CPTPP bid shows political side of China’s trade goals

In September 2021, China applied to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The request came four years after the United States withdrew from the fledgling arrangement for what had previously been simply called TPP.

While China is clearly driven by a desire to expand trade and facilitate industrial expansion, its political motives are less clear.

Some Argue that Beijing is prepared to uphold the high standards of the CPTPP and intends to use the accession negotiations to accelerating reforms focused on the internal market. Others remain skeptical China’s track record in adhering to the WTO principles of non-discrimination, openness, transparency and market-oriented policies. They argue that Beijing is unlikely to meet its commitments and that its candidacy is just an attempt to expand its influence.

These contradictory explanations are both partially correct and result from divergent interpretations of global trade rules by China and the West. China is ready to adopt reforms, but not in the way hoped for by the United States and its partners. Beijing’s request to join the CPTPP is based on its three political motivations:

  • facilitate national economic reforms,
  • popularize its own interpretation of global trade rules and
  • strengthen its economic leverage vis-à-vis countries in the Asia-Pacific region.

Contrary to accusations of non-compliance with WTO standards, China has made progress towards non-discrimination through market-oriented reforms.

Since 2003, China has adopted a policy to “grab the big, free the small” – reduce its number of state-owned enterprises (PEs) through privatization, asset sales and mergers and acquisitions. China has promulgated a series of mixed ownership reforms since 2013, welcoming private capital into state-owned enterprises.

China has also pledged to test the rules of the CPTPP in some of its free zones and overcome other regulatory hurdles under the phase one agreement.

Beijing’s commitment to deepening reforms is also evident in its interest in building an alternative to the US-based Clearing House Interbank Payments System (CHIPS).

Russia’s invasion of Ukraine has caused many to fear the possibility of the world economy splitting into two parts.

But whether China seeks to complement or compete with the dominant international financial infrastructure, build a robust alternative to CHIPS is linked to the broader project of internationalization of the currency. China is encouraged to pursue reforms that strengthen the renminbi as an international currency.

Caution is always in order. Amid escalating trade and technology disputes between the United States and China, Beijing has small incentive adopt all the reforms demanded by Washington – not to mention that China and the West have constantly disagree on what “reform” should mean.

Given Beijing’s unabashed claims that its practices conform to global trade rules, its CPTPP candidacy is likely an attempt to popularize its own interpretation of global trade rules.

For example, despite mixed ownership reforms of its state-owned enterprises in China, private shareholders remain subordinate to the state in corporate governance. This situation has been exacerbated by a strengthening of party cells within state-owned enterprises since 2013. Recent data also indicate that continued favoritism to Chinese state-owned enterprises in the form of more accessible and cheaper credit.

These realities, combined with the claim that China’s state-owned enterprise reforms are in line with CPTPP rules, suggests that Beijing has a much more conservative interpretation of global trade rules. Seeking membership while maintaining its distinctive interpretation of CPTPP provisions, Beijing is likely hoping to shape the rules of global trade in its favor.

Caution regarding China’s geostrategic motives is not misplaced, as it has shown a propensity to derive political gains from its economic ties.

It seemed like a good idea at the time.: Lotte outlet in Beijing, 2013. Photo Wikimedia Commons

For instance, Beijing arrested most of South Korea’s Lotte operations following Seoul’s decision to participate in a US-led defense system. More recently, he responded to Australia’s call for an investigation into the origin of Covid-19 with import restrictions.

In fact, China applied to join the CPTPP just a day after the formation of the AUKUS security pact. Thus, the Chinese candidacy for the CPTPP is probably a defensive measure against AUKUS and an attempt to expand its influence in Asia-Pacific.

In early 2022, the United States launched its Indo-Pacific Strategy, with the aim of encouraging more cross-border collaboration on trade, data and supply resilience in the region. of President Joe Biden recent visits in South Korea and Japan also underline its willingness to engage in regional business partnerships.

Given the growing US interest in the region and China’s political calculus, the Biden administration should seriously consider complementing its existing initiatives with re-entry into the CPTPP. Given Beijing’s willingness to enact reforms, however modest, it would be in Washington’s interest to join the talks that shape those reforms.

With world trade strained by ambiguous rules, the United States should welcome China’s attempts to define global trade rules and use the CPTPP negotiations to build consensus. And in light of Beijing’s geostrategic motivations, Washington could use the CPTPP to expand its influence beyond existing agreements.

In addition, domestic opposition to reintegration into the CPTPP may lessen, given the liberalization of trade disinflationary potential and the political significance of high US inflation for 40 years.

China’s CPTPP bid is an unprecedented opportunity to clarify ambiguous global trade rules and ease lingering trade tensions. But given that current CPTPP members and the United States are unlikely to agree to wholesale China’s demands, China should be prepared to make concessions.

While encouraging China to undertake genuine reform efforts, the United States and its partners should also adopt a more open attitude and negotiate in good faith with China. Current CPTPP member states should establish a membership working group and start China’s membership negotiations as soon as possible.

Zhijie Ding is a master’s candidate in international affairs at Columbia University’s School of International and Public Affairs. Wanjun Zhao is a research assistant at the University of California at Berkeley.

This article was first published by East Asia Forum, which is based on the Crawford School of Public Policy within the College of Asia and the Pacific to Australian National University. It is republished under a Creative Commons license.

Previous The Top 5 Types of Bank Collateral
Next 5 Ways a Top Loan Can Affect Your Credit