Seize the moment

RCEP provides great opportunities to give full play to China's 'dual circulation' development paradigm

The newly inked Regional Comprehensive Economic Partnership free trade agreement has created great opportunities for China to foster its new dual circulation development paradigm, which makes domestic circulation the mainstay, with domestic and international circulations reinforcing each other. The deal will reinforce China's domestic and international circulations through trade, finance, opening-up and mechanisms.

From the perspective of trade, China can reshape regional industrial chains. The Association of Southeast Asian Nations became the world's fifth-largest economy last year after the United States, China, Japan and Germany. By 2017, exports of goods and services from the RCEP region accounted for 26.1 percent of the global total, 11.8 percentage points higher than that of the US-Canada-Mexico region. Since 2000, Asia's share of the global goods trade is rising and that of the European Union declining. The removal of trade barriers and increasing trade interdependence will help reshape the industrial chains in East Asia.

The Chinese government as well as businesses should seize the opportunity and shift to shorter regionalized supply chains, by intensifying cooperation with Japan, the Republic of Korea and ASEAN members. To strengthen China's position in these industrial chains, it should give full play to the advantages of establishing two "flying geese" formations.

Domestically, the Beijing-Tianjin-Hebei region, the Guangdong-Hong Kong-Macao Greater Bay Area and the Yangtze River Delta should be the lead goose, followed by the city clusters along the middle reaches of the Yangtze River and the West Triangle Economic Zone (Chongqing, Chengdu and Xi'an), which will serve as the second echelon, with other regions serving as the third echelon.

Globally, China's economic and trade relations with Japan and the ROK should become the lead goose, its relations with ASEAN member states and relatively more developed nations involved in the Belt and Road Initiative serve as second-echelon and its relations with less developed Belt and Road countries serve as third echelon.

The RCEP has created great opportunities for China to implement such a development paradigm.

With regard to finance, the RCEP will likely facilitate the internationalization of the renminbi among the RCEP members. Increased trade and investment interdependency will lower the region's dependence on the United States and the European Union, thus reduce the use of the US dollar, euro and pound in Asia.

To advance the renminbi's internationalization, China should promote the construction of cross-border commodity trading markets for RCEP member countries and use the renminbi as the settlement currency. Second, China can actively participate in or even lead the reshaping of Asian industrial chains, creating new demand for the renminbi. Finally, China's financial opening-up will be quickened when it is integrated with the construction of free trade zones and free trade ports and the RCEP. These three strategies could also be combined with the aforementioned "flying-geese" formations to realize linkages and mutual promotion of trade and financial targets.

With regard to expanding opening-up, China could open up further at a higher level by combining the deal with the construction of its domestic free trade zones and free trade ports.

As the next step, China could combine the implementation of the RCEP agreement with the construction of its domestic free trade zones and free trade ports. Over half of the provinces and municipalities on the Chinese mainland have established free trade zones or free trade ports. When further developing them, each province or municipality should take into account its own comparative advantages as well as the near RCEP member country's production advantages and unveil development plans to promote higher-level regional development.

For instance, free trade zones and free trade ports close to Japan and the ROK could promote internal and external circulations by carrying out technological cooperation with governments or businesses from the two countries while those free trade zones and free trade ports near to ASEAN member countries could bolster production cooperation with them.

The RCEP deal will further promote financial cooperation at a higher level with more innovative measures within the region. That said, over the past few years, China has increasingly felt the negative impact of drastic cross-border capital inflows and outflows on domestic asset prices and financial stability. Therefore, when accelerating two-way opening-up of financial markets, China should closely monitor and actively prevent any possible risks that may arise from the process and it is necessary for the central bank to maintain control over short-term capital flows to prevent systematic risks caused by drastic cross-border capital flow volatility.

China should further promote the construction of multilateral mechanisms that are led by emerging market economies. As one of the countries benefiting the most from globalization, China should unswervingly promote the process by, on the one hand, making the best of existing international multilateral mechanisms, such as the United Nations, G20, World Trade Organization, United Nations Conference on Trade and Development, International Monetary Fund, World Bank, World Health Organization and the Paris Agreement, and on the other hand further promoting the construction of new international multilateral mechanisms, such as the RCEP, Belt and Road Initiative, Asian Infrastructure Investment Bank, BRICS New Development Bank, the Silk Road Fund. Private businesses should be encouraged to play a bigger role in the construction of new international multilateral mechanisms to make the mechanisms more market-based.

East Asian nations have been granted more discretion in resolving economic and trade disputes, which allows them to settle disputes within the RCEP without filing complaints with the World Trade Organization. This is a major step in the construction of the international order.

Zhang Ming is a senior fellow and the deputy director of Institute of Finance and Banking at the Chinese Academy of Social Sciences. Chen Yinmo is a postdoctoral fellow at Institute of World Economics and Politics at the CASS. The authors contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.