Asia-Pacific Regional Economic Cooperation Under the Reshaping of Global Productionand Supply Chains

As part of the important trends of the current development of the world economy， the reshaping of global industry and supply chains interacts with the intensified changes unprecedented in the past century in an increasingly close manner. “Benefit-sharing and risk-sharing”， the characteristics of global industry and supply chains， have a profound influence on the distribution of benefits among countries and the effectiveness of global economic governance. How to maintain the overall security and stability of the global industry and supply chain system under the new circumstances and ensure equal opportunities for all countries to fully participate in the global industry and supply chain have become major substantial issues of great concern to the international community.

At present， the Asia-Pacific region accounts for 60% and 50% of the world’s total economy and trade respectively， and is home to the most important manufacturing and trading countries other than members of the European Union. Since the 1980s， the Asia-Pacific region has become the region with the densest distribution of industry and supply chains globally and the main engine of world economic growth， thanks to regional economic cooperation of all forms， at multiple levels and in different industries. Therefore， expanding and deepening regional economic cooperation in the Asia-Pacific region will not only play a pivotal role in stabilizing and improving the global industry and supply chain system， but will also make an important contribution to an open world economy.

Drivers and Trends of Global Industry and Supply Chain Reshaping

The reshaping of global industry and supply chains is driven by a combination of factors， both economic and non-economic. An in-depth analysis of the drivers and trends of the reshaping of global industry and supply chains will help us fully understand the significance of deepening regional economic cooperation in the Asia-Pacific region and identify the direction and priority areas for future cooperation.

In terms of economic factors， global industry and supply chains have evolved alongside economic globalization， and their reshaping is directly related to the trends of “anti-globalization” and “re-globalization” that have emerged in recent years. After the international financial crisis in 2008， the world economy and trade have fallen into a relatively long-term structural downturn， and some countries and regions have seen the emergence of thoughts and actions that are contrary to the globalization， represented by protectionism， unilateralism and populism. At the same time， the World Trade Organization （WTO） Doha Round of Trade Negotiations has been delayed for a long time， and the reform of the multilateral trading system has been difficult， which has had a negative impact on the macro environment for the development of the global industry and supply chain.

The digital economy and the green low-carbon economy have also had a significant impact on the features and development direction of global industry and supply chains. The digital economy’s role in innovating growth models， raising labor productivity， cultivating new markets and new growth points for industries is becoming more important， triggering an all-round transformation of the global supply chain in various aspects， including production， distribution， sales and consumption. The promotion of low-carbon transformation and green development， with multilateral cooperation to address climate change as the background and motivation， has given rise to an international environmental regime covering the three major elements of energy supply and demand， economic competitiveness and environmental quality， and how to obtain greater space for economic development under environmental constraints has become an important goal pursued by all countries. In recent years， the influence of the digital economy and the green low-carbon economy on the form of the international industrial division of labour， the composition of globalization participants and the relevant international economic and trade rules has been more and more profound， thus accelerating the reshaping of the global industry and supply chain.

From the perspective of non-economic factors， the possibility of fundamental changes of the international environment with peace and development as the theme of the times is gradually increasing in the current and future period， with frequent regional conflicts and intensifying geopolitical games， which have caused serious impacts on the stability of the global industry and supply chain system. As a matter of fact， compared with regional conflicts， the destruction by geopolitical games in the guise of economic cooperation， exclusion and “decoupling and breaking the chain” in the name of cooperation， and the politicization， ideologization and even weaponization of economic affairs are devastating and far-reaching to the global industry and supply chain.

Under the influence of the above superimposed factors， the reshaping of the global industry and supply chain embodies localization， regionalization and shortening chain in terms of location and spatial distribution， as well as digitalization， intelligence and greening in terms of directions of transformation and upgrading. Its overall development trend can be summarized as follows： enhancing security of the industry and supply chain by strengthening its self-reliance and controllability， enhancing the resilience of the chain through multi-dimensional layout， and adjusting the distribution pattern of interests of the industry and supply chain by creating new rules for trade and economy， as well as expanding spaces for industry and supply chain by modern science and technology innovation.

Pathways for Promoting Asia-Pacific Regional Economic Cooperation in the Context of Reshaping of the Global Industry and Supply-Chains

The reshaping of global industry and supply chains has brought about multiple changes in the international and regional environment for Asia-Pacific regional economic cooperation. Whether it can be responded effectively will have a bearing on the effectiveness and prospects of Asia-Pacific regional economic cooperation. At the same time， given the importance of the Asia-Pacific economy in the world economic landscape， exploring effective paths to deepen Asia-Pacific regional economic cooperation in the context of the reshaping of global industry and supply chains will undoubtedly play a positive role in the construction of an open world economy and the improvement of the global economic governance system.

I. Better Top-Level Design and Goal Setting

Among the factors driving the reshaping of the global industry and supply chains， the behavior of a few countries with cold war mindset trying to build a “small circle” based on ideology， and to cut the supply chain for geopolitical self-interest， is undoubtedly the biggest challenge. Therefore， under the framework of Asia-Pacific regional economic cooperation， safeguarding the overall stability of the Asia-Pacific industry and supply chain system should be prioritized， and the solidarity of members participating in the Asia-Pacific regional economic integration cooperation should be maintained by reinforced top-level design and leading goals. In this regard， the progress and effectiveness of APEC in promoting the construction of the Asia-Pacific Community and the Asia-Pacific Free Trade Area （APFTA） are most noteworthy.

APEC is the largest and most influential regional economic cooperation mechanism in the Asia-Pacific region. Since its establishment in 1989， it has always been committed to the process toward free trade and investment and economic integration in this region. In 2020， APEC put forward a new vision of building an open， dynamic， resilient and peaceful Asia-Pacific Community by 2040. In recent years， against the background that the geopolitical environment in the Asia-Pacific is getting increasingly complex， APEC is still able to establish such an ambitious vision of the goal， fully reflecting core desire and interests of the majority of the participants in APEC cooperation for the new period， under the new circumstances. They do not want APEC’s original intention of promoting regional economic cooperation to be changed due to the impact of geopolitical competitions， and look forward to more diversified APEC cooperation， so that the people of the Asia-Pacific region can have more opportunities to participate in regional economic cooperation and better share the benefits.

It should be noted that the Asia-Pacific community under the APEC framework is not the economic community referred to in the classical theory of regional economic integration， but its connotation is closer to the Asia-Pacific Community with a Shared Future advocated by China， which is characterized by openness and inclusiveness， innovation-driven growth， greater connectivity， and mutually beneficial cooperation. Therefore， relying on high-standard large-scale free trade arrangements to promote the process of regional economic integration in the Asia-Pacific region can not only inject the most substantive content for the construction of the Asia-Pacific Community， but also will effectively dissolve the centrifugal force of geopolitical games on APEC cooperation. It is based on this consideration that APEC will accelerate the construction of the Asia-Pacific Free Trade Area （APFTA） and integrate it into the framework of the new vision 2040.

The idea of Asia-Pacific FTA was initially put forward by APEC academics. Its goal is to integrate the existing or under-negotiation large-scale free trade agreements in the Asia-Pacific region， so as to create a complete institutional framework for regional economic integration. Since 2007， the construction of the APFTA has been put on the official agenda of APEC， and the Beijing Roadmap for APEC’s Contribution to the Realization of the FTAAP and the Lima Declaration on FTAAP were adopted in 2014 and 2016. Since then， the APFTA process has slowed down due to the U.S. shift to the implementation of the “Indo-Pacific Strategy”. In the post-COVID era， the issue of APFTA has been warming up again in APEC. It is mainly due to the following three factors： first， the new vision of APEC has brought in a new engine into the construction of APFTA; second， the U.S.-led Indo-Pacific Economic Framework does not involve tariff concessions and market access， so APFTA is obviously more attractive to business and industry; third， the Comprehensive and Progressive Trans-Pacific Partnership （CPTPP） and the Regional Comprehensive Economic Partnership （RCEP） have entered into force in 2018 and 2022， making the conditions for the establishment of an APFTA more mature. In terms of prospects， RCEP and CPTPP members can reach an APFTA agreement with commonly accepted rules and standards through a package of negotiations; another alternative path is for RCEP and CPTPP to continue to develop in parallel for a certain period of time， with RCEP continuously raising its standards and gradually converging with the level of the CPTPP， and ultimately forming the APFTA in the form of a convergence and docking.

II. Comprehensively Strengthening Asia-Pacific Cooperation on Value Chains， Supply Chains and Connectivity

In the face of the accelerating reshaping of global supply chains， Asia-Pacific players generally expect that the various regional economic cooperation mechanisms in the region will keep pace with the times and effectively enhance the security and resilience of industry and supply chains. However， against the backdrop of intensifying geopolitical competitions， enhancing the security and resilience of them has been deliberately misinterpreted by a few countries and used as an excuse to “decouple and break the chain”. In this regard， it is necessary to make the promotion of free flow and efficient allocation of factors of production under the market mechanism the fundamental orientation， so as to dismiss the smear campaigns on the motivations of the Asia-Pacific industry and supply chain cooperation.

Firstly， achievements of APEC should be fully in effect so as to promote practical cooperation in the area of global value chains and supply chains. For example， APEC implemented the three-phase APEC Supply-Chain Connectivity Framework Action Plan （SCFAP） in 2010， 2015 and 2022 successively to improve the efficiency of the Asia-Pacific supply chain by focusing on border management， logistics services， infrastructure， regulatory cooperation and e-commerce using time， cost and uncertainty as the performance indicators. The APEC Beijing Meeting in 2014 drew the APEC strategic blueprint to promote development of global value chains， with the main objectives of promoting trade and investment-friendly policies in the Asia-Pacific region， reducing transaction costs， and enabling developing economies and SMEs to better participate in GVCs through measures such as strengthening capacity building， public-private cooperation， human resource development， and technology dissemination. The focus of the above-mentioned cooperation is not rules， but results. It prioritizes the implementation of projects， which can be better adapted to the current geo-economic and political environment of the Asia-Pacific. That is why this cooperation should be actively implemented and promoted.

Secondly， all-round connectivity among APEC members should be enhanced， so as to create a better regional environment and basic conditions for cooperation in the industry and supply chains. All-round connectivity cooperation involves infrastructure construction， personnel exchanges and regulation integration， which not only helps to bring countries and regions closer to each other physically， but also promotes factor mobility， enhances economic density， and enables APEC members to integrate more fully into the regional production network. When the issue on cooperation of industry and supply chains is hampered by geopolitical factors， strengthening all-round connectivity cooperation can achieve the same result via a different route.

In terms of infrastructure connectivity， Asia-Pacific players should focus on strengthening cooperation with multilateral financial institutions such as the Asian Infrastructure Investment Bank and the Asian Development Bank， encouraging and attracting the participation of the private sector， and actively utilizing innovative financial tools to jointly build a sustainable and diversified investment and financing system for infrastructure construction in their region. When it comes to personnel connectivity， we will actively extend the successful practice of the APEC Business Travel Card to facilitate the cross-border movement of business people to promote economic and trade cooperation among APEC members， and gradually expand the beneficiary group to include senior professionals and technicians in such industries as healthcare， engineering and education. Regulatory connectivity involves a wider range of areas， and the implementation of some “behind-the-border” measures is relatively more complex and sensitive， so trade facilitation cooperation focusing on technical issues， such as customs procedures and standardization， should be prioritized.

III. Promoting People-Centered Multidimensional Cooperation in the Asia-Pacific Digital Economy

Since the beginning of the 21st century， the new economy， e-commerce， paperless trade， digital trade， and the Internet economy have become important issues for economic cooperation in the Asia-Pacific region. In recent years， digital economy has been more profoundly integrated into various fields of economic and social development in the form of new technologies， new factors， and new facilities， with an increasingly deep impact on the industry and supply chain， labor and employment， and income distribution. As a result， cooperation on digital economy and innovative development has not only been positioned as one of the pillars for advancing the realization of the goals of the Asia-Pacific Community under the APEC framework， but has also become an important element of various newly concluded free trade agreements in the Asia-Pacific region.

While there is a general consensus among APEC members to strengthen cooperation on digital economy， they have different interests in terms of the orientation and priority areas of cooperation. Developed member states would like to steer the issue of digital economy into the realm of rules on governance of cross-border data flows， improvement of the digital business environment， data privacy， and intellectual property rights protection， so that they can consolidate their upstream positions in the global value chain based on their technological and market competitive advantages. The vast number of developing members expect Asia-Pacific digital economy cooperation to play an important role in driving scientific and technological innovation and creating new momentum for economic growth， and to narrow the gap with developed members in terms of digital infrastructure and the application of digital technologies. In view of this， and taking into account the significant diversity of members in the Asia-Pacific region， APEC should actively advocate the concepts of inclusive and co-creative development， scientific and shared data， and inclusive and co-governance， so as to promote people-centred Asia-Pacific digital economy cooperation in multiple dimensions.

First， the important role of the digital economy in improving the imbalance of economic and social development should be valued. APEC members should deepen cooperation on such issues as improving communications and network infrastructure， promoting the transfer and application of digital technologies， strengthening capacity-building for human resources in digital industries， and utilizing digital technologies to enhance the participation of disadvantaged groups such as micro-， small- and medium-sized enterprises （MSMEs）， women， persons with disabilities and the impoverished in the global industry and supply chains， so as to enable the countries of the Asia-Pacific region and its people to share the dividends of the development of the digital economy in a more adequate and equal manner.

Second， APEC should actively expand the scope of cooperation in digital economy， emphasize its interrelatedness， and strengthen in-depth integration with other relevant regional economic cooperation issues to generate more linkages and spillover effects. For example， by closely integrating the digital economy with the industry and supply chain and connectivity cooperation， it is possible to establish an intelligent industry and supply chain security monitoring system and an early warning mechanism， which will greatly improve the operational efficiency of procurement， production， logistics， sales and other phases. The digital economy can also be integrated and promoted together with trade and investment facilitation， green and low-carbon transformation， smart city construction， health and epidemic prevention， disaster prevention and mitigation， and other endeavors.

Third， it should be promoted by way of quid pro quo negotiation under the framework of regional free trade arrangements that cooperation issues related to digital governance rules and market construction， such as cross-border data flow， digital business environment， digital trade and investment， commercial credit and consumer protection in digital transactions， etc. It will not only help to provide institutional safeguards for the governance of the digital economy， but also ensure that cooperation in the relevant regulations is open and transparent. In addition to various types of comprehensive regional free trade arrangements， the Digital Economy Partnership Agreement （DEPA）， as the world’s first specialized agreement on the digital economy， is particularly promising. DEPA， with its modularity and openness， lays a good foundation for attracting more Asia-Pacific countries to join.

IV. Strengthening the Awareness of Asia-Pacific Community of Shared Future Through Inclusive and Sustainable Development Cooperation

Regardless of the path and manner in which regional economic cooperation is carried out， its ultimate goal is to promote high-quality economic growth in the region and the general improvement of people’s well-being， which is the core driving force of Asia-Pacific cooperation for inclusive and sustainable development. At the same time， regional economic cooperation also helps to resolve systemic dilemmas or conflicts between domestic and international economic development goals， the applicability of borders of economic security and national security， important relations such as environmental carrying capacity and the supply of and demand for resources. So， it has the attribute of public goods. The ability to provide high-quality public goods for regional economic cooperation depends on the level of consensus among regional countries on the values and principles， modes and paths of cooperation， as well as the mechanism for distributing benefits. Inclusive and sustainable development is an area where participants can easily find common ground， therefore it provides broad space for cooperation.

In the area of inclusive development， the focus should be on issues such as safeguarding women’s rights and interests， alleviating poverty or improving the living conditions of people in hinterland， promoting the employment of persons with disabilities， and supporting the development of MSMEs and start-ups to develop more diversified cooperation in terms of content and form， as well as to strengthen the docking of ends of the Asia-Pacific regional economic cooperation mechanism at different levels and promote the demonstrating effect. In terms of cooperation on sustainable development， climate change and low-carbon transition， food and energy security， public health and safety， and disaster prevention and mitigation should be prioritized， and joint efforts should be made to resolve major risks and challenges of general concern to all players.

Strategic Connotation of China’s Participation in Asia-Pacific Regional Economic Cooperation under the New Circumstances

China’s active participation in economic cooperation of Asia-Pacific region has enabled it to benefit from a more open trade and investment environment， further strengthened its economic and trade relations with its Asia-Pacific partners， and laid a solid foundation for its participation in diversified international economic cooperation and its integration into the global economic governance system thereafter.

At present and in the coming period， against the backdrop of the accelerated evolution of the unprecedented changes of the century， China should demonstrate its sense of responsibility and mission as a major country， join hands with other countries to prevent the world from falling into a new cold war pattern， work hard to defuse the risk of “decoupling and breaking the chain”， and transform the concept of building a community of shared future for humanity into a broader practice in global governance and international cooperation. The Asia-Pacific region is the eye of the world’s political， economic and diplomatic competition and game， and is also the most important strategic pivot for China to build a new type of major power relations. Therefore， China is actively adapting to the new trend of reshaping the global industry and supply chain， promoting deeper and more practical regional economic cooperation in the region， and committing itself， together with the majority of countries of the region， to building a community of shared future in the region where participants commonly grow with their interests integrated， so as to build the next “Golden Thirty Years” of development in the Asia-Pacific region.

Providing assistance for accelerating the construction of a new development pattern of “dual circulation” and deepening high-level institutionalized openness is currently an important strategic objective of China’s in-depth participation in Asia-Pacific regional economic cooperation. General Secretary Xi Jinping has profoundly pointed out that only an open China will become a modernized China， and that continuously expanding high-level opening up to the outside world is an inevitable requirement for advancing Chinese-style modernization. Therefore， China should further commit itself to the process of regional economic integration and expand its own opening-up， enhance the strategic role of Asia-Pacific regional economic cooperation as a platform and channel in promoting the building of a community of shared future for mankind， and create a more favorable external environment for advancing Chinese-style modernization.

First， it should give full play to APEC’s function in stabilizing the overall situation of Asia-Pacific regional economic cooperation. Considering the current accelerated evolution of the Asia-Pacific political and economic landscape， the intensification of the major country competitions and other factors， China should take the opportunity of APEC’s implementation of its new vision for 2040 to focus Asia-Pacific Community building on economic， trade and development issues， create a better market and institutional environment for high-quality growth of the Asia-Pacific economy， and enhance the endogenous impetus for deepening the Asia-Pacific region’s economic cooperation based on the seeking of common ground while shelving differences among APEC members.

Second， it should accelerate the construction of a high-standard FTA network in the Asia-Pacific region. The Asia-Pacific region， where more than 70% of China’s trade and investment activities take place， is the center of gravity for China to build a global network of high-standard FTAs. Against the backdrop of the reshaping of the global industry and supply chains， China should view the construction of the Asia-Pacific FTA as a locomotive， and strengthen the coordination of “behind-the-border” regulatory measures on the basis of further expanding market access， so as to provide a new impetus for deepening the high level of institutionalized opening-up.

Third， it should strengthen the interaction between Asia-Pacific’s all-round connectivity and industry and supply chain cooperation and the high-quality construction of the “Belt and Road”. While the Belt and Road Initiative has achieved remarkable results over the past decade， geopolitical constraints and limitations have gradually increased. As Asia-Pacific’s all-round connectivity and industry and supply chain cooperation are intertwined with Belt and Road construction in many areas， China should start from planning， mechanism integration， project docking and other aspects， so that the two can complement each other， and enhance the connected and spillover effects of the results of cooperation.

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Liu Chenyang is General Director and Professor of the APEC Study Center at Nankai University