Trade
China’s mercantilist threat to ASEAN is exaggerated
Author: Christian Bachheimer, SOAS
China’s growing influence on ASEAN affairs has featured increasingly in international news. The dominant narrative is that China is deploying a mercantilist strategy to drive ASEAN acquiescence to matters of diplomatic importance for China, forcing ASEAN states to choose between China and the United States. But ASEAN’s trade in goods and investment data from China and other geopolitical alliances from 2015 to 2019 present a different narrative.
ASEAN-5 — Singapore, Thailand, Malaysia, Indonesia and Vietnam — collectively constituted 84 per cent of ASEAN’s US$3.1 trillion GDP in 2019 and accounted for over 90 per cent of its trade and investment flows. Data analysis of trade in goods for 2015–2019 reveals that the main geopolitical blocs consisting of the ‘US alliance’, ‘Atlantic alliance’ and ‘China bloc’ did not evolve as a share of ASEAN-5’s economies. The China bloc — China, Hong Kong and Macao — represented 20 per cent of trade with ASEAN-5 in 2015, and 21 per cent in 2019.
The US alliance — Japan, South Korea, Thailand and Australia — leads trade with ASEAN-5, adding US$143 billion over five years to reach US$741 billion in 2019. The China bloc only reached US$543 billion. The Atlantic alliance consisting of the United States and European Union added US$117 billion, growing from 19 per cent to 21 per cent of ASEAN-5 trade.
ASEAN-5 is not becoming reliant on trade with China. Trade in goods as a percentage of GDP reflects economic interdependence. From 2015 to 2019, the US alliance and the Atlantic alliance maintained a level with ASEAN-5 of 29 and 20 per cent, respectively. ASEAN-5’s ratio with the China bloc decreased from 20 to 18 per cent. Only Vietnam significantly increased trade in goods with the China bloc, rising from 38 to 48 per cent. But Vietnam also boosted the same ratio with the US alliance, rising from 63 to 79 per cent.
On the Foreign Direct Investment (FDI) front, China remains a relatively small player. The US and Atlantic alliances still dominate ASEAN-5’s investment landscape. From 2015 to 2019, the US and Atlantic alliances cumulatively invested US$346 billion, more than three times the US$99 billion bankrolled by the China bloc in ASEAN-5.
The average FDI inflow into ASEAN-5 stood at US$144 annually between 2015 and 2019. The China bloc increased its FDI from US$7.9 to US$21.9 billion, pushing its share of the ASEAN-5’s FDI inflow from 7 per cent to 12 per cent. Meanwhile, the US alliance increased its FDI from US$43.9 to US$70.9 billion, causing its share of ASEAN-5’s FDI inflow to rise from 37 per cent to 39 per cent.
On the annual importance of FDI inflow as a proportion of ASEAN-5 GDP, China went from 0.4 per cent in 2015 to 0.8 per cent in 2019. The US alliance went from 2.1 per cent in 2015 to 2.7 per cent in 2019, reinforcing its position. The China bloc’s share of FDI stock grew from 6 per cent in 2015 to 8 per cent in 2019. Over the same period, the Atlantic alliance and the US alliance remained relatively constant at 37 per cent and 31 per cent respectively.
The much lauded Belt and Road Initiative (BRI) is not as large as has been trumpeted, despite the US$739 billion pledged to ASEAN. The BRI accounted for US$9 billion in annual investment into ASEAN-5’s US$144 billion average annual FDI inflows. For the last five years, the BRI has contributed US$4 billion to the Indonesian annual average FDI inflow of US$17 billion, and US$1.5 billion to the Malaysian average annual FDI inflow of US$10 billion. Thailand has not received any BRI investment so far, rebutting the country’s tilt towards China narrative.
While the BRI benefits select countries, it is not shifting ASEAN-5’s allegiances. The BRI also faces pushback, and is unpopular at home while its funding challenges and completion difficulties continue to accumulate. Contrary to what media reports suggest about China achieving diplomatic leverage through its oversized trade and investment involvement, China’s economic role has remained stable over the last five years.
China’s involvement in Southeast Asia should not trigger concern over a mercantile system. The China bloc’s focus on its domestic market and mounting mistrust it has faced in ASEAN countries have stalled its trade leverage, particularly as ASEAN-5 has maintained a carefully diversified trade and investment portfolio.
Competition can actually empower ASEAN-5 to extract trade concessions and investments from both sides — Vietnam is a typical case. While the…
Trade
Self-Reliance and Openness: Core Principles of China’s Third Plenary Session
The Third Plenum communique from the CCP indicates a prioritization of stability and compromise in response to China’s economic challenges. It highlights the concept of Chinese-style modernization and establishes political guidelines for balancing regulation and market forces.
The CCP’s Third Plenum communique signals a focus on stability and compromise in the face of China’s economic challenges. It emphasises Chinese-style modernisation and sets political directions for balancing regulation and market forces. While not as groundbreaking as previous plenums, it acknowledges the importance of market mechanisms and technological self-reliance, aiming to address issues like high youth unemployment and private sector uncertainty. The communique seeks to navigate the complexities of global competition and domestic innovation, potentially reshaping global supply chains and trade dynamics. Overall, it presents a pragmatic blueprint for China’s economic future.
Source : Self-reliance and openness central pillars of China’s Third Plenum | East Asia Forum
Trade
Trade Prevails Over Political Persuasions in China-Germany Relations
China and Germany maintain a strong bilateral relationship, rooted in economic cooperation despite ideological differences. Recent visits and agreements focus on expanding trade and addressing mutual concerns, navigating challenges while nurturing ties.
Evolving Bilateral Ties
China and Germany share a strong bilateral relationship, rooted in history since 1972. This connection has seen moments of cooperation intertwined with periods of tension. German Chancellor Olaf Scholz’s April 2024 visit underscores Germany’s commitment to fostering this partnership, reflecting a mutual interest in maintaining economic ties despite ideological differences.
Economic Pragmatism
As the second and third largest global economies, China and Germany’s economic interdependence is crucial. Germany emerged as China’s primary trading partner in 2023, with trade values reaching €254.4 billion (US$280 billion). In response to global scrutiny, Germany has taken a balanced approach, emphasizing economic stability over political discord. This was evident during Scholz’s prior visit in November 2022, where his diplomatic tone contrasted with broader EU sentiments.
Facing Challenges Together
Despite increasing public skepticism in Germany regarding China’s global influence and human rights issues, both nations continue to seek common ground. Their October 2023 Joint Statement highlights intentions to pursue cooperation in areas like carbon neutrality and open markets. To navigate these complex terrains, Germany can utilize its institutional frameworks to enhance dialogue, while also considering supply chain diversification to reduce dependency on China. The intertwining nature of their economies suggests that, despite challenges, both countries will continue to prioritize their substantial trade relations.
Source : Trade trumps political persuasions in China–Germany relations
Trade
Fixing fragmentation in the settlement of international trade disputes
Fragmentation in global trade due to the lack of development in multilateral trade rules at the WTO has led to an increase in FTAs. The Appellate Body impasse has further exacerbated fragmentation, requiring a multilateral approach for reform.
Fragmentation in Global Trade
Fragmentation in global trade is not new. With the slow development of multilateral trade rules at the World Trade Organization (WTO), governments have turned to free trade agreements (FTAs). As of 2023, almost 600 bilateral and regional trade agreements have been notified to the WTO, leading to growing fragmentation in trade rules, business activities, and international relations. But until recently, trade dispute settlements have predominantly remained within the WTO.
Challenges with WTO Dispute Settlement
The demise of the Appellate Body increased fragmentation in both the interpretation and enforcement of trade law. A small number of WTO Members created the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) as a temporary solution, but in its current form, it cannot properly address fragmentation. Since its creation in 2020, the MPIA has only attracted 26 parties, and its rulings have not been consistent with previous decisions made by the Appellate Body, rendering WTO case law increasingly fragmented.
The Path Forward for Global Trade
Maintaining the integrity and predictability of the global trading system while reducing fragmentation requires restoring the WTO’s authority. At the 12th WTO Ministerial Conference in 2022, governments agreed to re-establish a functional dispute settlement system by 2024. Reaching a consensus will be difficult, and negotiations will take time. A critical mass-based, open plurilateral approach provides a viable alternative way to reform the appellate mechanism, as WTO Members are committed to reforming the dispute settlement system.
Source : Fixing fragmentation in the settlement of international trade disputes
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