China Daily Asia Weekly: Realizing true potential

The developing China-ASEAN relationship promises reciprocal benefits for trade and beyond
Ten years on since the initial framework for a China-ASEAN Free Trade Area (CAFTA) was signed in Phnom Penh in Cambodia, the bloc has blossomed into a partnership that goes well beyond commerce.
With a population of 1.9 billion people, the CAFTA, established on January 1, 2010, boasts a combined GDP in excess of $9 trillion.
Continued trade ties and the future of the CAFTA were among some of the key issues raised at the China Daily Asia Leadership Roundtable themed “China-ASEAN Business and Economic Partnership” on July 18 in Kuala Lumpur.
“It’s a particularly good time to talk about China-ASEAN (Association of Southeast Asian Nations) business,” said Dicky Yip, Asia Pacific chief representative for the Institute of International Finance, a trade group that represents major financial firms worldwide.
This year also marks the 10th anniversary of the Joint Declaration on Strategic Partnership for Peace and Prosperity, signed between China and ASEAN on the Indonesian island of Bali, in October 2003.
To celebrate the occasion, the roundtable meeting, held on the sidelines of the 10th ASEAN Leadership Forum, gathered business leaders and entrepreneurs from across the region to explore the opportunities and challenges arising from closer economic ties.
“China is an important partner of ASEAN for peace, stability and prosperity,” Le Luong Minh, ASEAN secretary general, told China Daily Asia Weekly in an interview on the sidelines of the forum.
“China’s development has brought huge opportunities to ASEAN. China’s peaceful development would be beneficial to the region. And vice versa, a strong, stable and united ASEAN is in the interest of the region, including China,” he said.
Le further estimates CAFTA-related agreements will bring bilateral trade to $500 billion by 2015.
Trade volume between China and ASEAN amounted to $319 billion last year, up from $55 billion in 2002. Foreign direct investment flow from China to ASEAN doubled to $5.9 billion in 2011.
“The development of the China-ASEAN relationship has not only benefited both sides, but also contributed vigorously to building the ASEAN community,” said Zhou Li, publisher and editor-in-chief of China Daily Asia Pacific, in his welcoming remarks. “The relationship is also an important factor ensuring wider ASEAN stability and prosperity.”
While China has been ASEAN’s largest trading partner, ASEAN has since emerged as one of China’s top trading partners. It has leapt in importance from fifth place between 2000 and 2006 to third place in 2011, just behind the European Union and the US.
During a lively discussion, the panelists identified connectivity as one key area for China-ASEAN cooperation.
Shen Jiajun, chairman of CSR International Equipment and Engineering, the company behind China’s high-speed rail network, stressed the importance of technological exchange in building railway networks in the region.
“It’s not necessarily (that) we produce bullet trains in China and ship them here. We invest in ASEAN and export our technology,” Shen said.
“China has both (comparative) advantages and disadvantages in certain areas; so do our ASEAN neighbors. That’s why we need to trade,” added Shen, whose company has cooperated with local partners and exported services to more than 70 countries, including Vietnam, Singapore and Malaysia in ASEAN.
Tourism is another promising sector. Few would forget the miracle of the low-budget Chinese movie Lost in Thailand — a record-breaking success at the box office, it has also been an inspiration for Chinese travelers. The fact that the number of Chinese tourists visiting Thailand is expected to surge by 10 to 20 percent — to 3 million visitors this year — has surely made Thailand the envy of its ASEAN neighbors.
While the China Tourism Academy estimates the number of Chinese outbound visitors reached 82 million last year, ASEAN countries attracted only less than 10 percent of this group, observed Abdul Majid Khan, president of Malaysia-China Friendship Association.
Top-spending tourists
Chinese tourists also emerged as the world’s top spenders, surpassing both Germany and the US with a record $102 billion last year.
Indonesia’s Bali and Thailand’s Phuket in the ASEAN region were ranked among the top 10 travel destinations for Chinese tourists last year, according to Ctrip.com, China’s leading online travel agency.
“ASEAN countries should act together to sell ASEAN to China,” Khan said. He recommended promotional campaigns in Chinese cities and provinces as a good way to inform potential Chinese tourists of the many and various holiday options across the region.
Yet despite plenty of goodwill toward increased regional cooperation, the reality is more complex.
With numerous free trade agreements (FTAs) in place, such as ASEAN Plus 3 (including China, South Korea and Japan), a challenge facing ASEAN is to implement what has already been agreed.
Domestic laws and the regulations of some ASEAN members are often not up to the required level of the FTAs, explained Ong Keng Yong, Singapore’s high commissioner to Malaysia and former ASEAN secretary general. “We have to work on that quickly,” Ong said.
For example, the deadlock on removing tariffs on all goods, including those listed as “highly sensitive” such as oil and rice, is still awaiting progress after years of negotiations.
Bilateral trade between China and the 10-nation ASEAN bloc is expected to reach $500 billion in 2015, Chinese Vice Minister of Commerce Gao Yan told a press conference on July 23.
According to the Ministry of Commerce (MOFCOM), China-ASEAN bilateral trade has surged in the past decade, from $54.7 billion in 2002 to $400.1 billion in 2012, with an average annual growth rate of 22 percent.
Currently ASEAN is China’s third largest trading partner, and the fourth largest export market. It is also the second largest source of imports, as well as a major contributor of foreign tourists to China.
The first half of 2013 saw year-on-year growth of 12.2 percent in China-ASEAN trade that totaled $210.5 billion, MOFCOM said.
China had a trade deficit with ASEAN until 2012, when China had a trade surplus of $8.5 billion, or 2 percent of the bilateral trade value, showing an almost balanced trade, Gao said.
Trade patterns have changed since the China-ASEAN free trade area was established, Gao said, with China overtaking Japan to become the largest exporter to ASEAN.
The world’s second largest economy has so far directly invested in 2,500 enterprises in ASEAN, creating 120,000 local jobs.
Meanwhile, ASEAN’s direct investment in China has more than doubled over the past 10 years, from $3.26 billion in 2002 to $7.1 billion.
While all eyes are on promoting multilateral trade between ASEAN and China, the thorny issue of harmonizing banking practices must not be neglected.
“International trade and banking goes hand-in-hand,” said Yip from the Institute of International Finance.
The former banker suggested that one way to facilitate trade between ASEAN and China is to use the yuan as a trading currency.
Today, over 70 percent of world’s trade is still carried out in US dollars. This compares to less than 1 percent in yuan, although the potential of the currency should not be underestimated. Some five to six years ago, only 3 percent of China’s export and import trade involved the yuan, compared with 12 percent today.
As part of the internationalization drive of the yuan, the People’s Bank of China, the country’s central bank, has signed bilateral currency swaps worth $275 billion with some 20 countries, including ASEAN economies such as Singapore, Malaysia and Thailand.
The currency swap allows two signatory countries to conduct business in their own currency without having to settle trade invoices in US dollars.
Yip highlights a two-point benefit of using yuan as a trading currency, reserve currency and investment currency. “First, people use this channel to minimize exchange risk. Second, we foresee (yuan) value to gradually increase over time,” he said.
With the possible scaling back of quantitative easing amid a stronger US economic recovery, recent worries have been of a large-scale exodus of capital from ASEAN and China.
“The reason underlying the ASEAN countries developing the Regional Comprehensive Economic Partnership (RCEP) in 2015 is precisely to address some of the implications of the issue,” said Ong, the former ASEAN secretary general.
The idea is that relying on just China-ASEAN trade could be insufficient to fend off adverse effects to the region.
Instead, the RCEP — branded as a 16-nation-strong free trade zone comprising all ASEAN members plus China, Korea, Japan, Australia, New Zealand and India — will have a better chance of attracting new potential investors from outside the bloc.
jennifer@chinadailyhk.com
http://www.chinadailyasia.com/focus/2013-07/26/content_15080217.html