Home NATION Opportunities and challenges of the China – ASEAN Silk Road

Opportunities and challenges of the China – ASEAN Silk Road

Opportunities and challenges of the China – ASEAN Silk Road
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By Charles F Moreira, Editor

The new normal today for Asia, including ASEAN countries, is uncertainty and unpredictability due to erratic presidents, tariff barriers, trade wars and so forth, and the New Silk Road offers a very significant alternative to overcome this new normal, Josephine Lee Mei Li, Head of Business Development, Insight Think Tank Sdn Bhd told the Malaysia – China Smart Silk Road Forum Cum Business Match & Meet 2018 at the Malaysia International Trade and Exhibition Centre on 17 August 2018.

The New Silk Road which underlies China’s One Belt, One Road initiative comprises over 65 countries across Asia, Africa and Europe, altogether with 4.4 billion people, contributes 39% of the world’s GDP and it involves coordination, infrastructure and trade between countries. The proposed 16 nation RCEP (Regional Comprehensive Economic Partnership) free trade agreement plays a very important role in the New Silk Road.

Formally launched at the ASEAN Summit in Cambodia in November 2012, the RCEP free trade agreement between member countries is scheduled and expected to be signed at the ASEAN Summit and Related Summit in Singapore in November 2018, thus becoming the world’s largest economic bloc.

The 16 RCEP members are Australia, Brunei, Cambodia, China, India, Indonesia, Japan, Laos, Malaysia, Myanmar, New Zealand, Philippines, South Korea, Thailand and Vietnam; comprising 3.5 billion population with a combined GDP of US$32.5 trillion. Between 30% to 32% of the world’s GDP and the combined GDP of China and Japan comprise over half of that.

In terms of trade, RCEP member countries contribute 29% of the world’s trade volume and 27% of total imports and altogether play a critical role in the world economy.

The analyst firm PricewaterhouseCoopers estimates that the combined GDP of RCEP countries will likely amount to nearly US$250 trillion in 2050, with China and India together accounting for 75% of that amount.

“ASEAN needs China, which is the largest trading partner with ASEAN, with trade amounting to US$514.8 billion (in 2017). China is the second largest economy in the world by GDP after the United States, though in purchasing power parity terms, China has overtaken the United States,” said Lee.

According to Xinhua, China-ASEAN trade in 2017 was up 13.4% over the previous year. China’s exports to ASEAN countries reached US$279.1 billion in 2017, up 9% year-on-year, whilst imports grew 20% year-on-year to US$235.7 billion.

China registered a trade surplus of US$43.4 billion with ASEAN countries, narrowing by 27.4% from 2016. Vietnam, Malaysia and Thailand were China’s top trading partners in the region in 2017. Vietnam was China’s biggest export destination while China imported more goods from Malaysia than other ASEAN countries.

“China has shifted towards a consumption-driven economy and the implication for ASEAN countries is that China expects to import US$8 trillion worth of of goods in the next five years, according to its Prime Minister last year and its Foreign Minister this year,” said Lee.

From China’s perspective, ASEAN countries are a good opportunity for China’s companies to explore business and investment opportunities, since ASEAN countries are relatively stable politically compared to other parts of the world.

At the 23rd ASEAN Summit in November 2013, ASEAN leaders decided to develop a Post-2015 vision – the ASEAN Community Vision 2025, to realise a politically cohesive, economically integrated, socially responsible, and a truly people-oriented, people-centred and rules-based ASEAN. According to Lee, this vision matches the Made in China 2025 strategic plan issued by Chinese Premier Li Keqiang and his cabinet in May 2015.

The objectives of Made in China 2025 include increasing the Chinese-domestic content of core materials to 40% by 2020 and 70% by 2025, with a focus on high-tech fields including Industry 4.0 and the pharmaceutical industry which are presently the purview of foreign companies.

“ASEAN has the seventh largest GDP in the world and the third largest in Asia. Its population is the third largest in the world, with about 50% being young people. ASEAN’s combined GDP is worth US$2.5 trillion, with exports accounting for 23% of the world’s total and imports accounting for 25%, which is why the world is eyeing the development of ASEAN,” said Lee.

The 12th East Asia Summit (EAS) in Manila, Philippines on 14 November 2017 in Manila was attended by the heads of state or government of ASEAN member states, Australia, China, India, Japan, New Zealand, South Korea, Russia and the United States.

They reaffirmed their commitment to the 2005 Kuala Lumpur Declaration on the establishment of the East Asia Summit, the 2010 Ha Noi Declaration on the commemoration of the 5th Anniversary of the East Asia Summit, the 2011 Declaration of the East Asia Summit on the Principles for Mutually Beneficial Relations, and the 2015 Kuala Lumpur Declaration on the 10th Anniversary of the EAS.

However, before ASEAN can take advantage of trade opportunities between these countries, the grouping will have to altogether invest around US$1.7 trillion to upgrade its roads, ports and railways, so trade and infrastructure must go hand in hand.

Port Klang and Relations With China

In the next session, Dato’ Ong Chong Yi, Chief Executive Officer of Port Klang Free Zone (PKFZ) spoke on enhancing economic and trade relations between Malaysia and China through free zone cooperation.

“Port Klang is strategically located in the Straits of Malacca, the world’s busiest shipping lane and is a regional destination and trans-shipment point between East and West,” said Dato’ Ong.

Port Klang handles over 50% of Malaysia’s domestic cargo, with connections to over 600 ports worldwide. It was ranked the 11th container port worldwide in 2015, having handled 13.2 million TEU (Twenty-foot (container) Equivalent Unit) of which 2.3 million TEU was with Chinese ports.

Port Klang is a member of the Malaysia-China Port Alliance to enhance trade and services between Malaysia and China ports and also to strengthen port facilities.

“We are confident that container movement will pick up this year and beyond, and make Port Klang a major port of call. Already a 20,000 TEU French container ship has called at Port Klang,” said Dato’ Ong.

The Port Klang Free Zone (PKFZ) is more than just a port. It instead includes a commercial and manufacturing zone for factories and logistics companies, where quality and value-added activities are conducted in the same area.

It’s existing tenants include oil & gas companies, automotive, marine equipment suppliers and so forth. It also has a light industrial unit.

PKFZ also is the world’s largest affiliated LNG (liquefied natural gas) hub ahead of Rotterdam and handles 450 tonnes. It’s also gearing up for a number of China companies, including in its light industrial area.

PKFZ’s four unique selling points are:-

It was gazetted as an industrial and commercial trading area by the Ministry of Finance in 2005 and is an area for manufacturing and trans-shipment.

It has external connectivity with over 600 ports worldwide and also enables trans-shipment of goods within its area, which makes it ideal for China businesses to base their regional warehousing hub in PKFZ and engage in value add and e-commerce activities.

It has a ready infrastructure, light industrial units of 5,500 square feet, four modern office blocks for operations, trade offices and long term display of products, as well as a business class hotel and an exhibition centre for large items such as heavy machinery.

It provides halal certification in its Halal Park and works with JAKIM on halal certification and JAKIM’s halal certificates are recognised worldwide

PKFZ also works with various Malaysian business and industry associations such as the Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM) and the SME Association of Malaysia and also plans to establish strategic partnerships with similar free trade zones in China.

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