TPP not a real challenge for China's economy

China is open to any trade mechanism as long as they follow the rules of the World Trade Organization and are good to economic integration of the Asia-Pacific region, Commerce Minister Gao Hucheng said on Oct 8 in response to the TPP. [Photo/CFP]

On the surface the Trans-Pacific Partnership Agreement is about trade and investment. But seen closely, it is a smart move by the United States to set the bar higher for China in global trade and investment.

The TPP has thus become an economic instrument to help implement Washington's "rebalancing to Asia" strategy, which brims with geo-political implications. Through the TPP, the US expects to regain control of rule making for global trade because it is wary of the growing influence of developing countries represented by China in such institutions as the G20, World Trade Organization and the Asia-Pacific Economic Cooperation. Fortunately, the TPP is only one of more than 260 free trade agreements in existence; it can't be everything at the same time.

An FTA among some economies leads to "trade creation" and "trade transfer", but only "trade transfer" is detrimental to outsiders, for the economies reduce or eliminate trade barriers among themselves. So how much trade transfer will occur within TPP? Not much, because 80 percent of TPP members' exports to the US are already duty free while a higher percentage of China's manufactured goods enjoy the provision. Hence, by and large, the TPP tax change will mostly affect agricultural produce from the US, Japan, Canada and Australia.

Also, TPP members such as Australia, New Zealand, Peru and Chile have signed bilateral trade agreements with China, and the China-ASEAN FTA covers other TPP members - Vietnam, Singapore, Brunei and Malaysia. All of this greatly reduces the TPP's negative impact on China.

Another fact: Apart from the North American Free Trade Agreement, the US' trade with other TPP members adds up to a little more than $400 billion a year while its trade with China exceeds $600 billion, which accounts for 10 percent of its trade as compared with 4.2 percent for Japan.