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China-ASEAN Free Trade Area Quarterly Report (Q1-2)

Post Time:2014-08-25 11:03:00

In the year 2013, the world economy remained on the track of sluggish recovery. Both China and ASEAN countries were partly under pressure from an economic downturn. In response, all countries in the region took active steps to revitalize their economy on the one hand, and put forward new objectives and concepts for enhancing regional cooperation on the other hand, which played an active role in facilitating their economic growth and turned the region into the new engine of world economic recovery.

2.1New trend of regional economy

2.1.1 Economic situation of China

In 2013, China’s GDP registered a year-on-year rise of 7.7% to RMB56.9 trillion. In 2014, its economy is expected to grow steadily at 7.5%, and CPI will continue its modest increase rate, which may be slightly higher than the 2013 level. Tendency Judgment on demand

Household consumption expenditure is expected to maintain its steady growth; government consumption expenditure will keep growing at a slow space; the growth in gross fixed capital formation may slow down; infrastructure investment growth may continue its downward trend in 2013; real estate development growth will possibly fall slightly; due to overcapacity contradictions and declining year-on-year ex-factory prices, manufacturing investment can hardly see a pickup in growth; and the exports of goods and services may witness a gain in growth thanks to the world economic upturn in 2014. Tendency Judgment on production

Agricultural production growth may slow down; industrial production will keep steady growth at a slightly lower rate; the production growth of construction industry may experience a small slide; and the production of service sectors may maintain a sound momentum of development: emerging service sectors including e-commerce, smart phones, smart TV, education, medical-care, elderly-care and health will enjoy a broad space for development.

According to the statistics of China’s National Bureau of Statistics, China’s GDP had a year-on-year growth of 7.4% in the first quarter of 2014, 0.3 percentage points lower than the previous quarter. Specifically, agricultural production was stable with a year-on-year increase of 3.5%. The growth rate of industrial production had a decline, and that of the industrial added value (calculated at comparable prices) of above-scale enterprises across the country climbed by 8.7% year on year, 0.8 percentage points lower than the same period last year. Fixed asset investments had a year-on-year rise of 16.3% after adjusting for inflation, 3.3 percentage points lower than a year earlier. With regard to foreign trades, total imports and exports hit RMB5.9022 trillion, a drop of 1.0% year on year, with RMB3.0025 trillion in exports (down 3.4%), RMB2.8997 trillion in imports (up 1.6%), and a surplus of RMB102.8 billion.

2.1.2 Economic situation of ASEAN and its member states

In 2013, the economic growth of ASEAN countries took on a slow downward trend which was weaker than expected. ASEAN posted an economic growth rate of 5%, a decline of 0.6 percentage points from 5.6% last year, and 0.4 percentage points lower than 5.4% as expected. Analysis show that mainly resulted from weak exports and decreased investments, the economic growth of ASEAN’s three biggest economies – Indonesia, Malaysia and Thailand – suffered a noticeable decline, encumbering the overall tendency of ASEAN economy. The reduced demand of the international market for palm oil and natural rubber had a marked impact on their economy. In addition, the exports of Indonesia’s coal and copper, Thailand’s rice and electronic products of Malaysia and Thailand were also greatly affected.

A major reason for a falloff in ASEAN investments was the decreased current-account surplus combined with the increased uncertainties in the international financial market. The overall current-account surplus of ASEAN countries accounted for 7.1% of GDP in 2009 but decreased to 2% in 2013, which reflected the impact of declining export demand, falling export commodity prices and growing exports of consumer goods and capital equipment.

When the world economy was confronted with many instabilities and uncertainties, ASEAN’s economy also suffered from downward pressure. In spite of that, the region was still regarded as one of the most dynamic and promising regions in the world. According to a survey report published by the US-ASEAN Business Council in 2013, among 475 US corporate leaders doing business in ASEAN countries, 63% of them thought that ASEAN markets have developed into their major profitable markets worldwide in the past two years, 33% believed that ASEAN markets have been increasingly important in the past two years; moreover, 73% of the respondents indicated that ASEAN markets will exert growing influences on their global business income in the next two years, while 24% of them figured that the importance of ASEAN markets will be stable in the next two years. In accordance with the Findings from 2013 ASEAN-BAC Survey on ASEAN Competitiveness Report released by the ASEAN Business Advisory Council, investors had a growing interest in investing in ASEAN. Of the respondents, over a half of enterprises that have already or planed to carry out international cooperation regarded ASEAN countries as the world’s most attractive destinations of outbound direct investment, and 94% of them expressed their plan to invest or increase investment in ASEAN countries in the next three years (2013-2015).

As forecasted by the Asian Development Bank, the economic situation of ASEAN will pick up in 2014, with the overall growth rate rising from 5.0% to about 5.3%. The pickup in economic growth will be largely benefited from the expected growth in trade with the US and European countries, and the recent currency devaluation of some ASEAN states will boost their exports.

Economic situation of each country:

Brunei: In 2013 Brunei’s GDP declined by 1.8% year on year. The output value of oil and gas industry decreased by 7.2% year on year, while the output value of other industries had a 2.7% increase. From a sectoral perspective, the industrial output value down 13.8% year on year, featured by a 21.4% decline in the mining sector, a 1.1% decrease in the manufacturing sector, a 7.5% increase in the building sector, a 2.6% rise in the hydroelectric sector and a 3.2% increase in the service sector. Trade and government service sectors posted the fastest growth (3.8% respectively), along with a 3.4% increase in the transportation industry, a 3.3% increase in the financial industry, and a 2.0% increase in the real estate industry.

Cambodia: In 2013 Cambodia’s economy grew by 7.2%, primarily driven by the growth of the export, building and service sectors. Cambodia’s foreign trade amounted to USD15.88 billion, an 18.5% increase year on year. Total export amounted to USD6.9 billion, a rise of 27.7% year on year. Total import amounted to USD8.98 billion, an increase of 13% year on year. Trade deficit amounted to USD2.08 billion. The apparel industry, tourist industry, agricultural industry and construction industry are the pillar industries. Major exports include garment, footwear, rubber, rice and cassava. Major imports include fuel oil, raw materials of ready-to-wear, building materials, mobile phones, machinery, foodstuff, beverage, drug and cosmetic. The US, EU, China, Japan, South Korea, Thailand, Vietnam and Malaysia are the major trading partners. It is estimated that the economy will grow at 7.2% in 2014, with further development of the banking and financial sectors. Despite that, a downward risk may occur due to the deterioration of labor disputes and the quantitative easing monetary policies implemented by the Fed in 2014.

Indonesia: Indonesia is ASEAN’s largest economy. In 2013 Indonesia’s GDP increased by 5.78%, slightly higher than the predicted 5.7%. The export of trade in goods and services increased by 5.3%, while the export of trade in goods declined by 3.92%. In terms of investment, Indonesia’s FDI hit an all-time high with a 22.4% increase in 2013. Domestic investment maintained strong momentum with an increase of 39% year on year. Overall, the country’s economy continued to grow rapidly as a result of the increase in consumption and investment, while there was a slowdown in the growth rate. In fact the growth rate in 2013 was the lowest since 2009. The central bank of Indonesia estimates that in 2014 the GDP will grow at 5.8-6.2%. Projection of the World Bank shows that Indonesia’s economy will grow at 5.3% in 2014, with a less-than-5-percent increase in personal consumption. In terms of investment, as there will be a decrease in the fund available for investment and an increase in the cost of import as a result of tighter credit and shrinkage in commercial profit, the investment is likely to decline. And more challenges may arise largely owning to unsolved regulatory issues and uncertainties in some economic sectors, particularly the mining sector.

Laos: Laos’s GDP grew by 8% in 2013. Inflation rate reached 5.64%, a 1.19% increase year on year, largely owing to the rising prices of foodstuff, crude oil, electricity and gas. According to a report released by the World Bank on March 4, 2014, Laos’s economy will grow by 7.2% in 2014. The primary reasons include a slowdown in the mining and building industries, and the continuous inflationary pressure brought by the spectacular economic growth in 2013. In 2014 the Lao government may continue to adopt an expansionary monetary policy, meanwhile the resource industries will play a less significant role as compared with previous years in stimulating economic growth, largely because most resources exploitation projects are under construction and cannot be put into operation and that the drop in gold production will offset the increase in copper production. Meanwhile the service sector, the food processing sector and the beverage sector will continue to grow as a result of buoyant market demand. A great many investors from countries such as Japan and China took Laos as their manufacturing base due to its rapid economic growth and lower labor costs. Over the past two years Laos has seen escalating inflationary rate alongside rising labor costs, the country has attracted less interest from foreign investors. Despite that, a newest report published by the World Bank shows that although the country may face some challenges and risks caused by the easy macroeconomic policies, the economy will continue to grow rapidly in the next few years, making it one of the most appealing manufacturing bases in Asia.

Malaysia: Malaysia’s GDP grew at 4.7% in 2013, falling far behind the projected 5.6%. In terms of foreign trade, Malaysia’s import and export amounted to USD434.52 billion, a rise of 2.4% year on year. Total export reached USD228.4 billion, down 8.3% year on year. Total import amounted to USD206.12 billion, a rise of 4.9% year on year. Trade deficit amounted to USD22.28 billion, an increase of 27.7% year on year. The total import and export between China and Malaysia hit a historical high of USD106.08 billion, an increase of 11.9% year on year. This makes Malaysia the third Asian country that trades with China in an amount topping USD100 billion, only next to Japan and South Korea, as well as China’s largest trading partner in ASEAN for several consecutive years. The trade volume between China and Malaysia amounted to nearly one-fourth of that between China and ASEAN. In terms of investment, Malaysia’s FDI hit an all-time high of MYR38.77 billion in 2013, a 24% increase over MYR31.12 billion in 2012. Statistics show that globally the FDI increased by 11% in 2013, compared with 2.4% only in Southeast Asia, and Malaysia outperforms its peers in attracting foreign investment. Major areas of Malaysia’s foreign direct investment include: manufacturing (37.6%), service (28.8%) and mining (28.7%). The World Bank estimates that the Malaysian economy will grow by 5% in 2014, triggered by world economic restoration and the sustained growth of domestic demand. As time passes by, the policies that the Malaysian government adopted earlier to reduce deficit by lowering the amount of subsidies will have some impacts on domestic consumption. And the implementation of the economic transformation program will provide a catalyst for investment, particularly the infrastructural projects.

Myanmar: According to World Bank projection, Myanmar’s GDP will grow by 7.5% in fiscal year 2013-14 (April 1, 2013 to March 31, 2014), primarily driven by the growth of the natural gas, building and service sectors. In 2013 Myanmar’s foreign trade totaled USD22.9 billion, a rise of 26.9% year on year. In terms of investment, in 2013 the country attracted foreign investment of USD2.78 billion, a rise of 160.2% year on year. Foreign investments are primarily absorbed by the energy, garment, telecommunication, and food & beverage sectors. In 2013 China (including Hong Kong SAR and Macau SAR) invested USD310 million in Myanmar, a rise of 9.2% year on year, making it the fifth largest investor of Myanmar. China’s total investment in Myanmar amounted to USD20.859 billion, making it the largest investor of Myanmar over the past years. In January to March 2014 Myanmar’s Investment Commission approved over 40 foreign-funded and joint venture projects, among which there were nearly 20 projects of the manufacturing sector. These projects covered areas of garment, footwear, umbrella and sports goods. The World Bank predicts that in fiscal year 2014-15 Myanmar’s GDP will grow at 7.8% as a result of growth of the building and service sectors and the increase in foreign investment. It is believed that in 2014 Myanmar will be an optional destination for international investors. As shown in the survey report published by the US-ASEAN Business Council, 100% of US entrepreneur respondents said that in 2014 their enterprises in Myanmar will see an increase in profits. When asked “whether or not to expand market in Myanmar”, all respondents from Myanmar said that they will intensify marketing efforts in Myanmar. Over the past few years the country has achieved remarkable progress in improving its legal and policy environment, strengthening the governance of law, transforming government functions and combating corruption. Despite the fact that presently Myanmar ranks the fifth in terms of investment risks worldwidely, there are marked improvements in its business environment. Analysis of research institutes shows that Myanmar will be eliminated from “countries with the greatest investment risks” if the current momentum continues. Presently the country is still puzzled by short power supply if it is to fulfill its aim of foreign investment attraction. Its power grid can only cover 26% of total population. Statistics show that it will take five years for Myanmar to satisfy its current power demand, even if the country’s power supplying capacity doubles each year, while the power demand is still increasing at 12% annually. The relatively lower administrative efficiency and weak capability in implementing regulatory measures also deserve attention from investors.

The Philippines: According to data released by the Philippine National Statistics and Coordination Commission, although the country was hit by natural disasters in 2013, the economy still grew at 7.2%, higher than 6%-7% predicted by the Philippine government. This makes the Philippines an Asian country with highest economic growth in 2013 only next to China. The astonishing growth rate was attributed to the rapid growth of the manufacturing sector, the service sector and the industrial sector. In 2013, the Philippines’s service sector grew at a rate of 7.1%, and industrial sector at 9.5% and manufacturing sector 10.5%. In terms of foreign trade, Philippine imports amounted to USD61.7 billion, down 0.7% year on year. Total export amounted to USD54 billion, a rise of 3.6% year on year. Trade deficit arrived at USD7.7 billion, down 33% year on year. The Philippine government has set its aim of export of trade in goods at 6% for 2014, which is higher than 3.6% for 2013. In terms of investment, in 2013 the country attracted foreign direct investment of USD3.86 billion, a 20% increase over the previous year. The increase was primarily driven by the increased investment of foreign-funded enterprises in the Philippines. Major areas of investment include manufacturing, water supply, garbage disposal, finance and insurance, real estate and mining. According to World Bank projection, the Philippine economy will grow at 6.6% in 2014; the devastation caused by wind disasters in 2013 may hinder the growth of consumption, while the spending of reconstruction can offset partially the decline in GDP growth. The Philippine government plans to, in the next three years, invest 1.836 trillion pesos in infrastructure, and PPP projects will constitute the majority of infrastructure investments.

Singapore: According to data released by the Singaporean government, in 2013 the country’s economy grew by 4.1%, higher than 3.7% predicted at the beginning of the year and significantly higher than 1.9% in 2012. The growth was primarily triggered by the sustained growth of the three primary sectors, i.e. the manufacturing sector, the building sector and the service sector in Q4 2013. Specifically, the manufacturing sector posted an increase of 1.7%, which is significantly higher than 0.3% in 2012. The building sector increased by 5.9% in 2013, compared with 8.6% in 2012. This is attributable to the slowdown in public and private building activities. In 2013 the country maintained strong momentum in the growth of financial service, wholesale and retail trade sectors. As a result, the service sector grew by 5.3% as compared with the previous year, which is higher than 2% in 2012. Analysis shows that as the global economy will increase in momentum, it is projected that the Singaporean economy will grow moderately in 2014. Export-oriented industries such as the manufacturing and wholesale trade sectors are likely to benefit from the increase in global demand. According to data released by the Singaporean Ministry of Trade and Industry, in 2014 the Singaporean economy will grow at 2%-4%. Data of Q1 2014 shows that the country’s economy grew at 0.1% in the first quarter of 2014, down significantly from Q4 2013. Although there are uncertainties around the GDP growth of Singapore in Q1 2014, the Monetary Authority of Singapore still believes that as the world economy tends towards restoration, the Singaporean economy will post growth accordingly.

Thailand: Thailand’s GDP grew at 0.6% only in the fourth quarter of 2013, down significantly from 2.7% in the third quarter of the year. Domestic consumption grew slowly, with a 4.5% decline in household expenses. Total investment decreased by 11.3%, with a 0.9% increase in public spending. In 2013 the Thai economy grew at 2.9%, down significantly from 6.5% in 2012. The primary reason is that the household expense and private investment grew at a pace higher than the average level in the latter half of 2012, which is partially driven by the first car program. Meanwhile the export of products and services slackened in growth momentum thanks to the slow restoration of world economy. Overall the GDP growth in Q4 2013 is a manifestation of strong negative impact of political unrest on Thailand’s economy, particularly the business area. Looking into 2014, the Thai National Economic and Social Development Commission predicts that the Thai economy will grow at 3.0-4.0% in 2014, which will be driven by the growth of export as a result of world economic restoration (export may grow by 3.6%). Tourism will continue to maintain good momentum; the public spending will also be increased. However, as the political deadlock continued for months, Thailand’s Industrial Confidence Indicator continued to decline to the lowest level (85.7 points) in 56 months since February 2014. At the beginning of 2014 the Thai National Economic and Social Development Commission adjusted the GDP growth target for 2014 from 4% to 3.1%. However, it may take time to reach the aim judging from the current situations.

Vietnam: In 2013 Vietnam’s GDP increased by 5.42% year on year. It is lower than the targeted 5.5%, but is higher than 5.25% in 2012, a manifestation of economic restoration. In terms of foreign trade, in 2013 the country’s export totaled USD132.135 billion, an increase of 15.4% year on year. Total export accounted for 77.6% of GDP, higher than 73.7% in 2012. Import amounted to USD132.125 billion, an increase of 16.1% year on year. Trade surplus arrived at USD10 million. Major export products include cell phones and accessories, computers, electronic products and accessories, textiles, crude oil, aquatic products, timber and woodware. Major import products include computers, electronic products and accessories, cloth, gasoline and steel. In terms of foreign investment, in 2013 the country’s FDI reached USD21.6 billion, a rise of 54.5% year on year, which was the highest since 2010. Most foreign investment (76.9%) was absorbed by the manufacturing sector, followed by power, natural gas, steam and air conditioner industries (9.4% in total) and other industries (13.7% in total). The Vietnamese government has set its aim of GDP growth for 2014 at 5.8%. The World Bank predicts that in 2014 Vietnam’s foreign trade will continue to post surplus. Ten categories of products surpassed USD1 billion in the total export in Q1 2014. Mobile phones and accessories ranked the first in foreign exchange earned, with total export of USD5.47 billion, representing an increase of 23.9% year on year. This is followed by textile and garment and electronic products and accessories.

To be continued

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