China needs to take initiative in trade with ASEAN

By Bai Ming Source:Global Times Published: 2017/8/23 19:03:39

Illustration: Peter C. Espina/GT

This year is the 50th anniversary of the establishment of the Association of Southeast Asian Nations (ASEAN), and next year is the 15th anniversary of the setting up of the China-ASEAN strategic partnership. In 2010, the China-ASEAN Free Trade Area was launched as the third-largest free trade zone for China. Looking back over the past 14 years, the trade between China and ASEAN has not only promoted bilateral economic development, but has also contributed new vitality into the world economy and trade.

According to data from China-ASEAN Free Trade Area business portals, the China-ASEAN trade volume has jumped from $130.36 billion to $480.29 billion from 2005 to 2014, an increase of 268 percent. However, it has not all been smooth sailing. The bilateral trade volume dropped in 2009, 2015 and 2016. The decline in 2009 was partly triggered by the world financial crisis, but in recent years there have been some problems that cannot be ignored.

In 2015, the labor structure in international industry saw tremendous changes. With labor costs having risen significantly, China's demographic dividend advantage has been reduced. But at the same time, some ASEAN countries started to offer an alternative to the Chinese labor-intensive industries. This was mainly because China has been losing its advantage in the low-end manufacturing market, while the high-end market has not yet been fully cultivated. Previously, China was able to make superior products to those from ASEAN countries in the areas of textiles, clothing, mobile phone assembly and other labor-intensive products, but this has changed. This means we need to find countermeasures to boost China's development.

Chinese enterprises should be steadfast in optimizing their transformation amid the trend toward restructuring and technological innovation. Efforts should be made by Chinese enterprises to shift their focus from exports to domestic sales, from being original equipment manufacturers to building their own brands, from manufacturing to services, and from extensive operation to refined management. In the face of the weakening of their previous advantages, Chinese enterprises should cultivate their new advantages in management, operation and service.

For instance, Foxconn, which has 400,000 employees in Shenzhen Longhua Foxconn Park, has established a community full of living and shopping convenience. The workers there have good relationships with each other and they regard it as their home and are reluctant to leave. In reality, mature manufacturing factories often exist around an industrial cluster and a mature service system.

Externally, instead of being surpassed passively, it is better to take the initiative. In 2000, 40 percent of Nike's global production of sports shoes was based in China and only 13 percent in Vietnam. However, by 2013, China's contribution to Nike's global production had fallen to 30 percent, while the proportion for Vietnam had risen to 42 percent. Faced with this situation, we should be "going out" bravely to take the initiative in transferring some industries to ASEAN countries based on complementary principles by conducting greenfield investments and maintaining the key advantages in our own hands. In this way, not only can we control the industrial transfer in an active way, but it may also help with establishing a complete industrial chain for Chinese enterprises around the world. Among ASEAN countries, excluding Singapore, Brunei and Malaysia, which are high-income countries, the other seven countries, to a large extent, would be ideal locations for China's industrial chain layout in the future.

Up to now, China is still the largest trading partner for ASEAN, and ASEAN has become China's third-largest trading partner, the fourth-largest export market and the second-largest source of imports. Compared with the downward trend in 2016, China-ASEAN trade attained a lofty growth rate of 16.2 percent from January to May in 2017. This has improved the complementarity of China and ASEAN in trade and has been driven by the Belt and Road (B&R) initiative. I am strongly convinced that with help from the B&R initiative and the Regional Comprehensive Economic Partnership, China-ASEAN trade cooperation will be substantially upgraded and the trade potential will grow.

The author is a research fellow at the Chinese Academy of International Trade and Economic Cooperation.

Posted in: INSIDER'S EYE

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