Future Prospects and Challenges for

Future Prospects and Challenges for Deeper Economic
Integration
Greater economic interdependence between the Chinese
and ASEAN economies would be required to boost inter- and
intra-industry trade between China and ASEAN. At present. there are
apprehensions among the ASEAN countries that a closer
economic embrace with China through an FTA will bring intense
competition rather than opportunities. in many ways. the
economic resurgence of China carries very serious implications
for Southeast Asia. China's economy as an entity is much larger
than all the ASEAN economies put together.

By virtue of its practically inexhaustible supply of both low-cost skilled and
unskilled labor. China can still retain its comparative advantage
in labor-intensive products even though it is moving up the
manufacturing chain, producing technologically advanced
goods. China's prowess in manufacturing an unprecedented
range of items poses a formidable challenge to ASEAN. whose
domestic markets are already being swarmed with China‘s cheap
and quality products. China's emergence as a global
manufacturing base has apparently also resulted in most ASEAN
economies experiencing a severe hollowing out of their
industries. The difficulties that ASEAN nations face could
negate any potential benefits from having improved access to the
Chinese market as a result of trade liberalization through an
FTA.
Despite similarities in China and ASEAN's trade structures.
there exists a lot of potential for trade expansion if both China
and ASEAN can harness the synergies and comparative
advantage of their own economies to create complementarities
among themselves. China and ASEAN could enhance trade and
investment linkages with one another by specializing in what
they pro- duce and by developing niches and core competencies
in agriculture. machinery. and services such as tourism.
ASEAN. for instance, would benefit if it could increase
agribusiness exports (for example. grains and meat) to China
and capitalize on China's increasing demand for services in areas
such as consulting. finance. education. infrastructure
management. and urban planning. ASEAN countries would also
gain if they could upgrade their manufacturing activities to
higher ends of the value chain. as China has its own industrial
base to rely on for low-tech products.
Likewise. China would reap efficiency gains if it could seek
division of labor with the ASEAN countries according to
comparative advantage. in agriculture. China could be a
dominant supplier to ASEAN for crops like walnuts. apples.
citrus. strawberries. grapes. asparagus. and processed tomatoes.
because China has a strong comparative advantage in the
production of many fruits, vegetables. and flowers. given its
factor endowments.3” China could also help ASEAN with its
agricultural machinery and jointly develop with the Southeast
Asian countries new areas or industries like food processing or
traditional Chinese medicine. There exists a lot of potential and
scope for enhancing economic linkages if China and ASEAN
can harness the comparative advantage of their own economies
and foster greater cooperation in wide areas like finance.
tourism, e-commerce, forestry, energy, human resources
development, or infrastructure building.
China‘s integration into the world economy would see
China increase its investment in ASEAN as Chinese businesses
grow more savvy and outward- oriented. At the moment,
Chinese investment in the region remains modest in absolute
terms but is reported to be accelerating fast.33 Some Chinese
enterprises like the oil and chemical firm Sinopec are actively
exploring over- seas opportunities and investing in resource-rich
states like Indonesia and Malaysia. There are also other
indigenous Chinese firms like Haier and TCL that have made
forays into Southeast Asia by establishing manufacturing
facilities in Indonesia. Vietnam. and the Philippines. In any case.
as Chinese enterprises emerge more competitive as a result of
domestic restructuring. they could spearhead Chinese overseas
investment in Southeast Asia. rather than diverting foreign
investment from their ASEAN neighbors.
To conclude, trade and investment are by no means zerosum
games. and it is possible for China and ASEAN to mutually
benefit if closer economic relations among them are fostered. lf
China and ASEAN can interlock their economies through deeper
integration in the long term. both would become more
competitive as a region and would attract foreign investment
into their integrated market. This would further promote
economic growth and welfare. and more importantly, augur well
for the peace and stability of the region.