Now there are fears that CAFTA will simply legalize smuggling and worsen the already negative effects of Chinese imports on Asean industry and agriculture.Ī central part of the plan was to open up Asean markets to Chinese manufactured products. For instance, with some 70-80 per cent of shops selling smuggled Chinese shoes, the Vietnamese shoe industry has suffered badly. Massive smuggling of goods from China has disrupted practically all Asean economies. Trade has been another, perhaps greater, area of concern. The decline continued in the rest of the decade, with the UN World Investment Report attributing the trend partly to ‘increased competition from China’.
In 2000, FDI in Asean shrank to 10 per cent of all investment in developing Asia, down from 30 per cent in the mid-1990s. The trend of Asean losing ground to China accelerated after the 1997 crisis. The aim of the strategy, according to Chinese economist Angang Hu, is to more fully integrate China into the global economy as the ‘center of the world’s manufacturing industry.’
China’s devaluation of the yuan in 1994 had the effect of diverting some foreign direct investment (FDI) away from Southeast Asia.įor Chinese officials, the benefits to China of free trade with Asean are clear. There appears to be some support for this.
Low wages, many in Southeast Asia fear, have encouraged local and foreign manufacturers to phase out their operations in relatively high-wage Southeast Asia and move them to China. Yet the picture is more complex than that of a Chinese locomotive pulling the rest of East Asia along with it on a fast track to economic nirvana. After all, demand from a Chinese economy growing at a breakneck pace was a key factor in Southeast Asian growth beginning around 2003, after a period of low growth following the 1997/1998 Asian financial crisis.ĭuring the current international recession, Asean governments are counting on China, whose GDP in the fourth quarter of 2009 rose 10.7 per cent, to pull them out of the doldrums. At first glance, it seems like the bilateral relationship has been positive. The reality, however, is that most of the advantages will probably flow to China. A positive spin on CAFTA has also come from President of Philippines, Gloria Arroyo, who hailed the emergence of a ‘formidable regional grouping’ that would rival the US and the European Union. The propaganda mills, especially in Beijing, have been trumpeting this new free trade deal as ‘bringing mutual benefits’ to China and Asean. By 2015, the newer Asean countries (Vietnam, Laos, Cambodia and Burma) will join the zero-tariff arrangement.
Under the agreement, trade between China and six Asean countries (Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand) has become duty-free for more than 7,000 products. Touted as the world’s biggest Free Trade Area, CAFTA is billed as having 1.7 billion consumers, with a combined gross domestic product of $5.93 trillion and total trade of $1.3 trillion. On 1 January 2010, the China-Asean (Association of Southeast Asian Nations) Free Trade Area went into effect.