China's trump card in economic diplomacy

China's trump card in economic diplomacy

IN THE two years since Mr Xi Jinping took over China's presidency as its supreme leader, he has managed to consolidate his power as China's real "strongman" after Deng Xiaoping.

Externally, Mr Xi has sought to pursue an active foreign policy to elevate China's international standing.

The main thrust of his foreign policy is to cultivate "good-neighbourly relations" with countries on its periphery and closer political and economic ties with countries afar.

At the global level, China is promoting a "new type of major-country relationship" with the world's sole hegemon, the United States.

Recent months have seen a further rise in Beijing's trajectory.

The pomp and ceremony that accompanied China's hosting of the 22nd Apec summit in Beijing in November last year left an unmistakable message to the world that China is a fast-rising power which deserves a "rightful" regional and global role.

Shortly before this meeting, the International Monetary Fund (IMF) confirmed that China would be the world's largest economy by the end of last year in terms of PPP (purchasing power parity) gross domestic product.

China's present levels of economic production, consumption, trade, capital movements and tourism have already made a huge impact on the global economy.

With its vast foreign reserves of US$4 trillion (S$5.52 trillion), relatively low government debt, persistent "twin surplus" (in both current and capital accounts), and a healthy fiscal balance, the Chinese government has indeed been very "cash-rich".

Thus, Mr Xi at the Apec summit was able to put up China's own kind of "Marshall Plan" by setting up a US$40 billion fund to assist countries in his proposed Silk Road zones in infrastructure development.

This was soon followed by another initiative to establish the new Asia Infrastructure Investment Bank (AIIB), with China providing half of its US$50 billion start-up capital.

Economics has been at the forefront of Mr Xi's new diplomatic

initiatives. For years, China has been pushing its central foreign policy message of "peaceful rise".

But this has been met with some scepticism by its neighbours, given Beijing's sometimes too-assertive stance in handling bilateral territorial disputes and its lack of soft power.

The shift of focus to economic diplomacy is a natural one for China to take, to alleviate the weakness of its geostrategic approach.

To borrow from an economic term, China possesses a stronger comparative advantage in economic diplomacy than other options.

China thus hopes that its stronger geoeconomics can make up for its inherently weaker geopolitics.

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