Trade Relations in the Modern Era

In the decades after the fall of the Berlin Wall, China has stepped up its economic development and no longer intends to rely on its exports to drive economic growth and prosperity. Chinese policy now focuses on transforming the economy into one based on domestic consumption, services and innovation. Consequently China has become one of the biggest trade and investment destinations for ASEAN nations.

This means that Chinese-ASEAN trade flows are now two-way as both economic blocs become important exporters and importers of goods and services. Such growing trade relations open up a number of opportunities for ASEAN countries, such as Indonesia, the Philippines, Vietnam and Cambodia, that have large pools of labour and are competitive low-cost production locations for mainland Chinese companies.

Inter-bloc trade between ASEAN and China stood at US$400 billion in 2013 while annual bilateral trade is projected to reach US$1 trillion by 2020. Two-way investments are estimated at US$150 billion within these eight years with Malaysia, Singapore and Thailand spearheading these trade flows.

China has historically sought to maintain a harmonious balance with its ASEAN trading partners. In Malaysia, for example, two-way trade with China reached an unprecedented US$94.8 billion in 2013 and measures such as synergistic industrial parks have been taken to increase that by 60% to US$160 billion by 2017.

The evolving drivers of Asia’s economic growth are in line with this Chinese strategy of balanced trading. The estimated 1.75 billion middle-class consumers in Asia by 2020 are set to be a huge engine for Chinese growth. With accelerating urbanisation and more middle-class families, Chinese consumers will expect more imports of quality as well as luxury products and services - directly benefitting ASEAN.

In November 2001, ASEAN and China agreed to launch negotiations for an ASEAN-China Free Trade Area (ACFTA). In the following year, ASEAN and China signed the Framework Agreement on Comprehensive Economic Cooperation between both parties.

The objectives of this agreement are to:

  • strengthen and enhance economic, trade and investment cooperation between the parties;
  • progressively liberalise and promote trade in goods and services as well as create a transparent, liberal and facilitative investment regime;
  • explore new areas and develop appropriate measures for closer economic cooperation between the parties; and
  • facilitate more effective economic integration of newer ASEAN member states and bridge the development gap between the parties.

The Agreement on Trade in Goods was signed in 2004. It was implemented by the ASEAN countries and China on 1 July 2005 and 20 July 2005 respectively. Under this agreement, the six original ASEAN members and China had to eliminate tariffs on 90% of their products by 2010, while Cambodia, Laos, Myanmar and Vietnam have until 2015 to do so.

The Trade in Services Agreement entered into force in July 2007. Under this agreement, services and services suppliers/providers in the region will enjoy improved market access and national treatment in sectors/subsectors where commitments have been made.

The Investment Agreement was implemented on 15 February 2010. This agreement will help to create a more transparent and facilitative environment, and give companies from ASEAN a competitive edge to tap on thriving opportunities in China.

ASEAN has overtaken Australia, the US and Russia to become the fourth-largest destination for China’s outward investments and has become China’s third-largest source of foreign direct investment. 

In 2012 alone, China invested US$4.42 billion in ASEAN economies. By the end of 2012, Singapore had become the top investment destination for Chinese companies, followed by Cambodia, Myanmar, Indonesia and Laos, according to the China-ASEAN Business Council.

The world expects Beijing to continue laying economic roots in ASEAN with a focus on direct investments and infrastructure. Planned railway lines between China, Laos, Vietnam, Cambodia, Myanmar, Thailand, Malaysia and Singapore are proof that China is committed to building a long-term and mutually beneficial relationship with ASEAN.

From a Chinese perspective, ASEAN offers a diverse mix of natural resources, agriculture, electronics, large consumer markets and rapidly developing infrastructure projects. The use of the Chinese renminbi as an alternative trading currency will help grease the wheels of commerce – evidence of this is seen today in the Indonesian, Malaysian, Philippines, Singaporean and Thailand currencies which track the renminbi more closely than the US dollar.