Making sense of China’s Asia-Pacific FTA agenda

IN A surprise move, the Chinese government announced on April 30 that it will explore the possibility of pushing ahead the long-delayed Asia-Pacific Free Trade Agreement (FTAAP) in the coming Asia Pacific Economic Cooperation (Apec) meeting this year. To that, Beijing is mulling a working group to study the feasibility of the Pacific-wide free trade pact which is scheduled to be discussed among Apec trade ministers in the May forum.

In light of Obama's conclusion of his Asia trip without much achievement on the Trans-Pacific Partnership (TPP) agenda, Beijing's latest move is a clear response to Washington's "economic containment" of China in the form of TPP—a suspicion that is shared by many analysts worldwide. Nevertheless, considering China's multi-level and often complicated decision-making process, Beijing's latest overture is definitely more than just a timely response. In fact, it is a strategic response aimed to achieve strategic goals in both external and internal dimensions.

First, Beijing's FTAAP move is a departure from Hu-Wen administration's policy on the Pacific trade agreement. Whereas the previous administration's stance on this matter is both ambiguous and non-committal, the current Xi-Li leadership has obviously abandoned such a policy to the point that it is willing to push the FTAAP agenda as Apec host this year. Exerting such a leadership when the credibility of Apec as the framework for achieving Asia-Pacific economic community is being questioned, is a show of China's aspiration for a global role that commensurate its position as one of the world's economic power.

Second, Beijing's support for the FTAAP is a strategic counter to the US-led TPP which China does not belong to. Instead of focusing its sights on the Asean-centred Regional Comprehensive Economic Partnership (RCEP), Beijing is also looking at the FTAAP as its other tool to mitigate the adverse impacts arising from the TPP towards China, should the US-led trade pact successfully concluded. As FTAAP is the larger economic bloc that encompasses all 21 APEC members, pushing the proposal through will not just complement the TPP but also, absorb the 12-member TPP nations within the larger free trade bloc. This effectively puts China in the driving seat, seizing the global free trade initiative away from the US and breaking the TPP-induced predicament on Beijing.

Third, China's push for the FTAAP agenda will mean that the RCEP is firmly established as the other cornerstone of the nation's free trade policy. Simultaneously, such a decision will cast away any possibility of Beijing entering the TPP as some analysts have hope for.

From the statement made by the Chinese commerce ministry days ago, China is planning to utilise certain aspects of both the TPP and the RCEP frameworks, to be the building blocks for the eventual free trade pact in the Asia-Pacific region. By that, it means that the FTAAP, if it is successful, will not be the high quality FTA or Economic Partnership Agreement (EPA) as the TPP, but rather, a modest version between the TPP and the RCEP. In the long-run, this is more beneficial to China as it puts the country in a gradual course of economic opening up unlike the situation in the TPP.

Finally, Beijing is employing the FTAAP as an external force to speed up reforms at the domestic front. With the FTAAP poised to be a higher quality of FTA vis-à-vis the China-Asean Free Trade Area, it is expected that substantial rules and regulations will be rolled out to overcome the numerous tariff and non-tariff barriers as well as investment hurdles among participating nations. For China, the FTAAP can be a force used by the government to break the monopolies of state-owned enterprises in the telecommunications, banking and transport sectors, just to quote a few. With economic reform being the most important agenda for the leadership, the Xi-Li administration is borrowing the external force in the form of FTAAP, to further liberalise its economy and, thus, spur China into a more sustainable economic development in the coming years.

What is needed by China, however, will be policy consistency and close collaboration with Washington to push the FTAAP agenda through. Just as half-baked efforts will not produce any tangible results as shown during the Bush administration, pushing through a FTAAP that is more accommodative to the developing world may not work as well in this case. Close lobbying with the US and other developed countries is vital if Beijing is to push through the FTAAP agenda in Apec.

- Contributed Karl Lee CROSS BORDERS theSunDaily

Karl Lee is an analyst at Anbound Malaysia, the leading independent think tank in Mainland China. Feedback: lcleong@anbound.com.

Related post:

China's economy close to overtaking USA in PPP measure this year but China don't read the ranking

China may be poised to overtake the United States as the world's top economy sooner than expected, according to one measure, bu...