Working Paper in Economics and BusinessVolume V No.2/2015

ASEAN-China Economic Relations: A View from Indonesia

Maddaremmeng A. Panennungi

July 2015

Department of Economics, Faculty of Economics and BusinessUniversity of Indonesia

Working Paper in Economics and BusinessChief Editor: Hera SusantiEditors: Muhammad Halley Yudhistira, Rus’an NasrudinSetting: Rini Budiastuti, Moslem Afrizal

Copyright c©2015, Department of EconomicsDepartment of Economics Building 2nd FloorDepokWest Java, Indonesia 16424Telp. 021-78886252Email: mhyudhistira@gmail.comWeb: http://econ.feb.ui.ac.id/katagori/working-paper/

Contents

Contents 3

List of Tables 4

List of Figures 4

1 Introduction 1

2 Methodology 2

3 ASEAN-China Economic Relations from Indonesia Perspectives 2

4 Understanding the Main Changes in Asia and the World in the Last FourDecades 3

5 Maritime Silk Road of China and Maritime Axis of Indonesia 5

6 Going Deeper: Indonesia-China Trade Relations 7

7 Conclusion 11

8 References 13

List of Tables

1 Top 20 of Export Destination of Indonesia 2013 . . . . . . . . . . . . . . . . . . . . 82 RCA of Selected Countries Based on Export Value Added, 2009 . . . . . . . . . . . 103 Product and Market Concentration of Indonesia and China . . . . . . . . . . . . . 11

List of Figures

1 Trade Balance of Manufacturing Goods of Selected ASEAN Countries with China(USD M) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

2 Trade Balance of Manufacturing Goods of Selected ASEAN Countries with China(USD M) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

3 World Share of China Export to Selected Countries . . . . . . . . . . . . . . . . . . 44 Economic Growth of Selected Countries since 1980s . . . . . . . . . . . . . . . . . . 55 Economic Growth of Selected Countries since 1980s . . . . . . . . . . . . . . . . . . 66 Silk Road Revival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Sea Toll of Maritime Axis? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 Usage of Traded Goods of Indonesia and China . . . . . . . . . . . . . . . . . . . . 99 Value Added Contribution of Services in Exported Goods Value Added of APEC

Economies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

ASEAN-China Economic Relations: A View from Indonesia

Maddaremmeng A. Panennungi1,∗

Abstract

This paper is aimed at providing current condition of ASEAN-China Economic relation andshowing the prospect for future economic relation between ASEAN (especially Indonesia)with China. Methods of this paper is focused on qualitative analysis and supported by simplestatistics. There are some important highlighted from this paper: (1) One of the main con-cerns of the most ASEAN countries is the negative bilateral trade balance with China. (2)It is predicted that Asia will reemerge as the largest economy in the world and ASEAN andChina will be part of the reemergence. China and Indonesia are the two largest economiesin ACFTA. (3) Despite the current short run problems of the China and Indonesia economy,long term economic prospects are still better. One of the drivers could be the developmentof infrastructure in Mainland Silk Roads and Maritime Silk Road in China and integratedinfrastructure development in Indonesia, especially Maritime Axis development. (4) Servicesis needed to join the global production network/global supply chains in ASEAN and China.(5) However, several challenges that should be faced to secure the future economic and noneconomic relation. Non economic problems, especially the tension in South China Sea betweenChina and its neighbors should be solved or at least the tension should not move into open conflict.

JEL Classifications: F15, F68

Keywords: ASEAN, China, Economic Relation

1. Introduction

Indonesia has entered multilateral tradeagreements/arrangements in 1994/1995 un-der WTO (World Trade Organization).Another agreements/arrangements that isbased on the regional, is AFTA (ASEAN

∗Director APEC Study Centre University of Indone-sia (ASC UI) dan Lecturer at Department of Eco-nomics, Faculty of Economics, University of Indone-sia. This was presented at the International Sym-posium China-ASEAN Relations: Review andProspect, Institute of Southeast Asian Studies,Yunnan University, 23-25 September 2014, Kun-ming, China. And this view reflects personal opinionand it does represent the institutions perspectives. Youcan contact at maddaremmeng@gmail.com

Free Trade Area) in 1992 and followedby several agreements/arrangements un-der ASEAN based, started with ACFTA(ASEAN-China Free Trade Area) in 2005(Goods) and 2007 (Services). ASEAN basedagreements/arrangements are enlarged intoASEAN with several important countries (Ko-rea (2007 for Goods and 2009 for Services),Japan (2008), India (2010), and Australia &New Zealand (2012).

Furthermore, AFTA in 2015 will be trans-formed into ASEAN Economic Communitythat is broader and deeper than just CEPT(Common Effective Preferential Tariff) inAFTA. There is also a plan ”to convert” allASEAN Plus into what so-called RCEP (Re-

1

Panennungi, M.A./ASEAN-China Economic Relations: ... 2

Source: APEC Statistics, based on COMTRADE, processed. *) 2013 for Vietnam

Figure 1: Trade Balance of Manufacturing Goods of Selected ASEAN Countries with China (USDM)

gional Comprehensive Economic Partnership).

Bilateral trade agreements/arrangements ofIndonesia has only one until now, namelyIJEPA (Indonesia Japan Economic Partner-ship Agreements) in 2008. In addition, Sub-regional cooperation of Indonesian borderof selected border provinces with its neigh-bors are SIJORI (Singapore-Johor Riau) thenchanged into IMS GT (Indonesia MalaysiaSingapore Growth Triangle), IMT GT (In-donesia Malaysia Thailand Growth Triangle),and BIMP EAGA (Brunei Indonesia MalaysiaPhilippines East Asia Growth Area). However,there is a forum before entering WTO, which isvery important for Indonesia but only based onvoluntarily, is APEC (Asia-Pacific EconomicCooperation) since 1989.

Among trade arrangements/agreementsabove, ACFTA is the ”most famous” in thepublic arena, especially in the political debatein Indonesia due to its bilateral trade deficit.For Indonesia, China is the second largestexport market and the first largest import oforigin in 2013. Therefore, this paper is aimedat understanding the economic relation and itsfuture prospects between China and ASEAN,especially China and Indonesia.

2. Methodology

This paper is focused on qualitative analysisby using simple statistics. It is also employedseveral qualitative information to support theanalysis.

3. ASEAN-China Economic Relationsfrom Indonesia Perspectives

China is a growing market destinationstarted in 2001/2002 (China entered WTO)and enlarged since 2004/2005 (ACFTA). In-donesia export growth to China has increasedsince China entering WTO and ACFTA (withinterruption of the Global Financial Crises2009/2009); however, Indonesia import growthfrom China is greater and the result is In-donesia trade balance is deficit. To show theprogress of the trade balance ASEAN countrieswith China, please see the Figure 1. It is showedthat Vietnam, Indonesia, and Thailand are thethree largest deficit countries with China.

To emphasize the trade deficit with Indone-sia, it is shown with only trade balance in man-ufacturing goods as in Figure 2. For Indone-sia, the trade deficit in total has a better per-formance due to Indonesia primary commod-ity/mineral export; however, in manufacturing,

Panennungi, M.A./ASEAN-China Economic Relations: ... 3

Source: APEC Statistics, based on COMTRADE, processed. *) 2013 for Vietnam

Figure 2: Trade Balance of Manufacturing Goods of Selected ASEAN Countries with China (USDM)

Indonesia has biggest deficit among ASEANcountries.

There are several determinants that couldexplain why most of the ASEAN countries ex-perienced deficit, for example in the case of In-donesia and Vietnam, both of these countriescould keep relatively higher growth in the timeof GFC (Global Financial Crises) 2008/2009.There is also a possibility of ”redirecting ex-port destination” of China from the countriesthat suffers from GFC such as US and EU. TheFigure 3 below shows the trend of Chinese Ex-port to the selected countries: US, Japan, andsome ASEAN countries.

Despite the trade imbalances between Chinaand ASEAN countries, especially Indonesiaand Vietnam, the long term economic relationof these countries are still have a chance for abetter future as explained below.

4. Understanding the Main Changes inAsia and the World in the Last FourDecades

World has change dramatically since 1980sboth economic and political perspectives:China has changed its political revolutioninto economic pragmatisms especially since the

early 1980s, the Berlin Wall had fallen (and fol-lowed by united both West and East Germanythat one of the sign of the end of cold war),and the radical changes of former USSR (UniSovyet) that moved into market capitalism.These changes have convinced the world thatthe market is the economic system that couldlead to the prosperity. In the same time, Rea-gan (United States, US) and Thatcher (UnitedKingdom, UK) launched the economic reformsuch as liberalization and privatization. And inthe 1990s, economic performance of US has ex-panded dramatically, especially under Clintonadministration.

Furthermore, during 1990s, there are sev-eral changes in the world trade policy suchas the conclusion of Uruguay Round in 1994and the birth of WTO in 1995. One of the im-portant trade blocks that was established inthe 1990s was NAFTA (North American TradeArea) that consist of US, Canada, and Mexico.And since then, many trading blocs have beenstarted, such as AFTA in 1992 that concernedon the trade diversion of NAFTA. Another im-portant that shape the future of Asia and thePacific is the ”Bogor Goals” commitments to-ward liberalization of trade and investment by2010 (developed economies) and 2020 (devel-

Panennungi, M.A./ASEAN-China Economic Relations: ... 4

Source: APEC Statistics, based on COMTRADE, processed. *) 2013 for Vietnam

Figure 3: World Share of China Export to Selected Countries

oping economies).

China and Japan are the two largesteconomies in Asia. Japan is the first locomo-tive of Asian economy and also the first mod-ern/developed economies in Asia in our mod-ern history. In the 1980s, Japan was the maindriver of world economy that experienced hightrade surplus with the US and become the lead-ing of the Asian countries in trade and invest-ment. However, in the 1990s, Japan enteredthe lost decade with its slump. The next lo-comotive of the Asian economy is China thatshowing high economic growth during the fourdecades started in the early 1980s. China’s se-cret recipe is the development of what so-calledSEZs (Special Economic Zones) in the EasternPart of China that open China for trade and in-vestment. These SEZs are the drivers of Chinaeconomy which are located in the Coastal Ar-eas, a very good location for sea trade, and havebetter infrastructure, more population, and al-ready have contacts with the world sea tradesince the ancient time compared to the Middleand Western Part of China. The Figure aboveshows that China economic growth since 1980tend to grow about 10% until GFC (Global Fi-nancial Crises) in 2008/2009 and then slowingdown around above 7%.

Indonesia is the largest economy in ASEAN.

Before AFC (Asian Financial Crises) in1997/1998, Indonesia economic growth wasaround 7% in the early 1980s until mid 1990s.After the contraction -13% in 1998/1999, In-donesian economic growth has been strugglingto achieve 5%-6%. Currently, Indonesia has putattention on the development of the infrastruc-ture to boost Indonesian economic growth. Andone of the purposes of infrastructure develop-ment is how to reduce cost of logistics for ef-ficiency in the movement of goods and people.This strategy is one of the important factorsthat must be addressed to join the regional andglobal production network. In IMF Outlook inApril 2014, as shown in the Figure 4 above, hasshown the forecasting of selected countries: US,China, Japan, Germany, and Indonesia in theperiod 2014-2019. According to IMF, Indonesiaeconomic growth is expected to be higher in theperiod 2014-2010 while China will slow down inthe same period. US economy will higher butdecrease in 2016-2019. And in average, Ger-many and Japan will have a constant growth.However, the author’s opinions tend to disagreesome of the prediction of the outlook, especiallyrelated to growth of China and Japan. First,if US is predicted to grow faster started 2014,China’s economy should be faster than the pre-diction of IMF because US is the largest export

Panennungi, M.A./ASEAN-China Economic Relations: ... 5

Source: World Economic Outlook Data Base, IMF, processed, 2014

Figure 4: Economic Growth of Selected Countries since 1980s

destination of China as shown in Figure 3. Sec-ond, if Japan is predicted to be stagnant, howcould Indonesia grow faster? This question isvalid because Japan is the largest export mar-ket of Indonesia. Third, how could Indonesiagrow faster if China is predicted to be slowingdown and Japan to be stagnant?

5. Maritime Silk Road of China andMaritime Axis of Indonesia

Several prediction of the Asia revival in theworld economy has been well known. One ofthem is Piketty, in his famous and controversialbook, Capital in 21st Century (2014)2,

”If this were to occur as predicted, per capitaoutput in China, Eastern Europe, South Amer-ica, North Africa, and the Middle East wouldmatch that of the wealthiest countries by 2050.After that, the distribution of global output de-scribed in Chapter 1 would approximate the dis-tribution of the population.” (Piketty, pp.100)

2Another famous book, Why Nations Fail, by Ace-moglu (2012), has a pessimistic perspective on Chinabecause according to Acemoglu, economic system inChina has been an inclusive institution but politicalsystem is not yet become inclusive institution. He em-

In the ancient times, as shown by Figure5, Asian economy (especially China and In-dia) had highest share in the world outputand it has been overtaken by Europe (bothWestern Europe and US, including Canada andAustralia-New Zealand) since 1870s. Howeverthe economic trend of Asia will reemerge asthe largest economy and China together withJapan will lead the reemergence along withIndia and Indonesia (see also in Panennungi,2012).

China has prepared roadmap to be thelargest economy in the world by moving intowhat so-called ”Maritime Silk Road”. SilkRoad is the image of the time of prosperityof China and its trading partner in the an-cient time both in land and sea. The ancientSilk Road in the land stretched from China toCentral Asia, South Asia, Southeast Asia, Mid-dle East, and to Europe. In the land, at leasttwo main directions (For example, Rana, 2014):first is Northern Silk Road from Xi’an to Kash-gar, Central Asia, Middle East, Africa, and Eu-rope; second is Southwestern Silk Road started

phasized that both of the politic and economic systemsare needed to be inclusive in the long run to avoid asfail nation.

Panennungi, M.A./ASEAN-China Economic Relations: ... 6

Source: Piketty, Capital in 21st Century (2014)

Figure 5: Economic Growth of Selected Countries since 1980s

from Guangzhou-Kunming-to Pakistan and In-dia plus some direction to the Southeast Asian.Both of the directions have been advanced byimproving the infrastructure of road and rail-ways.

In the sea or Maritime Silk Road, the ideasis mainly based on the extension of the Admi-ral Zheng He’s voyages before China close itselffrom sea trade. It stretched from Guangzhou,South China Sea, Malacca Straits, Java, Suma-tra, India, until Africa. For the improvement ofinfrastructure for Maritime Silk Road, Chinahas announced 10 Billion Yuan.

There are some notes from latest develop-ment of China. The peaceful rise of China isa necessary condition for better economic per-formance of both Asia and the World. Thepolitical and security tensions between Chinaand other countries during the last decadeshave potential to disturb the economic devel-opment in China and other countries. Further-more, concept of mainland silk roads and mar-itime silk roads are intended for strengtheningeconomic relations between China and other re-lated countries. However, it is also recognizedthat there are some worries from several neigh-boring countries.

For Indonesia, there is a coincidence be-tween the development maritime silk road of

China and Indonesia maritime development.In the Presidential Candidate Debate in 2014,elect President of Indonesia, Joko Widodo, pro-claimed the importance for Indonesia to be-come a maritime country and He urges theso-called Poros Maritim or Maritime Axis. In-donesia is located between Pacific and IndianOcean and between two continents: Asia andAustralia. And currently, He is preparing a spe-cial department to handle the maritime poli-cies. However, until now there is no detail ex-planation of maritime axis. One of the addi-tional explanation is Mr. Widodo will build onwhat so-called ”sea toll” and one of the re-cent interpretation is it is closer to idea of theextension of Pendulum Nusantara, a previousconcept from Pelindo 2 (2012) as shown in theFigure 7 below.

If sea toll idea is equal to or the extensionof pendulum nusantara, it is the idea on howto reduce cost of logistics especially to reducethe maritime transportation cost in Indonesia(for example, see Panennungi, 2013). Indone-sia geography conditions consist of more than17.000 islands and around 70%-75% of its ter-ritory is salt water (sea). Moving to the seatransportation development is one step aheadfor Indonesia. Previously, Indonesia was con-sist of many maritime-trading kingdoms that

Panennungi, M.A./ASEAN-China Economic Relations: ... 7

Source: South China Morning Post*

Figure 6: Silk Road Revival

were defeated (and isolated) one by one by theDutch and until now this country has still leftbehind in the maritime development comparedto its neighbors. One of the facts for the pastexperiences in the maritime trade could be seenfrom relation between the people of Indonesiaand Malaysia. Most of Malay tribe in Malaysiahad direct relation with the people from In-donesia in the past especially from Suma-tra (Acehneese/Melayuneese/Minang), North-ern Part of Java Island (Javanese), andSouthern Part of Sulawesi Island (Bugi-neese/Macassareese).

Currently, Indonesia has started Jokowi ad-ministration since October 20, 2014. And toemphasize the development of the maritimeaxis development, Mr Widodo will set someprograms in several ministries related to thedevelopment of the maritime axis.

6. Going Deeper: Indonesia-China TradeRelations

The Tabel 1 below shows the top 20 of In-donesia export market in 2013. The top 20 of

the market destination could be explained bythe gravity model that the economic size, eco-nomic growth, and the distance could be themain explanation why these economies couldbe largest destination for Indonesia export.

In addition, 10 of the economies have spe-cial economic agreements/arrangement withIndonesia: Japan (IJEPA and ASEANJapan FTA), China (ASEAN ChinaFTA), Singapore (AFTA/AEC/ASEANbased agreements), India (ASEAN In-dia FTA), Korea (ASEAN Korea FTA),Malaysia ((AFTA/AEC/ASEAN based agree-ments), Thailand (AFTA/AEC/ASEANbased agreements), Australia (Aus-tralia New Zealand FTA), Philippines((AFTA/AEC/ASEAN based agreements),and Vietnam (AFTA/AEC/ASEAN basedagreements).

As mentioned previously, Indonesia bilateraltrade deficit has entered public debate. If thetrade between Indonesia and China are dis-aggregated by usage as shown in Figure 8,Indonesian export tend to be dominated byraw materials and Indonesia import tend to be

Panennungi, M.A./ASEAN-China Economic Relations: ... 8

Source: Annual Report Pelindo 2 (2012)

Figure 7: Sea Toll of Maritime Axis?

Table 1: Top 20 of Export Destination of Indonesia 2013

Rank DestinationTrade Value in

% of TotalUS$1000-2013

1 Japan 27,086,258.71 14.842 China 22,601,487.23 12.383 Singapore 16,686,283.64 9.144 United States 15,741,131.92 8.625 India 13,031,302.74 7.146 Korea,Rep 11,422,476.22 6.267 Malaysia 10,666,609.47 5.848 Thailand 6,061,869.96 3.329 Other Asia, nes 5,862,445.95 3.2110 Australia 4,370,481.87 2.3911 Netherlands 4,105,967.06 2.2512 Phillippines 3,861,962.61 2.0913 Germany 2,883,422.57 1.5814 Hongkong, China 2,693,254.44 1.4815 Vietnam 2,400,879.75 1.3216 Italy 2,128,608.27 1.1717 Spain 1,810,444.48 0.9918 Saudi Arabia 1,734,016.65 0.9519 United Kingdom 1,634,804.63 0.9020 United Arab Emirates 1,589,066.71 0.87

Source: WITS (2014)

Panennungi, M.A./ASEAN-China Economic Relations: ... 9

(a) Indonesia Export to China is Dominated by RawMaterials

(b) Indonesia Import from China is Dominated byCapital Goods

Figure 8: Usage of Traded Goods of Indonesiaand China

dominated by capital goods.

Export of Indonesia to China is dominatedby raw materials and import Indonesia fromChina is dominated by capital goods and in-termediate goods. This condition could be seenfrom at least two perspectives. First, for mostof politicians, bureaucrats, and most of publicshows that our exported goods are raw mate-rial has less value added and most of our im-ported goods have higher value added). Thesefacts are not good and our export should beimproved into higher value added. Second, forsome economists, imported capital goods (andintermediate goods) are good signals for fur-ther production process in the future and it isneeded to join the global production networks.And higher export of commodity is the sig-nal that China’s economic growth has dragged

price of world commodities. It could be shownlater that Indonesia export growth in raw ma-terial has decreased since Global Financial Cri-sis 2008/2009.

Most economist consider that trade balanceshould be seen from total trade balance in-stead of bilateral trade balance because importfrom one country could be used to help produc-tion process and exported to the other country;however, bilateral trade deficit with China afterACFTA implemented is the ”most famous” inthe public arena, especially negative perspec-tives of politicians and bureaucrats

As information, Indonesia has passed a newlaw, namely ”Trade law” No 7/2014 that givesstronger power for parliament and governmentin influence international trade especially inter-national trade agreements/arrangements. Andtrade deficit could be one of the reasons to re-consider the trade agreements/arrangements

This article is trying to show some of the fac-tors that could affect the trade performance ofChina and ASEAN countries. First, by showingcomparative advantage with simple RCA (Re-vealed Comparative Advantage); Second, byshowing export concentration of China in bothproduct and market and to be compared withIndonesia; Third, by showing share of servicesvalue added in the exported goods of Chinacompared to some countries.

RCA in terms of export based on valueadded which is developed by OECD andWTO is shown in Table 2. China has com-parative advantage on (1) textile, textileproducts, leather and footwear, (2) electri-cal and optical equipment, (3) manufactur-ing nec. Indonesia has comparative advan-tage on (1) food products, beverages, andtobacco, (2) textile, textile products, leatherand footwear, (3) wood, paper, paper prod-uct, printing&publishing, and (4) chemicalsand non-metallic product. Malaysia has com-parative advantage on (1) wood, paper, pa-per product, printing&publishing, (2) chemi-cals and non-methalic product, (3) machinery

Panennungi, M.A./ASEAN-China Economic Relations: ... 10

Table 2: RCA of Selected Countries Based on Export Value Added, 2009

A B C D E F G H I

China 0.3421 2.6121 0.5368 0.5082 0.8430 0.8392 1.8211 0.3278 1.5906Indonesia 2.8405 1.8726 1.5166 1.1936 0.7345 0.6144 0.5484 0.3181 0.9129Malaysia 0.7184 0.4668 1.2496 1.2105 0.3636 1.5513 1.7711 0.0975 0.2032Phillippines 0.1278 0.8213 0.1030 0.0515 0.0639 0.1379 4.1618 0.2396 0.0834Singapore 0.2281 0.0510 0.2310 1.9299 0.3001 0.8244 1.7088 0.4139 0.2271Thailand 2.1402 1.7772 0.4534 0.6253 0.5076 0.2243 1.8702 0.3047 1.5470Vietnam 4.3146 6.6119 1.3679 0.1591 0.2117 0.2301 0.2549 0.1107 0.7742

A: Food products, beverages and tobacco F: Machinery and equipment, nec

B: Textiles, textile products, leather and footwear G: Electrical and optimal equipment

C: Wood paper, paper products, printing and publishing H: Transport equipment

D: Chemicals and non-metallic mineral products I: Manufacturing nec; recycling

E: Basic metals and fabricated metal products

and equipment, (4) electrical and optical equip-ment. Philippines has comparative advantageon electrical and optical equipment. Singaporehas comparative advantage on (1) chemicalsand non-metallic product and (2) electricaland optical equipment. Thailand has compar-ative advantage on (1) food products, bever-ages, and tobacco, (2) textile, textile prod-ucts, leather and footwear, (3) electrical andoptical equipment, and (4) manufacturing nec.And Vietnam has comparative advantage on(1) food products, beverages, and tobacco, (2)textile, textile products, leather and footwear,and (3) wood, paper, paper product, print-ing&publishing.

If we compared China and selected ASEANcountries above, it is seen that if we usethe comparative advantage with value added,China domination does not seen. Economies ofscale of China production could be one of thereasons why China could dominate trade bal-ance in ASEAN and the world.

Second. This article is using IndexHerfindahl-Hirschman (HH) to show theconcentration both in product and market forChina and Indonesia. There are differencesbetween China and Indonesia: first, in terms ofproduct concentration, Indonesia’s export to

China tend to be more concentrated comparedto the world in 2010-2013 (consistent) whileChina tend to be more concentrated to theworld compared to Indonesia in 2013 (butinconsistent because 2010-2012 tend to beconcentrated to Indonesia).

Second, in terms of market concentration,Indonesia export market to the world tendto be concentrated compared to China; how-ever, the trend of the market concentrationrend to be more equal. In addition, numberof market destination of Indonesia (212 to 216economies) tend to be larger than China (212to 213 economies).

Third. One of the factors that need in in-volving in global value chain is services, espe-cially related to the logistics. However, most ofthe countries, especially developing countriestend to be more protective on services. Studyof PSU APEC Secretariat (2014) has shownthat there is a negative relation between man-ufacturing per capita Services RestrictivenessIndex (SRI). Furthermore, the study point outthat the developing countries of ASEAN coun-tries in APEC tend to have more than 50%foreign Services value added in terms of valueadded exported goods such as Singapore, Thai-land, Malaysia, Philippines and Brunei Darus-

Panennungi, M.A./ASEAN-China Economic Relations: ... 11

Table 3: Product and Market Concentration of Indonesia and China

(a) Indonesia Product Concentration to China vs World

China World

HH Product Index Number of Products HH Product Index Number of Products

2010 0.0647 1866 0.0255 42172011 0.0617 1954 0.0296 42052012 0.0654 2040 0.0272 42392013 0.0542 2014 0.0242 4214

(b) China Product Concentration to Indonesia vs World

Indonesia World

HH Product Index Number of Products HH Product Index Number of Products

2010 0.0103 3551 0.0073 47872011 0.0095 3665 0.0078 47862012 0.0100 3669 0.0071 47812013 0.0060 3685 0.0075 4738

(c) Indonesia vs China: Export Market Concentration

Indonesia World

HH Product Index Number of Products HH Product Index Number of Products

2010 0.0656 212 0.0673 2142011 0.0636 212 0.0697 2162012 0.0613 212 0.0677 2122013 0.0652 212 0.0665 214

Source: WITS/Comtrade Data Base, 2014

salam. And only Indonesia that has domesticvalue added of its services around 60% whichis higher than china (around 50%) as shown inFigure 9.

7. Conclusion

1. One of the main concerns of the mostASEAN countries is the negative bilateraltrade balance with China, especially inmanufacturing. This should be addressedto secure trade relationship in the future

2. It is predicted that Asia will reemergeas the largest economy in the world and

ASEAN and China will be part of thereemergence.

3. China and Indonesia are the two largesteconomy in ACFTA. Despite the currentshort run fluctuation of the China and In-donesia economy, their long term economicprospects are still better. One of the drivercould be the development of infrastructurein Mainland Silk Roads and Maritime SilkRoad in China and integrated infrastruc-ture development in Indonesia, especiallyMaritime Axis development

4. Indonesia economic condition is stable and

Panennungi, M.A./ASEAN-China Economic Relations: ... 12

Source: APEC Secretariat, 2014

Figure 9: Value Added Contribution of Services in Exported Goods Value Added of APECEconomies

it is expected to grow faster in the next fiveyears and China is one of the main trad-ing partners for Indonesia. It is also con-sidered that the future of China economywill become more important for ASEANcountries, especially with Indonesia

5. China products tend to be a competitorwith other ASEAN countries, especiallyin labor intensive industries of Indonesiaand Vietnam. However, natural resourceintensive of export industry of Indonesia,Malaysia, Vietnam, and Thailand tend tobe more competitive compared to China.

6. Services is needed to join the globalproduction network/global supply chains.Foreign share of services in export by valueadded of Indonesia is lower than that ofChina, Brunei, Malaysia, Thailand, Sin-gapore, and Vietnam. Another key forASEAN, especially for Indonesia to in-crease manufacturing export is services de-velopment to improve the capability injoining global value chain

7. However, several challenges that shouldbe faced to secure the future economic

and non economic relation. Non economicproblems, especially the tension in SouthChina Sea between China and its neigh-bors should be solved or at least the ten-sion should not move into open conflict.

Panennungi, M.A./ASEAN-China Economic Relations: ... 13

8. References

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[2] APEC Secretariat. (2014). APEC Statistics, http://statistics.apec.org/

[3] APEC Secretariat. (2014). Services and Man-ufacturing: Pattern of Linkages, http://

publications.apec.org/publication-detail.

php?pub_id=1540

[4] International Monetary Fund (IMF). (2014).World Economic Outlook Data Base, http://www.imf.org/external/ns/cs.aspx?id=28

[5] OECD and WTO. (2014). Trade in Value Added,http://stats.oecd.org/index.aspx?queryid=

47807

[6] Panennungi, Maddaremmeng. (2012). Re-Emergence of the Asian Economies: Will HistoryRepeat Itself? Economics and Finance in Indone-sia (EFI), Vol 60 No 1 2012, page 77-104

[7] Panennungi, Maddaremmeng. (2013). Connectiv-ity and Trade Performance: Concept and Its Evi-dence from APEC, Economies Working Paper inEconomics and Business, Faculty of EconomicsUniversity of Indonesia; retrieved at http://www.ideas.repec.org/p/lpe/wpecbs/

[8] Pelindo 2. (2012). Annual Report, http://www.

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[9] Piketty, Thomas. (2014). Capital in the twenty-first century, The Belknap Press of Harvard Uni-versity Press, Cambridge, Massachusetts, London,England

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