Supercharging trade relations with Asean

Saturday October 24, 2009
Source: thestar

The latest China-Asean expo confirmed all expectations — that as tariffs come down, cooperation in trade and investment rises ever higher.

IN April, Chinese Prime Minister Wen Jiabao stressed the significance of further regional cooperation with Asean at the Boao Forum for Asia. He announced the setting up of the long-planned China-Asean Investment Cooperation Fund to show China meant business.

Four months later, the Export-Import Bank of China (Eximbank) made its first public appearance to speak about the fund, which has become one of the highlights as China-Asean cooperation reaches another milestone with the realisation of the China-Asean Free Trade Area (CAFTA) next year.

Then Eximbank special financing account department deputy general manager Wang Hongwei said the bank was establishing the fund in Hong Kong and forming a fund management company entrusted by the investors. He even invited professionals from all over the world to manage the fund, which will ultimately have a size of US$10bil (RM33.8bil).

At Nanning’s 6th China-Asean Expo in Guangxi Zhuang Autonomous Region, which concluded this week, Eximbank announced the good news that the private equity fund would be in operation before the end of the year.

For a start, the fund management company will raise US$1bil (RM3.38bil) to invest in China-Asean cooperation projects in transportation facilities, public utilities, information and communication, and energy and resources.

Eximbank chairman Li Ruogu said the launch of the fund was timely, as next year’s CAFTA would require advanced financial support to keep up with increasing trade exchanges. He said in the first stage the fund would focus on infrastructure development, but investments would not be limited to the above fields.

Li added that follow-up funding would be adjusted according to the actual levels of China-Asean cooperation, and might go to fields like manufacturing and the services industry.
“Deepening China-Asean economic ties badly needs direct investment, especially in infrastructure,” he said.

The most likely investors include the Asian Development Bank and the World Bank, eyeing growing prospects for infrastructure projects like ports, channels in the Lancang-Mekong subregion, and railways and highways that connect south-western China and Vietnam.

At the China-Asean Expo alone, Chinese private and state-owned companies sealed more than 80 deals worth 47.4bil yuan (RM23.5bil) to build infrastructure, agricultural processing plants, logistics centres and tourist attractions.

From Jan 1 next year, under the CAFTA agreement, 93% of goods traded between the six Asean founding members and China will be zero-tariff, excluding “sensitive” commodities and products such as palm oil, rubber, cocoa and cars. The other four countries — Myanmar, Laos, Cambodia and Vietnam — will meet the tariff-less target by 2015.

Malaysian trader Simon Loh, who visits China for business frequently, said his company now pays to China an import tariff of about 5% on his products and about 20% in VAT for any purchase of goods from China, but it would be refunded if the goods were not resold or used for processing in the country.

He said after the CAFTA comes into effect, he would no longer pay the import tariff and his product pricing would be more competitive.

Majulah Koko Tawau Sdn Bhd managing director Yu-Hong Kim Fah said her company currently paid a 30% tariff on the raw cocoa it imported into China, but the tariff would be reduced further.

“We have started to manufacture cocoa products which will enjoy zero tariff. At the Canton Fair last April, we received orders from the Lotus supermarket in Guangzhou and look forward to have our products in China for the first time,” she said at her booth at the Expo.

About 100 Malaysian exhibitors participated in the exhibition, with many of their products benefitting from zero tariffs under the CAFTA.

Malaysia External Trade Development Corporation deputy CEO Dr Wong Sai Lum said some of the exhibitors might not be direct beneficiaries of the CAFTA, but they offered good products meant for China’s market.

“Forty-six per cent of exhibitors focus on the food and agricultural sectors which are direct beneficiaries. We also have several companies in the services sector in wastewater treatment and education, which may not get zero tariffs but will get opportunities through the CAFTA,” she said.

Besides zero tariffs, Asean countries and China also agreed to open up one anothers’ service markets in environmental protection, transportation, sports and education. Likewise the approval of permits to set up joint ventures or wholly foreign-owned enterprises, and limits on the shareholding ratio.

Since the Framework Agreement on Comprehensive Economic Cooperation was signed between Asean and China in 2002, tariffs have been reduced gradually.

According to Asean Secretary-General Surin Pitsuwan, the average tariff on goods exported from China to Asean has come down to 4.5%, compared with 8.1% given to the most favoured nation. China has reduced its tariff on Asean imports to 2.4%, compared with the 9.8% it offers to its most favoured nation.

Two-way trade between China and Asean grew from US$59.6bil (RM201bil) in 2003 to US$194.5bil (RM659bil) in 2008, thanks mainly to the elimination of tariff barriers.

“China is now the No. 3 trading partner of Asean and it’s only growing faster and faster, and I am sure it’s going to become No. 2 and No. 1 very soon,” Surin said.