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87. ASEAN-China Trade and Investment Relations
- ISEAS–Yusof Ishak Institute
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436 Chia Siow Yue By: ROS Size: 7.5" x 10.25" J/No: 03-14474 Fonts: New Baskerville 87. ASEAN–CHINA TRADE AND INVESTMENT RELATIONS CHIA SIOW YUE Reprinted in abridged form from Chia Siow Yue, “ASEAN and the China Challenge”, Singapore Institute of International Affairs Reader 3, no. 2 (July 2003): 27–39, by permission of the author and the Singapore Institute of International Affairs. ASEAN–CHINA TRADE ASEAN and China are not each other’s main trading partner, but the bilateral trade has been growing rapidly in the past decade. ASEAN-China trade grew at 20% a year during the 1990s and by over 30% in 2002. ASEAN is China’s 5th largest trading partner and account for 8.3% of China’s total trade in 2000. China is ASEAN’s 6th largest trading partner and accounted for 3.9% of ASEAN’s total trade in the same year. There is also considerable unrecorded border trade between China and Laos, Myanmar and Vietnam. For some countries strapped of foreign exchange, barter trade is still fairly important. The composition of ASEAN-China trade has changed significantly, with the declining importance of trade in commodities and the rising importance of trade in manufactures, particularly machinery and electrical equipment. In the early 1990s, China’s leading exports to ASEAN were machinery and electrical equipment, oil and fuel, cotton, and tobacco. By the end of the decade, machinery and electrical equipment continued to be top exports, but their share jumped to nearly 50%. Likewise, in the early 1990s, ASEAN’s leading exports to China were oil and fuel, wood, vegetable oils and fats, machinery and electrical equipment. By the end of the decade, such exports had shifted away from primary commodities to manufactured products. In particular, machinery and electrical equipment grew from 12.4% to 38.2% share of ASEAN exports to China. A substantial part of this comprises electronic components and devices. The strong two-way trade in machinery and electrical equipment reflects the rapid growth of intra-industry and even intra-firm trade by foreign MNCs in the electronic sector. China appears to have joined the main ASEAN countries in the production networks that have emerged in East Asia over the past decade. 087 AR Ch 87 22/9/03, 12:59 PM 436 ASEAN–China Trade and Investment Relations 437 By: ROS Size: 7.5" x 10.25" J/No: 03-14474 Fonts: New Baskerville There is growing concern in many ASEAN countries that their labour intensive industries such as textiles, garments, footwear, toys, processed foodstuffs and machinery and equipment cannot compete with cheap imports from China. They fear the early demise of domestic small and medium industries and enterprises and growing unemployment, particularly as many businesses are still struggling to recover from the 1997–98 financial crisis. Such industries and enterprises are seriously challenged to improve productivity and quality and lower costs to meet the price competition from China. CHINA INVESTMENTS IN ASEAN China’s outward direct investments have been less dramatic in volume and growth as compared to its inward direct investments. Nevertheless, average annual outward direct investments rose from around US$54 million a year in the early 1980s to US$2.4 billion by the late 1990s. Total outward FDI flow grew to US$7.1 billion in 2001. The largest concentrations are in Hong Kong, US, Canada and Australia. The Chinese government is encouraging Chinese companies to venture abroad to serve several purposes — get Chinese firms used to international competition in the new WTO environment; secure supplies of natural resources, particularly oil, to feed China’s economic growth; and to support China’s trade role in counterbalancing the economic presence and power of the US, EU and Japan. China investments in ASEAN are small relative to China’s total outward investments and ASEAN’s total inward FDI. In fact, ASEAN is a net investor to China. Cumulative China investments in ASEAN-5 in the 1990s amounted to US$1.9 billion, with Singapore and Thailand each accounting for about one-third, followed by Malaysia and Indonesia. As with trade, China’s investments in ASEAN have also undergone a compositional change. In the earlier years, investments in ASEAN-4 (Thailand, Malaysia, Indonesia, Philippines) were largely motivated by the need to expand overseas market shares as well as secure a stable supply of energy and raw material resources. Resource-seeking investments were usually targeted at products such as rubber, timber, and paper. Thailand attracted investments...