ASEAN-China Economic Relations

10. ASEAN-China Investment Cooperation: Status and Prospects

Investment Cooperation: Status and Prospects 203 10 ASEAN-China Investment Cooperation: Status and Prospects Jose L. Tongzon INTRODUCTION There are certainly some risks and costs associated with the current initiatives to bring about greater trade liberalization between China and the ASEAN countries within the framework of the WTO and regionalism. But the high level of commitment demonstrated by both parties for the establishment of a free trade area indicates their sense of optimism that the enormous benefits that can be derived from free trade will outweigh the short-term costs.1 It is argued that China and the ASEAN countries can maximize the benefits of trade liberalization by strengthening and enhancing their investment cooperation. Both countries have huge markets (existing and potential) which offer each other enormous investment opportunities. Investment cooperation can take a variety of forms but may be classified into two types: market sharing and resource pooling. Market sharing takes the form of providing access to each other’s investment opportunities by relaxing the restrictions and rules on and creating an environment conducive for foreign investments. Resource pooling could take the form of joint 10 ASEAN-China ER Ch 10 11/7/06, 4:41 PM 203 204 Jose L. Tongzon ventures and other types of partnerships (such as joint marketing and promotion) using each other’s comparative advantages and complementarities. In this light, this chapter will attempt to identify the specific areas where there is great potential for investment cooperation between these countries and the obstacles that need to be addressed in order to bring this potential into reality. The first part of the chapter will first outline the trends and nature of the investment relationship between these countries. The second section will identify the specific areas where there is potential for mutually beneficial investment cooperation between these countries and the third section discusses the major obstacles and constraints that have come in the way of achieving a significant ASEAN-China investment cooperation. ASEAN-CHINA BILATERAL INVESTMENT Before exploring and identifying areas for possible investment cooperation, it is useful to first briefly outline the trends and nature of the investment relationship between China and the ASEAN countries. Although the growth of ASEAN-China bilateral trade has been quite remarkable since China opened her doors to the world (making China one of the main economic drivers of ASEAN economies), the investment link between China and the ASEAN countries has not been quite impressive. Between 1993 and 2003, ASEAN-China bilateral trade grew at an average annual rate of about 21 per cent and throughout the decade overall ASEANChina bilateral trade grew about six-fold. China’s share in ASEAN-6 exports grew from 2 per cent to 6 per cent, while China’s share in ASEAN-6 imports grew from 2 per cent to 8 per cent throughout the decade. It has been reported that China-ASEAN trade exceeded US$130 billion annually and is likely to match the volume of U.S.-ASEAN trade this year (Straits Times, 10 February 2006, p. 13). However, the ASEAN-China investment link has been less remarkable. ASEAN investments in China have shown a significant growth. In 1991 ASEAN investment in China was only US$90 million but grew to US$4.8 billion in 1998, US$26.8 billion in 2001, and by 2004, ASEAN paid-up investment was over US$40 billion. But Chinese investment into ASEAN has not been increasing. As a matter of fact, compared to its peak right before the Asian crisis, there was a fall in the share of Chinese FDI into ASEAN (see Table 10.1). Thus, whereas ASEAN has grown in importance to China in trade, ASEAN has declined in importance to China in the area of investments as illustrated by the value of ASEAN FDI inflows to China 10 ASEAN-China ER Ch 10 11/7/06, 4:41 PM 204 Investment Cooperation: Status and Prospects 205 Table 10.1 FDI Inflows into ASEAN by Dialogue Partners Source Countries (US$ Million) (Share in Total ASEAN FDI, %) 1995 1998 2003 2004 1995 1998 2003 2004 CER 570.3 –276.9 269.6 390.6 2.0 –1.2 1.5 1.5 China 136.7 291.3 188.7 225.9 0.48 1.3 1.0 0.88 India 108.1 92.6 81.2 46.3 0.38 0.41 0.44 0.18 Japan 5,649.3 3...