Five Things You Need To Know About Chinese – South East Asian Relations

In 2015 South East Asia will become a cohesive economic zone of 10 nations; Brunei, Myanmar, Cambodia, Thailand, Laos, Vietnam, Malaysia, Singapore, Indonesia and the Philippines. The ASEAN region has 600 million people and has a total of USD 231 billion of bilateral trade with China; this is expected to double to USD 500 billion in 2015. This far outweighs China’s trade with Africa or South America, making it perhaps the most important South – South trade relationship. In terms of free trade areas, ASEAN is just behind NAFTA and the EU in size.

 Of all the ASEAN countries, one in particular stands out; Indonesia is currently an emerging markets star, receiving plaudits from analysts who are enamoured with the country’s stable growth rate, averaging 5% over the last few years, relative political stability, and rich, but sadly overexploited natural resources. Indonesia also controls many of the “chokepoints” which control the sea lanes that China depends on for the free flow of trade. That and its size and population of nearly 250 million make it key to China’s economic and political ambitions in that part of the world.

Political relations between the China and the ASEAN member states will be a potential minefield, as each state has its own attitude towards their northern neighbour.  Some states like Vietnam and the Philippines are highly suspicious because of a boundary dispute in the South China Sea. Others like Cambodia and Laos are much closer to China. ASEAN has not moved towards a security alliance as its members have significant differences in this arena, leaving it as a free trade zone for now. This approach could benefit China, as it prefers to deal with countries on a bilateral basis.  However China will also be wary of upsetting its neighbours through fear of uniting them in an anti-Chinese alliance

One surprising fact is that China’s single most important developing world trade partner is Malaysia. Although it looks likely to be outstripped by India and Brazil in the not too distant future, the South East Asian country has a trade relationship worth $56 billion relationship with China.  The Malaysian central bank recently set up an office in Beijing so trade could now be settled in Ringgit. This move is another step in the internationalisation of the renminbi, which may change the world’s international financial architecture, although some are sceptical.

Singapore, which will continue to rival Hong Kong or Shanghai as the financial capital of the region attracts massive Chinese investment, particularly in the real estate sector, thanks to its safe haven status and its majority ethnic Chinese population which makes it feel like a home from home for visitors from the PRC. Temasek, an investment company owned by the Singapore government has invested heavily in China, taking stakes in financial institutions such as the China Construction Bank, Bank of China and China Minsheng Corporation, demonstrating that “state capitalism” is not just practiced by the Chinese.



Categories: Country Investment Analysis, Geo-Economics, Kula Ring Trade Blog, Silk Road

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