17 Nov 2016
ASEAN: Market Profile
Major Economic Indicators
- Real GDP of the 10-nation ASEAN grew by 4.7% in 2015, helped by robust private consumption despite weaker exports. The Asian Development Bank (ADB) expects the trade bloc to expand at 4.5% in 2016.
- The ASEAN Economic Community (AEC) was officially launched on 31 December 2015 to create a single market to enable an easier movement of goods, services, investment, capital and people across the region.
- Hong Kong sought to accede to the China-ASEAN Free Trade Area (CAFTA) in the wake of the CAFTA establishment in 2010, but ASEAN instead opted for a separate bilateral free trade agreement (FTA) with Hong Kong in 2013, with a view to agreeing on an FTA in 2016. Eight rounds of negotiations have taken place since July 2014.
- In the first nine months of 2016, Hong Kong’s total exports to ASEAN dropped by 5.9% year-on-year (YOY) to US$24.5 billion, while imports from the trade bloc totaled US$53 billion in the same period, representing a 0.1% YOY increase.
Current Economic Situation
ASEAN is a fast expanding trade bloc in Asia with a growing economic clout. With a combined population of over 620 million, ASEAN’s aggregate size surpassing US$2.4 trillion, with average annual GDP growth of around 5% over the past decade.
Marking a major milestone in the regional economic integration agenda, the ASEAN Economic Community (AEC) was officially launched on 31 December 2015 to create a single market to enable an easier movement of goods, services, investment, capital and people across the region. The formal establishment of the AEC does not point to an end of the efforts in achieving further integration among the AEC countries, be it economic, political and socio-cultural. The AEC Blueprint 2025 was adopted by ASEAN leaders in November 2015, providing the broad directions through strategic measures in five areas for the AEC from 2016 to 2025.
If treated as a single entity, the AEC would rank as the third largest economy in Asia and sixth largest in the world (after the US, China, Japan, Germany and the UK based on 2015 figures). Yet, the AEC has great economic and income diversity among its members, with an average per capita income of around US$3,900, ranging from a low of around US$1,200 in Cambodia to more than US$50,000 in Singapore.
The AEC is estimated to have expanded by 4.7% in 2015. In an Asian Development Outlook report published in July 2016, the ADB marginally revised down the 2016 GDP growth projection for Vietnam given a drought-affected agriculture sector. Indonesia, the largest economy of ASEAN, is expected to expand 5.2% in 2016 due to accelerated government spending. Meanwhile, the ASEAN economy as a whole is expected to expand 4.5% in 2016 on robust domestic consumption in many member states.
Investment has played a key role in spurring GDP growth in many ASEAN economies. In 2015, inward FDI declined by 8% to US$120 billion from US$130 billion in 2014 amid a fall in services investment and cross-border merger and acquisition (M&A) activities. Performances of ASEAN member states differed, with Vietnam, Myanmar and Laos showing a strong increase, while Indonesia and Singapore witnessing a decline.
Despite the sluggishness of the developed markets over the past few years, ASEAN economies have generally remained buoyant thanks in part to the bloc’s expanding intra-Asia trade. In the past decade alone, intra-Asia trade has tripled by value, rising more rapidly than either extra-Asia trade or global trade, which has just doubled in value. Over 60% of ASEAN trade is conducted in Asia, with about one-quarter traded among ASEAN members, some 15% with the Chinese mainland, 11% with Japan, 5% with Korea, and 4% respectively with Taiwan and Hong Kong.
While the bulk of intra-Asia trade comprises parts, components, raw materials and machinery needed in export-oriented production, consumer goods are increasingly traded within Asia. As noted by the IMF, the increasing role of intra-Asia trade in final consumption goods, along with a large domestic market, especially in Indonesia, appears to provide the region with a potential source of resilience against global demand shocks.
An expanding middle class in ASEAN, estimated to be over 150 million or one-quarter of the ASEAN population, has been fuelling consumer spending and retail sales in the organised channels. Within ASEAN, Indonesia is estimated to have the biggest number of middle-class people of over 70 million, while Vietnam has recently shown the fastest growth in the middle-class people, despite a much smaller number of around 10 million.
Total exports from the ASEAN economies dropped by 8.6% to US$1,182 billion in 2015. ASEAN itself is actually the largest market for exports from the trade bloc, accounting for 25.9% of total ASEAN exports in 2015, followed by the Chinese mainland (11.3%), the US (10.9%), the EU (10.8%), Japan (9.6%), Hong Kong (6.5%), Korea (3.9%), India (3.3%), Taiwan (2.8%) and Australia (2.8%). The top 10 export markets accounted for ASEAN’s 87.8% of total exports.
Based on the latest ASEAN statistics, electrical equipment, electronics and parts, mineral fuels and oils, machinery and mechanical appliances and parts were the main categories of ASEAN exports in 2015, accounting for 48.5% of ASEAN’s total exports.
In 2015, imports of ASEAN declined by 12.0% to US$1,088.0 billion. In terms of import structure, the top three import items in 2015 were electrical equipment, electronics and parts, mineral fuels and oils, and machinery and mechanical appliances and parts, accounting for 50.8% of ASEAN’s total imports.
In terms of imports into ASEAN, the largest supplier was ASEAN itself with a share of 21.9% in 2015, followed by the Chinese mainland (19.4%), Japan (11.4 %), the EU (9.2%), the US (7.6%), Korea (7.0%), Taiwan (5.6%), UAE (2.0%), Saudi Arabia (1.9%) and India (1.8%). These top 10 import sources accounted for 87.8% of ASEAN’s total imports in 2015.
In the 1990s, ASEAN countries established the ASEAN Free Trade Area (AFTA) with a view to raising the bloc’s competitive edge as a production base through the reduction or elimination of tariffs and non-tariff barriers on intra-ASEAN trade, in addition to attracting FDI. AFTA adopted a scheme of Common Effective Preferential Tariff (CEPT) among ASEAN members for tariff reduction to between zero and 5% by 2010. The ASEAN Secretariat was given the authority to monitor and ensure compliance with AFTA measures. Despite the AFTA-CEPT, there is no common external tariff on goods imported from outside the trade bloc, with each ASEAN member applying import tariffs based on its national schedules.
On the heels of AFTA and as part of ASEAN’s Vision 2020, ASEAN has embarked on a more ambitious strategy of regional economic integration to launch an ASEAN Economic Community (AEC) on 31 December 2015, thereby creating a single market that encompasses more than 620 million people. The AEC objectives are fourfold, intending to achieve (i) a single market and production base, (ii) a highly competitive economic region, (iii) a region of equitable economic development, and (iv) a region fully integrated into the global economy. The AEC is expected to enable an easier movement of goods, services, investment, capital and people across the region.
Under the AEC framework, the more developed ASEAN members, namely, Singapore, Thailand, Indonesia, Brunei, Indonesia, Malaysia and the Philippines, had basically achieved zero tariffs as of the end of 2015, with the remaining four, namely Cambodia, Laos, Myanmar and Vietnam (ASEAN-CLMV), given more flexibility in lowering import duties until 2018.
In addition to FTAs individually secured by ASEAN members, ASEAN as a trade bloc has adopted a pro-active stance towards extra-bloc free trade and regional economic integration, having concluded a number of FTAs and economic partnership arrangements including the China-ASEAN Free Trade Area (CAFTA), ASEAN–India FTA, ASEAN–Japan Comprehensive Economic Partnership (AJCEP) and ASEAN–Korea FTA. Besides, ASEAN is engaged in negotiations on Regional Comprehensive Economic Partnership (RCEP), a proposed FTA with six countries with which ASEAN has existing FTAs, namely, Australia, China, India, Japan, Korea and New Zealand. RCEP countries, which account for some 29% of the world’s GDP and 28% of global trade, aim to conclude negotiations in 2017.
In November 2015, ASEAN and China concluded an upgraded agreement on CAFTA that expected to raise bilateral trade to US$1,000 billion (from about US$480 billion in 2014) and ASEAN-bound FDI to some US$150 billion by 2020. Aside from trade in goods and services, the upgraded CAFTA deal also covers technological cooperation. China’s Belt and Road Initiative (BRI) will likely help improve ASEAN’s infrastructure both on land and at sea.
Following the establishment of CAFTA in 2010, Hong Kong requested to join CAFTA in 2011 on the back of support from the Chinese government. In 2013, ASEAN ministers resolved to pursue a separate bilateral FTA between ASEAN and Hong Kong. Eight rounds of negotiations have been held since July 2014, with the ASEAN-Hong Kong FTA expected to be completed in 2016.
Hong Kong’s Trade with ASEAN
As a trade bloc, ASEAN is Hong Kong’s second largest trading partner after the Chinese mainland and the fourth largest export market of Hong Kong after the Chinese mainland, the EU and the US.
In the first nine months of 2016, Hong Kong’s total exports to ASEAN dropped by 5.9% YOY to US$24.5 billion. Major items exported to ASEAN in the period included telecom equipment and parts (21% share of the total exports), semi-conductors, electronic valves and tubes (10%), parts and accessories of office machines/computers (4.9%), electronic apparatus for electrical circuits (4.8%), and office machines (3.7%).
Hong Kong’s imports from ASEAN totaled US$53.0 billion in the first nine months of 2016, showing a 0.1% YOY increase compared with same period last year. Major import items were semi-conductors, electronic valves and tubes (56% share of the total imports), telecom equipment and parts (6.9%), computers (5.3%), parts and accessories of office machines/computers (3%), and petroleum oils (2.8%).
China is ASEAN's largest trading partner with bilateral trade growing by more than 17% annually between 1996 and 2015. Trade between the huge markets of China and ASEAN will likely continue apace and this should bode well for Hong Kong in its handling of re-export trade for both places. In the first nine months of 2016, US$23.7 billion or 97% of Hong Kong’s exports to ASEAN were re-export items, of which 71.9% were originated from China, followed by the US (4% share) and Japan (3.1% share). In the first nine months of 2016, Vietnam was the top export market of Hong Kong in ASEAN, followed by Singapore, Thailand and Malaysia.
ASEAN’s Involvement in Hong Kong Economy
According to the Hong Kong Census and Statistics Department, there were 547 ASEAN companies in Hong Kong as of June 2016, including 54 regional headquarters, 136 regional offices and 357 local offices. They accounted for about 6.8% of the total number of foreign companies in Hong Kong.
Singapore’s cumulative FDI in Hong Kong totaled HK$318.5 billion as of end-2014, accounting for 2.7% of the total cumulative FDI and ranked 7th among all FDI sources. In 2014, FDI inflow from Singapore reached HK$59 billion, up from HK$14 billion in 2013.
A total of 2,170,018 tourists from the six ASEAN countries of Singapore, Malaysia, Thailand, Indonesia, the Philippines and Vietnam visited Hong Kong in the first nine months of 2016, increasing by 8.5% from the same period last year.
Related information: ASEAN infographics
 ASEAN consists of 10 members, namely, Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam.