Regional trade not a zero-sum game
By Yang Yaoyuan |
chinawatch.cn |
Updated: 2020-08-04 14:43
The Sino-US trade conflict has been redefining specialization along the global value chain and reshaping the China-ASEAN industry chain. To protect themselves from the onslaught of US tariffs, companies that currently manufacture or assemble products intended for export to the United States have no other choice but to move their production facilities out of China to members of the Association of Southeast Asian Nations or elsewhere. As these manufactured goods will ultimately end up in the US, a supply chain will be created with China as the designer, ASEAN countries as the manufacturer and the US as the customer.
In the foreseeable future, according to analysis by the Mizuho Research Institute, companies (including multinational corporations) will continue to relocate their factories in China to the surrounding Southeast Asian countries, with the result that the region will become an increasingly important link in China's manufacturing chain.
As a transshipment and manufacturing hub of the global value chain, the ASEAN countries can expect to receive more trade flows in light of this relocation and adjustment in the global value chain. As a result, more extraregional investors may be interested in establishing a presence in ASEAN countries, which would lead to more jobs and higher economic growth in the region.
Therefore, in the term of remaking of the global industry chain, China and the ASEAN can seize new opportunities for trade and economic cooperation instead of being locked in a zero-sum game.
Take Vietnam for example. Vietnam's trade with China has been growing rapidly since the normalization of diplomatic relations. From 1991 to 2018, bilateral trade grew to $106.7 billion from $32 million. By 2019, China had been Vietnam's largest trading partner for 16 consecutive years, and Vietnam had become China's biggest trading partner among ASEAN countries, and one of the fastest growing countries when it comes to trade with China.
The current landscape presents more possibilities for both China and Vietnam to expand their trade ties and development cooperation. This is because Vietnam is the perfect layover for Chinese manufacturers whose end customers are located in other ASEAN countries. Vietnam is uniquely equipped for this role due to its domestic environment, which has remained stable since the Doi Moi economic reforms initiated in 1986, low cost of labor and sizeable market thanks to a large population, as well as its geographical location, which is both close to global sea routes and in Southeast Asia.
A second reason for optimism lies in the structural complementarity of trade between the two countries. China makes the products that support Vietnam's drive for industrialization, and in turn, Vietnam provides China with much-needed primary products, raw materials and intermediate goods. Additionally, thanks to cultural affinity and similar buying preferences, Chinese products are very popular with Vietnamese customers. Hence, strengthening the coordination of industrial policies between the two countries can help create complementary industry chains to reduce homogenous competition and achieve win-win results.
In light of the expanding Sino-Vietnam and Sino-ASEAN trade and economic cooperation, the top priority is to push for the implementation of the Regional Comprehensive Economic Partnership agreement to drive liberalization and the facilitation of trade and investment in the region and to enhance the business environment. It is also important to put in place investment protection agreements to safeguard the investments of Chinese and ASEAN companies alike, so as to pave the way for the restructuring and consolidation of the industrial value chains of both economies.
With the 2020 ASEAN chairmanship, Vietnam has already announced five priorities, including economic integration and connectivity to adapt to the dynamic changes and seize the opportunities presented by the Fourth Industrial Revolution, a goal that will directly benefit from the formal signing of the RCEP, expected this year.
The ASEAN, for its part, has been making the case for the strategic importance of the RCEP, which is regarded as a symbol of regional solidarity. For China, the signing of the RCEP can pave the way for smoother cooperation with ASEAN countries over Belt and Road projects, economic cooperation and better interconnectivity.
The RCEP is a benchmark for transparency, consistency and the predictability of economic regulation and policies. Hence, the RCEP can help ASEAN countries build transparent and competitive investment environments to facilitate the efficient allocation of capital and resources.
Through the RCEP, Vietnam can make its exports more competitive, gain access to sorely needed capital and technology, drive economic development, achieve better-quality growth and create a more dynamic domestic economy.
With China becoming the main supplier of upstream products and production capital and the US and Europe becoming its consumer, Vietnam has entered into a series of trade and economic partnerships with East Asian economies including China, Japan and the Republic of Korea, as well as the US and European countries over the past few years, including the Belt and Road Initiative, the ASEAN Economic Community, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, the EU-Vietnam Free Trade Agreement and ASEAN+3(China, Japan and the ROK). Vietnam is also making headway in its comprehensive partnership with the US.
With all these arrangements, Vietnam aims to maximize the benefits of being part of the global free trade and specialization systems by interconnecting the East Asian regional value chain and the global value chain, making sure that both run smoothly and flow together in Vietnam. Seen from this perspective, it is reasonable to expect Vietnam to be open and proactive on the conclusion of the RCEP.
The author contributed this article to China Watch exclusively. The views expressed do not necessarily reflect those of China Watch.
All rights reserved. Copying or sharing of any content for other than personal use is prohibited without prior written permission.
The Sino-US trade conflict has been redefining specialization along the global value chain and reshaping the China-ASEAN industry chain. To protect themselves from the onslaught of US tariffs, companies that currently manufacture or assemble products intended for export to the United States have no other choice but to move their production facilities out of China to members of the Association of Southeast Asian Nations or elsewhere. As these manufactured goods will ultimately end up in the US, a supply chain will be created with China as the designer, ASEAN countries as the manufacturer and the US as the customer.
In the foreseeable future, according to analysis by the Mizuho Research Institute, companies (including multinational corporations) will continue to relocate their factories in China to the surrounding Southeast Asian countries, with the result that the region will become an increasingly important link in China's manufacturing chain.
As a transshipment and manufacturing hub of the global value chain, the ASEAN countries can expect to receive more trade flows in light of this relocation and adjustment in the global value chain. As a result, more extraregional investors may be interested in establishing a presence in ASEAN countries, which would lead to more jobs and higher economic growth in the region.
Therefore, in the term of remaking of the global industry chain, China and the ASEAN can seize new opportunities for trade and economic cooperation instead of being locked in a zero-sum game.
Take Vietnam for example. Vietnam's trade with China has been growing rapidly since the normalization of diplomatic relations. From 1991 to 2018, bilateral trade grew to $106.7 billion from $32 million. By 2019, China had been Vietnam's largest trading partner for 16 consecutive years, and Vietnam had become China's biggest trading partner among ASEAN countries, and one of the fastest growing countries when it comes to trade with China.
The current landscape presents more possibilities for both China and Vietnam to expand their trade ties and development cooperation. This is because Vietnam is the perfect layover for Chinese manufacturers whose end customers are located in other ASEAN countries. Vietnam is uniquely equipped for this role due to its domestic environment, which has remained stable since the Doi Moi economic reforms initiated in 1986, low cost of labor and sizeable market thanks to a large population, as well as its geographical location, which is both close to global sea routes and in Southeast Asia.
A second reason for optimism lies in the structural complementarity of trade between the two countries. China makes the products that support Vietnam's drive for industrialization, and in turn, Vietnam provides China with much-needed primary products, raw materials and intermediate goods. Additionally, thanks to cultural affinity and similar buying preferences, Chinese products are very popular with Vietnamese customers. Hence, strengthening the coordination of industrial policies between the two countries can help create complementary industry chains to reduce homogenous competition and achieve win-win results.
In light of the expanding Sino-Vietnam and Sino-ASEAN trade and economic cooperation, the top priority is to push for the implementation of the Regional Comprehensive Economic Partnership agreement to drive liberalization and the facilitation of trade and investment in the region and to enhance the business environment. It is also important to put in place investment protection agreements to safeguard the investments of Chinese and ASEAN companies alike, so as to pave the way for the restructuring and consolidation of the industrial value chains of both economies.
With the 2020 ASEAN chairmanship, Vietnam has already announced five priorities, including economic integration and connectivity to adapt to the dynamic changes and seize the opportunities presented by the Fourth Industrial Revolution, a goal that will directly benefit from the formal signing of the RCEP, expected this year.
The ASEAN, for its part, has been making the case for the strategic importance of the RCEP, which is regarded as a symbol of regional solidarity. For China, the signing of the RCEP can pave the way for smoother cooperation with ASEAN countries over Belt and Road projects, economic cooperation and better interconnectivity.
The RCEP is a benchmark for transparency, consistency and the predictability of economic regulation and policies. Hence, the RCEP can help ASEAN countries build transparent and competitive investment environments to facilitate the efficient allocation of capital and resources.
Through the RCEP, Vietnam can make its exports more competitive, gain access to sorely needed capital and technology, drive economic development, achieve better-quality growth and create a more dynamic domestic economy.
With China becoming the main supplier of upstream products and production capital and the US and Europe becoming its consumer, Vietnam has entered into a series of trade and economic partnerships with East Asian economies including China, Japan and the Republic of Korea, as well as the US and European countries over the past few years, including the Belt and Road Initiative, the ASEAN Economic Community, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, the EU-Vietnam Free Trade Agreement and ASEAN+3(China, Japan and the ROK). Vietnam is also making headway in its comprehensive partnership with the US.
With all these arrangements, Vietnam aims to maximize the benefits of being part of the global free trade and specialization systems by interconnecting the East Asian regional value chain and the global value chain, making sure that both run smoothly and flow together in Vietnam. Seen from this perspective, it is reasonable to expect Vietnam to be open and proactive on the conclusion of the RCEP.
The author contributed this article to China Watch exclusively. The views expressed do not necessarily reflect those of China Watch.
All rights reserved. Copying or sharing of any content for other than personal use is prohibited without prior written permission.
