Bright prospects for closer China-Asean economic ties: Report

CHINA'S economic transformation and rising income levels bode well for its "natural partners" in Asean, with the possibility of broader and deeper economic integration over the next 20 years, according to a recent report from the Asean+3 Macroeconomic Research Office (Amro).

Possible examples of closer ties cited by the report included a growing trade in goods, cross-border tourism, bank lending and even greater use of the Chinese yuan as a currency.

Asean+3 refers to the 10-member regional bloc and its three East Asian partners: China, Japan and South Korea.

The research team called China and Asean natural partners and said that "prospects for broader and deeper integration in the next two decades are bright", adding: "Indeed, China perceives Asean as the region most likely to be receptive to its overtures for deeper economic ties.

"Asean recognises the significant benefits from further integration with China in the areas of infrastructure investment, tourism, manufacturing and digital technology."

Trade with China is expected to rise from 16.7 per cent of Asean's trade in 2017 to 20 per cent in 2035, said Amro. Meanwhile, trade with the South-east Asian bloc could grow to 15.8 per cent of China's trade over the same period, up from 10.4 per cent last year.

The report said that China-Asean trade in goods "will continue to thrive, propelled by the increase in market size on both sides, greater cooperation in facilitating trade and enhancing connectivity, and continued relocation of labour-intensive and other types of manufacturing activities from China to Asean to as China moves further up the value chain".

Amro expects the trading partners' exports of research-intensive goods to each other to keep rising significantly, while Chinese export of capital goods to Asean should increase considerably as well.

South-east Asian exports of consumer goods and food products are also set to rise alongside the growth of the middle class in China, said the report.

Amro added that Asean's tourist receipts could get a sharp boost from a projected quintupling of Chinese visitors - up to 104 million in 2035 - who are also likely to each spend more, as China's per capita income improves by an expected 2.3 times.

On the broader economic front, co-operation through schemes such as the Belt and Road Initiative is expected to foster foreign direct investment flows, while China's portfolio investment in Asean could rise once it opens up capital accounts further to allow nationals to invest abroad.

"The scope for Chinese banks to scale up their cross-border lending in Asean to support Asean's economic development and rebalancing is also large," the report added.

"Similarly, Asean banks will likely further expand their lending in China, while institutional investors will diversify by increasing investment in China."

The research office also said that there is potential for greater use of the yuan for trade and investment in the region, as payment and settlement infrastructure becomes more developed.

A move towards the yuan would benefit both China and Asean, by boosting cross-border activities and reducing foreign exchange risks from the reliance on third-party currencies like the US dollar, said Amro.

"To increase shared benefits from deeper integration, China and Asean need to continue collaborating based on enhanced understanding of each other's needs," said the report, which called such action crucial.

"Trade, investment and financial co-operation needs to be further strengthened to expand the frontier of benefits as well as to boost resilience to external shocks."