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The TPP, its implications and options for Beijing

The recently signed Trans-Pacific Partnership (TPP) is one of the largest free trade agreements in the world with its members accounting for about 40 percent of the global economic output, the implementation of the TPP will have major implications for the Asia-Pacific region, many of which are particularly significant for China. While there are challenges, the TPP also gives many countries the opportunity to reform their existing policies. Joining the TPP could give China the opportunity to change many of its domestic rules and move to more market-oriented trade and business systems - similar to the opportunity China had in 2001 while joining the WTO.

On the other hand, the TPP can help usher in the second phase of domestic reforms in China. But the TPP has another dimension that might be a greater challenge for China. It comprises the US and several of its political allies and partners.

The TPP also includes several members with whom China has difficult political relations and territorial disputes in the East China Sea and the South China Sea such as Japan, Vietnam, Brunei and Malaysia. This makes TPP an even greater political challenge for China. One possibility option before China is quick conclusion of the Regional Comprehensive Economic Partnership (RCEP) negotiations that include China, Japan, the Republic of Korea, India, Australia and New Zealand and member states of the Association of Southeast Asian Nations. But the RCEP might not be as ambitious as the TPP. Many RCEP members, who are members of the TPP, might see more economic gains from the TPP, which could make the RCEP insignificant in the long term. Perhaps a better option for China would be to press for convergence of the RCEP with the TPP and push for a Free Trade Area for the Asia-Pacific, which it has already proposed. But the FTAAP must be as ambitious as the TPP to make it a credible alternative. Otherwise, more regional economies will choose the US-led TPP leading to strategic complications for China.