Presentation on theme: "By: Hendri Saparini, Ph.D Managing Director ECONIT Advisory Group "— Presentation transcript:
1Recent Development of ASEAN's Economic Relationship with China and India By: Hendri Saparini, Ph.DManaging DirectorECONIT Advisory GroupIDEAs WorkshopNew Delhi, 5-6 November 2009
2Presentation OutlineEconomic characteristics and its development of ASEAN members, China and India.ASEAN China Free Trade Area (ACFTA) and ASEAN India Trade in Goods Agreement (TIG): The Basic Agreement and Current DevelopmentTrade and Investment between Indonesia – China and Indonesia – India, and their impacts on Indonesian economy.
3IntroductionASEAN is very aggressive to enter into a Free Trade Agreement (FTA). In fact, the country members of ASEAN have not all been ready to commit in such FTA.A review on ASEAN-China and ASEAN-India FTAs is very crucial as ASEAN will have to deal with two economic giants, not to mention that they are highly competitive.A review on Indonesia, as one of ASEAN members that has huge economic potentials, is expected to give significant result in form of relationship development pattern, as well as the potential benefit and negative impact from the economic integration on process.
4List of ASEAN Free Trade Agreements SIGNING DATEEFFECTIVEASEAN-Australia-New Zealand Free Trade Area (AANZFTA)27 February 2009Preparations are currently being undertaken for the ratification and the subsequent implementation of the Agreement by the partiesASEAN-China Free Trade Area (ACFTA)November 2002The realization of ACFTA in 2010 for Brunei Darussalam, Indonesia, Malaysia, Philippines, Singapore, Thailand and China, and 2015 for Cambodia, Lao PDR, Myanmar and Viet Nam.ASEAN-India Trade in Goods (TIG) Agreement13 August 2009The ASEAN-India FTA will see tariff liberalisation of over 90% of products traded between the two dynamic regions. Tariffs on over 4,000 product lines will be eliminated by 2016, at the earliest. The ASEAN-India TIG Agreement will enter into force on 1 January 2010 once India and at least one ASEAN Member State notify completion of their internal ratification process.ASEAN-Japan Comprehensive Economic Partnership (AJCEP)April 2008The Agreement entered into force on 1 December As of July 2009, Brunei Darussalam, Lao PDR, Malaysia, Myanmar, Singapore, Thailand, Viet Nam and Japan have ratified the Agreement. ASEAN-ROK Framework Agreement on Comprehensive Economic Cooperation13 Dec. 2005The Framework Agreement provides for an ASEAN-ROK Free Trade Area by the year 2008 (with flexibility to 2010) for ROK, 2010 (with flexibility to 2012) for Brunei Darussalam, Indonesia, Malaysia, Philippines, Singapore and Thailand, 2016 for Viet Nam and 2018 for Cambodia, Lao PDR, and Myanmar.
5Countries Economic Characteristics: ASEAN Needs to Define A Better Strategy China is an economic giants to ASEANGDP and Foreign Reserve of China are far above those of ASEAN membersTrade structure between China and ASEAN members show that Chinese products are highly competitiveAlmost all ASEAN members face trade deficit against ChinaChinese attractiveness for foreign investment is above that of ASEAN members in average.
6Economic Growth: ASEAN Behind China and India Source: IMF
7GDP Comparison: ASEAN’s GDP only 34% of the Chinese (2008) Source: 2008 figure, IMF
8GDP Structure: ASEAN members, China and India Source: ADB
9High Growth of FDI in China: Impact of Economic Reform Source: UNCTAD
10FDI Inflow (1998-2008): China is far Above ASEAN Source: UNCTAD
11Exports and Import: Huge Surplus of China’s International Trade 0.84.46.68.849.061.8137.0175.0194.5241.4187.4879.31428.52004006008001000120014001600Lao PDRCambodiaMyanmarBrunei DarussalamPhilippinesViet NamIndonesiaThailandMalaysiaSingaporeIndiaASEANChinaBillions of USDExportsImportsSource: Asean Economic Community Chartbook, 2008
12Top 5 ASEAN Exports to China: Dominated by Electonics Parts and Primary Commodities Source: Asean Economic Community Chartbook, 2008
13ASEAN Commodities Export to China: Main Source for China’s Demand , 2008 Source: ASEAN Economic Commonity Chartbook 2009
145 Top ASEAN’s Import ASEAN from China, 2008 Source: ASEAN Economic Commodity Chartbook, 2009
15Share of total export (%) Main ASEAN Countries’ Exports to India:India Dependent for Raw Materials (2008)CountryCommodityShare of total export (%)Brunei DarussalamCrude petroleum oils99.80%CambodiaPalm oil & its fraction88.80%MyanmarDried vegetables, shelled61.70%Indonesia57.40%Malaysia39.70%SingaporePetroleum oils, not crude22.20%Viet NamCoal; briquettes, ovoid & similar solid fuels manufactured from coal21.68%PhilippinesParts & access of motor vehicles18.90%Thailand6.40%Source: ASEAN Secretariat Office15
16ASEAN Imports from India (2008) Why being dominated by Petroleum Oils? Source: ASEAN Economic Community Chartbook 2009
17ASEAN trade with China: Continuous increase of deficit Source: ASEAN Statistical Yearbook, 2008
18ASEAN - India Trade: Surplus with Value Added? Source: ASEAN Statistical Yearbook, 2008
19ACFTA: Gates to Liberalization ACFTA was agreed in November Both sides have targeted the realization of ACFTA in 2010 for Brunei Darussalam, Indonesia, Malaysia, Philippines, Singapore, Thailand and China, and 2015 for Cambodia, Lao PDR, Myanmar and Viet Nam.Under the ACFTA, tariffs on certain products as known as the Early Harvest Program (EHP), were reduced before the onset of the FTA (came into effect on 1 January 2004).Others agreements by sectors have also been agreed under ACFTA.
20Agreements Under ACFTA #1 The ASEAN-China MOU on Strengthening Sanitary and Phytosanitary (SPS) Cooperation was signed in November 2007.ASEAN-China MOU on Agricultural Cooperation in November 2002 in Phnom Penh; a more direct cooperation in the agricultural sector between the lead national agencies in ASEAN and China. An extended ASEAN-China MOU on Agricultural Cooperation for was signed in January 2007 in Cebu.ASEAN and China strategic partnership in Information and Communications Technology (ICT) to promote international cooperation in terms of investment in human resources development on ICT and to explore the possibility of establishing Greater Mekong Sub-region (GMS) information highway.
21Agreements Under ACFTA #2 ASEAN and China cooperation: the MOU on Transport Cooperation in November 2004 in Vientiane, promoting: i) transport infrastructure construction; ii) transport facilitation; iii) maritime safety and security; iv) air transport; v) human resources development; and vi) information exchange.The 7th ASEAN-China Maritime Transport Agreement (ACMTA), November 2008 agreed in principle with the Strategic Plan for ASEAN-China Transport Cooperation, identifying transport infrastructure projects aimed at enhancing international and cross-border transportation and facilitation.21
22Early Harvest Product Description 01 Live Animal 02 HSDescription01Live Animal02Meat and edible meat offal03Fish, crustacean, molusc, other invrt.04Dairy products05Products Animal Origin, nes.06Live tree and other plant07Edible vegetables and certain roots08Edible fruits and nutsSource: ASEANSEC
23Tariff reduction on ACFTA X= Applied MFN Tariff RateACFTA Preferential Tariff Rate(Not later than 1 January 05)2005*200720092010X > 20%2012515% < X < 20%15810% < X < 15%105% < X < 10%X < 5%StandstillAgreement on Trade in Goods of the Framework Agreement on Comprehensive Economic Co-operation ACFTA starting on January 1, 2005
24Average Tariff Applied (2007) * #1 IndustryVietnamIndiaChinaThailandMalaysiaIndonesiaAgriculture and hunting20.1%28.2%15.9%21.0%5.0%4.8%Chemicals and chemical products4.4%7.9%11.2%3.4%2.1%4.3%Coke, petroleum products and nuclear fuel5.8%8.2%7.1%3.0%0.1%3.2%Electrical and electronic equipment14.0%6.0%14.6%Food, beverages and tobacco36.5%34.1%21.5%23.1%15.2%10.2%Forestry and Fishing (PRODUCTS)20.5%24.8%12.3%10.8%1.1%4.7%Machinery and equipment7.5%11.5%6.2%2.7%Metal and metal products9.9%7.2%9.3%6.8%12.2%7.0%Mining and quarrying4.2%4.9%4.6%1.2%0.7%3.7%Mixed goods (trade data)5.1%9.1%5.9%0.6%6.1%*Simple average across all partners countriesSource: ITC
25Average Tariff Applied (2007) * #2 IndustryVietnamIndiaChinaThailandMalaysiaIndonesiaMotor vehicles and other transport equipment25.4%18.3%14.6%18.8%10.1%10.2%Non-metallic mineral products9.2%15.9%7.3%7.5%Other manufacturing28.4%9.6%20.4%15.6%7.8%10.5%Petroleum5.4%6.1%2.3%0.3%2.0%3.7%Precision instruments11.5%7.9%11.9%5.1%0.7%4.6%Publishing, printing and reproduction of recorded media22.0%7.4%7.2%8.7%8.5%4.4%Recycling0.5%5.8%2.9%0.1%1.6%Rubber and plastic products19.4%14.2%10.4%20.5%11.6%Textiles, clothing and leather41.6%28.3%19.2%13.3%Wood and wood products18.1%9.4%6.2%11.4%4.8%Average16.3%12.5%11.7%8.8%6.8%*Simple average across all partners countriesSource: ITC
26China Financial Aids and Investment: Aggressiveness due to Huge Foreign Reserve Investment cooperation fund totaling US$10 billion (infrastructure construction, energy and resources, information and communications)Credit of US$15 billion (including loans with preferential terms of 1.7 billion dollars in aid for cooperation projects)Special aid of 39.7 million dollars to Cambodia, Laos and MyanmarProvide 300,000 tons of rice for to strengthen food securityDonate 900,000 dollars to the cooperation fund of ASEAN plus China, Japan and the Republic of KoreaInject 5 million dollars into the China-ASEAN Cooperation FundOffer of 2,000 government scholarships and 200 Master's scholarships for public administration students
27Relationship of ASEAN-China and ASEAN-India ASEAN economic is relatively much smaller than China in terms of GDP, which is around 2.9 times of ASEAN’s. It is difficult for ASEAN to compete with China in FTA. Chinese population is 2.3 times ASEAN’s and a very huge market for ASEAN products, but even before FTA ASEAN products can hardly penetrate Chinese market due to lack of competitiveness.ASEAN members (excl. Singapore) have similar characteristics, rich of natural resources, but low industrial productivity and competitiveness. This means that they compete each other, rather than complementing. Considering this characteristics, it needs a very hard work to develop AFTA for they are competing in same existing market and not creating a new opportunity.
28Relationship of ASEAN-China and ASEAN-India ASEAN has already signed a free trade agreement and will be followed by other agreements. ASEAN should develop a joined-marketing strategy to increase their bargaining, for example for CPO, Indonesia and Malaysia are the biggest producers, so they have a very strong position in determining price.When ASEAN is able to become a unified economy, then ASEAN will be able to offer an economic cooperation for mutual benefit of ASEAN, China and India. In investment, for instance, it is encouraged to China and India to establish processing industry in ASEAN, so China and India will not only absorb raw materials from ASEAN, but also give higher value added ASEAN.Should ASEAN not transform into an economic power, ASEAN would not get more benefit from FTA. Trade and investment after FTA will indeed encourage economic growth, but such growth will not give much value added into the economy. Although exist, value added will only be limited and unable to raise social welfare.28
29Indonesian Economic Relationship with China and India
30China, India dan Indonesia: Different Economic Characteristics Chinese GDP showed that investment has the biggest share in GDP, while in China and Indonesia the second of the biggest share in GDP.China and India focus on exporting manufactured products, not natural resources materials.More competitive industrial sectors has made trade liberalization have more positive impact to China and India, otherwise to Indonesia.Export of manufactured products, due to more competitiveness and productivity, has an important role in increasing Chinese and Indian foreign reserves.30
31GDP Structure: Indonesia, China and India PercentChinaIndiaIndonesia-2020406080100120Statistical discrepancyNet ExportGross domestic capitalformationGovernment consumptionPrivate consumptionSource: ADB3131
32Manufacture Productivity and Competitiveness Increasing Foreign Reserve of China Source: State Administration of Foreign Exchange Bureau of PRC
33Economic Reform: Increasing India Foreign Reserve Source: Reserve Bank of India33
34Indonesia Foreign Reserved: Unstable, Not a Result of Productivity and Competitiveness 200020012002200320042005200620072008102030405060Billion USDSource: Bank of Indonesia3434
35China’s Export: Focusing on Manufacturing Goods Source: Ministry of Commerce PRC35
36India Exports Dominated by Manufactured Goods Primary Product Source: Reserve Bank of India36
37Indonesian Export: Increasing Shares of Primary Commodity 20022003200420052006200720080%10%20%30%40%50%60%70%80%90%100%Non Primary CommodityPrimary CommoditySource: CBS
38Trade Balance Indonesia-China Surplus for Oil & Gas, Deficit for Non Oil & gas Source: Ministry of Trade38
39Indonesia-India Trade Balance Surplus for Non-Oil & Gas, Mainly Raw Materials Source: Ministry of Trade39
40Top 10 Exports Indonesia to China Dominated by Natural Resources (2008) Source: CBS40
41Top 10 Exports Indonesia to India Dominated by Natural Resources, too (2008) Source: CBS41
42Top Imports Indonesia from China (2008) Mostly Manufactured Products, but Agricultural, too 8183858790929399121125138145147151155181194306-50.00100.00150.00200.00250.00300.00350.00TobaccoApples, FreshMandarins (Including Tangerines And Satsumas), Fresh Or DriedAntennas And Antenna ReflectorsParts For Machinery Making Or Finishing Paper Or PaperboardFlat-Rolled Products Of Iron Or Non-Alloy SteelSteam And Other Vapour TurbinesParts For Auxiliary Plant For Use With SteamPetroleum Oils And Oils From Bituminous Minerals, CrudeParts And Accessories Of MotorcyclesDisodium CarbonateSuperphosphates FertilizersAluminum Nonalloyed RectangularGarlic, Fresh Or ChilledAuxiliary Plant For Use With Steam Or Other Vapor Generating BoilersParts And Accessories For Automatic Data Processing MachinesStructures And Parts Of Structures Nesoi, Of Iron Or SteelPortable Digital Automatic Data Processing MachinesMillions of dollarSource: CBS42
43Top 10 Import of Indonesia from India Dominated by Manufactured Goods (2008) Source: CBS43
44China’s and India’s FDI Insignificant in Indonesia Source: Indonesia Investment Coordinating Board44
45China, India dan Indonesia: Trade and Investment Indonesian trade balance against China and India: surplus for oil and gas, but deficit for non-oil & gasIndonesian top 10 export to China and India are natural resources commodities. It is almost 80% for Indonesian export to India and 70% to ChinaImport Indonesia from China and India: mostly manufactured products and final goods. Furthermore, on EHP implementation since 2004, Indonesia has imported a huge amount of agricultural products from China.Chinese and Indian FDI in Indonesia was relatively insignificant.Currently, there is a trend of acceleration of Chinese investment in Indonesia in infrastructure and oil & gas, while India in financial sector.45
46China Investment to Indonesia It Will Increase, Soon
47China Loan to Indonesia Increased During 2008 CrisisIndonesia government has received standby loan of USD 5.5 billion and Bilateral Currency Swap Agreement (BCSA) up to US$ 17.5 billion.The BCSA scheme will strengthen rupiah value and maintain financial stability, as well as encouraging trade and investment. China trade with Indonesia will be pushed on natural resources and raw materials. Indonesian trade will be continuously dominated by Chinese manufactured products. As China has agreed to provide Special Buyer Credit Facility (SBCF) for Indonesia.47
48China-Indonesia Trade and Investment Need Improvement for Mutual BenefitChina will focus their investment and trade on natural resources and raw materials, as well as infrastructure. On the other hand, Indonesian will be continuously importing Chinese manufactured products.This trend will make Indonesia become natural resources and raw materials exporter, as a consequence, employment opportunity growth will be stagnant, even slowing down.48
49……Before ACFTA Low Competitiveness of Indonesian Products Growth of Textile and Leather ProductSource: CBS49494949
50Indonesia Exporting Raw Tin ........ Source: CBS50
51…..But, Increasing Imports of Tin Based Products Source: CBS51
52How to Increase Benefit from FTA Prior to FTA, China investment in Indonesia is only in natural resources sectors. Soft loans to Indonesia are mostly aimed at infrastructure development and natural resources. Considering the privatization trend in Indonesia, China will have bigger opportunity to own shares of strategic Indonesian SOE, like electricity, power plant, railway, steel, etc.Chinese investment pattern is most likely to be focused on natural resources exploitation and assembling plant for components/parts imported from China, so most of the value added goes to China. If this condition continues to occur, Indonesian and other ASEAN members’ natural resources will be drained. ASEAN members will fail to create competitive and productive industrial countries.Evaluating agreements related with FTA and postponement of FTA implementation.Immediately prepared industrial policy map road in order to increase national productivity and competitiveness52