Original Title: Mechanical and Electrical Industry Benefits from RCEP Tariff Reduction
Benefiting from policies such as tariff reduction among members, open market access, and the removal of some trade barrier measures, China’s trade in mechanical and electrical products with RCEP countries is expected to achieve substantial growth.
On January 1, the “Regional Comprehensive Economic Partnership Agreement” (RCEP) came into effect. After the RCEP agreement comes into effect, more than 90% of the goods trade between approved member states will eventually achieve zero tariffs.
Among them, mechanical and electrical products are China’s largest export category, and its export stability plays a decisive role in the development of China’s foreign trade. Benefiting from policies such as tariff reduction among members, open market access, and the removal of some trade barrier measures, China’s trade in mechanical and electrical products with RCEP countries is expected to achieve substantial growth.
The proportion of mechanical and electrical products exported to RCEP countries exceeds 53.8%
According to statistics from the General Administration of Customs, China’s exports of mechanical and electrical products to RCEP countries will be 2.6 trillion yuan in 2020, accounting for 53.8% of the total value of exports to RCEP member countries in the same period. In the past ten years, the scale of trade in mechanical and electrical products between China and RCEP member states has increased from US$484.9 billion to US$775.5 billion, an increase of nearly 60%. At the same time, the average annual growth rate has reached 4.8%, which is higher than the total trade in mechanical and electrical products and all commodities in the same period. The level of growth.
According to the tariff reduction commitment of the RCEP agreement, the mechanical and electrical industry is expected to further benefit from the RCEP tariff reduction rules, greatly reducing export costs and enhancing the competitiveness of Chinese products in the international market.
RCEP has also formed unified regulations on the cumulative rules of origin, customs procedures, inspection and quarantine, etc. As long as the value-added part of the product in the processing process belongs to the member country, and the cumulative value-added exceeds 40%, you can enjoy the corresponding tariff preferences. The formulation of this rule will strongly promote the minimization of production costs and the optimization of trade efficiency in the region, thereby strengthening the cooperation of the industrial chain and supply chain in the region.
For example, a Chinese company that produces refrigerators and exports them to ASEAN countries uses Korean compressors and other parts in the production, which exceeds 60% of the price of the whole machine. If the China-ASEAN Free Trade Agreement is applied, it cannot meet the required regional value components. Over 40% of the origin standard, exports to ASEAN cannot enjoy preferential tariffs. However, under RCEP, Korean compressors can be regarded as the accumulated value of regional origin materials, and refrigerators assembled in China that use Korean compressors are exported to ASEAN, and they can enjoy preferential tariffs.
“China’s machinery industry has a complete range of industries, Japan and South Korea are strong in science and technology, ASEAN’s labor costs are relatively low, and Australia and New Zealand are relatively rich in resources. The overall cost of the chain will play a positive role in stabilizing and strengthening the supply chain of the regional industrial chain.” Gao Lihong, director of the International Cooperation Department of China Machinery Industry Federation, told 21st Century Business Herald that the implementation of RCEP has resulted in the formation of regarding one-third of the world’s economies. In an integrated large market, Chinese mechanical and electrical product manufacturers can further expand the economies of scale of regional industries by deeply integrating into the large RCEP market.
Lu Jing, deputy director of the Department of International Economics and Trade of Zhejiang University, told the 21st Century Business Herald that in order to better seize the RCEP opportunities, Chinese companies must improve their basic industrial capabilities, stabilize the electronic information manufacturing and high-end machinery manufacturing industry chains, and promote them from the perspective of the entire industry chain. The division of labor in East Asia’s emerging electronics industries has been adjusted and reconstructed in a direction that is beneficial to China, and the advantages of the domestic super-large market scale have been used to form a strong traction for Japan and South Korea’s advanced production factors.
Trade deficit accelerates industrial layout adjustment
Among RCEP member countries, Japan and South Korea are China’s fourth and fifth largest trading partners, but China’s imports and exports of machinery products from Japan and South Korea have always been in deficit, highlighting the current differences in resource endowments and industrial division of labor.
China’s trade deficit with South Korea mainly comes from integrated circuits. As the most important basic component of modern industry, integrated circuits are currently China’s largest and most important single product imported. According to the statistics of the General Administration of Customs, in the first 11 months of 2021, China’s integrated circuit imports totaled US$389.053 billion, a year-on-year increase of 23.41%. Among them, South Korea was the second largest source of China’s IC imports, with an import value of US$79.418 billion, a year-on-year increase of 27.35. %.
Currently in the RCEP agreement, China and South Korea have made mutual commitments to immediately exempt all types of integrated circuit products from tariffs.
It is worth noting that under the RCEP agreement, China and Japan reached a free trade arrangement for the first time. Gao Feng, a spokesperson for the Ministry of Commerce, said earlier that imported induction cookers, electric ovens, and most mechanical equipment, instrumentation, and auto parts imported from Japan will gradually be exempted from tariffs. At the same time, China’s exports of mechanical and electrical products, instruments and meters to Japan will also gradually enjoy zero-tariff treatment. Especially in 2022, 57% of China’s exports to Japan will have zero tariffs immediately. At the end of the transition period, China and Japan will eventually enjoy 88% and 86% of zero tariffs on export products, respectively.
At present, China’s mechanical and electrical products’ deficit with Japan mainly comes from the import of automobile products. According to data from the General Administration of Customs, in 2020, China imported a total of US$18.14 billion in automobiles and spare parts from Japan, ranking second in China with a share of 22.9%, and second only to Germany with a share of 29.6%.
In the production process of the whole vehicle, the cost of parts circulation is the focus of industry enterprises. According to the RCEP agreement, China has made zero tariff commitments on approximately 65% of auto parts.
Gao Lihong pointed out that the implementation of RCEP will reduce the cost of auto parts circulation among member states, and the regional auto industry chain will be further optimized, thereby enhancing the competitiveness of the Asian vehicle manufacturing industry. To this end, we should take this opportunity to support my country’s auto companies to “enter ASEAN” in depth, and strive to cultivate them into China’s strategically significant export products.
At present, Great Wall Motor, Geely Automobile, and SAIC have all entered the Southeast Asian market through investment, construction, or mergers and acquisitions. At the same time, countries such as Thailand and Malaysia focus on energy conservation and carbon reduction, and new energy automobile companies investing in ASEAN also have certain technological and industrialization advantages.
Lu Jing said that the comparative advantages of the industrial chains of China, Japan and South Korea are highly complementary, and the supply chain is highly integrated. Japan can be used as the core technology exporter in the high-tech field, and South Korea can be used as an important semi-finished product provider in the fields of semiconductor and storage manufacturing. , Is conducive to China to give full play to its own industrial digital advantages, connect with RCEP’s key manufacturing countries to create advanced manufacturing clusters, focus on the reorganization of domestic industrial chains and supply chains, and actively utilize the complementary role of Japan and South Korea to the shortcomings of China’s industrial chain, and be cautious Transfer appropriate industrial gradients to ASEAN in a timely manner. As China’s overall production costs increase, some labor-intensive manufacturing companies shift their processing and production links from China to ASEAN countries. Countries such as Vietnam and the Philippines will benefit from this.
In the face of more mature and highly internationalized mechanical and electrical products in Japan and South Korea, many voices in the industry were worried that some of my country’s low- and medium-end mechanical and electrical products would be affected, and they hoped to provide appropriate subsidies and policy support.
Gao Lihong told the 21st Century Business Herald that the Chinese government has considered the development level of my country’s manufacturing industry when formulating the tariff commitment table for Japan and South Korea, and has given relevant products a transition period ranging from 5 to 10 years. From another perspective, this also forces my country’s machinery manufacturing industry to accelerate the pace of transformation and upgrading, promote new breakthroughs in the standardization of high-end equipment manufacturing, speed up the integration of equipment manufacturing quality and safety standards with international standards, and promote the improvement of the industry’s international competitiveness. However, for the development of key components such as high-speed rail bearings, RV reducers, high-end seals, high-precision sensors, and high-end hydraulic components, it is still recommended that the state attach great importance and policy support.
(Author: Jia Yifei Editor: Zhou Shangqi)
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