China-Asean co-operation crucial for world economy
Many multinational corporations would view China and Asean as alternative markets.
For the larger ones that have their radar on both markets (although, technically, Asean includes 10 countries), there is still a need to strike a balance between the two.
After all, the combined population of China and Asean will soon come close to 2 billion.
Their total nominal GDP would be around US$14 trillion (NZ$19.6t), more than half of Asia’s total. Nevertheless, China’s economy is four times larger than Asean’s.
In December 2015, the 10 Asean countries came together to form the Asean Economic Community. This was meant to make Asean an even more attractive market than the standalone markets.
But southeast Asia is a diverse region. It encompasses many religions, languages, ethnicities, and cultures.
There is a need to cultivate a new mindset that identifies with Asean.
How the countries collaborate is still a work-in-progress, though we had a good glimpse of it in the Regional Comprehensive Economic Partnership negotiations. In those negotiations, we also got to observe Asean working with China.
China and Asean go back a long way in trade, though.
It was China that first proposed a freetrade agreement with Asean.
The Asean-China Free Trade Area, also known as the China-Asean Free Trade Area (CAFTA), has been in effect since January 2010.
Vietnam, Philippines, Cambodia, and Laos joined the upgraded protocol of the CAFTA in 2015.
China is co-operating with several Asean countries around infrastructural developments in the context of the One Belt One Road Initiative, though there are also signs of strains as arbitration cases begin to surface.
What China can achieve may rely to a certain extent on how it can get Indonesia involved.
In 2016, China was the third-largest foreign direct investor in Indonesia at US$2.67 billion, behind Singapore and Japan.
Last year marked the 25th anniversary of Asean-China dialogue relations. Asean member states and China held a series of events to commemorate this milestone.
China’s unbalanced development across the sub-regions may provide some lessons for the Asean region.
On some dimensions, 10 countries operating as a single market is an unlikely scenario, unfortunately.
China is currently the largest trading partner of Asean, and Asean is China’s third-largest trade partner, fourth-largest export market and second-largest source of imports.
From 1991 to 2016, bilateral trade volume grew nearly 56-fold while twoway accumulative investment volume rose nearly 355-fold.
2017 marks the China-Asean Year of Tourism.
China is Asean’s largest source of foreign tourists. In 2016, more than 38 million trips were made between the two parties.
Since the implementation of the Asean-China Air Transport Agreement and its protocols early this year, 37 cities in Asean have been connected with 52 cities in China.
All aspects point to the greater interconnectedness between the economies of Asean and China.
The total trade volume of Asean with China is projected to increase to US$1t by
2020.
For Asia and the world economy to grow, Asean and China need to work closer together economically. And they are doing that.
By the same token, when either Asean or China slows down, chances are high that the other will also experience a slowdown in growth.
Because of Asean’s diversity, companies thinking of China and Asean would benefit from learning more about the dynamics within the Asean market and each Asean nation’s individual relationship with China.
As China and Asean deepen their economic ties (alongside their geopolitical ones) and push towards the formulation of a 2030 blueprint for the China-Asean strategic partnership, it is likely that knowledge, not just of the individual countries, but also of their linkages, will become crucial for participation in these markets.
❚ Siah Hwee Ang is the BNZ chair in business in Asia and also chairs the enabling our Asia-Pacific trading nation distinctiveness theme at Victoria University.