Asia’s containment of COVID-19 has seen ASEAN it overtake the EU as China’s largest trading partner
29 May 2000 | Staff Writers/ASEAN Briefing
In a clear sign that Asia is the first region on the road to post-coronavirus recovery, the ASEAN region (Association of South East Asian Nations) has moved ahead to be China’s top trading partner through the first quarter of 2020.
ASEAN Briefing reports that, during this period, regional trade with China increased by 6 percent year-on-year to US$140 billion and accounting for 15 percent of China’s total trade volume.
This comes as the country’s traditional, largest trading partner, the EU, has been on lockdown. China’s imports from Vietnam and Indonesia rose by 24 and 13 percent year-on-year, respectively, highlighting the increasingly integrated supply chains between the two regions.
ASEAN’s move started before COVID-19
In 2019, ASEAN moved ahead of the US to become China’s second largest trading partner with total trade valued at US$644 billion.
The combined GDP of ASEAN’s ten member states is 2.1 times Australia’s total GDP, while the value of its two-way trade with China is 4.9 times higher than Australia.
Last year’s move ahead of the US came amidst a prolonged period of trade tension between the US and China. However, notably in the COVID-19 war of words between the US and China, no mention has been made of trade.
Despite the Trump Administration’s rhetoric, political analysts in the US say it will place a high priority on the economy in the lead up to November’s presidential election, so trade is unlikely to be sacrificed.
Trade observers expect the EU to regain its top position as China’s largest trading partner as the virus fades considering some 20 percent of the bloc’s total imports come from China.
Asian demand for electronics behind the trade boost
Electronics have been a major contributor to the Q1 numbers, with China importing US$14.9 billion worth of integrated circuits from ASEAN countries, up by 25 percent in the previous year. This includes chip capacitors, microprocessor chips, and analog-to-digital converters; China exported some US$6 billion worth of integrated circuits to ASEAN.
With the increasing economic uncertainties caused by the US-China trade war, many Japanese and South Korean companies began transferring production to ASEAN, attracted by lower-wage structures as well as improving infrastructure and legal environment.
These businesses have established integrated circuit factories in Malaysia, Vietnam, and Thailand, which in turn have been able to cater to the demand of the Chinese market.
These new production hubs do not mean the entire industrial chain has shifted to ASEAN, rather they have become an extension of the industrial chain in China. Many of these factories still require raw materials, equipment, expertise, and technology from China, and many are also dependent on Chinese consumers as their primary markets.
ASEAN growth prospects are solid
Yet, as China slowly returns to pre-COVID-19 production levels, the country’s demand for mining products will benefit major producers in ASEAN, such as Indonesia, Malaysia, Myanmar, and Laos. Other sectors set to benefit from the resumption of China’s manufacturing are the region’s semiconductor and electronics industries, spurred by the development of 5G technology and the textiles and garment industry.
In the post-pandemic period, there will be efforts for greater regional trade integration among the ASEAN+3 (ASEAN+ China, Japan, and South Korea) economies, particularly as a counterweight against the rise of protectionism policies, and make these economies more resilient to volatility shocks.
This will be further supported by the finalization of the Regional Comprehensive Economic Partnership (RCEP) free trade agreement (FTA) later in 2020.
The proposed FTA will link the ASEAN members and China, Japan, South Korea, Australia, and New Zealand (India withdrew from the agreement), in what is expected to be the world’s largest FTA, encompassing 3.4 billion people and one-third of global GDP.
Increasing market access, reduction in tariffs, and the opportunity to facilitate small and medium-sized businesses (SMEs) in ASEAN to integrate regional supply chains will make products from ASEAN more competitive and position the bloc as a key player of global growth, after the pandemic.