Tapping the RCEP Opportunities: Hong Kong to Maximise GBA’s Unique Edge as a Business Platform
Joint research by HKTDC Research and ACCA
18 November 2021
Wing Chu, Section Head, Business Advisory, HKTDC Research; Yuki Qian, Regional Head of Policy, ACCA China
The Regional Comprehensive Economic Partnership (RCEP) agreement is expected to bring huge benefits not only to traders, but also to many service providers throughout the Guangdong-Hong Kong-Macao Greater Bay Area (GBA). A large-scale trade agreement inked by 15 Asia-Pacific nations, the RCEP is seen as an essential means for supply chains to gear up for production in the region. While looking for new markets and committing to expand their overseas manufacturing bases, many companies within the region are facing the challenge of harnessing the recovery-led momentum in order to secure sustainable development as a way of moving forward in the post-pandemic era. In line with the above, this report examines the challenges and opportunities businesses face from the greater integration of the region’s economies, while also exploring the measures that should be taken to fully capitalise on the new production/sourcing advantages and market niches emerging from the provisions of the RCEP agreement.
The Regional Comprehensive Economic Partnership (RCEP) agreement signed in November 2020 is set to create the largest free trade bloc in the world. The 15 signatories to the agreement, including China, 10 ASEAN member states, South Korea, Japan, Australia and New Zealand, are home to almost a third of all the people in the world and almost a third of the global economy.
The RCEP agreement is widely expected to enhance economic integration among the members with measures to facilitate trade, eliminate tariffs, minimise non-tariff barriers, promote e-commerce and increase market access. This will provide a fresh impetus not only to the trade of the signatories, but also to the global economy which has been hard hit by the Covid-19 pandemic. Among the most immediate beneficiaries of the RCEP will be companies in the Guangdong-Hong Kong-Macao Greater Bay Area (GBA), which have been actively taking advantage of the further integration of Asian economies and regional supply chains.
This report explores how the RCEP agreement will transform the industrial landscape in the region, as measures to support trade and investment help production to grow. Indeed, industrial production in Asia has more than tripled in the last 20 years, lifting the region’s share of the global total from a little more than a third to about half. But the rapid growth has also created challenges. While companies in the GBA are more integrated into the RCEP region than ever before, there are concerns about rising production costs in mainland China and amongst certain ASEAN members. One option to deal with the challenges is for concerned businesses to optimise their supply chains from a regional perspective, and to take advantage of the growing consumer markets of RCEP members. The RCEP agreement should facilitate this process, while making it easier for RCEP companies to set up a presence on the mainland and tap into China’s giant domestic market.
At the same time, the links between China and Southeast Asia should grow increasingly close as the RCEP improves relationships and encourages production efficiencies among the 15 members. This will be a result of the multiple measures in the RCEP agreement to simplify trade, including eliminating import tariffs on most goods over the next 20 years, creating uniform and more accommodating rules of origin for members, streamlining customs procedures and removing non-tariff barriers. As the subsequent sections in this report show, all these changes should create a more conducive environment for trade and services in the region. Cross-border investment and e-commerce arrangements, coupled with enhanced protection of intellectual property rights, will also help strengthen business co-operation in the region.
Further opportunities may be found in the greater economic integration that the RCEP aims to create for its 15 members. In 2020 alone, total imports and exports from the 15 RCEP members added up to more than US$10 trillion, about 70% of all trade in and out of all of Asia and Oceania. Supply chains in the region are becoming much more mature and market opportunities are growing, and intra-regional trade among the members is surging. This is thanks to the increasing division of labour among different industrial sectors, and the frequent intra-regional traffic of production inputs is evidence of the close supply chain relationship between upstream and downstream enterprises in different production sites. Such a supply chain relationship will strengthen further as most raw materials and intermediate products will be able to move freely without trade barriers under the RCEP.
The changes to trade rules, supply chains, tariffs and regional co-operation are sure to impact companies in the region, and they will adopt different strategies to tap into these new opportunities. Companies from the GBA in sectors including manufacturing, consumer goods, professional and financial services and more are developing and implementing new approaches to help them leverage the opportunities embedded in the RCEP. These GBA companies can not only benefit from the RCEP but should be able to use the agreement to turbo-charge their efforts to go global. Hong Kong, an important transportation hub for trade in the region, and a premium business platform to handle outbound investment from the mainland, including those to ASEAN and other RCEP members, will be key to such expansion.
Despite the benefits brought about by the RCEP, several challenges to businesses remain. Whether relocating production/sourcing activities, or planning their marketing in the region, limited knowledge of the different local markets, business practices, cultures, laws and regulations can all create hurdles. To compound the problems, the RCEP agreement itself is a technical document that can be difficult to understand. For the elimination of the tariffs, for instance, individual companies may find it difficult at the outset to understand whether their goods will qualify for preferential terms. Professional advice and due diligence will be necessary for companies who wish to fully capitalise on the RCEP opportunities. Hong Kong is considered by GBA companies as their first stop for help as they seek to “go out” and develop international business, given the city’s strengths in the provision of financial, legal, accounting, and other professional services.
We hope this report helps companies, particularly those in the GBA, understand the implications, opportunities and challenges that make the RCEP such an important regional agreement.
- Hong Kong
- Mainland China
- Hong Kong