The Regional Comprehensive Economic Partnership (RCEP) came into effect on January 1, 2022. Data from the first quarter of 2022 shows that China’s trade with member countries increased 6.9% year-on-year to 2,860 billion RMB (about $448.6 billion). RCEP enables China to further leverage its trade potential to secure better market access in the region. The main beneficiaries are the mechanical and electrical product segments, the e-commerce industry and small and medium-sized enterprises (SMEs).

What is RCEP?

the RCEP, which covers about a third of the world’s population and GDP, represents the largest free trade agreement in the world to date. The trade pact, signed by 15 Asia-Pacific countries – China, Japan, South Korea, New Zealand, Australia and the 10 ASEAN member states – entered into force at the beginning of 2022. To date, the agreement is in force for 12 of its 15 signatories (Indonesia, Myanmar and the Philippines have yet to rectify the treaty).

RCEP aims to remove tariffs on at least 90% of goods traded between member countries – within 20 years of its entry into force. It will promote free trade, strengthen industrial and supply chains, eliminate tariffs, and open up services and investments to accelerate regional economic recovery from the pandemic. Under RCEP, China has established free trade relations with Japan for the first time in history, a move that is expected to boost economic integration and trade relations between the two countries.

RCEP is of great importance to China and foreign investors. The pact offers huge import-export opportunities for China, encouraging companies to expand exports in which China has comparative advantages and increase imports of key technologies, components and raw materials. This will provide China with a more stable and solid connection with Asia-Pacific countries strategically.

Feedback on the implementation of the RCEP in the first months

2022 marks the beginning of RCEP. Despite the pandemic, China’s trade with RCEP countries accounted for 30.4 percent of China’s total foreign trade value, reaching 2.86 trillion RMB (about 448.6 billion U.S. dollars), according to the General Administration. Customs (GAC). This statistic makes ASEAN China’s largest trading partner.

Exports and imports between China and RCEP members increased steadily and reached $203 billion (1,380 billion RMB) and $218 billion (1,480 billion RMB) respectively, an increase of 11, 1% and 3.2% year-on-year. Breaking this down, mechanical and electrical products and labor-intensive products led the exports, occupying 52.1% and 17.8% respectively. Imports of mechanical and electrical products, metal ore and mineral sand and agricultural products accounted for 48.5%, 9.6% and 6% respectively. China also imported $6.79 billion (RMB 46.02 billion) worth of agricultural products from ASEAN, up 14.1 percent year-on-year, accounting for 13.7 percent of the total value. Chinese agricultural imports.

Imports and exports between China and RCEP countries in the first quarter of 2022

Customs statistics also demonstrate that in the first quarter, Chinese companies received fair treatment for joining RCEP – RMB 6.7 billion of imports with preferential tariff treatment worth RMB 130 million. and 37.1 billion RMB of exports with preferential tariff treatment worth 250 million RMB. China has issued 109,000 RCEP certificates to domestic companies, encouraging them to take advantage of reduced tariffs when exporting goods.

Among the other 14 members, South Korea was China’s biggest trading partner. The value of two-way trade rose 14.4 percent year-on-year to $90.3 billion in the first quarter. Japan, which signed a free trade agreement with China for the first time through RCEP, was in second place, with two-way trade amounting to $89.6 billion, up 3.8% year-on-year. China’s trade with 10 ASEAN members rose 10.9 percent to $212.2 billion in the first quarter. The largest increase in trade came from Cambodia, up 39.1%, followed by Indonesia with growth of 31.1%.

What does RCEP mean for China in the long term?

On January 26, 2022, China introduced a new guideline to promote high-quality implementation of the trade pact. It aims to guide local governments, industries and businesses to adapt to a more open regional market with fierce competition to achieve high-quality economic development.

The pact’s emphasis on economic liberalization could push China towards deeper reforms through high-level opening-up, which in turn will facilitate high-quality development. The agreement could boost China’s efforts to stabilize foreign trade and investment, promote industrial upgrading and help the country establish economic and trade rules consistent with international standards. High-end demand from overseas markets will also prompt Chinese enterprises to optimize their products and services to eventually propel China’s overall industrial upgrades.

The gradual elimination of tariffs means that the region is moving towards a large unified market with the free movement of different factors of production. This training will reconfigure the supply and value chains in the region based on comparative advantages, beneficial for the exchange of goods, technologies and capital, as well as the cross-border movement of people in the region. Intra-regional traffic will also be more convenient and competitive. China’s complete industrial chains and technological power will bring other countries into its “dual circulation”. Without tariffs, the effect of comparative advantage is likely to be enhanced.

The role of RMB settlement also sees huge potential for internationalization under RCEP to support trade and investment and enhance cooperation in industrial chain and high-end manufacturing projects. Replacing the US dollar, the current common trading currency, with the RMB for cross-border settlements could further increase trade efficiency in the region.

Finally, China’s involvement with RCEP partners with the Belt and Road Initiative (BRI) to promote regional economic growth and prosperity by creating infrastructure connectivity. In the first quarter, Chinese enterprises made non-financial direct investment in BRI countries, which amounted to RMB 20.08 billion, accounting for 20 percent of total outward investment for the first time. Investment went mainly to Singapore, Indonesia, Malaysia, Vietnam and other ASEAN countries.

What are the trends to watch for in RCEP?

E-commerce

Chapter 12 of RCEP aims to promote e-commerce and to create an enabling legal, regulatory and policy environment for it. The aim is to reduce import and export costs and better integrate industrial and value chains in the region.

A new form of foreign trade, cross-border e-commerce has become an important engine for stabilizing China’s imports and exports. In 2021, China’s cross-border e-commerce import and export volume was RMB 1.98 trillion ($311.5 billion), up 15% year-on-year, among which e-commerce exports electronics amounted to 1,440 billion RMB, an annual increase of 24.5%.

Given the rapid growth of the digital economy, Chapter 12 is of great interest for its relevance to cybersecurity, individual privacy and national security. Two particularly striking aspects of Chapter 12 are its prohibitions against requiring localized computing facilities and localized data. China, as a signatory to RCEP, has made its first-ever commitment, in principle, to binding bans on the location of data facilities and data, a significant departure from its longstanding position on sovereignty. against the data.

A boost for SME players

RCEP will also boost SME development by providing important opportunities for SMEs to participate in regional and global value chains. The pact adopts an “origin in the region” rule to facilitate regional supply chain management, increase intra-regional sourcing options, reduce transaction costs for businesses and integrate SMEs into trade and regional investment.