KEYNOTE ADDRESS
BY H.E. ONG KENG YONG
SECRETARY-GENERAL OF ASEAN
THE CHINESE BUSINESS LEADERS SUMMIT
GLOBAL ENTREPOLIS @ SINGAPORE 2004
SINGAPORE, 11 OCTOBER 2004
PROSPERING ASEAN-CHINA RELATIONS
1. First of all, I would like to thank the organizers for inviting me to this event. Indeed, it gives me great pleasure to address the distinguished participants of this forum.
2. This event is dedicated to the Chinese business community. I would like to take this opportunity to congratulate Chinese enterprises and entrepreneurs for making such an impact in China, the region and the world with their competitiveness, resilience and vision. Today, they are major players in mercantile and industrial activities almost anywhere. More importantly, they will be a significant force in the global economy of the future.
3. Let me share my thoughts on what is happening in ASEAN and China economic relations and how the two sides can work more closely together in the economic field.
4. First, we should look at the bigger picture. Today, Asia is the fastest growing region in the world. Asia has some of the world’s most dynamic economies, including Viet Nam, India, and of course, China. The World Bank’s projection of Asia’s GDP growth is about 5.7% this year.
5. The most dramatic change in the last two decades is in China. Not only has China sustained phenomenal rates of economic growth, it has been modernizing its economy and transforming the outlook of its people. China is now connected with the Internet and through mobile phones, aware of what is happening internationally, and determined to get ahead with its economic progress. It is competing aggressively for investments by MNCs, and capturing a larger share of FDI flows. Investors are attracted by the low cost of factor inputs in China, a workforce that is adaptable and eager to learn, and access to the huge Chinese market.
6. While it is easy and tempting to see China’s rise as an economic threat, it would also be a mistake to do so. A rapidly growing China is the engine which powers regional economies and the global economic train. ASEAN member countries will benefit greatly, provided they adapt fast enough to ride on the train. Indeed, increased trade with China was one reason why many of the crisis-hit economies in ASEAN recovered as quickly as they did.
7. China’s exports are growing rapidly, but so are its imports. China is a big importer of resource-based commodities, intermediate goods and finished manufactured products from the rest of the world. Trade between China and the rest of the world more than tripled over the period from 1990 to 2003. China is already the largest destination for exports from ASEAN, the Republic of Korea and Taiwan, and the second largest destination for Japan’s exports.
Economic Bonds
8. At the ASEAN-China Summit in Bali in 2003, Chinese Premier Wen Jiabao proposed that trade volume between ASEAN and China be increased to US$100 billion by 2005. I believe this target is within reach. There is a very strong momentum generated by various economic initiatives agreed to by ASEAN and China, particularly the Framework Agreement on Comprehensive Economic Cooperation, which launched the process towards an ASEAN-China Free Trade Area (ACFTA).
9. This Agreement was the first of its kind in East Asia. ASEAN and China have been ambitious in their joint endeavour. Together, the two sides would create the world’s largest FTA with more than 1.7 billion consumers, and a combined gross domestic product (GDP) of more than US$ 2 trillion. The opportunities for economies of scale and scope would be enormous for ASEAN and Chinese commerce and industry.
Ladies and Gentlemen,
10. Let me quickly update you on a few key aspects of the existing ASEAN-China economic relations:
(i) Trade
11. There has been a steady rise in the relative share of ASEAN in China’s global merchandise trade: from 5.8% in 1991 to 8.8% in 2003. ASEAN has now become the fifth largest trade partner of China (after Japan, the United States, the European Union, and the Special Administrative Region (SAR) of Hong Kong). On the other hand, China has also become an important trade partner of ASEAN, occupying the fifth position in 2003. The share of China in ASEAN’s trade with the world expanded from 2.3 % in 1991 to 7% in 2003. Last year, ASEAN-China trade amounted to nearly US$79 billion.
12. The composition of ASEAN-China trade has evolved considerably. Resource-based commodities, especially hydrocarbons, wood, and fat and oil products, accounted for 22% of the total export value of ASEAN to China in 2003. The relative share of manufactured goods – electrical machinery and computer equipment especially – went up 40.6% in the same year. Meanwhile, ASEAN imports from China have been comparatively more diversified. The top five imports, namely electrical machinery, computer equipment, hydrocarbons, cotton and tobacco, accounted for almost 60% of the total import value in 2003.
(ii) Foreign Direct Investment (FDI) Flows
13. Both ASEAN and China have invested resources overseas. FDI from China in other countries averaged US$ 2.1 billion per year during 1989-1994; it rose to US$ 3 billion annually over 1998-2002. Outward FDI from the 5 ASEAN member countries (namely Indonesia, Malaysia, the Philippines, Singapore and Thailand) averaged US$ 3.7 billion a year during 1989-1994; it reached US$ 5.6 billion in 2002.
14. China has been a destination for FDI from ASEAN member countries - directly or via the SAR of Hong Kong. Likewise, several ASEAN member countries have also been the host to FDI flows from China, both directly and via third-party ventures. For example, China’s FDI in ASEAN amounted to about US$ 136.7 million in 1995 but fell to US$ 78 million in 1999. In 2003, this FDI amount dropped to US$ 33.4 million. On the whole, the flow of Chinese investments into ASEAN has averaged US$ 108 million a year during 1995-2003. In relative terms, the Chinese investments accounted for less than 0.5% of the total inward FDI in ASEAN per year (except for 1998-1999 when the annual percentage averaged 1.3%). The 5 ASEAN member countries of Indonesia, Malaysia, the Philippines, Singapore and Thailand are collectively a net investor in China.
(iii) Potential and Opportunities
15. The picture of ASEAN-China economic relations reflects the vast potential from joint efforts to reinforce the economic foundation. Several favourable factors are coalescing to advance this endeavour.
16. At the broad level, China is a huge economy. What is more, China has been the fastest growing economy in the world for over a decade. Even during the economic crisis and slowdown of the late 1990s, GDP in China continued to expand by between 7 to 10% a year. The income per head of population in China went up from US$ 350 in 1991 to US$1087 in 2003. This income level is expected to double every 7 to 8 years with the maintenance of China’s solid economic performance.
17. In general, as income grows and the standard of living rises, so will domestic demand for a variety of goods and services. These include typically various kinds of imported goods as well as services like outward travel for tourism, education and training. ASEAN is well-positioned to supply competitively some of such goods and services required by the Chinese people. The high economic growth in China also means more financial capability to invest overseas. ASEAN, as a dynamic and open economic area with rich natural and human resources, will be an attractive opportunity for the Chinese. In fact, ASEAN would like to see more Chinese investments in more sectors of ASEAN’s economies.
(iv) WTO Membership
18. China’s membership in the WTO is seen as having positive spillover effects on ASEAN-China trade and investment flows. First, China has agreed to a very comprehensive package of market liberalization measures, with five years to carry out its full commitments. The liberalization process will enhance China’s economic efficiency, industrial modernization, and integration with the global economy.
19. Secondly, there will be greater market access for ASEAN’s exports to China. Trade barriers on ASEAN exports, for example, will be reduced faster than the average reduction – with tariffs on ASEAN products to be cut to below 50% within five years. It is estimated that China’s demand for ASEAN imports would expand by 10% annually. Thus, the value of such imports is expected to reach US$ 36 billion in 2005, compared to US$ 22.2 billion in 2000. However, the actual increase could and may even be larger, given the faster rate of China’s imports of ASEAN products relative to China’s imports from all sources.
20. Resource-based commodities from ASEAN will continue to have a comparative advantage in China, especially hydrocarbons, semi- and processed agriculture, aquaculture and forestry items. But there are likely to be complementarities in electrical machinery and computer equipment, the main manufactured exports of Malaysia, the Philippines, Singapore and Thailand.
21. Thirdly, there will also be greater market access for China’s exports to ASEAN member countries. The sectors facing increased competition from China include ASEAN’s textiles and clothing industries plus labour-intensive manufacturing activities such as electronics assembly, footwear, toys and plastic products. In addition, China is expected to enjoy a competitive advantage in a wide range of manufactures. These include building materials, machinery and electrical appliances, optical instruments, clocks and watches, metal products and chemicals. In fact, such manufactured goods accounted for about 87% of all ASEAN imports from China. They have also expanded faster than ASEAN import of similar products from all other sources during 1993-2003. China will likely enjoy a comparative advantage over ASEAN in the United States, the European Union and Japan – by far the most important export markets for both ASEAN and China. For example, China has been and will remain the dominant supplier of textiles and clothing in Japan.
The Challenges
22. Generally, it appears that both ASEAN and China will have to manage effectively and in a long-term manner, the many challenges from trade liberalization as well as their respective enhanced competitiveness in third-country markets. The promotion and facilitation of cross-border cooperation, inter-firm networking, and mutual dialogue is among the key requirements for the effective management and mitigation of such challenges. It is also essential to ensure smoother integration over time. In this respect, the ACFTA, I mentioned earlier, is both a mechanism for expanding trade in goods and services as well as a safety valve for managing the rigours and challenges of economic competition.
23. The establishment of ACFTA by 2010 looks set to enhance economic cooperation and integration between ASEAN and China. The market and purchasing power are very much enlarged by the FTA. Preliminary estimates suggest that the ASEAN-China FTA would raise ASEAN’s exports to China by 48% and China’s export to ASEAN, by 51%. At the same time, the combined GDP of ASEAN would expand by at least US$1 billion while that of China, by some US$ 2.3 billion (note: assuming a 6% annual growth rate in ASEAN and 7% in China).
24. ACFTA would be non-exclusive, leaving ASEAN and China free to pursue additional economic integration and cooperation initiatives with other like-minded partners. The FTA web is binding Asian economies together. Separately, individual ASEAN economies, such as Singapore and Thailand, have already forged FTAs with China.
25. The removal of trade and investment barriers will certainly lower transaction costs, raise economic efficiency, upgrade product quality, increase economies of scale and scope. All these will help improve external competitiveness in third-market trade. The net trade creation effects could be substantial, and so are the bigger flows of trade-related investments.
26. One of the biggest challenges in liberalizing trade and investment relationships between ASEAN and China is in the management of change. This applies especially in the mutual restructuring of sectors, industries and enterprises; in technology and quality upgrading; in training and re-training of human resources; in applying new modes of enterprise organization and innovative management practices and so on.
27. ASEAN member countries would have gained much experience in practice through the accelerated implementation of their own ASEAN Free Trade Area (AFTA), and through such operational schemes as ASEAN Industrial Co-operation (AICO) and ASEAN Investment Area (AIA). On the other hand, China has also acquired considerable experience in its management of rapid economic expansion and accession to the WTO. China’s size and vast market give it a leverage, which ASEAN will never have. Through mutual give-and-take and application of the principle of “prosper thy neighbour”, ASEAN and China can achieve a strong and enduring economic partnership of mutual growth and prosperity.
Conclusion
28. By way of conclusion, allow me to reiterate some of the main points. One, there are great potential and opportunities for closer trade and investment relationships between ASEAN and China. Two, such potential and opportunities can be commercialized with good returns, particularly in terms of mutual income growth, poverty alleviation and social advancement. Three, the whole process can be accelerated through increased cooperation in mutual liberalization of trade and investment; in the mutual promotion of cross-border linkages and partnerships; as well as in the mutual facilitation of the needed transformation, diversification and upgrading of enterprises and industries. Four, the ACFTA is an excellent device in helping the two sides achieve their respective goals.
29. At the strategic level, China is helping to shape Asia’s new economic structure. Through its desire to have harmonious, peaceful and secure ties with ASEAN, China has set the ball rolling. Japan, India, the Republic of Korea and Australia/New Zealand are now working on respective FTAs with ASEAN. Beyond economics, the establishment of ACFTA would enhance the sense of community within East Asia and lay the foundation for furthering wider regional economic cooperation and ensuring peace and stability. An integrated East Asia would be even more dynamic and competitive vis-à-vis the rest of the global economy.
30. Let me wish all of you a successful and fruitful forum.
Thank you.
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