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China’s pursuit of its Asia-Pacific dream

Leaders of the Group of Twenty (G20) global economies met in Brisbane last weekend, following the summits involving South-east Asian, East Asian and wider Asia-Pacific nations. These summits are not only about politics, but also about growth, trade and investment.

China’s pursuit of its Asia-Pacific dream

Mr Abe greeting Mr Xi as their wives looked on at the APEC Welcome Banquet in Beijing on
Nov 10. The meeting between both leaders is a signal that they recognise the rationale to get on. Photo: Reuters

Leaders of the Group of Twenty (G20) global economies met in Brisbane last weekend, following the summits involving South-east Asian, East Asian and wider Asia-Pacific nations. These summits are not only about politics, but also about growth, trade and investment.

In this region, a range of agreements is under negotiation, with varying and overlapping memberships. Most notable is the Trans-Pacific Partnership (TPP), which is led by the United States and includes Japan, but not China.

The latest proposal from Chinese President Xi Jinping may eclipse them. While hosting the Asia-Pacific Economic Cooperation (APEC) Summithe has ambitiously raised an even bigger and more inclusive Free Trade Area of the Asia Pacific (FTAAP) and set this in the context of China’s “Asia-Pacific dream”.

Yet, the idea of the FTAAP is not new. APEC ministers initiated it back in 2006, with leaders ’endorsements coming in 2010. Hence, no one has said no to Mr Xi.

The reception to the FTAAP, however, has been cool. A feasibility study on the agreement was proposed in May, when APEC trade ministers met in Qingdao, China.

Nonetheless, the US and Japan have watered this down to a “collective strategic study” to indicate they have yet to decide whether to enter actual negotiations.

The hesitation relates to the problems faced in the TPP, meant to be the economic centrepiece of the Obama administration. Negotiations are now into their fourth year — long overdue and in danger of floundering.

This is not only because of sticking points with Japan over automobiles and agricultural products.

Domestic American politics is another factor. Following the mid-term election results, Republicans control the two Houses of Congress and may not sign off on any deal brought by the Obama administration.

Both America and Japan must push through. Otherwise, their credibility to offer leadership in the region will suffer.

However, this does not mean they should cold-shoulder China’s proposal for the FTAAP.

THE CHINA INFLUENCE

Trade agreements need not be oppositional. The logic emphasises interdependence and win-win outcomes. The FTAAP offers a long-term perspective to deepen regional economic integration. It is also a possible roadmap to converge the TPP and the on-going patchwork of other trade and economic deals.

The idea is worth exploring, whether put forward by China or any other country.

However, coming from Mr Xi, the proposal underlines an emerging truth: China is the region’s central economy and cannot be easily excluded.

Since becoming a World Trade Organisation (WTO) member in 2001, China has been actively pursuing economic cooperation and free trade agreements (FTAs) across the region.

FTAs with ASEAN, Singapore, New Zealand, Peru and Australia have been completed, with that with Australia being the most recent.

The landmark deal with Australia will see service industries such as tourism, finance and education being liberalised.

With South Korea, Beijing has just completed FTA negotiations that, once in force, will eliminate tariffs on the vast majority of traded goods. With the Association of Southeast Asian Nations (ASEAN), while differences continue over the South China Sea, an upgrade of the ASEAN-China FTA is expected.

However, to achieve the FTAAP, several bridges need to be crossed and, indeed, built.

First, there is the Regional Comprehensive Economic Partnership (RCEP), which seeks to build on existing FTAs that ASEAN has, separately, with Australia-New Zealand, China, India, Japan and South Korea. If this all-Asian agreement can be forged, it will be a step forward.

Second, an FTA among China, Japan and Korea (CJK) is due. Talks are into their fifth round, but the prospects are not clear. On one hand, a boost has come from the conclusion of the China-South Korea deal.

Tense Sino-Japanese ties over political and security issues, however, remain a problem. This was evident in the very brief and uneasy meeting between the two state leaders at the sidelines of the APEC.

However, the fact that both leaders did at last meet is a signal that they recognise the rationale to get on. Only if Sino-Japanese ties are normalised can the RCEP and CJK move ahead.

Third, and most importantly, for the FTAAP to have a chance, there must be better ties between the US and China.

Relations between the two sides in the past year seemed to be strained. However, the meeting between Mr Xi and Mr Obama at APEC has shown that, despite ongoing differences, something positive could be achieved.

Their agreement on climate change has been heralded by both parties and could be a foundation to develop common understanding and collaboration.

The elimination of duties on US$1 trillion (S$1.29 trillion) on technology products has signalled that the two largest economies are poised for an investment treaty.

Given the deep interdependencies between them, further cooperation would make sense.

Moving ahead with these initiatives will take not only time, but also political will and courage. Political mindsets about great power relations must shift.

In the meantime, expect China to play a greater role in its interaction with other neighbours.

This is the uniting logic in Mr Xi’s ambitions for maritime and land-based Silk Roads to connect the region as well as create the Asian Infrastructure Investment Bank to accelerate infrastructure development. All this can and will be done, whether or not there is an FTAAP.

The G20 has targeted global growth and Asia is searching for engines to keep up its momentum. China is pursuing agreements with its neighbours who are willing.

As Beijing ramps up its influence, many must recognise that China is increasingly the central economy to the region.

ABOUT THE AUTHORS:

Simon Tay and Gina Guo are chairman and policy research senior executive, respectively, at the Singapore Institute of International Affairs, which will co-organise the Asia Pacific Forum 2014 with the Japan Economic Foundation on Nov 24 to engage international participants in a dialogue on trade and economic development in the Asia-Pacific.

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