Chinese Perception and Reaction to the TPP & the Pacific Alliance

Artículos/Papers Facultad de Ciencias Sociales

(Number 2 | November, 2013)

Chinese Perception and Reaction to the TPP & the Pacific Alliance *by Yuan Li

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China’s engagement in the Asia Pacific region

China started its engagement in the region since its joining to the APEC in 1991. The APEC has been an important mechanism because it provided the access for China to be part of the international community. Now 70% of China’s trade and 70% of inward FDI come from APEC countries, which makes the Asia Pacific region very important for China.

With the development of the Chinese economy, China’s international status has also been rising.

There also appeared different frameworks of regional cooperation. The ASEAN+3 (China, Japan, South Korea) is one of the most vibrant. The three countries each have an FTA with ASEAN. China supports the leading role of ASEAN in the East Asia affairs, and nowadays ASEAN has become the third largest trading partner with China. Now the three countries are also under negotiations of a China-Japan-Korea FTA. The process has been quite unstable, which was interrupted by diplomatic disputes. 

How does China view the TPP?

When the US first joined the TPP, China was quite skeptical about it. There were a lot of worries that US intended to contain China in the region. There were also quite a number of literatures analyzing “what does the US want from TPP?” Economic benefits for the US were recognized by Chinese intellectuals, but greater attention was oriented towards political purposes. They have noticed the lacking of legal binding authorities of APEC, the concern from the US that it could be left out in the regional integration of East Asia, the intention to regain its influential role in the region, the purpose

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to propel new rules for international trade, and the long-term goal to establish a free trade area all across the region, etc.

As challenges of the TPP negotiations being manifested, China has gradually changed its viewpoint.

There is more confidence from the Chinese intellectuals, and less anxiety. As a matter of fact, now with Japan officially joined the group, trade with TPP countries accounts for 43% of Chinese export, and 26% of Chinese import, many TPP countries have China as the leading trade partner. In May, the US stated that it welcomed China to join the TPP if China could meet the standards, and Chinese officials responded that it would study the feasibility to join. At the same time, China called for more transparency of the negotiations. ď Ź

How does China respond to the TPP?

Regarding the responses, China has also gradually developed some strategies. China definitely would not want to be out of the regional integration, nor would it want to only be accepters of the rules. In the short term, the standards of TPP are still hard for China to qualify, so there is not clear possibility to see China joining the TPP in the short run. However, China would be more active in promoting other integration mechanisms such as the Regional Comprehensive Economic Partnership (RCEP) initiated by ASEAN, as well as accelerating its FTA negotiations such as the China-Korea FTA and the China-Japan-Korea FTA, to compensate the potential loss if TPP comes into effect. At the same time, China would follow and observe closely the future negotiations of TPP, and advance its domestic economic reform.

Since the new leadership took office, the various domestic reforms that are taking place in China has caught enormous global attention. The newly launched Shanghai Free Trade Zone is a great example that manifests the determination and action that gear towards making the country more adaptable to globalization. In the policy paper of the free-trade zone, there are quite a number of initiatives in terms of liberalizing the service market (especially the financial market), providing better access for foreign investment, simplifying administrative procedures and preferential taxation. Notably, these pioneer experiments not only target to boost trade, investment and growth, but more importantly, to implement institutional reforms that have a long-term vision to be amplified all across the country. A big power as it is of China, its pragmatism in the economic policies serves to maximize the benefits.

The move to establish the Shanghai Free Trade Zone is a wakeup call that leads to more upcoming changes in the economy, as well as an intended attempt that moves closer to what the TPP and other trans-regional integration suggest. This effort will surely increase the competency of China joining the TPP.

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In any case, the integration of the Asia Pacific region would be the ultimate picture. In the speech made my Premier Li Keqiang at the 2013 annual meeting of the World Economic Forum, he emphasized that “China holds an open and tolerant attitude towards regional integration frameworks such as the TPP and TTIP.” Different frameworks could be complementary to each other or could merge at the end. With Xi Jinping proposing a “new type of great power relations” which highlights cooperation, mutual respect of interest and mutual benefit, efforts would be made to strive for more cooperative and open-minded relation between China and the US. China and the US should not exclude each other in international affairs, and any integration in the Asia Pacific region without China would not be effective.

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How does China view the Pacific Alliance?

China recognizes the division within Latin America, as the Pacific Alliance gathers the countries that practice liberal economic policies and are willing to open the markets, while some other countries lean towards protectionism. China follows any action of integration within Latin America. As the data shows, the total volume of trade between China and the Alliance countries is US$ 85.5 billion (in 2011) with a growth rate of 29.5%. This is 3% lower than the trade growth rate with the entire Latin America, which shows the potential for more growth. China now has FTA with Chile and Peru, and is in the stage of preliminary studies with Colombia to establish an FTA. The Alliance’s target to Asia is of great interest for China as well. China is now the biggest trading partner for Chile and Peru, and is the second biggest for Colombia and Mexico. Therefore, China should actively seek further economic interaction with the Pacific Alliance and increase trade and investment. As a matter of fact, a more integrated Latin America is obviously more attractive for China regarding further cooperation in industrialization and investment. For long-term and systematic cooperation, to have a free trade agreement is something to be considered. In this case, Mexico would be the key factor for making it happen.

* The author is a visiting scholar from Johns Hopkins School of Advanced International Studies, has a degree of Public Administration from Renmin University (Beijing, China), and is completing an internship at the Center for Latin American Studies on China of the University Andrés Bello.

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