In the last few months, the media has been full of discussions about whether China will maintain its growth this year.
I find the amount of attention amazing. Especially considering that the discussion is pretty much whether the country will be growing at 7.5 percent, 7.3 percent or about 7 percent. Few pundits aim for less than 7 percent for this one.
What is even more amazing is the fact that few countries in the world command similar growth rates, let alone for an extended period of time. And we are expecting a big country like China to do it.
This is as good as expecting the largest companies in the world to grow faster than the smaller ones. But in reality, small and medium enterprises are growing at faster rates than larger ones, as there are more potentials to explore.
Interestingly, China is trying hard to meet our expectations. The Chinese government has introduced various mechanisms to do that, including further engagement with ASEAN (Association of Southeast Asia Nations, consisting of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam).
China’s Relationship with ASEAN
It wasn’t long ago that China was a competitor to ASEAN.
China was presented as an alternative to ASEAN when competing for foreign direct investments coming from Europe and the United States.
Or at least during the time when China was deemed to be a cheap location for value add activities.
Since last year though, other than visiting their 14 neighbours (14 countries share the same border as China), Chinese leaders have been busy shaking hands with their counterparts from ASEAN.
While there may be occasional disputes, such as over the South China Sea between China and Vietnam, and the tensions over the missing Malaysia Airlines plane that involved 152 Chinese passengers, China has had good economic exchanges with many ASEAN countries.
For example, the bilateral trade between Indonesia and China is expected to reach US$80 billion in 2015. In 2005, that figure was US$17 billion.
Malaysia has been China’s largest ASEAN trading partner in recent years. Both countries are expecting a bilateral trade of US$170 billion in 2017. The figure in 2013 was US$106 billion.
Singapore’s bilateral trade with China was US$91 billion in 2013.
Despite a study suggesting that Singapore will be hit the worst among ASEAN countries, Singapore’s sovereign wealth fund Temasek Holdings increased its portfolio of investments in China.
China’s foreign direct investment in ASEAN has risen from US$968 million in 2007 to US$2.5 billion in 2008 to US$6.1 billion in 2012.
The rapid investments in ASEAN is a result of China viewing ASEAN as a growth option.
After all, many countries in ASEAN come with lower labour costs as compared to many cities in China.
Friends or Foes?
The ASEAN–China Free Trade Area (ACFTA) has been in place since 2010.
The trade between China and ASEAN will continue to pick up, considering that tariff reduction will take effect for the remaining of the ASEAN countries (Cambodia, Laos, Myanmar and Vietnam) in 2015.
ASEAN represents a significant space for China to sustain its growth, and also for Chinese companies to expand.
The ASEAN Economic Community (AEC) will be implemented in 2015. The AEC is an initiative to transform the region into an area with free movement of goods, services, investment, skilled labour, and a freer flow of capital.
How well the AEC will run from 2015 is unknown.
In particular, with the increased engagement of individual countries with China, it’s hard to tell if the AEC will result in much greater trade and investments among ASEAN countries.
If it does, will that mean China’s trade with ASEAN might slow down? If it doesn’t, are we judging that the AEC may not be that useful after all?
Either way, the fates of China’s growth and the AEC (or ASEAN’s ability to work as a team) are tied together.
For any country that has significant trade with these nations, or intend to do so, it will be a space worth watching.
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Professor Siah Hwee Ang holds the BNZ Chair in Business in Asia at Victoria University. He writes a regular column here focused on understanding the challenges and opportunities for New Zealand in our trade with China. You can contact him here
1 Comments
"I find the amount of attention amazing"
depends on where the attention is coming from.
a) I think the pundits are desperate for any story that is a good one, ie growth where the EU, Japan and USA are frankly looking like they are in a bad way.
b) The speculators/investors are looking for places to throw their cheap US dollars and get a return, plus as a) they are also desperate.
"Especially considering that the discussion is pretty much whether the country will be growing at 7.5 percent, 7.3 percent or about 7 percent. Few pundits aim for less than 7 percent for this one."
7% is still a doubling of China's economy every 10 years as opposed to every 7 years with 10%. What raises my eyebrows is the probable make believe in GDP. I dont think its genuine and also some extended family meanwhile have lost a lot of money in the chinese financal markets, so just what is the truth I wonder....no one should be losing heaps of $s if the economy really is this good.
regards
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