MNI: China Gets High Tech Help Via RCEP, But Wants Homegrown

The world’s largest trade pact among 15 Asia-Pacific nations will boost China’s access to high-tech products at a time strained global supply chains lead to calls for more support measures to develop the country’s own high-tech capacity, policy advisors told MNI.

The Regional Comprehensive Economic Partnership in force this year marked the new establishment of free trade partnerships between Japan and China, the two largest economies in Asia. With South Korea, the second-largest source of China's integrated circuit (IC) imports also in the deal, a tighter economic connection with these high-tech manufacturing hubs would partly compensate for a technology blockade led by the U.S., advisors said.

More sophisticated machines and electrical products from Japan and South Korea with tariff concessions will find their way into China, said Wang Xiaosong, researcher at National Academy of Development and Strategy, RUC.

For example, import-dependent integrated circuit immediately enjoys zero tariff in trade with South Korea.

A PROBLEM TOO

But a new form of technology import reliance would be frowned upon long term. “Objectively, this could delay the country’s independent innovation,” said Wang.

Beijing is highly aware of shocks and continues to increase support for domestic IC industries by offering R&D subsidies, setting up government funds and organizing national research projects and laboratories, Wang continued.

Xu Xiujun, senior fellow of Institute of World Economics and Politics at Chinese Academy of Social Sciences, also senior fellow of Center for China and Globalization agreed that policy support for high-tech enterprises is a necessity amid opening the economy, see: China Needs A Fiscal-Monetary Boost-Advisor.

The U.S. has targeted Beijing’s subsidies that give domestic companies an edge over foreign rivals, Xu argues that China’s policies are more transparent now and appliable to all sorts of companies with foreign investors in China also beneficiaries.

China has benefitted from trade during the pandemic as many of its manufactured goods filled gaps during massive supply chain disruptions that boosted exports to double digits.

The deeper concern is a stall in its plans to transition the economy as the U.S. enforces tech export restrictions though Beijing is working on deals with other blocs like the EU.

NEW WINE, OLD BOTTLE

RCEP also tweaks the U.S. in a fashion as it failed to gain legislative approve for the Obama administration push for a Trans-Pacific Partnership trade pact that excluded China. The pact has now morphed into the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, which China has asked to join.

Both Wang and Xu see limited possibility for China and U.S. to achieve a breakthrough in trade talks such as reducing additional tariffs or easing export restrictions soon, as the Biden administration is restrained by domestic political division.

On some products, China may find new competition from members like Southeast Asian countries as they recover from pandemic conditions and rebuild disrupted supply chains, which could lead to a slowdown in its export growth to single-digit levels in 2022.

Exports may slow to 5-10% this year from 21.2% in 2021, Wang estimated.

Still, overall regional trade should grow and mildly increase China’s export and import pie in 2022, buoying the figures by 0.72% and 0.87%, respectively, said Ming Ming, deputy research head of CITIC Securities and a former staffer at the central bank estimated.

Under new rules of origin, RCEP exporters will only need to source a minimum 40% of inputs from within the bloc for their final goods to qualify for tariff preferences when exported to other RCEP members.

This will encourage more use of intermediate goods from within the bloc, and further consolidate regional supply chains, said Xu, adding that the regionalisation of trade is a practical choice amid rising anti-globalisation.