ASEAN’s trade relationship with China has been one of the most important in the bloc’s development as well as the longest, with 2021 marking 30 years since the partners began formal relations. China was also the first country to sign a free-trade agreement with ASEAN nations1, with the 2004 arrangement acting as a catalyst for other countries to improve trade ties with the region.
ASEAN has come a long way in that time. The significant trade and investment opportunities it offers have put it on track to become the world’s fourth largest economy by 2030. But what has not changed is the importance of the China-ASEAN relationship to the development of the businesses and societies within the trade partners. And that relationship has helped set the stage for growth around the region, including the establishment of agreements such as the Regional Comprehensive Economic Partnership (RCEP). Moreover, RCEP is just one of many initiatives that are helping to foster and strengthen the trade links between the two.
“In 2020 the ASEAN region overtook the EU to be China's largest trading partner. This is validated in terms of activities and the demand for banking services in line with China's supply chain optimisation efforts,” explained Heidi Toribio, Regional Co-head, Client Coverage, Asia, Corporate, Commercial and Institutional Banking at Standard Chartered.
“While the increased demand for banking services [from Chinese companies venturing into ASEAN] is coming from a variety of sectors, we're seeing quite a bit of concentration coming from tech, transportation, electronics and clean energy,” She added.
The industries driving future growth
From the discussions at the Borderless Business: Capturing ASEAN-China trade opportunities webinar, it is clear that ASEAN offers enormous potential for Chinese companies, especially for those looking to expand globally given the region’s long and successful relationship with China and the possibilities for future investment.
According to a pulse survey commissioned by Standard Chartered, three main sectors will drive future growth across the China-ASEAN corridor: high-value manufacturing - including automotives and consumer electronics - energy and renewable resources, and information and communications technology (ICT).
For companies operating in these sectors, the ASEAN region provides many competitive advantages including modern manufacturing capabilities and capacity, supportive regulatory policies and a growing consumer base into which to sell products and services.
“One of the things we consider when looking to locate our production capability is also the ability to meet local demand [for our product],” said Henry Jiang, Vice-president of Marketing at LONGi Solar Technology, revealing the company’s decision to establish a manufacturing hub in Vietnam.2
Digitisation and sustainability spur success
Yet regardless of the industrial sector, there was consensus that all companies need to integrate digital transformation and sustainability practices into their business models if they are to succeed.
Certainly, ASEAN governments have shown a commitment to supporting and promoting both strategies with digitalisation and sustainability named as two of the region’s economic priorities for 2021.3
“Whether you are a big company like a cloud service provider or a mom-and-pop food delivery service, you can use technology to expand your reach with ASEAN countries,” according to Daniel Tan, Executive Director and General Manager for the Global Account Business, Asia Pacific at Lenovo.
Digital transformation and sustainability also mark another area of collaboration with China which, through initiatives such as Made in China 20254 and its target of reaching net-zero carbon emissions by 2060,5 has made the two areas central to its future economic growth.
“ESG investment and investment facilitation are important, and ASEAN and China are aligned on this. There’s no question about it,” said Rebecca Fatima Sta Maria, Executive Director in the APEC Secretariat.
Greater integration ahead
Still, conversations at the webinar also highlighted some of the challenges Chinese companies face when setting up and expanding in ASEAN. Of these, the different regulations across the bloc and the diverse levels of infrastructure development were mentioned as two potential obstacles. For Toribio, one solution is for companies to collaborate with a local expert.
“Entering into new joint ventures or partnerships to increase market presence is important as a local partner is critical to driving and bridging the cultural divide. Alliances and acquisitions can also help plug capability gaps; this is where these companies can benefit, either through acquisitions or banking partnerships,” Toribio said.
In addition, there was recognition that ASEAN nations are working hard to reduce those barriers to trade and improve integration. And as is shown by the growth in China-ASEAN trade over the past three decades, these challenges are certainly not a barrier to success. On the contrary, in many cases, these differences can also create new possibilities, according to Lenovo’s Daniel Tan.
“In each country the regulations and infrastructure are different, so each one creates a different opportunity. I truly believe ASEAN creates opportunities for everyone and that’s what we’ve seen from our Chinese partners,” he said.
And this optimism was reflected in the results of poll, with 74 per cent of the webinar audience believing increased ASEAN-China trade presents a win-win scenario for the two trading partners.
From opportunities in fast growing, high-value industries to joint efforts to encourage investment in digitalisation and sustainability, the ASEAN-China economic relationship is positioned to prosper for many years to come.