New Free Trade Zone to Benefit China

Indonesia is one country to voice concerns about China using the free trade area as a dumping ground for cheap goods it cannot now sell to western markets because of the economic crisis.

Indonesian President Susilo Bambang Yudhoyono was still coming under pressure from his own parliament to ask for a delay in the implementation of CAFTA - even after the launch date - to protect the country's footwear, textile and food beverage industries.

Ignatius Lim, commercial counselor at the Singapore embassy in Beijing, said Indonesia's reaction was understandable.

"Officials there need to protect domestic factories so as to maintain people's living conditions. Under such an economic situation, even developed countries tend to protect themselves by initiating anti-dumping and other measures," he said.

Zhang Yunling, director of the Institute of Asia-Pacific Studies at the China Academy of Social Sciences, said far from being a negative influence, China could prove to be the engine of growth in the region.

"Although some countries have voiced their worries, ASEAN should take advantage of the speed of China's growth," he said.

Zhang at AT Kearney insisted China was unlikely to assert as much power as the United States does in the North American Free Trade Agreement, one of the largest other free trade areas along with the European Union.

He believes it could be Chinese manufacturing under threat from imports from other Southeast Asian nations where production costs are lower.

"Chinese manufacturers are no longer the lowest cost producers anymore. What you will see is a lot of Chinese companies setting up production facilities in places like Thailand and Indonesia and exporting goods to China. This will have the effect of Chinese manufacturing moving to cheaper places in western China," he said.

One company planning to do this is Haier. It already manufactures refrigerators in Prachinburi province in Thailand, its first factory in Southeast Asia.

It intends to take advantage of zero tariffs to import some fridge models back into China.

Wu Yong, general manager of Haier Electric (Thailand), said the products could have a competitive edge in the Chinese market.

"The founding of the FTA will give more momentum to China and ASEAN enterprises to expand their business in each other's market," he said.

Xu Ningning, deputy secretary general of the China-ASEAN Business Council based in Beijing, said China and ASEAN countries already had a successful trading relationship before the introduction of the free trade area.

Trade between the two parties has been increasing at 20 percent a year and reached 231 billion U.S. dollars in 2008.

"Some small- and medium-sized enterprises in ASEAN worry cheaper but better Chinese products would destroy their domestic business when the tariff is cancelled. The area's success, however, will be judged by whether enterprises in all countries feel any real benefit," said Xu.

Zhang at AT Kearney expects China to have a dominating influence and can envisage the area adopting the yuan as a single currency in the future as happened with the euro in European Union nations excluding the UK.

"You already see the yuan accepted in a number of Southeast Asian nations alongside the domestic currency. I think if we look into the future this could be a possibility," he said.