China has a chance to lead on trade

US President Barack Obama, right, with China's President Xi Jingping, left, in Peru.
US President Barack Obama, right, with China's President Xi Jingping, left, in Peru. Pablo Martinez Monsivais/AP

It was Michael Thawley, previously Australia's top bureaucrat, who famously remarked China was not willing or able to play a serious global leadership role.

"China will get in the way or get out of the way," he said.

That was 16 months ago, when Tony Abbott was prime minister and well before Donald Trump had even secured the Republican nomination.

Thawley's comments showed a hardening of attitudes towards Beijing and while unusually frank for a bureaucrat,  were never likely to be tested while US power in the region remained un-disputed.

That is no longer the case.

The election of Trump has provided an opening for China to shrug off its historical aversion to being a global leader.

It now has the opportunity to play a bigger role in not just trade talks, but also in taking action to limit climate change.

And while it's not clear yet if Trump really will withdraw from the region, as he promised during the campaign, Beijing is already moving to fill the void.

"China will not shut the door to the outside world but will open it even wider," President Xi Jinping told business leaders on the sidelines of the Asia Pacific Economic Co-operation (APEC) summit in Peru.

Xi also took a swing at the Trans Pacific Partnership (TPP), the Washington-led trade deal which excluded China, saying "exclusive arrangements are not the right choice".

This is the first big shift to result from Trump's election.

With the TPP seemingly dead it means any new region-wide trade deal will now include China.

But for China to step up as a global leader and push for the adoption of any new trade deal will take a big shift in attitude and outlook from Beijing.

This brings us back to Thawley's comments in July 2015 when he was head of the Department of Prime Minister and Cabinet.

"China won't help you produce a solution," he said.

China is not ready, Thawley said, to "take on the responsibility either economically or politically or security-wise".

As it stands today, Thawley's view appears to be right on trade at least.

One insider said the China-led Regional Comprehensive Economic Partnership (RCEP), which has been dubbed TPP-lite, needed serious political leadership from Beijing to break its current deadlock.

According to this person, China and Japan were still fighting over individual tariff lines, with Tokyo refusing to give ground on agriculture while Beijing was holding out on investment access.

This is the issue.

China's reluctance to meaningfully open its economy to foreign investment has meant the trade deals it has already negotiated are limited in scope, hardly allowing it to claim global leadership.

Beijing's trade agreement with Australia is essentially an agricultural deal with a few small concessions for services and investment.

This is great for farmers and food companies, but does not allow Australian banks to own more than 20 per cent in their local rivals or for any meaningful investment in closed sectors like telecommunications, transport and energy.

If Beijing really does want to be a global leader on trade then it can't continue with a closed economy, let alone strict capital controls and a general hostility to foreign companies.

And despite Xi's pledge at APEC to become more open and "fully involve ourselves in economic globalisation" the opposite is actually happening.

As the Chinese economy has slowed in recent years, efforts on reform have stalled and the operating environment for foreign companies has become more difficult.

So for China to suddenly reverse course and become a global leader on trade would require a wholesale recalibration of its economic policy.

The next few months will show if Beijing is willing to change or if Thawley was right all along.