ASEAN-China Bilateral Trade Booms Rajiv Biswas

Economic relations between China and the Association of Southeast Asian Nations (ASEAN) have strengthened considerably over the past two decades, resulting in rapidly growing bilateral trade and investment flows. Bilateral trade between the ASEAN region and China has grown strongly, increasing from $192 billion in 2008 to $515 billion by 2018.

A number of key drivers have helped to propel the strengthening bilateral economic relationship.

One major factor has been the fast pace of economic growth in both ASEAN and China. China’s share of world GDP rose from an estimated 4 percent in 2000 to around 15 percent by 2017, and is forecast to rise further, to around 21 percent of world GDP by 2028.

Meanwhile, ASEAN’s total GDP has also grown rapidly, at an annual average pace of around 5 percent per year since 2011, which valued $2.8 trillion in 2017.

A second important contributory factor has been initiatives for bilateral trade liberalization, notably the creation of the China-ASEAN Free Trade Area, which substantially eliminated tariff barriers on trade in goods between China and ASEAN since 2010.

Thirdly, the consumer markets of both China and ASEAN have been growing rapidly over the past decade, helping to drive demand for a wide range of bilateral exports of goods and services.

Rapid GDP growth in China over the past decade has resulted in Chinese per capita GDP rising from $2,650 in 2007 to $8,670 by 2017. This has propelled China into the ranks of the world’s upper middle income countries, creating a rapidly growing middle class that is driving consumer spending across a wide range of goods and services.

Some of China’s largest cities have reached per capita income levels that are considerably higher, with per capita GDP for Beijing estimated at $20,356 in 2017. As a result, China has become an increasingly important export market for many ASEAN countries for a wide range of goods and services, including agricultural and mineral commodities, manufactured products, and services exports such as tourism.

The ASEAN region is also a large consumer market, with a total population of 658 million persons and rapidly growing household consumption in a number of populous ASEAN economies, including Indonesia, the Philippines and Vietnam. ASEAN has become a major export market for China, with total Chinese exports to ASEAN reaching $279 billion in 2017, rising by 9 percent year-on-year and accounting for 12.3 percent of total Chinese exports worldwide.

China has become a significant source of new foreign direct investment flows to ASEAN over the past decade, with strong annual FDI into ASEAN since 2013. Chinese FDI flows to ASEAN averaged around $7 billion per year over the period 2013 to 2016.

With Chinese manufacturing wages rising rapidly in coastal Chinese cities, many Chinese firms have invested in establishing manufacturing production facilities in ASEAN countries to maintain export competitiveness in low value-adding manufacturing industries such as garments and footwear.

An important new focus for bilateral economic cooperation between China and ASEAN has been through China’s Belt and Road Initiative. The BRI is providing large-scale financing for infrastructure projects in many developing countries worldwide, with ASEAN countries being a key part of the BRI. With bilateral trade flows having grown so rapidly, improving transport infrastructure connectivity between China and ASEAN countries through road, rail and port infrastructure will help to reduce logistics costs and further boost growth in bilateral trade.

China is providing financing for a number of rail infrastructure projects in ASEAN countries, including in Thailand, Laos and Cambodia. The BRI is also financing infrastructure to develop maritime connectivity for ASEAN countries.

IHS Markit forecasts that China will become the world’s largest economy by 2028, overtaking the US.

China’s per capita GDP is forecast to reach $10,000 per person by 2019, rising to $22,000 per person by 2028. This will make China’s consumer market an increasingly important growth engine for ASEAN’s export sector across a wide range of goods and services. Meanwhile, ASEAN has also become one of the world’s largest consumer markets, and is already a major export market for China.

Both ASEAN and China are key driving forces for further trade liberalization in the Asia-Pacific, notably through the Regional Comprehensive Economic Partnership (RCEP) free trade agreement being negotiated among 16 Asia-Pacific nations. The long-term outlook is for continued rapid growth in bilateral trade and investment flows, with China and ASEAN being key growth engines for the Asia-Pacific region as well as for the global economy.