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November 18, 2014

Big Year for APEC With Beijing Hosting

By East Asia Forum via  Economy Watch

The APEC summit has only just ended, but like the return of hazy skies over Beijing, clouds of uncertainty surrounding the regional forum have again drifted overhead. This is familiar weather for APEC, a grouping that has faced questions about its future for well over a decade. On the face of it, China’s year of hosting APEC has given a level of attention to the regional grouping that should stand it in good stead for the foreseeable future. However, if in years to come we look back to identify the year that APEC peaked, perhaps 2014 is that year.

By any measure, the ambition and import of the announcements made at this year’s Summit were major. Announced were a US$40 billion infrastructure fund for South and Central Asia, the creation of a new development finance institution, a cooling of tensions between China and Japan over the Senkaku/Diaoyu Islands, US–China agreement on the reduction of carbon emissions, and pursuit of a Free Trade Area for the Asia Pacific (FTAAP). Of these, only FTAAP counts as an APEC initiative. The other announcements (and many more between pairs of APEC members using Beijing as a platform) are bilateral or regional agreements that are not strictly part of the APEC agenda.

The practice of using the APEC as a venue for making non-APEC specific announcements is a well-tested tradition at the annual leaders’ meeting. In the 1990s and the early part of the last decade, one could count on some subset of APEC members to brag about the conclusion of yet another preferential trade agreement, even as the membership as a whole would plead ardently for success in multilateral trade negotiations.

This is why FTAAP is the least important of the announcements made by China, even if this idea is the one that is most quintessentially APEC. For all the good intentions of harmonising various existing and proposed FTAs in the region so that they can come together as a mega-regional FTAAP, no serious effort will be put into ‘harmonisation’ before the component parts are first assembled. In addition, by that time, the vested interests that will have formed will resist a mega-regional deal.

A more significant development that came out of Beijing is the increased focus on infrastructure development, in particular progress on an Asian Infrastructure Investment Bank (AIIB). When President Xi floated this idea at last year’s APEC summit in Bali, many doubted the seriousness or feasibility of his proposal. While the AIIB still has many obstacles to overcome before it is a functioning entity (not least the opposition of the United States and Japan, as well as the incumbent Asian Development Bank in Manila), there can be little doubt now that it will come to fruition.

The emphasis on infrastructure marks a departure from the traditional APEC focus on trade and investment liberalisation. For many years, the APEC forum has had a dialogue on infrastructure issues — for example in identifying investment projects or on the structuring of private-public partnerships — but it has always skirted the core question of financing for the massive infrastructure needs of the region, usually punting the question to the ADB and other multilateral development banks.

By creating the AIIB, China has on the one hand provided a direction for APEC’s infrastructure agenda and on the other hand shifted attention away from APEC to the new institution. After all, many of the economies where these infrastructure investments are most needed are not even APEC members. Indeed, China made a point of having leaders from Cambodia, Bangladesh, Pakistan, Laos, Mongolia, Myanmar, and Tajikistan (all non-members of APEC) in Beijing on the eve of the Summit to announce its $40 billion infrastructure investment plan.

The Beijing Summit has underscored the central role of China in the regional forum, and shone an uncomfortable light on the lack of leadership and vision provided by other APEC hosts, and by the institution as a whole. Not all APEC members will buy into Beijing’s liberalization-cum infrastructure investment agenda (described by President Xi as a shared “Asia Pacific Dream”), but many parts of the region (including non-APEC members) will gladly sign on. China will, in many ways do the work of APEC, even if APEC will not be able or willing to own it.

APEC could muddle on indefinitely, with each host going through the motions of a work program for the institution as a whole that is routinely trumped by China-led, bilateral, or plurilateral initiatives that have no real APEC pedigree. Perhaps the leaders of APEC, especially the big players, will want to preserve the Summit format as the opportunity for a guaranteed meeting amongst themselves, and as a platform for announcing their own pet projects. Set against this, however, is the reality of an increasingly crowded calendar of leaders’ meetings — many with overlapping participants. The G20 meeting in Brisbane next week will be a test both of the leaders’ travel stamina and of their creativity in producing a fresh set of results.

Courtesy East Asia Forum via Economy Watch 

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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