China sneaks up on US in Asean economic ties

Vientiane, Laos

CHINA managed to strengthen economic ties with the 10 Asean member states on Wednesday, while the United States - another major trading partner of the regional bloc - struggles to keep up with the pace.

Here on Wednesday, Asean states and China proclaimed to cooperate more on regional trade and investment, and to develop industrial capabilities.

Separately, Singapore's Prime Minister Lee Hsien Loong said to Asean leaders at a closed-door meeting that the Regional Comprehensive Economic Partnership (RCEP), a mega regional trade pact that includes China - but not the US - is a "new viable pathway" towards a free-trade agreement that covers Asia-Pacific.

Said Frederic Neumann, HSBC's co-head of Asian economics research: "Amid sputtering demand, Asean leaders are looking for new avenues of growth. Binding the region more closely together with China economically promises greater vitality in years to come."

Latest data from Asean shows that China is its largest external trading partner. China's share of total trade last year, including intra-Asean trade, is 15.2 per cent, or US$345.4 billion.

The US is the region's fourth largest external partner, with a 9.4 per cent share at US$212.3 billion.

In recent years, these two economies - the world's top and second largest ones - have increasingly intensified their rivalry for economic dominance by focusing on their trade links with Asean.

These approaches are largely guided by their internal concerns.

China is undergoing economic transition. Its cash-rich companies and industrial firms are looking to export some of those excess investment and production capacity. At its doorstep, South-east Asia is a natural market for China.

For the US, trade becomes an important tool for engagement in this region as it seeks to maintain its presence here. Stretched by security and military concerns elsewhere, the world's economic superpower is fighting to soothe its South-east Asian allies' fears of a belligerent China by pledging economic support.

On Wednesday, China seemed to have crept up on the US.

Asean member states and China proclaimed on Wednesday that they will engage in "production capacity cooperation".

In a two-page statement, they pledged to facilitate business-led initiatives that help each country build up industrial capabilities.

This way, the countries' production and consumption needs can be met, thus achieving "sustainable development and shared prosperity".

This comes as US President Barack Obama is making one last push in South-east Asia for a US-led trade deal that increasingly faces the possibility of falling through.

Mr Obama is in Vientiane for the Asean summit. This visit to Laos, the first for a sitting US president, comes just three months before US voters pick a new president in November. Mr Obama will then step down in January next year.

This makes Mr Obama's trip to Asia-Pacific the last as US president, as he tries to cement his legacy of drawing the US closer to Asia.

A big part of this approach involves the Trans-Pacific Partnership (TPP), which seeks to break new ground in removing trade barriers among 12 Asia-Pacific nations. Four of them are Asean states.

Notably, the TPP excludes China. Mr Obama has fashioned the pact as crucial to US' relevance in the region, as China cannot "set the rules".

However, the TPP faces considerable opposition from Washington lawmakers. US presidential candidates Hillary Clinton and Donald Trump have also openly opposed it.

In a nod to the increased competition between the US and China - including on economic issues, Mr Obama said in a speech here on Tuesday: "The United States and China are engaged across more areas than ever before."

On Wednesday, Singapore's Prime Minister Lee Hsien Loong portrayed the RCEP as an alternative to the TPP.

The RCEP, which 16 countries including all the 10 Asean ones have committed to, is "a new viable pathway towards an eventual free-trade area of Asia-Pacific alongside the TPP", he said in comments released by Singapore officials at the closed-door meeting.

Already, observers are stating that the RCEP holds more hope for the region than TPP, thus giving China an edge over the US in strengthening its economic ties with Asean.

"It is likely that the RCEP will be ratified before the TPP. This will undoubtedly strengthen further Asean's trade flows with China," said Ho Woei Chen, UOB economist.