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Opinion

By replacing US in TPP, China can drive forward its own reform

Trade pact offers external impetus for change, much like joining WTO

| China
To make CPTPP entry happen for China, the authorities will have to build consensus among existing pact members.   © Reuters

Every war has its twists and turns as opponents grasp for advantages and shield their vulnerabilities. China now has just such an opening to seize an important opportunity left uncovered by the U.S.: the Trans-Pacific Partnership.

Ironically given its origins as the centerpiece of Barack Obama's pivot to Asia, the revived TPP could give China a way to offset the links being broken with the U.S. economy by boosting its connections with Japan and other Pacific Rim economies.

Joining what is now known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, following President Donald Trump's retreat from the pact in 2017, would provide external impetus for China for the next phase of reform and opening up.

The preparatory process for joining the pact could be just as much a catalyst for change as China's entry into the World Trade Organization in 2001. To meet the demanding standards of the CPTPP, China would have to further expand market access for foreign investors and ensure that private enterprises are treated just as well as state-owned ones. Such changes, however, would be in line with long-term national development goals previously set out by the government.

Joining the 11-nation CPTPP would give China greater access to markets with more than half a billion people which will be among the world's most attractive in the years to come, ranging from wealthy Japan, the world's third-largest economy, to young, high-growth economies like Vietnam.

The pact would also offer China a free trade bridge to the Americas as it includes Canada, Chile, Mexico and Peru. Furthermore, the CPTPP would create synergies with China's Belt and Road Initiative by complementing efforts to coordinate the infrastructural "hardware" of economic integration, such as roads, bridges and telecommunications networks, with the "software" of standards and institutions.

To make CPTPP entry happen for China, the authorities will have to build consensus both at home and among existing pact members. This would seem a favorable moment to do so.

Sino-Japanese ties have been warming and several CPTPP members, including Australia, Chile and New Zealand, have signaled an openness to China joining the group. While a number of Chinese academics have previously voiced concerns about the short-term adjustment pain some domestic sectors, especially those dominated by state-owned enterprises, would face from unrestrained competition under the CPTPP, increased understanding of the potential benefits of the pact appears to be quieting many of these worries.

Still, China has much to do to bring itself up to CPTPP levels in several areas, including e-commerce and labor protection. Intellectual property rights protection is another issue needing attention. China's declared protections for intellectual property might come close to CPTPP standards on paper, but implementation still lags behind.

State-owned enterprise reform may be the biggest challenge for China in joining the CPTPP. This was a contentious issue too for Vietnam and Malaysia during negotiations for the pact. While the scale of China's SOEs can be much bigger than theirs, their examples at least show that the gap with the CPTPP can be bridged.

Even without the CPTPP, China needs to accelerate SOE reform, which would also help invigorate the economy. But more effort will be needed for the authorities to reach a consensus in this contentious area.

The National People's Congress' ratification of a new foreign investment law this past spring makes clear that such consensus is possible and has underscored China's determination to proceed with economic reform and opening.

The law, which is to take full effect early next year, lays the foundation for improving China's business environment, increasing opportunities for foreign companies and better protecting their investments. The law's mandate to better level the playing field for domestic and foreign investors will help bring China closer to the rule book of the CPTPP.

The CPTPP should not, of course, be China's sole focus. To continue showing support for the multilateral trading system, the authorities should keep pushing for a conclusion to the talks for the 16-nation Regional Comprehensive Economic Partnership as well as getting negotiations for the proposed Free Trade Area of the Asia-Pacific off the ground. China should also step up its support for modernization of the WTO.

Today, the world is faced with rising trade protectionism, unilateralism and nationalism. The rebirth of the TPP may offer a path forward out of this fracturing environment. Beyond the direct economic benefits, by joining this trade circle China can signal its strong commitment to opening up and globalization.

The CPTPP's core tenets are well-aligned with China's development needs and joining the pact can help the country to advance its goals in the next chapter of reform and opening.

In charting a course for the future, China should be open to opportunity and pragmatic in taking advantage of the situation.

Wang Huiyao is president of the Center for China & Globalization, a nongovernment think tank based in Beijing.

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