Dr Andy Xie: Free Trade between China and EU is the Answer…

Our renowned Chinese Economist speaker, Dr Andy Xie, wrote an article in CaixinOnline where he opines that a free trade agreement between China and the EU could serve as a catalyst for domestic reforms in China and allow the two economies to lead a new dynamic in global trade.

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China and the EU should negotiate a comprehensive free trade agreement (FTA) to solve bilateral disputes. Such an agreement could spark an investment boom in both economies and help them climb out of the current downturn.

The EU could see a closing of its trade deficit with China through such an agreement. China’s emerging middle class could sustain higher demand for European food products and branded goods. Chinese tourism, if opened up further beyond group tours, could bring billions of euros to the EU economy quickly.

China could use the process of reaching such an agreement to reform the domestic economy. Trade barriers sustain the inefficiencies in China’s domestic economy. Without an export boom to offset them, such inefficiencies are weighing down China’s economy. When the door to foreign trade is opened wider, China’s economic efficiency improves.

Joining the WTO anchored China’s domestic reform a decade ago and laid the foundation for the boom afterwards. China needs a similar anchor to move the reform forward. Negotiating an FTA with the EU might just fit the bill.

Free trade has stalled since the 2008 Global Financial Crisis. The WTO Doha round is going nowhere….

If China and the EU were to embark on FTA negotiations, it would completely change the dynamic in the global push for free trade. A successful China-EU FTA will effectively define the standards for free trade, because the two combined are so large. It could be an open agreement available for others to join, effectively replacing the Doha Round. The potential benefits for China and the EU are very large.

Even though China is the largest exporter in the world, it has only one meaningful FTA with ASEAN-an economy one third as large as China’s. China needs more to anchor its trade stability. The proposed Northeast Asia FTA among China, Japan, and Korea would be the most logical next step. Considering the difficult relationships with Japan, it won’t happen. The U.S. has strategic considerations about China. A China-U.S. FTA won’t happen in the foreseeable future. The EU is the only meaningful and realistic FTA target for China. If successful, it could force the U.S. and Japan to negotiate FTA with China. Such a game changer must be highly beneficial to China. It should be willing to pay a price for it.

Read the entire article at CaixinOnline…

Dr Andy Xie 謝國忠 is Shanghai-based independent economist specialising in China and Asia. He is currently director of Rosetta Stone Advisors and of China Boqi Environmental Science and Technology.

Dr Xie is one of the few economists who has accurately predicted economic bubbles including the 1997 Asian Financial Crisis and the more recent subprime meltdown in the United States. He joined Morgan Stanley in 1997 and was Managing Director and Head of the firm’s Asia/Pacific economics team until 2006. Prior to that he spent two years with Macquarie Bank in Singapore, where he was an associate director in corporate finance. He also spent five years as an economist with the World Bank.

Contact us today to engage Andy Xie to share his insights at your next conference.