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Original title: Liang Yixin, Han Li: According to the model, what is the profit and loss of RCEP in different industries in China?
Text 丨 Liang Yixin (Associate Researcher of the CCID Research Institute, Ministry of Industry and Information Technology), Han Li (Assistant Researcher of the CCID Research Institute, Ministry of Industry and Information Technology)
On November 15, the “Regional Comprehensive Economic Partnership Agreement” (RCEP) was successfully signed after eight years of negotiations. RCEP was initiated by ASEAN in 2012 and its member states include ten ASEAN countries, China, Japan, South Korea, Australia, New Zealand, and India. India pulled out of the RCEP negotiations in November last year, but there is still a chance to join in the future. In accordance with the terms and conditions agreed by the RCEP signatories, India can participate in the RCEP meeting and the economic cooperation activities carried out by the RCEP signatories as an observer.
According to the joint statement by RCEP leaders, the agreement will enter into force after at least 6 ASEAN member states and 3 non-ASEAN signatories complete national approval procedures. This date is expected to be in 2021, and 2021 will coincide with that of China. “14 In the first year of the Five-Year Plan, the conclusion of this agreement will not only have an impact on the macroeconomy of China and related industries, but will also alleviate effectively the adverse effects of trade frictions between China and the United States.
This article will combine the Sino-US trade frictions to comprehensively assess the impact of RCEP on the Chinese economy and various industries, as well as the mitigating effect of Sino-US trade frictions.
China has very close trade relations with the 15 RCEP signatories. Among them, 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, therefore, for China, the biggest economic effect of reaching RCEP comes from Japan and India. Therefore, India’s withdrawal from the RCEP will have a greater impact on China.
In view of this, this article takes the inclusion or exclusion of India as one of the important factors in consideration, and sets out four policy scenarios accordingly: one is the influence of the RCEP agreement; the other is the influence of the RCEP agreement to which India has joined; The third is the impact of the Sino-US trade friction; the fourth is the impact of the RCEP under the Sino-US trade friction.
This article uses the global recursive dynamic general equilibrium model (GTAP model) to calculate, taking as impact the RCEP tariff reduction and the tariff increase that China and the United States are implementing, simulating the impact of the RCEP of India and the impact of the entry in force of RCEP on trade friction between China and US Mitigation effect.
The following are three important findings.
1. The impact of RCEP on specific industries: textiles and apparel gain the most, and automobiles and parts suffer the most
As shown in Table 2, textiles and clothing will benefit the most, with an increase in production of 0.86%, followed by light industry, with an increase in production of 0.33 % Both are China’s traditional advantageous export industries.Agricultural productsProduction of building materials and electronic equipment also increased slightly.
However, the production of cars and spare parts will be greatly affected, and production will fall by 1.21%. This is mainly due to the fact that Japan and South Korea are large car producers among the RCEP members. Adhering to the RCEP agreement will reduce China’s domestic production. The chemical industry is also more affected and national production will fall by 0.11%.
In terms of imports and exports, the growth of imports of textiles and clothing, construction materials, steel and metal products, automobiles, and parts and components is much higher than that of exports, which means that the trade deficit of these industries can be expanded. In particular, pay attention to the auto and parts industry. With the significant reduction in tariffs, imports from Japan and South Korea will increase substantially, while exports from China have not increased at the same rate, which has a relatively large impact on the domestic auto industry. Exports of agricultural products grew by 28.59%, while imports only increased by 1.52% The signing of the RCEP will provide a broad market for China’s agricultural exports.
2. RCEP can greatly alleviate the negative impact of trade friction between China and the US In China
The model in this article shows that trade frictions between China and the United States have had negative effects on both China and the United States, but China has been hit the hardest. As shown in Table 3, affected by trade friction between China and the US, China’s GDP fell 0.19% in 2021, while the US only fell 0.09%. One reason is that the United States is China’s top export destination, while China is the United States’ third-largest export destination after Canada and Mexico. Second, the list of additional tariffs imposed by the United States on China is concentrated in the $ 250 billion list, and consumer products such as textiles, clothing, and electronic equipment that have a greater impact on the United States represent a small proportion of the list.
Although joining RCEP cannot fully offset the negative impact of trade frictions between China and the US In China, the mitigating effect is obvious. See table four.
After the entry into force of the RCEP, during the period of the 14th Five-Year Plan, the negative impact of trade friction between China and the United States on China’s GDP was reduced by 0.05 percentage points, the negative impact on imports it was reduced by 1.65 percentage points and the negative impact on exports was reduced by 2.01 percentage points. By 2030, under the RCEP cushion, the negative impact of trade frictions in China and the United States will be basically the same.
During this period, RCEP’s performance in mitigating trade frictions between China and the US differed across different industries. As shown in the table below, in terms of production, machinery and equipment, steel and metal products, building materials, light industry, utilities and construction will be the most adversely affected by the trade friction between China and the United States during the “XIV Five-Year Plan” period, especially the cumulative decline in machinery and equipment. 0.54%. The RCEP achievement will help China’s textiles and apparel, light industry, building materials, electronic equipment, agricultural products, and extractive industries to expand domestic production in the context of trade friction between China and United States.
However, it should also be noted that for certain industries, joining the RCEP did not alleviate the negative impact of trade friction between China and the US on domestic production. For example, domestic production of automobiles and spare parts fell 0.91%, a decrease of 1.26 percentage points from scenario 1. This is related to the integration of the regional industrial chain after joining RCEP.
Regarding imports, due to the deceleration effect of the RCEP, imports from all industries have recovered significantly. The fall in imports of automobiles and spare parts fell by 8.84%, the fall in imports of textiles and clothing by 7.75% and the fall in imports of construction materials by 6.99 %.
In terms of exports, joining the RCEP has a positive effect on reducing the impact of trade frictions between China and the US in various industries. Among them, it is the one that most benefits agriculture, with an increase in exports of 29.83%; exports of textiles and clothing 3.53% and exports of construction materials 3.52%. The fall in exports of light industry fell by 3.03 percentage points, the fall in exports of automobiles and parts and components fell by 2.74 percentage points, and the fall in exports of machinery and equipment was reduced by 2.09 percentage points.
3. India’s non-participation reduces the positive effects of RCEP on China’s macroeconomy
Compared to the scenario with the participation of India, the positive effect of RCEP without the participation of India on the macroeconomy of China has been reduced. As shown in the graph below, without the participation of India, China’s GDP, imports, exports, investment and terms of trade will benefit from the RCEP during the period of the “XIV Five Year Plan” will fall by 0 .01, 0.15, 0.12, 0.01, and 0.03 percentage points.
For India, joining RCEP has a significant boost for India’s GDP etc, but it will also worsen India’s terms of trade by 0.69 percentage points. From this, we can also infer the reasons why India pulled out of the RCEP at the last minute: On the one hand, the level of tariff reduction of the ASEAN-India FTA is relatively low, and India is concerned that the level of liberalization of the RCEP exceeds the level of the existing agreement, which will affect specific industries; India is concerned that the rapid growth of China’s imports will affect its domestic market. As India’s main source of deficit, China has strong competitiveness in the Indian market, be it intermediate products or final consumer products.
The existence or not of an Indian RCEP has different impacts on specific industries in China. As shown in Table 2 above, if India joins, then China’s light industry, petrochemicals, building materials, non-ferrous metals, machinery and equipment will benefit the most from joining RCEP; however, India’s participation in RCEP will not be beneficial to all Chinese industries. Has a positive effect Due to competition from India, domestic production and export of agricultural products, Chinese automobiles and spare parts, electronic equipment, textile and clothing industries have decreased.
Therefore, for China, India’s participation in RCEP is of great importance. Not only can it help Chinese companies to open foreign markets, but it also doubles the strategic importance of RCEP. In the future, China should strengthen economic and trade interaction with India, promote India’s entry into RCEP as soon as possible, or accelerate the negotiation of bilateral free trade agreements with India, and strengthen economic interaction and political trust. Mutual with India under the “Belt and Road” framework.
Also, it is recommended to consider joining CPTPP in due course. The level of tariff liberalization of the CPTPP is relatively high. Except for a few issues beyond China’s current stage of development, most of the issues are consistent with the expansion of China’s reform and opening-up. Regarding trade in goods, the author has previously estimated that with the entry into force of the RCEP and adherence to the CPTPP, China’s GDP will grow by 0.32%, exports will grow by 2.26% and welfare social will increase by USD 16,618 million.
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