China Outbound: Regional Partnerships Promote Economic Engagement Across Asia

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Our Latest Round-Up of Business News Affecting China-Based Businesses Investing in Asia

In this edition of China Outbound, we highlight a number of key developments related to trade treaties and regional economic cooperation agreements involving China, as well as review the impact of these initiatives on investment opportunities for China-based enterprises. Most significantly, ASEAN economic integration in 2015 will fundamentally alter the production landscape across the region, giving rise to challenges and opportunities for enterprises with operations in the Middle Kingdom. To take advantage of this evolving landscape, China has increased its focus on developing regional ties and investment in key regions, including India, Vietnam, Africa and the Middle East.

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China and ASEAN’s Economic Integration: Developments & Opportunities

ASEAN economic integration, scheduled to take place in 2015, will transform the entire ASEAN region into a single market and production base with free-flowing goods, services, investment and skilled labor, as well as significantly freer capital flows between member states. As with any such large-scale economic integration, certain industries are poised to benefit, even as others face new challenges. There are a number of areas in which companies and the services industry can evaluate how to reposition themselves to take advantage of this new Asian order.

China Considers Economic Benefit to Joining Trans-Pacific Partnership

With an increasing focus on large multi-lateral trade deals in Asia-Pacific, China has begun considering the economic benefits of joining negotiations for the U.S.-led Trans-Pacific Partnership (TPP). According to calculations released by the People’s Bank of China, if the country were to join a successfully ratified TPP, the economic benefit could amount to as much as a two percent addition to China’s annual GDP growth rate. Upon completion, the TPP will reduce trade barriers between member nations, which currently include the U.S., Canada, Mexico, Chile, Peru, Malaysia, Vietnam, Australia, New Zealand, Japan and Brunei.

Following China’s State Policy? Then Invest in India

Last month, China’s Foreign Minister, Wang Yi, visited Delhi to strengthen China’s interest in a resurgent India following the election of Prime Minister Modi. During his visit, Wang said that the Sino-India relationship is “the most dynamic bilateral relationship with the largest potential in the 21st century.” Given India’s ability to provide China with cheap goods, while simultaneously pushing China’s own manufacturing up a few notches toward more innovative and hi-tech products, a strengthened relationship would be a win-win for both parties.

India & China Sign Development Agreements on Industrial Parks

India and China signed a memorandum of understanding in June designed to set up incentives and frameworks to attract foreign direct investment from China to India’s industrial parks and zones. As India’s labor costs become increasingly competitive compared to China’s rising wages, these zones will function as an alternative manufacturing destination for China-bound products.

China and Hong Kong Increase Investment in Vietnam

Vietnam’s Department of Foreign Investment has reported that, in the first five months of this year, the country saw a steep rise in foreign direct investment (FDI) capital from Hong Kong and China. Among the industries benefiting from this surge, the textile and garment industry has seen a notable increase in large-scale projects as China-based companies look to Vietnam for competitive production costs.

UN World Investment Report 2014: Asia as Top FDI Destination

According to the United Nations Conference on Trade and Development’s UN World Investment Report 2014, Asia continues to thrive as the top destination for foreign direct investment, accounting for almost 30 percent of global FDI inflows. Among the largest recipients, the ASEAN region received an aggregate US$125 billion investment in 2013, the largest inflow yet for the trade bloc. China also saw an increase in incoming investment, with Hong Kong alone receiving US$79 billion in investment last year.

Hong Kong Wants Quick ASEAN Agreement

Hong Kong’s Secretary for Commerce and Economic Development, Gregory So, recently stressed the importance of a quick completion to the proposed Hong Kong-ASEAN free trade agreement (FTA). Upon ratification, the FTA will eliminate or reduce tariffs, liberalize the services trade between member nations and promote bilateral investment. As the second largest trading partner in goods with Hong Kong, ASEAN receives the fifth largest inflow of FDI from Hong Kong. Despite this, the territory is not currently covered by the China-ASEAN FTA, which came into effect in 2010.

China Boosts Mutual Cooperation with Arab States

During the sixth Ministerial Conference on China-Arab States Cooperation Forum held last month, China and the Arab states unveiled a series of plans to enhance mutual cooperation on several important economic issues, including bilateral participation in developing the “Silk Road Economic Belt,” an international trade corridor linking China to Southeast and Central Asia. The Forum’s participants also made plans to increase the availability of energy resources from the Arab states to help fuel China’s continuing development. Trade between China and the Arab states currently stands at US$240 billion a year.

China Boosts Investment in Africa as the Continent Prepares First Free Trade Zone

Last week, the African Union’s Commissioner for Trade and Industry Fatima Haram Acyl announced the organization was on schedule to establish Africa’s first free trade zone during the AU Council of Ministers Summit in Malabo, Equatorial Guinea. As Africa’s largest trading partner, the new free trade zone is likely to benefit China, who has been investing heavily into infrastructures, natural resources and trade in Africa. According to Justin Lin, former chief economist with the World Bank, Africa and Southeast Asia will increasingly attract China-based enterprises looking to expand their labor-intensive manufacturing capacity to wage-competitive locations.

Related Reading

For further news concerning foreign investment in Asia, please refer to our other websites:

Asia Briefing  
Established in 1999, Asia Briefing Ltd. is dedicated to providing individuals and enterprises with the latest business and regulatory news as well as expert commentary relating to conducting business in emerging Asia.

ASEAN Briefing  
ASEAN Briefing features business news, regulatory updates and extensive data on ASEAN free trade, double tax agreements and foreign direct investment laws in the region. Covering all ASEAN members (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam), ASEAN Briefing aims to be the premier online source for technical and business information concerning investment and trade with ASEAN countries and includes downloadable copies of all ASEAN and member country double taxation and free trade treaties held with China. The newest ASEAN business guide, “Doing Business in Singapore 2014 (Second Edition),” is available as a complimentary download in the Asia Briefing Bookstore.

India Briefing  
India Briefing has developed into a premium source for insight on doing business in India. It publishes business news concerning foreign direct investment into India, including the most important tax, legal and accounting issues. You can download a complimentary copy of our latest edition of India Briefing Magazine, “An Introduction to India’s Audit Process,” in the Asia Briefing bookstore.

Vietnam Briefing
Vietnam Briefing is one of the few available sources for quality legal, tax and investment insights into Vietnam. Vietnam Briefing publishes a wealth of information contributed to by on-the-ground business professionals in Vietnam. The newest Vietnam business guide, “An Introduction to Doing Business in Vietnam 2014 (Second Edition),” is available as a complimentary download in the Asia Briefing Bookstore.

Dezan Shira & Associates
Meet the firm behind these publications. Dezan Shira & Associates is a specialist foreign direct investment practice providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the award-winning firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam, in addition to partner alliances in Indonesia, Malaysia, Philippines and Thailand, as well as liaison offices in Italy, Germany and the United States. For further information, please email asia@dezshira.com or visit www.dezshira.com.

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