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China needs a realistic view on other mega free trade agreements

Comments on He Fan and Xiaoming Pan "China’s negotiation strategies at the crossroads of international trade" 4/08/2015

I have a number of comments on this post.

Firstly, I am not sure the authors really means that "at home, China’s reliance on export-oriented growth faces an unprecedented challenge in the face of shrinking global demand". Has the global demand really shrinked or has the growth slowed?

Secondly, is the remark that "Facilitating GVCs is the leading cause of the proliferation of regional and mega-regional trade negotiations, including the Trans-Pacific Partnership (TPP), the Transatlantic Trade and Investment Partnership (TTIP) and the Regional Comprehensive Economic Partnership (RCEP)", correct? Is facilitating GVCs really the leading cause for TPP and TTIP? If it is then there would be huge holes or gaps in those two trade agreements, because China, a very important and the most important country in the value chains of many manufacturing activities is not in either of those two, and it has been deliberately excluded from the TPP that would defeat the purpose of facilitating the GVCs.

Thirdly, while the authors are correct in saying that "in the post-GFC world, exports are evidently no longer the engine of China’s economy", it does not necessarily or automatically mean that exports will never be an engine of growth for ever. In that sense, the new normal in relation to exports may be temporary rather than being permanent. As a result, the remarks that "the ‘new normal’ requires adjustments in domestic economic policies and externally-oriented trade policies and strategies. Trade strategies that are compatible with China’s domestic conditions will help China achieve a stable shift to the new normal", may need some caution, as the situation with exports may change when the global economy puts behind, the temporary "new normal", that is the consequences of the GFC and back to its real "normal".

Alternatively, the exports orientation should not be sacrificed but should adapt to the ever changing world economy and to grab every opportunity to increase trade and exports.

Fourthly, the remark that “in the Pacific Rim, while RCEP and the TPP complement each other in terms of their membership scope and issue coverage, they are in competition to offer the first update to the international trade rules of the WTO”, may represent an one-sided fantasy or day dreaming on the authors part, because the US does and will not think in that way. The authors also indirectly or implicitly acknowledged this point in the statement “despite its increasing trade power and enthusiasm to join international trade rule-making, China is currently excluded from TPP negotiations.”

The following paragraph also reflects the contradictory of the claim of the complementarity of the TPP and RECP: “At the same time, some new sensitive issues — such as SOEs, the environment and labour — pose challenges for China in 21st century trade negotiations and joining the TPP. Handled badly, they can also be impediments to genuinely free trade. The environment was once an area in which Chinese standards once diverged from most developed countries, but today Chinese standards in many areas exceed those of even some TPP member countries.

Further, the authors also remarked that “the mega-regionals could either turn out to be a stumbling block for genuinely global free trade or pave the way to reaching a multilateral deal within the WTO’s framework.” It is another reflection of some of the contradictions in the authors’ arguments earlier on, as here the so called comlementarity gives way to problems. But that is where China’s approach to trade negotiations should be focused on, that is to say, on what is happening as opposed to what some fantasy may point to.

Nevertheless, I do share the view that China’s SOEs needs to be handled with care, creativity and boldness, by China and its leaders. Some reforms are needed in that particular areas, so China will not be disadvantaged due to its SOEs.

Finally the last sentence by the authors, while understandable, still hinges on wining the sympathy of those which deliberately do not have for China: “the internal reform of the Chinese economy and its changing role in the global economy provide common ground for China, a large developing country, and developed countries to work on their divergence and to agree to a new set of rules.” It is a miserable position to be.

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