Dodging The RCEP Bullet: Cheap Chinese Imports Flood Southeast Asia, Proving India’s Exit Was On The Money

Despite the World Bank's recommendation to India to reconsider joining the RCEP (Regional Comprehensive Economic Partnership), trade data from 2023 and 2024 tell a different story. Regional trade deficits, especially with China, have skyrocketed, casting serious doubt on the wisdom of joining the partnership.

In its 'India Development Update' report, released on 3 September, the World Bank urged India to re-evaluate its regional integration strategy, including its decision not to join the RCEP, as part of its plan to achieve the $1 trillion export target by 2030.

India withdrew from the RCEP in 2019 after six years of negotiations starting in 2013.

The RCEP bloc encompasses 15 Asia-Pacific countries, covering about 30 per cent of the world's gross domestic product (GDP) and population. This includes 10 ASEAN members — Brunei, Cambodia, Indonesia, Malaysia, Myanmar, Singapore, Thailand, the Philippines, Laos, and Vietnam — along with six of their free trade agreement (FTA) partners: China, Japan, South Korea, Australia, and New Zealand.

Central to the RCEP are sweeping tariff concessions, with member countries moving towards elimination of tariffs on over 90 per cent of traded goods. This has particularly benefitted China, Japan, and South Korea — Asia's biggest economies — now linked by a free trade agreement for the first time.

However, while some have reaped the rewards, Southeast Asia is paying a steep price as it becomes a dumping ground for China's excess capacity. Local industries, from Thailand’s trucking sector to Malaysia’s retail businesses, are buckling under the pressure of cheap Chinese imports.

The South China Morning Post reports that half of the ceramics factories in Thailand's Lampang province have closed, while thousands of Indonesian textile workers have lost their jobs.

Industries like textiles, cosmetics, and electronics are being outpaced by China’s advanced supply chains and aggressive market strategies. Small and medium enterprises, already on razor-thin margins, in particular, are feeling the pinch.

The numbers tell a sobering story: Indonesian trade unions reported 13,000 job losses from factory closures in just the first half of this year. Thailand’s The Nation noted a staggering $30 billion trade deficit with China during the same period, and in 2023 alone, nearly 2,000 Thai factories closed down due to Chinese imports, according to the Federation of Thai Industries.

India's decision to exit the RCEP, though still the subject of much debate, seems to have been a sound one. According to a government note, the massive trade deficits with RCEP countries were a key factor behind New Delhi's exit from the deal.

The note described agreements like the RCEP as "FTAs by stealth" with nations where India faces substantial trade imbalances, particularly China.

India's trade deficit with China has ballooned from $4 billion in 2005-06 to nearly $85 billion in 2023-24, even without a formal trade agreement. While the influx of cheaper goods has benefitted consumers, it has also resulted in India's largest trade deficit with any single country.

Furthermore, India’s experience with existing FTAs with ASEAN, South Korea, and Japan also reflects persistent trade deficits.

Exports to Japan fell from $6.33 billion in 2011-12 to $5.46 billion in 2022-23, and exports to South Korea dropped from $8 billion in 2021-22 to $6.41 billion in 2023-24. This widening gap has prompted New Delhi to review its trade agreements with these regions.

Yet, some experts argue that FTAs are not the sole reason for the surge in imports from RCEP countries, particularly China.

Amitendu Palit, a senior research fellow at the National University of Singapore’s Institute of South Asian Studies, points out that 75 per cent of imports from China consist of essential inputs like machinery, bulk drugs, chemicals, and other equipment — items not readily available in India at competitive prices.

"There is this view that imports from China would have flooded had India entered RCEP, but haven’t they already flooded the country?” he remarked in a conversation with The Hindu.

For now, evidence suggests India has dodged a bullet by staying out of the RCEP. The crucial question remains whether New Delhi will maintain its current stance or reconsider its position in the future.