Economic Effects of China's FTAs and Implications for China's Trade Policy

This paper estimates the economic effects of China's FTAs with ASEAN, Chile, Pakistan, ANZ, GCC, Hong Kong, Korea, and Korea and Japan, and compares libeThis paper estimates the economic effects of China's FTAs with ASEAN, Chile, Pakistan, ANZ, GCC, Hong Kong, Korea, and Korea and Japan, and compares liberalization gains from each. This paper is differentiated from other studies in that the errors in measurement arising from changes in databases resulting from China's WTO accession are controlled. The major findings and implications of this paper are as follows. First, CGE analyses ignoring the impacts of China's accession to the WTO overestimate China's economic benefits (China-ASEAN: 61%; China-Hong Kong: 112%; China-Korea: 42%; China-Japan-Korea: 25%). Second, CGE analyses ignoring the impacts of China's accession to the WTO overestimate economic benefits for partner countries (China-ASEAN: 59%; China-Hong Kong: 119%), whereas they are underestimated in the case of the China-Korea FTA (42%) and the China-Japan-Korea FTA (25%). The reason for underestimation can be explained by the production network based on vertical division of labor of production processes (fragmentation) in the East Asia. Third, the impacts of China's WTO accession on the Chinese economy are far greater than those of China's FTAs with considering countries. Fourth, the gains created from China's FTA policies are very small or almost negligible. Combining the third and fourth implications, it can be said that China continues to enjoy economic gains from free trade governed by multilateral liberalization of institutions and market forces. This also implies that China is likely to use FTA policy as a strategic tool to thwart possible changes in international order away from the present free-trade and multilateral system, which prevent China from sustainable realization of economic gains from trade.