RCEP with China’s economic strategy bodes well for Asia-Pacific

By Wang Huiyao | Founder of 

the Center for China and Globalization(CCG)

China’s plans to boost consumption will make it the RECP’s main import magnet, catalysing regional integration, even as RCEP membership opens doors to more trade  deals for a reforming China

After eight years of tough negotiations, November 15 saw a breakthrough for regional cooperation as 15 Asia-Pacific nations signed the biggest free-trade deal in  history. Comprising the 10 Asean members, Australia, China, Japan, New Zealand and South Korea, the Regional Comprehensive Economic Partnership (RCEP) will reduce trade  barriers across a third of the world’s population and economic output area. Economists at Johns Hopkins University estimate the pact could add US$186 billion to the  global economy – a welcome boost as we face the worst recession in a century.

Perhaps more significantly, the RCEP will catalyse Asia’s long-term integration and is a major milestone in the opening up of China, providing a foundation for  membership in more advanced trade agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

Leaders and trade ministers from ASEAN and the 15 Regional Comprehensive Economic Partnership countries pose for a virtual group photo at a videoconference hosted by Vietnam on Sunday. The countries will form the world's largest trading bloc, encompassing nearly a third of all economic activity. [Photo by Zhang Ling/Xinhua]

In its 14th five-year plan (2021-2025), China must adapt to a post-pandemic world shaped by economic uncertainty and the splintering of global value chains. As China’s  first multilateral trade deal – and the first to include Japan and South Korea – the RCEP, which will remove around 90 per cent of tariffs eventually, meshes  powerfully with China’s dual circulation strategy, which aims to boost self-sufficiency while diversifying integration into global markets.

In “international circulation” – foreign trade and investment – the RCEP’s common rules of origin will make cross-border trade simpler and cheaper, allowing  Chinese firms to optimise resource allocation between the domestic market and the rest of the region. RCEP membership will also anchor higher value-added growth points  in China as multinationals shift some production processes to elsewhere in Asia due to rising mainland costs and a desire to insulate supply chains from trade  frictions.

Links between China and RCEP supply-chain partners such as Vietnam and Malaysia are already deepening in sectors such as electronic manufacturing. China’s imports of  integrated circuits from the Association of Southeast Asian Nations grew by 23.8 per cent in the first half of this year, while its exports of the same to Asean grew  29.1 per cent. Asean has surpassed the European Union to become China’s largest trading partner.

The RCEP also dovetails with China’s plans to internationalise the yuan and develop Hainan into the world’s largest free-trade port.

Just as importantly, the RCEP aligns with another core thrust of China’s dual circulation strategy: boosting domestic consumption.

The rise of the Chinese consumer is already one of the most promising growth stories for the post-pandemic world. In its 14th five-year plan, the Chinese government  will further increase consumer spending by raising productivity and wages, strengthening the social safety net and expanding economic opportunities in smaller towns and  rural areas.

Earlier this month, President Xi Jinping projected that China would import US$22 trillion of goods in the next decade. Firms, workers and farmers in RCEP economies are  well-placed to tap this bounty.

China’s role as the RCEP’s main magnet for imports will offset its status as an export powerhouse, and help to balance trade dynamics within the pact. This is  important as tensions could emerge if the RCEP were to seriously exacerbate trade deficits in member countries – a concern that saw India drop out of the agreement  last year.

Over time, cross-border trade and investment will expand the synergies between China’s dual circulation strategy and the RCEP, reinforcing the pact’s cohesion and  viability as a vehicle for deeper regional integration. Like fine wine, Asean agreements tend to improve with time.

For China, the RCEP could be a stepping stone for more trade agreements, as the Asia-Pacific becomes a coherent trading zone like Europe or North America, albeit on a  grander scale.

For example, the RCEP boosts China’s prospects of sealing the trilateral free-trade agreement with Japan and South Korea that has been bogged down by spats between  Seoul and Tokyo. It also weakens obstacles to China joining the CPTPP, an idea gaining traction among Beijing’s policymakers.

Previously, some voices at home had raised doubts over China joining the RCEP, let alone the less flexible CPTPP, seen as a forerunner of even higher-standard trade  agreements. Success in the RCEP will help quell this domestic opposition while reforms take China’s economy closer to CPTPP rules on issues such as intellectual  property, market access and foreign investment.

The two regional agreements are by no means mutually exclusive – seven countries are members of both. In fact, they could form complementary tracks to regional  integration: the rigorous CPTPP for more advanced economies and the less-demanding RCEP for developing Asian countries. And China could eventually help to bridge the  two projects – under the Free Trade Area of the Asia-Pacific or some other mechanism.

Given that US President-elect Joe Biden is open to renegotiating the pact his predecessor abandoned, the world’s two largest economies could one day come under its  common umbrella of trade rules. Not only would this help to stabilise relations between China and the United States, it could also provide a template for World Trade  Organisation reforms.

International trade and cooperation have suffered in recent years under the weight of populism, protectionism and now the pandemic. Encouraging news on vaccine  development and Biden’s election victory have raised hopes that the world can turn a page in 2021. As a catalyst for Asian integration and China’s continued opening- up, the RCEP is yet another reason to be optimistic.

From SCMP，2020-11-26

CCG Books

● Published by Springer 

● Edited by Wang Huiyao, President and Miao Lu, Vice President, Center for China and Globalization(CCG), Beijing, China 

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The internationalization of Chinese enterprises is one of the most notable aspects of economic globalization in the 21st century. Despite the 2008 financial crisis and weak global outbound investment, under the “go global“ initiative, Chinese outbound investment has gone from strength to strength, while also diversifying in terms of investment modalities, destinations, and industries. However, growing anti-globalization sentiment in some countries has also created new challenges for Chinese firms expanding internationally.

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● Published by Edward Elgar 

● Edited by Wang Huiyao, President and Miao Lu, Vice President, Center for China and Globalization(CCG), Beijing, China 

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An excellent guide for understanding the trends, challenges and opportunities facing China through globalization, this Handbook answers the pertinent questions regarding the globalization process and China’s influence on the world.

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● Links：

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● Published by Springer

● Authors: Wang Huiyao, President and Miao Lu, Vice President, Center for China and Globalization(CCG), Beijing, China 

The first effort to address the gap regarding higher-end talent within the scholarly work on internal labor migration in China

Provides an essential overview of the major milestones in China’s talents attraction policies, as well as several recommendations to help further improve those policies

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This book offers the most comprehensive, up-to-date assessment of China’s domestic and international migration. Restructuring economic development requires large numbers of educated and skilled talents, but this effort comes at a time when the size of China’s domestic workforce is shrinking. In response, both national and regional governments in China have been keen to encourage overseas Chinese talents and professionals to return to the country. Meanwhile, the Chinese government has initiated a number of policies to attract international highly-skilled talents and enhance the country’s competitiveness, and some Chinese policies have started attracting foreign talents, who are coming to the country to work, and even to stay. Since Chinese policies, mechanisms, and administration efforts to attract and retain skilled domestic or overseas talents are helping to reshape China’s economy and are significantly affecting the cooperation on migration and talent mobility, these aspects, in addition to being of scholarly and research interest, hold considerable commercial potential.

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