China's Economic Strategy in ASEAN Countries

Economic relations between China and the Association of Southeast Asian Nations (ASEAN) have clearly become closer as China is now ASEAN's No. 1 trade partner and ASEAN is China's No 4 trade partner with a possibility to surpass Japan to No 3 soon. Not only in trade, investment by China's private sector and state enterprises in ASEAN countries has grown in a big leap. China now tops the investor list in ASEAN countries like Myanmar, Laos, and Cambodia, while ranking fourth for foreign investment in Thailand.
Regional Economic Trend
It is not a matter of coincidence or regional economic trend but the Chinese Government does intend to tighten economic ties with ASEAN under what I would call a "southward strategy." China began with its serious move southward in the year 2000, when Chinese and ASEAN were then fiercely competing in the world market. The China-ASEAN trade volume was not so big at the time. Then came the day when then Chinese Prime Minister Zhu Rongji wooed ASEAN to form ASEAN-China Free Trade Area (FTA). The Chinese Government has been seriously pushing for the FTA since then. The trade cooperation started with a gradual cut of import tax until the rate became zero in January 2010.
Chinese have paid frequent visits to ASEAN countries to pave the way for an army of Chinese investors. Chinese Prime Minister Wen Jiabao has visited almost all ASEAN members. Prospective fifth-generation Chinese top leader Vice President Xi Jinping has also visited Myanmar, Cambodia and Laos.
PBG Program
The Chinese Government has been using every stage, framework and forum available to continuously and seriously promote economic cooperation with ASEAN, including the push for the Pan-Beibu Gulf Economic Cooperation (PBG) program. Chinese Prime Minister Wen Jiabao has been pushing the PBG among ASEAN leaders since 2007.
As a Thai representative invited to join the Joint Expert Group for the PBG since 2008, I made the latest trip to attend the ratification of the feasibility study for the PBG early this month. I would like to cite the PBG as a case study for China's "southward strategy".
The prominence of the PBG is the participation by three key southern Chinese provinces of Guangdong, Guangxi and Hainan. The trade volume that the three provinces have with ASEAN represents one-third of the whole China-ASEAN trade. After the ASEAN-China FTA fully took effect in 2010, the trade between the three provinces and ASEAN has expanded as showed in the table above.
China's 12th Development Plan
For Guangxi in particular, it was designated by the Chinese Government as key player in China-ASEAN relations. Guangxi was officially declared Gate to ASEAN (not Yunnan as many think). It hosts China-ASEAN Expo on yearly basis in Nanning, the principal city of the province, since 2004. With conducing factors and guidance brought about by the government, economic ties between Guangxi and ASEAN have enjoyed a big leap. ASEAN has become Guangxi's No 1 trade partner. Businesspeople from Singapore, Malaysia and Indonesia have flocked to invest in the province. In the latest drive, China's 12th Development Plan targets injecting a mammoth budget of 2.6 trillion yuan in five years into the so-called Guangxi Beibu Gulf Economic Zone (GBEX) covering four key cities of Nanning, Fangcheng, Jinzhou and Beihai.
Some of you may wonder why it must be Beibu, a city bordering the South China Sea. Those who have well followed news on international politics and relations have asked me a hit question what the Chinese Government has in mind for pushing its "southward policy" through the realization of the PBG.
Of course, China does not expect to gain from the PBG only in terms of economy and investment. There are points about military strategies and security involved. China and some ASEAN countries have claimed their rights over overlapping marine territories in the South China Sea. Vietnam's Navy has gone so far as to have conducted a military exercise with live ammunition in the South China Sea recently. Vietnamese people have also staged noisy protests against China over the marine territorial dispute.
Role of Vietnam
Vietnam is sensitive to the issue in every aspect, even in the academic field. We members of the PBG panel of experts had to spend a long time to find a suitable name for the disputed marine border as the Chinese representative preferred the term South China Sea, while the Vietnamese counterpart wanted it changed to East Sea, the official term used by the Vietnamese Government. The Chinese expert would not yield to the Vietnamese counterpart's demand and it took several months for the panel to end up with just the word Sea (LOL) so as not to be biased towards any country.
The South China Sea territorial dispute and the push for the PBG could become boiling regional issues in the future. The Thai Government will have to come up with how to properly handle them. It will be certainly better for all parties concerned to cooperate than fight.

ASEAN-China Free Trade Agreement

The ASEAN (Association of Southeast Asian Nations)-China Free Trade Area Agreement covering 1.9 billion persons in this free trade zone will become effective on 1 January, 2010. After 10 years of efforts between ASEAN and China, the smooth sailing of this significant agreement is a challenging test not only to ASEAN countries but also to China. Beginning 1 January, a new round of tariff reduction between China and six key ASEAN member states namely Malaysia, Brunei, Indonesia, the Philippines, Singapore, and Thailand will see more than 90 percent of the products from both parties with tariffs drop to near zero.
In November 2000, then Chinese Prime Minister Zhu Rongji put forth this idea of the formation of an ASEAN-China free trade zone with the purpose to lift the trade barriers between China and ASEAN member nations, so that China's huge market and ASEAN countries' natural resources could reach a mutually beneficial win-win trade relations.
However, within the past few years, the economy of China has increasingly consolidated and become powerful. This is most noticeable during the global financial turmoil when China's economic performance has continued to be outstanding. The strength of China's economy has become a concern to ASEAN member nations in the midst of the establishment of this ASEAN-China Free Trade Area Agreement. Such concern is in particularly reflected in ASEAN member countries that have high volume of trade dealings with China. The enterprises and business firms in five ASEAN member nations namely Malaysia, Singapore, Thailand, Indonesia, and the Philippines are worried that the exemption from customs duties for goods coming from China will challenge their local business survival with an influx of cheaper Chinese goods in the local market.

Advantages and Disadvantages
On contrary, other less economically developed ASEAN countries, including countries that do not even have established stock market mechanism will probably welcome the formation of this ASEAN-China trade agreement. These countries include countries such as Cambodia and Laos. In the case of Laos, under the ASEAN-China Free Trade Area Agreement, China would give Laos zero tariffs or less than five percent tariffs of over 7,000 kinds of goods and products import to China. To Laos, having this ASEAN-China free tree agreement will undoubtedly give the country more advantages than disadvantages.
However, to Indonesia, which is the economic engine head of ASEAN, its business enterprises do not think the implementation of the ASEAN-China Free Trade Area Agreement is a good idea. Erwin, chair of the Indonesian Young Entrepreneurs Association Chairman has earlier called on the Indonesian Government not to make a rush in the implementation of the free trade area with China. He said that Indonesia had not yet prepared for such a free trade agreement with China. He even warned that when the ASEAN-China Free Trade Area Agreement became effective, a number of industrial areas, particularly the small and medium-sized industrial zones and the industries in special economic zones might face the risk of bankruptcy. In view of such concern, the Indonesian Government has now formed a joint committee with the Indonesian Young Entrepreneurs Association and the Indonesian Chamber of Commerce and Industries to gather feedback from business community and entrepreneurs on the impact of the ASEAN-China Free Trade Area Agreement.
As for Malaysia, although the business community and private sector do not have such a strong rebound over the ASEAN-China Free Trade Area Agreement as in Indonesia, nevertheless, some larger enterprises, in particular the automotive industries are concerned about the impact of having a comprehensive free trade agreement with China. This is because the Agreement can have a huge impact level on local automotive industries. If Malaysia were to follow the country's original national automotive policy announced in 2006, Malaysia would fully abolish the permit to import foreign cars by December 2010. But under Malaysia's latest national automotive policy guideline, the abolishment of the AP (Approved license to import foreign car) system has furthered been delayed to 2015.
Although the ASEAN-China Free Trade Area Agreement will become effective on 1 January, all indications have shown that to most ASEAN member countries, this new free trade agreement with China comes with mixed felling of happiness and worry. We can even say ASEAN member nations are more worried about the impact of this Agreement than happy about the new trade opportunities available. When market force of China's 1.3 billion populations and ASEAN's total 600 million population combine and compete in the same market, it is quite natural for varied businesses and enterprises in ASEAN countries to worry about the impact of it. The ASEAN business community and enterprises are concerned whether an ASEAN-China Free Trade Area Agreement concept that was mooted ten years ago could still hold the original goal in allowing mutual and win-win trade between ASEAN and China to reap fruitful result ten years later. This is because over the past ten years, the China's economy today has growth much stronger now than ten years ago. There is a concern on the part of some ASEAN countries that the implementation of the free trade agreement with China now will eventually lead to trade imbalance between ASEAN and China. Some ASEAN member nations are afraid that there will be increased trade in favor of China rather than in favor of ASEAN member countries. This is because China is a huge country with not only huge market for domestic consumption but also a strong ability to export and supplies cheaper goods to the ASEAN region.

Importance of Agreement
Even so, we have to accept the fact that the engine head of this ASEAN-China Free Trade Area Agreement has already started running. We cannot pull the button and stop its advancement. This ASEAN-China Free Trade Area Agreement is not only China's first free trade area agreement in foreign trade; it is also the first free trade zone agreement ASEAN negotiated with a foreign nation. As such, the importance of this ASEAN-China Free Trade Area Agreement cannot be undermined. The importance of ASEAN's trade agreement with China will become particularly significance when under this free trade agreement ASEAN nations begin to use China's renminbi (yuan) as the major trading currency when engaging trade with China. Such development can greatly enhance the possibility that China's renminbi or yuan will eventually become a major global trading currency in addition to the US dollars.
Overall, we can only say that the birth of ASEAN-China Free Trade Area Agreement is a necessity product in the current regional economic environment. However, whether this Agreement can be achieved and reaped the expected result will, to a great degree, depend on how ASEAN member countries can maintain a united stance on the vast and varied goods and products entered into the Agreement with China as near zero tariffs products. If ASEAN member countries cannot stand united as one and begin to have different version of free trade area with China, then as a whole, it is impossible for ASEAN to reap trade benefits from the huge Chinese market.