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China’s new brand of free trade

China’s New Brand Of Free Trade

By Shu-Ching Jean Chen

9 April 2008

HONG KONG - Welcome to the era of free trade, Chinese style.

With Beijing’s completion of a bilateral free-trade pact Monday with New Zealand, its first with a developed country, the government has raised the tempo in its race to secure sources for commodities it deems critical to the growth of the economy: dairy products, food and raw materials.

It has also kicked off a scramble among countries hoping to sign similar agreements that would give them preferential access to the vast Chinese market.

The free-trade agreement with New Zealand, the most comprehensive signed by China to date, comes as part of a shift in strategy by China toward striking bilateral arrangements and away from the multilateral mechanism of the WTO, where it has been hit with a blizzard of anti-dumping complaints, many from the U.S.

Beijing has already signed similar, smaller-scale, FTAs with the ASEAN countries, Chile. Countries next on the list include Iceland, Peru, Singapore, South Africa and Australia.

By no coincidence, all of these countries are among the more than 50 that have recognized China’s claim to have reached the status of a full market economy, unlike its top two trading partners, the U.S. and European Union. Official recognition as a full market economy would help China to fend off anti-dumping complaints at the WTO.

“China has not been as quick in signing bilateral free-trade agreements in the past, but many countries would want to jump the queue and negotiate with China on a one-on-one basis,” said Connie Leung, chief economist at Hong Kong-based ERA Economic Research Analysis.

Most of China’s initial FTAs will be struck with countries that possess commodities China needs to ease long-term structural shortages and its inflationary price spiral. New Zealand is the largest exporter of dairy products in the world; in China, milk powder prices jumped 20% in the last year.

Negotiations are under way between China and the Gulf Cooperation Council, a grouping of the six oil-exporting states of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.