FTA boosts exports, but challenges remain

Guangdong Galanz' rice cooker exports to the ASEAN increased 50 percent in 2010.

China's exporters are enjoying the benefits gained from the country's free trade agreement with the ASEAN, one year after it came into effect. But many of them are aware sustaining these advantages for a long time will not be that easy.

While the ASEAN continues to absorb a small percentage of China's exports, shipments to the region have grown at a healthy pace. In 2010, overseas sales increased 30 percent to $138.2 billion. Singapore, Malaysia and Vietnam were the top importers, purchasing $32.35 billion, $23.81 billion and $23.11 billion worth from China, respectively. Exports to Indonesia and Thailand, meanwhile, improved the most, growing by 49.3 and 48.6 percent, respectively.

China shipped mostly home appliances, consumer electronics, garments and textiles, machinery, and metal to ASEAN-member countries. Suppliers find the region a viable alternative to the EU and the US, markets that impose anti-dumping duties and other trade sanctions against imports from China. Some also ship to these traditional destinations via ASEAN countries.

Rice cooker exports from Guangdong Galanz Enterprise Group Co. Ltd and Zhongshan Mingzhi Electrical Appliance & Gas Cooker Co. Ltd to the region, for instance, grew 50 and 40 percent, respectively, in 2010. Richforth Ltd's garment sales to Singapore went up 20 percent.

Exports of machinery such as those for weaving fabric and producing ceramic tiles, and metal have increased because the majority of ASEAN-member countries are strengthening their industrial capability. Shipments of these products are expected to continue improving in the next three to five years.

But maintaining healthy sales growth may be difficult after that. While suppliers do not need to worry as much about tariffs and dumping duties, they have to invest in building a distribution network and meeting increasingly stringent standards.

Many end-consumers in ASEAN-member countries are now looking for upscale, branded home appliances and electronics. While there are a handful of China manufacturers that export their OBM lines, they face competition from established US, EU and Japan brands. As such, they need to spend more resources on building recognition and setting up sales channels.

Product specifications are becoming stricter as well. China-made motorcycles used to enjoy significant market share in Vietnam. But apart from a few major suppliers, most small and midsize companies offer low-end units that can no longer meet Vietnam's increasingly stringent technical specifications.

Further, ASEAN-member countries themselves manufacture many of the products China offers, often at a lower cost. Because of rising raw material and labor outlay, prices of ASEAN-bound goods from China increased in 2010. Use of the yuan as trade settlement currency is not widespread in the ASEAN as well, which has added to the pressure to lift export prices to minimize currency exchange losses. More price hikes are expected in 2011, in line with rising inflation and wages in China.

Structural, logistical benefits

Apart from boosting exports to the region, the FTA spurred changes in China's infrastructure. High-speed railways are being built to connect major cities to Thailand's Nong Khai and Bangkok, Laos' Vientiane, and Burma. Construction started this year, with a 2015 target completion date.

Customs clearance has been improved as well. In Hekou, Yunnan province, vehicles can enter and exit the northern Vietnam border 30 percent faster because of simplified procedures. Railway clearance, meanwhile, became 12 percent quicker.

Additionally, export processing zones have been built in Guangxi and Yunnan, which share a border with Vietnam, to speed up delivery and customs clearance. Most of the products made in these areas are sent to ASEAN-member countries.

The FTA has been beneficial to the ASEAN as well. China's imports from the region grew 45 percent in 2010, reaching $154.6 billion.