Something interesting happened in Beijing

Dato Najib was in Beijing recently to attend the APEC economic summit. There he disclosed a landmark initiative between Malaysia and China in setting-up a clearing bank to facilitate business deals between Renminbi (RMB)-Ringgit (RM).

It reduce cost and ease of doing business between the two countries for payments could be done without the need to convert to the US dollar first. With China ready to pump investment in the region, that will help ease the flow of RMB investment into Malaysia.

However, the TPPA's sword of democles remained hanging throughout the APEC Meeting. Malaysia requested that Bumiputera agenda and government owned enterprise or state owned enterprise (SOE) are given exemption when the final round of TPP negotiation begin in early next year.

Then something interesting and worthy of a landmark event happened. With so much issues surrounding TPPA, there is a new alternative to consider.

RMB-RM clearing

An article on the RMB initiative from NST below:

Renminbi initiative

By RUPA - 11 November 2014 @ 12:16 AM

THE renminbi clearing bank to be set up in Malaysia is a recognition of the country’s role as a key renminbi offshore centre among emerging economies in Asia.

Local banks welcomed the initiative, saying it would boost trade finance and remittance businesses between Malaysia and China.

Financial cooperation between the two countries has accelerated on the back of growing bilateral trade, which has expanded by more than tenfold since 2000.

Malaysia is China’s largest trading partner in Asean and trade between both countries exceeded US$100 billion (RM333 billion) last year.

Bank Negara Malaysia deputy governor Datuk Muhammad Ibrahim said the central banks of both countries had engaged in a multitude of financial cooperation for nearly a decade, ranging from the exchange rate float in 2005 to currency swap, Qualified Foreign Institutional Investor licence, direct currency trading and cross-border collateral arrangement.

Renminbi usage has been expanded from trade and investment settlement to include sukuk bonds.

“With this latest memorandum of understanding (MoU), which is yet another milestone, we are confident our continued joint efforts will strengthen Malaysian financial institutions’ capabilities in facilitating businesses in renminbi, not only in Malaysia but also Asean, given their extensive regional networks.”

Although there has been no news from the People’s Bank of China (PBC) on the bank that will act as the clearing house, a Reuters report said it would likely be Bank of China, China’s fourth biggest lender.

Meanwhile, Maybank, Malaysia’s biggest lender, said the clearing house would facilitate client transactions more efficiently.

“It will not only enhance convenience for renminbi trade settlement but also enable the financial system in Malaysia to play a greater role in connecting trade and investment flows between China and Malaysia,” said group president and chief executive officer Datuk Abdul Farid Alias.

Maybank is the only Malaysian bank appointed by PBC as a market maker for the ringgit-renminbi trade.

Since 2012, Chinese customers have been allowed to maintain ringgit accounts at the Maybank Shanghai branch.

HSBC Bank Malaysia Bhd deputy chairman and CEO Mukhtar Hussain described the MoU, which was signed in Beijing yesterday, as a positive initiative.

“The MoU will enable our clients to save cost through direct currency conversion, hedging on forex risks while facilitating more efficient cross-border settlements.”

HSBC is one of the first market makers for direct onshore trading and the bank said there would be more opportunities now following the internationalisation of the renminbi.

Two weeks ago, China and Singapore announced direct trading of renminbi and the Singapore dollar.

The move was to lower currency conversion cost for economic entities and encourage the use of the two currencies in bilateral trade and investment activities.

FTAAP

Najib comment on the upcoming TPPA last round of negotiation in early next year can be found in  Bernama report [read here]. 

China was not invited to join TPPA although there are talks that China will be invited later. The TPPA have been criticised as a promotion of American MNC interest and seen as part of the American Asia Pivot strategic plan on China.

Chinese President Xi Jinping sprang a surprise to revive an old and long talked idea of the FTAAP. It  received endorsement from APEC countries. US and its allies verbally support the initiative. Xinhua report below:

APEC roadmap on FTAAP a historic decision: Xi

Xinhua 08:29, November 12, 2014

BEIJING, Nov. 11 -- The Asia-Pacific Economic Cooperation (APEC) members' endorsement of a roadmap for promoting the Free Trade Area of the Asia-Pacific (FTAAP) process was "a decision to be written into history books", Chinese President Xi Jinping said here Tuesday.

The move was "a historic step we took in the direction towards realizing the FTAAP," marking the official launch of the FTAAP process and demonstrating the confidence and determination of the APEC in advancing regional economic integration, he said at a press conference after the conclusion of the 22nd APEC Economic Leaders' Meeting.

The decision will bring the integration to a new and higher level, benefit economies at various development stages across the Pacific Ocean and inject new energy into the growth of the region and APEC members, the president said.

"We have reached consensus that regional economic integration is the driving force behind sustained strong growth in the Asia-Pacific, and APEC should continue to play a leading and coordinating role in pushing forward this process," he noted.

The final approval of the roadmap came days after APEC ministers reached consensus on it on Nov. 8.

A declaration released after the economic leaders' meeting said APEC members have decided to kick off and advance the FTAAP process "in a comprehensive and systematic manner".

The members have agreed to launch "a collective strategic study" on the FTAAP and instruct officials to undertake the study, consult stakeholders and report the result by the end of 2016, according to the declaration.

It also noted the FTAAP will be realized on the basis of the conclusion of the ongoing pathways, which include the Trans-Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership (RCEP).

Both TPP and RCEP are regional free trade arrangements under negotiation but each of them involves only some of the region's economies, while talks on both arrangements have been stalled by divisions among the negotiators.

Xi has said the FTAAP can be the "aggregation" of existing free trade arrangements.

"The FTAAP does not go against existing free trade arrangements, which are the potential pathways to realize the FTAAP goals," Xi said when speaking at the dialogue between APEC leaders and representatives of the APEC Business Advisory Council on Monday.

The FTAAP should aim to minimize any negative effects resulting from the proliferation of regional and bilateral trade arrangements and will be pursued by building on current and developing regional architectures, according to the APEC's roadmap on the FTAAP.

"Greater efforts should be made to concluding the possible pathways to the FTAAP, including the TPP and RCEP," the document said.

It noted APEC members will increase the transparency of existing and recently concluded trade arrangements by advancing work under an information sharing mechanism.

In addition, efforts will be made to build up economies' capacity to participate in ongoing regional trade arrangements and realize the FTAAP, it said.

Forget TPPA?

In comparison to TPPA, FTAAP will offer a better and more strategic prospect for Malaysia and the region. Dato Mustapha Mohamed has given his endorsement to support and cooperate in FTAAP.  [Read NTP here.] FTAAP is interesting in many aspect.

Firstly, TPPA is in a deadlock in a whole range of issues and not likely to find a meeting point with US MNC interest. For Malaysia, it will only favours the MNC's market entry but does not help in the development program to build capacity, competency and competitiveness. Recent studies showed import will be on the rise and export decline.

Secondly, it help to remove sceptism towards China and build-up of conflict. To quote from China Daily,

In sharp contrast to the bandying of the "China threat" theory by some countries, China is willing to help expedite the building of the FTAAP. Because of territorial disputes and the resulting tensions in the South China Sea and the East China Sea, China has had to face severe criticism. Some countries and observers even said that like all economic powers in the past China too will boost its military might and try to change the existing world order.

Thirdly, it is an answer to US's attempt to encircled China strategically. Reluctantly, President Obama and his allies endorsed FTAAP. The Diplomat believe he will scuttle the FTAAP. A snippet below:

The TPP negotiations are close to being finalized, but recent deadlocks have stalled progress. Under these circumstances, the Obama administration likely feels that introducing a new, even larger trade proposal would sap what little momentum remains for the TPP. .....

Plus, the Obama administration wants to use TPP to ensure that other countries meet the United States’ “high standards” in defining free markets and ensuring intellectual property rights. A parallel agreement that is both more inclusive and less stringent in its requirements would kill any impetus for regional governments to strive to meet those standards.

 Forth, US seemed outmanouvred as Yang Razali wrote in Singapore's Today below:

Chinese President Xi Jinping has shown that the agenda of liberalising trade in the Asia-Pacific region cannot but take China into account; indeed, this agenda will be dictated by China from now on. To show how serious it is, the Beijing APEC Declaration came complete with a road map towards the realisation of the FTAAP, though a clear deadline was shelved for now.

Fifth, the two year study serve their economic interest too. China-Briefing.com wrote

A two year study of the FTAAP also allows China to continue to delay U.S. calls for it to open up its long delayed Government Procurement Agreement (GPA), under which China would allow foreign companies to bid for Chinese government contracts. Originally part of China’s WTO accession agreements, the GPA is now as far away as ever – and remains a problem in terms of promoting a more level playing field in China when one considers the huge involvement of the Chinese government in commerce.

A similar issue in Malaysia.

Sixth, China's view on free trade is for connectivity than an imposing trade requirement. The Diplomat wrote earlier below:

From Beijing’s perspective, the FTAAP means an interconnected Asia-Pacific region – with China, as the region’s (and soon to be the world’s) largest economy, naturally at the center. China’s other high-profile plans for economic integration, the Silk Road Economic Belt and the Maritime Silk Road, echo the idea that the region’s economies should be more integrated. Both those initiatives also focus on literal connectivity – transportation and infrastructure to connect Asia-Pacific states. China also intends to emphasize this at APEC by pushing for a “blueprint” for interconnectivity in the Asia-Pacific in both transportation (highways, railways, air traffic) and regulations.

Seven and lastly, FTAAP is a counter initiative to the TPPA. The Hindu Times reported:

... Xinhua, the state-run Chinese news agency, amplifying in its report on Sunday that the economic potential of the FTAPP is far greater, when compared with the TPP and the Regional Comprehensive Economic Partnership (RCEP)—a grouping led by the Association of South East Asian Nations (ASEAN).

The write-up quoting a report from the Pacific Economic Cooperation Council (PECC) pointed out that FTAAP is estimated to add $ 2.4 trillion to the global economy. The figure stands out in comparison with TPP’s estimated contribution of the $223 billion and the RCEP’s $644 billion.

China is the main economic driver for the region. They contribute more than 50 percent of economic growth in Asia. It is claimed that each percentage point of economic growth in China lifts the economy of the region by 0.3 percent.

Unlike US with no commitment to invest, China has expressed willingness to invest some US$165 billion in direct investment in the region, particularly in infrastructure building. Their description for economic cooperation as "community of shared destiny" is more appealing. [Read National Interest here]

With Malaysia's trade with China stand at US$106 billion last year and is expected to reach US$160 billion by 2017, will it be TPPA or FTAAP that serve Malaysia's economic interest better? If the choice is between regional economic cooperation and military border dispute, then it is clear.