China Pushes “Silk Road” Regional Trade on Two Fronts

China’s top two leaders went to Southeast Asia last week with a message of regional economic integration, promising to build a “maritime silk road” (haishang sichou zhi lu) across the South China Sea (China News Service, October 3; Ministry of Foreign Affairs website, October 9). A new slogan, it echoes President Xi Jinping’s proposal for a “silk road economic belt” last month in Astana (for more on this, see “China and the SCO: Dead Wood but a Good Platform” in this issue of China Brief), and seems to betoken an effort to deemphasize territorial differences in favor of trade, inaugurating what Chinese statements describe as a “diamond decade” for China-ASEAN relations including cultural exchanges and goodwill as well as trade (Xinhua, October 7).

Xi’s speech described three elements of the maritime silk road: “macroeconomic coordination,” cooperation on financial regulation and the establishment of an Asian infrastructure development bank (Sinotf.com, October 8). Of these, no specifics have been released on the first two, while the third seems to be an extension of the China-ASEAN Investment Cooperation Fund established by Wen Jiabao in 2009. Much like Xi’s Silk Road Economic Belt, the maritime silk road seems to be a statement of intent more than a proposal, an effort to further expand what is already a major trading relationship. A statement issued at the China-ASEAN summit set a goal of doubling annual trade to $1 trillion per year by 2020 (Xinhua, October 10).

The phrase “maritime silk road” is not new—it describes a historical trading system along the coast of Asia and is commemorated by a number of monuments in Chinese port cities—but the current use has not previously been seen at a high level. It appears to have been first used during this administration by Premier Li Keqiang in early September at a trade show in Guangxi province, one of China’s poorest. Speaking there, he described ASEAN trade as an opportunity to develop Guangxi and its neighboring provinces as part of a “southwest corridor to the sea,” framing it as part of his drive to continue the legacy of reform and opening (Xinhua, September 4). The phrase has occasionally been used in the context of economic development in Guangxi, as in a 2010 People’s Daily Overseas Edition article on the opening of the Guangxi Beibu Gulf Economic Zone (August 5, 2010).

Chinese statements have also tied the maritime silk road to China’s strategy for dealing with the South China Sea and world trade; but as with most Chinese policy, it needs to be read in the context of domestic economic planning. Since coming into office, both Xi and Li have made repeated calls to spur growth by “deepening reform and opening,” evoking the legacy of reformist leader Deng Xiaoping. While the most dramatic changes are likely to come from internal reforms, Li’s Guangxi speech described the trade push as a resumption of “opening” (kaifang). Expanding China’s overseas markets will no doubt help the country’s economy weather the competitiveness lost in reform.

However, the trade push has an equally or more important strategic dimension. The Ministry of Commerce website describes it mainly with republished Xinhua stories, suggesting that it has not yet done the work of creating actual proposals (MOFCOM website, accessed October 10). A explanation given by Foreign Minister Wang Yi puts the term in a strategic context, explaining that the speech is “a historic new starting point” for bilateral relations between China and ASEAN countries. Wang highlighted relations with Indonesia and Malaysia as “comprehensive strategic partnerships,” saying that they had agreed to meet regularly with China “to strengthen the top-level design of bilateral relations” (Xinhua, October 9).

On the South China Sea—the main irritant in China’s relations with Southeast Asia—Xi said little of substance, but put heavy emphasis on conveying peaceful intentions: “China and the ASEAN countries should put territorial and maritime differences in storage and focus on respectful and peaceable consultation, the principle of friendly dialogue and peaceful resolution of the disputes, in order to preserve regional peace and stability” (Radio France International Chinese service, October 3). Instead, he stressed what he called a history of friendly people-to-people ties, in his most widely-distributed soundbite quoting an Indonesian proverb to say that “It is easy to make money but hard to replace friends.” Li addressed the issue at slightly more length in a written interview with regional media, saying that “China is ready to actively discuss with ASEAN countries the signing of a treaty on good-neighborliness, friendship and cooperation to consolidate the political foundation for our strategic mutual trust,” but did not suggest plans for addressing the territorial dispute beyond keeping to the Declaration of Conduct and continued negotiation on a Code of Conduct for the sea (MoFA website, October 9). Both leaders, as well as Wang’s comments, focused on bilateral relations, suggesting that they remain reluctant to involve China in multilateral dispute resolution, where it would be at a relative disadvantage.

Nor did China’s foreign ministry report any progress on relations with Japan, dismissing Japanese reports of a handshake between Xi and Japanese Prime Minister Shinzo Abe as “meaningless” (Bloomberg, October 8). However, Chinese foreign policy experts quoted in official media widely described the South China Sea territorial issues as secondary, arguing that “the mainstream of the relationship is friendship, cooperation, and development,” and that “the maritime silk road is a bright spot in South China Sea policy” (China News Service, October 9; China Net, October 4). China’s leaders may be hoping to return to Deng’s strategy for handling territorial questions—avoiding concessions while putting off resolution until circumstances strongly favor China.

A third possible use of the maritime silk road concept is to present an alternative to the Trans-Pacific Partnership (TPP) free trade agreement, currently being negotiated by the United States. It is clear that the TPP negotiations have made China uncomfortable, wanting neither to meet the requirements of the proposed deal nor to be left out of a trading zone. Coverage in Chinese media has focused on problems and shortcomings, with stories in recent weeks warning that the agreement will destroy the Vietnamese footwear industry, drive up the price of medicine in ASEAN countries and that the negotiations are “crippled by inherent problems” (CCTV, October 8; Xinhua, September 20, October 7). However, official statements have avoided condemning the TPP. During the Bali summit, Deputy International Trade Representative Yu Jianhua said that “China is open to all kinds of regional cooperation mechanisms—all roads lead to Rome” (MOFCOM website, October 10). In response to a question about the TPP, however, he offered both praise and mild criticism, remarking that “Free trade agreement negotiations should not be closed up and work separately, but be open and conducive to each other and realize a final integration.” No authoritative source has drawn a parallel between the maritime silk road and the TPP, and indeed few stories in official media have mentioned them together at all. Without concrete offers attached to the “maritime silk road,” it is hard to see how this slogan might make the TPP less attractive—and indeed, China’s softer tone and emphasis on cooperation may convince ASEAN nations that they can have both.