China has embarked on a new phase of economic development. In the future, it will no longer rely mainly on its export power for economic growth and prosperity. The Mainland policymakers have started on a course to turn China into a fully fledged economy based on domestic consumption, services and innovation. As a result, China has become one of the biggest trade and investment locations for South East Asia.
The Association of Southeast Asian Nations (ASEAN) continues to rise as an economic powerhouse with 600 million people and a combined GDP of USD2.1 trillion. It will be one of world’s fastest-growing consumer regions over the next two decades. The ASEAN Economic Community will begin at the end of 2015, creating one of the world’s biggest single markets.
Chinese-ASEAN trade relations are now reciprocal. No longer is China the exporting competitor of past decades. It is an important new consumer market for ASEAN, which in turn is growing in importance for mainland China’s manufacturing. These growing ties open up a number of opportunities for ASEAN countries such as Indonesia, the Philippines, Vietnam and Cambodia, which have large pools of labour and make competitive low-cost production locations for Mainland companies.
No longer is China the exporting competitor of past decades. It is an important new consumer market for ASEAN
Trade between China and the 10 member countries of ASEAN rose more than 10 per cent to USD400 billion in 2012. Annual bilateral trade is expected to reach USD1 trillion by 2020. Two-way investment is expected to reach USD150 billion within eight years. Malaysia, Singapore and Thailand lead the way.
China has emphasised a “balanced trade” strategy with ASEAN. Take Malaysia as an example: two-way trade with China reached an historical high of USD94.8 billion last year. Both countries plan measures, such as supporting industrial parks in each other’s countries, that aim to increase two-way trade 60 per cent to USD160 billion by 2017.
The changing nature of Asia’s economic generators is expected to support this “balanced trading”. The promise of growth in middle-class consumers to 1.75 billion people across Asia by 2020 will be a huge draw and China is set to be a direct beneficiary. Rapid urbanisation and the rise of middle-class families in China will change consumer lifestyles, stimulating imports of quality and luxury products and services. This will benefit ASEAN countries.
ASEAN has surpassed Australia, the US and Russia to become the fourth-largest destination for China's outward investment and is China's third-largest source of foreign direct investment. In 2012, China invested USD4.42 billion in ASEAN economies, up 52 per cent in a year. By the end of 2012, Singapore had become the destination where Chinese companies invested most, followed by Cambodia, Myanmar, Indonesia and Laos, according to the China-ASEAN Business Council.
In the coming decade, Beijing is set to deepen economic links and integration in ASEAN, focusing on increasing direct investment and building infrastructure, especially roads and high-speed trains. The planned rail lines start in Yunnan's capital Kunming and will connect Laos, Vietnam, Cambodia, Myanmar, Thailand, Malaysia and Singapore, linking China’s southern region over land with its ASEAN neighbours.
Closer economic ties will create opportunities for corporates in both geographies. Most ASEAN members already tap into the Chinese market and export goods, materials and commodities from agricultural to electronics and textiles.
For Chinese corporates, ASEAN offers a diverse mix of natural resources, agriculture, electronics, large consumer markets and rapidly developing infrastructure projects. Trade between the huge markets of China and ASEAN is expected to grow and the use of renminbi (RMB) as an alternative trading currency will benefit businesses on both sides. Among the seven ASEAN currencies, those of Indonesia, Malaysia, Philippines, Singapore and Thailand tracked the RMB more closely than the US dollar by a factor of 40 per cent.
The expected growth in two-way trade and investment sets a new more positive tone to relations as these mighty regions become a fully fledged economic market of 1.9 billion people.