As US President Barack Obama and other heads of government arrived in Beijing on Monday for the 21-economy Asia-Pacific Economic Cooperation summit meeting, China unveiled a series of economic measures aimed at tying the region more firmly to itself - and potentially weakening Asia's ties to the United States.
China and South Korea concluded a wide-ranging trade agreement on Monday, deepening a trade relationship that has already become South Korea's largest, surpassing its commerce with the US. Top officials from Australia, which also trades more with China now than with the US, announced that they were on the verge of their own trade agreement with Beijing and could finish a deal in the next few days.
China's central bank unexpectedly pushed up the value of the country's currency, the renminbi, on Monday morning in the sharpest single-day move in more than four years, making goods from other Asian nations, as well as from the US, more competitive in the Chinese market. And Chinese securities regulators announced on Monday morning that they would begin allowing investors in Shanghai and Hong Kong to trade shares on each other's stock markets on November 17, a step that could strengthen both cities' roles as financial centres in Asia.
Coming after President Xi Jinping announced on Sunday a $40 billion Silk Road fund to invest in infrastructure and natural resources development in China's neighbours, the initiatives on Monday amounted to a comprehensive vision for binding economies in the region more firmly to China, already the biggest trading partner for many Asian nations.
"It's a real attempt to exert leadership and to project a responsible image in wanting to lead the whole of Asia - they're all very much linked politically," said Patrick Low, who was the chief economist of the World Trade Organization for many years and is now the vice president for research at the Fung Global Institute, a nonprofit research group in Hong Kong.
China already accounts for 21 per cent of South Korea's two-way trade and 23 per cent of Australia's two-way trade, making it the largest trading partner for both of them.
China also tried to rally support over the weekend for its vision of a trade agreement that would encompass all of Asia and the Pacific. American officials have been pushing a narrower agreement, called the Trans-Pacific Partnership, that would include only 12 countries - China not among them.
The American plan would require each country to open even some of its most fiercely protected markets to foreign goods and services, which could produce a surge in trade. China has been vague on the details of a broader pact, saying that an initial study should be done over the next two years.
But most economists expect that a Chinese-led deal would be much more modest in terms of letting each country continue to protect some industries from imports.
Many of China's neighbours are already watching cautiously the rise of its economic muscle, but few other than the US seem worried about it. President Ma Ying-jeou of Taiwan said in an interview last month that China was now the largest trading partner for 17 of its 23 neighbours, and added: "The present situation warrants our attention but does not call for excessive anxiety."
Beijing's ever bolder trade and currency initiatives coincide, however, with an increasingly harsh atmosphere within China for many foreign investors. Dozens of multinational companies have been raided this year and accused of misconduct, including monopolistic behaviour, price collusion and bribery.
Multinationals have argued that while they do not condone misbehaviour in their Chinese units, many of the transgressions are common in the Chinese economy and less often punished when Chinese businesses, especially state-owned enterprises, do the same thing.
The timing of the sharp rise in the Chinese currency, just as President Obama arrived in Beijing for the APEC meeting, represented an olive branch of sorts not just to the United States, which has pressed for years for Beijing to allow a stronger Chinese currency, but also to other Asian heads of government arriving for the meeting.
China has emerged as the world's second-largest economy after the US. A stronger renminbi would help the exports of other economies in the Asia-Pacific region - though the benefits may be limited for countries like Australia that export mostly commodities like iron ore, which is priced in US dollars.
China's renminbi strengthened on Monday after the People's Bank of China raised its morning fix of the currency's value by 0.37 per cent, to 6.1377 renminbi to the dollar. It was the largest single-day increase in the renminbi's value since June 22, 2010, when the renminbi jumped 0.43 per cent after the government scrapped an informal peg to the dollar that had been put in place during the global financial crisis.
The timing of the currency move showed a clear political agenda, as many Asian leaders want to expand exports to China, said Li Kui-wai, an economist at the City University of Hong Kong who is a former director of the university's APEC Studies Center.
"It's a giveaway at APEC, in the sense that China wants good relations moneywise with other APEC members," Li said. "In the long run, it's not much - it's a gesture, they can give away a bit to please other APEC members."
The unexpected increase comes after China announced on Saturday a near-record trade surplus for October of $45.4 billion. That trade surplus gives China's economic policy makers the political cover they may need in dealing with likely objections from the country's powerful and politically influential export sector.
Chinese exporters have long lobbied for a weak currency to make their products more competitive in foreign markets, helping China capture an ever rising share of global trade, while warning that a stronger renminbi could lead to job losses at export factories. "If this appreciation in the renminbi continues, it will certainly have a negative impact on our business," said Abby Lin, a sales executive at the Zhejiang Cobo Technology Development Company, a maker of shower stalls in Huzhou, China.
Regulators in Hong Kong and mainland China separately announced that both the Hong Kong and Shanghai exchanges would begin a securities trading link next Monday, in what has been considered the boldest move yet by the Chinese government to open its equity markets to international investors.
The linkup, called the Stock Connect, which had been unexpectedly delayed for several weeks as protesters occupied downtown avenues in Hong Kong, will allow foreign investors to trade stocks listed on the Shanghai stock exchange directly for the first time. Mainland investors will be able to trade the shares of companies listed in Hong Kong.
"The launch of the H.K.-Shanghai Connect program is a milestone in the evolution of China's financial sector and the opening of its capital markets," said Shane Gunther, a head of equities at UBS, adding that it would give investors access to a market in China that is worth $3.9 trillion.
The news gave a lift to stocks in Shanghai, where the Shanghai composite index rose 2.3 percent, and in Hong Kong, where the Hang Seng index gained 0.8 percent. Protesters calling for fully democratic elections in Hong Kong continue to occupy some streets here, although their numbers have dwindled considerably; Beijing had not been expected to act until the demonstrations had ended.
The various moves on Monday reflected not only China's willingness to liberalise its markets, but also a practical need on the part of the government. With near record trade surpluses continuing to bring a torrent of dollars into the country, China's leaders have been looking for a more productive approach than continuing to have the central bank buy huge sums of dollars and add them to its reserves through currency intervention.
That strategy for blocking appreciation of the renminbi has antagonised China's neighbours and prompted a cautious search for ways to allow more imports through trade agreements and more foreign investment, including through stock market links like the one between Shanghai and Hong Kong.
"The government's decision to pursue more channels for capital to go out reflects the need to increase the amount of outflows," said Julia Wang, an economist at HSBC.
©2014 The New York Times News Service
