Nov 29, 2012

ASEAN - ASEAN exporters rush to court Chinese markets

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Chinese imports from the Association of Southeast Asian Nations outstripped those from Japan in terms of value in the January-June period of this year.

Since the ASEAN-China free trade agreement will reach a new stage by the end of 2012, Japanese companies have to consider how to leverage the ASEAN production base to develop markets in China.

While China’s economy has slowed in the wake of the European economic crisis, its growth rate for the whole year is still expected to exceed 7 percent.

For the past 30 years, China’s average economic growth rate has been 10 percent, and no other country has been able to sustain such a high level of growth over such a long period of time.

China, which has become the world’s second-largest economy, has begun to attract a lot of attention as a “world marketplace” with its robust purchasing power in recent years.

China’s imports grew from $225.1 billion in 2000 to $1.74 trillion in 2011, a nearly eightfold expansion. The size of China’s imports is second only to the United States.

Imports come from a diverse range of countries, and the number of countries and regions with annual imports worth more than $100 million has grown sharply from 65 in 2000 to 120 in 2011.

China’s imports from Japan increased from $41.5 billion in 2000 to $194.6 billion in 2011, making Japan China’s biggest importing country in term of value. Exports to China now play an important part in ensuring Japan’s sustainable economic growth.

However, it needs to be noted that Japan’s share of imports to China has fallen from 18.4 percent in 2000 to 11.2 percent in 2011.

Meanwhile, imports from "ASEAN6"--Indonesia, Malaysia, the Philippines, Thailand, Singapore and Vietnam--have grown from $21.9 billion in 2000 to $189.8 billion in 2011, with their share rising from 9.7 percent to 10.9 percent.

In the January-June period, imports from ASEAN6 were worth $92.9 billion on a preliminary basis, surpassing Japan’s $88.3 billion. Japan remains China’s top importing country, but ASEAN6 has become the No. 1 importing region.

Import items from ASEAN6 used to feature many raw materials, such as petrol and timber, but are now mainly industrial products and their parts and components.

The top import item from ASEAN6 is integrated circuits. Second are computer-related products, including hard disk drives, with semiconductor devices in seventh place and computer-related parts in eighth place.

China is the world’s No. 1 exporter of computers, but many parts are imported from ASEAN6 due to development of supply chains between China and ASEAN.

The No. 3 import item is natural rubber, which is used as raw material for automobile tires, reflecting China’s burgeoning car market. Palm oil comes sixth place, reflecting the growing foodstuffs market in China.

Encouraged by high levels of economic growth, China’s energy demand is growing, and China depends on imports from ASEAN6 for many items, such as coal (fouth place), refined petroleum products (fifth place), crude oil (11th place) and lignite (12th place).

Further, imports of petrochemical products, such as cyclic hydrocarbons (13th place), ethylene polymers (14th place) and acyclic alcohols (19th place), are increasing.

It is doubtless that many of these industrial products come from the ASEAN factories of multinational corporations, including Japanese companies.

Incidentally, Japanese manufacturers’ outstanding direct investment in ASEAN6 was worth 5.3 trillion yen at the end of 2011, exceeding 4.8 trillion yen from China.

Against this backdrop, the ASEAN-China FTA is heading toward a new phase.

The agreement came into force in 2005, and tariffs have already been removed from 7,262 items, or 91.6 percent of the total.

By the end of 2012, tariffs will be removed from a further 232 items, 2.9 percent, while tariffs on the remaining 429 items, 5.4 percent, are due to be reduced to 20 percent or less.

If the tariff removals and reductions of the ASEAN-China FTA framework were to be applied to Japan-China trade, some 91.4 percent of the import value from Japan would be tariff-free.

Of course, it would be unrealistic to think that all of Japan’s exports to China could be replaced by those from ASEAN.

But Japanese manufacturers own large production facilities in ASEAN, an FTA among Japan, China and South Korea will likely take some time to be concluded and effectuated, and salaries in China are rising sharply.

Given these facts, the leveraging of production facilities in ASEAN and the ASEAN-China FTA must surely be considered as one extra possible strategy in developing and securing new markets in China.

Keiichiro Oizumi

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