Innovation Opens a New Chapter In China-ASEAN Cooperation

By Zhou Mi

Innovation Opens a New Chapter In China-ASEAN Cooperation

By Zhou Mi

About the author: Zhou Mi is a research fellow at the Chinese Academy of International Trade and Economic Cooperation of China’s Ministry of Commerce.

since the establishment of dialogue relations in 1991, China and ASEAN have witnessed profound development in bilateral trade relations. Trade volume between the two sides totalled US$472 billion in 2015, with an average annual growth rate of 18.8 percent over the past 25 years. At this point, cumulative two-way investment has reached US$150 billion.

This increase in economic exchange is due to the 2002 framework agreement signed between China and ASEAN nations, marking the beginning of the construction of the China-ASEAN Free Trade Area (CAFTA). The two sides have achieved widespread positive results, creating a sound business environment and boosting the confidence of stakeholders in bilateral trade. By 2010, CAFTA had developed into the world’s largest free trade area among developing countries. Therefore, the economic and trade ties between China and ASEAN have been on a steady course of development.

The Belt and Road Initiative proposed by China has received global recognition. Negotiations on an upgraded CAFTA have reached a successful conclusion. ASEAN has officially declared the establishment of an ASEAN Economic Community, while negotiations between ASEAN and six other countries (including China) on a Regional Comprehensive Economic Partnership is advancing. Considering these positive signals, China and ASEAN member states, despite facing increasingly complex situations both at home and abroad, are set to write a new chapter in the development of economic and trade relations.

New Features

In the post-financial crisis era, volatile markets and weak demand for goods and services have held back developed economies. The world is now in a period of economic transition and is faced with the challenge of finding new models of development. In response to the current lethargic state of the global economy, the nature of the China-ASEAN trend represents some new features.

First, the role of China and ASEAN in the global value chain is changing, which will result in an inevitable adjustment in division of labor. ASEAN member states were badly battered during the 1997 Asian financial crisis. This forced ASEAN countries to reorganize their financial systems, but also hurt them as they lost appeal as international manufacturing bases. During the same period, China made great efforts to boost its processing industry and build a complete industrial system in line with international trade. Eventually, with the rapid development of China’s foreign investment, ASEAN countries once again became a hot investment destination. Thus, the manufacturing industry in ASEAN gradually recovered from the crisis, eventually serving as an important pillar of economic development.

Second, a series of internal and external factors complicate economic cooperation between China and ASEAN. In recent years, the United States has made frequent interventions into South China Sea territorial disputes. Countries like Britain and Australia have made attempts to flex their military muscles in the region. Japan, in addition to its military presence, exerts considerable influence over ASEAN by providing its member states with loans and other financial aid. All these intensify a divergence of views among ASEAN decision makers. As political elements impose increasingly obvious spillover effects on ASEAN economic policies, China-ASEAN trade relations will meet more obstacles in the foreseeable future.

Finally, a deteriorating global security situation puts China-ASEAN cooperation at risk. ASEAN member states are diverse in terms of ethnicity, culture and religion, and also have vastly different political systems. This may pose a threat to regional peace. In addition, the past decade has seen a rise in global terrorism and extremism, but many countries and international organizations are ill prepared to handle the growing problem. Some foreign investors are losing confidence in ASEAN countries’ abilities to thwart such attacks. At the same time, anti-terror efforts have placed a heavy fiscal burden on some ASEAN member states.

Innovations to Deepen Relations

China and ASEAN have carried out cooperation in many areas, including highspeed rail.

China and ASEAN member states should keep a foothold in bilateral relations but remain aware of external distractions. This will allow them to achieve mutually beneficial economic cooperation. A comprehensive review of existing bilateral agreements is needed to renew understanding of the current international situation. To keep pace with a changing environment, the two sides should strive for far-reaching institutional and technological innovations, as well as innovations to adapt to economic cooperation models and fields.

Institutional innovation is helpful in efforts to improve the observable environment of China-ASEAN economic cooperation. The two sides need to work together to push forward the full implementation of the Belt and Road Initiative and accelerate both communication and connectivity. In addition, new economic and trade agreements need to be reached so as to reduce institutional and policy-related barriers. To strengthen two-way investment cooperation, the two sides can upgrade their current Bilateral Investment Treaty while exploring opportunities to expand market access for foreign investment within the model of “negative list + pre-establishment national treatment”. Coordination of rules and regulations related to bilateral trade needs to be reinforced, providing markets on both sides with clearer guidance. This is expected to boost market participants’ confidence and reduce their operating costs.

Innovations in the China-ASEAN economic cooperation model will bring Chinese and ASEAN advantages fully into play. The two sides need to meet demands of a segmented market and seek complementarity on supply and demand chains. They need to develop cross-border e-commerce under their Framework Agreement on Comprehensive Economic Cooperation. Many small and medium-sized enterprises will benefit from this, as e-commerce facilitates regional factor mobility. As their role in the international division of labor is changing, China and ASEAN member states need to emphasize information sharing and enhance their participation in industry chain collaboration.

Innovations in cooperation will contribute to steady economic growth for both China and ASEAN. While strengthening their existing cooperation, the two sides need to work together to explore new industries with huge market potential, such as digital trade, renewable energy and other green industries in line with sustainable development initiatives. Also, similarities in tradition and culture serve as a solid basis for China-ASEAN cultural trade. To promote service trade, the two sides need to further open their markets and remove barriers to the service trade by adopting unified technical standards.

Technological innovations will give China and ASEAN member states greater impetus for long-term economic cooperation. For example, through cooperation in areas like telecommunication and super computing, the Chinese model of standard information infrastructure is expected to be widely embraced by ASEAN countries. With regard to agricultural technology, the two sides can work together in areas of irrigation and reducing losses caused by extreme weather. They need to enhance agricultural productivity and crop yields to enhance the market competitiveness of their products.