RCEP Boosts Trade Between China and ASEAN Countries

The Regional Comprehensive Economic Partnership (RCEP) agreement should extend supply chains and boost trade in the region, according to Benny Wu, Audit Director at Carlsberg China. Having worked in Cambodia for over two years, he believes countries within the Association of Southeast Asian Nations (ASEAN) represent an important future growth engine. However, he also warned of the challenges associated with these untapped markets.

During his time in Cambodia, Wu observed that ASEAN countries source supplies within ASEAN first. Cambodia, a country lacking in industrial infrastructure and raw materials, mostly imports from Vietnam, Thailand, Malaysia and Singapore, but not so much from China or Japan. Even though China and Japan can offer more and better goods, both countries find it difficult to tap into ASEAN markets due to high tariffs.

Currently, companies can receive tariff exemptions if they can prove raw materials are imported for use in exported products. Otherwise, tariffs can be very high for raw materials imported for local manufacturing and sale. Imported high-end beers such as Japan’s Asahi have a high price tag in Cambodia due to tariffs, but manufacturing locally is not really an option either.

Breweries in particular are tied to logistics constraints. To address these issues, industry players tend to undertake brand collaborations rather than focus on exports. Pointing out that the RCEP agreement may reverse this trend, Wu said: “There will be benefits for sure in the future. Although the amount and length of the tariff exemptions remains to be seen, Chinese goods that are competitive in price and quality will have advantages in ASEAN countries once the 15-30 percent tariffs are exempted or lowered.”

Predicting that industrial goods from China will be particularly popular in ASEAN countries, where the degree of industrialisation varies greatly, Wu said: “If the prices are around the same, market participants will look for quality more. There will be more choices for sourcing.”

Growth engine

Wu is not alone in expecting ASEAN countries to emerge as the next growth point for Chinese companies. Drawing on his observations in Cambodia, he said: “Its population and rapid economic growth will make it an important market for companies in their global expansion plan. In the long term, there will be more imports and exports.”

The recent increase in Chinese agricultural imports from Cambodia shows that trading activities and demands are rising between China and the Southeast Asian country. Chinese companies are seeing more trading opportunities thanks to the strong demand at home.

Wu talked up the potential of ASEAN markets, particularly Laos, Vietnam and Cambodia, saying: “We see more opportunities in ASEAN countries. Its population is growing rapidly. The purchasing power there is still low but it’s on the rise. It’s grown a lot during the past few years. We cannot underestimate the purchasing power and the market in Cambodia.”

Market knowledge

This view may surprise many. Cambodia is largely seen as a developing country with low purchasing power. Explaining his reasoning, Wu said: “The purchasing power in a foreign country could be completely different from that in China. Beer, for example, is consumed a lot more in Cambodia than in China. Other products may have a different story. You may find your product is not competitive at all in a new market.”

Wu pointed out that the key to finding success in a new market is to learn about it and craft a clear plan from day one, saying: “You first need to conduct thorough research to learn a lot about that market before going there for business. There must be a clear plan on how to integrate foreign leadership and local experience and how to train local talent.”

He advised that there are several factors to look out for when navigating business opportunities in ASEAN countries. These include labour efficiency, political and economic stability, government efficiency, the regulatory environment, banking services and financing opportunities.

Using a mix of foreign and local talent is also essential from the outset, but companies need to start thinking about how they can speed up localisation, in order to leverage the local team’s knowledge of the local regulatory environment and culture.