China-ASEAN Investment Agreement Signed

by Mary Swire, LawAndTaxNews.com, Hong Kong

19 August 2009

On August 15, China and the Association of Southeast Asian Nations (ASEAN) signed an investment agreement, having already signed goods and services free trade agreements (FTAs) in 2005 and 2007, respectively. China is ASEAN’s fourth largest trading partner, after the EU, the United States, and Japan.

According to ASEAN, as of the end of June 2009, the combined cumulative foreign direct investment (FDI) of China and the ASEAN member states is over USD60bn. Currently, China’s share of FDI into ASEAN stands at 2.4% of total ASEAN FDI inflows, and it is expected that the investment agreement will pave the way for enhanced investment flows from China. Both sides’ substantial investments in each other’s economies will also benefit from the protection provisions of the agreement.ASEAN estimates the agreement could potentially generate a combined GDP of USD6 trillion.

China announced in April that it was to set up a USD10bn China-ASEAN Investment Cooperation Fund to support infrastructure projects in the region over a three to five-year period, backed by a further USD15bn in loans to ASEAN. Dr Surin Pitsuwan, Secretary-General of ASEAN, said: “China’s economic engagement in this region is expanding, and the investment agreement will catalyze more investment flows into ASEAN at a time when the global FDI flows from traditional sources are on the decline. The investment agreement will send positive signals that ASEAN and China are forging economic cooperation ahead in building a stronger economic partnership and setting the pace in moving the region out of the current economic crisis.”

Xu Ningning, Secretary-General to the China-ASEAN Business Council Chinese Secretariat, said the signing of the investment agreement has raised the prospect of preferential tariffs, and even tariff-free trade, for China. Chinese companies investing in ASEAN countries and generating a minimum added value of 40% will benefit, he said, from the new tariff regime when exporting their goods to countries who are signatories to FTAs – including Australia, New Zealand, South Korea, Japan, and India – with ASEAN, but who have not so far signed FTAs with China.

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