The Asean and China reach out with dreams of free trade

BANDAR SERI BEGAWAN, Brunei –This oil-rich sultanate is Southeast Asia’s smallest nation, yet it recently hosted a historic summit that may dramaticallyy change the economic destiny of Asia. Despite the worldwide economic slowdown, leaders of the half billion people of the Association of Southeast Asian Nations (Asean) had on Nov. 6 boldly created a vast window of opportunity that can spur economic recovery, force faster economic reforms and help ensure long-term economic progress for the region.

The strong anti-terrorism joint declaration was not the most important event during the Nov. 5 to 6 summit of the leaders of 10 Asean countries with those of China, Japan and South Korea. The biggest news in Brunei with far-reaching impact on the global economy was the agreement to create the world’s biggest free trade area (FTA) between Asean and China within 10 years. This FTA will eclipse those of the North American Free Trade Agreement and the 15-nation European Union (EU) in size and potential wealth.

Established in 1967 during the Cold War era and once viewed as an anti-Communist alliance, Asean has six original members Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand. Four new members with less developed economies are Vietnam, Laos, Cambodia and Myanmar.

A Market Of 1.7 Billion, Trans-Asian Railway & Highway

The Philippine STAR was the only representative of Philippine media in the ceremonial hall of the International Convention Center, when Brunei Sultan Haji Hassanal Bolkiah in the afternoon of Nov. 6 announced: "We endorsed the proposal for a framework on economic cooperation and to establish an Asean-China free trade area within 10 years, with special and differential treatment and flexibility to the newer Asean members... With a combined market of 1.7 billion people, a free trade area between Asean and China would have gross domestic product (GDP) of US$2 trillion and two-way trade of US$1.23 trillion. We agreed to instruct our ministers and senior officials to start negotiations with a view to conclude the agreement as soon as possible."

The Sultan said that apart from the free trade area, Asean leaders also approved plans to build a massive railway from Singapore to Kunming City of China, as well as a trans-Asian highway connecting Asean nations to China. Sultan Bolkiah announced that the ambitious 5,500-kilometer railway project will cost US$2.5 billion, saying: "We reaffirmed the Singapore-Kunming railway link as a priority project, and endorsed the routes agreed by our ministers."

Philippine President Gloria Arroyo told the other Asean leaders the United States is unlikely to be a source of economic growth in the short-term, that Asean would need to explore other markets and strengthen trade and investment relations with other countries, especially China. She also proposed that China consider the Brunei-Indonesia-Malaysia-Philippines/East Asean Growth Area (BIMP/EAGA) as a long-term supplier of fishery products, coconut and palm oil, tropical fruits and other food products.

Singapore Prime Minister Goh Chok Tong expressed pleasant surprise that other Asean leaders were ready to negotiate the Asean-China free trade area now, saying: "It shows confidence on Asean’s part which is very important... Both sides also recognize the long-term geo-political benefits of locking friendly relations between China and Asean... The more interlocked the economies of China and Asean are, the better it is for the long-term friendship between China and Asean."

Chinese Prime Minister Zhu Rongji said that although Asean leaders had set a 10-year target to achieve the ambitious Asean-China free trade area, he is confident this can be accelerated and attained within five years. Chinese Deputy Foreign Minister Wang Ni said: "The proposed Asean-China free trade area will be a strong catalyst of economic development for the whole region. Experts from Asean and China forecast that this free trade area will increase exports by 50 percent, that it will add one percent annual growth to Asean gross domestic product (GDP), while adding 0.3 percent GDP growth to China every year."

Asean Economies May Awaken With China’s WTO Entry

Why did the dinosaurs of the prehistoric age become extinct? Was it due to their lack of ability to quickly adjust to the forces of irreversible change? With 530 million people and the world’s rich reservoirs of oil, natural gas, mineral deposits, forests and other natural resources, the 10 member countries of the Asean have in recent years been like an injured giant dinosaur due to its frustrating inability to attract foreign investments and to maintain economic competitiveness. But many economic and political leaders told Philippine STAR that China’s fast-growing economy and its recent entry into the World Trade Organization (WTO) on Nov. 9 will force Asean economies out of lethargy and compel leaders to push economic reforms. Even China’s political enemy Taiwan was recently forced to abandon half-century enmity, announcing direct investment and other economic links on Nov. 7.

When will the Asean political leaders end their inward-looking perspectives towards globalization? When will they end their seemingly endless and self-destructive domestic socio-political squabbles? When will they overhaul and modernize their once over-protected and commodities-dependent economies in order to meet the looming challenge of the dynamic China economy? Can the entrepreneurs of the region rise above the myopia and lack of political will which hobble most of their governments, in order to invest in world-class industries and to champion economic modernization of Asean? Can the region’s entrepreneurs help accelerate mutually beneficial trade, investments and other economic exchanges within Asean? Can the mostly old-fashioned and paternalistic family enterprises throughout Asean aspire for new heights of success by becoming globally competitive and by boldly participating in the China economic boom?

Is China’s ‘Economic Miracle’ A Threat Or An Opportunity?

China’s single-minded pursuit of economic growth through openness and competitiveness has already changed the rules of the economic game in Asia. About 10 years ago, Asean took half the foreign direct investments in all of Asia outside Japan, while China then attracted only 20 percent of the foreign investments. Today, the statistics have reversed in China’s favor. Over the past decade, China has received US$320 billion in foreign investments, and this inflow of capital is expected to grow in the years to come. Last year, China attracted US$45 billion in foreign direct investments or 70 percent of all new investments in East Asia. In contrast, the 10 countries of ASEAN received only US$8 billion.

Instead of seeing the China "economic miracle" as a threat, a growing number of Asean leaders and business people reject this idea. Cambodia’s Commerce Minister Cham Prasidh said: "We see China as a market, not a competitor."

Rodolfo Severino, the Filipino diplomat who serves as Secretary General of the Asean, said: "The drop of investments in Asean is not just because of China...We have to be careful about comparisons. There are different ways of measuring investment and you have to make sure you are comparing the same things. A lot of investments in China have come from Hong Kong and Taiwan which have a natural affinity, of course. What attracts investors to China is not so much the ability to export out of China, as the domestic Chinese market and the rapid growth of the middle class and changing consumer base."

Lessons For Asean From China’s Economic Reforms

Asean must learn from the market-oriented reforms and aggressive investment promotion campaign now transforming China’s economy. According to the Brookings Institute, China can overtake Germany and Japan as the world’s second largest trading nation within 10 years of joining the WTO. In its "Global Trends 2015" report late last year, America’s Central Intelligence Agency (CIA) predicted that in view of China’s ongoing rise, Japan "will have difficulty maintaining its current position as the world’s third largest economy after the United States and Europe."

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