A bloc of Southeast Asian countries has become China’s biggest trading partner this year as economic activity picks up on both sides while slowing in wealthier parts of the world because of coronavirus outbreaks.
Over the first five months of 2020, trade between the Association of Southeast Asian Nations bloc and the massive Chinese market reached $240 billion, up 4.2% over the same period of 2019, Beijing’s state-run Xinhua News Agency said. China’s trade with the block equals about 15% of its total worldwide.
China, the world’s No. 2 economy, began easing disease containment measures including factory shutdowns in March, followed by Southeast Asian states such as Vietnam and Malaysia. Much of the West is still struggling with shutdowns, supply chain cuts and weak consumer sentiment.
“The way we do things, we have sort of a one-track mind, so it’s better to deal with your peers,” said Jonathan Ravelas, chief market strategist with Banco de Oro UniBank in Metro Manila.
“And that’s the reason (for) the potential bounce back in Asia,” Ravelas said. “Even if you look at the way they handled this COVID-19, they followed the lockdowns more compared to the Western counterparts.”
The bloc better known as ASEAN had already expanded relations with China over 20 years through a free-trade deal, industrialization and geographic proximity that lowers shipping costs.
The European Union was China’s top trading partner last year after pushing out the United States. But anti-coronavirus closures hobbled EU-China trade in the first quarter of 2020, business consultancy Dezan Shira & Associates says. Inoperative factories in Europe bought fewer parts from China and shipped fewer finished goods — such as cars — the other way, said Rajiv Biswas, Asia-Pacific chief economist with IHS Markit in Singapore.
The United States had faded as a Chinese partner because of soaring import tariffs, the fallout of a more than 2-year-old Sino-U.S. trade dispute. A sharp drop in consumer power during shutdowns across the United States further reduced trade.
“Why (trade with Southeast Asia) is bigger than the U.S. is because of the trade war, and lockdowns this year have affected China-U.S. trade,” Biswas said. “And also, with the EU, since March, April and most of May, most of Europe was heavily affected and in lockdown.”
The Asian bloc better known by its acronym ASEAN was already in position. The two sides had cut costs to each other’s exporters with a zero-tariff trade deal that took effect in 2010. A wider-reaching pact called the Regional Comprehensive Economic Partnership is expected to smooth trade further after ASEAN and China sign it as early as this year.
Rising incomes among the Southeast Asian region’s 640 million people allow growing numbers of Chinese goods, such as smartphones, to thrive in the market. Industrialization of ASEAN member countries has spawned factories that buy Chinese raw materials and make finished goods, often for resale in China.
Chinese imports from factory-intensive Vietnam rose 24% in the first quarter of 2020 compared to the same span of 2019 and the value of goods from Indonesia rose 13% year-on-year because of “increasingly integrated supply chains”, Dezan Shira said in a research note.
Chinese imports of integrated circuits for electronics rose about 26% in the first quarter partly because of disruptions in European supply chains, Biswas said. Factories in Malaysia and Thailand were still able to produce them, he said.
China still looked to Southeast Asia for palm oil, rubber and processed food, said Song Seng Wun, economist in the private banking unit of CIMB in Singapore. “Gradually, with economies stepping out from the lockdown and getting back on their feet, these things are starting to see economic activities picking up,” Song said.