How China Will Implement RCEP: A Subnational Analysis

The largest regional free trade deal in the world – the Regional Comprehensive Economic Partnership (RCEP) – came into effect on January 1, 2022. Since its signing in November 2020, the focus of each of the 15 member states (the 10 ASEAN countries and dialogue partners Australia, China, Japan, New Zealand and South Korea) has been on how they would implement the agreement, especially amid the pandemic. That RCEP was launched on time was due to the concerted efforts of China and ASEAN. As one of the key drivers of  what is now the world’s largest trading bloc and the biggest economy in its footprint, China is in the spotlight. Its approach will be important not only to its own economic development but also to the overall performance of RCEP. 

On January 26, China’s Ministry of Commerce and five other government departments released a national guideline for business and local governments to promote “high-quality RCEP implementation”. It set out measures in six areas: trade and investment development and facilitation, the upgrading of manufacturing, cooperation on standards, financial support, business environment, and support services for enterprises. There will be efforts to expand renminbi settlement and strengthen collaboration on high-end industrial manufacturing and supply chains. In addition, Beijing will help less-developed central and western regions of the country to become more competitive in the international market by taking advantage of RCEP commitments and opportunities offered by the Hainan Free Trade Port project. 

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Before the guideline was released, many provincial governments had already either issued provincial action plans or statements on RCEP implementation based on their respective conditions. These local actions shed critical light on the national guideline.  

Although China is by its constitution is a unitary and monothetic state, the fragmentation, bargaining and inter-dependent relationships among ministries and between the central government and local governments are essential to its governance. In a 1988 book, University of Michigan political scientists Kenneth Lieberthal and the late Michel Oksenberg used the term “fragmented structure of authority” or “fragmented authoritarianism” to describe how negotiation and consensus building among different state agencies, horizontally and vertically, shape policy in China. 

Meanwhile, in a book published in 2007, Zheng Yongnian, political scientist at National University of Singapore from 2008 to 2020 and now at the Chinese University of Hong Kong, Shenzhen, pays special attention to the relationship between China’s central and provincial governments. He characterizes this relationship as “de facto federalism” and notes that the interaction between the center and the provinces is marked by coercion, bargaining and reciprocity. Zheng reckons that local governments exclusively handle most economic matters. Even though there are policies made by the center, their implementation is left to local governments. The central government, therefore, needs to consult the provinces during the formulation of policy. 

Other scholars have made similar observations. In his 2013 book, Tim Summers of the Chinese University of Hong Kong explained that before the central government officially positioned Yunnan as the country’s “bridgehead” to South and Southeast Asia, the province’s government had already proposed ideas and policies to drive that goal. Recent studies on Chinese leader Xi Jinping’s signature foreign economic policy – the Belt and Road Initiative (BRI) – underscore the importance of provincial governments. In their 2019 paper, Lee Jones of Queen Mary University of London and Zeng Jinghan of Lancaster University argue that the BRI is a loose policy envelop, “whose parameters and implementation are shaped by internal struggles for power and resources.” In an article the same year, Zeng focuses on Jiangsu to illustrate how provincial and local governments influence the formation of the central government’s BRI guidelines. Given these theoretical frameworks and empirical analyses, it is necessary to look into provincial governments’ actions on RCEP implementation as these provided important references for China’s central government in the drafting of the national guideline.

Among the RCEP implementation plans published are ones release by seven provinces and municipalities: Shandong, Tianjin, Yunnan, Fujian, Zhejiang, Jilin and Guangxi. Henan and Shaanxi have announced strategies but these have not been made available to the public. Guangdong has announced only what it aims to do in agriculture. The rest of provinces, while they have not issued RCEP roadmaps, have mentioned some of their ideas. A review of both written and oral statements by various Chinese provincial governments indicates several common features.

First, merchandise trade, especially goods in agriculture and electronics, are highlighted by different provincial governments. For instance, Guangdong announced 10 actions to align with RCEP opportunities in agriculture, including the cultivation of fresh talent and the building up of more platforms such as a dedicated international purchasing and trading center, a pilot zone for Guangdong’s foreign cooperation, a conference on development, and expanded supporting public services. 

Second, expanding access to the Japanese market – increasing both exports and imports – is a key goal in many of the provincial action plans. An official of Guizhou’s Department of Commerce noted that 88 percent of China products heading to Japan will be subject to no tariff under RCEP. Guangxi aims to increasing exports of its agricultural products, while encouraging enterprises to import integrated circuits, semiconductors, components and parts for automobiles, instruments and medical equipment from Japan. Shandong will focus on exports of marine products, fresh vegetables and condiments, while Tianjin hopes to develop the market for its chestnuts and ketchup and other condiments. 

The provinces view Japan as a lucrative source of foreign investment and an important link in the regional value chain. Fujian hopes to enhance cooperation with Japan in areas such as logistics for the  pharmaceutical industry and provision of care for the elderly. Guangxi wants to attract more investment not just from Japan but also from South Korea and Singapore in industries such as automobiles, information technology, new materials, transportation, culture, tourism and health.  

Third, several provincial governments propose the building of more cooperation platforms under the RCEP framework. These would aim to create stable regional supply and value chains. Industrial park developments are a common idea. Guangxi will upgrade twin parks in China and Malaysia. It will also seek to improve the China-Indonesia Economic and Trade Cooperation Zone (KITIC), a BRI project near Jakarta. The Guangxi government will look into building twin parks in China and Vietnam, while Fujian is proposing to build twin facilities in China and both Malaysia and Indonesia. The Shaanxi government also wants its enterprises to set up industrial parks in RCEP countries. Another type of cooperative platform many provinces are planning is regional exhibitions. The Jiangxi government will organize an online trade affair to promote its exports, with Guangxi, Yunnan and Shandong aiming to do the same.  

Fourth, provinces intend to provide a range of RCEP-related support services. These would cover two main areas: protection of intellectual property rights (IPR) and dispute resolution mechanisms. Guangxi government promises to amend its provincial regulations on IPR and speed up the launching of IPR-protection centers in Nanning and Fangchenggang. Yunnan promises a public-service system to share IPR information. It will provide comprehensive protection for copyright, trademarks, geographical indication, patents, traditional knowledge and folk literature, and the arts. Shandong will amend its regulations on patents and set up workstations to help with IPR protection. The province will also enhance data collection and early-warning mechanisms for trade friction to head off and resolve disputes. Shanxi, Yunnan and Guangxi will also focus on trade dispute resolution mechanisms. 

The China International Import Expo in Shanghai: Beijing’s plan, underpinned by provincial and municipal initiatives, is to boost not just exports to RCEP countries, particularly key markets such as Japan, but also to increase imports (Credit: CIIE)

By looking at the provincial government plans and the national guideline, it is possible to make these conclusions about the roadmap for the implementation of China’s RCEP strategy:

First, the priority will be to promote trade in goods. Two sectors – agriculture and electronics – will be highlights. Second, China will focus on increase imports of electronics such as components and parts for automobiles and integrated circuits from Japan and other markets such as South Korea with the help of existing platforms such as the China-ASEAN Expo and China International Import Expo (COO), which is regarded as the world’s first import-themed national trade fair. The central government will provide more benefits to attract investment from Japan and other advanced RCEP economies in industries such as high technology and services for the elderly. Third, Beijing will get behind the provincial plans for twin industrial parks. An RCEP expo together with a summit themed on RCEP cooperation will likely to be held to facilitate both imports and exports and increase people-to-people exchanges. And the central government will improve IPR protection and efforts to deal with trade and investment friction. 

The University of Michigan scholar Yuen Yuen Ang has written about China’s development planning approach, which she calls “directed improvisation”. Ang describes it as “a hybrid management model that combines top-down direction with bottom-up improvisation”. Beijing’s implementation of its RCEP strategy will fit that model – a national guideline or direction from the center, buttressed by action plans carried out by the provincial and municipal players. And more important, provincial strategies will inform the national guideline and be the main sources of ideas and plans to move it forward.