Waging a financial charm offensive.

Photographer: Kim Kyung-Hoon - Pool/Getty Images

Xi's Dream Calls for Love, Not Money

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After two years of waxing poetic at home about a "China Dream," Xi Jinping wants to enchant the entire Asia region -- and is dangling $1.25 trillion to make sure he does.

"China's development will bring huge opportunities and benefits to the Asia-Pacific and the world, President Xi told business leaders in Beijing on Sunday. "We are willing to work with others to realize the Asia-Pacific Dream."

So far, though, it seems Xi only wants to pay the region to realize that China has Asia's back in ways that Barack Obama's America and Shinzo Abe's Japan can't afford. That $1.25 trillion is the total in outbound investments China plans to make over the next 10 years. Beijing is also lavishing $40 billion to recreate the Silk Road to bolster trade with Europe. A $50 billion infrastructure fund will make the World Bank and Asian Development Bank look like archaic vestiges of a bygone geopolitical age. And China's Free Trade Area of the Asia-Pacific is timed to rival the U.S.-led Trans-Pacific Partnership.

But Beijing's financial charm offensive lacks one crucial element: love. Its $4 trillion of currency reserves and rapid growth buys China lots of attention and any meeting it wants -- just not the affectionate "soft power" it craves. This won't come via spending or from China's rising clout. It will come from actions worthy of a more mature, reasonable and civil global stakeholder.

Through trade and investment, China has been able to bind many emerging Asian economies to its own, explains Rajiv Biswas, chief Asia economist at IHS Global Insight in Singapore. But it has undermined its own efforts to establish Chinese leadership in Asia through "poorly managed, inward-looking political and military posturing."

China is embroiled in territorial disputes with Vietnam, the Philippines and several other members of the Association of Southeast Asian Nations, or ASEAN (Japan, too, of course). These entanglements often do more harm than Beijing's largess helps. The same is true of Beijing's moves to scrutinize foreign companies from Microsoft to Toyota, silence the international media and police cyberspace. China's heavy-handed response to Hong Kong's pro-democracy movement hardly projects secure, confident power.

Genuine affection comes from acting in partnership with Asian neighbors, not buying their loyalty with the odd multi-billion-dollar dam, bridge, road or power grid. For years, China tossed money at unsavory regimes and looked the other way as environmental and labor protections were ignored. Yet if China wants to buttress its soft power, it should consider following the Japanese model.

No, huge infrastructure projects aren't altruism. But Japan has long provided governments like India or Indonesia the money and technical expertise to upgrade their own infrastructure in ways that enrich local economies. That means using local materials and labor, as opposed to Beijing's preference that countries import both from China. It surprised no one in August to hear Joko Widodo, then Indonesia’s President-elect, calling Japan “our largest partner” and urging more investment to ramp up a $46 billion bilateral trade relationship.

Since taking office in December 2012, Japanese Prime Minister Abe has visited all 10 ASEAN members. Last December, Japan pledged $20 billion in Southeast Asia investments over five years. Abe has since shifted billions in foreign-direct investment from China to Southeast Asia.

Before Xi can realize his Asia-Pacific Dream, he has to define it. Even many of his 1.3 billion people are confused about what their domestic China Dream entails. Does it refer to building a modern, prosperous, more egalitarian society? Is Xi suggesting his masses should harbor American-style aspirations like owning a home? Or is it just a rhetorical device that contains more than a whiff of nationalism on the part of a leader fond of cribbing Mao Zedong speeches? No one can say for sure -- at least not yet.

Xi's broader dream lacks both clarity and the toolkit necessary to win Asia's love. Much of emerging Asia may want China to lead regional economic development, but that can't happen until Asia's largest economy reconsiders its inward-looking political and military policies. 

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Willie Pesek at wpesek@bloomberg.net

To contact the editor on this story:
Mary Duenwald at mduenwald@bloomberg.net