China's trade recovered in 2010 and 2011, with export growth averaging 25.8% and import growth averaging 31.9%. Flip the odds. China’s consumer markets are already heavily integrated with the world and In 2017 to 2018, about 76 PM Modi asserted that along with its glorious history sea trade, now the state is making "a major contribution to India’s industrial growth". As things stand, Columbia's Sachs argued that RCEP is a "much better idea" than the CPTPP because it already includes China. For China it is clearly a smart move. But an Economist Intelligence Unit report predicted the required six ASEAN countries and three non-ASEAN states will approve the deal by the third quarter of 2021. South Korean automakers hope RCEP will help them eat into Japanese rivals' 74% share of a Southeast Asian market with 650 million people and 3.5 million annual car sales. Please email us at: McKinsey Insights - Get our latest thinking on your iPhone, iPad, or Android device. ©, A Hyundai showroom in Yangon: South Korean automakers aim to chip away at Japanese rivals' market share in Southeast Asia. In some categories, penetration is even higher; for instance, in beauty and personal care, multinationals’ penetration is as high as 73 percent (Exhibit 4). Nor has its use of trade penalties in its diplomatic spat with Australia. Experience from around the world suggests that four elements need to be in place to move up the technology value chain: (1) investment at scale; (2) channels through which to acquire technology and know-how; (3) access to large markets; and (4) an effective system to encourage competition and innovation. But Commerce and Industry Minister Piyush Goyal recently said any new deals would consider all stakeholders -- dairy producers, farmers, small businesses and domestic manufacturers -- and ensure their interests are "properly safeguarded.". Eight years in the making, RCEP clearly raises hopes for the region's post-pandemic economic future. China has capacity to support a great deal of investment into technological R&D and also create new markets to commercialize the technologies. Both are expected to play key roles in helping shape China trade policy. Administration officials say Biden also wants to consult with allies in Asia and Europe before making decisions on tariffs. On the Organisation for Economic Co-operation and Development’s (OECD’s) FDI Regulatory Restrictiveness Index for services, the index has come down to 0.39 from 0.74, but this is still far higher than the 0.08 OECD average. cookies, Download the executive summary in Mandarin, McKinsey_Website_Accessibility@mckinsey.com, global firms in the top 1 percentile for economic profit in 2014 to 2016, China’s scale in R&D expenditure has soared, China has made huge strides in innovation in recent years, China could increase its contribution to solving global challenges. Unleash their potential. RCEP members did leave the door open for India to rejoin. Reforming aspects of the global trading system to make it more effective at resolving disputes and more inclusive so that benefits from any further opening up of its economy by China can be captured and shared broadly is a collective task. Please try again later. Even with these caveats, Bhala called it "hugely significant" to have China, Japan and South Korea in one framework. I doubt it.". Jaishankar thinks those terms have long been unfavorable to India, noting that the country's trade deficit with RCEP members more than doubled to $110 billion over the last decade. Could we be at peak integration between China and the world after the years of deepening ties? Today, China is an upper middle-income country but has remaining challenges. Biden has not said whether he would consider joining RCEP or reversing Trump's decision to withdraw from what became the CPTPP. Beijing's introduction of an export control law in December, strengthening its power over trade on national security grounds, did nothing to dispel such worries. To gauge the extent of China’s integration with the world, we look at eight dimensions of China’s global scale and integration (Exhibit 1). Because technology value chains are some of the most complex, they require the most collaboration, and, indeed, China is highly integrated in these value chains with a large share of technology global exports and imports. China joined the Asian Development Bank and applied for membership in the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO). From 2000 to 2017, the world’s exposure to China has increased on all three, while China’s has fallen (Exhibit 2). penetration by multinational corporations is considerable. RCEP countries accounted for 53.2% of South Korea's steel exports in 2020, up from 46.8% in 2019. "Here you've got this RCEP rule regime. Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. Download the full report in Mandarin (PDF–4.3MB), Download the executive summary in Mandarin (PDF–2.9MB). Given the uncertainty and potential risk of the changing relationship between China and the world, businesses may need to adjust their approach. Moreover, in some categories including automobiles and mobile phones, China’s share of global consumption is 30 percent or more. China has achieved substantial development success since its reform and opening up in 1978. In many types of technology, it is already the largest consumer (for example, China accounted for 40 percent of global mobile phone sales in 2017, 64 percent of sales of battery electric vehicles sales, and 46 percent of semiconductors consumption). tab. "TPP naively tried to exclude China, as if one could have a trade agreement in Asia without the largest Asian economy and the largest trading partner of the countries of the region.". However, since then the average tariff rate has edged up to 10.6 percent in 2017 (although we note that it may come down again to 7.5 percent with the 2018 announcement of a new round of tariff cuts), according to UNCTAD. Japanese carmakers, of course, want more ASEAN sales themselves. Most transformations fail. Hong Kong will likely remain an important gateway between mainland China and the rest of the world even though its economic growth contribution to China has diminished through the years. China is a global force in the world’s digital economy and artificial intelligence (AI) technologies. with just 26 percent in the United States. China’s declining exposure partly reflects its rebalancing of the economy toward domestic consumption. China is a global power in terms of scale, but scale has not always translated into integration, The relationship between China and the world is changing, China's technology value chains are highly integrated globally, China's rapidly expanding consumption offers significant opportunities to domestic and foreign players, Significant potential value could be at stake from less—and more—engagement between China and the world, Businesses need to consider their approach in the face of a more uncertain relationship between China and the world, Psychological safety and the critical role of leadership development, The COVID-19 recovery will be digital: A plan for the first 90 days. But he also emphasized that ASEAN countries and the whole region should benefit from "peaceful cooperation, more foreign investment, and faster upgrading of digital and green technologies.". Because China is highly exposed to foreign technology flows, it needs continued—if not enhanced—access to technologies to fuel its innovation and enhance productivity. How China is changing the world. But in a Dec. 28 speech, the president-elect vowed to "regain the trust and confidence of a world that has begun to find ways to work around us or without us. Please use UP and DOWN arrow keys to review autocomplete results. In 2018, China accounted for 16 percent of world GDP. Near the banks of a river in Hotan, China, the low building in the background, … This view frequently targets the 2000 U.S. law that granted China “permanent normal trade relations” (PNTR) and China’s 2001 entry into the World Trade … If you would like information about this content we will be happy to work with you. To gauge China’s integration with the world in technology value chains, MGI studied 81 technologies in 11 areas and found that China uses global standards for more than 90 percent of them. In 2017 to 2018, about 76 percent of GDP growth came from domestic consumption, while net trade made a negative contribution to GDP growth. On trade, after joining the World Trade Organization (WTO), China cut tariffs from an average of about 16 percent in 2000 to about 9 percent in 2008. "This is accelerating the shift toward Asia," Jeffrey Sachs, professor and director of Columbia University's Center for Sustainable Development, told Nikkei Asia. If and when China globalizes its financial sector, the rest of the world would need to be more open to Chinese investment. © Reuters, Indian Prime Minister Narendra Modi, second from left, takes part in an RCEP summit in Bangkok in November 2019, just before his government's withdrawal. A Free Trade Agreement (FTA) between China and the ASEAN nations came into effect on January 2010, which created the world’s third largest free trade area in terms of nominal GDP. Trade disputes are making daily headlines, new rules are emerging to evaluate technology flows, protectionism is on the rise, and geopolitical tensions are becoming more heated. But what does it mean when one of the giant players in the trade agreement itself casts doubt on its adherence to the rule of law?". The McKinsey Global Institute’s (MGI) new China-World Exposure Index shows that the world’s relative exposure to China has increased, while China’s to the world has fallen. But it has claimed mask factory output for itself. Across the ten large Conversely, what opportunities could more engagement offer? Alex Capri, research fellow at the Asia-based Hinrich Foundation, made a similar point. RCEP is raising hopes for Asia's post-COVID economic recovery, as well as questions about how non-signatories India and the U.S. will respond.