How China should respond to the TPP

October 24, 2015 08:02
While China is absent from the starting lineup of the TTP, the country should actively participate in global economic cooperation, as well as in drafting the rules for the global economic order. Photo: Wikipedia

The landmark Trans-Pacific Partnership (TTP) agreement has stoked concerns about a negative impact on China.

When the TPP was set up, US President Barack Obama said, “Under this agreement we, rather than countries like China, are writing the rules for the global economy.”

Ma Jun, chief economist of the People’s Bank of China, wrote in an article that if China does not join the TPP, it could lose 2.2 percent of its gross domestic product.

Other analysts estimated that the absence of China in the TPP will cause a loss of 1.5 percent of South Korea's GDP and 0.6 percent of Japan's.

By contrast, the eurozone, Singapore and Vietnam will benefit from China’s absence.

Against the wishes of Washington, the World Trade Organization, the world’s most important trading grouping, has developed initiatives to enhance labor protection and environmental preservation.

But its 14-year-old Doha round of negotiations has failed to reach an agreement so far.

Against this background, various countries have started their own negotiations on bilateral or regional free-trade agreements.

The United States has led talks on two regional FTAs, the recently concluded TPP and the Transatlantic Trade and Investment Partnership (TTIP).

The TPP is a key step for the US in pivoting back to the Asia-Pacific, and the TIPP aims to open up trade with Europe in a similar way.

Big countries are the key participants in global economic cooperation.

Small countries will want to join hands to become rule-makers in the global economic arena, instead of remaining rule-takers or rule-followers.

With these partnerships, none of the countries has the power by itself to make economic rules, and none should be deprived of the right to take part in making the rules.

However, one country has to join the game so as to understand the rules, spot problems and make suggestions.

I suggested two years ago that China should take an active approach in response to the US-led TPP, and I still hold that view today.

China should play a big role not only in the Asia-Pacific region, but also in global economic growth.

And it should actively participate in global economic cooperation, as well as in drafting the rules for the global economic order.

Fortunately, China has kept on track in opening up its economy.

It has tried to establish economic ties with key developed economies as well as with emerging markets.

For example, Beijing has tried to push for economic and trading cooperation via various platforms, such as the China-US Strategic Economic Dialogue, "one belt, one road" and the Asian Infrastructure Investment Bank (AIIB).

The Chinese central bank launched the Cross-border Interbank Payment System (CIPS) on Oct. 8.

CIPS is considered as a game-changer in paving the way for the renminbi to become a global reserve currency.

The Chinese currency has already become the world’s fourth-most used payment currency and second-most used currency in trade finance.

The "one belt, one road" initiative offers some advantages over competing schemes.

While the US aims to protect its benefits and write the global economic rules with the TPP, "one belt, one road" is an “orchestra” led by Beijing, which takes into account the interests of various parties.

And the AIIB is a key part of that orchestra.

This article appeared in the Hong Kong Economic Journal on Oct. 19.

Translation by Julie Zhu

[Chinese version中文版]

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Researcher of China Business Centre of the Hong Kong Polytechnic University