Increased integration with China expected to show up in BPO, infrastructure industries

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CHINA and the Association of Southeast Asian Nations (ASEAN) region have room to deepen their economic ties, the economic research arm of a regional integration organization said on Thursday.

“Prospects for broader and deeper integration in the coming decades are bright as China and ASEAN countries are natural partners with many complementarities,” the ASEAN+3 Macroeconomic Research Office said in a working paper.

AMRO said that trade between China and ASEAN economies has improved along with China’s economic growth.

This is due to the development of regional production networks with China at the center and ASEAN countries as parts the supply chain.

“Trade in goods between China and ASEAN will continue to thrive, propelled by the increase in market size on both sides, greater cooperation in facilitating trade and enhancing connectivity, and continued relocation of labor-intensive and other types of manufacturing activities from China to ASEAN to as China moves further up the value chain and focuses on its competitive advantages,” it added.

It noted that China-ASEAN integration has boosted the Philippines’ business process outsourcing sector, which was among the top contributors to economic growth in the past decade.

“ASEAN’s services exports also got a boost from China’s outbound tourism, with the Philippines witnessing a lift in its export of BPO services to China,” the report read.

“While China has certainly developed its own BPO services, it has nevertheless tapped the Philippines’ expertise) opportunistically. For example, the Philippine people’s proficiency in the English language has enabled the country to provide call centre services to Chinese companies,” it added.

AMRO said that China and ASEAN can broaden economic cooperation through the Belt and Road Initiative (BRI), which seeks to ramp up infrastructure in ASEAN countries to streamline the distribution of goods, with China providing access to finance.

It said that the BRI will foster foreign direct investment flows between China and ASEAN.

“China’s portfolio investment in ASEAN is expected to increase once China opens up its capital account further to allow Chinese investors to diversify their portfolios and invest abroad,” AMRO added.

It said that the Philippines is among the top beneficiaries of China’s BRI efforts.

“Assuming that BRI investment helps fill 20% of the infrastructure investment gap, this could crowd private investment by as much as 0.3 percent of GDP (gross domestic product) within the next two years, with the crowding-in effect most pronounced in the Philippines and in Indonesia,” it said.

“To make further progress, China needs to strengthen reform to address remaining challenges and grab opportunities offered by the Fourth Industrial Revolution. For both China and ASEAN, enhanced cooperation based on good understanding of each other’s needs, strengths, capacities and priorities will help deepen regional integration and boost mutual benefits.” — Elijah Joseph C. Tubayan