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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 IDEAs Workshop New Delhi, 5-6 November 2009. Presentation Outline.

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

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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

IDEAs Workshop

New Delhi, 5-6 November 2009

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Presentation Outline

  • 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.

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  • 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.

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List of ASEAN Free Trade Agreements

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Countries Economic Characteristics: 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.

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Economic Growth:ASEAN Behind China and India

Source: IMF

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GDP Comparison:ASEAN’s GDP only 34% of the Chinese (2008)

Source: 2008 figure, IMF

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GDP Structure:ASEAN members, China and India

Source: ADB

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High Growth of FDI in China:Impact of Economic Reform

Source: UNCTAD

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

Source: UNCTAD

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Viet Nam




Brunei Darussalam
















Billions of USD

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

Source: Asean Economic Community Chartbook, 2008

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Top 5 ASEAN Exports to China:Dominated by Electonics Parts and Primary Commodities

Source: Asean Economic Community Chartbook, 2008

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ASEAN Commodities Export to China:Main Source for China’s Demand , 2008

Source: ASEAN Economic Commonity Chartbook 2009

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5 Top ASEAN’s ImportASEAN from China, 2008

Source: ASEAN Economic Commodity Chartbook, 2009

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Main ASEAN Countries’ Exports to India:

India Dependent for Raw Materials (2008)

Source: ASEAN Secretariat Office

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ASEAN Imports from India (2008)Why being dominated by Petroleum Oils?

Source: ASEAN Economic Community Chartbook 2009

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ASEAN trade with China:Continuous increase of deficit

Source: ASEAN Statistical Yearbook, 2008

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ASEAN - India Trade:Surplus with Value Added?

Source: ASEAN Statistical Yearbook, 2008

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ACFTA: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.

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Agreements Under ACFTA #1

  • 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.

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Agreements Under ACFTA #2

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.

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Early Harvest Product


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Tariff reduction on ACFTA

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

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Average Tariff Applied (2007) * #1

*Simple average across all partners countries

Source: ITC

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Average Tariff Applied (2007) * #2

*Simple average across all partners countries

Source: ITC

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China Financial Aids and Investment: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

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Relationship of ASEAN-China and ASEAN-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.

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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

with China and India

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China, India dan Indonesia: 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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Statistical discrepancy



Net Export

Gross domestic capital



Government consumption

Private consumption







GDP Structure:Indonesia, China and India

Source: ADB

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Manufacture Productivity and Competitiveness Increasing Foreign Reserve of China

Source: State Administration of Foreign Exchange Bureau of PRC

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Economic Reform:Increasing India Foreign Reserve

Source: Reserve Bank of India

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Billion USD













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

Source: Bank of Indonesia

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China’s Export:Focusing on Manufacturing Goods

Source: Ministry of Commerce PRC

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India Exports

Dominated by Manufactured Goods

Primary Product

Source: Reserve Bank of India

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Non Primary Commodity





Primary Commodity












Indonesian Export:Increasing Shares of Primary Commodity

Source: CBS

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Trade Balance Indonesia-ChinaSurplus for Oil & Gas, Deficit for Non Oil & gas

Source: Ministry of Trade

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Indonesia-India Trade BalanceSurplus for Non-Oil & Gas, Mainly Raw Materials

Source: Ministry of Trade

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Top 10 Exports Indonesia to ChinaDominated by Natural Resources (2008)

Source: CBS

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Top 10 Exports Indonesia to IndiaDominated by Natural Resources, too (2008)

Source: CBS

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Top Imports Indonesia from China (2008)Mostly Manufactured Products, but Agricultural, too

Portable Digital Automatic Data Processing Machines


Structures And Parts Of Structures Nesoi, Of Iron Or Steel


Parts And Accessories For Automatic Data Processing Machines


Auxiliary Plant For Use With Steam Or Other Vapor Generating Boilers


Garlic, Fresh Or Chilled


Aluminum Nonalloyed Rectangular


Superphosphates Fertilizers


Disodium Carbonate


Parts And Accessories Of Motorcycles


Petroleum Oils And Oils From Bituminous Minerals, Crude


Parts For Auxiliary Plant For Use With Steam


Steam And Other Vapour Turbines


Flat-Rolled Products Of Iron Or Non-Alloy Steel


Parts For Machinery Making Or Finishing Paper Or Paperboard


Antennas And Antenna Reflectors


Mandarins (Including Tangerines And Satsumas), Fresh Or Dried


Apples, Fresh












Millions of dollar

Source: CBS

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Top 10 Import of Indonesia from IndiaDominated by Manufactured Goods (2008)

Source: CBS

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China’s and India’s FDIInsignificant in Indonesia

Source: Indonesia Investment Coordinating Board

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China, India dan Indonesia: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.

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China Investment to IndonesiaIt Will Increase, Soon

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Indonesia government has received 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

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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

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……Before ACFTALow Competitiveness of Indonesian Products

Growth of Textile and Leather Product

Source: CBS

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Indonesia Exporting Raw Tin ........

Source: CBS

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…..But, Increasing Importsof Tin Based Products

Source: CBS

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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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