RCEP Trade Tracker Insights 2025 Q2: The Structural Evolution of RCEP Value Chains

The production structure of the member economies of the Regional Comprehensive Economic Partnership (RCEP) has undergone a profound transformation over the past ten years. This quarter, the RCEP Trade Tracker moves beyond traditional trade values to include a more revealing metric: upstreamness, which uncovers the fascinating structural shifts within the bloc. Our analysis uncovers a definitive regional drift downstream, marked by a decline in the average upstreamness index from 2.284 to 2.237. While this movement toward final demand encompasses a majority of members, China stands apart, cementing its position as a vital upstream hub with a 2024 index of 2.523. This situates China in a predominantly competitive relationship with ASEAN nations, which are largely moving in the same direction. This report delves into the specifics of these national trajectories, identifies the key sectors at play, and outlines the strategic outlook for this newly integrated economic zone.

Introduction

More than just a massive trade agreement, the RCEP's power derives from the complex web of production it encompasses. We map this ecosystem using "upstreamness," a concept that reflects the position of an industry or economy in the supply chain. To understand this, imagine trade flow as a stream, goods, that are used for the production of other goods, start from the upstream, and flow to the downstream to “finished” goods that will eventually reach the customer. Countries who are on the upstream produce products that are used as inputs for the products produced by countries in the downstream – eventually reaching the customer. 

Producers are more upstream if they specialize in producing raw materials and intermediate goods, and they are less upstream (or more downstream) if most of their output goes directly to the end user. Observing how countries have navigated this hierarchy since 2015 provides a clear window into shifting competitive advantages and the tangible outcomes of regional integration.

As shown in Figure 1, the phased implementation of RCEP between 2022-2023 has been instrumental in reshaping regional value chains. The agreement took effect for the initial ten members on January 1, 2022, followed by sequential ratifications throughout 2022 and 2023. This staggered implementation provides a natural experiment to observe how trade liberalization influences production networks. The timing aligns notably with the accelerated downstream convergence observed in our data, suggesting RCEP's provisions for cumulated rules of origin, tariff reductions, and trade facilitation have actively encouraged more integrated and efficient production sharing across the bloc.

The Big Picture: A Region Converging on Final Demand

The overarching narrative of the past decade is one of marked downstream convergence. The RCEP average upstreamness index experienced a discernible decline from 2.284 to 2.237, representing a decrease of 0.047 points. This shift was not driven by a few outliers but was a widespread phenomenon, as shown in Figure 2, with nine out of the thirteen analyzed countries participating in the move toward final demand. This trend is further evidenced by a significant decrease in the diversity of value chain positions among member states, indicating that the bloc is coalescing into a more unified and harmonized production base. 

The timing of RCEP's implementation appears to have accelerated this convergence trend. Countries that joined earlier, such as Vietnam and Thailand, showed more pronounced downstream movements immediately following their accession. The agreement's provisions for cumulated rules of origin and tariff liberalization have likely facilitated this shift by making cross-border production sharing more efficient, enabling member economies to specialize in their comparative advantages within regional value chains rather than maintaining complete domestic production ecosystems.

The Most Dynamic Economies

The past decade witnessed dramatic economic realignments, with several economies fundamentally reshaping their roles within the regional value chain. The most significant downstream movers—those becoming more focused on final demand—include China, Thailand, and Brunei. In Figure 2 and Figure 3, China recorded the most substantial absolute shift, with its index moving from 2.909 to 2.523, a change of -0.387, visualized by a color change (figure 3) from dark red “upstream” to a light orange “upstream”, which is consistent with Beijing’s “Going Out" strategy – by bringing its products and services directly to the end consumer. Thailand underwent a massive relative change of -12.9%, moving firmly into a downstream role with a shift from 2.367 to 2.063. Similarly, Brunei demonstrated a dramatic shift from 2.749 to 2.445, signaling a diversification away from pure upstream resource extraction.

Conversely, Laos emerged as the standout upstream mover, repositioning itself as a key supplier of raw materials and intermediates. Its index increased from 1.742 to 2.241, a staggering change of +0.499, which represents the largest shift in the entire bloc at +28.6%. Interestingly, Korea also experienced a discernible upstream growth – quite surprising for an economy well-known for making consumer-facing productions including consumer electronics and vehicles. one probable explanation is how RCEP removed tariff barriers in semiconductor sector, which encourages increased production of semiconductors to China to suit the market’s greatly rising demand – this is connected to our next point on the indispensable role China played in impacting the regional value chain structure.

China's Central Role: The Anchor of the RCEP Supply Chain

China's evolution remains the single most important factor in the region's value chain structure. Despite its own significant downstream movement, China's 2024 index of 2.523 remains 0.286 points above the RCEP average of 2.237. This confirms its indispensable role as the primary supplier of intermediate goods and manufactured components for the entire bloc. The 13.3% drop in its upstreamness index indicates a strategic pivot; China is not merely a supplier but is increasingly competing in final goods assembly, creating a dual role that exerts competitive pressure on its downstream neighbors. If the country’s production was largely limited to its domestic market in previous years, its competitive firms, especially in the electric vehicle and technology sector, are quickly expanding into the global market.

The China-ASEAN Dynamic: A Story of Competition with One Exception

The data reveals that the "China effect" has largely been one of competitive pressure rather than complementarity. Figure 4 shows that as China moved downstream, most ASEAN countries were pulled in the same direction, resulting in competition for similar manufacturing and investment. The spectrum of competition varies, with Thailand and Indonesia showing very strong competitive alignment with China's trajectory. Singapore, the Philippines, and Vietnam also demonstrate positive, albeit more moderate, correlations.

As shown in Figure 5, Laos stands as the clear exception to this competitive dynamic. Its dramatic upstream move, which occurred as China moved downstream, signifies a symbiotic relationship. Laos is positioning itself as a supplier of primary goods to feed regional production, much of which flows through or to China.