China and ASEAN: Two complementary powers

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Tension is palpable in Beijing this week as China prepares for what – if all goes according to plan – will be only the country’s second institutionalised power change in almost a century. Amidst sweeping changes to take place when the 18th National Congress of the Communist Party of China convenes on Thursday, November 18, the most highly-anticipated will be the departure of President Hu Jintao and Premier Wen Jiabao after close to 10 years in power.

By Laura Noggle

Against a backdrop of growing economic uncertainty underpinned by rising labour and production costs, the changes underway not only mark the end of an era in Chinese politics but also raise important questions regarding China’s future as the world’s leading manufacturing power.

Currently regarded as the “world’s factory,” China’s manufacturing dominance is becoming increasingly undermined, however, by the rising fortunes of its smaller Southeast Asian neighbours. Some production bases have, in fact, already moved from China to the 10 member states of the Association of Southeast Asian Nations (ASEAN). In 2010, for example, Vietnam outstripped China as the largest producer of Nike shoes, and where big names go, others follow. Sportswear giant Adidas announced plans in July to close its only affiliated factory in Jiangsu province and to relocate it to Myanmar.

Factories are not the only thing moving south. The United Nations Conference on Trade and Development’s (UNCTAD) World Investment Prospects Report 2012 stated that foreign direct investment into Southeast Asia had increased 26 per cent annually, reaching $117 billion in 2011. This compares to a mere 8 per cent increase in FDI to China.

In outgoing Premier Wen Jiabao’s final press conference earlier this year, he expressed his concern over the delicate position in which China finds itself as it prepares for major political change in the midst of a precarious new economic environment.

“Reform in China has come to a critical stage,” he said. “Without successful political structural reform it is impossible for us to institute economic structural reform and the gains we have made in this area may be lost.”

Indeed, one of the key strategic directions for China’s future laid out by the World Bank and the Development Research Center for China’s State Council in the report, China 2030: Building a Modern, Harmonious, and Creative High-Income Society, includes seeking mutually beneficial relations with the world by connecting China’s structural reforms to the changing international economy.

While a shift in factories and FDI south into ASEAN is inevitable with rising land and labour costs in China, experts agree that China’s manufacturing industry still has a chance to remain dominant.

Chen Jiagui, former associate dean of the Chinese Academy of Social Sciences argues that “China has a higher-quality labour force due to the popularisation of compulsory education, making its labour incomparable to that of Southeast Asia.”

This, along with poor existing fundamental infrastructure in Southeast Asia, will encourage some enterprises to continue doing business in China.

It’s not all about competition, however. According to Su Po, vice minister of China’s Ministry of Industry and Information Technology, the economies of China and Southeast Asia are highly complementary, creating great potential for the manufacturing industries of both sides.

Luo Wen, dean of the China Center for Information Industry Development, agrees, asserting that the two-way flow of technology, human resources and natural resources between China and ASEAN will act as a new channel for cooperation.

Already there has been a 24 per cent surge in two-way trade between China and ASEAN, totaling $362.3 billion in value with Malaysia, Thailand and Singapore as China’s top three trade partners.

Thailand is especially attractive to Chinese investors because of its central location in ASEAN. Improvements to transport routes make it easily accessible, and student exchange programmes between China and Thailand have helped create greater communication.

April of this year saw an agreement made between China and Thailand to upgrade bilateral relations to a “comprehensive strategic cooperative partnership,” along with boosting ASEAN-China cooperation. Premier Wen even proposed expanding bilateral trade to $100 billion annually before 2015. In 2011, the two countries’ trade volume had already hit $64.7 billion and, according to Chinese customs statistics, China is both the largest export market and second-largest import source for Thailand.

Bangkok-based Chia Tai Group represents yet another example of the many international companies planning to redirect investment from China to ASEAN countries; as multi-product companies that offer everything from sportswear to electronics such as Haier take their business to countries like Thailand, there is no denying that the China-ASEAN Free Trade Area has made Southeast Asia an attractive location with benefits from the free trade terms in goods, service and investment.

At the recent 9th annual China-ASEAN Expo in September 2012, worries over the manufacturing shift gave way to a belief that China and ASEAN countries will cooperate more. While changes in the Chinese government are imminent, not all shifts are detrimental, and the delicate relationship of ASEAN and China will have an important impact on the stability of the Asia-Pacific region as a whole. As such, the key will be maintaining mutually beneficial trade policies for each side through ongoing economic integration, closer ties and clear communication.

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Reading Time: 3 minutes

Tension is palpable in Beijing this week as China prepares for what – if all goes according to plan – will be only the country’s second institutionalised power change in almost a century. Amidst sweeping changes to take place when the 18th National Congress of the Communist Party of China convenes on Thursday, November 18, the most highly-anticipated will be the departure of President Hu Jintao and Premier Wen Jiabao after close to 10 years in power.

Reading Time: 3 minutes

Tension is palpable in Beijing this week as China prepares for what – if all goes according to plan – will be only the country’s second institutionalised power change in almost a century. Amidst sweeping changes to take place when the 18th National Congress of the Communist Party of China convenes on Thursday, November 18, the most highly-anticipated will be the departure of President Hu Jintao and Premier Wen Jiabao after close to 10 years in power.

By Laura Noggle

Against a backdrop of growing economic uncertainty underpinned by rising labour and production costs, the changes underway not only mark the end of an era in Chinese politics but also raise important questions regarding China’s future as the world’s leading manufacturing power.

Currently regarded as the “world’s factory,” China’s manufacturing dominance is becoming increasingly undermined, however, by the rising fortunes of its smaller Southeast Asian neighbours. Some production bases have, in fact, already moved from China to the 10 member states of the Association of Southeast Asian Nations (ASEAN). In 2010, for example, Vietnam outstripped China as the largest producer of Nike shoes, and where big names go, others follow. Sportswear giant Adidas announced plans in July to close its only affiliated factory in Jiangsu province and to relocate it to Myanmar.

Factories are not the only thing moving south. The United Nations Conference on Trade and Development’s (UNCTAD) World Investment Prospects Report 2012 stated that foreign direct investment into Southeast Asia had increased 26 per cent annually, reaching $117 billion in 2011. This compares to a mere 8 per cent increase in FDI to China.

In outgoing Premier Wen Jiabao’s final press conference earlier this year, he expressed his concern over the delicate position in which China finds itself as it prepares for major political change in the midst of a precarious new economic environment.

“Reform in China has come to a critical stage,” he said. “Without successful political structural reform it is impossible for us to institute economic structural reform and the gains we have made in this area may be lost.”

Indeed, one of the key strategic directions for China’s future laid out by the World Bank and the Development Research Center for China’s State Council in the report, China 2030: Building a Modern, Harmonious, and Creative High-Income Society, includes seeking mutually beneficial relations with the world by connecting China’s structural reforms to the changing international economy.

While a shift in factories and FDI south into ASEAN is inevitable with rising land and labour costs in China, experts agree that China’s manufacturing industry still has a chance to remain dominant.

Chen Jiagui, former associate dean of the Chinese Academy of Social Sciences argues that “China has a higher-quality labour force due to the popularisation of compulsory education, making its labour incomparable to that of Southeast Asia.”

This, along with poor existing fundamental infrastructure in Southeast Asia, will encourage some enterprises to continue doing business in China.

It’s not all about competition, however. According to Su Po, vice minister of China’s Ministry of Industry and Information Technology, the economies of China and Southeast Asia are highly complementary, creating great potential for the manufacturing industries of both sides.

Luo Wen, dean of the China Center for Information Industry Development, agrees, asserting that the two-way flow of technology, human resources and natural resources between China and ASEAN will act as a new channel for cooperation.

Already there has been a 24 per cent surge in two-way trade between China and ASEAN, totaling $362.3 billion in value with Malaysia, Thailand and Singapore as China’s top three trade partners.

Thailand is especially attractive to Chinese investors because of its central location in ASEAN. Improvements to transport routes make it easily accessible, and student exchange programmes between China and Thailand have helped create greater communication.

April of this year saw an agreement made between China and Thailand to upgrade bilateral relations to a “comprehensive strategic cooperative partnership,” along with boosting ASEAN-China cooperation. Premier Wen even proposed expanding bilateral trade to $100 billion annually before 2015. In 2011, the two countries’ trade volume had already hit $64.7 billion and, according to Chinese customs statistics, China is both the largest export market and second-largest import source for Thailand.

Bangkok-based Chia Tai Group represents yet another example of the many international companies planning to redirect investment from China to ASEAN countries; as multi-product companies that offer everything from sportswear to electronics such as Haier take their business to countries like Thailand, there is no denying that the China-ASEAN Free Trade Area has made Southeast Asia an attractive location with benefits from the free trade terms in goods, service and investment.

At the recent 9th annual China-ASEAN Expo in September 2012, worries over the manufacturing shift gave way to a belief that China and ASEAN countries will cooperate more. While changes in the Chinese government are imminent, not all shifts are detrimental, and the delicate relationship of ASEAN and China will have an important impact on the stability of the Asia-Pacific region as a whole. As such, the key will be maintaining mutually beneficial trade policies for each side through ongoing economic integration, closer ties and clear communication.

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