TPP and China

1. The reasons why China hasn’t join TPP negotiation

As the biggest trading country in Asia, China hasn’t been invited to join the TPP negotiation. In fact, it’s not a must to join the negotiation with invitation. As long as a member state of APEC expresses its will, it could join the negotiation. However, a number of Chinese experts think that the way US conducts TPP is trying to isolate China. On the one hand, the rules set by US will put China in a passive position. On the other hand, the “irrational fears” that some Asia-Pacific countries had on China’s rapid economic growth becomes a reasonable excuse to block China joining TPP negotiation.

In addition, China has its own consideration on whether or not to join TPP negotiation. Firstly, the US’s dominant role in TPP negotiation makes TPP rules benefit more on US’s interests, which might be harmful for China’s long-term development. Secondly, TPP is expected to be shaped as “a high-standard, broad based regional pact” but China hasn’t reached that high standard so far (especially in environment and stated-owned corporations). In order to join TPP, China has to make huge changes and sacrifices on its national policy and structure, which can’t be achieved in a very short time.

2. TPP Vs CAFTA

CAFTA (China-ASEAN Free Trade Area) is a free trade area among China and ten ASEAN (Association of Southeast Asian Nations) countries. On Jan.1, 2010, the free trade area was officially launched.

TPP is undoubtedly a competitor of CAFTA in the East Asia area. The dominant roles US and China are playing in the two organizations respectively is the distinguished difference between the two economic integration. For China, CAFTA is the one that China has made great efforts to establish and realize the economic integration, which resulted in China’s dominant position in East Asia.

TPP not only includes four of the CAFTA members that are relatively developed and imports a lot from China, but also have Asia-Pacific members that are in the leading position of world trade development. Regarding to the global impact, it’s obvious that TPP has extreme advantage than CAFTA. What’s more, TPP is not limited in a geographic area, but covers the whole Pacific area as a wide-area trade agreement.

3. TPP’s effects on China

 

China TPP

2011 China’s trading share with other countries

Resources: National Bureau of Statistics of the People’s Republic of China

According to the chart above, the 11 countries that joined TPP negotiation before 2013 occupy 20% of China’s annual trading amounts, one-third of China’s trading amounts with all the APEC members. Japan joined TPP negotiation in March 2013, which makes the share increase by 10% as China’s total trading amounts, and the share is now over half of China’s trading amounts with APEC members.

It’s obvious that the current TPP participants weight a lot in China’s trade development. The negative influence of trade diversion that TPP brings to China is inevitable. If China is still out of the agreement when TPP expands in the future, the Trans-Pacific trading structure will undoubtedly strike on China’s trade and economics. Therefore, China need to take positive actions to reduce the negative influence that TPP may have on China.

4. Recommendation to China

With TPP’s development and growth, China is facing the dilemma whether or not to join the negotiation. The earlier China joins, the more initiative China could have in hand as a rule maker. However, China will pay the price to adapt to TPP’s high standard if it joins the negotiation blindly.

Although “wait and see” is a good choice for China nowadays, it’s not a long-term solution. Instead, China should keep updated with TPP’s development and get prepared to adapt to the global change if necessary.

Firstly, China should accelerate the process of upgrading the industrial structure, especially in the fields of intellectual property, environment protection and labor issues. The early prepared could help China to keep up with the global trend and meet TPP’s high standard once China decides to join the negotiation. Secondly, China should maintain the establishment of economic and trade zone with ASEAN and East Asia. This could help reduce the negative influence that TPP might bring to China and also help China to walk out of the limitation of regional trade.

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