The Asian powerhouse was a notable absentee in the TPP Agreement
The Trans Pacific Partnership’s (TPP) 12 members Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam and the U.S., reached a historic accord on October 5, 2015. Japan and the U.S. were late additions, as they had the largest number of demands and a few deal breakers that needed to be smoothed out before reaching a consensus.
The TPP agreement will lower tariffs to create a market of 800 million consumers accounting for nearly $30 trillion in economic activity.1 Combined, the members are responsible for 40 percent of global gross domestic product and about one-third of world trade. China was gracious after not being invited; with Chinese Commerce Minister Gao Hucheng saying that the nation is open to any trade mechanism that follows the rules of the World Trade Organization and that he hopes “the TPP pact and other free-trade arrangements in the region can boost each other and contribute to the Asia-Pacific’s trade, investment and economic growth.”2 The impact of the TPP’s success could mean a 2.2 decrease in China’s GDP all things being equal, according to a study done by the People’s Bank of China research bureau chief economist Ma Jun.3 The fact is, that which benefits Asia regionally will also have a positive effect on China’s economy, therefore the predicted detriments of China’s exclusion might not hold up in the reality of trade flows.
The TPP took seven years of intense negotiations to ratify. During that time, China did not stand idle but rather, has embarked on a trade and foreign investment agenda that could pay off faster, requiring a much shorter period of negotiations.
China Development Bank Attracting Emerging and Developed Nations Alike for Membership
The Asian Infrastructure Investment Bank (AIIB) was proposed by China in 2013 as a direct response to the International Monetary Fund (IMF), the World Bank and the Asian Development Bank (ADB), which are all dominated by developed countries like the U.S., France and Japan. The AIIB was launched in October of 2014 and has 57 prospective members, which include developed nations such as: the UK, Austria, Australia, Germany and France, to name a few. Notable exclusions are Japan, Canada and the U.S. The U.S. strongly opposed the formation of the AIIB and even tried to prevent commercial allies from joining the union, albeit unsuccessfully.
China Trade Deals Off to an Ambitious Start
China continues to gain allies internationally, through a combination of direct investment and trade deals. The investment in the UK comes at the perfect time as talks of a British exit (Brexit) from the European Union begin to heat up, leaving Britain to seek out a reliable trading partner. On November 9, 2015, China and Australia approved a free-trade agreement and similar success is expected from negotiations with South Korea.
Similar to the AIIB being launched as counter to the IMF, World Bank and ADB, China is working on its own answer to the TPP with the Regional Comprehensive Economic Partnership (RCEP), an all-Asia free-trade deal. The fall in oil prices has also boosted China’s reach in Latin America and the Gulf Cooperation Council.
China WTO “Dumping” Cases to Be a Thing of the Past
China has been a member of the World Trade Organization (WTO) since December 11, 2001 and more recently announced on November 12, 2015 that anti-dumping claims on products will have to use domestic prices in China to base their argument, starting in December 2016. This means that China will finally be treated as a market economy. A market economy provides freer rein to supply and demand, versus government regulation, in deciding prices of goods and services. The lack of this designation allowed foreign countries to slap anti-dumping claims on China, by using their own domestic pricing as evidence. After 15 years, as per the terms of its membership with the WTO, China will attain market economy status.
The trade deals, development bank initiative and the patience and foresight to join the WTO are finally paying off for China. As macroeconomic headwinds increase, developed economies are looking at emerging markets for growth; China, the world’s second largest economy, has strategically positioned itself to turn adversity into opportunity expected to bear fruit next year.
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1 Government of Canada, Trans-Pacific Partnership.
2 The State Council, The People’s Republic of China.
3 The Globe and Mail, For some business in China, the cost of exclusion from TPP is too high, October 9, 2015.