Indian business tycoon Mr. Gautam Adani was baffled by China’s losing its grip on the global powerhouse for workshops. He lamented that China was increasingly isolated, owing to rise in protectionism and a shift in the supply chain. RCEP (Regional Cooperation of Economic Partnership), is driven by China. In the run up, RCEP will be in a tailspin, as a consequence of China losing its grip. Nearly one third of China’s global trade is shared by RCEP. RCEP is the world’s biggest trade block.
Critics echoed concern over RCEP’s effectiveness for trade expansion. They feared RCEP would be used more as a political weapon for China’s political influence than trade expansion. They lamented that China would be the biggest beneficiary of the trade block, gaining a larger market accessibility, leaving ASEAN in despair.
Battered by the COVID 19 pandemic, which led to a long period of the lockdown of factories and shifting of foreign factories, China is now losing the global powerhouse of workshops. Eventually, RCEP is likely to lose its hegemony in the global trade in the days to come, according to trade futurists.
According to the IMF, China’s economic growth will slow down drastically in 2022. It was estimated to slip to 5.6 percent growth in 2022, from 8.1 percent in 2021. A similar forecast was made by Chinese Academy of Science, which envisioned 5.3 percent growth. Given the fact that China will continue its zero COVID 19 policy, which means a continuation of lockdowns, the closing of factories and battered supply chain manufacturing, the Chinese economy will continue to dip in 2022. The Chinese politburo suspect even the targeted slow growth will be a difficult task.
The launching of IPEF (Indo-Pacific Economic Framework), driven by USA, also poses a new challenge to RCEP. In particular, it is a boost to India, who quit RCEP after a long eight years of negotiations.
The USA is the largest trade partner of India, accounting for one sixth of India’s global trade. Nonetheless, China is also the largest trade partner of India, toppling the USA for some years. Notwithstanding, the USA becoming the largest trade partner is more beneficial to India than China. This is because India exports more to the USA and imports less, generating a favourable trade balance. In other words, export is the trigger for USA-India trade growth. In contrast, India exports less to China and imports more. Import catalyzes the trade growth between India and China.
Given these growth trajectory of India with USA and China, notwithstanding IPEF is shackled by the demerits of absence of FTA, IPEF has been christened a better option for India to increase exports
For India, there are several ways IPEF will outbid China. First, IPEF accounts for bigger share in India’s trade than RCEP. IPEF accounted for 29.7 percent of India’ s total trade in 2020-021, as compared to 25.2 percent by RCEP. Secondly, while larger share of trade with IPEF was exports base , trade with RCEP was import based. In 2020-21, IPEF accounted for 32.4 percent of India’s total export, as compared to 22.7 percent of export to RCEP. Conversely, RCEP accounted for larger share of 36.8 percent of India’s total imports as compared to 27.4 percent imports from IPEF. In the case of IPEF, USA was the engine for export growth and in case of RCEP, China was the trigger for import surge. Third, RCEP connotes more risks for wider trade deficit than IPEF.
Initially, ASEAN members were upbeat on RCEP for their expansion of trade. Even then there was a veiled fear of China’s economic influence , reflecting a paranoia for trade colonialism. Experiences show that ASEAN has been a rising import destination for China after ASEAN–China FTA concluded and import from China become the engine for growth. Owing to ASEAN-China FTA, even though trade between ASEAN and China grew fourfold during 2010 to 2021, ASEAN imports from China jumped by 218 percent, against export to China by 150 percent only. In contrast even though the USA is the second biggest trade partner of ASEAN, after China, exports to USA has become the trend setter for trade growth, albeit without FTA.
ASEAN is the biggest market for China in RCEP. The crucial issue of ASEAN global trade after launching of IPEF is the bi-polarization between RCEP and IPEF. Of the 14 nation of IPEF economic club, 7 are from ASEAN. They are Singapore, Vietnam, Thailand, Indonesia, Malaysia, Philippines, Brunei. Excepting Singapore, the USA provided a space for favourable trade balance for ASEAN 6, who are also members of IPEF. This means, six ASEAN members of IPEF exported more to USA, imported less. In contrast, all the ASEAN 7 members of IPEF have growing trade deficits with China.
This demonstrate that IPEF opens a favourable trade balance for ASEAN 6, unleashing a positive impact on Balance of Payment. In contrast, the trade deficit with China is burdensome on BOP. Eventually, the significance of RCEP for expansion of trade hangs in quandary. Instead, it will revamp China’s economic influence on ASEAN, tending towards an economic coup by China, the critics quipped.