China - Champion of Globalisation
09/11/2019 08:50 am MYT
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"China is now the de facto champion of multilateralism and globalisation."

Fifteen nations from the Asia-Pacific region – the 10 ASEAN nations plus Japan, China, South Korea, Australia and New Zealand – agreed on the outline of the Regional Comprehensive Economic Partnership (RCEP) this week. India unsurprisingly chickened out again. The mammoth trade deal dominated the three-day Association of Southeast Asian Nations (ASEAN) summit in Thailand’s Nonthaburi province.

What is RCEP? In 2017, the 16 prospective signatories, assuming India had joined in, would have accounted for a massive population of 3.4 billion people (now 1.2 bln people less) with a total GDP of US$49.5 trillion (purchasing power parity basis), or approximately 39 percent of the world's GDP. In short, it is the world’s largest trade deal and, given the collapse of TPP and Trump’s aversion to globalisation, RCEP has become fundamentally important to almost every economy on this planet.

India has lots to learn from China’s WTO entry preparation. RCEP will produce losers, and gainers, for India. Overall,  India will gain. (Sources: Wikipedia, Wikimedia Commons)

There are a few key lessons to be learnt from the RCEP negotiations and ASEAN summit. Lesson one centres on India and the reasons why she had to back out again. Most media say that India fears she would be flooded with cheap Chinese imports. This is only partly true. India’s domestic industries actually fear the avalanche of imports from all the other 14 nations, not just China. For example, India’s dairy industry fears imports from New Zealand and Australia. Her textile sector fears imports flooding in from Cambodia and Vietnam. The list goes on. Lesson one is that India, despite being a large economy with the 2nd largest population in the world, is still very insular with a very fragile economic and political structure, which brings us to lesson two.

Lesson two tells us that the Western style of democracy is not suitable for every country, especially when that country is a developing one, where education is still backward, large segments of the population are illiterate and the whole country’s progress is impeded by suffocating bureaucratic politics. India is bogged down by political clashes, both in and out, even when Narendra Modi’s very nationalistic approach should have united the whole country. India’s democracy is splitting the country into many parts. India’s economy cannot move forward.

Lesson three tells us that whenever deep reform is needed, a very strong political commitment is needed as well, especially from the country’s very top leadership. Before China entered the WTO in 2001, she faced similar problems and these were even on a larger scale and complexity than India’s. China had to literally start from scratch. Even though she was overseen by a one-party system, China also had to deal with strong vested interests and had to implement many painful structural reforms before she could be admitted into the WTO (see i Capital issue dated 29/3/2018 for the many sacrifices made by China). China had to deal with the forceful and painful demands from the US, Japan and Europe. Despite these obstacles, president Jiang Zemin and prime minister Zhu Rongji held true to their intent to reform. They both cleverly used China’s entry into the WTO as the catalyst for reforms. After that, China became the largest trading nation on earth.

Lesson four tells us that the ASEAN countries can clearly see that the US has lost interest in ASEAN, and has been championing unilateralism. The United States again lost ground in her struggle with China for the hearts and minds of Southeast Asia. For the latest ASEAN summit, the hot issue was China’s incursions into Vietnam’s exclusive economic zone in the disputed South China Sea.

Although the US condemned China’s actions, it was her own missteps that made ASEAN take China’s side. In a summit attended by China’s prime minister Li Keqiang, Japanese prime minister Abe Shinzo and Indian prime minister Narendra Modi, the US was headed by a low-level team headed by commerce secretary Wilbur Ross and National Security Adviser Robert O’Brien. Apparently, the low-key US delegation embarrassed summit host Thailand. The US urged ASEAN to join her attack on China by self-servingly alluding to China’s aggression in the South China Sea, which the US argued threatens freedom of navigation. However, ASEAN recognised this stale American tall tale because they know fully well that the US is interchanging freedom of navigation for commercial ships with that for warships. In this year’s summit, Vietnam was the only ASEAN country that pushed for a strong stand against China but she did not get support from the others. US state secretary Mike Pompeo and US vice-president Mike Pence should listen to the ASEAN deaf ears. The draft statement of the chair of the ASEAN+3 (China, Japan and South Korea) did not even mention the South China Sea issue.

Lesson four was the bluntest of all: the China-led RCEP, the world’s largest trade agreement, was successfully concluded without the US. China is now the de facto champion of multilateralism and globalisation. A joint statement by all 16 countries, including India, said 15 economies had concluded “text-based negotiations for all 20 chapters and essentially all their issues of market access”, albeit it noted India had unresolved issues. Although the US still has many warships and military bases in Asia, America’s soft power, especially versus China’s, is rapidly fading.

Meanwhile, i Capital is retaining its short-term outlook of the Hang Seng Index at a range of 22,000 to 29,000 to cater for the still-volatile local and global conditions. i Capital is also retaining its medium-term outlook of the Hang Seng Index at a range of 22,000 to 35,000 and with the same caveat. Despite the current slower GDP growth, our long-term bullish view of China remains intact. Capital Dynamics foresees China celebrating her 100th anniversary in 2049 with even greater splendour. i Capital is maintaining its bullish long-term outlook of the Hong Kong stock market and expects the Hang Seng Index to eventually rise beyond 50,000. Despite the slowdown in 2019, the Chinese economy has successfully progressed to a stage where it possesses true resilience.

Note from Publisher
Although India pulled out at the last minute, the 15-member Regional Comprehensive Economic Partnership (RCEP) agreement will be ready for signing next year. RCEP is a free trade agreement among the 10-member ASEAN, China, Japan, South Korea, Australia and New Zealand. It is to be the world’s largest free trade bloc. The 15 participating countries make up nearly a third of the world’s population and GDP. With the protectionist Trump administration terrorizing every country in the world with tariffs, a successful conclusion of RCEP is of utmost importance.

In addition, it is the first time that China, South Korea, and Japan are in the same free trade bloc, potentially paving the way for the illusive free trade agreement among the three East Asian economic powerhouses to be realized. i Capital has written many times about the immense potentials of a China-South Korea-Japan economic alliance. It would provide a real counter balance to the US and Europe, which have dominated the world since the first industrial revolution.

The world will definitely be more peaceful when no single super power is allowed to bulldoze its way through the rest of the world. Check and balance would promote justice, responsibility, and transparency.
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