The year 2016 will usher in the 13th Five-Year Plan (2016-20), whose core economic goal is to build a high quality and efficient economy. In the current global economic and political environment, which is very different from the past, China needs to use economic diplomacy and all the economic tools at its disposal to achieve the goals.
Some goodwill initiatives taken by China have been misunderstood by some countries, which are worried China would use the initiatives as tools to achieve its geopolitical goals. Economic diplomacy will help China remove the worries of the skeptics and present the real picture to the world.
China should also use economic diplomacy to create a free and fair economic environment. The United States is pushing its initiatives to maintain its global leadership, which help some countries to maintain a strategic balance. Beijing is wary of the Washington-led initiatives because some of them are openly aimed at containing China or curbing its rising influence.
The US-led Trans-Pacific Partnership Agreement was signed by 12 countries last month. And the Barack Obama administration is pushing the Transatlantic Trade and Investment Partnership to deepen the economic relations between European countries and the US. The two initiatives, which exclude China, are aimed at creating a diversionary effect for China.
To counter such moves, China needs to use well-designed and efficient economic diplomacy. This will also help China keep track of other countries' economic policies and predict their changes, devise a scientific road map to pursue its policy objectives, simultaneously employ domestic and foreign economic resources, and explain the aims of its economic policies.
The Silk Road Economic Belt and 21st Century Maritime Silk Road are part of a grand initiative. By implementing the initiative, China will earn development bonus, motivate neighboring countries to take more economic initiatives and deepen interdependence in the region. But considering the risks and difficulties associated with the Belt and Road Initiative, China should implement it carefully, for which it should push forward the Regional Comprehensive Economic Partnership negotiations with the help of the Association of Southeast Asian Nations.
Looking at the broader picture, China has to deepen the comprehensive trade and economic relations with European countries, strengthen economic ties with the US by expediting the Bilateral Investment Treaty negotiations, and increase its financing pledges to African and Latin American countries. And concluding a comprehensive free trade agreement with the Gulf Cooperation Council, in order to consolidate economic relations with Arab states, should be a top priority for Beijing.
Organizationally, China should focus on increasing its say in the International Monetary Fund, World Bank and the World Trade Organization, and ensure the Asian Infrastructure Investment Bank, BRICS New Development Bank and the Silk Road Fund function properly.
While pursuing the above goals, China could begin experimenting with the yuan－using it to settle cross-border trade deals with certain countries. This is important because, considering the sensitiveness and complication of the yuan's internationalization, its process should be proportional to the trade and investment volume, not time-bound.
China's economy is transforming from an investment-driven to an entrepreneur-driven model, and the private sector is playing an increasingly important role in external economic activities. So it's safe to say the success of China's economic diplomacy will owe a lot to the performance of the private sector.
In an effort to encourage and help private organizations and individuals to make China's economic diplomacy a success, the government could invite the private sector to take part in people-to-people exchanges and conduct joint research.
Also, the government could initiate some programs on the basis of the 13th Five-Year Plan to provide preferential loan rates or overseas investment tax deduction to private sector companies. And China's embassies and government-affiliated organizations could play a supporting role by providing information on other countries' investment environment and law to help Chinese companies expand their businesses.
The author, Yu Xiang, is a Harvard University visiting scholar and research fellow and director of Division of American Economic Studies at the Institute of American Studies, China Institutes of Contemporary International Relations.
