Amid speculations over Washington's engagement in Asia, RCEP may further cement China's position firmly as an economic partner with Southeast Asia, Japan and Korea — putting the world's second-biggest economy in a better place to shape the region's trade rules.
The Association of Southeast Asian Nations along with five regional partners, have signed the Regional Comprehensive Economic Partnership (RCEP) over the weekend. The agreement that excludes US and India is said to be the largest trade agreement to date, covering 30 percent of the world's population and GDP.
Why are India and the US out?
India opted out of the deal in January in the ASEAN Summit in Bangkok after years of negotiations. Announcing the decision, PM Modi had said: "The present form of the RCEP Agreement does not fully reflect the basic spirit and the agreed guiding principles of RCEP. It also does not address satisfactorily India's outstanding issues and concerns. In such a situation, it is not possible for India to join the RCEP agreement."
While India opted out voluntarily, the signing is a blow to the group pushed by former US President Barack Obama, which his successor Donald Trump exited in 2017. The economic partnership gains significance as the world awaits US president-elect Joe Biden's outlook towards Asia, especially towards China.
The US is not part of RCEP and the successor to the Obama-led Trans-Pacific Partnership (TPP), leaving the world's biggest economy out of two trade groups that span the fastest-growing regions in the world.
How will it strengthen China?
Amid speculation over Washington's engagement in Asia, RCEP may further cement China's position as an economic partner with Southeast Asia, Japan and Korea — putting the world's second-biggest economy in a better place to shape the region's trade rules.
RCEP could help Beijing cut its dependence on overseas markets and technology, a shift accelerated by a deepening rift with Washington, said Iris Pang, ING chief economist for Greater China.
Within 10 years of taking effect, the deal will eliminate up to 90 percent of tariffs between signatories.
The deal also serves to recalibrate its trade relations with its neighbours — the South Asian economies, more so after China-US economic decoupling.
RCEP promises to give China a new, but committed market for trade which can eventually change the global trade structure. The chances of signatories walking out of the deal for geopolitical reasons are slim since the agreement reaps economic benefits for all partners.
According to the School of International Studies of Renmin University, the deal is China's biggest win in economic diplomacy since 2016 when China formed the Asian Infrastructure Investment Bank.
It is also an alternative to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTTT), which did not include China. But Trump backed out of this deal too in 2017, stating that he'll find better deals bilaterally.