Trade, Private Sector, Soft and Hard Infrastructure to Top Beijing APEC Agenda

November 5, 2014

By Katherine Loh

Wednesday marked the first day of the week-long Asia-Pacific Economic Cooperation (APEC) Forum, hosted this year in Beijing. This year’s summit, themed “Shaping the Future through Asia-Pacific Partnership,” brings together ministerial leaders, CEOs of global corporations, and other leading voices in the private and public sectors to discuss the challenges facing Asian-Pacific economies.

Heads of states will convene in Beijing to talk about the regional economy, recent growth trends, and the role that regional partnerships play in supporting and propelling the Asia-Pacific region. Photo/Flickr user Trey Ratcliff http://bit.ly/1GqE9XR

The week will culminate with the 22nd APEC Economic Leaders’ Meeting on November 10-11. Heads of states from all 21 member economies, including U.S. President Obama, Chinese President Xi Jinping, Japanese Prime Minister Shinzo Abe, and Australian Prime Minister Tony Abbott will convene in China’s capital to talk about the regional economy, recent growth trends, and the role that regional partnerships play in supporting and propelling the Asia-Pacific region.

The three broad objectives of the Leaders’ Meetings are: (1) boosting Asia-Pacific economic integration, (2) exploring new sources of economic growth, and (3) strengthening regional connectivity. On the agenda will certainly be advancing talks on various trade deals in the region, such as the Trans-Pacific Partnership (TPP), which covers 12 Pacific Rim countries including the United States, but not China, and the Regional Comprehensive Economic Partnership (RCEP), which includes China, the 10 members of the Association of Southeast Asian Nations (ASEAN), plus Australia, India, Japan, New Zealand, and South Korea. The South China Morning Post reported last week that China would also attempt to “leverage its status as host of the summit” to push for a Pacific Rim-wide free-trade zone, known as the Free Trade Area of the Asia-Pacific (FTAAP), to be in place by 2025, though less certain is whether the gathered nations will have the taste for another layer of negotiations beyond the existing ones.

Within the framework of the summit, expect APEC leaders to also address the soft challenges facing the region’s private sector, such as upgrading its human capacity to meet the demands of an innovation-driven global economy, as well as improving the business climate, both at the national and sub-national levels. Presently, nine of APEC’s 21 member economies are classified as lower- or upper-middle income countries. While middle-income countries are critical drivers of the global economy, they are also subject to the risk of the “middle-income trap.” As my colleague, Véronique Salze-Lozac’h recently blogged, the middle-income trap is the risk that a country that has previously experienced rapid growth based on low-wage, unskilled labor, low-added value manufacturing, and heavy reliance on exports will stagnate at the middle-income level and fail to graduate to upper-income status. With that risk in mind, innovation, investment in technology and in higher education, and other strategies for moving up the value chain will certainly be a hot topic of discussion.

Leaders are also likely to discuss the region’s progress toward improvements within member economies’ “soft infrastructure,” including the business environment – a critical factor to growth. Just last month, APEC published an assessment of the region’s ease of doing business and how the region has improved in the last five years (from 2009-2013). While the report confirms that APEC economies have made continuous progress in some areas, particularly in starting a business and dealing with construction permits, other areas, such as access to credit and contract enforcement, have registered only modest or even negligible improvements. The report underscores the many areas where regulatory reform is needed to help remove obstacles to and lower the business costs for private sector constituents.

Perhaps the most titillating discussions to pay attention to will be those related to the third main pillar – strengthening regional connectivity through infrastructure development. On October 24, China led 20 other countries in signing a Memorandum of Understanding (MoU) to create a new international development bank, the Asian Infrastructure Investment Bank (AIIB). The U.S., Japan, Australia, and South Korea were conspicuously absent from the signing ceremony. Proposed a year ago by President Xi Jinping, the bank’s objective would be to offer financing for infrastructure projects in underdeveloped countries across Asia. While China insists that the AIIB would complement, rather than compete with, the mission of existing lending organizations like the U.S.-headquartered World Bank and Japan-dominated Asian Development Bank, many perceive this new bank as a way for China to bolster its influence in the region. The AIIB is not formally on this week’s agenda, says APEC Executive Director Alan Bollard, but it is no accident that the signing occurred just weeks before the Leaders’ Meeting. Regardless of whether and when the bank is discussed, infrastructure development and regional connectivity are urgent issues for APEC leaders to pursue during this week’s meetings.

APEC’s leaders have a packed agenda in addressing the challenges to ensure the region’s long-term prosperity. In the past several weeks, China has made herculean efforts in preparation for the meetings, including temporarily imposing tighter restrictions on vehicle usage and factory work in hopes of reducing smog levels. Among the numerous issues the organizers have highlighted on this year’s agenda, transitioning to a green, more sustainable economy seems to not have been shown the spotlight. It’s not that APEC does not acknowledge the urgency of addressing environmental challenges to economic growth – it convened a High-Level Roundtable on Green Development just this past May. But whether the leaders can manage a conversation on regional integration, innovation, infrastructure development, and sustainability at the same time, will be telling of member economies’ ability to do the same in the long run.

Katherine Loh is a senior program officer for The Asia Foundation’s Economic Development Programs in San Francisco. She can be reached at [email protected]. The views and opinions expressed here are those of the individual author and not necessarily those of The Asia Foundation.

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