Column : China in a changing region

Written by Amitendu Palit | Updated: Jan 2 2013, 09:24am hrs
Many in China perceive the TPP as a US-led consortium against Chinese strategic clout in the region

A top priority for the new Chinese leadership will be addressing the challenges in the regional economic landscape. China, along with the rest of Asia, is closely following the Trans-Pacific Partnership (TPP). The US is the driving force behind this sub-regional trade block coming up in the Asia-Pacific region. Comprising Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, Vietnam and the US, the TPP, while being a collective of APEC members, does not include major APEC economies like China and Indonesia. The groups economic significance has increased with the addition of Canada and Mexico and will become even more if Japan, South Korea and Thailand join it.

Most opinions in China perceive the TPP as a US-led alliance for reducing Chinas strategic clout in the region. Gradually, some other opinions are gaining influence. These include efforts for assessing the economic gains and losses of Chinas staying out of the TPP, or, in the distant future, becoming a part of it. Given Chinas strong trade and investment links with several TPP members, losses from diversion of trade and capital flows cannot be ruled out. These impacts are being assessed for gauging the economic harm that TPP can inflict on China.

The growth of the TPP has encouraged China to invest more resources and energy in other regional integration efforts. China is part of all integration efforts involving ASEAN and other major Asian economies. These include the ASEAN+3 (China, Japan, Korea) and the East Asian Summit (EAS). The latter includes ASEAN, China, Japan, Korea, India, Australia, New Zealand, US and Russia. The EAS will probably become marginal to the RCEP, or the Regional Comprehensive Economic Partnership.

The RCEP involves the integration of the ASEANs FTAs with non-ASEAN Asian economies. It would aim to consolidate the FTAs that ASEAN has with Australia, New Zealand, China, India, Japan and Korea. The consolidation would result in the ASEAN connecting to the rest of the major Asian economies in a hub and spoke economic framework with ASEAN as the hub.

Over the next few years, the Asia-Pacific would witness growth of both the TPP and the RCEP. Considerable interest has been generated among the economic and strategic communities over whether simultaneous negotiations would proceed harmoniously in the two arrangements. This is a major concern for China.

The TPP has had a head-start over the RCEP. TPP negotiations have been on for more than four years now and have finished fifteen rounds. RCEP negotiations would begin from March next year. These negotiations might be influenced by developments in the TPP since there are members common to both such as Australia and New Zealand and ASEAN countries like Brunei, Malaysia, Vietnam and Singapore. The common members would probably include Japan and Korea too in the long term.

China would be uncomfortable if the TPP influences the RCEP. The TPP is an ambitious agreement covering several WTO plus issues including intellectual property, labour and environment. It is aiming to rewrite the rules of international trade by aligning them with domestic regulations. The common members might try to force upon the RCEP the ideas of the TPP not only in WTO plus areas, but also traditional market access issues such as tariffs and non-tariff barriers. This will be an awkward situation for China, as much as it will be for India, who also features in the RCEP, but not in the TPP.

Greater influence of the TPP on the RCEP would also increase Chinas strategic discomfort. China is likely to view the TPP invasion as an effort by the US allies in the TPP to drag the RCEP closer to the TPP for maximising the US economic and strategic advantages.

What will be Chinas response to these emerging issues Much would depend on how it visualises its long term gains. While it will stay engaged with all non-TPP integration efforts in the Asia-Pacific, particularly the RCEP, for consolidating market access and minimising trade diversion, it will not be oblivious of the TPP. As an APEC member, it has the opportunity of taking advantage of the open annexation clause for joining the TPP. That will be a very tough decision though given the huge reforms it will require implementing domestic regulations and trade laws for joining the TPP. But China has taken similar steps before, the most notable being joining the WTO in 2001, despite not being a party to the WTO talks in the Uruguay round.

Chinas immediate priority would be to focus on increasing market access in Asia through the RCEP. India would feature in these efforts as would Japan and Korea. Realpolitik would continue to remain Chinas main asset in securing economic gains as it will strive to overlook political differences for taking deeper strides in other country markets.

The author is a visiting senior research fellow in the Institute of South Asian Studies in the National University of Singapore. He can be reached at isasap@nus.edu.sg. Views are personal