China-ASEAN economic relationship – Will it prosper going forward?

In a Bloomberg online news article, dated October 03, 2013, entitled, “China No Threat to Southeast Asia as Xi Seeks to Grow Trade”, it highlighted some of the major events surrounding the recent historic trip by China’s President, Xi Jiping, the world’s second largest economy, to Indonesia, one of Southeast Asia’s largest economies. Chinese President Xi made his first historical address to the Indonesian Parliament on Oct. 03, and was one of the first few foreign leaders to do so as China seeks to develop closer economic ties with ASEAN, which, according to figures cited by Bloomberg News, is expected to reach approximately USD 1.0 trillion by 2020.

How important is the economic relationship between China and ASEAN is something many market observers have been looking into. Since the days when imperial dynasties rule China, the country has been developing closer ties with Southeast Asia with the first naval expedition led by one of Ming Dynasty’s most recognisable figures, Admiral Cheng Ho, who  sailed through Southeast Asia during the early 15th-16th century AD in search for trade, developed foreign diplomatic relationships with other countries, etc. This is one of the testaments of the historical economic ties being recorded between Southeast Asia and China, which dates back to several centuries ago.

Fast forward to the 21st century, the Chinese economy has been on the growth trajectory, with expectations of a 7.5 percent annualised GDP growth by end of 2013, based on the official estimates. Although, the Chinese economy has slowed down tremendously from the previous 9.0 to 10.0 percent growth rates, it continues to be an economic powerhouse that stands out among other developed nations. ASEAN is also emerging as one the region’s most dynamic economies which has come out stronger following the aftermath of the Asian Financial Crisis (1997-1998), events such as the SARS flu pandemic in 2003 where several Southeast Asian economies were badly hit by the crisis due to potential health hazards caused by the unknown spreading of the flu virus, resulting in regional tourism grinding to a halt , and the Global Financial Crisis (GFC) from 2008 to 2009 where ASEAN was also affected by the slowdown in global trade growth. Over the years through these various crises, ASEAN economies have pulled through with much stronger current accounts, and stable governments, although Myanmar, a fellow ASEAN member, was then functioning as a military junta, but has now transitioned to a civilian government led by President Thein Sein.

Given the recent warming of ties between China and ASEAN, it is worth looking into some of the significant takeaways from President Xi’s speech to the Indonesian Parliament as it forms a blueprint for cementing closer relationship between China and the Group. In his speech, President Xi tried to ease some of the concerns over its territorial claims to the South China Sea by reassuring leaders that China will strive towards abandoning its cold war mentality and work towards fostering close relationships with other claimants, including the Philippines, and Vietnam, which have in the past, vigorously defended their respective territorial rights in the South China East, and in recent months, were featured quite prominently in the press stating their official claims. The Chinese President was quite open in dealing with the various territorial claims, and President Xi, during his Oct. 03 speech, has pledged to work towards a settlement of the various disputes through the active participation in the creation of new code of conduct of waters, which contains some of the world’s busiest shipping lanes.

However, some naysayers have expressed some scepticism over President Xi’s speech, including a comment by Mr. Keith Loveard, head of risk analysis at Jarkata-based security company Concord Consulting, who was quoted by Bloomberg News as saying that, “Indonesians will take his comments on South China Sea with a large dose of salt.” “Actions speak louder than words and China’s recent actions in the area make it clear it tends to brook no disagreements with its claims.’’ President Xi tried to reassure the sceptics indicating that China will work towards a peaceful resolution to the territorial claims and urged claimants who are part of ASEAN to always adhere to peaceful means to resolve this issue. President Xi’s remarks did not directly point towards the two nations, Philippines and Vietnam, who are members of ASEAN, but he will like to strive towards developing closer ties with ASEAN on the whole. During President Xi’s two-day trip to Indonesia, Indonesia Industry Minister M.S. Hidayat was quoted by Bloomberg News that China was due to close agreements to invest in 21 projects in Indonesia worth a total of approximately USD 28.2 billion, and in addition to the various trade agreements signed between both countries, China has proposed the setting up of an Asian Infrastructure investment bank.

With so much focus on Chinese President Xi’s historical speech on Oct. 03 to the Indonesian Parliament, my thoughts on the significance of the President Xi’s pledge towards developing closer ties with ASEAN are both scepticism and optimism. I believe that China should be more action-oriented in trying to develop closer ties with ASEAN, rather than making a grand speech about it, as there are many misconceptions among Southeast Asian countries over China’s territorial ambitions as the country seeks to expand its influence to counter the potential assertion of influence by the United States in Asia-Pacific region. I believe that China needs to do much more, especially given the recent comments made by President Xi in developing closer ties with ASEAN in order to soothe any concerns over its territorial ambitions. On the optimism side of President Xi’s speech, I believe that there are opportunities for ASEAN and China to expand much greater economic co-operation through free trade agreements which will likely bring about increased trade flows among the various economies representing ASEAN and China. It could be a win-win situation for both China and ASEAN as both countries embark on their respective growth plans. China is a huge market for many ASEAN businessmen to tap into, and any free trade agreements, or moves to enhance greater economic co-operation should be seen as welcoming, and benefits all parties from both sides.

About Hock Meng Tay - Chief Editor, Asia-Pacific Region

Hock Meng Tay, CAIA has written 181 post in this blog.

Chief Editor, Asia-Pacific Region Hock Meng Tay is a CAIA holder and is currently taking CFA qualification. He has over 10 years of experience working as research associate in several investment companies.He is an expert in financial analysis and has published research reports in his current role. He obtained his Masters of Business Administration in Integrated Management and Masters of Arts in Economics while serving his internship in Starsource Inc

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