Thursday, October 17, 2019
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China Game For RCEP But Will India Play Ball?

Short of spelling it out in black and white, a China trade specialist gave every indication that his country intends to push hard on the negotiations to realise RCEP, the ambitious Regional Comprehensive Economic Partnership, by the year-end. This, China hopes, will obviate the pressure brought on by Donald Trump’s trade war against his country. But there’s little comfort for India.

“China wants RCEP 16,” said Song Hong, head of international trade at the World Institute of Politics & Economics in Beijing, meaning that RCEP should have 16 members including India. But the undercurrent was China would offer no easy path for India’s integration into this proposed trading bloc which would comprise the 10 ASEAN states plus China, Australia, Japan, South Korea and New Zealand.

Scholars in India warn that “there is asymmetry in China’s thinking when it comes to other nations. So RCEP 16 is a win for China since it will get access to a huge market.”

So if India has concerns about being flooded with cheap Chinese manufactures, too bad. “RCEP will give India more opportunities to integrate and China is looking for more institutional platforms to integrate,” aid Song, glossing over India’s concerns. In his view, “since 2000, India has integrated its services into global supply chains whereas only some parts of the Indian economy are integrated with China”.

This negates the view in this country that while RCEP is a key issue, the elephant in the room is actually the Chinese dragon, sitting on a huge manufacturing and technology base backed up by ample supplies of cash. Joining RCEP carries the risk of Indian industry being wiped out by China’s gargantuan manufacturers. China knows this, which explains the rather smug pronunciations of Song Hong.

In the event India decides to stay out of RCEP for the time being, China is looking beyond, at a free trade area with Japan and South Korea, and another free trade area with Australia and New Zealand. In effect, India gets frozen out of some of the biggest markets in the region. It doesn’t help that although India is strong in services, China’s own services sector is reported to be galloping ahead.

The Indian thinking suggests the need to stay in the RCEP game, so negotiators are burning the midnight oil drawing up a list of products where import tariffs will be retained to safeguard against Chinese dumping. Indian trade experts call this the “differential tariff plan” (which reportedly even the U.S. had insisted upon during the negotiations over the Trans Pacific Partnership that fell apart after Trump became president). There is even talk of a mechanism for fixing an “import ceiling”.

China doesn’t like the idea, nor do New Zealand and Australia that have been eyeing India’s dairy market for years but have not been able to enter. Is China ready to provide incentives to India? Nothing of that sort is apparent. China has a huge economic advantage and the trade war with the U.S. ensures it will leverage every instrument of national power to emerge as Asia’s colossus.

Given the disadvantages of doing business in India, all this may seem like a lot of gloom and doom. But China is also on a less than firm wicket. The trade war with the U.S. is far from over. The resentment against China is growing, notably the point that this is not a market economy but a largely state driven one. That makes for unfair competition. This is where countries like India have to work doubly hard on safeguards, ensure that our industry and business have room to grow and prosper.

1 COMMENT

  1. Excellent analysis. I have lived in China for more than a decade. I have helped to open Joint Ventures and understand the strength of Chinese manufacturing sector. It is better to join than getting pushed out.

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