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This chapter is dedicated to answer the main thesis question: How will the ASEAN
Integration affect the ASEAN-China economic relation in terms of investments and trade?
Furthermore, the following subordinating questions are also answered in this chapter.
1.1. How will ASEAN’s newly established community further include or exclude
1.2. What do ASEAN and China anticipate with their economic relationship?
1.3. How will China respond in terms of economic and foreign policies with
The data collected from interview and secondary sources were shown in the results. This
portion is divided into three subtopics namely, ASEAN Economic Integration, ASEAN-China
Cooperation, and China Foreign Economic Policy. The first part of the chapter which is the
results contain the raw data gathered. The latter part of the chapter contains the Discussion
which has the purpose of explaining thoroughly the importance of the data gathered in
A. RESULTS
Economic Community (AEC) at the end of 2015. The AEC is one of the strategic objectives
of the ASEAN Community next to the ASEAN Political Security Community and the
ASEAN Socio-Cultural Community (Zhao, 2014, p.3). The ASEAN Economic Community’s
envisaged launch at the end of 2015 will not only be an integration milestone but a potential
game changer for ASEAN. The bloc’s diversity – ranging from advanced economies like
the capital and know-how of the more mature economies together with the competitive costs
and abundant labour and resources of the less-developed member countries (Hansakul, 2013,
p.5).
economic cooperation and integration, initially with a focus on merchandise trade. In the
1990s, it added focus on services, investment, and labor. And in the past decade—now
financial issues, many of these together with its Northeast Asian neighbors—the “Plus 3” of
the People’s Republic of China, Japan, and the Republic of Korea (Hill and Menon, 2010).
The Bali Summit in 1976 facilitated the first formal steps towards regional cooperation.
These comprised of the ASEAN Preferential Trading Agreement (APTA), the ASEAN
Industrial Projects (AIPs), the ASEAN Industrial Complementation (AIC), and the ASEAN
Industrial Joint Ventures (AIJVs). APTA, the most significant of the four, represented the first
attempt to promote intra-ASEAN trade through institutional integration and regional trade
preferences. The AIPs, on the other hand, were designed to establish in each member country
a large-scale, inter-governmental project. The AIC and the AIJVs were aimed at promoting
Menon, 2010, p.4). However, in spite of the early enthusiasm, the APTA had little impact on
intra-regional trade. The tariff cuts were not implemented on an across-the-board basis but
rather on product-by-product basis. Hence the commodity coverage was narrow, the tariff
cuts were too small to have any discernible effect on trade, and implementation was half-
The following failure was followed by a recovery when the ASEAN Free Trade Area was
first conceived in 1992. This marked a clear break with the past. The emphasis was on
stronger economic cooperation: for the first time, “free trade” was the regional objective,
there was a clear timetable for implementation, and a “negative list” approach was adopted,
in that all goods trade was to be included within AFTA unless explicitly excluded. The six
leaders agreed to reduce the common effective preferential tariff (CEPT) rates to 0%–5% by
2008, with an interim target of 20% by 1998–2000. This deadline was subsequently advanced
to 2005 at the Fifth ASEAN Summit in 1995, and later to 2003. The leaders also agreed that
each country would have at least 85% of its tariff lines in the”Inclusion List” by 2000, and
ASEAN leaders built on this renewed vigor by seeking to extend its geographic spread and
commercial depth. By the early 1990s, Viet Nam had clearly signalled its intention to adopt
market-oriented reforms and to look outwards. The earlier antipathy toward the communist
regime gave way to pragmatism, fuelled in both cases by a common apprehension toward the
PRC. Thus Viet Nam joined in 1995, followed by Lao PDR and (with a delay owing to its
domestic political instability) Cambodia. Despite some reservations, ASEAN also invited
Myanmar to join, partly for geopolitical reasons and partly in an effort to engage one of the
world’s most isolated states economically and politically (Hill and Menon, 2010, p.6).
ASEAN has played a constructive role in its commercial engagement with the three
reforming states in mainland Southeast Asia. ASEAN membership has reinforced their
outward orientation, built confidence in their reform momentum, and enabled them to learn
from their more advanced neighbors. The four mainland states negotiated phased-in
arrangements for accession to AFTA and other agreements. Thus Viet Nam was given until
2006 to bring down tariffs on products in its Inclusion List to no more than 5%. For Lao PDR
and Myanmar it was 2008, while owing to its delayed accession Cambodia had until 2010. As
of 2009, almost 80% of the products of the new member countries had been moved into their
respective Inclusion Lists, and of these about two-thirds have tariffs within the 0%–5% range.
Thus the implementation of the AFTA accords for this group is on track (Hill and Menon,
2010, p.6).
By the mid-1990s, and consistent with the global trend in preferential trade agreements
(PTAs), ASEAN began to cautiously develop arrangements for trade in services, investment,
Services (AFAS) was signed 15 December 1995 at the Fifth ASEAN Summit Meeting in
Bangkok. This was an ambitious agreement with two main objectives: to substantially
eliminate all restrictions (both discriminatory and market access measures) to trade in
services among member countries, and to liberalize trade in services by expanding the depth
and scope of liberalization beyond those undertaken by member states under the General
The following year, in 2003, ASEAN resolved to pursue comprehensive integration towards
the establishment of an ASEAN Community by 2020, founded on the three pillars of political
and security community, economic integration, and socio-cultural cooperation, to form the
ASEAN Security Community (ASC), the ASEAN Economic Community (AEC) and the
ASEAN Socio-Cultural Community (ASCC). The ASC aims to ensure that countries in the
region live at peace with one another and with the world at large in a just, democratic and
harmonious environment. The AEC is the realization of the ultimate goal of economic
integration to create a stable, prosperous and highly competitive ASEAN economic region in
which there is a free flow of goods, services, investment and freer flow of capital, equitable
economic development and reduced poverty and socio-economic disparities in year 2020.
ASEAN Economic Community (AEC) is the end-goal of the bloc’s economic integration as
espoused in its “Vision 2020”. The latter was articulated in 1997 by the ASEAN heads of
state, in the aftermath of the eruption of the Asian financial crisis, seeking to create a stable,
prosperous and highly competitive economic region. The decision to establish the ASEAN
Indonesia, in 2003. The Declaration came not long after China joined the WTO and India
emerged as an investment and offshore location for multinational corporations. The rise of the
emerging markets, in particular the BRIC, appears to have given ASEAN leaders the impetus
to do something to keep the region under investors’ radar. The launch of AEC is currently
planned for the end of 2015. The start date was initially set for 2020 and subsequently moved
forward to January 1, 2015. In November 2012, ASEAN leaders agreed to move the launch
date again to December 31, 2015 in order to give member states more time to prepare for
that characterizes the region into opportunities for business complementation and making the
ASEAN a more dynamic and stronger segment of the global supply chain. ASEAN has
agreed on the following: (i) institute new mechanisms and measures to strengthen the
implementation of its existing economic initiatives such as the AFTA, ASEAN Framework
Agreement on Services (AFAS) and AIA; (ii) accelerate regional integration by 2010 in
electronics, fisheries, healthcare, rubber-based products, textiles and apparels, tourism, and
wood-based products; (iii) facilitate movement of business persons, skilled labor and talents;
and (iv) strengthen the institutional mechanisms of ASEAN, including the improvement of
the existing ASEAN Dispute Settlement Mechanism to ensure expeditious and legally-
The AEC has four pillars that aim to “transform ASEAN into a single market and production
and a region fully integrated into the global economy” (ASEAN 2008).
The creation of a single market and production base should allow ASEAN to benefit from
economies of scale and efficiency in production network processes. ASEAN could leverage
locations for production networks. An integrated market and production base would clearly
boost intra-regional trade and investment flows while an ASEAN consumer market of over
half a billion would be attractive for investors (Chia, 2013). In the AEC, the single market is
committed to free flow of goods, services, and skilled labor and freer flow of capital for
priority sectors by 2010 “to the extent feasible and agreeable to all member countries” and a
goal of national treatment for all service sectors is in the Roadmap for Integration of ASEAN.
The AEC free flow of goods includes the elimination of tariff and non-tariff barriers to
internal trade, coordination of rules of origin for customs purposes and trade facilitation
the completion of the ASEAN Single Window. This will provide for significant
facilitation for crossborder intra-ASEAN trade. The implementation of this part of the
AEC Blueprint has proven to be most successful in integrating markets and opening up
imports from other ASEAN countries except on a few sensitive goods (Kalloe and
The AEC free flow of services including the removal of restrictions on trade in services,
started with priority sectors such as air transport, e-ASEAN, healthcare, tourism,
logistics services and it is intended to lift all other restrictions for all sectors by the end
percent for all service sectors and include mutual recognition arrangements for
professional services such as architects, accountancy, surveying, medical and dental and
all others. The financial services sector remains a sensitive sector allowing members to
ensure orderly financial sector development goods (Kalloe and Zhao, 2014, p.5).
The AEC free flow of investment offers enhanced investment protection to all ASEAN
investors and their investments in other ASEAN countries, including an investor state
national treatment and most-favored nation treatment for all ASEAN investors when
The free flow of capital offers greater harmonization in capital markets standards in
ASEAN in the areas of offering rules for debt securities, disclosure requirements and
distribution rules and enhancing withholding tax structure (Kalloe and Zhao, 2014,
p.5).
The AEC free flow of skilled labor facilitates issuance of visa and employment passes
for ASEAN professionals. Apart from these five AEC freedoms, the AEC blueprint
rights, the aim for completion of the network of bilateral agreements on avoidance of
standard in trade policy and for the business operating environment. This pillar seeks to
address the following areas to enhance the region’s competitiveness to investors: Competition
Taxation, E-commerce (Hansakul, 2013, p.5). This AEC pillar has several behind-the-border
1.1.3.1 Competition Policy. Several initiatives have been undertaken, including the
and best practices at the international level, while the handbook provides basic
notions of substantive and procedural competition law applicable in ASEAN countries
although Singapore has significant interest in intellectual property (IP) protection for
its high tech and biomedical sectors, while other ASEAN countries are concerned
with the protection of their traditional and indigenous cultures, medicines, and plants.
competitive economic region. Hence in August 2011, ASEAN endorsed its IPR Action
Transportation and IT infrastructure are essential for the movement of goods, capital,
labor, people, and ideas among ASEAN countries. The Brunei Action Plan adopted in
realization of AEC as well as new priorities under the Master Plan on ASEAN
Connectivity. In 2010 the Master Plan on ASEAN Connectivity was adopted, with an
estimated $60 billion annual infrastructure investment needed for the 2010–2020
period. The ASEAN Infrastructure Fund commenced operation in May 2012 (Chia,
2013).
The 19th ASEAN Summit in November 2011 endorsed the ASEAN Framework on Equitable
Economic Development (EED) as a new initiative.The AEC Blueprint lists only two
measures: SME (small or medium-sized enterprise) development targeted to narrow intra-
country development gaps; and the Initiative for ASEAN Integration (IAI) targeted at
narrowing the development gap between the ASEAN6 and CLMV (Chia, 2013, p.23).
MNCs and large state-owned enterprises (SOEs) and fostering local entrepreneurship,
including limited access to finance and technology, severe competition from SOEs
and MNCs as well as SMEs from the PRC, Japan, and the Republic of Korea, weak
entrepreneurial and management skills, and difficulties in coping with AEC market
standards. ASEAN endorsed the Strategic Action Plan for the ASEAN SME
provides strategic policy input on SME development to the ministers and guidance on
high priority matters to the ASEAN SME Working Group. Work started on the
Conceptual Framework for Regional SME Development Fund (Chia, 2013, p.23).
1.1.4.2 Initiative for ASEAN Integration (IAI). The IAI serves as a platform for
targeted at CLMV. The ASEAN6, ASEAN dialogue partners, and the Asian
Development Bank (ADB) are involved in the IAI programs. The new IAI Strategic
CLMV projects. The scope of priority areas has expanded beyond the initial focus on
infrastructure, human resource development, ICT, and capacity building for regional
integration to include tourism, poverty, and quality of life (Chia, 2013, p.23).
1.1.5 ASEAN Integration into the Global Economy
make ASEAN a more dynamic and stronger segment of the global supply chain and to ensure
that the internal market remains attractive for foreign investment, it is crucial for ASEAN to
look beyond the borders of AEC. External rules and regulations must increasingly be taken
The AEC Blueprint prescribes a “coherent” approach to external economic relations. ASEAN
has negotiated FTAs with its major regional dialogue partners: China, South Korea, Japan,
New Zealand and Australia (jointly), and India. These agreements vary in quality, with recent
agreements, particularly the FTA with New Zealand and Australia, offering greater levels of
market access, broader coverage, and more rigorous obligations (Wallar, 2014, p.22).
economic relations, including, but not limited to, its negotiations for free trade (FTAs)
and comprehensive economic partnership (CEPs) agreements. This shall be done by:
commitments; and (ii) Establish a system for enhanced coordination, and possibly
ASEAN shall also enhance participation in global supply networks by: (i) Continuing
technical assistance for the less developed ASEAN Member Countries to upgrade
In 2012 ASEAN launched negotiations for the Regional Comprehensive Economic Partnership
(RCEP). The RCEP is a Free Trade Agreement between ASEAN nations and ASEAN’s FTA
partners. The agreement is between 16 countries, which make up 45% of world population and
contribute a third of the world’s GDP in total (Ministry of Trade and Industry Singapore,
2012). Leaders announced that RCEP would be “a modern, comprehensive, high-quality and
mutually beneficial economic partnership agreement establishing an open trade and investment
environment in the region to facilitate the expansion of regional trade and investment and
contribute to global economic growth and development”. The RCEP is intended to cover trade
property, competition, dispute settlement, and other issues. Ministers ambitiously have targeted
RCEP is a significant step in the evolution of trade policy frameworks in East Asia over the
past decade. RCEP’s history reaches back some 10 years, starting as a study process for an
FTA between ASEAN, China, Japan, and Korea (known as ASEAN+3). This was
complemented from 2007 with a parallel study process for an ASEAN+6 FTA, which included
the ASEAN+3 partners plus Australia, India, and New Zealand. ASEAN has been playing a
substantial role in developing FTAs in East Asia. The Common Effective Preferential Tariff
(CEPT) entered into force in 1993 and was replaced by the ASEAN Trade in Goods Agreement
(ATIGA) in 2010. The development of FTA networks with ASEAN’s Dialogue Partners has
been an integral part in the ASEAN Economic Community (AEC) design (Pillar 4 in the AEC
Blueprint). As a result, five ASEAN+1 FTAs have come into force, namely the ASEAN-
Australia-New Zealand FTA (AANZFTA), the ASEAN-China FTA (ACFTA), the ASEAN-
India FTA (AIFTA), the ASEAN-Japan Comprehensive Economic Partnership (AJCEP) and
ERIA forecasts that the RCEP will produce more economic growth for all ASEAN member
states than the current network of FTAs. The RCEP could also be used to streamline and
harmonize provisions in the existing network of ASEAN+ FTAs and allow ASEAN to press for
more rigorous rules and broader coverage. Despite the promise of the RCEP, however, progress
and enthusiasm are difficult to detect after four negotiating sessions (Wallar, 2014, p.22).
RCEP negotiations will be guided by the following principles: (i) The RCEP will be
consistent with the WTO, including GATT Article XXIV and GATS Article V. (ii) The RCEP
will have broader and deeper engagement with significant improvements over the existing
ASEAN+1 FTAs, while recognizing the individual and diverse circumstances of the
participating countries. (iii) The RCEP will include provisions to facilitate trade and
investment and to enhance transparency in trade and investment relations between the
and regional supply chains. (iv) Taking into consideration the different levels of development
of the participating countries, the RCEP will include appropriate forms of flexibility including
provision for special and differential treatment, plus additional flexibility to the least-developed
ASEAN Member States, consistent with the existing ASEAN+1 FTAs, as applicable. (v) The
ASEAN+1 FTAs and the bilateral/plurilateral FTAs between and among participating countries
will continue to exist and no provision in the RCEP agreement will detract from the terms and
conditions in these bilateral/plurilateral FTAs between and among the participating countries.
(vi) Any ASEAN FTA Partner that did not participate in the RCEP negotiations at the outset
would be allowed to join the negotiations, subject to terms and conditions that would be agreed
with all other participating countries. The RCEP agreement will also have an open accession
clause to enable the participation of any ASEAN FTA partner that did not participate in the
RCEP negotiations and any other external economic partners after the completion of the RCEP
negotiations. (vii) Provisions for technical assistance and capacity building may be made
available, building upon the ASEAN+1 FTAs, to the developing and least-developed countries
participating in the RCEP to enable all parties to fully participate in the negotiations,
implement obligations under the RCEP and enjoy the benefits from the RCEP. (viii) The
negotiations on trade in goods, trade in services, investment and other areas will be conducted
China’s strategy for ASEAN/Southeast Asian region differed significantly before and after
the cold war. China’s Open Door Policy was replaced by the Good Neighboor Policy
regarding the Southeast Asian diplomacy during the later cold war period (Chen, 2000,
p.172, Muni, 2012, p. 16 as stated in Tai &Soong, 2014, p. 25). Both Open Door Policy and
Good Neighboor Policy became paramount turning points for improvement of China-ASEAN
member countries relation. According to Tsai, Hung and Liu (2011), China’s Good Neighbor
Southeast Asia. During the Asian Crisis, the nations of Southeast Asia found themselves with
their currencies depreciated, unlike China’s economy which was relatively untouched. The
leadership and its commitment to Southeast Asia (Ba, 2003, p.634). Through the policy,
China became the stabilizing force in Asian financial crisis by reducing and eliminating
pressure to depreciate or devalue currencies in Southeast Asia (Tai & Soong, 2014, p. 26).
China, then, gradually attained prominent position and influence in the regional economy,
and as a driver of social stability by providing Southeast Asian countries with financial
support to survive the crisis, which facilitated further development of its relationship with
Southeast Asian countries (Shiau, 2011, as stated in Tai & Soong, 2014, p. 26). China
a way to reduce concerns and establish exchanges in Southeast Asia (Tai & Soong, 2014, p.
26). According to Chen (2007), by reducing tensions and animosity between China and
ASEAN, these policies have contributed to the ongoing progress on economic and trade
Three major strategies under the Good Neighbor Policy was devised by China to achieve
bilateral trade development in Southeast Asia, (1) establishing the China-ASEAN Free-Trade
Area (CAFTA); (2) expanding border trade; and (3) developing a trade network comprising
Chinese businesses, businesspeople, and cultural exchanges (Tai & Soong, 2014). China’s
foreign policy is now focus on the establishment of long standing and stable relations with
2.1 ACFTA
ASEAN- China Free Trade Area (ACFTA) took effect on January 1, 2010, alongside
with other four FTAs of ASEAN with Australia and New Zealand, Japan, Republic of
Korea, and India, respectively. The ACFTA aims to pursue progressive elimination of
There are three clear components highlighted in the ACFTA. These are trade in
goods, trade in services and trade in investments. However, aside from the three
stated, both China and ASEAN agreed to strengthen their cooperation in areas of
development, investment, and the development of the Mekong River basin and will be
On July 20, 2005, the Agreement on Trade in Goods was put into force by
ASEAN, which specified that all parties are committed to reduce or eliminate
the Agreement, the 6 original ASEAN members and China have to eliminate
reduce and/or eliminate tariffs under five different schedules and products
were organized based on these schedules, the Early Harvest Programme (EHP,
Normal Track , which is further divided into Normal Track 1 and Normal
Track 2; and lastly the Sensitive Track which is subdivided into Sensitive List
n.d.)
The earliest part of the elimination of tariffs on goods was put forward through
categories as follows, live animals, meat and edible meat offal, fish, dairy
produce, other animals products, live tress, edible vegetables, edible fruits and
the ASEAN
The second provision is the tariff reduction for Normal Track products.
eliminate their tariffs for tariff lines placed in the Normal Track not later than
1 January 2010 and flexibility is be given to have tariffs on some tariff lines
( not exceeding 150 lines) eliminated note later than 1 January 2011 (ASEAN-
China Free Trade Agreement: A primer, n.d., p.12 ). Cambodia, Laos PDR,
Myanmar and Viet Nam shall eliminate “ all its tariffs for tariff lines placed in
the Normal Track not later than 1 January 2015, with flexibility to have tariffs
on some tariff lines, not exceeding 250 tariff lines, eliminated not later than 1
).
In the Sensitive Track, ASEAN 6 and China are allowed to place 400 tariff
lines at the HS digit level and 10% of the total import value based on 2001
trade statistics in the Sensitive Track (ST); for Cambodia, Lao PDR and
Myanmar, not more than 40% of the total number of tariff lines (ASEAN-
http://www.mtib.gov.my/repository/woodspot/website_acfta_
23july09.pdf) The Duties for the Sensitive list shall be reduced to 20% by
2012 and to 0-5% by 2018 while duties the Highly Sensitive List shall be
industry, 2012).
Table 3. ASEANChina Tariff Reduction and Elimination Timeframe
Ye Tariff Rate Tariff items Participating
ar or products Countries
2.1.2 Trade in Services
Trade in Services, 2007). The agreement also “takes into account that
special and differential treatment shall be given to Cambodia, Lao PDR,
Myanmar, and Vietnam, to which would allow these countries to open fewer
A primer, n.d., p.14 ). To achieve the objectives of this agreement successfully, the
plan was divided into package commitments. Higher market access commitment of
the Trade in Services Agreement are contained in the first package specific schedule
statement of the agreement, ‘it is expected that trade in services in the region
would expand and grow in scale through the four modes of service delivery,
Media Statement, n.d.). To further strengthen the cooperation and the expansion of
trade relations, ASEAN and China signed the ASEAN-China Summit the Protocol
trade and services and the countries involved go beyond those they have
The third agreement under the ACFTA is the Investment Agreement which
Through this agreement, the ASEAN member countries will be given the
ASEAN and China, thus making the small economies of Cambodia, Laos
PDR, Myanmar and Viet Nam as active and competitive actors in ASEAN-
The second strategy of China’s Good Neighbour Policy is the expansion of border
trade. ASEAN countries which share border with China are Cambodia, Myanmar
(Burma), Laos and Vietnam. These countries were small-scale and technologically
backward, and unable to take advantage of their proximity to China thus there was
only little trade between them and China (Tai & Soong, 2014, p. 30). According to
Xie and Zhu, this resulted to China having more trade with faraway countries than
with its nearest neighbours (2012). China’s primary reason for putting forward border
trade was to promote local development through shared economic benefits generated
by trade.
China had both internal and external strategy for promoting border trade. The internal
strategy, is to increase the border trade with ASEAN members. The internal strategy
that utilized the capacity of the development of eastern coastal areas to further the
economic and social development of the western China ( Tai & Soong, 2014). Under
Guizhou were transport hub for adjacent ASEAN countries, making the south-western
border the transfer station, facilitating the trade development in Vietnam, Laos and
Myanmar ( Tai & Soong, 2014, p. 31; Zhou, 2006). On the other hand, the external
in Southeast Asia are control by the networks established by ‘overseas Chinese’. The
rising important role of China in the global economy paved way for opportunities
provided by private economic ties and China’s expanding market prompted Southeast
Asian increase their economic interactions with China (Zheng and Huang, 2009, as
stated in Tai and Soong, 2014). On the other hand, Chinese immigrants have
integrated themselves in Southeast Asian society while maintain close ties with China,
China-ASEAN relations.
The bilateral trade between China and ASEAN has improved greatly. The growth has
been especially rapid since 2001 when China joined the WTO and the ACFTA talks
were initiated. By 2008, China became ASEAN’s third largest trading partner and
ASEAN China’s fourth largest (Tong & Chong, 2010). Since 2011, China emerged
as ASEAN’S biggest trade partner with China’s share increased from 4.3% in 2000 to
2014)
(Table from: asean.org (2014), External Trade Statistics. Retrieved date: March 31, 2014)
Table 7. Top ten ASEAN Trade Partner Countries/Region, 2013 (data as of December
2014)
(Table from: asean.org (2014), External Trade Statistics. Retrieved date: March 31, 2014)
ASEAN member countries on both export and import trading, with 12% and 16%
from the two tables, China will be the number one export market and import origin for
ASEAN.
Table 8. China’s Import and Exports with Major Trade Partners, 2011-2012 (USD
Billion)
(Table from: Jiang J. and Cai L. ( 2013). Analysis of Trade Development between China and
Association of Southeast Asian Nations. Journal of Behavioural Economics, Finance,
Entrepreneurship, Accounting and Transport, 013, 1(1), 15-20. )
The table above shows the importance of ASEAN in China’s import and export as the
third major trading partner of China after European Union and United States which
are all Western countries. In Asia alone, ASEAN, is the major trading partner of China
According to Alter (2014), ASEAN-China relations are now reciprocal where China
is no longer an exporting competitor of the past decades. China and ASEAN have
become an important consumer market for both parties. Closer economic ties create
opportunities for both ASEAN and Chinese corporates. For Chinese corporates,
ASEAN benefits their country with natural resources, agriculture, electronics and
large consumer market and rapid developing infrastructure projects (Alter, 2014).
Due to the lower level of economy of ASEAN countries, their import and exports
demands greatly for raw products which will be manufactured by Chinese corporates
into finished products. The improved ties between China and ASEAN open up
Philippines, Vietnam and Cambodia, which have large labor force capable of
competitive low cost production for Chinese companies (Jiang & Cai, 2013).
ASEAN is highly dependent on Chinese markets for 18 commodity lines shown in the
table below. Almost 75% to 98.6% of these commodities went to China. Based from
the table, all of the commodities are mineral, raw resources and agricultural products
Figure 3. Exports to China with Highly Significant Share in ASEAN Total Export, 2013
(in percent)
( Figure 3 from: ASEAN Community in Figures(ACIF)-Special Edition 2014: A Closer Look
at Trade Performance and Dependency, and Investment. Retrieved from asean.org)
Figure 4. Import from China with Highly Significant Share in ASEAN Total Import,
2013 (in percent)
ASEAN is also highly dependent on imports from China for the following
commodities which is shown in the Figure 4, although all these commodities do not
demand for electronics, refined oil, and steel from China. In fact, in 2013, China
became the most important origin of petroleum oils and oils from
2014)
The large portion of China-ASEAN trade is the Intra-industry trade which is showed
when over half of China exports to ASEAN are machinery and mechanical
television image and sound recorders and reproducers, and parts of accessories of
China and ASEAN have been two of the major recipients of Foreign Direct
China and ASEAN countries which attract investors across the globe. They
may have seen as FDI rivals, however both ASEAN and China are important
(Table from: Jiang J. and Cai L. ( 2013). Analysis of Trade Development between China and
Association of Southeast Asian Nations. Journal of Behavioural Economics, Finance,
Entrepreneurship, Accounting and Transport, 013, 1(1), 15-20. )
operation and Development), some reports and observations suggest that the
(Table from : asean.org, Foreign Direct Investment Statistics- 2014. Retrieved date: March
31, 2014)
European Union (EU) and Japan continue to be the top sources of FDI to ASEAN.
The European Union contributed 22.4 percent share of the total FDI sources
followed by Japan with almost 17 percent and United States with 7.2 percent share.
It is important to observe that US FDI to the region has relatively decreased in 2013,
wherein China with 7.1 percent share of the total 2013 FDI outranked US with only
3.1 percent. China came after EU and Japan as the top sources of FDI in 2013.
China and ASEAN countries are becoming economically interdependent due to the
China also provided them with implicit security. The People’s Republic of China
projects in these countries too, which rely greatly upon Chinese technology,
materials, equipment, and technical expertise, things which they lacked. China also
facilities to Viet Nam; and also finance mining, agriculture and energy in the
http://asia.nikkei.com/Business/Executive-Lounge/Chinese-
investment-fund-aims-to-spread-wealth-sustainability-in-Asean).
target of the CAF is investing $10 billion in ASEAN and more than
30% of the initial spending has gone to Cambodia, Myanmar, Laos and
iron ore mine in Malaysia in 2012. A year after they invest in the
2. DISCUSSIONS
ASEAN has increasingly become an important player in the regional and global economy,
which could be attributed to the region’s bold move to establish the ASEAN Economic
Community in 2015. ASEAN is now a hub of 4 FTA and 1 CEP. In addition, ASEAN has
extended its regional economic cooperation to East Asia through the creation of ASEAN+3
which involves three top countries in East Asia - China, Japan, and South Korea. It was
initially formed as an informal measure to tackle the financial crisis but soon evolved into an
n.d., p.9). This framework of ASEAN+3 has been mutually beneficial for all states involved
and proved a relatively successful driving force for economic integration in the region mainly
Comprehensive Economic Partnership (RCEP) framework in November 2011. This will join
its ten members with six nations — Australia, China, India, Japan, Korea and New Zealand
— that are currently enjoying five separate FTAs with ASEAN as a whole. It is noticeable
that in all the external cooperations that ASEAN pursued, China is a recurring name. Indeed,
ASEAN’s Free Trade Agreement with China is one of the most successful agreements it has
ever had. It was during the ASEAN+3 Summit in November 2000 when China proposed the
pillar to economic integration between ASEAN and China, promoting free trans-border trade
and investment. According to Xinhua news agency, China has already become the largest
trading partner of ASEAN while ASEAN is China’s third largest trading partner. As ASEAN
Secretary General Rodolfo stated, “ASEAN sees China’s surging economy as both a
market and an investment provider and destination” (Xiao, 2009, as states in Hussain, n.d.,
p.16). A closer economic integration between China and ASEAN would bring about currency
stability in the region and provide a market for ASEAN export commodities (Hussain, n.d.,
p.16). For ASEAN, China’s booming economy together with the rising economies of India
and to some extent Japan can bring development to the poorer member states of ASEAN.
China’s huge economy needs a lot of natural resources which are supplied by the resource-
rich but economically backward ASEAN countries like Laos, Cambodia and Vietnam who in
turn makes economic gains through this demand-supply chain (Hussain, n.d., p.16); while
the smaller and lesser developed ASEAN countries benefit from China’s surging market
which provides a sense of competition as well as a bigger opportunity for export related
growth, China benefits from the possibility of an economically stable Southeast Asia for its
own development and to enhance its status as a superpower in the region. The Association of
Southeast Asian Nations has long established its shared vision of a region that is “outward
looking, living in peace, stability and prosperity, bonded together in partnership in dynamic
development and in a community of caring societies” (ASEAN Secretariat, 2011). The 21st
Century has witnessed the phenomenal rise of China, both economically and militarily, as the
most strategic actor in the Asia-Pacific. As such, it is impossible for the ASEAN countries to
ignore the rise of China as a potential hegemon in the region. Moreover, realistically
speaking, the ASEAN has very little power to restrain or confront China in case of a serious
confrontation. As such, the viable course of action for ASEAN is to accommodate and have a
The second subtopic deals with the present foreign policy of China towards their negotiation
in ASEAN region. With emphasis on the economic side, the Good Neighbor policy main
with this, China has created three strategies to achieve these goals.
First, the establishment of Asean-China Free Trade Agreement (ACFTA), which facilitate the
reduction of trade barriers between China and ASEAN member countries, which has the end
goal of further elimination of all barriers by the end of 2018. Aside from the reduction of
tariffs, the ACFTA also include agreements to further develop trade in goods, service and
investments. Through ACFTA, ASEAN and China became bound to adhere to the terms,
conditions and goals of the agreement. Cooperation among signatories is required as a means
The ACFTA is the most important among all ASEAN FTAs, given the large population of
China and ASEAN, it creates a regional trade agreement which involves nearly 1.9 billion
people and also the third by trade volume (2008 data) after EU and the North American Free
Trade Area (Gradziuk, 2010). The reduction of trade barriers give ASEAN exporters more
access to the Chinese market than that enjoyed by exporters from countries with no FTA with
China. In addition, considering that China’s strength is manufacturing and industry, they
highly demand for raw materials, agricultural and intermediate goods, things that are
abundant in ASEAN region, thus creating opportunity for ASEAN countries to expand their
export market.
China’s strategy of expansion border trade mutually benefitted China and the poorest
members of ASEAN namely, Cambodia, Laos, Myanmar and Viet Nam. Increasing the trade
with theses countries, provided China an economic opportunity to solve the unbalanced
development of eastern and western China. Mutual benefits to ASEAN and China open up
At present, China’s burgeoning economy resulted to the rise of wealthy middle class which
relatively affected the costs of labor in China. According to Gradziuk (2010), the rising cost
of labor in China could boost China’s investment in the region- a trend that will benefit the
poorest ASEAN members, Cambodia, Myanmar and Laos which also offer low cost of man
power. Asec. Rodolfo of the DTI International mentioned that ASEAN countries are now
countries’ industry sector which is inspired by the growing competence of ASEAN in global
economy.
The third strategy of China is the establishment of trade networks among Chinese businesses,
people and culture. Chinese immigrants have founded extreme influence on the economic
development of ASEAN countries. According to Tai & Soong (2014), the networks
established by these overseas Chinese control mainly the trade operations in regions as well
as the domestic economic activities. As an addition to the ACFTA, this boost China’s
importance in the region in domestic trade and investments. However, ASEAN markets fear
the large inflow of the low cost, low quality products and investments coming from China,
will dominate the ASEAN market and somehow create competition rather than cooperation.
This situation is mainly seen in Southeast Asian countries of Indonesia, Myanmar, Malaysia,
Singapore, Thailand and the Philippines which have a large number of Chinese immigrants
(Young, n.d.). They have engaged since 1990’s in intense economic and trade interactions
with China through commercial networks. These Chinese immigrants not only influence the
place of origin in economic fields but has also brought their Chinese culture which is adopted
through time by the people of Southeast Asia. The maintenance of close ties of Chinese in
Southeast Asia to China and Chinese culture is also a factor that hasten the establishment of
ASEAN, for China is an important market and trading partner for the pursuance of their
international and domestic economic interest. In addition to this, ASEAN is also an important
factor for China to maintain control over the Asian trade, considering the growing importance
of ASEAN in the Asian economy. According to Dr. Medalla from PIDS (2014), “China will
probably increase its policies towards strengthening economic ties with ASEAN given
ASEAN’s improved and more cohesive economy. With that said, China is actually claiming
ASEAN away from the United States as it holds back or somewhat neglects China’s policies
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