China should join the Trans-Pacific Partnership talks

Hu Shuli says the trade pact's goal of removing barriers to competition is in line with the policy directions set out by China's recent party plenum

PUBLISHED : Wednesday, 20 November, 2013, 5:43pm
UPDATED : Thursday, 21 November, 2013, 3:01am

Now that Communist Party leaders have announced their decision to take China in the direction of fuller, deeper reforms, the attention is on how it can be done.

Not only do we hope to see concrete measures implemented in good order, we urge policymakers to continue opening up China's economy and society to seize opportunities in the global economy. China's 35 years of reform experience demonstrates the success of this strategy; it's what China needs today.

As the plenum communiqué puts it: China must continue to open up domestically and internationally, welcoming foreign businesses while at the same time encouraging local industries to go overseas; it should ensure factors of production are mobile, resources are efficiently allocated and markets are well run; it should foster co-operation amid global competition; and it must lower the entry bar for foreign investment, accelerate the set-up of free trade zones and open up China's inland areas.

The history of Chinese reforms is a history of liberalisation. From the establishment of special economic zones to the country's admission into the World Trade Organisation, liberalisation has proved to be a most powerful growth driver.

Much has changed in the past five years: post financial crisis, the global economy saw the end of an extended period of high growth. While the economy restructures, new rules are being drawn up.

China - which studies show is only moderately open to the world, compared to advanced economies - must prepare itself for further liberalisation.

In particular, China must reconsider its attitude towards the US-led Trans-Pacific Partnership. Indeed, recent signs indicate that its attitude has changed. While Beijing regarded the negotiations as part of the US "pivot" towards Asia and largely an instrument deployed to "contain" China, its view today has become more positive. At the recent Apec meeting in Bali, President Xi Jinping said China was open to any partnership that would further integration of the Asia-Pacific region.

On closer scrutiny, the goals of the trade pact coincide with China's own goals to liberalise its economy. Thus, Beijing would be wise to study it, to see how China may fit in.

First, the partnership would be good for Chinese trade. With its target of achieving zero tariffs for 99 per cent of the agricultural and industrial products in discussion, the Trans-Pacific Partnership is committed to freer trade than WTO standards require, and stricter than China's own trade pacts with others. If China isn't part of this agreement, it could be cut out of some business.

According to research by the Peterson Institute for International Economics, the partnership could increase global trade volume by 1.1 percentage points, and raise gross domestic product by 0.2 percentage points. If China were excluded, it could cause Chinese trade volume to drop by 1 percentage point, and GDP to decline by 0.2 percentage points.

More importantly, the partnership could act as a catalyst for reform in China.

In the services and investment sectors, the trade pact advocates equal treatment of domestic and foreign industries and use of a "negative list", and more stringent rules to resolve trade disputes. This is in line with China's own efforts in international finance, the set-up of the Shanghai free trade zone, and the talking points in Sino-US trade negotiations. It also meets the policy goals outlined in the plenum communiqué to ease investment rules and let the market allocate resources.

China should also welcome the call for fair competition. The trade partnership will require members to curb monopolistic practices of their state industries to ensure fair competition for all. This is just what China needs, as it struggles to stop its state-owned enterprises dominating the market. Again, this accords with the plenum's view.

These and other provisions of the trade partnership, including in labour and environmental standards, in fact mirror the goals set out by party leadership. It should be noted, too, that the trade pact works in tandem with other regional co-operation agreements such as the Regional Comprehensive Economic Partnership.

It's true China cannot yet meet many of the goals set out in the Trans-Pacific Partnership, but that is no reason to avoid it. In fact, being a part of the negotiations will spur China to raise its game.

In the global trend towards greater liberalisation, any economy that is left behind will find it hard to survive the competition in the 21st century. China should seek to join negotiations for the Trans-Pacific Partnership, so its voice may be heard and its interests protected. The longer it waits, the more likely the rules of the game may end up favouring others.

Joining the trade pact could well be a test of the maturity of the Chinese economy, and a milestone for its reform journey.

This article is provided by Caixin Media, and the Chinese version of it was first published in Century Weekly magazine.