TOKYO – It was like Chinese President Xi Jinping did a slam dunk at just the right time to take advantage of the presidential transition in the EU. . S.. .
On Nov.. . 20, Xi said China would « consider favorably » joining the Trans-Pacific Partnership – an 11-member trade pact that includes Japan and Australia. Just a few days earlier, China and 14 other countries had signed the regional comprehensive economic partnership, creating the world’s largest free trade bloc.
Xi’s enthusiasm for the TPP in addition to RCEP dealt a blow to U. S.. . President Donald Trump, whose administration has tried to isolate China from the international community. Xi’s comment raised concerns that Washington, at least in trade, may face a higher risk of isolation than Beijing.
A look at the global economy supports these concerns. The U. S.. . canceled 24. 5% of the world’s gross domestic product in 2019 compared to China’s 16th. 4%. However, the 15 RCEP members together accounted for 29. 6%, faster than the U. . S.. .
China is by far the largest economy within the RCEP. It produced 55. 5% of the bloc’s total GDP last year, compared to 19. 6% for Japan in second place.
The TPP, now officially known as the Comprehensive and Progressive Trans-Pacific Partnership Agreement, was originally intended to curb China’s massive influence on the global economy and trade. Japan is hoping to work with Australia to attract the U.. K. . as a new member and even have U. . S.. . President-elect Joe Biden overturns Trump’s decision to leave the frame.
But Biden’s top diplomatic priority is to improve Washington’s relations with Europe. And with the number of U. . S.. . The Senate is voting in the 2022 midterm elections in the country’s rust and corn belts – areas of strong opposition to the TPP – and the Biden government may be reluctant to adopt the trade deal.
Xi’s comment takes advantage of this vacuum. Although China faces major hurdles to join the TPP, such as reforming its state-owned companies, Beijing’s openness to the deal is likely to be welcomed by many of the pact’s members.
The 19 countries that are part of the RCEP or the TPP or both make up 33. 6% of world GDP. If the Biden administration decides that it cannot compete on its own, the U. . S.. . could give in to Chinese trade demands.
China used to focus on expanding exports and is now trying to attract resources from around the world to become an indispensable link in global supply chains. China will become a « gravitational force » for global resources, Xi said on Jan.. April opposite the Central Committee for Finance and Economics.
But when it comes to food and the real economy, Xi has made it clear that his guiding principle is « China first ». « He also said that China’s state-owned companies should not be rejected or weakened.
China is eager to take a leadership role not only in creating trade and investment rules but also in relation to the currency. Even so, the yuan was only 2. 02% of all global currency reserves as of the end of June – a fraction of the dollar’s $ 61. 9%.
As long as China itself uses the dollar to trade and process payments, the U. . S.. . could use the currency as an instrument for financial sanctions. Washington has frozen the assets of key officials in Hong Kong earlier this year in response to the political situation there. It could also theoretically exclude China from dollar-denominated settlements.
Beijing is strategically working to increase the use of the yuan in international trade. China is boosting domestic consumption, which increases imports, which are paid for in yuan. RCEP offers an excellent opportunity to advance this strategy, especially given China’s central role in the bloc. Other regional financial institutions in Japan could begin direct trading between the yen and the yuan, bypassing the dollar.
The dollar remains the currency of choice for international billing. But digital currencies are also changing the game in this area. China’s keen interest in issuing a digital yuan is in part related to finding a user-friendly alternative for international settlements.
China claims that the U. . S.. . did what it pleased during its time as an economic hegemon. Although the argument is not unfounded, Beijing is itself guilty of bullied other countries through economic statecraft. When Australia questioned China’s responsibility for the coronavirus pandemic and Hong Kong policy, Beijing imposed a series of trade sanctions on Canberra.
China is also pursuing new, opaque trade rules that confuse partners – like a law going into effect Tuesday that allows the Chinese government to ban exports to protect its national security and interests.
Japan’s trade and investment ties with China could suffer if, for example, Beijing is required to authorize Japanese exports of items containing Chinese components. And there is little clarity about what final targets are blacklisted or what penalties violations could face. With the law covering exports tied not only to national security but also to China’s interests, Beijing appears to be seeking protection for its industries.
China’s Department of Commerce presented a bill in June 2017 that was not intended to retaliate against American trade sanctions. Major business lobbies in Japan, the U. . S.. . and Europe repeatedly urged China to reconsider, but their demands fell on deaf ears – a possible indicator of what rulemaking might look like in a China-led world.
Concern about China’s approach to the financial sector is also growing. The Ant Group, the financial arm of the e-commerce platform Alibaba Group Holding, had to cease its IPOs in Shanghai and Hong Kong at the last minute at the behest of Xi. Alibaba co-founder Jack Ma reportedly angered Xi by criticizing China’s financial regulations.
China has become an economic superpower thanks to its massive purchasing power and financial influence. However, the influence of the Chinese Communist Party and the military on the nation’s business and market poses risks for neighbors.
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