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Southeast Asia embraces China trade, but how's the relationship? It's complicated.

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Trade liberalization with China

Tariffs have been slashed on 90 percent of goods traded between China and the six largest economies in the Association of Southeast Asian Nations under a 2002 free-trade pact. The China-ASEAN Free Trade Agreement mandates tariff-free status on goods, with exemptions granted until 2015 on certain items. Four other, poorer ASEAN countries have agreed to follow suit in order to create the world’s largest free-trade zone by population.

In 2008, China-ASEAN trade hit a peak of $231 billion before the global recession in 2009 led to an 8 percent contraction. Trade recovered last year and rose 50 percent in the first seven months of the year to $161 billion.

Indonesia, which has the largest economy in ASEAN, has questioned the pace of trade liberalization with China. Last year, it unsuccessfully sought to delay tariff cuts on over 200 items, including textiles, machinery, and iron and steel, amid disquiet more than cheap Chinese imports. Unlike the US, Indonesia runs a large trade surplus with China, due to its abundant coal, natural gas, and other commodities.

For Thailand, China has become a key trade partner. It is the largest single market, buying around $40 billion worth of goods in 2010, putting it ahead of the US, Japan, and Europe. The Thai government has forecast that the value of exports to China could double within three years, fueled by low tariffs.

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