OCBC sees ASEAN-China connections to continue deepen over medium term

KUALA LUMPUR, July 4 (Xinhua) -- OCBC Bank on Tuesday foresaw ASEAN-China connections to continue to deepen over the medium term.

In an OCBC treasury research provided to Xinhua, OCBC Bank's economists Tommy Xie Dongming and Lavanya Venkateswaran said that increased linkages between the Association of Southeast Asian Nations (ASEAN) and China will foster deeper connections.

Despite a marked deceleration in global trade growth brought about by looming recession fears, they said the robust trade growth trajectory between the two sides would persist in 2023.

Specifically, total trade between China and ASEAN continued the growth in the first five months of the year.

As of the first quarter of 2023, ASEAN remained China's biggest trading parter, followed by the European Union and the United States.

While tourist arrivals in the ASEAN region remain to be supported by non-Chinese tourists this year, the duo opined that the uptrend in tourist arrivals from China is becoming more evident.

"We expect that the October 2023 Golden Week holiday in China will support greater international travel into ASEAN," they said.

Meanwhile, they said inward foreign direct investment (FDI) from China into ASEAN has risen since the COVID-19 pandemic and may be indicative of greater integration into China's supply chains.

Moreover, they opined that a broadening of the product mix to China bodes well for a deeper trade relationship for the ASEAN nations.

According to them, FDI inflows from China have risen into Malaysia, Indonesia, Vietnam and Thailand in recent years.

Importantly, they said the export product mix from each of the ASEAN-4 countries is becoming more distinct, underscoring diversification and increased connectivity between the two sides.

Malaysia, a large commodity exporter in the region, has diversified its exports to China across commodities and electronics manufacturing, according to them.

In fact, commodities accounted for about 22 percent of total exports to China in 2022 while electronics exports accounted for about 58 percent.

Similarly, the Philippine exports to China are also heavily skewed towards manufacturing of electronics (about 55 percent in 2022), according to them. Still, commodity exports from the Philippines to China accounted for a substantial about 27 percent of total exports to China.

Although electronics exports from the Philippines are at the lower end of the value chain compared to Malaysia, they said the ongoing shifts in the electronics supply chains globally seem to be benefiting it.

In contrast to regional peers, they said Thailand's exports to China are more broad-based and balanced, ranging from agriculture and agro-industrial products, electronics, commodities including rubber and refined fuel, labor intensive and other manufactured exports (including chemicals).

The exports of food from Thailand to China have risen in recent years mainly driven by higher demand for fresh fruits, in particular durian. That aside, the product mix of Thai exports to China has been relatively stable, they added.