China to Join RCEP, Creating Massive Free Trade Area with ASEAN, India, and Japan

November 9, 2012 Posted by China Briefing Reading Time: 3 minutes

Plus Myanmar issues new foreign investment law

Nov. 9 – China is set to commence negotiations to create a 16-nation trade bloc, known as the Regional Comprehensive Economic Partnership (RCEP), with its launch expected to be formally announced at the ASEAN summit in Phnom Penh later this month. The RCEP will include the 10 members of the Association of Southeast Asian Nations (ASEAN) plus China, India, Japan, South Korea, Australia and New Zealand, and will have the effect of lowering trade barriers and custom duties across the region by the end of 2015. ASEAN includes Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam. A map of the participating members of the proposed RCEP can be seen below.

The RCEP framework was endorsed by leaders at last November’s ASEAN summit, and ASEAN has sent invitations to the six nations, a grouping favored by Japan. South Korean Trade Minister Bark Tae-ho has said that China at first only wanted to have ASEAN plus three other nations (China, Japan and South Korea) included in the pact, but a counter proposal from America for a Trans-Pacific Partnership (TPP) pushed it to enter into talks for a wider-ranging accord. The TPP specifically excludes China.

With the dawning of the RCEP, Asia is poised to enter into a new era of mutual trade and growth dynamics. ASEAN already has individual free trade agreements in place with each of the participating countries.

“The trade dynamics across Asia are changing fast, and the global supply chain will shift as a result,” says Chris Devonshire-Ellis, principal of Dezan Shira & Associates. “For foreign investors in China, the impact will mean a continuing assessment of the financial costs of manufacturing within the region, and a shift away from China-based manufacturing in time to lower-cost Asian destinations. We have already seen the emergence of Vietnam as a manufacturing hub to service Chinese consumers, and this will continue. On the other hand, we will see increasing amounts of Chinese investment into Asia.”

“The effect will be to reposition the financial heart of Asia towards Singapore, and for businesses to branch out from there to other RCEP investments as per the needs of each business,” Devonshire-Ellis adds.

In related ASEAN business news, Myanmar President Thein Sein signed off on Myanmar’s new Foreign Investment Law last Friday after months of debate between the country’s executive and legislative branches of government. The law is significant as it outlines new regulations, measures and directions the country will take as concerns its foreign investment policy. An unofficial English translation of the new Foreign Investment Law, kindly translated by the Eleven Media Group, can be downloaded here.

Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. For further details or to contact the firm, please email china@dezshira.com, visit www.dezshira.com, or download the company brochure.

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