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Recent Development of ASEAN's Economic Relationship with China and India . By: Hendri Saparini, Ph.D Managing Director ECONIT Advisory Group [email protected] IDEAs Workshop New Delhi, 5-6 November 2009. Presentation Outline.

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Slide1 l.jpg

Recent Development of ASEAN's Economic Relationship with China and India

By: Hendri Saparini, Ph.D

Managing Director

ECONIT Advisory Group

[email protected]

IDEAs Workshop

New Delhi, 5-6 November 2009


Presentation outline l.jpg
Presentation Outline China and India

  • Economic characteristics and its development of ASEAN members, China and India.

  • ASEAN China Free Trade Area (ACFTA) and ASEAN India Trade in Goods Agreement (TIG): The Basic Agreement and Current Development

  • Trade and Investment between Indonesia – China and Indonesia – India, and their impacts on Indonesian economy.


Introduction l.jpg
Introduction China and India

  • ASEAN is very aggressive to enter into a Free Trade Agreement (FTA). In fact, the country members of ASEAN have not all been ready to commit in such FTA.

  • A review on ASEAN-China and ASEAN-India FTAs is very crucial as ASEAN will have to deal with two economic giants, not to mention that they are highly competitive.

  • A review on Indonesia, as one of ASEAN members that has huge economic potentials, is expected to give significant result in form of relationship development pattern, as well as the potential benefit and negative impact from the economic integration on process.



Countries economic characteristics asean needs to define a better strategy l.jpg
Countries Economic Characteristics: China and India ASEAN Needs to Define A Better Strategy

  • China is an economic giants to ASEAN

  • GDP and Foreign Reserve of China are far above those of ASEAN members

  • Trade structure between China and ASEAN members show that Chinese products are highly competitive

  • Almost all ASEAN members face trade deficit against China

  • Chinese attractiveness for foreign investment is above that of ASEAN members in average.


Economic growth asean behind china and india l.jpg
Economic Growth: China and India ASEAN Behind China and India

Source: IMF


Gdp comparison asean s gdp only 34 of the chinese 2008 l.jpg
GDP Comparison: China and India ASEAN’s GDP only 34% of the Chinese (2008)

Source: 2008 figure, IMF


Gdp structure asean members china and india l.jpg
GDP Structure: China and India ASEAN members, China and India

Source: ADB


High growth of fdi in china impact of economic reform l.jpg
High Growth of FDI in China: China and India Impact of Economic Reform

Source: UNCTAD


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FDI Inflow (1998-2008): China and India China is far Above ASEAN

Source: UNCTAD


Exports and import huge surplus of china s international trade l.jpg

1428.5 China and India

China

879.3

ASEAN

187.4

India

241.4

Singapore

194.5

Malaysia

Exports

175.0

Thailand

Imports

137.0

Indonesia

61.8

Viet Nam

49.0

Philippines

8.8

Brunei Darussalam

6.6

Myanmar

4.4

Cambodia

0.8

Lao PDR

0

200

400

600

800

1000

1200

1400

1600

Billions of USD

Exports and Import:Huge Surplus of China’s International Trade

Source: Asean Economic Community Chartbook, 2008


Top 5 asean exports to china dominated by electonics parts and primary commodities l.jpg
Top 5 ASEAN Exports to China: China and India Dominated by Electonics Parts and Primary Commodities

Source: Asean Economic Community Chartbook, 2008


Asean commodities export to china main source for china s demand 2008 l.jpg
ASEAN Commodities Export to China: China and India Main Source for China’s Demand , 2008

Source: ASEAN Economic Commonity Chartbook 2009


5 top asean s import asean from china 2008 l.jpg
5 Top ASEAN’s Import China and India ASEAN from China, 2008

Source: ASEAN Economic Commodity Chartbook, 2009


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Main ASEAN Countries’ Exports to India: China and India

India Dependent for Raw Materials (2008)

Source: ASEAN Secretariat Office


Asean imports from india 2008 why being dominated by petroleum oils l.jpg
ASEAN Imports from India (2008) China and India Why being dominated by Petroleum Oils?

Source: ASEAN Economic Community Chartbook 2009


Asean trade with china continuous increase of deficit l.jpg
ASEAN trade with China: China and India Continuous increase of deficit

Source: ASEAN Statistical Yearbook, 2008


Asean india trade surplus with value added l.jpg
ASEAN - India Trade: China and India Surplus with Value Added?

Source: ASEAN Statistical Yearbook, 2008


Acfta gates to liberalization l.jpg
ACFTA: China and India Gates to Liberalization

  • ACFTA was agreed in November 2002. Both sides have targeted the realization of ACFTA in 2010 for Brunei Darussalam, Indonesia, Malaysia, Philippines, Singapore, Thailand and China, and 2015 for Cambodia, Lao PDR, Myanmar and Viet Nam.

  • Under the ACFTA, tariffs on certain products as known as the Early Harvest Program (EHP), were reduced before the onset of the FTA (came into effect on 1 January 2004).

  • Others agreements by sectors have also been agreed under ACFTA.


Agreements under acfta 1 l.jpg
Agreements Under ACFTA #1 China and India

  • The ASEAN-China MOU on Strengthening Sanitary and Phytosanitary (SPS) Cooperation was signed in November 2007.

  • ASEAN-China MOU on Agricultural Cooperation in November 2002 in Phnom Penh; a more direct cooperation in the agricultural sector between the lead national agencies in ASEAN and China. An extended ASEAN-China MOU on Agricultural Cooperation for 2007-2011 was signed in January 2007 in Cebu.

  • ASEAN and China strategic partnership in Information and Communications Technology (ICT) to promote international cooperation in terms of investment in human resources development on ICT and to explore the possibility of establishing Greater Mekong Sub-region (GMS) information highway.


Agreements under acfta 2 l.jpg
Agreements Under ACFTA #2 China and India

ASEAN and China cooperation: the MOU on Transport Cooperation in November 2004 in Vientiane, promoting: i) transport infrastructure construction; ii) transport facilitation; iii) maritime safety and security; iv) air transport; v) human resources development; and vi) information exchange.

The 7th ASEAN-China Maritime Transport Agreement (ACMTA), November 2008 agreed in principle with the Strategic Plan for ASEAN-China Transport Cooperation, identifying transport infrastructure projects aimed at enhancing international and cross-border transportation and facilitation.


Early harvest product l.jpg
Early Harvest Product China and India

Source: ASEANSEC


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Tariff reduction on ACFTA China and India

Agreement on Trade in Goods of the Framework Agreement on Comprehensive Economic Co-operation ACFTA starting on January 1, 2005


Average tariff applied 2007 1 l.jpg
Average Tariff Applied (2007) * #1 China and India

*Simple average across all partners countries

Source: ITC


Average tariff applied 2007 2 l.jpg
Average Tariff Applied (2007) * #2 China and India

*Simple average across all partners countries

Source: ITC


China financial aids and investment aggressiveness due to huge foreign reserve l.jpg
China Financial Aids and Investment: China and India Aggressiveness due to Huge Foreign Reserve

  • Investment cooperation fund totaling US$10 billion (infrastructure construction, energy and resources, information and communications)

  • Credit of US$15 billion (including loans with preferential terms of 1.7 billion dollars in aid for cooperation projects)

  • Special aid of 39.7 million dollars to Cambodia, Laos and Myanmar

  • Provide 300,000 tons of rice for to strengthen food security

  • Donate 900,000 dollars to the cooperation fund of ASEAN plus China, Japan and the Republic of Korea

  • Inject 5 million dollars into the China-ASEAN Cooperation Fund

  • Offer of 2,000 government scholarships and 200 Master's scholarships for public administration students


Relationship of asean china and asean india l.jpg
Relationship of ASEAN-China and ASEAN-India China and India

  • ASEAN economic is relatively much smaller than China in terms of GDP, which is around 2.9 times of ASEAN’s. It is difficult for ASEAN to compete with China in FTA. Chinese population is 2.3 times ASEAN’s and a very huge market for ASEAN products, but even before FTA ASEAN products can hardly penetrate Chinese market due to lack of competitiveness.

  • ASEAN members (excl. Singapore) have similar characteristics, rich of natural resources, but low industrial productivity and competitiveness. This means that they compete each other, rather than complementing. Considering this characteristics, it needs a very hard work to develop AFTA for they are competing in same existing market and not creating a new opportunity.


Slide28 l.jpg

ASEAN has already signed a free trade agreement and will be followed by other agreements. ASEAN should develop a joined-marketing strategy to increase their bargaining, for example for CPO, Indonesia and Malaysia are the biggest producers, so they have a very strong position in determining price.

When ASEAN is able to become a unified economy, then ASEAN will be able to offer an economic cooperation for mutual benefit of ASEAN, China and India. In investment, for instance, it is encouraged to China and India to establish processing industry in ASEAN, so China and India will not only absorb raw materials from ASEAN, but also give higher value added ASEAN.

Should ASEAN not transform into an economic power, ASEAN would not get more benefit from FTA. Trade and investment after FTA will indeed encourage economic growth, but such growth will not give much value added into the economy. Although exist, value added will only be limited and unable to raise social welfare.

Relationship of ASEAN-China and ASEAN-India


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Indonesian Economic Relationship followed by other agreements. ASEAN should develop a joined-marketing strategy to increase their bargaining, for example for CPO, Indonesia and Malaysia are the biggest producers, so they have a very strong position in determining price.

with China and India


China india dan indonesia different economic characteristics l.jpg
China, India dan Indonesia: followed by other agreements. ASEAN should develop a joined-marketing strategy to increase their bargaining, for example for CPO, Indonesia and Malaysia are the biggest producers, so they have a very strong position in determining price. Different Economic Characteristics

Chinese GDP showed that investment has the biggest share in GDP, while in China and Indonesia the second of the biggest share in GDP.

China and India focus on exporting manufactured products, not natural resources materials.

More competitive industrial sectors has made trade liberalization have more positive impact to China and India, otherwise to Indonesia.

Export of manufactured products, due to more competitiveness and productivity, has an important role in increasing Chinese and Indian foreign reserves.


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120 followed by other agreements. ASEAN should develop a joined-marketing strategy to increase their bargaining, for example for CPO, Indonesia and Malaysia are the biggest producers, so they have a very strong position in determining price.

100

80

Statistical discrepancy

Percent

60

Net Export

Gross domestic capital

formation

40

Government consumption

Private consumption

20

0

-20

China

India

Indonesia

GDP Structure:Indonesia, China and India

Source: ADB


Manufacture productivity and competitiveness increasing foreign reserve of china l.jpg
Manufacture Productivity and Competitiveness followed by other agreements. ASEAN should develop a joined-marketing strategy to increase their bargaining, for example for CPO, Indonesia and Malaysia are the biggest producers, so they have a very strong position in determining price. Increasing Foreign Reserve of China

Source: State Administration of Foreign Exchange Bureau of PRC


Economic reform increasing india foreign reserve l.jpg
Economic Reform: followed by other agreements. ASEAN should develop a joined-marketing strategy to increase their bargaining, for example for CPO, Indonesia and Malaysia are the biggest producers, so they have a very strong position in determining price. Increasing India Foreign Reserve

Source: Reserve Bank of India


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60 followed by other agreements. ASEAN should develop a joined-marketing strategy to increase their bargaining, for example for CPO, Indonesia and Malaysia are the biggest producers, so they have a very strong position in determining price.

50

40

30

Billion USD

20

10

0

2000

2001

2002

2003

2004

2005

2006

2007

2008

Indonesia Foreign Reserved:Unstable, Not a Result of Productivity and Competitiveness

Source: Bank of Indonesia


China s export focusing on manufacturing goods l.jpg
China’s Export: followed by other agreements. ASEAN should develop a joined-marketing strategy to increase their bargaining, for example for CPO, Indonesia and Malaysia are the biggest producers, so they have a very strong position in determining price. Focusing on Manufacturing Goods

Source: Ministry of Commerce PRC


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India Exports followed by other agreements. ASEAN should develop a joined-marketing strategy to increase their bargaining, for example for CPO, Indonesia and Malaysia are the biggest producers, so they have a very strong position in determining price.

Dominated by Manufactured Goods

Primary Product

Source: Reserve Bank of India


Slide37 l.jpg

100% followed by other agreements. ASEAN should develop a joined-marketing strategy to increase their bargaining, for example for CPO, Indonesia and Malaysia are the biggest producers, so they have a very strong position in determining price.

90%

80%

Non Primary Commodity

70%

60%

50%

40%

Primary Commodity

30%

20%

10%

0%

2002

2003

2004

2005

2006

2007

2008

Indonesian Export:Increasing Shares of Primary Commodity

Source: CBS


Trade balance indonesia china surplus for oil gas deficit for non oil gas l.jpg
Trade Balance followed by other agreements. ASEAN should develop a joined-marketing strategy to increase their bargaining, for example for CPO, Indonesia and Malaysia are the biggest producers, so they have a very strong position in determining price. Indonesia-ChinaSurplus for Oil & Gas, Deficit for Non Oil & gas

Source: Ministry of Trade


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Indonesia-India Trade Balance followed by other agreements. ASEAN should develop a joined-marketing strategy to increase their bargaining, for example for CPO, Indonesia and Malaysia are the biggest producers, so they have a very strong position in determining price. Surplus for Non-Oil & Gas, Mainly Raw Materials

Source: Ministry of Trade


Top 10 exports indonesia to china dominated by natural resources 2008 l.jpg
Top 10 Exports Indonesia to China followed by other agreements. ASEAN should develop a joined-marketing strategy to increase their bargaining, for example for CPO, Indonesia and Malaysia are the biggest producers, so they have a very strong position in determining price. Dominated by Natural Resources (2008)

Source: CBS


Slide41 l.jpg

Top 10 Exports Indonesia to India followed by other agreements. ASEAN should develop a joined-marketing strategy to increase their bargaining, for example for CPO, Indonesia and Malaysia are the biggest producers, so they have a very strong position in determining price. Dominated by Natural Resources, too (2008)

Source: CBS


Top imports indonesia from china 2008 mostly manufactured products but agricultural too l.jpg
Top Imports Indonesia from China (2008) followed by other agreements. ASEAN should develop a joined-marketing strategy to increase their bargaining, for example for CPO, Indonesia and Malaysia are the biggest producers, so they have a very strong position in determining price. Mostly Manufactured Products, but Agricultural, too

Portable Digital Automatic Data Processing Machines

306

Structures And Parts Of Structures Nesoi, Of Iron Or Steel

194

Parts And Accessories For Automatic Data Processing Machines

181

Auxiliary Plant For Use With Steam Or Other Vapor Generating Boilers

155

Garlic, Fresh Or Chilled

151

Aluminum Nonalloyed Rectangular

147

Superphosphates Fertilizers

145

Disodium Carbonate

138

Parts And Accessories Of Motorcycles

125

Petroleum Oils And Oils From Bituminous Minerals, Crude

121

Parts For Auxiliary Plant For Use With Steam

99

Steam And Other Vapour Turbines

93

Flat-Rolled Products Of Iron Or Non-Alloy Steel

92

Parts For Machinery Making Or Finishing Paper Or Paperboard

90

Antennas And Antenna Reflectors

87

Mandarins (Including Tangerines And Satsumas), Fresh Or Dried

85

Apples, Fresh

83

Tobacco

81

-

50.00

100.00

150.00

200.00

250.00

300.00

350.00

Millions of dollar

Source: CBS


Slide43 l.jpg

Top 10 Import of Indonesia from India followed by other agreements. ASEAN should develop a joined-marketing strategy to increase their bargaining, for example for CPO, Indonesia and Malaysia are the biggest producers, so they have a very strong position in determining price. Dominated by Manufactured Goods (2008)

Source: CBS


China s and india s fdi insignificant in indonesia l.jpg
China’s and India’s FDI followed by other agreements. ASEAN should develop a joined-marketing strategy to increase their bargaining, for example for CPO, Indonesia and Malaysia are the biggest producers, so they have a very strong position in determining price. Insignificant in Indonesia

Source: Indonesia Investment Coordinating Board


China india dan indonesia trade and investment l.jpg
China, India dan Indonesia: followed by other agreements. ASEAN should develop a joined-marketing strategy to increase their bargaining, for example for CPO, Indonesia and Malaysia are the biggest producers, so they have a very strong position in determining price. Trade and Investment

Indonesian trade balance against China and India: surplus for oil and gas, but deficit for non-oil & gas

Indonesian top 10 export to China and India are natural resources commodities. It is almost 80% for Indonesian export to India and 70% to China

Import Indonesia from China and India: mostly manufactured products and final goods. Furthermore, on EHP implementation since 2004, Indonesia has imported a huge amount of agricultural products from China.

Chinese and Indian FDI in Indonesia was relatively insignificant.

Currently, there is a trend of acceleration of Chinese investment in Indonesia in infrastructure and oil & gas, while India in financial sector.


Slide46 l.jpg

China Investment to Indonesia followed by other agreements. ASEAN should develop a joined-marketing strategy to increase their bargaining, for example for CPO, Indonesia and Malaysia are the biggest producers, so they have a very strong position in determining price. It Will Increase, Soon


Slide47 l.jpg

Indonesia government has received followed by other agreements. ASEAN should develop a joined-marketing strategy to increase their bargaining, for example for CPO, Indonesia and Malaysia are the biggest producers, so they have a very strong position in determining price. standby loan ofUSD 5.5 billion and Bilateral Currency Swap Agreement (BCSA) up to US$ 17.5 billion.

The BCSA scheme will strengthen rupiah value and maintain financial stability, as well as encouraging trade and investment. China trade with Indonesia will be pushed on natural resources and raw materials. Indonesian trade will be continuously dominated by Chinese manufactured products. As China has agreed to provide Special Buyer Credit Facility (SBCF) for Indonesia.

China Loan to Indonesia

Increased During 2008 Crisis


Slide48 l.jpg

China will focus their investment and trade on natural resources and raw materials, as well as infrastructure. On the other hand, Indonesian will be continuously importing Chinese manufactured products.

This trend will make Indonesia become natural resources and raw materials exporter, as a consequence, employment opportunity growth will be stagnant, even slowing down.

China-Indonesia Trade and Investment

Need Improvement for Mutual Benefit


Before acfta low competitiveness of indonesian products l.jpg
……Before ACFTA resources and raw materials, as well as infrastructure. On the other hand, Indonesian will be continuously importing Chinese manufactured products. Low Competitiveness of Indonesian Products

Growth of Textile and Leather Product

Source: CBS


Indonesia exporting raw tin l.jpg
Indonesia Exporting Raw Tin ........ resources and raw materials, as well as infrastructure. On the other hand, Indonesian will be continuously importing Chinese manufactured products.

Source: CBS


But increasing imports of tin based products l.jpg
…..But, Increasing Imports resources and raw materials, as well as infrastructure. On the other hand, Indonesian will be continuously importing Chinese manufactured products. of Tin Based Products

Source: CBS


Slide52 l.jpg

Prior to FTA, China investment in Indonesia is only in natural resources sectors. Soft loans to Indonesia are mostly aimed at infrastructure development and natural resources. Considering the privatization trend in Indonesia, China will have bigger opportunity to own shares of strategic Indonesian SOE, like electricity, power plant, railway, steel, etc.

Chinese investment pattern is most likely to be focused on natural resources exploitation and assembling plant for components/parts imported from China, so most of the value added goes to China. If this condition continues to occur, Indonesian and other ASEAN members’ natural resources will be drained. ASEAN members will fail to create competitive and productive industrial countries.

Evaluating agreements related with FTA and postponement of FTA implementation.

Immediately prepared industrial policy map road in order to increase national productivity and competitiveness

How to Increase Benefit from FTA


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