China submitted its application to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in 2021. To date, nearly four years later, there has been no formal update on its application status.
China is already a member of the Regional Comprehensive Economic Partnership (RCEP), which is arguably the most weighty free trade bloc in the region. RCEP includes all 10 ASEAN member states plus Australia, Japan, New Zealand, and South Korea. That means China is already in a free trade bloc with seven of the 12 CPTPP member countries.
But as another highly influential free trade territory spanning the Pacific Ocean, the CPTPP’s entry thresholds are perceived to be set at the loftiest level. In that sense, gaining CPTPP membership will boost China’s prestige, positioning it as an indisputable global economic power. Put differently, China seems immensely reluctant to be barred from joining an elite trade club in its region.
The CPTPP is a successor of the TPP, a trans-Pacific free trade alliance that originally encompassed the United States as well. During the original talks, when the Obama administration was a driving force behind the trade pact, speculation was rampant that the TPP was choreographed to create an exclusive, meritocratic trade partnership off-limits to China. However, when Donald Trump took office for his first presidency, the United States rescinded its signatory commitment with the TPP.
With the U.S. resolving to retreat, the CPTPP emerged, spearheaded by the remaining member states: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. The CPTPP came into force in 2018, with a main text that includes most of the protocols identifiable in the TPP documents. The United Kingdom became the group’s first additional member in 2024.
But even with the U.S. no longer part of the CPTPP, China should not underestimate the difficulties of joining the pact. The CPTPP mandates economic openness in a number of fields, and meeting the requirements could prove to be a tough hurdle for China to clear. The difficulties are most pertinent in three particular areas: an open financial services market, cross-border free movement of electronic data, and certain monopolies enjoyed by China’s state-owned firms. These barriers are likely why China’s application for joining CPTPP is still on hold at the present moment.
China’s financial services sector is among a handful of most protected citadels where foreign penetration is still largely impermissible. The core predicament lies in China’s foreign exchange control system – the Chinese currency, the renminbi (RMB) or yuan, is still not freely convertible on the world’s financial markets. While dealing with current accounts is now basically unconstrained, free trading in capital accounts markets is tightly constrained. That reality is at odds with China’s role as an economic and geopolitical giant that is otherwise active on the global stage. In the financial services sector, China pales in comparison with many of the current CPTPP members.
Perhaps China’s financial supervisory authorities are concerned that an unshackled, thoroughly market-driven financial services sector will prove unmanageable. But unless China at least attempts to partially accomplish the yuan’s free convertibility – perhaps within the confinements of a small number of special bailiwicks like Shanghai, the Hainan Island Free Trade Zone, and/or the Great Bay Area in South China – the mainland will never succeed in achieving the long-sought-after goal of building up international financial centers. As it stands Hong Kong’s position as China’s sole world-class financial hub can hardly be challenged, let alone reproduced on the mainland.
On flows of electronic data, China has roughly established a regulatory framework for promoting and overseeing harmless data leaving the country. However, this regime is operated on the premises of China’s Cyber Security Law, Data Security Law, and Private Information Protection Law, with a view that China’s national security information and personal privacy data must be staunchly defended. Once the potential cross-border movement of data is suspected of violating any of these laws and restrictions, the Chinese authorities are entitled to carry out an official appraisal over its safety before proceeding to determine whether the data in question is allowed to exit the Chinese territory.
Nevertheless, the hard nut to crack is the other side of the coin: ensuring free flows of data into China. Joining the CPTPP calls for equal as well as reciprocal treatment of both inflows and outflows of data by host countries. But it is common knowledge that people staying or living within the borders of China are still largely unable to access most of the major Western data or telecommunications platforms (like Google). This massively weakens the attractiveness of China’s business environment. Without lifting the ban on accessing foreign data, even conditionally, China can scarcely hope to clear the bar set by the CPTPP.
The final hurdle is the fact that China’s state-owned firms continue to enjoy certain monopolies. Under China’s Constitution, public ownership over any means of production constitutes the foundation for China’s socialist economic system. Thus the state-owned economy is deemed to be the leading force. Since China began to implement the practice of reform and opening up in the late 1970s, the private economy has grown up in the country, gaining strong momentum. Currently, the share of GDP and employment opportunities engendered by private economic sectors have far surpassed those generated by state-own economic apparatus.
Even so, based on China’s orthodox doctrines, the private economy (including those economic activities leveraged by overseas capital and conducted by foreign firms and entrepreneurs) is reckoned to have innate deficiencies. Private firms are assumed to pursue their own profits alone, quite often with their moral obligations falling through the cracks. The Chinese government puts more trust in its state-owned enterprises (SOEs), which are required to assume social responsibilities as far as possible, especially under exceptional circumstances such as wars, natural disasters, and critical public health crises.
Thus, in China some SOEs are specifically empowered to possess certain monopolies. This applies to sectors such as utilities, infrastructure facilities, public transportation, exploitation and processing of natural energy, public healthcare, public education, basic food and drink, basic shelter, and national defense industries, etc. Because of the monopolies granted to China’s state-owned firms, they may not necessarily follow the competitive prices prevailing in domestic and international markets – even when such firms are competing with other players on a level-playing field in theory. After all, SOEs can be subsidized by public funds whenever it is necessary. Because China is a socialist country led by the Chinese Communist Party, no one should expect these monopolies to be demolished in short order.
Given these gridlocks, people can hardly help but ask: is China really ready to join the CPTPP? But this overlooks the real question, which is one of will: Does China really need to join the CPTPP? Economically, China does have other choices; joining the CPTPP is a plus but is not absolutely necessary. From a geopolitical perspective, however, China wants to be the best, or at least among the best; this is the real motivation for applying to CPTPP.
In the minds of Beijing’s decision-makers, whether China is eligible to become an esteemed CPTPP member is not merely about expanding trade options. Rather, with its bid to join the CPTPP Beijing intends to showcase China’s stated commitment to “unswervingly expand” the process of reform and opening up. However, China’s way of handling economic and legal issues with possible sensitive international elements may have erected certain ostensible roadblocks to membership.
It took 15 years for China to gain accession to the World Trade Organization. Winning the assent of all CPTPP members this time around will certainly not be smooth sailing. But it will undoubtedly be a good litmus test of China’s intention and ability to change deep-seated economic practices – and more significantly, to act as a trustworthy economic partner to each and every CPTPP member from across the globe.