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China stands to benefit from demise of TPP

By Kerry Brown | China Daily Europe | Updated: 2016-12-04 13:38

Free of US involvement, a strategic space has opened for a truly beneficial free trade zone

China originally regarded the Trans-Pacific Partnership, or TPP, led by the United States, as a potential problem when the idea surfaced a few years ago. The creation of a zone of 11 economies all in the Asia-Pacific region but with China not involved seemed to be a tangible manifestation of the Obama presidency's "pivot" (or rebalancing, as the more accepted phrase in Washington puts it) being some kind of attempt at containment for China - the blatant attempt to create a zone that excluded it and attempted to counterbalance its rising influence.

With the demise of the TPP after all the effort from Japan, the US and others as a result of the election of Donald Trump - who has said on his first day in the White House in January he will revoke the deal - a strategic space has opened up that China can now move in and fill. This is particularly the case as this is in the economic realm, one where China is clearly much more comfortable than in the security or geopolitical area.

China has been considering an Asia-wide free trade zone for some time. At this year's annual Asia-Pacific Economic Cooperation conference held in Lima, Peru, in early November, there was clearly an appetite among some of the attendees to embrace this reinvigorated idea, particularly in view of the vacuum that the TPP's disappearance leads to.

For the 20 or so countries in the region, a better-quality trade deal with China is an attractive idea. For many of them, China is already either their largest or second-largest trading partner. It is also an increasingly important investor. With the Chinese-initiated Asian Infrastructure Investment Bank, or AIIB, China also now figures as an aid and development ally. All of this supplies the basis imperative behind an overarching deal that could provide a common economic narrative across the region, something a free trade deal would fill nicely.

For China, if a free trade agreement of its own were achievable, it needs to achieve two things. The first is to assist it in its domestic mission to create a high-value-added, more service-sector-orientated, higher-consuming economic model. A deal that would assist in this - in terms of provision of better quality technology transfer, and access to foreign markets in areas more diverse than manufacturing and exports of manufactured goods - would be attractive.

For China to get the best deal, it would also need to have a clearer means by which neighboring countries can get good access into China. One way of doing this is to have Chinese outward investors as partners for foreign companies getting back into the domestic Chinese market. Beijing has made it clear that it wants to create a higher-value-added, higher-consuming economic model. And good quality partnerships with foreign partners would be a natural way to promote this, because of their technological and knowledge assets.

Second, having a free trade agreement across the region that promotes this exchange of ideas and expertise - taking China (explicitly or implicitly) as the central focus because of the size of its economy and its exports, and finance links - would make strategic sense. A post-TPP Asian-based free trade deal therefore is a good opportunity for China to create this space for exchanges that are useful to it, but also can make it clearer to others the ways in which they can benefit from the Chinese economic transition. This would be a perfect iteration of the "win-win" formula Chinese officials are keen to promote.

The demise of the TPP on the part of the US also marks a major geopolitical opportunity for China. In Europe and elsewhere in the developed world now, appetite for free trade has dimmed. Both Brexit and Trump's election are symptoms of this. There is anger at the perception of the unequal spread of growth and wealth from previous free trade regimes and deals. People feel that jobs have gone, growth has fallen and living standards have stagnated.

China now remains the most important defender among major economies of the idea that open borders and a rules-based global trade system is still important for ensuring growth and prosperity. Its support of the Asia Free Trade Zone would be a signal that it still feels this process of globalization is important. A world retreating to protectionism would at least be disrupted by China, one of the most interlinked of all economies, which is taking leadership in continuing to open up more markets and create a less restricted rather than a more restricted global trade order.

The author is professor of Chinese studies and director of the Lau China Institute at King's College London. The views do not necessarily reflect those of China Daily.

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