Thu, Nov 14, 2013 - Page 8 News List

China leaps forward on trade zone

By Zhang Monan 張茉楠

China’s future competitiveness also depends on its integration into a new wave of global and regional regulatory regimes. Although there are several ongoing trade and investment negotiations — including the Trade in Services Agreement (TISA), the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) — Chinese policies remain largely defined by the traditional WTO framework.

However, the emerging arrangements would offer far more room for maneuver than the more restrictive WTO regime. For example, TISA negotiations in the fields of finance, securities and legal services have resulted in no restrictions on foreign ownership or the scope of business. Yet China’s adherence to WTO rules on foreign investment prevented it from participating in these negotiations, ultimately impeding its trade and investment ambitions. International politics were responsible for China’s exclusion from the TPP and TTIP negotiations.

Against this background, the Shanghai zone demonstrates China’s readiness to participate actively in global free-trade negotiations, with the goal of promoting a comprehensive free-trade strategy and safeguarding its interests worldwide.

Shanghai’s role in trade, finance, investment and shipping — together with an increasingly open service sector, improved regulatory environment and focus on institutional innovation — will lead to domestic market reform and drive China’s integration into new trade agreements.

The Shanghai free-trade zone’s final objective is to help China fully exploit the demand potential of its market. The country’s initial globalization “dividend,” accrued through low factor costs, is rapidly diminishing and a new era — characterized by a reliance on the domestic market to absorb foreign high-level factors of production, such as technology and human capital — is just beginning.

The task for China’s leaders is to expand policies aimed at boosting domestic demand, while improving the economy’s skills base and enhancing its relative capacity to absorb high-value-added, high-tech foreign investment. Advancing innovation-driven development and promoting emerging industries would improve the quality and level of foreign support and cooperation.

With rapid growth in the local market, China could become a leading source of global demand, a hub of high-level factors of production and a strategic center with the Shanghai free-trade zone at its core. At this level, the country would finally have the domestic value chain that it needs to sustain competitiveness and rapid economic growth.

Zhang Monan is a fellow of the China Information Center, a fellow of the China Foundation for International Studies and a researcher at the China Macroeconomic Research Platform.

Copyright: Project Syndicate

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