By Li Guanghui

Upon entering the 21st century, the Chinese Government made timely diplomatic-strategy re-adjustments and started to push for better relations with its neighboring countries, seeking mutual trust politically and co-prosperity economically.

As part of the effort, the process of bringing about a China-ASEAN (Association of Southeast Asian Nations) Free Trade Area (FTA) is being driven ahead.

As an arrangement for mutual benefits, the bidding for the FTA is powering the all-around economic co-operation between China and ASEAN that, in turn, works as a stabilizing factor for the region.

Since the 1990s, the integration of regional economies has had strong momentum a hallmark of accelerated economic globalization. Regional economic organizations such as the European Union (EU) and the North American Free Trade Area are acquiring increasingly important positions in the world economy. On the other hand, free trade agreements, those signed between developed countries in particular, are posing a serious challenge to both China and ASEAN because the preferential tariff rates granted to each other by free trade agreement members erode the economic and trade advantages enjoyed by developing nations.

China joined the World Trade Organization (WTO) in December 2001 after more than a decade of painstaking negotiations. As a result, the focus of the country's foreign trade and economic strategy began to shift to regional economic co-operation.

China's WTO membership means that the country's economic development will become increasingly responsive to the world economy.

At the moment, regional economic integration is picking up speed and China would risk being marginalized if it did not join this process.

If China failed to embrace regional integration, it would find its global competitiveness significantly diminished.

Fortunately, involvement in regional economic co-operation constitutes a new focus of the nation's overseas economic strategy.

In the meantime, the economies of the ASEAN members started recovering in 1999 from the ravages of the 1997 Southeast Asian financial crisis, which dragged on the once fast growing economies of the member states. Coincidentally, while ASEAN rose out of economic stagnation, the Chinese economy entered a phase of high-speed development.

Doubtless, Chinese demand helped facilitate their economic growth. In light of that, the nature of ASEAN's economic recovery recommended a strengthening of relations with China.

It then became obvious that pursuing a China-ASEAN FTA was a wise strategic option beneficial to both sides.

In November 2002, therefore, the Chinese and ASEAN leaders signed the Framework Agreement on Comprehensive Economic Co-operation between China and ASEAN and decided that a China-ASEAN FTA would be set up in 10 years. The process of establishing the China-ASEAN FTA was thus set in motion.

Starting on January 1, 2004, the two parties began implementing an Early Harvest Plan (EHP), cutting tariffs on more than 500 products, as part of the effort to facilitate the birth of the FTA.

The Chinese and ASEAN economies complement one another as shown by the results of the EHP. ASEAN's tropical fruits and China's apples, pears, cabbages and potatoes are competitive respectively. The China-ASEAN FTA plan has already produced good initial results.

At the Eighth China-ASEAN Summit convened on November 29, 2004 in Vientiane, capital of Laos, the two parties signed a package of agreements on trade in goods and dispute settlement, laying down foundations for standardizing tariff cutting and resolving disputes.
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Starting from July 20, 2005, China and ASEAN began to cut tariffs on more than 7,000 products, which marked the coming of the phase of substantial tariff reduction between China and ASEAN in the run-up to the establishment of the FTA.

The Framework Agreement on Comprehensive Economic Co-operation between China and ASEAN has helped advance bilateral trade, with the China-ASEAN trade volume crossing the threshold of US$100 billion for the first time in 2004 and hitting US$130.37 billion the next year.

In addition, the two sides have been co-operating closely in direct investment, services and technology, which has also yielded significant results.

From the point of view of regional economic integration, the future Asian economic integration should be based on a more extensive and more economically powerful regional co-operative entity, of which the China-ASEAN FTA is a vitally important component.

Once founded, China-ASEAN FTA will be the largest FTA in Asia, the most populous FTA in the world and the biggest FTA in the developing world. The China-ASEAN FTA is expected to accelerate the trend of regional integration in Asia and, in turn, will have positive impacts on the world economy.

The author is a researcher with the Economic Research Institute under the Ministry of Commerce.

(China Daily October 27, 2006)