Beijing is weighing whether to join what is arguably the world’s highest-value trade accord, despite the wide-reaching liberalizing requirements that go with membership to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
With a new strategy to lead global trade and eventually dominate the world economy, Chinese President Xi Jinping first expressed Beijing’s interest in joining the 11-member CPTPP in November. CPTPP evolved from the US-led Trans-Pacific Partnership (TPP), which never entered into force due to America’s withdrawal.
Still, CPTPP is comprised of many of America’s top trading partners, including Japan, Australia, New Zealand, Canada and Mexico.
Xi’s expressed interest came shortly after he signed the Regional Comprehensive Economic Partnership (RCEP) agreement, an Asia-centric pact that coheres with Xi’s stated trade and commerce visions for the region.
Xi told a virtual summit of Asia-Pacific Economic Cooperation (APEC) member leaders in November that China would “consider favorably” joining the CPTPP.
Speculation on China’s CPTPP accession is helping to propel the world’s second-largest economy, which registered 2.3% gross domestic product (GDP) growth year-on-year in 2020, one of the few major global economies to record positive growth.
While leading the global economy, China runs the rising risk of being isolated from and frozen out of the Western-led trade order, a result of outgoing US President Donald Trump’s trade and tech wars. Xi’s overtures to the CPTPP can thus be perceived as an olive branch of sorts.
The CPTPP, originally known as TPP, was designed by the Barack Obama administration specifically to exclude China from a new Asian-oriented free-trade agreement. The current agreement was created in 2018 after Trump pulled the US out in one of his first acts in office.
The TPP also sought to promote universal values such as democracy, freedom and human rights in the form of labor rights and environmental protection.
Chinese state media says the decision to seek CPTPP membership was not made lightly.
A report by the Chinese State Council’s Development Research Center noted this week that China must keep modernizing its economy and particularly its state-owned enterprises (SOEs) to better align itself with global trade and commerce standards.
“China must forestall [US President-elect] Joe Biden’s bid to reunite allies to close ranks against us and the CPTPP presents a good opportunity for China to pre-empt,” said a report examining the pros and cons of China’s membership syndicated by China News Service.
The high stakes and significance attached to Beijing’s bid have been likened to China’s momentous World Trade Organization accession in 2001, which effectively opened its closed economy to the world.
Observers wonder whether Beijing trully has the resolve and intent to undertake the deep reforms of its sprawling and widely subsidized state sector in line with CPTPP rules and requirements, which would be the most stringent of any trade deal China has signed.
Earlier this month, Japan’s Sankei Shimbun newspaper cited Prime Minister Yoshihide Suga as saying his country would respond with caution to Beijing’s bid since China’s political and economic systems were largely incompatible with CPTPP principles.
Japan, the largest economy in the trading bloc, is also its rotating chair country for 2021.
Beijing will reportedly set out more goals and commitments in future talks with CPTPP members. It will be no easy task: China’s SOEs will have to brace for sweeping changes that level the playing field and roll back privileges including state subsidies, below-market rate loans and preferential funding.
As many as 200,000 Chinese SOEs, variously under State Council or local government control, will need to be restructured to be eligible to trade with CPTPP members, the Guangzhou-based Southern Reviews magazine quoted former World Bank private sector development specialist Zhang Chunlin as saying.
A Peking University associate professor of public administration told Asia Times that one of the CPTPP’s key imperatives was to lock in limits on SOEs. He said Xi’s announcement of China’s CPTPP bid at last year’s virtual APEC summit – many members such as Japan, Vietnam, Singapore, Australia and Canada are also CPTPP signatories – sought to signal China’s willingness to change.
“SOEs are under the leadership of the Communist Party, but to comply with CPTPP rules and make SOEs more independent and market-oriented the state must deregulate and delegate its power and Beijing is preparing to do that.” the professor opined.
“Beijing is taking the initiative to join the new treaty and to eventually play by its set of strict rules.” The academic said it took eight years for China to join the RCEP and speculated that CPTPP accession could take longer.
“The fact that Beijing is not forced or pressured to reform its SOEs and there is no definitive timetable all mean Beijing has the resolve to press ahead with deep SOE overhauls, but it can also control the pace.
“Beijing must have weighed risks and benefits and reached a conclusion, together with its key SOEs, that the changes needed would ultimately be in China’s interest,” the Peking University academic said.
Other CPTPP-mandated reforms will include allowances for the creation of independent labor unions, which currently are nonexistent in authoritarian China. Still, others will include more transparent government procurement and dispute arbitration, as well as cross-border sharing of data and free flow of information.
Some quick breakthroughs in intellectual property protection can be expected as Beijing seeks to nurture and protect its own domestic startups and innovators.
Vietnam’s admission into the CPTPP, despite the country’s similarly outsized state sector, will serve as a precedent and guide path for China. The upstart Southeast Asian manufacturing powerhouse was allowed years-long reprieves to bring its SOEs up to CPTPP standards.
Beijing may request similar grace periods to buy time to cushion the impact on its state economy.
In the end, China’s accession will require the approval of the CPTPP’s 11 members. The US, though unlikely to launch its own membership bid as Biden will face staunch resistance at home to entering the CPTPP, may throw a spanner in the works of China’s approval.
Singapore’s Lianhe Zaobao newspaper said in a commentary that with Beijing signing two landmark deals – the RCEP and recently agreed on European-China investment pact – the US could soon be turfed out of the new global trade order if Beijing joins the CPTPP.
“China, as a big champion and beneficiary of free trade underpinned by bilateral and multilateral deals, is a threat to US’s long-held primacy,” the paper said.
Even without overt US resistance, China will first need to burnish its credentials. Its underwhelming efforts to abide by various WTO requirements, including regulatory reforms, have frustrated both trading partners and foreign investors.
With likely long negotiations ahead, Beijing has shaken up the ranks of its Commerce Ministry, with Wang Wentao, who spent years in Shanghai overseeing trade and commerce in mainland China’s most internationalized city, appointed as the new commerce minister.
Wang’s deputy, Yu Jianhua, Beijing’s extraordinary plenipotentiary in the WTO between 2013 and 2017, has recently been appointed China’s new trade negotiations representative. That likely means Beijing aims to apply its WTO experience in its bid to accede to the CPTPP.