December 06, 2013

The Third Plenum’s Effect on China’s Foreign Policy

By Yanliang Li

Source: China-U.S. Focus

Last month, Beijing released the full text of its Decision on Major Issues Concerning Comprehensively Deepening Reforms, the major result of the Third Plenum of the 18th CPC Central Committee. The government hopes that an aggressive reform agenda will ensure the future development of the Chinese economy while maintaining the stable governance of the Communist Party, whose legitimacy is tied to continued national development.

While the majority of analysis about the report has focused on potential changes to China’s domestic social and economic policies, the reforms may also hint at important future changes in China’s foreign policy, including critical economic and security issues. While much about China’s future remains uncertain, below are three such changes that seem most likely in light of recent events.

First, China is likely to seek for advanced bilateral trade agreements with the United States, the European Union and Asian countries, as opposed to focusing on large-scale multilateral trade frameworks.

The Decision claims that the market economy should play a “decisive role” in resource allocation. China aspires to promote market transparency, open up financial markets, and improve protection of intellectual property rights. The claim that China will “promote reform by opening up” shows Beijing’s willingness to further integrate into the world economy, and China’s need for more advanced free trade agreements to ensure its future growth. The launch of the Shanghai Free Trade Zone earlier this year represents a willingness to experiment with the effects of further economic openness.

However, many of the region-wide free trade frameworks currently being proposed or negotiated present serious challenges for Beijing. While China has voiced its potential willingness to eventually join the U.S.-led Trans-Pacific Partnership (TPP), the high standard of this agreement is believed to preclude China’s participation any time soon. For this reason, some in China believethat the TPP has been designed to exclude Asia’s biggest economy. To counter the risk of trade and investment diversion, China has been pushing for the Regional Comprehensive Economic Partnership (RCEP), based on the ASEAN+6 model. However, this process is being hindered by China’s diplomatic conflicts with Japan and the Philippines, and is not likely to bear fruit in the near term. Judging by these factors, China’s pursuit of further economic engagement is more likely to result in bilateral agreements.

Even in these cases, some major obstacles lie ahead: the “dominant position” of the state-owned enterprises, - somewhat paradoxically reaffirmed in Third Plenum documents - intellectual property protection, and the role of government procurement will remain big challenges for most negotiations.

Secondly, China is becoming more comfortable at least showing its muscles, pushing ahead its military buildup with new openness.

The recent Decision marks the first time in the post-1978 reform era that military modernization has been mentioned in a Third Plenum report. In the past, China’s has attempted to ease the outside worries on its military buildup, following Deng Xiaoping’s “taoguang yanghui” doctrine (often translated as “hide your light and build your capability”). China claimed that its growing military budget was merely keeping pace with its fast economic growth and that the share of military spending in its annual GDP remained the same, despite considerable international skepticism about discrepancies between declared and actual defense spending. Now, the emphasis on military modernization and improving the PLA’s budget structure in the Decision seems to suggest that, despite its economic slowdown, China will continue to increase its investments in military capabilities.

This move, accompanied by China’s recent revelation of advances in its nuclear submarine fleet, flight tests of its first stealth drone, and the dispatch of its first carrier group for exercises in the South China Sea, suggests that Xi’s administration is more willing than the previous leadership to show off its growing hard power.

It is still not clear how this change might affect regional stability. On the one hand, with its heated territorial disputes with Japan and the Philippines—witness the recent tensions surrounding China’s proclamation of an Air Defense Identification Zone in the East China Sea—China’s active pursuit of military capability may lead to an arms race and regional destabilization. On the other hand, China’s development continues to depend on economic growth, which in Chinese thinking requires a stable regional environment. China will thus need to provide further benefits and assurance to its neighbors. In this vein, the international community may be able to push China to undertake more responsibilities in countering non-traditional security threats like piracy and natural disasters.

Finally, the foreign policy-making process will be more consolidated, with a clearer differentiation between “enemies” and “friends”. Despite early confusion over the National Security Commission that was announced in the document, President Xi’s clarifications suggest that the NSC is built to deal with both internal and external threats, and that “to strengthen the unified leadership of the state security work is an urgent need.” Xi claims that the NSC addresses a broad range of national security issues, to include domestic stability and China’s interests in “sovereignty, security, and development.”

It is not the first time that Xi Jinping has established and led a new body to centralize control over foreign policy issues. In 2012, while still Vice President, Xi took the helm of a “maritime rights leading group” to coordinate over policy on maritime security issues, especially China’s maritime territorial disputes. Since then, more assertive actions have been taken towards Japan, the Philippines and Vietnam.

The consolidation of policy-making on security issues means that China should be able to more deftly apply all the tools of comprehensive national power - military, economic or political- to defend its believed core interests. It may also lead to more effective crisis management. Those changes will ostensibly enable China to maintain an assertive stance on the disputes while avoiding escalation of unexpected crises.

The Decision must also be viewed in the context of a conference held in Beijing in late October, at which Xi promulgated a new policy toward “neighboring countries.” Unofficial reports state that a key element of the new policy is grading China’s bilateral relations based on each country’s favorability to China’s own interests. Although official rhetoric will continue to emphasize win-win cooperation, privately the new buzzwords are “enemy” and “friends”. While it will continue to be tough on its “enemies”, China will also seek for better “friends”: approaching talks with Vietnam to isolate the Philippines, strengthening economic ties with other ASEAN countries, promoting security cooperation with South Korea, and increasing political and energy cooperation with Russia and Central Asian countries.

With all these reforms, the big question will be on implementations: can Beijing further economic marketization and opening despite potential opposition from local governments and state-owned enterprises? Will the NSC be able to work out long-term security strategies rather than being highjacked by competing bureaucratic interests? These open questions, especially on economic reforms, will run up against the deadline of Chinese political symbolism: the goals outlined in the Third Plenum are to be accomplished by the end of the decade, in time for the centennial of the CPC’s founding, in 2021.

Li Yanliang is an intern at the Center for a New American Security (CNAS) in Washington, DC. Li is a graduate of China Foreign Affairs University, and recently completed a MA in International Relations and Pacific Studies at the University of California, San Diego.

  • Yanliang Li