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The rise of China-ASEAN trade amid trans-Pacific decoupling
07:21, 19-Mar-2020
When U.S. President Donald Trump began his purge on America's trade with China in early 2018, the United States was China's second largest merchandise trading partner after the European Union (EU).
Two years on, the 10-member Association of Southeast Asian Nations (ASEAN) has taken over as China's second largest trading partner in goods.
In 2019, China's trade volume with ASEAN climbed by 14 percent to 4.43 trillion yuan. The EU remained China's single largest trading partner with 4.86 trillion yuan in bilateral trade and an eight percent year-on-year growth rate (the U.S. has relegated to the third place on the list of China's top trading partners with bilateral trade contracting more than 10 percent to around 3.73 trillion yuan).
Taking into account Brexit (Britain accounts for around 10 percent of the EU's trade with China), the respective growth trajectories of China-EU and China-ASEAN commercial relations in the past few years, the seriousness of the economic shock of the COVID-19 pandemic on the virus-stricken European economy, and relocation of some manufacturing capabilities from China to neighboring Southeast Asian countries amid the U.S.-China trade conflicts, it is reasonably conceivable that ASEAN would surpass the EU as China's largest trading partner in 2021 – if not this year.
Whereas China-Europe trading relationship is one of producer-consumer (trading finished products for consumption), China's trade pattern with ASEAN is underpinned by a production fragmentation partnership characterized by components passing from economy to economy before being manufactured, normally in China, into a final tradeable product.
In fact, the whole of East Asia has been organized into layers of cross-border supply chains and regional production sharing networks by multinational corporations and governments' pro-trade public policies.
This China-ASEAN co-production relationship has been reflected in the trade statistics. In 2018, the most traded goods between China and ASEAN were machinery and mechanical appliances, minerals, chemicals and plastics, and iron and steel.
Such sectors are also those which have seen most robust growth in the past fifteen years or so. Between 2004 and 2018, in contrast, China-ASEAN trade in non-ferrous metals such as zinc and lead, art works, silk and photographic/cinematographic goods were on the decline.
To uplift China-ASEAN trade to the next level, two policy recommendations could be considered by regional governments.
First, countries should continue to individually uphold outward-looking and external-oriented economic policies while collaborating to provide joint policy support to interconnected economic growth.
A port in Jiangsu Province, China, January 9, 2018. /VCG
Malaysia, despite the recent political turmoil, and Brunei should ratify the Comprehensive and Progressive Agreement for Trans-Pacific Partnership as soon as possible to unleash their growth potentials and to address regulatory barriers to economic efficiency and welfare improvement.
East Asian countries should also get the negotiations for the Regional Comprehensive Economic Partnership (RCEP) over the line this year.
India's participation in RCEP is most welcome but the overall negotiation and integration progress should not be held hostage by India or any other countries for that matter.
Second, it is needed to identify new growth engines to propel already strong China-ASEAN economic relations forward. An ideal area of cooperation is the digital economy.
Under the policy support of the Belt and Road Initiative, Chinese internet conglomerates including the so-called BATJ (Baidu, Alibaba, Tencent and JD.com) have all stepped up commercial presence and tech investments into Southeast Asia.
JD.com is a particularly interesting case given the current COVID-19 outbreak. Established as a traditional off-line IT products retailer, the company was literally on the brink of bankruptcy because of SARS-induced demand nosedive in 2003.
The management then adopted an online business model in 2004, successfully turning the company around. Now JD.com is investing in Southeast Asia's e-commerce and logistics networks especially in Indonesia.
Its unique business transformation experience will prove inspirational for ASEAN countries looking to digital economy for jumpstarting a new round of economic takeoff.
As China-ASEAN commercial ties grow from strength to strength, what can be called "China-ASEAN Community of Shared Future for Trade" with one having a stake in the economic prosperity of the other is firmly taking hold.
In that sense perhaps, we should thank Trump's "decoupling" protectionism which has only worked to advance China-led economic cooperation and integration in Asia Pacific.
China, ASEAN see interconnectivity strengthen
2020/3/18 17:43:40
Chinese State Councilor and Foreign Minister Wang Yi (L6) and foreign ministers of ASEAN countries attend the Special ASEAN-China Foreign Ministers' Meeting on Coronavirus Disease in Vientiane, Laos on Feb. 20. Photo: Xinhua
Since the COVID-19 outbreak, China-ASEAN relations have experienced changes that indicate closer ties are possible in the future.
According to data released by the General Administration of Customs on March 7, ASEAN was China's largest trading partner in the first two months of 2020, ranking ahead of the EU and the US. The total trade value between China and ASEAN was 594.1 billion yuan ($84.6 billion), accounting for 14.4 percent of China's total foreign trade value, an increase of 1.6 percentage points over the same period last year.
There are four main reasons for the change. First, since the US-launched trade war against China, China-US trade has shown a downward trend, that is likely to continue for a long time. To offset the impact of the trade war, China and ASEAN have expanded bilateral trade.
The industrial ties between China and ASEAN have also been strengthened in the past few years. Many Chinese, Japanese, South Korean and other foreign companies have moved their factories in China to Vietnam, Malaysia and Thailand.
The expanded industrial chain was not carved off from China. The relocation of these factories to ASEAN hasn't led to the entire industrial chain moving to ASEAN countries. It is an extension of the industrial chain in China. The factories in ASEAN still need the support from Chinese factories for their raw materials, technology, spare parts and equipment. More importantly, many of their products are purchased by Chinese consumers. For example, many of the Transformer toys in Chinese stores are made in Vietnam, but the raw materials and processing machinery were made in China.
China's demand for agricultural products from ASEAN members has increased significantly. China is also the main source of tourists in ASEAN member states. Chinese tourists account for about 40 percent of all tourists in ASEAN. In 2019, the number of Chinese visitors to Thailand was 11 million.
Some Western scholars believe that after the pandemic, relevant enterprises and investors in ASEAN will adjust their previous dependence on China's industrial chain. However, what we are witnessing is a deeply integrated industrial chain between Chinese and ASEAN's companies, with the destination of many of the latter's products being the Chinese market. No other country can replace China in the short term. The region (ASEAN + China, Japan and South Korea) is still the main driving force of global economic growth and the manufacturing industry.
The pandemic has given us an opportunity to re-examine the problems in China-ASEAN relations. China and ASEAN member states still need to make higher level arrangements and strengthen cooperation in some major infrastructure projects. The China-proposed Belt and Road Initiative should be extended to areas related to local people's livelihood, such as healthcare systems.
Meanwhile, both sides will enhance emergency preparedness and boost information sharing and communication, especially in times of crisis, based on decisions made during the Special ASEAN-China Foreign Ministers' Meeting in February.
The pandemic has had a strong impact on the Southeast Asian economy and around the world. The main export destination for China and Southeast Asian products is the US and European markets. As China has been gradually resuming economic activities, its consumption needs will help the recovery of the Southeast Asia industrial sector. For instance, China can purchase Southeast Asian products as supplements to imports from other parts of the world.
The relationship between China and Southeast Asian countries has entered a new stage of in-depth coordination. Ties between countries in this region, driven by economic interconnection, will be closer in the future as coordination continues to strengthen. This will help form new trade and economic collaboration mechanisms, and create a significant impact on the pattern of international relations around the world.
07:21, 19-Mar-2020
When U.S. President Donald Trump began his purge on America's trade with China in early 2018, the United States was China's second largest merchandise trading partner after the European Union (EU).
Two years on, the 10-member Association of Southeast Asian Nations (ASEAN) has taken over as China's second largest trading partner in goods.
In 2019, China's trade volume with ASEAN climbed by 14 percent to 4.43 trillion yuan. The EU remained China's single largest trading partner with 4.86 trillion yuan in bilateral trade and an eight percent year-on-year growth rate (the U.S. has relegated to the third place on the list of China's top trading partners with bilateral trade contracting more than 10 percent to around 3.73 trillion yuan).
Taking into account Brexit (Britain accounts for around 10 percent of the EU's trade with China), the respective growth trajectories of China-EU and China-ASEAN commercial relations in the past few years, the seriousness of the economic shock of the COVID-19 pandemic on the virus-stricken European economy, and relocation of some manufacturing capabilities from China to neighboring Southeast Asian countries amid the U.S.-China trade conflicts, it is reasonably conceivable that ASEAN would surpass the EU as China's largest trading partner in 2021 – if not this year.
Whereas China-Europe trading relationship is one of producer-consumer (trading finished products for consumption), China's trade pattern with ASEAN is underpinned by a production fragmentation partnership characterized by components passing from economy to economy before being manufactured, normally in China, into a final tradeable product.
In fact, the whole of East Asia has been organized into layers of cross-border supply chains and regional production sharing networks by multinational corporations and governments' pro-trade public policies.
This China-ASEAN co-production relationship has been reflected in the trade statistics. In 2018, the most traded goods between China and ASEAN were machinery and mechanical appliances, minerals, chemicals and plastics, and iron and steel.
Such sectors are also those which have seen most robust growth in the past fifteen years or so. Between 2004 and 2018, in contrast, China-ASEAN trade in non-ferrous metals such as zinc and lead, art works, silk and photographic/cinematographic goods were on the decline.
To uplift China-ASEAN trade to the next level, two policy recommendations could be considered by regional governments.
First, countries should continue to individually uphold outward-looking and external-oriented economic policies while collaborating to provide joint policy support to interconnected economic growth.
A port in Jiangsu Province, China, January 9, 2018. /VCG
Malaysia, despite the recent political turmoil, and Brunei should ratify the Comprehensive and Progressive Agreement for Trans-Pacific Partnership as soon as possible to unleash their growth potentials and to address regulatory barriers to economic efficiency and welfare improvement.
East Asian countries should also get the negotiations for the Regional Comprehensive Economic Partnership (RCEP) over the line this year.
India's participation in RCEP is most welcome but the overall negotiation and integration progress should not be held hostage by India or any other countries for that matter.
Second, it is needed to identify new growth engines to propel already strong China-ASEAN economic relations forward. An ideal area of cooperation is the digital economy.
Under the policy support of the Belt and Road Initiative, Chinese internet conglomerates including the so-called BATJ (Baidu, Alibaba, Tencent and JD.com) have all stepped up commercial presence and tech investments into Southeast Asia.
JD.com is a particularly interesting case given the current COVID-19 outbreak. Established as a traditional off-line IT products retailer, the company was literally on the brink of bankruptcy because of SARS-induced demand nosedive in 2003.
The management then adopted an online business model in 2004, successfully turning the company around. Now JD.com is investing in Southeast Asia's e-commerce and logistics networks especially in Indonesia.
Its unique business transformation experience will prove inspirational for ASEAN countries looking to digital economy for jumpstarting a new round of economic takeoff.
As China-ASEAN commercial ties grow from strength to strength, what can be called "China-ASEAN Community of Shared Future for Trade" with one having a stake in the economic prosperity of the other is firmly taking hold.
In that sense perhaps, we should thank Trump's "decoupling" protectionism which has only worked to advance China-led economic cooperation and integration in Asia Pacific.
China, ASEAN see interconnectivity strengthen
2020/3/18 17:43:40
Since the COVID-19 outbreak, China-ASEAN relations have experienced changes that indicate closer ties are possible in the future.
According to data released by the General Administration of Customs on March 7, ASEAN was China's largest trading partner in the first two months of 2020, ranking ahead of the EU and the US. The total trade value between China and ASEAN was 594.1 billion yuan ($84.6 billion), accounting for 14.4 percent of China's total foreign trade value, an increase of 1.6 percentage points over the same period last year.
There are four main reasons for the change. First, since the US-launched trade war against China, China-US trade has shown a downward trend, that is likely to continue for a long time. To offset the impact of the trade war, China and ASEAN have expanded bilateral trade.
The industrial ties between China and ASEAN have also been strengthened in the past few years. Many Chinese, Japanese, South Korean and other foreign companies have moved their factories in China to Vietnam, Malaysia and Thailand.
The expanded industrial chain was not carved off from China. The relocation of these factories to ASEAN hasn't led to the entire industrial chain moving to ASEAN countries. It is an extension of the industrial chain in China. The factories in ASEAN still need the support from Chinese factories for their raw materials, technology, spare parts and equipment. More importantly, many of their products are purchased by Chinese consumers. For example, many of the Transformer toys in Chinese stores are made in Vietnam, but the raw materials and processing machinery were made in China.
China's demand for agricultural products from ASEAN members has increased significantly. China is also the main source of tourists in ASEAN member states. Chinese tourists account for about 40 percent of all tourists in ASEAN. In 2019, the number of Chinese visitors to Thailand was 11 million.
Some Western scholars believe that after the pandemic, relevant enterprises and investors in ASEAN will adjust their previous dependence on China's industrial chain. However, what we are witnessing is a deeply integrated industrial chain between Chinese and ASEAN's companies, with the destination of many of the latter's products being the Chinese market. No other country can replace China in the short term. The region (ASEAN + China, Japan and South Korea) is still the main driving force of global economic growth and the manufacturing industry.
The pandemic has given us an opportunity to re-examine the problems in China-ASEAN relations. China and ASEAN member states still need to make higher level arrangements and strengthen cooperation in some major infrastructure projects. The China-proposed Belt and Road Initiative should be extended to areas related to local people's livelihood, such as healthcare systems.
Meanwhile, both sides will enhance emergency preparedness and boost information sharing and communication, especially in times of crisis, based on decisions made during the Special ASEAN-China Foreign Ministers' Meeting in February.
The pandemic has had a strong impact on the Southeast Asian economy and around the world. The main export destination for China and Southeast Asian products is the US and European markets. As China has been gradually resuming economic activities, its consumption needs will help the recovery of the Southeast Asia industrial sector. For instance, China can purchase Southeast Asian products as supplements to imports from other parts of the world.
The relationship between China and Southeast Asian countries has entered a new stage of in-depth coordination. Ties between countries in this region, driven by economic interconnection, will be closer in the future as coordination continues to strengthen. This will help form new trade and economic collaboration mechanisms, and create a significant impact on the pattern of international relations around the world.
