Wen 丨Liang Yixin (Associate Researcher of SADI Research Institute, Ministry of Industry and Information Technology), Han Li (Assistant Researcher of CCID Research Institute, Ministry of Industry and Information Technology)
On 15 November, the Regional Comprehensive Economic Partnership (RCEP) concluded eight years of negotiations and was successfully signed. The RCEP was launched by ASEAN in 2012 and includes the ten ASEAN countries, China, Japan, South Korea, Australia, New Zealand and India. India withdrew from the RCEP negotiations last November, but the possibility of future accession remains, and under the agreed terms and conditions reached by the RCEP signatories, India can participate as an observer in RCEP meetings and economic cooperation activities held by RCEP signatories.
According to the joint statement of the RCEP leaders, the agreement will enter into force after at least 6 ASEAN member countries and 3 non-ASEAN signatories have completed the domestic approval process, and it is expected that the time point may be in 2021, and 2021 will coincide with the first year of China's "14th Five-Year Plan", the conclusion of the agreement will not only have an impact on China's macro-economy and related industries, but also effectively alleviate the adverse impact of Sino-US trade frictions.
This article will integrate and evaluate the impact of RCEP on the Chinese economy, various industries, and the mitigation effect of Sino-US trade friction in the light of Sino-US trade frictions.
China has very close trade with the 15 signatories to the RCEP, among which China has concluded free trade agreements (FTAs) with ASEAN, South Korea, Australia and New Zealand, and enjoys tariff concessions under the FTA. However, China has not yet reached an FTA with Japan and India, so for China, the biggest economic effect of achieving an RCEP comes from Japan and India. Therefore, India's withdrawal from RCEP has a greater impact on China.
In view of this, this paper takes into account the inclusion of India as one of the important influencing factors, and thus sets out four policy scenarios: one is the impact of the RCEP agreement; the other is the impact of the RCEP agreement with India;the third is the impact of Sino-US trade friction; and the fourth is the impact of RCEP under Sino-US trade friction.
This paper uses the global recursive dynamic general equilibrium model (GTAP model) to measure the impact of the RCEP tariff reduction and the tariff increase being implemented in the United States and china, and simulates the impact of the RCEP in India and the mitigation effect of the RCEP on the Sino-US trade friction.
Here are three key findings.
<h3>First, the impact of RCEP on specific industries: textile and apparel benefit the most, automobiles and parts the most damaged</h3>
As shown in Table 2, the biggest beneficiary is textile and garment, output will increase by 0.86%, followed by light industry, output increased by 0.33%, both of which are China's traditional dominant export industries. There was also a slight increase in the output of agricultural products, building materials and electronic equipment.
However, the output of automobiles and parts will be greatly impacted, with output falling by 1.21%, mainly because among the RCEP members, Japan and South Korea are both major automobile producers, and joining the RCEP agreement will cause a certain squeeze on China's domestic production, and the petrochemical industry will also be greatly affected, and domestic production will fall by 0.11%.
In terms of imports and exports, import growth in textiles and clothing, building materials, steel and metal products, automobiles and parts is much higher than that of exports, which means that the trade deficit of these industries may widen. In particular, it should be noted that the automobile and parts industry, with the sharp reduction of tariffs, imports from Japan and South Korea will increase significantly, while China's exports have not shown the same increase, and the impact on the domestic automobile industry is relatively large. Agricultural exports grew by 28.59%, while imports increased by only 1.52%, and the RCEP signing will provide a broad market for China's agricultural exports.
<h3>Second, RCEP can greatly alleviate the negative impact of Sino-US trade frictions on China</h3>
The model in this article shows that Sino-US trade frictions have had a negative impact on both China and the United States, but China has been more affected. As shown in Table 3, affected by Sino-US trade frictions, China's GDP will fall by 0.19% in 2021, while the United States will fall by only 0.09%. One reason is that the United States is China's largest export destination, while China is the third largest export destination for the United States after Canada and Mexico. Second, the list of tariffs imposed by the United States on China is concentrated in the list of $250 billion, and consumer goods such as textiles, clothing, and electronic equipment, which have a greater impact on the United States, account for a small proportion of the list.
Although joining the RCEP cannot completely offset the negative impact of Sino-US trade frictions on China, the mitigation effect is obvious. See Table IV.
After the RCEP came into effect, the negative impact of Sino-US trade frictions on China's GDP during the "14th Five-Year Plan" period narrowed by 0.05 percentage points, the negative impact on imports narrowed by 1.65 percentage points, and the negative impact on exports narrowed by 2.01 percentage points. By 2030, under the buffer of RCEP, the negative impact of trade frictions on China and the United States will be basically flat.
During this period, the performance of RCEP on the mitigation effect of Sino-US trade frictions in different industries also varied. As shown in the table below, in terms of output, machinery and equipment, iron and steel and metal products, building materials, light industry, public services and construction during the "14th Five-Year Plan" period were most negatively affected by sino-US trade frictions, especially machinery and equipment will decline by 0.54%. The conclusion of the RCEP will help China's textile and garment, light industry, building materials, electronic equipment, agricultural products, and extractive industries expand domestic production under the background of Sino-US trade frictions.
However, it should also be noted that for some industries, joining the RCEP has not mitigated the negative impact of Sino-US trade frictions on domestic production, for example, domestic production of automobiles and parts fell by 0.91%, 1.26 percentage points lower than scenario 1. This is related to the integration of regional industrial chains after joining RCEP.
In terms of imports, affected by the slowdown effect of RCEP, imports of various industries have rebounded significantly, with the decline in imports of automobiles and parts narrowing by 8.84 percentage points, the decline in textile and apparel imports narrowing by 7.75 percentage points, and the decline in imports of building materials narrowing by 6.99 percentage points.
In terms of exports, the participation in RCEP has a positive effect on the impact of reducing Sino-US trade frictions on various industries, of which the largest positive for agriculture, the increase in exports expanded by 29.83 percentage points; the growth rate of textile and garment exports expanded by 3.53 percentage points, the decline in building materials exports narrowed by 3.52 percentage points, the decline in light industry exports narrowed by 3.03 percentage points, the decline in automobile and parts exports narrowed by 2.74 percentage points, and the decline in machinery and equipment exports narrowed by 2.09 percentage points.
<h3>India's non-participation reduces the positive effect of RCEP on China's macroeconomy</h3>
Compared with the scenario with India's participation, the positive effect of RCEP without India's participation in China's macro economy has been reduced. As shown in the chart below, without India's accession, China's GDP, imports, exports, investment and terms of trade benefits from RCEP will decline by 0.01, 0.15, 0.12, 0.01 and 0.03 percentage points during the 14th Five-Year Plan period.
For India, joining the RCEP will have a significant boosting effect on India's GDP, etc., but it will also worsen India's terms of trade by 0.69 percentage points. The reasons for India's last-minute withdrawal from RCEP can also be inferred: on the one hand, the ASEAN-India FTA tariff concession level is low, India is worried that the level of RCEP liberalization exceeds the level of existing agreements, which will affect its specific industries; on the other hand, India is worried that the rapid growth of imports from China will hit its domestic market. As India's largest source of deficits, China has strong competitiveness in the Indian market, both intermediate and final consumer goods.
Whether there is an Indian RCEP or not has different impacts on China's specific industries. As shown in table 2 above, if India joins, then China's light industry, petrochemicals, building materials, non-ferrous metals, machinery and equipment and other industries will benefit from joining the RCEP; but India's participation in RCEP is not a positive effect on all Chinese industries, due to India's competition, China's agricultural products, automobiles and parts, electronic equipment, textiles and clothing and other industries of domestic production and exports have declined.
Therefore, for China, India's participation in RCEP is of great significance. It can not only help Chinese enterprises to explore foreign markets, but also multiply the strategic significance of RCEP. In the future, China should strengthen economic and trade interaction with India, promote India to join the RCEP as soon as possible, or accelerate the negotiation of bilateral free trade agreements with India, and strengthen economic interaction and political mutual trust with India under the framework of the "Belt and Road".
In addition, it is recommended to consider joining the CPTPP in due course. The level of CPTPP tariff liberalization is relatively high, and except for some issues that are beyond the current stage of China's development, the vast majority of issues are consistent with the direction of China's further expansion of reform and opening up. In terms of trade in goods alone, the author has previously calculated that under the entry into force of the RCEP and the accession to the CPTPP, China's GDP will grow by 0.32%, exports will increase by 2.26%, and social welfare will increase by $16.618 billion.
(The article represents the views of the author only.) Editor-in-charge email: [email protected]. ）