24 June 2019

ASEAN liftoff offers profitable ride for China

The rise of the Association of Southeast Asian Nations (ASEAN) is inevitable and China should use the opportunity to tighten links with the region and generate benefits for all.

So wrote Sun Mingchun, vice president of the Chinese Financial Association of Hong Kong, in the Hong Kong Economic Journal, the parent publication of EJ Insight.

Sun identified four main areas of potential for China, chief among them ASEAN’s need to upgrade its infrastructure. The huge fixed investment will offer great opportunities for Chinese industry, ranging from steel and glass to machinery and transport equipment. Taking advantage of that potential could have the added benefit of absorbing China’s excess capacity and helping the country with its own economic upgrade, he said.

ASEAN’s consumer markets are another area that mainland corporates should focus on. Sun expects it will take years for ASEAN to achieve a sizable output in capital-intensive sectors like cars, electrical appliances and smartphones, so sales potential for made-in-China products should be great. Good value-for-money Chinese goods are exactly what ASEAN consumers want right now, he said. That assessment is supported by ASEAN’s place as the 10th-biggest consumer market in the world, with the region’s domestic consumption amounting to as much as 46 percent of China’s, Sun said.

Then there is the issue of wages. Annual labor costs in China have skyrocketed in recent years to be on average US$2,000 more than those in Thailand and the Philippines in 2012, and US$3,000 above Vietnam’s average. The gap was even bigger in comparisons with Indonesia and Cambodia.

Sun said it is true that rising production costs are hurting China’s manufacturers and exporters, but ASEAN is home to a young and skilled labor force and firms in China should make the most of the cost advantage by moving some of their production lines to these countries. If China’s manufacturers don’t make the move, their competitors will, he said.

Finally, ASEAN’s economic growth is bringing huge demand for capital and foreign exchange — and investment opportunities for China. Energy and resources are two of the promising areas, Sun said. ASEAN countries have also been very receptive to using the renminbi as a currency for trade settlement, investment and financing. The region therefore can play a key role in speeding up renminbi internationalization, Sun said.

– Contact the writer at [email protected]



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