China steps up its trade strategy in the Indo-Pacific

China steps up its trade strategy in the Indo-Pacific

October 1, 2021 Off By Sindy Thompson

China is attempting to expand its trade arrangements in the Indo-Pacific by announcing its intention to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). On September 16, it applied to the New Zealand trade ministry, the repository of the 11-member CPTPP.

Japan, the current Chair of the CPTPP, said it will consult with other members. Japan Deputy PM Aso sounded sceptical and wondered if China fits into the CPTPP, originally designed to counter China. Australia, too is opposed to dealing with China on TPP unless it withdraws restraints on Australian exports and starts a dialogue.

Seven of the CPTPP members are in the 15 country Regional Comprehensive Economic Partnership (RCEP) finalised in November 2020. Japan, Australia and Canada are unlikely to relent on China’s admission. Mexico is cautious though Malaysia and Singapore are positive. The ASEAN 4 in CPTPP will support China knowing that unanimity among 11 is necessary to admit China, The crux is the confidence that China will abide by higher CPTPP commitments if it joins. At present this is lacking.

On September 22, Taiwan announced its intention to seek membership of CPTPP. This is a clear move to stymie China, though both are members of the World Trade Organization (WTO) and the Asia-Pacific Economic Cooperation (APEC).

China arrangement

The RCEP is now seen as a China-led arrangement. It is possible that some countries are rethinking their advantages from RCEP, while delaying the processes of accession.

The RCEP requires six of the 10 ASEAN countries, and three of the five non-ASEAN countries to ratify it to bring it into force. RCEP will start 60 days after the 9th ratification. Once India withdrew in November 2019, it yet took RCEP a year to finally be signed in November 2020.

The expectation was, that by January 1, 2022, the required ratifications would be in place, and RCEP effective. In reality, there are only three ratifications so far, all in April 2021. Singapore was the first to ratify and deposit its instrument with the ASEAN Secretary General. China, was the next, taking advantage of easier domestic processes, compared to democratic countries which require parliamentary approvals. On April 28, 2021, Japan became the third country to ratify RCEP.

Thailand has had its internal approvals, but not yet deposited the ratification. Vietnam is expected to ratify by the year-end. Malaysia, given its internal issues, has slow approval processes. The Philippines has Cabinet approval and needs Presidential and parliamentary approval. Current ASEAN Chairman, Brunei, Cambodia and Laos are slowly getting there.

Given this parlous state of ratifications, it is necessary for at least one more non-ASEAN country and four more ASEAN countries to ratify. South Korea seems to be rapidly moving towards internal approvals and hopes to meet the end of the year deadline. Australia, which was enthusiastic about RCEP, is now suffering Chinese restrictive trade practices. China has made Australia an example of its strategic economic depth and willingness to use trade as a weapon.

New Zealand is considering the approvals, as per its domestic laws which are long drawn out. It is anticipated that China would nudge ASEAN countries to complete their processes and the ASEAN quorum to get RCEP into place.

For the last 12 years, China is ASEAN’s largest trading partner. Since the pandemic, ASEAN became China’s largest partner. In 2021 their trade grew by 48 per cent in the first six months. In 30 years, China-ASEAN trade has grown 85 times to nearly $750 billion. China-ASEAN FDI is about $310 billion with China also undertaking project contracts in ASEAN of $350 billion. Over 20 BRI (Belt and Road Initiative) projects are in ASEAN countries. Most ASEAN countries have reaped benefits in dealing with China. China was generous to them with vaccines, including joint production. But it could not meet the numbers required, and had quality control issues, leading to several ASEAN countries spreading out in search of vaccines.

Despite the US-China trade war, and the restrictions on many high-tech Chinese companies. China is still seen in ASEAN as a leading economic and technology player. For instance, Huawei Technologies’ efforts to build 6G wireless technology, despite US restrictions, as well as their AI businesses see ASEAN countries as an important market.

The Chinese would like ASEAN countries to collaborate with them on their 5G networks, infrastructure, vaccines, and value chains to counter the Quad narrative on these same issues. Thus, China is seeking to expand its economic engagement in the region and pursue the idea that it’s not a regional Asian power but a real power in the Indo-Pacific.

The writer is a former Ambassador to ASEAN