China needs the Trans-Pacific Partnership to jump-start stalling reforms

Cary Huang says with its stricter rules, the trade agreement could do for the economy what China's WTO accession did - reinvigorate growth

PUBLISHED : Tuesday, 20 October, 2015, 12:41pm
UPDATED : Tuesday, 20 October, 2015, 12:41pm

To sceptics, the US-led Trans-Pacific Partnership is a demon pact as far as China is concerned. The free trade agreement, which is also backed by Japan, Canada, Mexico, Chile, Peru, Australia, New Zealand, Singapore, Brunei, Vietnam, and Malaysia, is seen as a blatant attempt to economically contain fast-rising China.

READ MORE: US-led TPP trade pact can help spur economic reforms in China

Yet optimists see the agreement as a potential angel. They believe it will provide another opportunity for China's development - if Beijing gets itself inside the tent.

Zhu Rongji used China's WTO negotiations to facilitate bold domestic reforms. Is the current leadership ready to make history in a similar way?

Officially, China has cautiously welcomed the pact. And some reform-minded officials and liberal scholars say the government should go further. China should aspire to join the partnership, as its efforts to comply with the higher standards of the pact - in such areas as environmental protection, investment and labour - would greatly boost its own market reforms. Economic globalism is what China badly needs at this historical juncture.

In the 1990s, China used its negotiations to join the World Trade Organisation to launch reforms. In the same way, it could now use potential membership of the TPP to give stalling reforms a push.

WTO accession was a turning point for Chinese reform; joining the TPP could be another milestone.

The Trans-Pacific Partnership aims to establish the most comprehensive rules for trade in the 21st century. These include enforceable labour standards, environmental protections and curbing the unfair advantages of state-owned enterprises. The deal also requires its signatories to embrace the rule of law and democratic norms. Indeed, the stringent requirements make China's accession to the pact a great challenge, if not a mission impossible.

Yet, these higher standards are not much different from what China itself wants to achieve, if the recent ambitious programmes launched by the ruling Communist Party are to be believed.

After three decades of cutthroat growth, China faces a host of problems that require a fundamental overhaul of its system of state capitalism, so as to sustain growth.

At the party's third plenary meeting in November 2013, Chinese leaders unveiled a reform package aimed at building an economy in which market forces will play a "decisive" role. At the fourth plenum a year ago, they pledged to introduce law-based governance, often translated as "rule by law" in the English press.

The measures pledged are no less ambitious than TPP requirements. For instance, China now falls short of an important TPP standard to put state-owned enterprises on an equal footing with the private sector, since the state sector still enjoys preferential treatment in many ways. Beijing is well aware of the problem, and has been trying to restructure the state sector.

Similarly, China realises the need for the protection of intellectual property rights, as it wants to develop an innovation-driven economy.

READ MORE: Pacific rim deal could benefit even non-signatories, Hong Kong finance minister says

The other TPP provisions, such as those relating to labour rights and the protection of the ecosystem, are in sync with China's own reform agenda.

New rules of trade are needed to correct the market distortions in China's state capitalism, and save China from the stagnation of a "middle income trap".

China should join the Trans-Pacific Partnership not because it has any wish to be part of a preferential trade club; rather, it needs the TPP to give the country's slowing reform programme a boost. Unsurprisingly, various interest groups are strongly resisting any such move.

In the late 1990s, then premier Zhu Rongji used China's WTO negotiations to facilitate bold domestic reforms which paved the way for the country's fastest growth period. Is the current leadership under President Xi Jinping and Premier Li Keqiang ready to make history in a similar way?

How they respond to the just-concluded TPP will be a test of their political wisdom and will.

Cary Huang is a senior writer at the Post