ECONOMY

China has to win over Canada and Australia before trade pact talks can start

Chinese trade updates

Chinese membership in a US-inspired transpacific trade group appeals to conservative nationalists in the country eager to embarrass President Joe Biden, as well as liberals who see it as a way to force through difficult domestic economic reforms.

But Beijing will first have to win support from member countries — most notably Australia and Canada — that it has alienated over recent years.

Chinese officials and analysts said that Beijing’s formal application to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, the successor to a pact established but later abandoned by the US, demonstrates President Xi Jinping’s commitment to difficult economic and financial reforms in the world’s second-largest economy.

Beijing formally applied to join the CPTPP on Thursday, less than 24 hours after the US, Australia and the UK announced a new military partnership, Aukus, aimed at countering China’s military rise. Chinese officials and analysts insisted there was “no connection” between the two announcements.

“We believe that China joining the CPTPP would help promote economic integration in the Asia-Pacific and facilitate post-Covid economic recovery, trade development and investment,” said Zhao Lijian, China’s foreign ministry spokesperson.

“China works for economic co-operation and regional integration. What the US and Australia push for is wars and destruction.”

Zhu Feng, an international relations expert at Nanjing University, called the move a “very important signal” and would “expand the reform and opening up policy”.

“CPTPP is a [trade group] with relatively high thresholds,” he said. “Since China wants to join, then China must be determined to meet its requirements.

“The US has complained about China when it comes to trade. Now China is showing its willingness to strengthen its policy orientation and its desire to integrate with the international community.”

Xi and his advisers want state-owned enterprises to retain their dominance over strategic industries, and are in the midst of a long-running campaign to reduce the power of the private-sector groups that dominate China’s internet economy.

But they also want them to compete on their own against western multinationals, a goal that would be boosted by the CPTPP’s relatively strict rules related to industrial subsidies and SOEs.

“Is this a serious signal that China wants to take up again the reform of its economy — or just grandstanding? I find it hard to believe it’s just grandstanding,” said Stephen Jacobi, a former New Zealand trade negotiator.

“Maybe, just maybe, it is an attempt on their part to try to address how they can reform their SOE sector . . . The way their SOEs behave is going to be severely constrained by CPTPP.”

But several Japanese ministers were quick to point to other areas that could pose hurdles for China’s entry, such as CPTPP’s stringent rules on intellectual property, data flows and labour. “Is China really in a state where it can join?” Taro Aso, finance minister, asked on Friday.

Officials in Canberra and Ottawa are also wary of China’s application because they believe Beijing has violated its World Trade Organization commitments by resorting to trade retaliation in the course of diplomatic disputes.

The CPTPP’s three largest members are pursuing complaints against China at the World Trade Organization: Japan over steel, Canada over canola and Australia over wine.

Chinese officials were angered by Australia’s call last year for a thorough investigation of the Covid-19 pandemic, as well as Canada’s 2018 detention of a Chinese telecommunications executive pending her possible extradition to the US on fraud charges.

In response to the latter, the Chinese government detained two Canadian nationals, one of them a former diplomat.

Dan Tehan, Australia’s trade minister, said China’s “track record of compliance” with other trade agreements would affect its CPTPP application. “CPTPP parties want to be confident that an accession candidate would fully implement its commitments in good faith,” he added.

Rex Patrick, an independent Australian senator, argued that China would need to “behave properly” before entering the CPTPP, and stop “throwing out trade sanctions here, there and everywhere”.

“You can’t make bogus claims about some of our products, like that we were selling wine into Chinese markets below the market-price,” Patrick told the Financial Times. “It’s clear we weren’t doing that.”

But the fallout from these and other disputes means China may struggle to even make it to the CPTPP’s starting line, as members first need to agree to commence talks with applicants.

It took four months for member nations to agree to launch accession negotiations with the UK, which formally applied for CPTPP membership in February.

“Looking at the issue of [China] market access alone, many will be asking if things are really going to be OK,” another Japanese government official said. “Those questions will be deeper than the ones considered for the UK.”

Tom Mitchell in Singapore, Emma Zhou in Beijing, Edward White in Seoul, Anthony Klan in Sydney and Kana Inagaki and Robin Harding in Tokyo

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