USA Foreign Policy

Is China the new world champion of free trade? Not so fast.

shifts in thought

At Davos, President Xi thrilled the world's economic elites by warning against protectionism and extolling free trade. But economists and Asia experts say China's vision of globalization differs sharply from America's.

China's President Xi Jinping smiles to the audience after his speech at the World Economic Forum in Davos, Switzerland, Tuesday, Jan. 17, 2017.
Michel Euler/AP
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It was the moment Chinese President Xi Jinping had been preparing for.

With the Western architects of the globalized economy seen to be turning inward and questioning the liberal global trading system they had long championed, the leader of the world’s second-largest economy was feted this week as the darling of Davos, the Mecca of globalization where the world’s economic elites gather each year.

With the United States preoccupied with the advent of Donald Trump – who rose to power on the same wave of nationalist sentiment and anti-free-trade fervor that is buffeting Europe – the stage was set for Mr. Xi to claim for China the mantle of leader of the globalized economy.

Though without directly referencing Mr. Trump and his “America first” campaign theme – or Europe and its Brexit woes – Xi thrilled his Davos audience with a keynote address that warned against the siren of protectionism and extolled free trade as an engine of prosperity that floats all boats.

“We must remain committed to promoting free trade and investment through opening up and saying no to protectionism,” Xi said at the opening session Tuesday of the World Economic Forum in Switzerland. “Pursuing protectionism is like locking oneself in a dark room,” he added. “While wind and rain may be kept outside, so are light and air.”

It was the first-ever appearance at Davos by a Chinese head of state, and suddenly the world had a new free-trade icon.

Yet while many international business leaders and political analysts lauded Xi’s speech – some comparing it to the best of Barack Obama – most Asia experts and economists had a far more reserved view. The excitement over Xi and his Davos coming-out party is more a reflection of a world economy adrift without its traditional leaders than it is a genuine shift in economic leadership, they say.

Moreover, they caution that the trading system China espouses and its economic vision – keen on state control and short on individual freedoms and rule of law – are a far cry from the free-market economics and rules-based trading system the United States has led for seven decades.

“What we have right now is a groping around that comes from the perception that the United States has left the world stage and retreated from its leadership of the global economy,” says Phil Levy, a senior fellow on global economics at the Chicago Council on Global Affairs. “Others are auditioning for the role, as we saw with Xi Jinping,” he adds, “but it’s far from clear they’re ready for it.”

Hunger for leadership

Others say the Davos spotlight on Xi was as much a reflection of a world hungering for leadership as it was a changing of the guard for the liberal economic system.

“We are just as busily granting Xi this robe as he is trying to don it,” says Dean Cheng, a senior research fellow at the Heritage Foundation’s Asian Studies Center in Washington. “But before anyone jumps to grant China the role of leader of globalization, it’s important to realize that China’s is a radically different vision of globalization than what the United States has promoted.”

The Western retreat from leadership of the global economy seems almost tailor-made for a China that under Xi has been laying the groundwork for a larger economic leadership role and expanded global influence.

Last year, Xi launched the Asian Infrastructure Investment Bank to rival the World Bank and the Asian Development Bank. That initiative followed Xi’s "One Belt, One Road" trade and development project designed to expand China’s influence westward.

China also touts the Regional Comprehensive Economic Partnership as a replacement for the foundering US-led Trans-Pacific Partnership (TPP) that candidate Trump ripped as bad for America and vowed would never see the light of day.

Those projects and a slew of bilateral free-trade agreements paved the way for Xi’s triumphant foray into Davos, especially coming as they have as the global economy’s traditional leaders pull back and turn inward. But some close China watchers say nothing about those initiatives changes the fact that Xi is punching well above China’s weight.

“Xi gave a masterful speech to the assembled global elites who were hungry for it, but the reality is that he’s making a bid for a leadership role that is beyond China’s abilities to play,” says Michael Auslin, Asian studies scholar at the American Enterprise Institute in Washington.

To legitimately lay claim to that role, Dr. Auslin says, China would need to have a currency that was trusted as a global reserve currency, and it would need to be more of a top-tier global marketplace, like New York or London. And, he adds, it would need the benefit of an “absolute ironclad rule of law” that inspired full confidence in China’s economy and commercial playing field.

“But by and large foreign businesses find it difficult to compete fairly in China’s market, it’s rife with intimidation, and then there’s the well-known stealing of intellectual property,” he says. China has also been hit by significant capital outflows, and its growth rate has fallen from past lofty heights – something Xi acknowledged in speaking of lower growth as China’s “new normal.”

Trump zeroed in on China's unfair trade and investment practices during the campaign, and this week his Commerce secretary nominee, billionaire investor Wilbur Ross, pledged in confirmation hearings that he would "level the playing field " with China.

Top-down model is a disqualifier

The Chicago Council’s Dr. Levy says Xi’s failure to carry out the economic reforms he has promised suggests China may not be as ready to provide dynamic global economic leadership as the Davos speech would suggest.

“There’s an all-too-consistent failure to follow through on reform, especially if it deals with liberalizing the economy,” Levy says, citing the continuing role of China’s state-run enterprises.

Beyond that, it’s China’s promotion of a top-down, state-run economic model that is most likely to stifle its bid for global leadership, says Auslin, who just published “The End of the Asian Century.”

“We need to keep in mind that the globalized economy Xi envisions has none of the individualism or the freedom of thought and of information that we in the West see as being at the very heart of economic strength and prosperity,” Auslin says.

Xi may be playing hard for the role of global economic leader, especially at a moment when he sees before him an empty stage. But the question may be whether the vision China offers is really one that would take the world forward.

“Xi’s experience suggests he remains favorable to state control and promotes more superficial trade deals that focus on things like tariff-cutting, and that’s fine. But there’s clearly less enthusiasm for the kind of in-depth liberalization that modern businesses tend to value and consider the way to building prosperity,” Levy says. “Xi says all the right things,” he adds, “but I highly doubt that what we saw in Davos was his conversion.”