Apart from a significant market expansion, what other benefits will the implementation of RCEP bring to China's home appliance industry?

In 2020, major events that changed the course of history came one after another.

On November 15, the Regional Comprehensive Economic Partnership (RCEP), covering one-third of the world's population, was officially signed, marking the birth of the world's largest and most influential trade agreement.

Although it will take several years for RCEP to fully take effect, its characteristics such as zero tariffs, connection between technology and markets, and free trade are likely to have an immediate effect on China's manufacturing industry.

Since the Age of Exploration, trade has been changing the rules of how the world works. This time, RCEP may be one of the most important trade agreements recorded in human history.

Why zero tariff?

RCEP is a comprehensive agreement that covers all aspects of issues such as trade in goods, trade in services, and investment. However, the core content of the agreement is that the number of zero-tariff products in goods trade among the agreement countries accounts for more than 90%.

In modern times, because different regions have different first-mover advantages and different innate resources, in order to protect their own weak capital forces, various countries and regions often impose high tariffs to block the living space of overseas products. In the current globalization, this move is clearly a step backward in history.

Adam Smith said in The Wealth of Nations: “The division of labor is the main reason for increasing labor productivity.” It is easier to achieve “common prosperity” if countries focus on developing their own strong industries on the one hand and purchase cheap products through global trade on the other.

In the 19th century, the new shipping route was opened. As an industrial power, Britain used its powerful ships and guns to break through the trade barriers between different raw material countries and dumping grounds, which brought painful disasters to various countries. However, this method has invisibly promoted the great development of the global economy. Data shows that between 1860 and 1913, due to the prosperity of trade, the global industrial output value increased by 7 times.

After entering the peaceful era, the WTO emerged, which can coordinate tariffs in various regions through agreements. However, under the influence of factors such as comprehensiveness and most-favored-nation treatment, the WTO is now somewhat powerless, and even tariffs are difficult to reduce, let alone zero tariffs. Take Brazil as an example. Since its industrial manufacturing capacity is not as good as that of China, in order to protect its own industry, its average weighted tariff rate is as high as 9.65%, which is about twice that of China.

From this, we can see the far-reaching significance of the RCEP agreement. The number of zero-tariff products in the agreement countries accounts for more than 90%. The numbers are boring, but we can see two extremely important directions from this number:

1. Since there are not too many trade barriers among the agreement countries, this will enhance competition among similar enterprises and give rise to technology-driven enterprises;

2. Driven by the invisible hand of the market, multinational companies will gradually optimize and integrate a more rational value chain division system and reorganize supply chain combination plans.

Fortunately, these two aspects are China's next focus - research institutions predict that under ideal conditions, RCEP will increase China's export growth rate by 11.44% and import growth rate by 17.12%.

New momentum for China's home appliance industry

The reason why China will enjoy the dividends of RCEP, in addition to occupying half of the world in terms of population, GDP and foreign exchange reserves, is more importantly because China is at the center of the global industrial chain, among which the home appliance industry is the most typical example.

From the perspective of the supply chain, the decline of Japanese and Korean home appliance companies is partly due to the strong rise of the Chinese supply chain. Take panels as an example. As Chinese panel companies such as BOE and Huaxing Optoelectronics focus on LCD panels and lower panel prices, LGD, Samsung, and JDI have been forced to announce that they will gradually abandon the production of large-size LCD panels.

Data from the Japan Electrical Manufacturers Association shows that the total export value of Japan's home appliance industry fell from 2.77 trillion yen to 2.32 trillion yen from 1990 to 2016, a drop of 16%.

Statistics from the National Bureau of Statistics show that my country's manufacturing value added has increased from less than 100 billion yuan in the 1990s to 26.5 trillion yuan in 2018, accounting for about 30% of GDP.

By comparing the two, we can find that the rise of China's manufacturing industry has just taken over the sluggish Japanese home appliance industry.

The reason why Japanese home appliance companies were able to sweep the global market at the end of the last century was mainly because they mastered cutting-edge technology. For example, in 1960, Toshiba developed Japan's first color TV with a cathode ray tube. However, with the transfer of supply chain bases, it is difficult for Japanese and Korean home appliance companies to popularize cutting-edge technology. For example, in 2010, Canon dissolved SED Co., Ltd., completely announcing the end of the SED industry that Japanese and Korean companies had been struggling to operate for nearly 30 years.

However, during this round of industrial migration, Chinese domestic home appliance companies seized the cutting-edge technology in a timely manner and quickly industrialized and popularized it.

Under the new framework of RCEP, China's home appliance industry will once again benefit from the following benefits in terms of technology and supply chain:

1. Since China's home appliance industry already has absolute advantages at the supply chain level, the expansion of production and sales capabilities will inevitably attract global capital to participate, further improve product quality, reduce product prices, and promote the rapid implementation of cutting-edge technologies.

2. With the disappearance of tariff barriers, Chinese home appliances can rely on their cost and technological advantages to enter emerging markets such as Southeast Asia.

EuroMonitor data shows that home appliance retail sales in the Asia-Pacific region were US$204.8 billion in 2019, accounting for 46% of global home appliance retail sales.

Data from the General Administration of Customs showed that in Q2, Q3 and October 2020, the export value of China's home appliance industry increased by 14.0%, 39.6% and 39.5% year-on-year respectively.

Based on the above two data, there is no reason why the Chinese home appliance industry, which has the first-mover advantage, will not improve significantly after RCEP is fully implemented in the future.

Wang Zhiguo, chairman of Skyworth Group, analyzed that the implementation of RCEP will definitely be a boon to China's color TV industry. First, it can further release production capacity because sales channels will be smoother. Second, it can use Southeast Asia and other markets as a base to radiate to the global market.

Hisense told the reporter, "Hisense has established a special department this year to focus on the Southeast Asian market, and its growth momentum is very good. The implementation of RCEP is a timely rain for Hisense to expand its Southeast Asian market and provides very strong policy support."

In fact, once RCEP is implemented and the relevant markets are completely liberalized, these two benefits surrounding China's home appliance industry can be circulated in a two-way manner. The strong growth of overseas markets can further support technological progress, and technology can in turn enhance the overall strength of China's manufacturing industry.

For China's manufacturing industry, especially the home appliance industry, the biggest difficulty at present is market sales. Once the channels are broadened, with the super strong physique of Chinese home appliances, not only can we ignore the "scam" actions of certain forces, but we can also give full play to the internal driving force and serve a broader market.

2020 is coming to an end. In this rolling historical trend, the Chinese home appliance industry, which is sailing on the ship of national destiny, has ushered in unprecedented development opportunities.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.