HONG KONG (MarketWatch) — Last week, China signed a landmark free-trade agreement with Australia, the latest entry in Beijing’s recent parade of high-profile trade deals.
And while benefits to China from such pacts include a possible boost to the domestic economy and the expansion of Chinese soft power via an extension of the reach of its brands, these deals can also be seen in the context of a “free-trade race” with the U.S., in which each side racks up competing — and often overlapping — free-trade agreements, or FTAs.
Specifically, the Australia deal follows closely a similar agreement with South Korea, inked June 1, and falls into China’s plan for a Regional Comprehensive Economic Partnership, which Beijing hopes will in turn serve a grander, more globe-straddling strategy for a Free Trade Area of the Asia-Pacific.
RCEP and FTAAP, as the latter schemes are known, are more than just another pair of Chinese government acronyms. Back in the 1990s, China was struggling to conform to the rules of the World Trade Organization, which it finally joined in 2001. But today, as an editorial by the state-run Xinhua News Agency put it last week, China wants to transition to “actively helping write international economics and trade rules” rather than following a system set up by other nations.
This month’s new trade deals are a step in that direction, Xinhua said, with China trying to “thread the beads of a China-South Korea FTA and China-Australia FTA onto the string” of its RCEP plan and eventually “create a plane” for the more ambitious FTAAP.
In fact, Chinese President Xi Jinping went so far as to tell Australian Prime Minister Tony Abbott in a public letter that the FTA between their countries would “set an example” for similar agreements in the Asia-Pacific region.
The Great Game — world trade edition
So far, China has signed FTAs with about 20 countries around the world, scattered as far as New Zealand, Switzerland, Iceland and Chile. It’s also negotiating free-trade deals with Norway, Sri Lanka and Saudi Arabia, among others.
“China is pursuing a grand strategy of building stronger trade and investment ties with its Asian neighbors,” IHS Inc.’s chief Asia economist, Rajiv Biswas, told MarketWatch.
Biswas said this strategy includes forming a new trade architecture through bilateral FTAs and the pursuit of the RCEP and FTAAP, as well as through new institutions, such as the recently founded, World Bank–like Asia Infrastructure Investment Bank and a Silk Road Fund meant to boost economic exchange with China’s historical trade partners in Southeast Asia and in Central Asia.
But perhaps the root of China’s proliferation of trade deals and multinational organizations is yet another set of initials, emanating from Washington: the TPP.
The TPP is the U.S. government’s Trans-Pacific Partnership, currently under negotiation by the Obama administration, with 12 countries in the Asia-Pacific arena — but not China.
In a way, it’s like a modern version of the so-called Great GAME of the 19th century, in which the British and Russian empires competed for dominance in the resource-rich and highly strategic Central Asia region.
While neither side has openly declared an FTA race — President Obama even said that China has shown interest in joining the TPP “at some point” — many observers see the TPP and China’s RCEP as rivals.
“It is indeed commonly perceived that the TPP is designed to exclude China,” said Francis Lui, director of Hong Kong University of Science & Technology’s Center for Economic Development.
Certainly, there’s a good deal of overlap between the two proposed trading spheres, with Australia, New Zealand, Japan, Singapore, Malaysia, Vietnam and Brunei all marked for inclusion in both the TPP and RCEP. And in seeking to promote the TPP in the U.S., Obama warned in April that if the TRADE GROUP isn’t set up, then China will write the trade rules for the region.
Lui said China’s rush to sign trade pacts and set up the RCEP is Beijing’s counterweight to the TPP, and “the emergence of this large number of FTAs shows that [the U.S.’s TPP] strategy can be mitigated easily.”
“If China can sign individual FTAs with many members of TPP, then the American goal of using it to isolate China would no longer be of any significance,” Lui said. “The fact is that many members of the TPP indeed have the incentive to go into FTAs with China.”
Likewise, Beijing’s top government think tank, the Chinese Academy of Social Sciences, said in a report late last year that China’s entry into the TPP was “unrealistic” in the short term given its requirements in terms of industrial development and on other metrics. Instead, the report said, China should pursue its own trade agreements.
“The RCEP and TPP are apparently a pair of rivals. Whichever succeeds first will have a demonstration effect, and whichever has a bigger benefit of scale will be more likely to have a leading position,” the report quoted senior Foreign Ministry official Wang Shuai as saying.
Despite acknowledging the competitive nature of the two proposed trade blocs, however, the report said it was in China’s interest to launch specific reform measures that would meet the TPP criteria, since such measures are nonetheless in line with “future international trade rules and trends of China’s reform.”
And in any case, it said, conforming to some of the TPP rules would keep China’s options open if it decides it wants to join the TPP at some point in the future.
From the archives: Is the Shanghai Free-Trade Zone the real deal?
Still, China is taking the possibility of a TPP very seriously. In fact, the Chinese Academy of Social Sciences’ vice president, Li Yang, went so far as to say that the TPP was a “direct reason” for the launch of the Shanghai Free-Trade Zone, modeled on the special economic zone established in the southern city of Shenzhen in the 1980s and touted as an area freed of red tape and other constraints on industry.
If so, the fact that China set up additional free-trade zones in Tianjin, Fujian and Guangdong this past April shows that Beijing has its eyes squarely on its TRADE GAME with the U.S.