Facing the Challenge of the Rising Chinese Economy: ASEAN's Responses

Abstract The emergence of China as one of the largest trading nations in the world provides challenges and opportunities to its neighboring ASEAN countries. In the face of the rise of the Chinese economy, there were concerns that ASEAN economies may be adversely affected with the loss of competitiveness in the international market. One of the concerns is that the world export markets of labor‐intensive goods will be threatened if China turns into the world low‐cost manufacturing factory. Meanwhile, trade between China and ASEAN countries increased dramatically during the past decades. Not surprisingly, China's accession to the WTO and the future establishment of a free trade area (FTA) between ASEAN and China will further change the trade relations in the region. The paper first analyzes the past trade patterns between China and ASEAN countries and assesses the impact of the rising Chinese economy on ASEAN countries, in particular, the impacts on specific industries in each individual ASEAN country. Second, the paper examines the ever‐increasing role of foreign direct investment between the two regions and, finally, it analyzes and assess the policy responses of the ASEAN countries thus far and their possible consequences.