China warns rival trade pacts in Asia Pacific will lead to fragmentation of regional economy

Chinese President Xi Jinping has issued a stark warning at the Asia Pacific Economic Summit that rival trade pacts taking shape in the region may cause regional fragmentation. Although he did not specifically name any trade pacts, it is widely thought that he was referring to the US-led Trans-Pacific Partnership or TPP.

The TPP covers Japan, Canada, Mexico, Chile, Peru, Australia, New Zealand, Singapore, Brunei, Vietnam and Malaysia and represents 40% of the global gross domestic product, 30% of global exports, 25% of imports and covers 793 million consumers. China is not in the pact.

Speaking to business leaders at the Apec CEO Summit in Manila, Xi said: "Currently, many new free-trade arrangements keep emerging. It triggers various concerns about fragmentation [of the regional economy]"

He continued: "We should strive for cooperation and a win-win [trade arrangement], fight against protectionism and push for fair competition." President Xi also urged Apec member nations to accelerate the establishment of the Free Trade Area of the Asia-Pacific or FTAAP as many other economic deals were taking place in the region.

The FTAAP is widely seen as a trade deal pushed by Beijing to counter the influence of the TPP, observers say. At the Apec Leaders' Summit in Beijing in November last year, Apec members agreed on a roadmap to launch a study into the FTAAP.

South China Morning Post noted that the exclusion of China, the world's "largest merchandise trader" with combined exports and imports worth $4.3tn last year, from the TPP, speaks volumes. "It [the TPP] is more than just a trade agreement and it represents a large market led by the US," said Jianguang Shen, the chief economist with Mizuho Securities Asia. China clearly has a lot to lose simply by not being part of it.

Matt Ferchen, a resident scholar at the Carnegie-Tsinghua Centre for Global Policy in Beijing said: "Geopolitically, and especially in terms of US versus China influence in the Asia Pacific, the TPP deal is important because it is the most tangible economic element of America's 'pivot' towards Asia."

Gary Hufbauer, an international trade expert at the US-based Peterson Institute for International Economics, has estimated that the TPP, when in place, would deprive China of about $100bn of exports annually. Ma Jun, the chief economist of the People's Bank of China said Beijing stands to lose 2.2 percentage points in GDP if it is not part of the TPP.

Not surprising therefore that some Chinese officials regard the TPP as a US conspiracy aimed at containing China, the newspaper noted. It described the TPP as a club that "seems to welcome anyone but the world's largest economy."

In retaliation, China is also pushing for talks on the Regional Comprehensive Economic Partnership which covers the 10 member bloc of the Association of Southeast Asian Nations plus China, Japan, South Korea, New Zealand, Australia and India. It does not include the US, naturally.

Taking on the theme of the 'silk road', Xi has also introduced the New Silk Road strategy which will link China with Europe through central and eastern Asia. And another strategy, the 21st century Maritime Silk Road will connect China with Southeast Asian countries, Africa and Europe.