The TPP and the Chi­nese Econ­omy

China Today (English) - - CONTENTS - By XIANG ANBO

THE Trans- Pacific Part­ner­ship ( TPP), with its am­bi­tious core ob­jec­tive of trade lib­er­al­iza­tion char­ac­ter­ized by com­pre­hen­sively ad­vanced stan­dards in all ar­eas, has po­lar­ized in­ter­na­tional at­ten­tion. Upon con­clu­sion of ne­go­ti­a­tions, the TPP be­comes the world’s largest free trade zone, and so con­sid­er­ably in­flu­ences the cur­rent re­struc­tur­ing of in­ter­na­tional trade rules and re­forms to global eco­nomic gov­er­nance. It more­over has di­rect im­pact on China.

TPP Af­fects World Econ­omy

TPP ne­go­ti­a­tions em­brace al­most all is­sues per­tain­ing to 21st-cen­tury ma­jor in­ter­na­tional trade rules. Its mem­bers in­clude the U.S. and Ja­pan, the world’s largest and third-largest economies. The com­bined pop­u­la­tion of all 12 TPP coun­tries to­tals 800 mil­lion. Taken as a whole, it gen­er­ates a to­tal GDP of US $3 bil­lion, or 40 per­cent of the global to­tal, and ac­counts for 50 per­cent of world trade and 30 per­cent of global ODI. The TPP’s huge eco­nomic vol­ume and open, ex­pan­sive, ad­vanced mode of re­gional in­te­gra­tion will have sig­nif­i­cant and far-reach­ing in­flu­ence on both Asia-Pacific eco­nomic co­op­er­a­tion and the en­tire global eco­nomic pat­tern.

At the re­gional level, the TPP is con­ducive to pro­mot­ing in-depth de­vel­op­ment of eco­nomic and trade re­la­tions among mem­ber states, and also eco­nomic co­op­er­a­tion and in­te­gra­tion in the Asia- Pacific re­gion. At the global level, the TPP agree­ment will greatly in­flu­ence the re­struc­tur­ing of cur­rent in­ter­na­tional trade rules and the re­form of global eco­nomic gov­er­nance. More im­por­tantly, it will ex­ert eco­nomic checks on the gov­ern­ments of its mem­ber states, so in­vig­o­rat­ing the pri­vate sec­tor and has­ten­ing the achieve­ment of a flat­tened, multi-po­lar­ized and lib­er­al­ized world.

It must be re­mem­bered, how­ever, that the TPP is a re­gional trade agree­ment ap­pli­ca­ble specif­i­cally to the Asia-

Pacific. There­fore, it must also deal and form re­la­tion­ships with other in­flu­en­tial free trade agree­ments, such as the Re­gional Com­pre­hen­sive Eco­nomic Part­ner­ship (RCEP) and the Free Trade Agree­ment of the Asia-Pacific (FTAAP).

Neg­a­tive Im­pact on China

Neg­a­tive con­se­quences of China’s ex­clu­sion from the TPP un­doubt­edly ex­ist.

Firstly, di­ver­sion of trade and in­vest­ment by virtue of the TPP will have cer­tain neg­a­tive im­pact on the Chi­nese econ­omy; it will af­fect China’s for­eign trade, and its ad­vanced stan­dards will also send shock­waves through the cur­rent trade sys­tem and rules. On the other hand, this will pro­pel fur­ther open­ing- up of China’s var­i­ous mar­kets. How­ever, the TPP’s Rule of Ori­gin will squeeze China’s ex­port mar­ket and shrink its FDI, thus in­flict­ing harm on China’s econ­omy. Rel­e­vant stud­ies show that, gen­er­ally speak­ing, the TPP will be detri­men­tal to China’s main­land, bear­ing in mind that the ma­jor­ity of China’s busi­nesses have yet to com­plete their re­struc­tur­ing and up­grad­ing, as well as to Tai­wan and Hong Kong.

The re­sults of the Peo­ple’s Bank of China re­search team’s model stim­u­la­tion im­ply that un­less China joins the “Greater TPP” (a fu­ture TPP agree­ment among 16 mem­ber states, in­clud­ing China, South Korea, Thai­land, and In­done­sia), it will lose 2.2 per­cent of its GDP. Should there be a tran­si­tional TPP pe­riod of four years, the an­nual op­por­tu­nity cost will be slightly above 0.5 per­cent of GDP. The con­clu­sions of a sim­i­lar re­search model by another group of econ­o­mists headed by Peter A. Petri im­ply that if China were to join the TPP, by the year 2025 the global in­come would grow by US $1.46 tril­lion, of which China would gen­er­ate US $891 bil­lion – about 60 per­cent.

Sec­ond, the TPP will af­fect China’s po­si­tion in the re­gional econ­omy. The core of China’s re­gional eco­nomic co­op­er­a­tion strat­egy lies in its pe­riph­eral ar­eas. The TPP will prob­a­bly af­fect the East Asian in­te­gra­tion progress, of which China is a part, and de­lay China’s im­ple­men­ta­tion of its FTA strat­egy. This will, to a cer­tain ex­tent, in­flu­ence trade be­tween China and other East Asian economies. There is also a risk that it will bog down the Asian re­gional eco­nomic co­op­er­a­tion ef­fort with the “10+X” at its core.

En­durable Pres­sure

In the short term the TPP’s pres­sure on China is bear­able.

This is due to the TPP’s in­trin­sic flaws, and to the size and global in­flu­ence of China’s econ­omy, although the agree­ment will at the out­set likely ex­ert pres­sure on the coun­try’s econ­omy.

First of all, the barely nascent TPP is far from achiev­ing its ob­jec­tives. There are dif­fer­ent voices from mem­ber states within it, while ob­jec­tions re­sound out­side from the coun­tries it un­der­mines. Sec­ond, an in­com­plete in­dus­trial sys­tem, es­pe­cially with­out China’s par­tic­i­pa­tion as re­gards la­bor-in­ten­sive prod­ucts, will make it dif­fi­cult for the TPP to meet its trade de­mands. Third, China is proac­tively de­vel­op­ing bi­lat­eral and mul­ti­lat­eral free trade both with the TPP coun­tries and other ma­jor economies. The over­lap­ping con­tents of China’s bi­lat­eral and mul­ti­lat­eral agree­ments with TPP coun­tries mean that it can, by in­di­rect trade through an in­di­rect coun­try, par­tially al­le­vi­ate pres­sure brought to bear by the TPP. Fi­nally, among China’s top 10 trade part­ners, the EU, South Korea, Hong Kong SAR, and other non-TPP emerg­ing mar­kets con­sti­tute a large pro­por­tion.

In a nut­shell, the TPP is a set of trade rules within the free trade sys­tem. Although it presents China with chal­lenges, it is not nec­es­sar­ily an in­sur­mount­able ob­sta­cle on China’s de­vel­op­ment path. As the world’s sec­ond­largest econ­omy, China will not be ex­cluded from the global free trade sys­tem. The coun­try needs to re­main calm, adapt to changes, and im­prove its eco­nomic gov­er­nance, man­age­ment, and trade rules. The TPP could thus be help­ful to China’s re­struc­tur­ing and trans­for­ma­tion of its growth model.

Adapt to Change

China needs to adapt to changes that the TPP has brought about, and use it to deepen re­form and ex­pand open­ing-up.

Join­ing the TPP would ef­fec­tively ex­pand China’s ex­ports. An early en­try would also give it the up­per hand as re­gards set­ting the rules. Un­der the cur­rent po­lit­i­cal and eco­nomic frame­work, how­ever, China can hardly meet the ad­vanced TPP stan­dards in such ar­eas as la­bor rules, en­vi­ron­men­tal pro­tec­tion, IPR, and SOEs. For these rea­sons, rather than that the TPP poses any real threat, now is not the best time for China to join. China should nev­er­the­less make proac­tive prepa­ra­tions for its TPP en­try, and adapt to the ar­ray of changes the agree­ment has cre­ated. The TPP rules in fact ac­cord with China’s ef­forts to­wards eco­nomic re­struc­tur­ing, trans­for­ma­tion of its growth model, and deep­ened re­form. By adapt­ing, China can in turn fur­ther its re­form and open­ing-up through the TPP.

Do­mes­tic de­mand has al­ways been a main force be­hind China’s eco­nomic growth. In 2014 the coun­try’s to­tal re­tail

sales of con­sumer goods grew by 12.0 per­cent year-onyear, and do­mes­tic con­sump­tion con­trib­uted 51.2 per­cent to GDP growth. Do­mes­tic pol­icy dic­tates that ex­pand­ing do­mes­tic de­mand is the fun­da­men­tal so­lu­tion to over­com­ing the TPP’s neg­a­tive im­pact, and that China changes its long en­trenched ex­port-driven growth model.

China should also ac­cel­er­ate its talks on bi­lat­eral free trade agree­ments, on im­ple­men­ta­tion of the Belt and Road Ini­tia­tive, and on the build­ing of the free trade zone, all of which will offset the neg­a­tive im­pact of the TPP. As to re­gional in­ter­ac­tion, China should pro­mote co­op­er­a­tion with Ja­pan and South Korea, and fa­cil­i­tate talks on the China-S. Korea/China-Ja­pan-S. Korea free trade zones. In the mean­time, China should up­hold the “10+X” as a ba­sis for East Asian joint ac­tion, bring into play the ef­fec­tive­ness of re­gional team­work, and pro­mote com­pre­hen­sive eco­nomic co­op­er­a­tion be­tween China and the ASEAN free trade zone, as well as across East Asia. The coun­try must deepen sub­stan­tive and func­tional co­op­er­a­tion in var­i­ous fields, and en­sure there is no in­ter­rup­tion of East Asia’s in­te­gra­tion process.

More at­ten­tion should also be paid to America’s “Pivot to Asia” strat­egy. In this re­gard, China should strengthen com­mu­ni­ca­tion and di­a­logue with the U.S. on re­gional co­op­er­a­tion and en­hance pol­icy trans­parency, seek con­sen­sus, and man­age dif­fer­ences.

Xiang Anbo is an as­so­ci­ate re­search fel­low with the En­ter­prise Re­search In­sti­tute un­der the De­vel­op­ment Re­search Cen­ter of the State Coun­cil.

Newspapers in English

Newspapers from China

© PressReader. All rights reserved.