The relationship with China remains critical to ASEAN

Far from adversely impacting ties, the pandemic is likely going to result in greater cooperation and collaboration

ASEAN, the world’s fifth largest economy, is also one of its fastest growing. In the past two decades, it has seen its gross domestic product (GDP) increase five-fold from $600 billion in 2000 to more than $3 trillion today.

It has been a major global hub for trade and investment, and remains one of the strongest proponents of free trade even as several countries have become more protectionist in their action, or at least rhetoric.

Even as COVID-19 led to a renewed surge in economic nationalism as countries sought to secure sufficient masks, PPE kits or food supplies for their citizens, for example, ASEAN member states vowed to keep supply chains open, in particular for basic necessities.

Responding to the COVID shakeup

ASEAN countries have done relatively better than most others in controlling the spread of the coronavirus, but its impact on the region’s economy has still been severe. What implications this will have on the region’s investment landscape, and what ASEAN’s post-pandemic strategy will look like, were among the key themes discussed at the opening panel of the RHT CABA ASEAN Summit 2020, a discussion moderated by Azman Jaafar, managing partner at RHTLaw Asia.

Aladdin Rillo, deputy secretary-general of the ASEAN Secretariat for the ASEAN Economic Community, said that ASEAN leaders have committed to work together in the face of the pandemic, and this has resulted in concrete initiatives such as the commitment to keep markets open for trade and investment and the endorsement of the setting up of the COVID-19 ASEAN response fund.

Additionally, he talked about the region’s desire to build back better, to make supply chains resilient, and to make recovery sustainable and more equitable.

Than Su Ee, managing director of the China-ASEAN Investment Cooperation Fund, which is a quasi-sovereign equity fund investing in infrastructure, energy and natural resources in ASEAN, said that while the ASEAN economies were expected to contract, it would continue to see investment given its large infrastructure requirements. Vietnam, however, is a bright spot and a beneficiary of global supply chain changes.

More broadly, the global slowdown is hitting ASEAN hard as its member states have trade and investment relationships with all major economies globally, which have been hit by sudden job losses, business delinquencies and shutdowns.

ASEAN desires to build back better, to make supply chains resilient, and to make recovery sustainable and more equitable.

This has impacted the region’s economies in different ways, Mr Than said. For example, Singapore has been hit directly by plummeting global trade; fuel-dependent Malaysia hit hard owing to the sudden slowdown in oil demand; remittances, a key source of revenue for the Philippines, have dropped significantly; and international tourism grinding to a halt has had severe implications on Thailand, where the sector accounts for about 14% of GDP.

In Mr Than’s view, ASEAN countries must take bold and strategic steps to position the region for a sustainable recovery, and to do so, it is imperative they invest in infrastructure. “Without robust infrastructure, growth will be affected and is not sustainable,” he said, adding there was a need to build more health and digital infrastructure—including mobile connectivity, fibre networks and data centres—and infrastructure to support e-commerce and digitalisation of financial services. 

What is needed?

ASEAN’s response needs to be at regional, national and local levels, according to Pushpanathan Sundram, chief executive officer of PublicPolicyAsia Advisors.

In his view, there are a few key things for ASEAN to consider. The first is to encourage intra-ASEAN trade and investment so that it can act as a buffer in the event of a global shock. In fact, he said, intra-ASEAN trade comprised 23% of the total trade in the region, more than ASEAN’s trade with other partners such as China (17.2%), EU-28 (10.2%) and the US (9.3%).

Next, ASEAN must maintain healthy trade relations with its key partners although supply chains have been disrupted. This entails upgrading trading agreements where required.

Mr Sundram also talked about how important it is for ASEAN to push for the RCEP to come into effect soon “in terms of ensuring the entire supply chain in ASEAN gets the boost it needs” and presents greater opportunities for the region’s booming electronics sector, for instance.

Reshaping supply chains?

One of the key themes globally today is the reshaping of supply chains given how they’ve been disrupted by the pandemic. Some countries are looking to reshore, nearshore or diversify their supply chains, while others are engaging in varying degrees of economic nationalism and limiting the exports of certain basic goods and commodities.

ASEAN must maintain healthy trade relations with its key partners, although supply chains have been disrupted. This entails upgrading trading agreements where required.

Mr Than said the pandemic has been a “wake up call for countries around the world that they have been over-reliant on China” in the manufacturing space. In this respect, the pandemic has only accelerated a trend that was in evidence owing to the US-China trade war.

According to the panelists, this is an opportunity for ASEAN to capitalise because it has low costs of production and is party to several FTAs, both of which make it an attractive manufacturing destination.

Mr Sundram agreed, adding that as the US and China continue with their trade war, ASEAN should promote itself as an ASEAN production base and capitalise on a China+1 strategy that many companies are considering.

“Companies need to look at ASEAN as one region, and this requires a strategy,” he said. While each ASEAN member state can have its own policies, there needs to be infrastructure in place for companies to take advantage of trading with one single entity as opposed to a fragmented grouping of 10 members.

Mr Rillo said that one important area in enhancing supply chain connectivity is trade facilitation. He added that ASEAN has taken several steps to facilitate trade, such as the ASEAN Single Window, and the implementation of various other schemes and systems.

What of China’s role in ASEAN?

There was consensus among panelists that ASEAN’s relations with China will not be adversely impacted as a result of COVID-19. In fact, said Mr Thun, ASEAN countries have not pointed fingers at China through the pandemic, and the Chinese government has appreciated this gesture and reciprocated with medical aid and assistance.

Similarly, he doesn’t expect any material implications on the Belt and Road Initiative, given the region’s huge infrastructure investment requirements.

Mr Rillo echoed a similar sentiment, saying he did not expect the pandemic to “dramatically change” the relationship between China and ASEAN. He spoke about the assistance rendered by China to ASEAN through the pandemic, providing best practices, medical supplies, and identifying areas to build economic resilience.

Panel participants all spoke about this as an opportunity—and importance—for the two partners to continue working together, with the RCEP making their relationship stronger.

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