Regional Integration in Asia and China's New Trade Policies

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Regional Integration in Asia and China’s New Trade Policies

Fujitsu Research Institute (FRI) Senior Fellow

Dr Jianmin Jin [email protected]

ADBI-JIIA International Symposium on

“Current Global Trade Governance: Toward the Next Agenda?”

November 10, 2015

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 Trade of Goods

・ tariff reduction: China’s 10% tariff (MFNs) is not too high.

Concern over specific goods!

 Access of Investment, Service Market

・”Pre-establishment National Treatment” and “Negative List” principles

⇒ China have already decided to adopt “PNT” and “NL” principles

⇒TPP members predicted to have long negative lists

 Government Procurement: National Treatment is assured, so it will have an impact.

 SOE Rule

・Allows “all TPP members to possess SOEs”, stipulates that “buying and selling to be done on a commercial basis”, and adds that “public services are excepted.” Also insures fairness between SEOs and private sector companies.

⇒ Not included in WTO rules, but similar passages found in China’s WTO accession

⇒ China is dividing SEOs into 1) public utilities and 2) commercial-based enterprises

 Environmental and Labor Regulations

・ＴＰＰ agreed that environmental and labor standards should not be loosened up in order to facilitate trade and investment, and to secure basic international treaties

⇒ applied regulations as laid out in NAFTA.

Obstruction to free formation of labor unions

Are TPP Rules Threatening China?

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76

52

38 38 38 36 34

31

20 40 60 80

Japan Malaysia Thailand India Philippines China Indonesia Vietnam

Corruption Index

2012 2013 2014

NB: Evaluation of 100 means no corruption, 0 means rampant corruption. Evaluation include approx 189 countries.

Improved Domestic Governance More Important than Joining TPP !

Good

Bad

2

12 23

108

138

25 19

98

131 121

34

4

84

130

18

49

90

109 103

Japan S. Korea China India Malaysia Thailand Vietnam Indonesia Philippines

Business Environment Ranking

2006 2010 2013 2014 2015

Evaluation of 189 countries Ranking: 1 is best, 189 worst

Good Bad

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Blueprint for “New Open System” and Asia’s Economic Diplomacy

 Nov 2013, 3

^rd

Plenary Session: “Reform Plan” adopted (3 of 60 items related to external economic policy)

 Oct 2015, 5

^th

Plenary Session: plan reconfirmed

(1） Opening of internal/external investment markets and regulation reform:

・Establish experimental free-trade zones domestically

・Integrate three foreign capital laws to foreign investment law

・Adopt “Pre-establishment National Treatment” and “Negative List” formats across the board

・Sign new types of investment agreement (with US, EU, etc.)

(2）Acceleration to Signing more FTAs:

・From FTAs with Australia, Korea to China-Korean-Japan FTA,ets

(3）Opening up the interior and remote regions:

・“One Belt, One Road” (Silk Road economic belt, naval Silk Road)

・Establish developmental financial institutions (AIIB, Silk Road Fund)

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“Eastern Strategy”

(Pacific, Developed Countries Strategy)

 Short term: “Experimental Shanghai Free-Trade Zone”

・Domestic systems based on Negative Lists and Pre-establishment National Treatment

⇒ “Foreign Investment Act” (proposed) uses both Negative List and

Pre-Establishment National Treatment formats

⇒ Negative List format to be used countrywide(internal affairs) from Jan 2018

 Mid-term: Investment Agreements with US, EU

・For China, investment more important than trade with developed countries (multinational corporation networking)

・Allowing US/EU priority access to markets will accelerate investment deals

 Long term: FTAAP and China-EU FTA(China-US FTA?)

・Market integration of China-US, China-EU, and China-Japan

 Regional Policy: From East to West

・FTA negotiations with Korea, Australia effectively concluded in 2014, to be enacted at end of 2015.

・China’s FTA network in East Asia nearly complete, excepting Japan.

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FTAs with TPP’s AP Members

(except NAFTA and Japan)

US Aus NZ Peru Chile SG Malaysia Vietnam Japan Korea China India

US ● ○ ● ● ● ○ ○ ○ ●

Aus ● ● ○ ● ● ● ● ● ● ○ △

NZ ○ ● ○ ● ● ● ● ○ △ ● △

Peru ● ○ ○ ● ● ○ ○ ● ● ●

Chile ● ● ● ● ● ● ● ● ● ●

Singapore ● ● ● ● ● ● ● ● ● ● ●

Malaysia ○ ● ● ● ● ● ● ● ● ● ●

Vietnam ○ ● ● ○ ● ● ● ● ● ● ●

Japan ○ ● ○ ● ● ● ● ● △ △ ●

Korea ● ● △ ● ● ● ● ● △ ○ ●

China ○ ● ● ● ● ● ● △ ○ △

India △ △ ● ● ● ● ● △

●FTA

○Practical Understanding As of Oct 2015: △Negotiating

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6

Shares of Chinese Exports

0 2 4 6 8 10 12 14 16 18 20 22

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015.1-9

Sha re(％)

USA ＥＵＡＳＥＡＮ Japan Kor ea India

 China’s trade dependency on Japan, Korea is very low

・21% in 2005 ⇒ 14% in 2015, with exports very low at only 6.0%

・FTAs might unearth regional trade demand

 Stable framework needed for bringing in foreign capital, technology and M&As with Japan, Korea.

 Japan-China cooperation essential for regional integration.

⇒ Because Japan prioritized TPP, China prioritized FTA with Korea.

China’s Stance on FTA with Japan

Source: China Customs

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China C Asia

Russia EU

W Asia Mediterranean

EU

S Asia

SE Asia Persian

Gulf

S China Indian Sea

Ocean S Pacific

Silk Road Economic Belt (“One Belt”) 21^stCentury Naval Silk Road (“One Road”)

Source: created by the author based on “Silk Road Economic Belt and 21^stCentury Naval Silk Road Concept and Implementation”

“Western Strategy” (New Silk Road Strategy)

 “One Belt”: Silk Road Economic Corridor (Central Asia, Russia, Europe)

・Connects to policy for opening the west, hedges risks for energy supply channels

 “One Road”: 21^st century naval Silk Road (SE Asia, South Asia, Africa, Europe)

・A more advanced CAFTA, securing safety of sea lanes

 Instead of rule-based approach of FTAs, this sets basic foundation for integration

（connectivity） from the start.

Economic Corridor:

China India Myanmar Bangladesh

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Policy Measures: Financial and Industrial Cooperation

AIIB

Silk Road Fund

SRF

Asian Infrastructure Investment Bank

China’s Planned Use for Each Tool

ProfitabilityHighLow

Private Capital

SRIF（China）

AIIB

（Multi-credit）

WB, ADB

ShortDurationLong

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Equity ratio by AIIB Member Countries

India 8.52%

Other

29.13% China

30.34%

Korea 3.81%

Germany 4.57%

Russia 6.66%

Indonesia 3.42%

Brazil 3.24%

France 3.44%

Australia 3.76%

England 3.11%

Voting Rights of AIIB Member Countries

China 26.06%

India 7.51%

Russia 5.93%

Germany 4.15%

Other 37.10%

Korea 3.50%

Australia 3.46%

France 3.19%

Indonesia 3.17%

Brazil 3.02%

England 2.91%

Equity ratio and voting rights of AIIB member countries

AIIB: “World’s Factory” to “World’s Bank”

 Needless fears over decision-making power?

China (AIIB), 26.06％ vs. Japan & US (ＡＤＢ）, 31.244％

 Worries of economic security?

ＡＩＩＢ（4.9 billion people, ¥4,723 trillion) vs TPP (800 million people, ¥3,100 trillion)⁹

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10

RCEP Combines 5

“ASEAN+1”s

 Leadership struggle:

Japan (ASEAN+6) vs. China (ASEAN+3)

 ASEAN strikes a balance

China 45.8%

Japan 20.4%

ASEAN10 11.2%

India 9.1%

Aus+NZ 7.3%

Korea 6.3%

GDP Shares of RCEP Members

(2014)

RCEP: ASEAN-led

with support from Japan, China

 7 countries also TPP members

 ASEAN not strong enough as anchor!

 India hesitant over “high” liberalization

 China an effective backer?

Supporting ASEAN in Easing Centrifugal Forces

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RCEP VS. TPP or

ＲＣＥＰ＋ＴＰＰ

Pop.

(billion)

Share of Global GDP

(％)

2011-15 GDP Growth Rate

(％)

In-Region Trade Rate

(％)

Target Year

Tariff Reduction

Principles

Leader

RCEP (16 countries)

3.4 29.2 7.1 44.2 2015 ^Exceptions

allowed ASEAN

TPP

(12 countries)

0.8 36.3 4.2 41.6 2015 ^No

principles or exceptions

US

AP Regional Economic Integration:

Merging TPP and RCEP into FTAAP

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