China, Asean aim to clinch free-trade deal upgrade led by EVs, e-commerce
South China Morning Post - 01 October 2024
China, Asean aim to clinch free-trade deal upgrade led by EVs, e-commerce
By Ralph Jennings
More e-commerce and tighter supply chain connections are expected after China and a key 10-nation bloc of Southeast Asian countries said they were pushing to finish talks toward upgrading a landmark free-trade deal, analysts said.
The Association of Southeast Asian Nations (Asean), which encompasses a 673 million population and several fast-growing economies, is “actively working” with China to upgrade the Asean-China Free Trade Area pact, the bloc’s secretary general Kao Kim Hourn told a joint leadership event in China last week.
China said it was working for an “early conclusion” of the upgrade to the pact signed in 2009, the official Xinhua News Agency said, quoting Vice-Premier Ding Xuexiang.
Talks toward an upgrade had begun in November 2022, with the goal of clinching a deal this year.
The so-called version 3.0 upgrade to the deal would cover “megatrends of our time”, such as the digital economy and environmental protections, Hourn said.
An upgrade to the 14-year-old pact would come as Chinese entrepreneurs seek to sell and source more goods in non-Western countries to shelter from tariff-intensive trade disputes led by the United States and the European Union, which have also pushed China away from some global supply chains.
Revised clauses on the digital economy are likely to target e-commerce and transfers of the technology that supports it, said Jonathan Ravelas, managing director of the Manila-based eManagement for Business and Marketing Services consultancy firm.
“For China, economic cooperation with Asean is critical now as it deals with tense relations with the US-led West,” said Zhu Zhiqun, a political-science professor at Bucknell University in the US state of Pennsylvania.
“Asean countries generally do not want to be pulled into the US-China rivalry and they value long-standing … ties to China.”
Asean and China already conduct robust e-commerce thanks to a plethora of delivery companies and a sharp rise in business during pandemic-era lockdowns.
Southeast Asian consumers have relied heavily on Chinese-made household goods and consumer electronics.
China’s cross-border business-to-consumer e-commerce could reach US$500 billion by next year, up from US$155 billion in 2019 and US$350 billion in 2023, according to banking and financial services giant HSBC.
Southeast Asian countries “welcome” increased use of Chinese e-commerce platforms, but their vendors would want a stronger role, said Oh Ei Sun, principal adviser with the Pacific Research Centre think tank in Malaysia.
“We have to strategise as to how our merchants, especially the small- and medium-sized enterprises, could utilise these platforms to sell more of their products to China, especially in anticipation of many Chinese goods that are sure to be ordered by the locals due to price and convenience,” Oh said.
On the supply chain side of the trade pact, the upgrade should “build a more stable and smooth” network, said Vice-Premier Ding.
China looks to Asean member Indonesia for raw materials, such as coal and nickel, while many of its manufacturers have opened plants in fellow Asean nations Cambodia and Vietnam to save on labour and other costs.
Southeast Asian businesses are also “especially” interested in expanding their supplier networks in China, HSBC said in a research note in November last year.
HSBC said 92 per cent of Indonesian businesses, 87 per cent of Philippine firms and 89 per cent of firms from Vietnam expect supply chain growth in China through 2026, higher than 73 per cent across a wider range of countries.
Another part of the trade pact’s upgrade would cover “sustainability”, the Asean secretary general added.
The term means a promotion of “green technologies” to address environmental challenges, Ravelas added.
Increased trade of Chinese-made electric vehicles (EVs) and their supplies also probably falls under the heading, Zhu added, as cooperation in EVs and lithium “is likely to expand”.
China leads the world in EV manufacturing, sales and supply chains, the HSBC report said, while Asean is “rich” in critical minerals for batteries.
Indonesia has the world’s largest reserves of nickel – a crucial material for batteries – while the Philippines is another top player. Asean member Thailand is also exploring its own deposits, according to HSBC.
Asean’s consumer market, where HSBC expects 65 per cent of the population to be middle class by 2030, would also be open to buying Chinese EV brands.
The free-trade area, Asean’s first with an outside country and covering about a quarter of the world’s economy, was created like other global trade deals to cut import tariffs, but it is also aimed at removing barriers to the flow of goods and encouraging two-way investments.
