China and Europe may team up to snub TPP

Flags of the European Union (left) and China.
Nelson Ching | Bloomberg | Getty Images

The world's largest trade deal in recent decades may wind up creating high school-esque cliques on the international stage.

As the 12-nation Trans-Pacific Partnership (TPP) celebrates after sealing an agreement five years in the making, analysts are wondering whether the key losers from the deal, China and Europe, could join forces in retaliation.

"The question, thus, is what should China and Europe do in front of a huge economic block like TPP?," remarked Alicia Garcia Herrero, chief Asia-Pacific economist at Natixis, in a report this week.

"China and Europe may finally look at each other and find some commonalities that they were unaware of before."

Bitter feelings

Indeed, news of Monday's TPP deal may have left both economic heavyweights feeling slighted.

If anybody had a doubt that China was left out of the TPP on purpose, they need only refer to President Barack Obama's views for proof, Herrero said. In an official statement on Tuesday, the U.S. leader said "when more than 95 percent of our potential customers live outside our borders, we can't let countries like China write the rules of the global economy."

Read More Tarnished Abenomics gets fresh ammunition from TPP

To be sure, Beijing was initially invited to join but policymakers were unwilling to comply with the strict international standards imposed, a factor that makes its participation unlikely in the near future.

"Faced with strong growth headwinds, emerging Asian economies don't want their hands being tied up by the non-trade elements in the TPP package," explained BBVA economists in a note, referring to policies such as tighter protection of intellectual property rights.

"These economies prefer to maintain political and macro stability while undergoing domestic structural rebalancing in the wake of a turbulent global financial environment," BBVA continued.

Europe isn't likely to hop on board either seeing as it's already negotiating with Washington on another major trade pact, the Transatlantic Trade and Investment Partnership (TTIP), and because many of the TPP negotiation benchmarks reached by the U.S. won't be acceptable to European leaders, Herrero added.

Clinton opposes TPP: PBS interview
Clinton opposes TPP: PBS interview

Areas of co-operation

From financing to a potential free trade agreement (FTA), analysts say there are a number of areas for China and the E.U. to collaborate on.

First off, negotiations are already underway for a bilateral Investment Agreement set to conclude by the end of 2016.

Why the Trans-Pacific trade deal makes sense

"Now that the U.S. and China seem to have lost the momentum for their own Bilateral Investment agreement (a notable absence during Xi Jinping's trip to the US), Europe could—for once—become a frontrunner in the negotiations with China and have the U.S. follow if it so wishes," Herrero said.

Read More As for an FTA deal, it may be possible in the distant future.

"China has already expressed interest to the EU in commencing negotiations on a bilateral FTA when President Xi Jinping visited the EU in March 2014. At the time, the EU recognized this to be a desirable long-term objective rather than something that would be negotiated in the near future," noted Rajiv Biswas, Asia-Pacific chief economist at IHS.

Indeed, both players stand to benefit considerably from an FTA. Total bilateral trade in goods reached 467 billion euros in 2014, making China the E.U.'s most important trade partner after the U.S.

An additional area of cooperation lies in China's ambitious infrastructure 'One Belt, One Road' project, in which Beijing will be looking for financing from Europe, Natixis flagged.

Signs in recent weeks already reveal deeper ties between the two economic heavyweights.

At the end of September, China announced it will become the first non-EU nation to contribute to the European Commission's 315 billion euro Investment Plan. Meanwhile, the E.U. said it would examine the possibility for China to become a member in the European Bank for Reconstruction and Development (EBRD), a developmental investment bank.