Age of the FTA
The Star (Malaysia)
Monday December 18, 2006
Age of the FTA
By DING QINGFEN
CHINA and its trading partners are looking to free trade agreements as the everwidening road to shared wealth.
“SOUTH-EAST Asia is my second hometown,” jokes Liu Yonghao, president of Sichuan New Hope Group (New Hope).
During the last two years, more than one-fifth of Liu’s time was spent in South-East Asian nations, including the Philippines, Vietnam and Indonesia.
“I went there to investigate markets, for negotiations and to sign contracts,” Liu said in a recent telephone interview from company headquarters in Chungdu.
His efforts are paying off. New Hope has three factories operating in Vietnam, two in the Philippines, one in Indonesia and another one under construction there, with a total investment worth 300 million yuan (US$38.46mil).
New Hope is one of China’s major producers of dairy products, meat and feed. It is one of China’s biggest privately owned companies, with annual sales reaching US$2.5bil.
“South-East Asia is becoming our most important overseas market. In three years, we will have more than 10 factories there, with the investment expected to amount to US$200mil,” he predicts.
Liu says he has great confidence in the market, primarily based on the free trade agreement (FTA) China and the Association of South-East Asian Nations (Asean) signed in November 2002.
Scheduled to come into effect by 2015, the FTA is the first anywhere for the both parties and the largest worldwide.
Under the FTA framework, nations involved must reduce tariffs and remove non-tariff barriers on commodity trade, and lift limitations on market access for service trade (such as banking, telecommunications) and investment. This is good news for companies eager to reduce export costs or invest overseas with fewer hurdles.
FTAs have been heatedly discussed worldwide. China is involved in FTA talks with 28 nations from Asia-Pacific, Latin America, the Middle East and Africa.
New Hope is not alone in betting on the business opportunities resulting from the China-Asean FTA and other FTAs with China as a partner.
“Chinese companies’ growing interest in investing in South-East Asian nations is amazing. Annually, investment from privately-owned companies in Asean alone exceeds US$600bil,” says Liu.
China General Technology (Group) Holding Ltd (Genertec), a major state-owned multi-industry group whose business includes exporting machinery, technical equipment, medicine and health products, is another example.
Li Dang, the company’s general manager, says that from early 2005, Genertec began to target Asean nations and Africa as strategically important markets, aiming to obtain more infrastructure contracts in these countries.
In late November, Li travelled to India for field study. That was the same time that President Hu Jintao paid an official visit to India and mentioned establishing a free trade area with India.
“Genertec is planning to expand in India,” an executive from Genertec says on condition of anonymity.
During the second half of last century, as global multilateral trade negotiations under the World Trade Organisation (WTO) had been progressing well, FTA negotiations had been ignored among Asia-Pacific nations. That changed in 2000 with China’s acceptance into WTO.
“Asean, which suffered from financial crisis (1997-1998), was afraid China’s entry would pose threat to them, so they turned to FTAs,” says Standard Chartered Bank regional head of economic research (Northeast Asia) Nicolas Kwan.
Thitapha Wattanapruttipaisan, with the Asean Secretariat, agrees. “China’s powerful economic performance has given rise to dire predictions of China as a global and regional competitor.” Thitapha heads the Secretariat’s Studies Unit with the Bureau for Economic Integration and Finance.
