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China Is Hustling to Compete With Pacific Trade Pact
RALPH JENNINGSFollowOct 21, 2015 6:21 AM EDT
TAIPEI, Taiwan (TheStreet) -- China isn't part of the huge trade agreement signed earlier this month by 12 Pacific Rim nations. But Beijing isn't standing by idly while other Asian countries prepare to open their borders to more foreign investment and trade.
In fact, China plans to adopt many of the free-trade measures that are in the agreement. At the same time, Beijing can ignore the pact's tougher standards for labor, trademarks and the environment.
The Trans-Pacific Partnership, or TPP, will remove import barriers and tariffs from five Asian countries, including low-cost manufacturing hub Vietnam, wealthy exporter Japan, Singapore, Malaysia and Brunei. Besides the U.S., other participating nations are Australia, Canada, Chile, Mexico, New Zealand and Peru.
The trade accord still has to be approved by each country's legislature, which is far from certain in the U.S. Congress. Still, China is bracing for the increased competition once the agreement takes effect.
"One of things that could happen is there could be some investment diversion," said Jayant Menon, economist with the Asian Development Bank in Manila.
China, which is facing slower economic growth, is under pressure to remain attractive to foreign companies now that other Asian countries will be offering lower tariffs and cheaper labor, said Ma Tieying, economist with DBS in Singapore.
Parts and materials exported from China face a loss of business because the trade pact mandates that goods made in a member nation also be sourced there.
Foreign companies are already expanding elsewhere as costs go up in China andconsumption falters. But most aren't planning to abandon China's massive consumer market. The country's $10 trillion-plus economy is still growing at around 7% per year.
"If the goal is to tap China's domestic market, many firms are going to feel they still need to be located there," noted Mark Williams, chief Asia economist with Capital Economics in London.
China is already doing more to recruit and retain direct investors. It has addedinvestment incentives and signed bilateral free-trade agreements that serve as microcosms of the TPP.
The Communist leadership devalued China's currency in August to help exporters, and hinted future exchange rates would be up to the market -- welcome news for foreign investors worried about another sudden fluctuation.
China, Southeast Asia and India are separately working toward a rival Asian trading bloc, the Regional Comprehensive Economic Partnership. It would cover 3.4 billion people and 16 members, all from Asia.
"China hopes that the TPP and other free-trade arrangements in the region will boost each other," Chinese Commerce Minister Gao Hucheng was quoted saying in Beijing's state-run China Daily newspaper online.
Among the companies in line to benefit from the trade pact is Silicon Valley chipmaker Intel(INTC) . Intel is spending $1.6 billion through 2029 on factories in China while adding products to a $1.04 billion plant in Vietnam.
Another beneficiary, Samsung Electronics(SSNLF) , runs factories in China as it invests a total $3.5 billion in screen production and smartphone assembly in Vietnam. Intel and Samsung would see tariffs fall as they send finished products to Japan, the United States or other TPP markets.
Japanese multinationals such as tire makerBridgestone (BRDCY) and Honda (HMC) that produce in Vietnam would be able to send stuff home and to North America at low or no tariffs.
Bridgestone also produces tires in China for the local market, while Honda sells vehicles to the Chinese.
China Is Hustling to Compete With Pacific Trade Pact - Pg.2 - TheStreet
RALPH JENNINGSFollowOct 21, 2015 6:21 AM EDT
TAIPEI, Taiwan (TheStreet) -- China isn't part of the huge trade agreement signed earlier this month by 12 Pacific Rim nations. But Beijing isn't standing by idly while other Asian countries prepare to open their borders to more foreign investment and trade.
In fact, China plans to adopt many of the free-trade measures that are in the agreement. At the same time, Beijing can ignore the pact's tougher standards for labor, trademarks and the environment.
The Trans-Pacific Partnership, or TPP, will remove import barriers and tariffs from five Asian countries, including low-cost manufacturing hub Vietnam, wealthy exporter Japan, Singapore, Malaysia and Brunei. Besides the U.S., other participating nations are Australia, Canada, Chile, Mexico, New Zealand and Peru.
The trade accord still has to be approved by each country's legislature, which is far from certain in the U.S. Congress. Still, China is bracing for the increased competition once the agreement takes effect.
"One of things that could happen is there could be some investment diversion," said Jayant Menon, economist with the Asian Development Bank in Manila.
China, which is facing slower economic growth, is under pressure to remain attractive to foreign companies now that other Asian countries will be offering lower tariffs and cheaper labor, said Ma Tieying, economist with DBS in Singapore.
Parts and materials exported from China face a loss of business because the trade pact mandates that goods made in a member nation also be sourced there.
Foreign companies are already expanding elsewhere as costs go up in China andconsumption falters. But most aren't planning to abandon China's massive consumer market. The country's $10 trillion-plus economy is still growing at around 7% per year.
"If the goal is to tap China's domestic market, many firms are going to feel they still need to be located there," noted Mark Williams, chief Asia economist with Capital Economics in London.
China is already doing more to recruit and retain direct investors. It has addedinvestment incentives and signed bilateral free-trade agreements that serve as microcosms of the TPP.
The Communist leadership devalued China's currency in August to help exporters, and hinted future exchange rates would be up to the market -- welcome news for foreign investors worried about another sudden fluctuation.
China, Southeast Asia and India are separately working toward a rival Asian trading bloc, the Regional Comprehensive Economic Partnership. It would cover 3.4 billion people and 16 members, all from Asia.
"China hopes that the TPP and other free-trade arrangements in the region will boost each other," Chinese Commerce Minister Gao Hucheng was quoted saying in Beijing's state-run China Daily newspaper online.
Among the companies in line to benefit from the trade pact is Silicon Valley chipmaker Intel(INTC) . Intel is spending $1.6 billion through 2029 on factories in China while adding products to a $1.04 billion plant in Vietnam.
Another beneficiary, Samsung Electronics(SSNLF) , runs factories in China as it invests a total $3.5 billion in screen production and smartphone assembly in Vietnam. Intel and Samsung would see tariffs fall as they send finished products to Japan, the United States or other TPP markets.
Japanese multinationals such as tire makerBridgestone (BRDCY) and Honda (HMC) that produce in Vietnam would be able to send stuff home and to North America at low or no tariffs.
Bridgestone also produces tires in China for the local market, while Honda sells vehicles to the Chinese.
China Is Hustling to Compete With Pacific Trade Pact - Pg.2 - TheStreet
