Why China is a leader in intellectual property (and what the US has to do with it)


Alice de Jonge, Monash University

United States President Donald Trump is not the first to complain about intellectual property (IP) theft by Chinese companies but ironically it was US companies’ use of China’s resources that led to the development of its powerhouse of patents.

In the late 1980s and throughout the 1990s, western firms like Apple and Intel made large profits by investing in China to take advantage of the cheap labour, often at terrific human cost. As China’s economy grew, and the population became wealthier, western firms were then able to profit by selling their products back to the wealthier children of the same labour force which made them.

The Chinese government saw this happening, and wanted western firms benefiting from the Chinese market to give something back. It established a system of approving foreign investments on the condition the businesses involved agreed to partner with local firms and transfer knowledge and skills to the local Chinese market.




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In December 2001 when China joined the WTO it entered into the Agreement on Trade-Related Intellectual Property Rights to bring its IP laws up to a minimum international level. At the same time, the government was keen to transition from being a manufacturing-based economy to an innovation-based economy. This large step forward (as opposed to great leap) would be fuelled by expanding China’s domestically owned intellectual property.

One of China’s more controversial growth tactics has been to focus on fostering IP innovation within China. For example, the government preferences procurement of high-technology products whose IP is owned or registered in China.

This has been called a strategic attempt to commercialise non-Chinese ideas in China, and as a trade barrier potentially contravening China’s WTO commitments, including those under the Trade-Related Intellectual Property Rights agreement.

In 2010 the Obama administration filed a complaint with the WTO over China’s use of its innovation policies in the wind power industry. There’s been other complaints lodged relating to Chinese IP laws, one notably in 2007 argued that China has failed to enforce IP law on pirated products, even when they had been identified by victims and/or the Chinese authorities.

Since the late 1990s, China has been steadily improving the quality of its IP protection and the standard of its IP law enforcement. Many of its preferential policies favouring Chinese IP development have been wound back so as not to discriminate against foreign IP; or at least not so obviously. Other amendments have strengthened IP protection and enforcement, as well as increasing penalties for IP infringements.

In March 2017, for example, the General Provisions of the Civil Law were amended to make clear that trade secrets can be protected under civil IP laws. Amendments to the 1993 Anti-Unfair Competition Law in early 2017 also improved protection for trade secrets.




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China’s most recent, 13th five-year plan, approved by the National People’s Congress in early 2016, envisions China as a world leader in science, hi-tech and intelligent machines:

We will…expedite implementation of national science and technology programs… make breakthroughs in core technologies in fields including next generation information and communications, new energy, new materials, aeronautics, biomedicine and smart manufacturing…

Perhaps the best example of China’s goal of becoming a global leader in artificial intelligence (AI) is in the area of facial recognition technology. These systems, which automatically identify an individual from a database of digital images, are now a part of everyday life in China in areas such as public security, financial services, transport and retail services.

This technology is also just one aspect of a broader system being rolled out by the Chinese authorities. It aims to monitor and influence the whole of Chinese society (individuals and organisations) through social credit ratings.

The global facial recognition industry is forecast to be worth US$6.5 billion by 2021, and its continued growth in China is being spurred by innovative start-ups like Yitu Technology and DeepGlint.

China knows that an essential part of achieving its aim of “science and intelligent technology leadership” is putting in place high quality legal protection for intellectual property. However, as recent reports from the United States have found, there remain many deficiencies in China’s protection of trademarks, copyrights, and patents.

IP enforcement in the case of piracy and other breaches is often inadequate. Either there is no prosecution of breaches, no positive finding that a breach has occurred or the penalty applied is too light to have any deterrence value.

The ConversationHowever, for firms that do take the trouble to properly register their IP in China, protection does exist and enforcement is improving and will continue to improve.

Alice de Jonge, Senior Lecturer, International Law; Asian Business Law, Monash University

This article was originally published on The Conversation. Read the original article.

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Australia should steer clear of the sanction fight between the US and China


Bruce Baer Arnold, University of Canberra

Even though Australia follows the United States in much of its policy, Australian exporters and consumers will be hoping we don’t get caught in the crossfire as the US and China impose sanctions on each other.

US President Donald Trump has the power to impose trade sanctions on China for its disregard of US intellectual property (IP) rights: patents, trademarks and copyright.

These sanctions could make Chinese exports more expensive or prevent access to the US market. China has already indicated it will play tit for tat, imposing its own sanctions.




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Trade disputes are often as much about rhetoric as about reality. China will remind the world that the US began as a pirate nation, harvesting European technological innovation and cultural production (such as work by Byron, Shelley, Dickens and Trollope) on the basis that it was a developing nation and because it could.

Away from the headlines China will likely take the US to the World Trade Organisation (WTO), a global mechanism for resolution of trade disputes. The US has announced it will take China to the WTO over patent violations.

The US will presumably ramp up claims with the WTO against other trading partners (such as India, Indonesia, Thailand and members of the European Union) that appear on its watch list for allegedly pirating US knowhow.

What this means for Australia

Academics such as Matthew Rimmer have astutely highlighted disadvantages for Australian consumers as citizens of an IP colony. This is where we import more than we export in content and pay a premium for work from overseas.

For example, we pay more than our US counterparts for software and hardware that most people take for granted. Our IP regime – in principle and practice – construes many violations of IP rights as piracy.

Our regime is aligned with that of the US. That reflects our traditional defence policy and the significance of US investment. What is good for US companies Microsoft, Pfizer and Disney is deemed to be good for Australia.

But joining in this cascade of retaliation will jeopardise economic growth, foster political unrest in developing economies and penalise consumers. The salient feature of economic growth over the past four decades has been globalisation – trade and investment across borders – rather that fundamental productivity gains through information technology.

Integration with the global economy (alongside the hollowing-out of local manufacturing and the TAFE system) mean that we cannot turn back the clock to the days of Alfred Deakin. Deakin’s grand compromise – the Australian Settlement – promised to protect small farmers, local manufacturers and workers behind walls that restricted migration and imports.

The headline-grabbling sanctions from Trump might also not necessarily be supported. Some business leaders recognise the importance of trade across the global economy and are perplexed by the current policy that seems to be driven by Trump’s late-night tweeting rather than anything coherent.

Where does that leave China?

China’s response has so far been cool. Moderation in the public arena highlights the idiosyncratic nature of Trump’s statements. It also reflects a deeper reality.

China wants to sell high-technology products to Australia, the US and other nations. One is example is 5G telecommunication networks from Huawei.

It wants the advantages that come from exploitation of the global IP regime, with its innovators and entrepreneurs building portfolios of patents and buying leading Western brands. It is likely to emulate what we saw with Japan: from “pirate” to IP citizen, complying with laws, within a few decades.




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Beijing is slowly strengthening the enforcement of IP rules in key regions such as China’s Pearl River Delta. In part that’s an effort to reduce the backlash in its export markets and it’s also a recognition that growth may be a matter of fostering innovation rather than copying or cheap labour.

The ConversationAustralia sources many manufactured items from China, with that production often dependent on US, Japanese and EU IP. Our own economy depends on exports of commodities; universities are dependent on overseas (particularly Chinese) students. So we don’t want to see an increase in international tensions and don’t want a slowing of the global economy because of a cascade of tit-for-tat sanctions.

Bruce Baer Arnold, Assistant Professor, School of Law, University of Canberra

This article was originally published on The Conversation. Read the original article.

China’s quest for techno-military supremacy



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China’s new J-20 stealth fighter was placed into combat service in February.
AAP/EPA

Adam Ni, Australian National University

Chinese President Xi Jinping wants to transform China’s military into the world’s most powerful force by 2050. And he could be on track to do it.

On the opening day of its National People’s Congress in Beijing yesterday, China reported a defence budget of ¥1.11 trillion ($A225 billion) for 2018. That represents an 8.1% increase in its defence budget, compared to a 7% increase last year.

China’s military has modernised rapidly in recent years. Since January alone it has demonstrated new capabilities in stealth fighter jets, drones, naval ships and advanced missiles.

Chinese scientists are also working to develop revolutionary technologies that would change the way wars are fought – and the way we live.




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Challenging US military might

While China still lags the US in overall technological capability, it has narrowed the gap substantially. In the coming decades, it is poised to challenge US technological supremacy in key fields such as artificial intelligence, supercomputing and quantum information science.

What explains China’s rise as a technological power?

First, it has leveraged the innovation of other countries via technology transfers, and the acquisition of foreign companies and talent. It has also been reverse-engineering Western technology, and conducting state-sponsored industrial espionage.

According to one security analysis, between 2006 and 2013 the Chinese military stole confidential data from more than 140 organisations around the world. The problem was so serious that in May 2014, the US Department of Justice indicted five Chinese military hackers for cyber-espionage activities against US companies.




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Second, China has been able to mobilise resources for priority technology sectors and research and development (R&D) projects in a way that many democracies are simply unable to do because of the limits of government power or popular mandate. Large state subsidies, government R&D funding, tailored regulations, market barriers and lax individual rights (such as privacy) protection have given Chinese domestic companies an edge over their foreign competitors.

A good example of this is the rise of China’s internet sector to global prominence, as represented by giants such as Tencent and Alibaba.

Finally, China has substantially increased its R&D expenditure in recent years. From 2012 to 2017, China’s annual R&D spending rose 70.9% to ¥1.76 trillion ($A356 billion). The US National Science Board expects China to surpass the US in R&D investment, in purchasing power terms, by the end of this year.

China’s new superweapons

Here are a few examples of how China is making rapid progress in high-tech fields with military applications.

Hypersonic technology

A Chinese hypersonic gliding vehicle.
Wikimedia, CC BY-SA

Hypersonic technology could one day allow us to travel from Beijing to New York in about two hours, rather than the 13 hours it currently takes. China is developing a hypersonic glide vehicle known as DF-ZF to make its nuclear and non-nuclear missiles extremely fast, manoeuvrable and capable of defeating existing missile defence systems.

To support this effort, China is building the world’s most advanced hypersonic wind tunnel for testing the extreme conditions of supersonic flight. While an operational hypersonic missile is still years away, once developed it would be a formidable weapon. It could also have a destabilising effect on strategic relations between China and other powers by compressing the time window for decision-making in a conflict or crisis situation.

Quantum technology

A quantum computer.
Flickr/Lars Plougmann, CC BY-SA

Another area of China’s focus is quantum technology, which uses subatomic mechanics to process and transmit information in a fraction of the time required by existing technology.

China is making rapid headway in quantum communication, computing and cryptography. In August 2016, China launched the world’s first quantum satellite. This enabled Chinese researchers to conduct cutting-edge experiments in quantum entanglement and teleportation. To win the quantum race, China announced last year that it will build the world’s largest quantum research facility at a cost of ¥76 billion ($A15.4 billion).

Quantum technology would enable the Chinese military to set up virtually unbreakable communication networks. It would also provide it with overwhelming computing power for information operations, such as the decryption of secret communications by adversaries.




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Electromagnetic technology

China is also in the advanced stages of developing an electromagnetic railgun. This supergun uses electromagnetic energy to shoot powerful projectiles over vast distances at incredible speed. These projectiles are aerodynamic and their power comes from the kinetic damage generated by the intense speed at which they travel.

Recent photos circulated on Chinese social media show what is suspected to be an experimental electromagnetic railgun mounted on the bow of the Chinese navy ship. This indicates that China may soon be the first in world to test such a weapon at sea, where it could revolutionise naval combat. In contrast, the US Navy is winding down its railgun research program because of resource constraints and shifting priorities.

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The above examples are only a few among dozens of high-tech fields in which China is making rapid progress. Others include biotechnology, robotics, supercomputing, nanotechnology, advanced materials, space technology, and artificial intelligence. In fact, the Chinese government has identified 17 engineering and science megaprojects that are key to China’s economic and military strength. These include advanced satellites, large nuclear reactors, large aircraft and high-end electronic chips.

China’s continued rise as a technological giant will have profound implications for its military power as Beijing leverages civilian technology for its military. This effort is so important that President Xi considers it a top priority. To underscore this, Xi created a powerful commission under his direct leadership to provide high-level guidance and oversight.

The ConversationMuch hinges on how Beijing chooses to use its new-found military and technological might. Indeed, China’s extensive geopolitical ambitions and increasingly assertive foreign policy are ominous signs that foreshadow the challenges ahead.

Adam Ni, Researcher, Strategic and Defense Studies Centre, Australian National University

This article was originally published on The Conversation. Read the original article.

China, North Korea and trade the key talking points when Turnbull meets Trump



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Malcolm Turnbull will be relieved to have some time away from the Barnaby Joyce affair when he arrives in Washington this week.
Reuters/Jonathan Ernst

Tony Walker, La Trobe University

Malcolm Turnbull was no doubt relieved when the prime ministerial jet lifted off from Australian soil yesterday, bound for the United States and his first formal round of discussions in Washington with an American president.

In Turnbull’s own words – applied to Deputy Prime Minister Barnaby Joyce’s domestic troubles – he will be hoping to leave behind a “world of woe”.

After a steadier start to the new year, the Joyce scandal, involving an affair with a political staffer, has cut the ground from under those improved prospects.

This has been reflected in the latest round of polling, which shows the Coalition slipping back against the Labor opposition. Turnbull’s own approval rating has taken a hit.

For these and other reasons, not least the need to establish a sound working relationship with a new administration, the prime minister will be looking to a circuit-breaker.




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Whether Turnbull’s “first 100 years of mateship” visit to Washington – with state premiers and business leaders in tow – provides a diversion from his domestic woes remains to be seen.

The hokey branding for the mission refers to the centenary of American soldiers fighting under Australian command on the Western Front in the Battle of Hamel in 1918.

In Washington, Turnbull’s discussions with President Donald Trump will focus primarily on China’s rise, the North Korean nuclear issue, and trade.

How to respond to North Korea’s provocations represents an immediate problem. But in the longer term, China’s expanding power and influence constitute the greatest security challenge facing Australia since the second world war.

In his public statements, Turnbull has been alternately hawkish and conciliatory toward Beijing, but it appears his instincts tend to align themselves with an American hedging strategy.

The Turnbull view of how to manage China’s rise was given particular expression in a speech in June 2017 to the annual Shangri-La Dialogue in Singapore. In this speech he called for “new sources of leadership [in the Indo-Pacific] to help the United States shape our common good”.

Turnbull’s Shangri-La speech was forthright for an Australian prime minister. He sharply criticised China’s “unilateral actions to seize or create territory or militarise disputed areas” in the South China Sea.

Beijing denies it, but it is clear it has been constructing a defence perimeter on islands and features in disputed waters. This prompted the following from Turnbull:

China has gained the most from the peace and harmony in our region and it has the most to lose if it is threatened … A coercive China would find its neighbours resenting demands they cede their autonomy and strategic space and look to counterweigh Beijing’s power by bolstering alliances and partnerships, between themselves and especially with the United States.

That speech was followed by increased efforts to expand a quadrilateral security dialogue between Australia, Japan, India and the US.

Turnbull’s visit to Japan in January for high-profile talks with Japanese Prime Minister Shinzo Abe emphasised shared regional security goals with other members of the so-called Quad.

What steps might be taken to further develop security collaboration between Australia, the US, India and Japan will almost certainly be on the table in Washington.

The Trump administration’s appointment of Admiral Harry Harris, the outgoing head of the US Pacific Command, as the ambassador-designate in Canberra is a signal of its intentions.

Harris has a hawkish view of China’s expanding influence in the Indo-Pacific. His participation in a security conference in Delhi in January along with Australian, Japanese and Indian naval commanders was significant in light of stepped-up efforts to bolster maritime collaboration between Quad members.

However – and this is a sizeable “however” – Turnbull needs to be careful not to be sucked into an American slipstream where China is concerned. Australia’s commercial interests dictate prudence in how it positions itself between a rising China and the US under an unpredictable Trump presidency.

The new US National Defence Strategy exposed differences between Canberra and Washington in their views of “revisionist” China and Russia as threats to US hegemony.

Foreign Minister Julie Bishop felt obliged to distance Australia from the Trump administration’s characterisation of attempts by China and Russia to “shape a world consistent with their authoritarian model”. She said:

We have a different perspective on Russia and China, clearly. We do not see Russia or China as posing a military threat to Australia.

Turnbull, for his part, provided a more nuanced response. He said:

We don’t see threats from our neighbours in the region but nonetheless every country must always plan ahead and you need to build the capabilities to defend yourself not just today but in 10 years or 20 years hence.

Australia’s 2016 Defence White Paper and 2017 Foreign Policy White Paper (the two documents should be read in conjunction) sketched out a future in which the country needs to buttress its defence capabilities in light of China’s rise.

Apart from China and related security matters, Turnbull will focus on trade in Washington. He will no doubt try to persuade Trump to revisit his decision to pull the US out of the Trans-Pacific Partnership trade agreement, now rebranded as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

The US withdrawal from the TPP, as one of Trump’s first executive acts as president, was disappointing. A trading bloc in the Indo-Pacific accounting for 36% of global GDP would have served as a counterweight to China’s surging trade and investment ambitions.

The revised CPTPP – including Australia, Japan, Canada, Mexico, New Zealand, Malaysia, Peru, Singapore, Chile, Vietnam and Brunei – remains significant. But clearly the abrupt US withdrawal has lessened its reach.

Significantly, Turnbull will discuss the CPTPP on the eve of the initialling of the agreement among the 11 remaining participants on March 8.

Trump has indicated he might be receptive to arguments for American re-engagement in the CPTPP process. However, this would require the renegotiation of provisions on such contentious issues as dispute settlements, copyright and intellectual property.

It is hard to see this happening in a timely manner. In a sense, the train has left the station.




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The Turnbull-Trump focus on China may also yield discussion about a competing regional infrastructure investment initiative to balance China’s “Belt and Road” program.

The latter is a vast Chinese infrastructure scheme. China is seeking to strengthen its influence in surrounding states by recycling a portion of its foreign exchange reserves in road, rail, port and other such projects.

It is not clear just how Turnbull and Trump might seek to provide alternative sources of infrastructure funding for projects to counter Chinese attempts to buy influence far and wide.

The ConversationSuch a scheme emerged from a pre-summit briefing in Canberra. The fact it is being floated attests to concerns in Washington and Canberra about China’s success in using its financial heft to extend its security interests.

Tony Walker, Adjunct Professor, School of Communications, La Trobe University

This article was originally published on The Conversation. Read the original article.

Asia is set for a difficult year in 2018 – much of it centred around China



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China is increasingly viewed by the United States as a full-spectrum adversary.
Shutterstock

Nick Bisley, La Trobe University

In 2017 we finally realised that the four decades of geopolitical stability enjoyed by Asian countries and societies had come to an end. In 2018, the major patterns that will come to dominate the region will become increasingly clear.

China and the United States worked out a way to live with one another in the 1970s, and that paved the way for the region’s remarkable economic growth. The US actively sought to engage China in the belief that Chinese economic integration with the world would eventually lead to the liberalisation of China’s political system.

But as Xi Jinping’s first five years in office have made clear, that optimism was misplaced. A more affluent China has become more authoritarian, more nationalistic, and increasingly intent on changing the international environment to one it perceives better reflects its interests.

In his first year in office, US President Donald Trump surprisingly played a gentle hand with China. In contrast to this campaign rhetoric, his administration approached China with moderation, focusing principally on establishing a good personal relationship with Xi and trying to garner Chinese help to manage North Korea’s nuclear ambitions.




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That is likely to change in 2018. As signalled in the National Security Strategy and the National Defence Strategy, the US sees strategic competition among major powers as the most important feature of the country’s security environment.

The active engagement of China by the US, even one tempered by a degree of containment, is coming to an end. China is viewed now as a country that seeks to mould the international environment in its own image. Expect the US to increasingly contest China’s power and influence, both in the region and globally.

This is likely to take both military and economic forms, as China is increasingly viewed by the US as a full-spectrum adversary. This will mean some kind of action on what the US perceives as China’s predatory trade policy, as well as a ratcheting up of military steps to push back on Chinese activities, particularly at sea.

China will not respond to the likely increase in American pressure with equanimity. Indeed, one real risk in 2018 is that China will overplay its hand. Its lesson from 2017 is that Trump is a paper tiger. Trump is perceived as being neither able nor willing to match his bombastic words with deeds. China could be emboldened to act provocatively because it miscalculates how the US might respond.

Much attention this year will focus on the power struggle between the US and China.
Reuters/Jonathan Ernst

The disputed islands in the East China Sea are probably the most likely place for this to happen. The South China Sea disputes have a slightly lower risk in 2018, as China has largely achieved its objectives in that area, and while the US would prefer that this hadn’t occurred, it can live with the consequences for the time being.

While Sino-American competition will increase the regional temperature, it is by no means the only way in which great power rivalry will shape the region.

Last year’s Doklam crisis reminds us that the extensive border between China and India is highly contested. Expect India’s ambitions and China’s confidence to lead to further tensions in the Himalayas.

China was slightly surprised by India’s response in Doklam, and will have learned from that occasion. When, and not if, China next tests India, it will probably involve a higher level of military risk.

In late 2017, senior officials from the US, Japan, India and Australia met, reviving the “quadrilateral initiative” of a decade ago.

The move is publicly framed as efforts to coordinate policies of countries that value an open and free Indo-Pacific. In substance, it is about collaborating to limit Chinese influence and sustain the liberal order. The “new quad” will take further steps in 2018 and China will respond in ways that will further heighten regional tensions.

This year will also see a further decline in the stock of liberalism in Asia. For a period in the early 2000s, liberalism seemed ascendant. China joined the World Trade Organisation, democracy was on the march in Southeast Asia, and economic globalisation was seen as an unalloyed good thing.




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No longer. There are no democracies in continental Southeast Asia. Rodrigo Duterte is undermining liberalism in the Philippines, shutting down a vibrant news website, and some fear that the martial law he imposed in the restive south may be expanded across the country in 2018.

Cambodia has stripped away its thin democratic veneer, while Myanmar’s democratisation process remains highly limited. Even in Japan and India, liberal ideas are under challenge from thin-skinned nationalists.

In 2018, liberal ideas in Asia will face an increasingly difficult environment, particularly as the geopolitical competition will encourage erstwhile champions of liberal ideas to put interests ahead of values in order to manage that contest.

This year will sadly see the Rohingya crisis linger on, with insufficient political incentives for international actors to help end the crisis. The alignment of interests between the military and the government in Naypidaw will mean the region’s worst humanitarian crisis in decades will continue.

There is also a good chance that in 2018 we will work out how to live with a nuclear North Korea. The US will ultimately realise that it has no options for managing the crisis – or at least none that carry acceptable costs – and that a nuclear north can be managed. Indeed, a North Korea that feels secure may finally undertake the kind of economic reforms that its populace needs, and which could integrate the isolated country into the regional economy.

The ConversationContested Asia has become a geopolitical and geo-economic reality. In 2018 we will see just how sharp the contests will become. The wounded nationalism of China, the erratic and unpredictable US, and the weak political leadership in many regional powers mean the coming year in Asia is going to be even more challenging than 2017.

Nick Bisley, Executive Director of La Trobe Asia and Professor of International Relations, La Trobe University

This article was originally published on The Conversation. Read the original article.

In the economic power struggle for Asia, Trump and Xi Jinping are switching policies


Giovanni Di Lieto, Monash University

Donald Trump is flexing the United States’ economic muscle in East Asia by introducing a web of new-generation bilateral trade deals to contain China’s challenge. But Beijing is fighting back by political means.

A closer look at the US president’s 2017 trade policy agenda and its ensuing initiatives reveals a pattern. Obama’s trade policy favoured multilateral, comprehensive and ultra-regional deals such as the failed Trans-Pacific Partnership (TPP) agreement, and the frozen Trade in Services Agreement (TiSA). Whereas Trump pushes for bilateral and more targeted deals.

Obama used trade deals, such as one with South Korea, to confront China on the regional status quo. But Trump is reshuffling the cards.

Under Trump, the US Trade Representative (USTR) office prioritises the strict enforcement of US trade laws to counter foreign government subsidies – even if that means undermining the World Trade Organisation and risking trade retaliations.

Trump’s deals in Asia

Beside the deal with Australia, the US has only two bilateral free trade agreements (FTA) in force with Asian countries, namely South Korea and Singapore. In comparison, China has nine FTAs in force in Asia, another four under negotiation, and five more under consideration.

The US boasts it has more than ten Trade and Investment Framework Agreements (TIFAs) with Asian economies. Essentially, these agreements may form the basis for future FTAs or Bilateral Investment Treaties.

This isn’t a trade policy U-turn in Asia but actually a strategic convergence between security and trade.

Previous US administrations have often sacrificed domestic industrial manufacturing to prop up international trade, using it as a bargaining tool to exert security influence over geopolitical partners and rivals. Before Trump, the US openly accepted trade deficits and the rorting of international trade laws as the price paid for advancing its defence policy agenda globally.

Imagine it as a strategic pyramid, with defence on top, trade in the middle and industry at the bottom.

Now with Trump we have a strategic triangle. Industry is the top point, with trade and defence interlinked, on the same level, at the bottom. This evolution is nowhere clearer than in the Asia Pacific region.

Curbing China’s power

China’s goal is to use the Regional Comprehensive Economic Partnership (RCEP) negotiations to accelerate its major Asian infrastructure projects. The most notable of these is the Belt and Road Initiative and the Asian Infrastructure Investment Bank. This initiative promises to compete with the Western-centric World Bank and Japan-led Asian Development Bank.

It’s not an arms race, but infrastructure projects, investments and even humanitarian aid are fuelling Xi’s “major-power diplomacy with Chinese characteristics”. This means clusters of Asian countries are becoming more and more embedded in China’s economic and strategic policy.




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Strangely, Trump’s strategic triangle is making US policy look like China’s, after it opened to the global economy in the 1980s. Conversely, Xi Jinping’s more assertive regional politics is moving China where the US was before Trump – with defence on top of trade and industry.

The US’ bilateral trade moves are also targeting new commercial routes. The US is looking at a free trade agreement with India. This would be a great win for the US, as it would further push India away from the China-led RCEP deal.

Indeed, after a promising start, the RCEP negotiations have stalled mainly because of India’s resistance to eliminating tariffs on imported goods from China. India’s trade deficit with China is on the rise and already exceeds US$50 billion.

A balanced US-India FTA would be a win-win solution for both countries in their quest to muscle out China commercially and politically, especially if it precluded finalising the RCEP.

Adding to this is a recent US trade report which urged allied economies to coordinate an anti-dumping action on China’s industries. This is designed to protect trade secrets and intellectual property rights.
The report pointed out that China systematically:

…imposes requirements that US firms develop their IP in China or transfer their IP to Chinese entities as a condition to accessing the Chinese market.

In exchange for all of this, the US offers maritime security for a close range of key partners such as Australia, Japan, Singapore, South Korea and Taiwan. This explains why the US administration is wooing India to join Japan and Australia in a revived trade-security alliance against China, the so called Quadrilateral Security Forum.

This recent Trump policy is a remake of Nicholas J Spykman’s “Rimland Theory” that framed the US understanding of Eurasian power politics during the Cold War years. Spykman memorably wrote:

Who controls the rimland rules Eurasia; who rules Eurasia controls the destinies of the world.

The ConversationFor one thing, Trump’s restoration of bilateral trade shows a clear direction for the US strategy in Asia. Beyond that, the convergence of trade and security policies has the potential to effectively reshape the US as an indispensable Asian power.

Giovanni Di Lieto, Lecturer, Bachelor of International Business, Monash Business School, Monash University

This article was originally published on The Conversation. Read the original article.

China wants to dominate the world’s green energy markets – here’s why



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xieyuliang / shutterstock

Chris G. Pope, University of Sheffield

If there is to be an effective response to climate change, it will probably emanate from China. The geopolitical motivations are clear. Renewable energy is increasingly inevitable, and those that dominate the markets in these new technologies will likely have the most influence over the development patterns of the future. As other major powers find themselves in climate denial or atrophy, China may well boost its power and status by becoming the global energy leader of tomorrow.

President Xi Jinping has been vocal on the issue. He has already called for an “ecological civilization”. The state’s “green shift” supports this claim by striving to transition to alternative energies and become more energy efficient.

But there are material benefits as well. China’s proactive response has impacted on global energy markets. Today, five of the world’s six top solar-module manufacturers, five of the largest wind turbine manufacturers, and six of the ten major car manufacturers committed to electrification are all Chinese-owned. Meanwhile, China is dominant in the lithium sector – think: batteries, electric vehicles and so on – and a global leader in smart grid investment and other renewable energy technologies.

This is only a start. There are modest projections that just 20% of the country’s primary energy consumption will come from non-carbon sources by 2030. Nonetheless, China’s sheer size means Beijing’s aggressive pursuit of emergent and expanding renewables markets should not be ignored. After all, dominating such markets has strong material benefits, while pioneering a green revolution provides intangible benefits in terms of state image and prestige.

So what are these benefits? First, concerns over environmental degradation are very real in China, owing to issues such as air, food and water pollution, and should be acknowledged. Beijing doesn’t want food and water scarcity or smoggy skies either, whether for altruistic environmental reasons or concerns over its popular legitimacy.

But it is worth also considering the geopolitical implications of climate change leadership. Take the US for example, historically the largest carbon emitter. The country had previously been active in climate policy, if somewhat hypocritical (support for hydraulic fracturing, for instance). But the current Trump administration is forthright in its baseless denial of climate change, having withdrawn from the Paris Agreement. It has also hired climate deniers to head its environmental agencies and other offices of power.

Contrast this with China, which is becoming increasingly proactive. In 2016 it became the largest shareholder in a new Asian Infrastructure Investment Bank which, along with the BRICS-established New Development Bank, invests heavily in green energy. The two institutions are seen as potential competitors to the IMF and the World Bank.

Of course, the situation is not black and white with China “going green” and everyone else sitting idly by. The Shanghai Cooperation Organisation (SCO), which commits to political, economic and military integration across Eurasia, the world’s largest landmass, for instance, comprises of nations with strategic interests in exporting hydrocarbons and coal. However, the same is true for the more environmentally aware Obama administration which advocated forcefully the Trans-Pacific Partnership that would have overriden attempts to establish green industries and constrained signatory states to its agreements with big business ahead of climate change action.

To this end, former president Obama argued that it was necessary for the US to shape the rules of global trade to US benefit. That being the case, what about China? As a major power, it is strengthening its international agency by pioneering these multilateral alternatives, many of which heavily invest in green energy projects. Through development banks or Asian trade agreements, China can provide an alternative vision to an international integration ostensibly based on the universal values espoused by the US and its chief allies.

“Going green”, then, while undeniably necessary, is a useful image or value to uphold as it serves to legitimate Chinese international and regional leadership. In this sense, it mirrors the way G7 nations espouse “democracy” or “freedom”. Going green also happens to be economically viable for those that have the funds to invest, contributing to China’s transition from the world’s manufacturing base to a truly major power.

The ConversationChina’s response to climate change combined with the size of its economy has thrust it to the centre of a global shift. Large-scale funding through Chinese-led multilateral frameworks could see a new energy system emerge – led by China. This would greatly extend its influence on the international political economy at the expense of those major powers unable or unwilling to respond.

Chris G. Pope, Researcher, University of Sheffield

This article was originally published on The Conversation. Read the original article.

What we can expect from China’s economy in 2018



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This year the Chinese Communist Party will tackle some of it’s biggest economic hurdles.
AAP

Alice de Jonge, Monash University

In 2017, we saw the consolidation of China’s power and influence globally, and of Communist Party leader Xi Jinping’s power nationally. This year, the party will try to use this to tackle some of its biggest economic hurdles such as financial risk, environmental pollution and maintaining social cohesion.

A first and overriding priority will be managing and preventing major financial risks within the Chinese economy. China will continue to clean up and tighten controls over its financial sector.

Beijing has already banned risk-laden Bitcoin from its financial system, and the government says it will maintain a “proactive fiscal policy and prudent monetary policy” for 2018.

This is in line with moves earlier in 2017 to curb credit growth and consolidate the country’s 100 trillion yuan (US$15 trillion) financial services asset-management industry under a single regulatory umbrella.

Regulators have also issued a 36-point code of conduct for the country’s private enterprises to follow when investing overseas. This is part of a move to clip the wings of China’s most aggressive global deal makers, firms like HNA Group and Fosun International. These businesses responded enthusiastically to the government’s “going out” policy to link China to the rest of the global economy, launched at the beginning of the century.

On the one hand, China has banned investments in gambling and “sensitive” industries and restricted investments in property, hotel, film and sports. But projects linked to China’s ambitious Belt and Road initiative are actively encouraged. So 2018 should see a continuation of China’s expanding economic influence globally through infrastructure and other major projects.

Beijing’s agenda is clear and the message from the centre is tightly controlled.
How Hwee Young/AAP

Tackling pollution, of all kinds

In line with the party’s focus on stability and risk minimisation is a clear determination to move away from high-speed growth to high-quality growth. “Quality” here means an economy that is cleaner and more user friendly.

The government is trying to reduce pollution. Measures to close down polluting factories and make local officials more accountable for environmental damage are starting to make a difference.

A major component of the shift to a cleaner economy is China’s determination to free itself from any reliance upon carbon imports.
This has potentially major implications for the Australian economy, which has done so well over the past few decades largely because of its commodity exports to China.

China is also no longer willing to accept imports of Australian waste, leaving Australia with the question of how else to deal with its accumulating stockpiles.


Read more: China’s Xi sets his sights on the world


Social stability for economic and political stability

In an unusual move during last year’s annual end-of-year economic convention, the government detailed concerns from the wider public on issues such as online scams, sex discrimination in the workplace and a lack of kindergarten services in certain regions. This reflects the party’s concern with social cohesion.

Maintaining a harmonious society has long been a concern of China’s leaders. In 2018, the anti-poverty campaign – one of Xi Jinping’s pet projects – will accelerate, with millions of rural poor being relocated to new housing with water and power. This will not only boost GDP and economic growth figures, it’s also aimed at promoting support for the party and its leaders.

Chinese leadership’s emphasis on social harmony extends to supporting the party in its policy endeavours. A series of recent measures have been aimed at strengthening party organisations in business and civil society organisations.

In line with existing provisions in China’s Company Law, these measures seek to ensure that all organisations in China (local and foreign, commercial and non-profit) make room within the organisation for the operations of a Communist Party cell. This allows the party to monitor and influence the operations of any organisation.


Read more: Why China is cracking down on overseas investment


The rolling out of a social credit system is also aimed at monitoring and influencing the behaviour of both organisations and individuals. It operates by awarding social credit points for good social behaviour, whether it be corporate philanthropy or an individual picking up rubbish on the kerbside. It also deducts points for bad behaviour, such as traffic law violations, failing to pay bills on time or domestic violence. There are even “blacklists” for the worst offenders.

Beijing’s agenda is clear and the message from the centre is tightly controlled. But the messiness and the unknowns will lie in its local implementation.

China has always struggled, and always will struggle, with the question of how to balance direction from a central government with local implementation for local circumstances.

For example, a recent decree requiring all local areas to move away from coal fired heating, towards natural gas, hit a snag when thousands of houses and schools were left without heating in freezing conditions in northern China. It forced authorities to back-track on implementing the policy.

The key for the government will be to strike a balance between reform and preserving stability. Aggressive reforms will be duly countered by other policies if they are seen as posing risks to economic stability.

The ConversationIf successful, China’s reforms will allow its economy to take the lead in adapting to a dynamic world. But the sheer size of its ambitions (both global and local) also contains the risk that failures, if they occur, could have devastating impacts.

Alice de Jonge, Senior Lecturer, International Law; Asian Business Law, Monash University

This article was originally published on The Conversation. Read the original article.

China steps into soft power vacuum as the US retreats under Trump


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US President Donald Trump and his Chinese counterpart Xi Jinping.
Reuters/Thomas Peter

Asit K. Biswas, National University of Singapore and Cecilia Tortajada, National University of Singapore

Soft power is the ability of a country to shape other countries’ views, attitudes, perceptions and actions without force or coercion. Its importance has been acknowledged for centuries, though the term was only coined by American political scientist and author Joseph Nye in the late 1980s.

A country’s soft power depends on many factors, including its performance, global image and international reputation. A state can use soft power to attract supporters and partners towards its policies, views and actions.

Take, for instance, the case of China’s giant pandas.

In 685 AD Empress Wu Zetian of the Tang Dynasty presented two giant pandas to the Japanese emperor. More than a millennium later, in 1941, Chinese leader Chiang Kai-Shek gifted another pair to the Bronx Zoo in appreciation of the US’s wartime help. Pandas remain a hallmark of Chinese soft power even today.

These animals have become symbols of China’s efforts in wildlife preservation and environmental protection. They are a way for China to communicate a caring and genial approach and culture.

And soft power will remain a key strategy for China into the coming decades. In October 2017, at the governing party’s national congress, President Xi Jinping outlined steps to enhance China’s soft power and make its culture more globally appealing:

We will improve our capacity for engaging in international communication so as to tell China’s stories well, present a true, multi-dimensional and panoramic view of China, and enhance our country’s soft power.

China is stepping into a soft power vacuum created by the US’s new administration. Since Donald Trump was elected president, the US has eschewed soft power. It’s withdrawn from a global climate change agreement; renegotiating a number of bilateral treaties and taken an openly “America first”, and somewhat isolationist stance. Its cordial relations with many traditional allies have become strained.

China has spotted the gap and is attempting to woo many countries whose US relations are wavering. One of China’s key weapons is the “One Belt, One Road” programme, a USD$900 billion initiative that aims to strengthen land and sea transportation links through major investments in transport infrastructure in Asia, Europe and Africa.

This is the equivalent of the US’s Marshall plan, which significantly improved West European countries’ economies after World War II. This help was not altruistic; nor is China’s “One Belt, One Road” programme. Assisting other nations through economic growth is a way of wielding soft power and advancing a country’s global standing. This will be important for China, which needs to counter its reputation as a one party state with hegemonic intentions.

How soft power has featured

China’s economic success, massive infrastructural development, academic and research progress, cultural heritage and success in sports will continue to increase its soft power in the future.

Culture and tourism are always important aspects of soft power. Some 138 million tourists visited China in 2016, a growth of 3.5% over 2015
Similarly, 122 million Chinese visitors went abroad in 2016, a growth of 4.3% over 2015. This increasing interchange of the visitors will give foreigners an insight into Chinese culture, history and its economic might – all of which will further enhance China’s soft power.

China is also emerging as a global leader in terms of academic and research progress. High income countries’ share of global research and development (R&D) expenditure fell from 88% to 69.3% between 1996 and 2013.

China alone filled this gap. It increased its share from a paltry 2.5% to 19.6% in 17 years. Recently, China’s average annual R&D expenditure growth has been 18.3%, compared to an anaemic growth rate in upper and middle income countries of 1.4%.

Increased educational and research activities have ensured that the number of foreign students in China is increasing rapidly. China now ranks third in attracting foreign students, after the US and UK. Its universities are climbing the global rankings. This, along with rapid internationalisation, policies that support foreign students, and affordability of study and living costs compared to the West, means China could soon become the top destination for international students.

And the reverse is also true. Of some 5 million international students pursuing higher education outside their countries, nearly 25% are Chinese. It’s another form of cultural interchange that will contribute to China’s soft power, as are the many Confucius Institutes set up around the world to showcase China’s culture, history, language, economic and social development. The idea is somewhat similar to the UK’s British Councils, Germany’s Goethe Institutes and France’s Alliance Francaise.

China fills gap left by US

American soft power, on the other hand, is now in retreat.

The asymmetry of views between leaders of the world’s two soft powers has made Xi the poster child for globalisation, free trade and international cooperation.

During the Asia-Pacific Economic Cooperation Summit in November 2017, in Vietnam, Trump reconfirmed his “America first” policy. This approach will further decrease America’s soft power.

Meanwhile, Xi is singing from a different hymn sheet. Also in Vietnam, he noted in his speech that globalisation is an “irreversible historical trend” and championed multilateral trading regimes.

He presented a vision of the future that is interconnected and invited “more countries to ride the fast train of Chinese development.”

China’s rise as the world’s leading soft power will not be without hurdles. It must tackle border issues with its neighbours; navigate the current South China Sea disputes and find solutions to its extensive environmental pollution problems, among other things.

The ConversationDespite these challenges, the US’s many missteps and China’s demonstrated social and economic success – as well as its increasing use of soft power – mean that the Asian giant is on the rise.

Asit K. Biswas, Distinguished Visiting Professor, Lee Kuan Yew School of Public Policy, National University of Singapore and Cecilia Tortajada, Senior Research Fellow, Lee Kuan Yew School of Public Policy, National University of Singapore

This article was originally published on The Conversation. Read the original article.

China’s economic power is actually a lot smaller than you think


Peter Robertson, University of Western Australia

China’s economic presence on world markets is actually much smaller than that of the United States of America and smaller than our key three asia-pacific allies combined.

In recent years, reports by financial institutions like the World Bank have claimed China is the world’s largest economy. China’s annual gross domestic product (GDP), when converted to United States dollars using purchasing power parity exchange rates is estimated to be worth around US$19 trillion, surpassing the USA’s GDP of US$17 trillion.


Read More: As China flexes its muscles in Antarctica, science is the best diplomatic tool on the frozen continent


China’s size is a good indicator of potential economic opportunities for Australia. But China’s rise is also creating a growing discomfort in how China will use its economic power. In both Washington and Canberra questions are being asked about how to our balance economic interests with these growing political and security concerns.

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As a large country China may insist on a greater acceptance of its own ideals and priorities as a condition of economic engagement. As a dictatorship, however, its ambitions are unclear and may not align well with Australia and other democratic countries in the region.

Likewise China’s assertiveness in the South China Sea has rekindled interest in security cooperation between the region’s largest democracies, Japan, India and Australia, as well as the United States through the Quadrilateral Security Dialogue.

The concerns raised are real, but are in some ways exaggerated. Specifically, the figure of US$19 trillion is an estimate based on a purchasing power parity exchange rate, which overstates China’s impact on world markets.

This is because the purchasing power parity exchange rate tells us how much money you need in China to be as well off as you are in the US. It is a measure of how big China’s GDP would be if costs of living were the same as the US.

This can be useful, but it is not an indicator of China’s footprint in the world economy.


Read more: Australia is hedging its bets on China with the latest Foreign Policy White Paper


A reasonable measure of a country’s economic footprint on the world economy is how much it could potentially change demand or supply on world markets.

When countries export they have to accept payment based on market exchange rates. Likewise when countries import they must pay in foreign currency based on market exchange rates. This means that to compare China’s market size with the US, we need to convert China’s GDP, measured through China’s currency renminbi, to US dollars, using market exchange rates.

China’s GDP measured at market exchange rates, however, is only US$9 trillion – almost half that of the US.

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This means that the impact China’s economy can potentially have on the world economy is really only about half as much as the US.

The difference in values arises for the same reason that tourists find that their money often goes much further in developing countries. That is if you convert your US dollars to renminbi, you will find that you can purchase a lot more in China than the US, especially in non traded goods and services such as haircuts or street food.

The purchasing power parity exchange rate is the rate that tells you how much you need in China to be just as well off – for example to buy the same basket of goods. It’s very useful rate for tourists and is great way to compare standards of living across countries.


Read More: China’s growing footprint on the globe threatens to trample the natural world


But it’s not a measure of how much you can actually buy. In order to measure the potential influence of China’s economy, it is buying and selling power that matters.

The same line of reasoning also effects how we should think about the asia-pacific partnership of regional democracies. The combined GDP of India, Japan and Australia, measured at purchasing power parity rates is smaller than China.

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But at market exchange rates their combined market size exceeds that of China. This is because just as purchasing power parity exchange rates make China seem too big, they make Japan seem small relative to its real buying and selling power on world markets.

The collective GDP of Japan, Australia, India and the United States represents a market that is around three times larger than China.

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These differences are quite significant and they are important because they affect the way we think about the value of economic opportunities and our security alliances. When interpreted appropriately China is a large country. But it still has a long way to go before it can match the sheer economic weight of the US.

The ConversationSo while China is very important, the market size of regional democracies should not be underestimated.

Peter Robertson, Professor, University of Western Australia

This article was originally published on The Conversation. Read the original article.