Beijing gets the APEC blues

Red roads and blue skies combined in a colourful welcome for delegates at the Asia-Pacific Economic Cooperation (APEC) forum in Beijing earlier this week.

On Monday night the city streets glowed crimson as the region’s leaders made their way to the formal dinner in a spectacular cavalcade (a procession reminiscent of one of the parades in The Hunger Games, ABC News suggested tartly).

But during daylight hours it was the sky getting the special treatment, scrubbed clean of the smog so familiar to Beijing’s long-suffering residents. Thousands of factories have closed down during the summit period and there were no firecrackers at weddings, no fires at city food stalls and even no burning of paper flowers by grieving relatives for their dead.

The clean-up effort seemed to work. This year’s Beijing marathon may have been run in air quality 16 times worse than the World Health Organisation’s safety minimums. But leaders at the summit hotel on Yanqi Lake on the outskirts of the city woke up to skies that netizens were soon calling ‘APEC blue’.

Perhaps realising how the media was picking up on the phrase, Chinese President Xi Jinping mentioned it during his speech at the summit dinner on Monday. “These days the first thing I do in the morning is check the air quality in Beijing hoping the smog won’t be too bad so that our distinguished guests will be more comfortable while you are here,” he told the audience. “Some people call the clear blue sky the APEC blue – beautiful but temporary and it will be gone after the APEC meeting. I hope and believe that with persistent efforts the APEC blue will be here to stay.”

The vast majority of locals are sceptical that the clearer conditions are going to last. And clarity wasn’t wholly forthcoming on a number of other issues at the summit, too. As the leaders convened for their traditional ‘family photo’, it was hard to disguise some of the disagreement among the group, as well as the limited consensus on who is best positioned to lead it.

Xi’s agenda: reassure and inspire

Xi Jinping’s keynote address to business leaders on Sunday had two main objectives. The first was to reassure his audience of the robustness of the Chinese economy, telling attendees that even if it were to grow 7% a year, that it would still rank as one of the world’s strongest.

“Some people worry that China’s economic growth will fall further, can it climb over the obstacles?” he said. “There are indeed risks, but they are not so scary… Even at growth of around 7%, regardless of speed or volume, [we] are among the best in the world.”

Business bosses attending the event lined up to agree with Xi’s outlook. “Slowdown risks aren’t scary at all; it’s expected and a natural evolution in the development of China,” Mark Tucker, chief executive of insurance giant AIA told CNBC, going on to describe Xi’s speech as “very open, clear, progressive, constructive and optimistic, which was a terrific combination”.

But Xi’s second agenda item was probably more important: highlighting how China is going to serve as the crucial engine of economic growth for the region and the wider world. Over the next five years, its imports are projected to exceed $10 trillion, he pointed out, while the number of outbound Chinese tourists is expected to surpass 500 million. Outbound foreign direct investment over the next decade is expected to reach $1.25 trillion too.

The conclusion was a simple one: “For the Asia-Pacific and the world at large, China’s development will generate huge opportunities and benefits and hold lasting and infinite promise,” he said.

Keen to show China’s commitment to the region, Xi then showcased its plans for investment in transport infrastructure, outlining the plans for the “Silk Road Economic Belt” and the “21st-Century Maritime Silk Road” that were first publicised last year.

This “one belt, one road” blueprint got headline coverage in the domestic media. The “belt” is a network of highways, railways and other infrastructure that links China to Central and South Asia, the Middle East and Europe, while the “road” is a maritime route supported by the construction of ports and industrial parks in Asia, the Middle East, Africa and Europe. But China will also contribute a further $40 billion to a new Silk Road fund to finance these plans, according to Xinhua. That follows the establishment last month of the $50 billion Asian Infrastructure Investment Bank, which Beijing also wants to help finance many of the new infrastructure projects.

Chinese newspapers were hopeful that the plans would allow for more efficient use of the country’s $4 trillion foreign exchange reserves, as well as a more rapid spread of its currency – the renminbi – overseas. The level of financial firepower even led some analysts to describe the proposals as China’s “Marshall Plan”, although policymakers have avoided the term, probably aware that Washington’s goal in giving billions of dollars to European countries after the Second World War was explicitly political in intent, primarily to secure their allegiance against communism.

Instead, Xi has stuck to a woollier outline for his own objectives, describing his vision as an “Asia-Pacific dream” based on a “shared destiny” for the region.

While business bosses may have expressed their excitement at Xi’s economic vision, the region’s political leaders were a tougher audience. That’s perhaps not surprising: tensions have been rising over what many interpret as a more assertive Chinese foreign policy.

In fact, the mood was already threatening to be combative at the forum, following Australian Prime Minister Tony Abbott’s vow to confront Russian leader Vladimir Putin over the downing of a Malaysia Airlines flight above Ukraine in July in which 38 Australians were killed.

Previously Abbott had promised to “shirtfront” the Russian president – a term for a shoulder charge in Australian Rules football – when they next met. But he seems to have had second thoughts, perhaps after a warning from a Russian diplomat that Putin is a judo expert. Sensibly, Abbot arrived in Beijing promising “robust discussions” with his Russian counterpart instead.

All of this was a sideshow to the main event, however, as Xi and the Japanese Prime Minister Abe Shinzo met for a grim-faced grasping of hands.

Such was the sour expression over the handshake that onlookers would have been forgiven for thinking that the two men had been sucking on lemons an instant before it was forged. But the encounter was still progress of sorts, following the release of a four-point accord in which the two countries promised new efforts at improving ties in the wake of a long-lasting row over disputed islands that Japan calls the Senkaku, and China the Diaoyu.

One of the fundamental challenges in the squabble is that both regard the islands as indisputably their own territory. So Japan has declined to discuss China’s claims in any form, while China has opted for a course in which it has made unilateral declarations of its rights, as well as imposing airspace defence zones (see WiC218) and marking out exclusive fishing boundaries as a test of Japanese resolve.

That meant that there was little progress from either side in recognising that the other has a different point of view. This week small progress was made as both issued separate statements, with the Chinese version saying that the two “acknowledged that different positions exist between them regarding the tensions”, and the Japanese recognising “different views as to the emergence of tense situations”.

The wording of the accord allows both countries to claim moral victory. The Chinese will be pleased that there is no mention of Japanese sovereignty over the islands, while the Japanese will be content to avoid discussion of any visits to the Yasukuni shrine to Japan’s war dead, a practice that Chinese diplomats have long insisted that Tokyo’s leaders abandon.

What happens next with the Japanese?

Of course, the choreographed scowling further highlights how Xi and Abe are under pressure from hawkish sentiment at home.

Predictably, China’s waspish Global Times saw the agreement as evidence of Abe giving ground. “Now that Japan has agreed to sit down with China to talk about crisis management, it is equal to admitting that the disputes over the Diaoyu Islands’ sovereignty have become the new reality,” it crowed in an editorial. “Abe’s… striving to meet Chinese leaders has shown that his reckless practices can no longer be sustained.”

Yet Japan’s Yomiuri Shimbun denied that the statement amounted to a fuller recognition of the row, arguing that the reference to “different views” did not change Japan’s stance that there is no territorial dispute.

Tokyo had “firmly” maintained its position, the newspaper insisted.

After their face-to-face meeting, the two leaders said they would sponsor a crisis-management system to prevent accidents in disputed seas (a growing risk as ships from the two countries jostle for position) and agreed to resume dialogue gradually on bilateral and regional issues.

Truth be told, the row over the islands looks pretty intractable, and has taken on a political bearing far in excess of their size.

“Historical issues concern the feelings of 1.3 billion Chinese and bear upon regional peace, stability and development,” China’s foreign ministry quoted Xi as warning his counterpart, before expressing his hope that Japan would do “more things to benefit and enhance mutual trust among neighbours”.

“The onus is primarily on Abe” was Xinhua’s more forthright take on events. “It is Tokyo that cast the ice spell on China-Japan relations; it is also Tokyo that called for the Xi-Abe meeting. Now that Abe has talked the talk, he now needs to walk the walk.”

And how about the Americans?

The other key dynamic this week in Beijing was between China and the United States, with President Obama holding direct talks with Xi this week. This year is the 25th anniversary of APEC’s first meeting. One of the missions of the gatherings was to foster trade liberalisation and economic integration across Asia-Pacific. So it must be with some disappointment that its founders look on as the group’s two largest countries hawk competing trade plans for the region.

The Americans are promoting the Trans-Pacific Partnership (or TPP), which would create a free trade zone with $28 trillion in annual economic output – or around 39% of the world total – and include Australia, Brunei, Japan, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.

Pointedly, China hasn’t been asked to join.

Xi didn’t refer to the TPP directly in his remarks in Beijing beyond expressing concern that “various types of free trade agreements [have] mushroomed, creating puzzling choices”. He has been looking to bolster China’s own free trade proposal, the Free Trade Area of the Asia-Pacific (FTAAP). It builds more directly on the APEC base, including itself and Russia, and would boost the global economy by $2.4 trillion by 2025, Xinhua claimed on Sunday.

The same state-backed news organ took aim at international media reports about the battle for trade leadership in the region, scoffing that “allegations of this sort are groundless and betray their advocates’ obsession with confrontation or sensation”. Yet it does seem that China has sensed an opportunity to advance its own agenda. Talks on the TPP have stalled over disagreements between the prospective partners (primarily Japanese efforts to protect its farmers). More broadly, Obama’s standing has been badly damaged by his mauling from the Republicans in this month’s mid-term elections. Even the Chinese media is aware that he is on the fringes of lame-duck territory. “Obama always utters, ‘Yes, we can,’ which led to the high expectations people had for him,” the Global Times noted. “But he has done an insipid job, offering nearly nothing to his supporters… US society has grown tired of his banality.”

But Obama’s predicament is stirring anxiety among other countries in the region that his much-vaunted “pivot” to Asia (see WiC172) is showing signs of unhinging. Concerns first fostered by his no-show at the last APEC summit in Bali (see WiC212) have deepened, with some countries losing confidence in Washington’s will to counterbalance China’s new vitality in the region.

“I think when Southeast Asia looks at his trip and him coming, they’re wondering, you know, ‘Who is Barack Obama now after the mid-term elections?” Ernest Bower, an Asia adviser at the Centre for Strategic and International Affairs in Washington, told the Japan Times. “They’ll be trying to discern whether he has the commitment and the political capability to follow through on earlier commitments.”

That might sound like manna from heaven for Chinese efforts to erode US influence in the region. This message rang loud in calls for a new security structure in May this year, for instance, in which it was made abundantly clear that the Chinese saw no need for American involvement. “It is for the people of Asia to run the affairs of Asia, solve the problems of Asia, and uphold the security of Asia,” Xi insisted.

But the irony is that few of China’s neighbours want to see Washington’s role diminished to anything like the same degree. While they welcome the commercial potential of a new era of Chinese investment and growth, they are a lot more cautious about its political ramifications. Likewise some might be listening to the talk about the Silk Roads of the future with similar reserve, looking back at hundreds of years of history in which these routes served as networks for tribute as well as trade, and as a manifestation of the Middle Kingdom’s imperial reach.

So the dance continues?

The Americans continued to lobby APEC leaders on their TPP proposals during a meeting at their embassy in the Chinese capital.

“During the past few weeks our teams have made good progress in resolving several outstanding issues regarding a potential agreement. Today is an opportunity for us at the political level to break some remaining logjams,” Obama suggested hopefully.

If the Chinese thought it a little ungracious for their visitors to hold a meeting in Beijing to discuss a deal that excludes them, they chose not to mention it.

Instead, they kept themselves busy pushing for their alternative plan, expressing delight when delegates agreed to launch a two-year study into the feasibility of the FTAAP proposals on Tuesday. Xi called it an historic step that reflected the “confidence and commitment of APEC members to promote the integration of the regional economy”.

But parts of the international press speculated that China had wanted to announce more dramatic progress, with suggestions that APEC leaders had in fact kicked into the long grass a deadline for the completion of FTAAP negotiations, which was initially set at 2025.

They may also have dragged their feet by agreeing to a “collective strategic study” for the China-backed plan over the next two years, instead of a “feasibility study” which would have triggered the start of negotiations, anonymous sources told Reuters.

Asked if this was a setback for the Chinese, one commented: “It’s too strong a word. They have to compromise… find consensus. It’s part of a process.” That makes it look like the political jig will continue as each APEC nation works out how to benefit most from the financial and economic changes sweeping the region. In the meantime Chinese trade officials have been looking to do side deals, including a standalone pact with fellow economic heavyweight South Korea that was announced on Monday.

Details are still forthcoming but the terms are expected to include reductions on tariffs for South Korean cosmetics makers, steel exporters and insurers. For China, the promise is more access for its agricultural businesses to the Korean market. But the political message may be as important as the commercial benefits – in short, there’s no harm for the Chinese in demonstrating their heft in bilateral deals as the speculation swirls around the rival proposals for regional trade reforms.

Perhaps on similar lines, Xi signed agreements with Vladimir Putin on Sunday including an understanding to develop a second major route for the supply of Russian gas, following an initial $400 billion deal in May (see WiC239).

The downside of freer trader, and subsequently higher global economic growth, however, is climate change. And this seems to be where Xi and Obama could both claim victory. Towards the end of Obama’s state visit, the US and China unveiled an unexpected agreement to tackle global warming. As part of the pact, the US will cut net greenhouse gas emissions by at least 26% below 2005 levels by 2025, doubling its current pace of carbon reduction. Meanwhile China for the first time has set a timetable for capping its emissions, pledging they will peak about 2030 – with one fifth of its power produced from renewables by 2030. It is also the first time that the world’s two biggest economies, which account for 40% of the global carbon emissions, have agreed to work together. The breakthrough is likely to inject fresh momentum into international climate negotiations ahead of the G20 meeting.

The accord has nevertheless drawn fire for lacking in details. Senior Republicans in Washington, in particular, criticised the accord as damaging to the American economy and a gift to China. The Financial Times also notes in an editorial that global warming pledges too often illustrate the triumph of hope over experience. “There is a nagging suspicion that Mr Xi’s pledge was a sop to enable Mr Obama to emerge from Beijing with a brassy headline. Let us hope that proves wrong,” the FT suggests.

But if these Pacific rivals do follow through, ‘APEC blue’ might carry a whole new meaning…

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