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TPP membership can help China further economic reforms

After over 5 years of ambitious and challenging negotiations, the United States, Japan, Australia and nine other countries around the Pacific have recently signed the Trans-Pacific Partnership (TPP) accord, in a push to challenge China to accept US-drafted rules for doing business.

It is a historic trade-liberalizing pact which will certainly reshape the industrial chain, asset and resource allocation as well as labor flow in the world, because the 12 nations involved with the agreement together make up nearly 40 percent of the global economy. The agreement comes as China is implementing its "One Belt, One Road" strategy, which is widely seen as a rival of the US-led TPP.

The TPP is not simply an updated version of the World Trade Organization (WTO) where China and the US have on and off traded pointed barbs over trade fairness, given its broader collaboration in fields of marketization, privatization, free flow of information, intergovernmental procurement and protection of workers, environment and intellectual rights.

However, the new trade bloc has left out China, the world's second-largest economy and a major trade partner of the US. The answer to this question is obvious and can be found in a statement made by US President Barack Obama on the TPP, in which he said, "We cannot let countries like China write the rules of the global economy. We should write those rules, opening new markets to American products while setting high standards for protecting workers and preserving our environment."

Obama's remarks reflect the US fear of losing its economic superiority in the global rivalry with China, as the latter is pushing forward with the "One Belt, One Road" blueprint, has established the New Development Bank (NDB), also known as the BRICS Bank, and the Asian Investment Infrastructure Bank (AIIB), a China-backed international bank intended to fund infrastructure and development projects along the Silk Road Economic Belt and 21st Century Maritime Silk Road.

Edward Alden, a senior fellow at the Council on Foreign Relations in Washington, commented that the signing of the 12-nation Pacific trade deal enables the US to be back in the "driver's seat" with the trade in a way that it has not been for more than 20 years and reasserts a strong American role in the global trading system.

There are speculations on how China will be impacted by the TPP, with some saying that the restructuring of the global industrial chain caused by the trade pact will weaken China's dominant role in the international manufacturing sector. Under the framework of the TPP, for example, some Vietnamese export products to the US, like textiles, will enjoy zero tariffs. Currently, many famous textile enterprises have moved their plants to Vietnam from China, which has been known as the world's factory due to its lower labor costs.

Experts said that China may have three choices to deal with the challenge from the TPP.

The first choice is to boycott the TPP by joining forces with countries like Russia to establish its own trading system, where the member nations will enjoy zero tariffs. But it will haul the situation back to the Cold War era brimming with political, military and economic confrontations.

The second choice is to rope in TPP nations to join a China-backed free trade zone. China has reached free trade agreements with 10 countries, many of which are included in the TPP.

The third choice is to join the TPP, whose high standards in trade liberalization are the development direction of China. With the growth of its economy, China is bound to tighten its law enforcement in addressing intellectual property crimes and violations of workers' rights. Besides, the Chinese leaders have pledged gradual reform of marketization and privatization, which are sensitive issues in China but advocated by the TPP.

History shows that joining of the WTO was a key step for China to integrate with the world economy and grow its domestic enterprises, even though there were dissenting voices saying it would lead to the collapse of the national economy.

China is considering establishing a number of new free trade zones after the founding of the China (Shanghai) Pilot Free Trade Zone in September 2013, which is seen as a strategic step for joining the TPP. China is currently facing imbalances in its economic structure, with heavy reliance on exports and investment for economic growth. Therefore, joining the TPP may give China an opportunity to reform its economic structure.

(This article is translated and edited by Ding Yi)


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