Building bridges through trade: RCEP deepens China-Malaysia ties

THE joint statement between China and Malaysia in June 2024 reaffirmed their commitment to continue promoting the high-quality implementation of the Regional Comprehensive Economic Partnership (RCEP) agreement, and to accelerate the Asean-China Free Trade Area 3.0.

RCEP came into effect on Jan 1, 2021, which aims to enhance Asean's collaboration within members by expanding and strengthening their participation. In aggregate, these participating nations represent 30% of the global population, and account for almost 30% world gross domestic product (GDP).

The RCEP primary goal is to create a contemporary, comprehensive, high-quality, and mutually beneficial economic alliance that promotes the growth of regional trade investment and contributes to worldwide economic advancement. Consequently, it will generate the market and provide employment opportunities for firms and individuals within the alliance region.

RCEP will cooperate and support an open, inclusive, and rules-based multilateral trade system.

By 2030, Asean’s export is expected to reach US$78bil, primarily from manufacturing, due to the deep penetration in the regional production networks and the increase in productivity.

In the RCEP agreement, the members acknowledged the significant contribution of small and medium-sized enterprises (SMEs) to innovation, economic development and employment. RCEP adopts ‘origin in the region’ principle to facilitate regional supply chain management, intra-regional sourcing options increment, transaction costs reduction among enterprises, and SMEs integration into regional trade investment.

China established a new guideline to promote high-quality implementation in January 2022. This guideline aims to guide local authorities, industries, and enterprises to adapt to a more open regional marketplace. Hence, one of the RCEP key beneficiaries is the SMEs. By understanding the importance of deepening SMEs cooperation within the region, three key elements have been highlighted in the RCEP agreement, consisting of information sharing, cooperation, and contact points.

First is the information sharing, whereby it promotes sharing through the establishment and maintenance of public accessible information platforms, and exchanging information to share knowledge, experiences, and best practices among members. Second, cooperation to effective implementation of facilitative, global value chains participation, electronic commerce adoption, entrepreneurial programmes, and intellectual property system. Third, the contact points indicate the duration and designate contacts to facilitate cooperation.

RCEP has created significant opportunities for Malaysian SMEs. Firstly, it expands market access within the 15 nations, which offers growth potentials and exports.

Secondly, it streamlines trade procedures, whereby it simplifies and standardises trade procedures across members. This consists of expedited Customs clearance, single submission of documentation via electronic platforms, and paperwork bureaucracy reduction. These measures enable trade cost and complexity reduction, which further facilitates SMEs international trade engagement.

Thirdly, enhance regional supply chains within Asia-Pacific nations. In this situation, it promotes better integration of SMEs within regional value chains, and develops potentials for either new suppliers or customers. Fourthly, it removes at least 90% of import tariffs over the 20 years. This reduction in trade barriers allow more competitive SMEs products in the marketplace. In this context, China agreed to implement first-year tariff rates on some imports from Malaysia, meanwhile Malaysia imposed some reduction in tariffs and exemptions. This applies to agriculture products, chemical fibre, cotton yarn and fabrics, stainless steel.

Even though RCEP is still in its infant stage, there are a few emerging successful SMEs in Malaysia that has either directly or indirectly benefitted from the agreement. For instance, FedEx support for RCEP provides opportunities for SME growth. In this context, two domestic SMEs have made a global marketplace.

First, the Batik Boutique by Amy Blair, a social enterprise specialising in handmade batik products, has been able to expand businesses on a global platform with the RCEP and improved logistics support. The firm has leveraged international delivery solutions to export her unique batik creations to a wider marketplace, showcasing how traditional local crafts can demonstrate success in the global arena.

Besides, Jasmine Group by Yusfariq Iqmal Yuslan has successfully penetrated the global marketplace. His innovative pinless hijab has gained popularity not only in Malaysia and Indonesia, but also in various global countries. In this current stage, the SMEs leveraged on a few approaches to succeed and penetrated the global marketplace, consisting of improved logistics and delivery solutions, unique innovative products, capitalising on tariffs reduction and simplified trade procedures, as well as digital e-commerce platforms adoption.

As China-Malaysia celebrates the 50th anniversary of their diplomatic relations, both nations have a unique opportunity to further strengthen their partnership and contribute to regional and global stability and prosperity. The ongoing efforts to connect civilisations through cultural and educational exchanges will continue to play a crucial role in fostering mutual understanding and respect, ensuring brighter future relationships. On one hand, the Belt and Road Initiative (BRI) has played a role in connecting China and Malaysia economics, business opportunities creation and cultural exchange within both nations.

Meanwhile, events by BRI business dialogues have been organised to capitalise on RCEP and strengthen ties between both countries. In this context, World Trade Centre Kuala Lumpur (WTCKL) has successfully hosted multiple trade exhibitions organised by the

Chinese entities, such as Malaysia-China Trade Expo, Game Times International and OCTF Shenzhen. It also fosters commitment to collaborations and promotes bilateral trade.

Dr Khoong Tai Wai is an Assistant Professor at Tunku Abdul Rahman University of Management and Technology.

The views expressed here are entirely the writer’s own.

The SEARCH Scholar Series is a social responsibility programme jointly organised by the Southeast Asia Research Centre for Humanities (SEARCH) and Tunku Abdul Rahman University of Management and Technology (TAR UMT), in conjunction with the 10-year anniversary of the Belt and Road Initiative.