China-ASEAN Economic Cooperation Sees Brighter Future

 

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Chinese and Vietnamese business people at the port of Dongxing, Guangxi.

 

Fan Ruolan

ASEAN is a close neighbor of China, and both share a common aspiration to develop friendly relations.

In 1991, China and ASEAN established dialogue relations, which were later upgraded into a comprehensive dialogue partnership in 1996. In 2002, China and ASEAN signed a Framework Agreement on Comprehensive Economic Cooperation between China and ASEAN, announcing intentions to implement the China-ASEAN Free Trade Area (CAFTA) by 2010. In effect, this was the official launch of the building of CAFTA.

In September and October 2013, during visits to Central and Southeast Asia, Chinese President Xi Jinping proposed the Silk Road Economic Belt and the 21st Century Maritime Silk Road Initiative, the purpose for which is to strengthen mutually beneficial exchanges along the routes in politics, economics and culture. ASEAN member countries happen to lie in a key area along the Maritime Silk Road, giving ASEAN a key role to play in the construction of the Belt and Road.

The step-by-step upgrading of China-ASEAN relations is to a great extent the result of ever-closer economic and trade relations between the two. The CAFTA has done much to promote cross-border trade.

In 2009, China surpassed the European Union, the United States and Japan to become ASEAN’s largest trading partner. It has remained so ever since.

In 2014, two-way trade volume between China and ASEAN reached US$480 billion, of which imports from ASEAN reached US$208 billion, while China’s exports to ASEAN reached US$272 billion. In 2015, the bilateral trade volume was US$472 billion, a slight drop compared to the previous year.

All the above figures are indicative to the important role China plays as an ASEAN trade partner, and vice-versa. ASEAN has been China’s third largest trade partner since 2011.

Two-way investment between China and ASEAN also indicates an upward trend. According to China’s Ministry of Commerce, by the end of 2014, cumulative investment from both sides reached US$127 billion, of which US$35 billion was Chinese investment in ASEAN and US$92 billion was ASEAN investment in China. Two-way investment in 2015 was about US$17 billion, of which US$9 billion was Chinese investment in ASEAN and US$8 billion was ASEAN investment in China.

As China’s economy has grown rapidly over the past few decades, Chinese investment in particular has seen obvious growth. What is noteworthy, however, is to consider the different levels of economic development among ASEAN countries. Using GDP growth rates, per capita GDP and industrial structures as indicators, the ranking of the economic development of the 10 ASEAN member states is as follows:

Singapore, Brunei, Malaysia, Thailand, Indonesia, the Philippines, Vietnam, Laos, Cambodia, Myanmar.

Furthermore, I believe ASEAN development can be divided into three categories:

Category I: Singapore; Category II: Malaysia, Brunei, Thailand; Category III: Indonesia, the Philippines, Vietnam, Laos, Cambodia, Myanmar.

China’s economic development is similar to those countries in Category II. China’s per capita GDP is smaller than that of Brunei and Malaysia, but larger than Thailand’s. With regard to industrial structure, Category II countries follow a general form of services≥manufacturing>agriculture. The services industry remains the pillar of Category II country economies.

The wide gaps in economic development between China and ASEAN countries result in a big difference in trade and investment. China is mutually complementary with Category I and Category III countries, but shares homogeneity with Category II countries. Some complementarities exist in some sectors at the same time.

Specifically, China is very strong in complementarity with Singapore. China’s eastern region in the post-industrial era urgently needs industrial upgrading. High-tech industries are expected to replace labor-intensive, polluting industries. Meanwhile, China’s western region can continue to develop labor-intensive industries, which will also help to curb unemployment in the region.

Singapore has already completed its industrial upgrading, with high-tech industries and the services industry both mainstays. The economic development gap between China and Singapore has resulted in strong mutual complementarity, leading Singapore to the forefront of trade and investment with China.

Category III countries also share a strong complementarity with China, but for different reasons. In terms of industrial upgrading, China has a need to transfer lowtech, labor-intensive industries to less developed countries. Manufacturing in Category III countries has seen steady growth in recent years, taking full advantage of low labor costs and land abundance. Therefore, China’s labor-intensive manufacturing jobs can be transferred to these countries. In addition, Category III countries are rich in natural resources, helping to meet China’s demand for raw materials. Twoway investment and trade between China and Category III countries in mining, agriculture, and light industry has been substantial.

China and Category II countries, meanwhile, are at similar levels of development. All are faced with pressure to upgrade their industries and expand exports. Homogeneity results in a high level of competitiveness.

However, differences in composition of industrial structure give way to complementarity in several areas. Brunei’s main exports are petroleum and natural gas, which China imports.

Malaysia is rich in natural resources, such as rice, rubber, palm oil, pepper and timber. Palm oil and rubber are the two main sources of foreign exchange for its agricultural industry. Minerals, natural gas, petroleum and tin are its main export commodities, accounting for a large portion of ChinaMalaysia trade.

At the same time, electronic components have been a key part of Malaysia’s production and exports. Both China and Malaysia are manufacturing countries. In the sector of electronic components production and trade, both have reached a level in which they compete, but also share some complementarities.

Generally speaking, China and ASEAN are mutually dependent economically. ASEAN member states are at different levels of economic development, forming a complete sequence from high-income to low-income countries. More importantly, all ASEAN member states are dedicated to economic development, including Myanmar, which has recently begun its process of opening up. Numerous business opportunities exist for Chinese investors in ASEAN. Meanwhile, the fast-growing Chinese economy will also provide ASEAN economies with a chance to grow.

About the author:  Fan Ruolan is a professor at Sun Yat-Sen University’s School of International Relations.

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