The first freight train from Yiwu in China’s Zhejiang province arrives in Liege, Belgium on October 25 loaded with cargo. The China Railway Express (Yiwu-Liege) Alibaba eWTP Cainiao train is the first rail line dedicated to cross-border e-commerce between China, Central Asia and Europe. Photo: Xinhua
by Phar Kim Beng
by Phar Kim Beng

Forget decoupling. China’s economy is wedded to globalisation

  • China has signalled its interest in large free trade agreements, even those led by the US or Japan. The RCEP is but a small gambit in China’s larger quest to connect its economy with the rest of the world
The ink was barely dry on the Regional Comprehensive Economic Partnership ( RCEP) when President Xi Jinping signalled at an Apec leaders’ meeting on November 20 that China was already thinking of joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a trade pact that was conceived by the United States and now favoured by Japan.
By opting to show China’s preference for large, regional free trade agreements, even those led by the US or Japan, China is sending two powerful signals. It wants Chinese state-owned enterprises to prevail in an expanding market overseas, not just within China. More importantly, the Asia-Pacific Economic Cooperation – which has set out a vision for liberalisation of more business sectors by 2040 – is vital. This is consistent with Xi’s speech in Davos in 2017, when he spoke highly of globalisation and free trade.

It should now be clear that globalisation is indeed a staple of Chinese policy. Thus, any talk of the decoupling of the Chinese economy from the rest of the multilateral trading world is unrealistic, to say the least.

Although Xi proposed a “dual circulation” strategy in May that includes pushing domestic consumer spending towards the levels of 70 to 80 per cent seen in developed economies, China should know that there are structural limits to this kind of “internal circulation”. China alone cannot absorb all the products it produces, and yet surpluses will bring down wholesale prices across the country. Also, with such a strategy, it will be less able to fatten its foreign reserves.


RCEP: 15 Asia-Pacific countries sign world’s largest free-trade deal

RCEP: 15 Asia-Pacific countries sign world’s largest free-trade deal
If China cannot improve relations with the US in the era of the Joe Biden administration, then blocs such as Apec, RCEP and CPTPP – or perhaps even a resurrected Trans-Pacific Partnership (TPP) – may be its best suite of options. When the RCEP was signed, China probably breathed a sigh of relief. However, the world’s biggest trade deal will only come into effect when at least six Asean member states and three non-Asean signatory countries ratify it domestically.
After decades of double-digit growth, the Chinese economy is slowing down. China is missing a previous goal of doubling gross domestic product in the decade to 2020. The “middle income trap”, or economic stagnation, is a policy concern.

RCEP’s synergy with China’s economic strategy will benefit Asia

Internally, China is developing the Greater Bay Area to spur growth in Guangdong province, as well as Hong Kong and Macau. Externally, China’s addiction to global or regional free trade agreements can only continue. The world will surely welcome a China that can buy more products and services from other economies.

Still, the development of China’s political economy is based on what is agreed at the fifth plenum held once in five years. At the most recent fifth meeting of the Central Committee in October, the leadership said China would focus on high-quality growth in the next five years.
Here, it is worth noting that since 2005, China has stopped calling this policy blueprint a “five-year plan” in Chinese, a term it borrowed from the former Soviet Union. These days, it refers to these social and economic policy goals as “guidelines”.
This is a small but significant change, signalling not only a shift from the days when the country’s economy was heavily controlled by the government, but also that China is open to experimentation and speedy adaptation, especially in an uncertain international trade environment. (Hence, the “dual circulation” strategy.)

What investors should know about China’s ‘dual circulation’ strategy

Come what may, the RCEP is but a small gambit in China’s larger quest to connect its economy with the rest of the world. The country has also been attempting to do this through the Belt and Road Initiative, though it has been making less progress with it recently.

Indeed, Xi’s Belt and Road Initiative might have been mischaracterised as a strictly Chinese initiative. The ancient Silk Road was not one route but multiple paths stretching through Eurasia. In the case of the Belt and Road Initiative, it would make sense not only to embark on new infrastructure projects, but also to restore to their former glory the railways and transport links already existing across Eurasia.

Of course, a free-trade agreement between China and the European Union would also make a lot of sense, though European criticism of China’s treatment of Uygurs and other Muslim minorities in Xinjiang is likely to remain a sticking point.

As of 2020, the Association of Southeast Asian Nations is China’s largest partner, not the EU. Tariff and non-tariff barriers did crumble between China and Asean in the past decade. However, at a time when international trade has gone online, trade agreements must cover e-commerce and intellectual property rights, and be dexterous enough to keep pace with the evolution of fintech.

Phar Kim Beng is CEO and founder of Strategic Pan Indo-Pacific Arena (