CAFTA: China-ASEAN Free Trade Area

Wherever you may travel in the world, your are very likely to find goods in local stores and markets that are stamped “Made in China”. But despite this global presence, many of China’s largest and most productive companies have made little or no impact on international markets which favor buying cheap Chinese goods. With the recent establishment of the China-ASEAN Free Trade Area (CAFTA) however, it seems that this is all set to change.

The region covered by CAFTA is home to some 1.9 billion people, opening up a multitude of untapped trading opportunities for China’s larger companies, as well as providing a platform from which to make inroads into North American and European markets. The Association of Southeast Asian Nations (ASEAN) was formed in 1967 by Malaysia, Singapore, Indonesia, Thailand and Philippines, later expanding to include Myanmar (Burma), Brunei, Laos, Cambodia, and Vietnam. These countries have a number of common goals, which they work together, as ASEAN, to achieve. These include promoting economic growth, cultural development, social progress and the peaceful solution to conflict situations.

Manufacturers from a broad range of sectors in China have expressed their confidence that CAFTA is going to boost the Chinese economy and in the long term enable China to join global market players on an equal footing. Founder of Shanghai-based international management consultants AT Kearney’s China Research Center, Zhang Tianbing, has been quoted as saying that if Chinese companies can establish dominant market positions in the ASEAN region, they could move on do the same in North America and Europe, and this would prove to be a major step in the evolution of the economy.

China’s largest private car manufacturer Geely, already has an assembly plant in Indonesia, and will look to expand this business to include car manufacturing facilities, thereby increasing output in a country that does not have its own domestic car manufacturer.

Not all ASEAN member countries are thrilled with CAFTA, with Indonesia expressing concern about China making use of the free trade area simply to dump its excess of cheap goods that have not been bought by western markets due to lack of demand brought about by the global financial crisis. In an effort to protect its domestic market, the Indonesian footwear, food and beverage, and textile industries in particular have been putting pressure on the country’s President to delay the implementation of CAFTA.

Manufacturers within China have also expressed concern that Chinese companies may set up manufacturing facilities in places like Thailand and Indonesia where production and labor costs are generally lower, and would then export products made in these countries to China. This could have the effect of job losses within China, as well as resulting in fierce competition for China’s domestic market. While these concerns are understandable, it would appear that CAFTA cannot be halted entirely, and will be implemented sooner or later.