the different laws in the China concerning businesses, foreign investments and the related laws and regulations promulgated to provide a helpful and reliable guide whether you are seeking to be employed in the China or doing business in the PRC. This is not intended to substitute a qualified PRC's lawyer or legal consultant's legal advice. Our legal partners in the PRC are ready on hand to assist you in all of your enquiries and needs. You can email me at brentyap@vikneshyap.com to know more.






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