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RCEP Leverages Chinese Backdoor Entry Into India: Vietnam Is The Potential Gateway – Analysis

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Notwithstanding that India quit RCEP, paranoia looms large on China’s backdoor entry in India. After a gap of two years, China reemerged the biggest trading partner of India in 2020-21, outsmarting USA. The surge in imports from China continued to be the trigger for Chinese behemoth in the global trade of India.  

Chinese fear for damaging domestic industry, supported by the BJP’s political outfits, viz, RSS and Swadeshi Jagaran Manch, forced India to refrain from joining RCEP. Further, the past records of  FTAs, which portrayed FTA members reaping more benefits than India, resisted India to be member of mega multilateral FTA, RCEP. The main fear which crippled Indian policy makers to distance from RCEP was China’s predatory in Indian market. Had India joined RCEP, it would have been dumping ground for China, particularly after it lost a big market in USA due to Trumponomics. In terms of global imports by members of RCEP, India would have been the fourth biggest market in RCEP, after China,  Japan and S. Korea, had India joined. 

With India decoupling from RCEP and several other measures to reduce imports from China, fear for Chinese import foray should have been faded. But, China’s re-emergence of biggest trading partner in 2020-21 due to surge in imports negated the hope. Against these backdrops,  surge  in overdependence between China and ASEAN in RCEP is apprehended to leverage China’s backdoor entry in India, even though India quit the block 

China and ASEAN are the two major stake holders in RCEP. They are tipped the wings for global trade. This is because RCEP will be the  biggest trade block in the world. It accounts for 27 percent of world merchandise trade and 30 percent of global GDP.  

Nevertheless, uptick in closer ties and overdependence between China and ASEAN in RCEP does not foretell benign for trade power for both. Observers apprehend an imbalance in the trade power of these two major stake holders due to Chinese expansionism, resulting ASEAN gradually loosing trade power and escalating the vulnerability to Chinese trade trap. This can be exemplified by the outcome of China- ASEAN FTA. Both entered FTA in 2010. Since then, over a decade ASEAN has become an important export  market for China . Its export to ASEAN leapfrogged 148 percent. In converse, ASEAN export to China increased by 80 percent, nearly half to the growth of China’s export.  In other words, China made a deeper penetration in ASEAN market, owing to FTA.  

This lends a ramification on  India- ASEAN trade. The trade relation received backlash due to China’s deeper penetration in ASEAN. This is in spite of the fact that India entered FTA with ASEAN in 2012. India witnessed  downturn in export and increase in imports from ASEAN. India’s exports declined by 4.4 percent and import surged by 29.2 percent during  2012-13 to 2019-20. FTA leveraged more scope to ASEAN to export to India than India could  vis-a vis. ASEAN export accounted for 12 percent of India global import in 2020-21 as compared to 8.7 percent in 2012-13. Consequently, it  raises eyebrows over China’s backdoor entry in India

One of the indicators for China’s backdoor entry into India is the characteristic changes in the import basket of India  from  ASEAN. Import of electronic and electrical items leapfrogged two  times from ASEAN during 2012 – 2021 – the post ASEAN-China FTA. They increased by over 105 percent from ASEAN during the period. But, India failed to reap much benefit  from FTA. 

The surge in imports of electrical and electronic items from ASEAN follows the corresponding growth in imports by ASEAN from China. ASEAN imports of electrical and electronic items from China spurred by over 92 during 2012 to 2020,  accounting  for 35 percent of total import of ASEAN from China in 2020 , as compared to  30 percent in 2012.This raises eyebrows of suspicion that some part of Chinese exports to ASEAN sneaked to India taking the advantages of both FTAs between India–ASEAN and China-ASEAN. The reasons behind this trend could be loose ROO (Rules of Origin) of ASEAN–China FTA. ASEAN FTA is known for simplified ROO. 

Vietnam emerged the potential gateway in ASEAN for backdoor entry of China in India. Factors attributing to Vietnam as the gateway are its surge in imports and the characteristic changes of import basket from China vis-a vis export to India. During the post FTAs, viz, 2010-2020, Vietnam’s imports of electronic and telecommunication items from China increased ten times and accounted for more than 41 percent of its import from China. Correspondingly, India’s imports of electronic and telecommunication items from Vietnam increased three times during 2012-13 to 2020-21. Vietnam became the second biggest source of imports of electronic and telecommunication items after China. Given these, the trade dynamism  between Vietnam and India vis-à-vis  Vietnam and China  decodes enough evidences for Chinese backdoor entry in India in post FTAs.  

Vietnam’s specializations are in production of electronics, textiles and furniture. Electrical machinery, including electronics are the major items of Vietnam’s exports.   

Nearly more than one-fourth of China’s export is accounted by RCEP. ASEAN vulnerability to threat of Chinese trade trap increased with ASEAN-China FTA. Trade and political pundits apprehend that ASEAN to be the dumping ground for China, after India left RCEP. RCEP will leverage  more scope to China to penetrate  ASEAN market than ASEAN do vis-a vis. On the contrary, ASEAN  accounted for 8.1 percent of Chinese imports in 2010, which witnessed marginal growth to 10.4 percent in 2020. Eventually, ASEAN dipped into wide trade deficit  with China. 

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Subrata Majumder

Subrata Majumder is an adviser to Japan External Trade Organization (JETRO), New Delhi, and the author of “Exporting to Japan,” as well as various articles in Indian media, including Business Line, Echo of India, Indian Press Agency, and foreign media, such as Asia Times online and Eurasia Review .

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