Macau has not yet joined the Regional Comprehensive Economic Partnership (RCEP), but China´s other Special Administrative Region (SAR), Hong Kong, on the other hand, is close to joining it (Mainland China already joined it since was one of RCEP´s founding members). It would be in Macau´s best interest to join it as well, as I will explain below.
RCEP is indeed one of the world´s largest free-trade deals in history, and it was signed more than two years ago, on November 15, 2020, after eight years of negotiations.
It was initially composed of fifteen countries (all ten members of ASEAN -Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam-, plus China, Japan, South Korea, Australia and New Zealand), that will create a free trade area encompassing 28% of the global economy, 30% of the global population and reaching 2.2 billion consumers.
The deal is estimated to increase the global national income by $186 bn annually by 2030 and to add 0.2% to the economy of its member states and aims to progressively lower tariffs, reduce protectionism and boost investment. Furthermore, it will allow for one set of rules of origin to qualify for tariff reductions with other RCEP members (a common set of regulations mean less procedures, therefore easier movement of goods).
RCEP entered into force on 1 January 2022 for ten original parties: Australia, New Zealand, Brunei Darussalam, Cambodia, China, Japan, Laos, Singapore, Thailand and Vietnam. RCEP then entered into force for the Republic of Korea on 1 February 2022 and for Malaysia on 18 March 2022. Once ratified by all parties, RCEP will be the world’s largest free trade agreement by members’ GDP.
RCEP includes chapters covering trade in goods, trade in services, investment, economic and technical cooperation, and creates new rules for electronic commerce, intellectual property, government procurement, competition, and small and medium sized enterprises.
Leaving aside the economic size of the deal, it marks the first time China, Japan and South Korea have been in a single free trade agreement, and it also marks the first time China enters a nonbilateral free trade agreement of this scale.
From the perspective of China, RCEP aligns with China´s “dual circulation” vision, refocusing on domestic demand while taking advantage of trade and foreign investment. It must also be noted that ASEAN has become China’s largest trading partner followed by the EU and the United States.
In this sense, even though the negotiations to establish the RCEP started in 2012, much before President Donald Trump, it is undeniable that Trump´s protectionism encouraged this agreement. In this regard, President Trump pulled the US out of the Trans-Pacific Partnership (TPP) shortly after taking office, and started in 2018 a counterproductive trade war with China that did not only affect the two countries, but also the economies of many countries tightly integrated into the global value chain.
As stated by Premier Li Keqiang, the RCEP is “a victory of multilateralism and free-trade”. The timing of the pact could not be better. On the one hand, the proposals for formulating the 14th Five-Year Plan (2021-2025) for National Economic and Social Development, emphasize that that China will participate in multilateral and bilateral regional investment and trade cooperation mechanisms, being the RCEP consistent with this goal.
Definitely, the signing of the RCEP agreement was a good step towards supporting economic recovery in Asia, inclusive development, job creation and strengthening regional supply chains.
When it comes to Hong Kong, speaking at the Fifth China International Import Expo and the Hongqiao International Economic Forum in Shanghai, Chief Executive John Lee Ka-chiu mentioned Hong Kong entry into the Regional Comprehensive Economic Partnership (RCEP) free-trade pact will bring opportunities to the HKSAR but also to the other members of the pact, since Hong Kong can add value to pact through its business-friendly environment, sound financial system and low tax regime.
As per Mr.Lee´s speech, “Hong Kong is one of the world’s most externally oriented and open economies. We thrive on trade and spare no effort to consolidate our status as an international trading centre, a position affirmed by our country’s National 14th Five-Year Plan. As the world’s largest free trade agreement, the Regional Comprehensive Economic Partnership (RCEP) is an exciting opportunity that Hong Kong very much looks forward to. This is why I announced in my Policy Address last month that we are actively pursuing early accession to RCEP.” Hong Kong´s accession to RCEP will, according to Mr.Lee, further strengthen HK’s business ties with all RCEP members. Mr.Lee finished his speech by reaffirming Hong Kong´s strong and unwavering commitment to free and open trade, against the headwind of unilateralism.
As previously mentioned, the RCEP agreement included mainland China but not Hong Kong and Macau, which means that Hong Kong and Macau needed to apply for his access separately from the Mainland.
As I mentioned in “Opportunities for Macau for 2021” (Macau Business, December 28, 2020), Macau’s future focus will be on finance. In that article, I made reference to a series of financial-related initiatives that may bring many opportunities to the Special Administrative Region in the coming years.
I mentioned Macau trying to diversify its economy by creating a new stock exchange (a NASDAQ-like market denominated in yuan, facilitating fundraising by technology companies from the Bay Area economic hub). I also explained that Macau should leverage its position as a trade and commercial services platform between China and the Portuguese-speaking countries, as well as its involvement in the Guangdong-Hong Kong-Macau Greater Bay Area and the Belt and Road initiative.
Last but not least, I made reference to another interesting initiative, the development of ‘enclave economies´, such as the cooperation demonstration zone located in Zhongshan, or the Traditional Chinese Medicine Science and Technology Industrial Park in Hengqin.
The key element that will help Macau succeed with all these initiatives, and therefore achieve its goals, is China’s “Outline of the 14th Five-Year Plan (2021-25) for National Economic and Social Development of the People’s Republic of China and the Long-Range Objectives Through the Year 2035” — also known as the 14th Five-Year Plan
The 14th Five-Year Plan, in its Chapter 31, focuses on proactively and progressively taking forward the development of the Guangdong-Hong Kong-Macau Greater Bay Area (GBA).
Macau´s accession to RCEP would be great news for both Macau and the Mainland, given that it would reinforce Macau´s and the Mainland´s stance towards multilateralism and free trade. Furthermore, it would help Macau achieve all these economic goals that I just mentioned in the previous paragraphs. Undoubtedly, the importance of Macau as a financial center is much smaller than that of Hong Kong, but Macau can also play a vital role, nonetheless, given its cultural and commercial ties with the Portuguese-speaking world, therefore Macau has the capacity of becoming an RCEP hub for trade with Portugal, Brazil and the Portuguese-speaking countries in Africa.
The author is an influential voice in the FinTech area, having advised many FinTech companies and with a very extensive network across the globe. He holds an MBA and a doctorate in Hong Kong real estate law and economics. He is also a well-known international speaker on the areas of Central Bank Digital Currencies and Blockchain.
