China's Open Doors for the US

Daily: Daily Times
Date: 22.11.17

The domestic challenge of achieving economic sufficiency is prodding the US to revisit and
reset its trade relations internationally. Similarly, emerging international political situations
are forcing the US to look for new allies in troubled areas of the world. Sometimes, the US
finds convergence in these two challenges embodying one country.

US President Donald Trump has recently finished his 12-day tour to Asia-Pacific’s five
nations (Japan, South Korea, China, Vietnam, and Philippines). The most important country
was considered China, the President of which royally welcomed Trump on November 8 for
his two-day stay. In China, there were two main items on the agenda: trade and North
Korea.

Regarding the trade agenda, the US gained sufficient ground in China. Before Trump’s
visit, it was being touted that China would not budge an inch, despite the fact that the US-
China trade deficit had widened to US $ 223 billion. However, China listened to the US and
offered a compensatory investment deal of 37 components having total worth of US $ 250
billion to 30 American companies.

In its essential detail, the economic aspect of China’s foreign policy is the Open Door
Policy. This is what was presumed when the incumbent Chinese President Xi Jinping said
that “China will not close its doors” and that China will keep its domestic market “more open,
more transparent and more orderly” for foreign companies including American companies.
The statement was replete with the potential for offsetting the impression of “economic
nationalism” practised by China.

The concept of Open Door is reminiscent of the late 19th Century when US Secretary of
State John Hay vocalized it through his Open Door Note in September 1899. The US
adopted this policy not only to prevent European countries from dividing China amongst
themselves – that is, territorial disintegration – for trade purposes, but also to avail itself of
an equal opportunity to trade with China. This was the first time the US helped China in the
economic sphere.

Though Chinese historian resent the policy declaring it a product of the competing interests
of the colonial powers of that time to exploit Chinese resources to their advantage, they
overlook the fact that China remained undivided consequently. Similarly, though the policy
never transformed into any international treaty or law, it acted as deterrence for European
colonial powers to avoid taking over China. Consequently, the sovereignty of China
remained respected, and territory independent. Nevertheless, with its prohibitive tinge, the
overwhelming tilt of the policy remained towards European countries and this factor allowed
Japan to operate freely, capture Manchuria in 1931 and subsequently create Manchukuo.

Interestingly, after the formation of the People’s Republic of China in 1949, China’s
President Deng Xiaoping initiated the Chinese version of the Open Door Policy, in
December 1978, as an economic policy which opened up China to foreign investment. This
initiative actuated economic transformation of China. In 1980, to begin with, four Special
Economic Zones (SEZ) were established in South-East China bordering Hong Kong, Macau
and Taiwan to offer a competitive low tax low wage area. The target of initial investment was
expatriate Chinese settled mostly in the US. This was the second time the US favoured
China. The impact was immense and the export of Chinese products went double from
1979 when China was 32nd largest exporter to 1989 when China became 13th largest
exporter in the world with 16% trade expansion.

China, which had left the World Trade Organisation (WTO) in the wake of the Communist
revolution in 1949, aspired to rejoin the organization in the 1980s. To do that it had to
negotiate the terms of trade with three major stakeholders: the US, the European Union and
Japan. Former US President Bill Clinton persuaded the Congress to facilitate China’s re-
entry into the WTO in May 2000 and China joined the organization in December 2001,
when China agreed to amend and repeal more than 3000 pieces of laws, regulations and
rules acting as tariffs. This was the third time the US helped China in the economic sector.
The impact was immense. In 1998, China’s world market share was less than 2% but by
2010 the market share rose to above 10%, as per the WTO figures. (having merchandise
export sales of more than $ 1.5 trillion) which was the highest in the world. It was in 2013
when China surpassed the USA to become the biggest trading nation in goods in the world
(with a total $ 4.16 trillion dollars imports and exports in goods). The consequent trade
imbalance was what resented by Trump during his election campaign in 2016 by calling
China “raping” the US. In this regard, what Trump has been trying to say is that China has
deviated from the commitments of trade liberalization and openness of its economy that it
pledged with the US, the European Union and Japan before rejoining the WTO. Now, at
least to the US, China’s offering a compensatory investment deal worth US $ 250 to
American companies is a token of China’s recognition of US’ stance and trade needs.

Regarding North Korea over its nuclear weapons and intercontinental ballistic missile
program, though no immediate ground has been broken but the pressure has been
mounted on China to rethink its North Korean policy.

Apparently, China expressed its deficient leverage over North Korea. However, the US did
not submit to this argument. Instead, the US has asked China to act indirectly by imposing
trade sanctions, cut off oil exports (through an 18-mile pipeline), closing down North Korean
bank accounts in China and sending home tens of thousands of North Koreans working in
China, to force it to scrap its nuclear program and balk at intercontinental ballistic missile
testing. China had no immediate answer to this demand. It was not a weird step when
Trump referred the Asia-Pacific region as the “Indo-Pacific” region. The veiled threat was to
tell China of political repercussions in the region with the inclusion of India into the equation.

Generally speaking, the major challenge the US is facing in its relation with China is that
how to strike a balance, both politically and economically, especially when the US is busy in
settling situations in Afghanistan, Iraq, and Syria.

Back to columns in 2017