A Seamless APEC Economic Integration Benefits both China and the US

The 1994 Bogor Summit of APEC set the goal of a seamless Regional Economic Integration (REI), which envisaged, among other things, a Free Trade Area Asia and Pacific (FTAAP), with the objective of trade and investment liberalization by developed members by 2010 and by developing members by 2020. During the first 15 years of APEC, the average tariff rates fell from 16.9% to 5.5% in intra-APEC trade, and the intra-APEC trade volume tripled. They are undoubtedly the key factors behind the relatively fast growth in US-APEC trade and China-APEC trade since the world financial crisis. Currently, APEC is aiming towards ambitious market liberalization, especially regarding border measures and trade facilitation. If China and the US could cooperate promoting APEC REI, both economies will get access to much larger marketplaces, and gain considerable benefits.

China and the US successfully worked to make the early harvest agreement of Doha Round a success in Bali, Indonesia in December 2013. There are all reasons that both economies could find a common interest in promoting the APEC.

A unique significance of the FTAAP is streamlining the Asia and Pacific value chain to attain the optimal division of labor among all its member economies. It is particularly important to the US. The relevant studies have shown that the intra-Asia value chain has the world highest interdependence, followed by Asia-Europe interdependence. The US has a low degree of interdependence with Asia. The US thus needs to integrate itself into the Asia value chain. China, on the other hand, is at the core of the Asia value chain. It shows great potential for both China and the US to complement each other in devoting to FTAAP, and hence anchoring the new type of relationship on the basis of rational economic integration.

Great Chances for Both in Infrastructure and Energy Investment

One of the top priorities of APEC 2014 is to enhance infrastructure investment in its member economies. Asia alone needs $8 trillion in infrastructure investment over the next 10 years. A study shows that every 10 percent increase in infrastructure investment will lead to 1 percent GDP growth. The US also needs considerable infrastructure investment, as most of its highways, bridges, and utilities were built 60 years ago, or even earlier. The Obama Administration has mapped out a public-private-partnership (PPP) initiative, to secure sufficient investment and technologies in infrastructure modernization. China is also engaged in unprecedented construction of infrastructure. Both the US and China should participate in a larger APEC initiative, with China as an important investor in the US, while the US provides its advantages in innovation, design, IT software services, financial services and management in China. Both China and the US could also take infrastructure projects in other APEC economies, with each providing its own advantages and benefits.