Citing a source close to the Chinese government, the South China Morning Post reported on October 11 that China is testing the waters to join the Trans-Pacific Partnership (TPP). According to the Hong Kong-based newspaper, Beijing is considering such a move “amid mounting pressure from the trade war” with the United States.
If the report is true, which is very likely, it is another sign that Beijing has lost the confidence it has projected over the past two years.
Speaking at the Asia-Pacific Economic Cooperation (APEC) summit in Peru in November 2016, Xi Jinping urged the countries in the region to pursue “an open and integrated economy” and build a Free Trade Area of the Asia-Pacific (FTAAP).
The Chinese president then pledged that “China will not shut its door to the outside world, but open itself even wider” and “will fully involve [itself] in economic globalization by supporting the multilateral trading regime, advancing the FTAAP, and working for the early conclusion of the negotiations on the Regional Comprehensive Economic Partnership [RCEP]”.
He made such calls and promises because the summit came just over a week after US President Donald Trump, who campaigned on an “America First” platform, unexpectedly won America’s presidential election.
One of Trump’s central campaign promises was to abandon the TPP – a huge trade deal that Barack Obama, his predecessor, championed and signed with America’s democratic allies and like-minded partners in the region
One of Trump’s central campaign promises was to abandon the TPP – a huge trade deal that Barack Obama, his predecessor, championed and signed with America’s democratic allies and like-minded partners in the region. It was, in effect, a central pillar of Obama’s “pivot” or “rebalance” to Asia that was partly, if not mainly, aimed at containing and changing a rising China.
That led Chinese state-run media to believe that China would now play the leading role in shaping regional trade and integration.
For instance, the China Daily, a key outlet, ran a commentary that said: Xi’s presence at this event “marks a watershed, a historic milestone not just in terms of China’s rise as a great power, but, of equal importance, as a palpable manifestation of its new status as the Asia Pacific’s preeminent leader in promoting globalization, trade liberalization, and regional economic integration.”
The op-ed, entitled “China ushers in new FTAAP era”, contrasted then President-elect Trump’s campaign promise to scrap the TPP with Xi’s “steadfast adherence to globalization, opposition to protectionism, and his proposal that Asia Pacific should move to the next level by adopting a larger model for Asia Pacific economic integration, namely, FTAAP.”
Trump’s eventual withdrawal from the TPP, which took place on his first day in office, further emboldened China’s willingness to lead. Following Trump’s decision to quit the US-led pact, Chinese Foreign Ministry spokeswoman Hua Chunying said Beijing would now “forge ahead with the negotiation of the [RCEP] and the construction of the [FTAAP] so as to add new impetus to regional and global economic development.”
As for Xi, on many other occasions after the 2016 APEC summit – including at the World Economic Forum (WEF) in Davos in January 2017, the 2017 APEC meeting in Vietnam, the Boao Forum for Asia (BFA) and the China-Africa summit in China this year – China’s core leader always portrayed his country as the credible, if not indispensable, player that would lead not just the Asia-Pacific region but also the wider world on the economic front.
But almost two years later, despite Trump’s protectionist, isolationist and unilateralist posturing and for all Xi’s promises, China is still unable to play such a leading global role. It is even struggling to be a regional leader on trade.
The FTAAP, a trade proposal involving all 21 APEC economies launched at the 2014 APEC meeting in Beijing, remains a distant, if not impossible, prospect despite Xi’s calls for taking “more effective actions to realize the FTAAP at an early date” in Peru in 2016.
Talks on the RCEP that groups the 10 members of the Association of South East Asian Nations (ASEAN) plus China, Japan, South Korea, India, Australia and New Zealand, did not advance significantly. After 23 rounds of negotiations stretching back to 2013, only four chapters of the 18-chapter proposed pact have been completed.
Trump’s election and, especially, his trade war in recent months, have apparently speeded up the talks a little bit. Chinese officials and media have recently said that their country “has been vigorously promoting” regional FTA negotiations, including the RCEP, and that “chaos caused by US trade aggression” accelerated such talks.
Yet, it remains unclear as to whether China and its negotiating partners will make major breakthroughs and conclude the RCEP or any other major deals by the end of this year. The RCEP itself failed to meet agreement deadlines a number of times. For instance, in March 2016, Chinese Premier Li Keqiang said his country hoped to complete talks on the RCEP before the end of that year.
By contrast, with Japan’s insistence and leadership, the TPP, which was widely seen as “all but dead” following Trump’s election and his withdrawal from it, has been successfully revived. The now renamed Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), or the TPP-11, was signed by the remaining members in March 2018.
It could come into effect in early 2019, as Australia, Japan, Mexico and Singapore have already ratified it and New Zealand, Vietnam and, probably, Canada will do so by the end of this year. The accord will come into force 60 days after six signatory countries have approved it domestically.
The mere fact that Beijing is exploring the possibility of joining the CPTTP, which would cover 15% of global trade, shows China is not really a rule-maker, but rather a rule-taker on regional trade.
Though some of its key provisions have been watered down, the TPP-11 is still a high-standard multilateral trade agreement
Though some of its key provisions have been watered down, the TPP-11 is still a high-standard multilateral trade agreement. Not only does it cut more tariffs on goods, but it also covers other key areas such as labor, intellectual property protection and the environment. It is certainly far more ambitious and comprehensive than the China-backed FTAAP and RCEP, both of which focus on the lowering or cutting of tariffs, rather than more complex regulations on other issues.
Besides the TPP-11, some of its members have reached other important trade agreements. Canada, Japan and (on October 19) Singapore signed robust trade deals with the European Union. Vietnam is now following suit. Last month, Mexico and Canada reached a new trade deal with the US.
In contrast, China has not reached any major trade deals. A reason for this is that, as already noted, for all Xi’s rhetoric and pledges, the communist-ruled country, where state-driven industrial plans and state-owned enterprises remain predominant, is not really a free and open economy.
In the Heritage Foundation’s 2018 trade freedom ranking, China is placed at the 116th position – far well below most regional countries, including Singapore (4th), Malaysia (34th), Australia (50), Taiwan (56th), Japan (70th), Indonesia (74th), Philippines (76th), Cambodia (79th), South Korea (81st) and Vietnam (90th).
In all the five speeches mentioned and his many other statements, Xi always cites China’s Belt and Road Initiative (BRI) as the primary example of Beijing’s support for free trade, open economy and economic globalization. But again, Xi’s China and its BRI are not perceived in this way.
Last month, the European Parliament (EP) overwhelmingly passed a resolution on EU-China relations, which was also very critical of a wide range of China’s domestic and foreign policies under Xi, including the BRI.
The document warned that the infrastructure projects under this initiative “could create large debts” for European countries involved, pointing out that “some BRI-related infrastructure projects have already placed third governments in a state of over-indebtedness.”
More notably, it confirmed that “27 national EU ambassadors to Beijing have [in fact] compiled a report that sharply criticizes the BRI project, denouncing it as being designed to hamper free trade.” In April, with Hungary being the only exception, the EU member states signed a critical report. It was then reported by a German newspaper, but China denied its existence.
These warnings are justified. Last year, as it was unable to repay China for the $1.4-billion Hambantota port project, Sri Lanka was forced to lease the strategic port to the Chinese for 99 years. Aware that they may, or will, have to pay such a heavy price for being too reliant on – and highly indebted to – China, several other Asian countries, including Malaysia, Pakistan and Myanmar, have canceled, scaled down, or reconsidered Beijing-backed projects.
Trump’s withdrawal from the TPP had many, if not most, foreign policy analysts seeing it as a short-sighted move. Describing it as “a gift” or “a boon” to China, they thought that his decision would give the Asian giant a free hand to shape the region’s affairs, including its trade rules, and, consequently, put US influence at risk.
Some still regard – rightly – his decision not to join a revived TPP as a strategic mistake. That said, even though the US president abandoned such an economically and strategically vital trade pact – and still shows no interest in rejoining it – China cannot take the driver’s seat on free trade in the region.
Thus, perhaps, it’s time for the Chinese to ask why, even in the Trump era, their country cannot play a central role in the Asia-Pacific region – let alone in the world – despite the fact that it is the most populous country and the second-biggest economy on earth.