Sung Yun Wing: China Needs to Join A Free Trade Agreement as High Standard As TPP

In the future,China needs to join a free trade agreement as high standard as TPP. In thefuture, china’s Opening and Reform should follow world standard.

Reporter: Qiu Meifang

Reporter: TPP (Trans-Pacific Partnership Agreement) is the key word ofthis year's "The Integration of Regional Economy in Asia" sub-forum.Will TPP become the only model of Asia-Pacific economic cooperation?

Sung Yun Wing: TPP will not be the only mode of the Asia-Pacific economiccooperation, but to some extent it represents the trend of regional economicintegration in Asia in the future. In addition to TPP, there is RCEP (RegionalComprehensive Economic Partnership) which includes 16 member states. These tworegional trade organizations are likely to change the future of the worldeconomy and trade patterns, and the competition is already formed. Although TPPcountries has higher proportion of the world's GDP than RCEP, the influence ofRCEP is not less stronger, as China, one of the member countries of RCEP, isdeveloping very fast economically.

TPP strategic cooperation covers intellectual property protection, laborstandards, environmental standards, government procurement, etc. Its scope is largerthan RCEP, and it will break the traditional free trade agreement (FTA) toreach a non-exceptional comprehensive free trade agreement that will have a strongimpact on the process of the integration of Asia-Pacific regional economy. TPP,as a high standard of free trade agreements, could become an epitome.

Reporter: In June, Xi Jinping will visit the United States. There isspeculation that the United States may invite China to join TPP.  Is this a good timing to join TPP?

Sung Yun Wing: Even if the USA invited China join TPP, China couldn’treach the requirements of TPP at this moment. It’s not possible for China to become a founding member of TPP rightnow, but we cannot deny the possibility of China’s participation in the future.

The negotiationof free trade agreement is a process. The more countries involve in thenegotiations, the harder it will be reached. TPP negotiation process has been ongoingfor some time. The negotiations were expected to complete in 2013, but now itseems impossible. No country wants to postpone the date of agreement again andagain, so the potential participants are all countries that can join within ashort time. Japan is regarded as a later applicator. Next, 12 countries willfocus on completing the negotiations to become founding members. It’s difficultfor china to join within a short time.

Reporter: Failing to be a founding member, will China be besieged? WillChina be able to join TPP in the future?

Sung Yun Wing: Some scholars believe that China's rise is inevitable. TheUnited States wants to besiege China by using TPP. I don’t deny that the UnitedStates has such intentions, but in the long run, siege is impossible. AlthoughChina cannot become a founding member of the TPP, 7 of the 12 TPP countries arealso RCEP member and they signed free trade agreements with China. South Koreaand Japan are also negotiating free trade agreements with China. Neithergovernment has a strong desire to complete the negotiation immediately. Theyhave to wait for the right momentum and timing. The United States is a hugemarket. Chinese products in the United States have not been greatly restricted.So failing to be the founding member will not have a big impact in short term.

In the future, China needs to join a free trade agreement as highstandard as TPP. In the future, china’s Opening and Reform should follow moreclosely to world standard.

The next ten ortwenty years, with the development of global trade, both WTO and TPP have toexpand the scope to cover goods, trade in services, high technology and so on. Chinashould join a trade agreement of advanced international standard, then it canhave more say in making the rules of the game. Whether it joins TPP or a tradeagreement with another name is hard to say by then.

Reporter: Taiwan takesFTA as an important way of expanding its international living space. It’s very enthusiasticto participate in TPP negotiations. How to react to the possibility of Taiwanjoining TPP?

Sung Yun Wing: MaYing-jeou proposed that Taiwan should join TPP, but the goal won’t be achieveduntil in a decade at least. There will be many uncertainties during ten years.Taiwan today is still far from TPP standards. Internally there are a lot ofoppositions, especially from farmers. Many free trade zones have exclusiveterms for agriculture, but the TPP has none. Agriculture in member States isinfluenced by free trade competition. This is an important reason why Japanapplied to join TPP so late. If Taiwan wants to join TPP, it has to ensure theinterests of farmers. If Taiwan is ready to join the TPP when condition allows,how mainland China react also depends on the cross-strait relation at thattime. If the cross-strait relation is fine, Taiwan joining the TPP is not a bigproblem.

The ECFA (Cross-strait Economic Cooperation FrameworkAgreement) that the mainland China and Taiwan signed covers 15% of thecross-strait trade. With the further implementation of the ECFA and theexpansion of the scope, Taiwan will lift up the protection, which helps Taiwanto reach the criteria to join TPP.

Reporter: In 2009, the State Council announced that Shanghai will bedeveloped as an international financial center. This is a significant measureto reach China's modernization and reform and opening up. What’s your commenton Shanghai’s development during last four years?

Sung Yun Wing: Now Shanghai's stock market trade volume is much more thanHong Kong. Hong Kong is relatively independent, but Shanghai's development isinseparable from the development of the whole China.

However, almost all banks in Shanghai are subject to the supervision ofthe People’s Bank of China, including the loan. Before the free conversion ofChinese Yuan, it’s hard to compare Shanghai's foreign exchange trade volumewith Hong Kong. It’s almost not possible to build Shanghai into the center for Chinesecurrency products by 2015. Due to social stability concerns, Chinese governmentrestricts a number of high-risk financial products, which to some extent affectsthe development of financial market. To develop into a financial center,another big problem Shanghai is facing is the lack of healthy financial law andprotection of property right.

These restrictions can’tbe solved in short term, nor is the Shanghai municipal government too lazy. Theinternationalization of Chinese Yuan is a process. Regulation of financialproducts is way more difficult than monitoring usual products. Even thesophisticated American financial market cannot avoid financial crisis. TheChinese government has a reason to strengthen the regulation. The perfection oflaw is a step by step process, and the growing up of investors takes time too.

Reporter: In the TwelfthFive Year Plan, modern service industry is key part of transformation of China.But in terms of the service market, Shanghai is behind the international level,less than Beijing in both total value and the proportion. What do you think arethe factors that restrict the development of service sector of Shanghai?

Sung Yun Wing:Shanghai is undergoing a painful transformation of tertiary industry. Thisprocess needs to face the problem of slower economic growth, but we don’t haveto worry. There are certain laws of economic development. The more mature theeconomy is, the relatively lower the growth rate will be. Shanghai’s economicgrowth needs innovation, but innovation is not easy. There is a limit of speed.

Current obstaclesof Shanghai’s service sector are that most of its high-end services arestate-owned, such as telecommunications, banking, airport construction and soon. The development of tertiary industry is closely linked with reform. Sincethe state-owned companies are powerful, the existing profit group can’t bebroken. These high-end services may also be related to some sensitive issues,such as national security. In addition, talents and information are extremelyimportant for the development of service sector, but there are still a lot ofrestrictions on tax system, transparency of information, etc. They are noteasily solved. All these restrict the development of Shanghai's serviceindustry.

To change thissituation, on the one hand, we need to introduce competition to solve theproblem of monopoly; on other hand, we need to loosen regulation and controland specify the measures of supervision and management of each industry.

Introduction:

Sung Yun Wing got his PhD in State University ofMinnesota. He is now a professor of the Department of Economics of ChineseUniversity of Hong Kong. He is Co-Director of Shanghai-Hong Kong DevelopmentInstitute jointly established by Fudan University and The Chinese University ofHong Kong.