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June 29, 2017

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China seeking fast track into ASEAN market

BANGKOK -- Southeast Asia is becoming a major springboard for China to expand its economic presence over the vast Asian continent. The new US$1.5 billion wholesale trade center project in Thailand, as recently announced by a group of Chinese investors, is the latest case in point.

China plans to use Bangkok as a major re-export center for the rest of ASEAN, which has a combined population of 580 million.

On Jan. 1 last year the China-ASEAN Free Trade Area Agreement took effect, reducing most import tariffs in China and ASEAN to zero. This has set the stage for a freer flow of goods between China, now the world's second largest economy, and the ASEAN Economic Community (AEC), which will be fully effective in 2015.

In the wake of the recession and debt crisis in the U.S. and Europe, it's logical for the Chinese to look for new growth markets that can absorb its massive industrial output. Southeast Asia is one of the areas where economic growth is still robust, so the Chinese are ready to invest huge sums to further penetrate ASEAN, which is becoming an integrated single market.

Garments, jewellery, automotive parts, food products and toys are among the items that will be re-exported from Thailand to other ASEAN markets via the sprawling wholesale trade center planned for Bangkok. The China Daily reported that the center will have a total space of 700,000 square meters, the equivalent of 100 football fields.

In addition, China earlier announced an ambitious high-speed rail program involving several Southeast Asian nations. From the southern part of China (Yunnan Province), high-speed trains traveling at over 200 km per hour will soon reach Laos, Thailand, Burma, Vietnam, Cambodia, Malaysia and Singapore.

Construction of the first leg of several hundred kilometers of high-speed track is due to start this year in Laos at an estimated cost of 600 billion baht. The tracks will be connected to the same type of tracks in southern China.

The second set of high-speed tracks will be laid in Thailand from the northern province of Nong Khai to Bangkok. The Chinese are pushing Thai authorities for a fast-track approval of the joint venture project on Thai soil. The Nong Khai-Bangkok section will be connected with the Lao section at the Thai-Lao border.

From Bangkok, the next route expansion is southbound to Malaysia and eventually Singapore. And from southern Laos, additional routes are being planned for Cambodia and Vietnam to link all the major cities in Indochina for both passenger and cargo transportation.

Another section of the high-speed track will run from southern China to Burma and eventually to Burma's southern port cities.

Thus China is likely to be the chief beneficiary of economic integration in Southeast Asia, given that all the major cities in mainland ASEAN will be inter-linked with its high-speed rail network.

Thai authorities are seeking to have at least 60 percent shareholding in the high-speed railway joint venture on Thai soil in order to ensure that the country has proper control of the network's operation here.

While opportunities abound as China expands its reach into smaller neighboring countries, threats are no less daunting. Some Thai businesses, for example, are worried that the use of Bangkok as a major re-export center for Chinese goods will confuse overseas buyers of Thai products as far as quality is concerned. The influx of Chinese goods into ASEAN markets will also hurt indigenous ASEAN producers due to their lack of economies of scale enjoyed by China.

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