How ASEAN Benefits From China’s Growth
Updated: Nov 21, 2019
Source: South China Morning Post, Tom Plate
Written By: Pau Khua Mung
As China focus its attention to a capital-intensive, high labour-productivity manufacturing as well as services industries, it has been looking towards ASEAN to transfer its manufacturing processes. Given ASEAN’s close proximity with China, coupled with its low cost of labour , and the region’s abundance of natural resources, China has been open about her interest in ASEAN in recent years.
In my previous article, it was mentioned that for China to continue growing and not fall into a “middle income trap”, it was necessary for China to switch to a more consumer driven market. One that shifts its attention from a manufacturing-led growth model fuelled by low-cost labour to an innovation-led, higher-value-added model.  In accordance to this, we are already seeing increasing activities between China and ASEAN.
With regards to Outward Direct Investments (ODI) from China to ASEAN, the diagram shows a general upward trend between 2008 to 2016, which is particularly profound in the m  As such, these are signs that China is indeed switching to consumer driven market which leads to increased ODIs towards ASEAN.
Figure 1: ODIs of China into ASEAN
Relationship between China and ASEAN
In 1990, exports to China accounted for only 2% of ASEAN’s total exports, but by 2016, the value increased to more than 12%. Measured by share of GDP, most ASEAN countries saw their exports to China rose to high levels in 2016, especially Vietnam (18%), Malaysia (17%), Thailand (9%), Singapore (9%) and Lao PDR (9%).  The reason for this could be largely due to ASEAN markets opening up to the world over the years coupled with increasing FDIs into the region itself.
Moreover, China is also ASEAN largest trading partner, accounting for 15.2% of ASEAN trade as shown below. 
Figure 2: Infographic showing top trading partner for ASEAN
China seeks to find ways to sustain its economic growth amidst the on-going trade war tensions while being plagued with rising labour costs.  As such, it looks towards ASEAN to shift its manufacturing facilities. Seen below is the cost of having a manufacturing plant within the different countries in ASEAN.
In addition, the cost of labour in developing ASEAN countries such as Vietnam, Thailand and Myanmar are much lower as compared to China. This led to producers turning towards ASEAN for their manufacturing facilities due to lower cost of production while minimising dependence on China thus providing an opportunity for ASEAN to grow. This would also be a benefit to ASEAN as it implies the involvement of the transfer of knowledge and skills in the region from their Chinese counterparts. Recently, Nikkei reported that Apple has asked its suppliers to size-up the cost implications of shifting 15 to 30% of their production capacity from China to Southeast Asia with countries such as Vietnam, Indonesia and Malaysia being recommended as potential production sites. 
MORE OPTIMISM AHEAD
The formation of the ASEAN Economic Community (AEC) also indicates ASEAN’s willingness to work together that aims to make economic progress on a whole.  This, coupled with the Belt-Road Initiative (BRI) will increase China’s linkages with ASEAN through rising ODIs as mentioned earlier, it also means that there will be an improvement in the regions’ transportation network which will not only lead to increase trade linkages with China but as well as an increase in connectivity, in particularly the tourism industry . 
Already, we are seeing an increase in the number of Chinese tourists visiting ASEAN which indicates a positive relationship between China and the ASEAN region, despite the BRI still waiting to come into full effect.
Figure 6: Graph showing increase in Chinese Tourists in ASEAN 
WHAT ASEAN NEEDS TO DO
However, these progresses are still at their early stages and it will take a long time before it comes into full effect. Moreover, given the current trade-war crisis, ASEAN could still suffer from lower trade volumes coupled with lack of investors confidence due inadequate tech skills and proper infrastructure in the region. As such, it will be important for ASEAN to educate and develop its workforce with the latest skill sets and find a common ground with its trading partners. 
In conclusion, it is undeniable that ASEAN has benefitted from the growth of China as shown from the increase in ODIs as well as the amount of Chinese tourist in ASEAN. However, we also need to ask ourselves if the over-dependence on China for growth is beneficial for its developing counterparties as shown by the debt-trap faced by the port of Sri Lanka in recent years.  Lastly, the relationship between ASEAN and China is not always smooth sailing as seen from the South-China Sea dispute, as such , from a political standpoint, it is important to maintain good relationship with China as ASEAN seeks to grow.
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