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New era of China-Asean trade and investment ties ahead

China has embarked on a new phase of economic development. In the future, it will no longer rely on export might for economic growth and prosperity. Policy-makers have started on a course to turn China into a fully fledged economy based on domestic consumption, services and innovation. As a result, it has become one of the biggest trade and investment locations for Southeast Asia.

Asean continues to rise as an economic powerhouse with 600 million people and a combined gross domestic product of US$2.1 trillion (Bt67 trillion). As a region it will be one of world's fastest-growing consumer markets over the next two decades.

The Asean Economic Community will come into existence at the end of 2015, in effect creating one of the world's biggest single markets.

Chinese-Asean trade relations are essentially reciprocal in nature. No longer is China the same exporting competitor of past decades. China represents an important new consumer market for Asean, while Asean is growing in importance for China's manufacturing.

These growing ties open up numerous opportunities for many Asean countries such as Indonesia, the Philippines, Vietnam and Cambodia, which have large pools of labour and make for competitive low-cost production locations for Chinese companies.

Trade between China and the 10 member countries of Asean rose more than 10 per cent to $400 billion last year. It is expected that annual bilateral trade volume will boost to $1 trillion by 2020. Two-way investment is expected to reach $150 billion within the next eight years.

Within Asean, Malaysia, Singapore and Thailand lead the way and are considered the world's most burgeoning economies, even in their own right.

China has announced an emphasis on "balanced trade" strategies with Asean. Take Malaysia as an example; two-way trade with China reached a historical high of $94.8 billion last year. Both nations have announced plans to boost trade significantly through such measures as supporting industrial parks in each other's countries that has been forecast to increase two-way trade by 60 per cent to $160 billion by 2017.

The changing nature of Asia's economic generators is expected to support this "balanced trading" in the region. The promise of growth in middle-class consumerism to 1.75 billion people across Asia by 2020 is going to be a huge draw, and China is expected to be a direct beneficiary of this rising Asean consumerism.

The rapid rate of urbanisation, which is also accompanied by the rise of middle-class families in China, will also change consumer behaviour and lifestyles, stimulating the demand for imports of quality and luxury products and services that will benefit Asean countries.

Asean has surpassed Australia, the United States and Russia to become the fourth-largest destination for China's outward investment and is China's third-largest source of foreign direct investment. Last year, China's investment in Asean economies was $4.42 billion, up 52 per cent from 2011.

By the end of 2012, Singapore had become the destination where Chinese companies invested most, followed by Cambodia, Myanmar, Indonesia and Laos, according to the China-Asean Business Council.

In the coming decade, Beijing is expected to do its part to help deepen economic links and integration in Asean. China is focusing on increasing direct investment and building infrastructure in the region, especially roads and high-speed trains. According to the rail strategy, the lines start in Yunnan's capital Kunming and will connect Laos, Vietnam, Cambodia, Myanmar, Thailand, Malaysia and Singapore. China will rely on its geostrategic position linking its southern region overland with its Asean neighbours.

Closer economic ties between China and Asean will create more mutual opportunities for corporates in both geographies. Most Asean member countries already tap into the Chinese market and are exporting a variety of goods, materials and commodities ranging from agricultural goods and electronics to textiles.

For Chinese corporates, Asean offers a well-diversified mix of natural resources, agriculture, electronics, large consumer markets and rapidly developing infrastructure projects.

Indonesia has an abundance of natural resources and a need to expand its infrastructure in transportation. Malaysia has opportunities in large-scale infrastructure projects such as power plants, rail, and oil and gas. Thailand is an automobile-manufacturing hub and has significant opportunities in food, energy and communications.

Trade between the huge markets of China and Asean is expected to grow and the use of renminbi, or yuan, as an alternative trading currency will benefit businesses on both sides. Among the currencies in Asean, those of Indonesia, Malaysia, the Philippines, Singapore and Thailand tracked the yuan closer than the US dollar by a factor of 40 per cent.

Chinese banks are poised to widen the use of the yuan among the Asean countries by expanding the scope of currency convertibility and conducting offshore trials of the currency. Singapore is accounting for the third-largest amount of renminbi payments in Asia (excluding Hong Kong and mainland China), which recently doubled the swap agreement to 300 billion yuan. This highlights the increasing importance of the Asean region to the use of yuan - potentially giving the Southeast Asian city-state an advantage in renminbi offshore trade markets.

The past has seen China-Asean relations coloured by competition between these huge economic powers in the global economy. The expected growth in two-way trade and investment is set a new more positive tone to relations as these mighty regions become a fully fledged economic market of 1.9 billion people.

Bruce Alter is head of global trade and receivables finance, HSBC Bank (China).

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