The ASEAN-China trade corridor stretches all the way from the cold and dry steppes in northern China to the tropical jungles of Indonesia. In between these extremes, there is a diverse range of commercial activity, with each geography equipped with its own competitive advantage.
China’s Pearl River Delta, Thailand and Vietnam for example, are all important manufacturing hubs, while Indonesia and Malaysia are rich in natural resources. Hong Kong SAR and Singapore are international financial centres, and Shenzhen is shaping up to be Asia’s Silicon Valley.
The Regional Comprehensive Economic Partnership (RCEP) came into force for 10 countries at the beginning of 20222, with other countries set to ratify later in the year. This the largest free trade agreement in the world, which connects 15 economies that account for 30% of global GDP. By making the exchange of goods and services between ASEAN and China much smoother, due to the elimination of most tariffs in the bloc, RCEP will help put Asia back on its pre-covid growth trajectory.
The potential economic impact will be huge, with estimates that the deal could increase world incomes by US$209 billion annually, while adding US$500 billion to world trade by the end of the decade3.
RCEP will also make it easier for businesses to use Southeast Asia as a production base, which will accelerate the diversification of supply chains that is already underway in Asia. In particular, this could promote the further integration of Asian economies.
There is demand for supply chains to become more diverse to benefit from the economic strengths of different countries. In the period from 2019 to 2021, a number of large Chinese companies diversified their production into ASEAN – expanding apparel and bicycle parts production to Vietnam and automotive manufacturing to Thailand4.
ASEAN trade to China is moving up the value chain, something that is especially evident with electronic components. In the first quarter of 2020, China imported US$14.9 billion worth of integrated circuits from ASEAN countries, a 25% year-on-year increase5.