(China Daily)
Updated: 2007-12-26 16:39

[The author Zhao Jinping is a researcher with the Development Research Center of the State Council.]

China and Peru have agreed to start the first round of negotiations on a free trade agreement (FTA). This is the latest move by China in developing FTAs after it launched closer economic partnership agreements with the special administrative regions of Hong Kong and Macao in 2004.

Currently, China has signed FTAs with 14 countries and regions. It is engaged in negotiations with 12 other countries and regions, and feasibility studies are being conducted on three more.

The establishment of free trade zones is important to China as it relies heavily on trade.

It is an efficient way to promote trade growth, one of the three engines driving China's economy. Free trade zones with participating countries offer open markets and few trade barriers.

Since China signed a FTA with the Association of Southeast Asian Nations (ASEAN) in 2004, China-ASEAN trade has been rising by at least 20 percent every year.

Chinese exports to ASEAN jumped by 31.4 percent in the first 10 months of this year, five percentage points higher than the country's trade growth.

During the same period, Chinese exports to Pakistan and Chile, also FTA partners, grew by 34.2 percent and 66.3 percent respectively.

Free trade agreements are vital to China with the increasing regionalization of world trade.

Many free trade areas are being set up among countries in North America, Europe and Asia. If China does not follow the trend, it would lose out.

The Republic of Korea (ROK) for example, has signed a FTA with the United States, and FTA negotiations with the European Union are underway, and it is also looking to Japan.

When these agreements take effect, Chinese exports to the ROK would be hit because of relatively higher costs. An agreement with the ROK would eliminate this.

While Chinese businesses gain access to bigger markets, China in turn is offering its market to its trade partners.

According to official government figures in the first 10 months of this year, imports from ASEAN were up by 21.5 percent. Imports from Chile jumped by 81.1 percent year on year, nearly twice the growth in Chinese exports to Chile.

China's promotion of free trade agreements will also speed up the economic integration of East Asia, and boost the influence of the region in international affairs.

Many countries and regions in East Asia have export-orientated economies relying on markets in Europe and the US. Economic integration in East Asia will reduce this reliance, protect the economies from risks and uncertainties, as well as maintain stability in the region.

As one of the biggest economies in East Asia, China would play a major role in the promotion of regional cooperation through its FTAs.

Countries and regions in East Asia would gain better leverage in setting the rules of global trade.

Although China has already made considerable progress in establishing FTAs, it still has several issues to tackle before making further progress.

China's FTAs are mostly with developing countries. The coverage, influence and trade volume of these countries are limited compared with the North American Free Trade Agreement (NAFTA), and the Economic Partnership Agreement which covers the European Union and Japan.

It is therefore necessary for China to explore the feasibility of seeking FTAs with developed countries.

China, the ROK and Japan are the three most important economies in East Asia with huge GDP figures. Although the three have established dialogue and cooperation at different levels, they have not entered into FTAs.

To further regional cooperation in East Asia, the time is now right for the three to do so.