The China Connection for ASEAN

Amidst all the optimistic projections for ASEAN as a result of AEC’s crucial role in driving trade and investment into the region, the other main driving force will be that of China. 

China has been playing an active role in building trade and investment relations with ASEAN in the past decade, extending the historic relationship that dates back to thousands of years. 

In 2013, China’s President Xi Jinping mooted the idea of the New Silk Road, or the Maritime Silk Road that starts from Fujian province and linking all the littoral countries of the region. 

From the perspective of trade and investment, this Maritime Silk Road concept will further deepen China’s connection with ASEAN, with AEC serving as a main catalyst. As China faces its domestic “growing pains” of rising labour costs, land costs, and appreciating currency, it is increasingly seeking new production and market bases, and ASEAN will be the natural destination given the geographic and historic ties. 

So far, China has been playing a rising role in ASEAN. As shown in the chart below, China’s share in ASEAN’s total trade has more than doubled from 5% in 2000 to 14% in 2010, and to 16% share in 2013, or US$405 billion. Based on our projections, China’s share (excluding Taiwan and Hong Kong) could reach 23% by 2030, or US$1.5 trillion. 

ASEAN: Total Trade with China
Figure 1: ASEAN Total Trade with China

Similarly on the investment front, China’s push in recent years to investment overseas (in order to balance out investment inflows and also partly to reduce appreciation pressure on the renminbi), have seen ASEAN as a main beneficiary. This has resulted in both inflows and outflows of China’s direct investment closing the gap than was the case 10 years ago. 

An important point of note is that China’s overseas direct investment (ODI) has accelerated since 2007. Asia represents the bulk of China’s annual ODI flow to the world, accounting for a 73% share in 2012.

asean china figure2
Figure 2: China ODI Destinations