What Comes after ASEAN Economic Community (AEC) 2015: A Threat from China’s Economic Downfall


Niki Wahyu Sayekti,  2nd Winner of Call for Essay: “ASEAN Community Post 2015”

ASEAN governments have spent decades crafting their reliance on the Chinese economy, with a strategic relationship shaped by geography and exports[1], thus the recent economic breakdown from China would certainly affect the economy of the region as well. A stock market crash, a depreciating currency and a sharp economic slowdown have driven Chinese consumer sentiment to record lows in the past few months,[2] and which means bad news for ASEAN.

The slowdown in China’s economy will continue to affect growth prospects on the rest of the region as export demand drops and investment flow decline.[3] Merchandise exports to China as a share of GDP vary considerably among the ASEAN countries, ranging from about 12% for Malaysia and 6-8% for Singapore, Thailand and Viet Nam to as little as 3% for Indonesia and the Philippines.[4] Another sector being affected by China’s economic slowdown is investment because FDI inflows from China into some of ASEAN countries have become an important overall source of foreign investment, particularly in Malaysia and Thailand.[5] The financial repercussions of China’s slowdown may also impact domestic financial markets in ASEAN countries and could complicate their macroeconomic management.[6] A report from International Monetary Fund (IMF) stated that countries with closer trade linkages with China (Malaysia, Singapore, and Thailand) and net commodity exporters (Indonesia and Malaysia) would suffer the largest impact, with growth falling between 0.2 and 0.5 percentage points in response to a decline in China’s growth by 1 percentage point depending on the model used and the nature of the shock.[7]

This condition of economic insecurity experienced mostly by the ASEAN-5 (Singapore, Malaysia, Thailand, Indonesia and Philippines), who are basically the dominant economy in the region) more or less would impinge on the AEC as well. As dominant economic powers in the region, the ASEAN-5 are morally supposed to support the economy and take bigger responsibility to help other ASEAN nations who are still less-developed in the region. However, with an economic knockdown from China, it’d be hard for the ASEAN-5 even to keep up with their own domestic economic affairs.

China’s economic crash might cause disaster for ASEAN economy and threaten the AEC, yet there are still opportunities for ASEAN behind this catastrophe. Due to the sluggish performance of China’s economy, investors would most likely seek for relocation from China. The migration of China’s inbound foreign investment from labor-intensive sectors to services and high-end manufacturing has seen a seismic shift in 2015 which will potentially create a knock-on effect for investment into Southeast Asia.[8] This investment will be a welcome relief particularly to countries affected by falling commodity exports, even as the region positions itself as an attractive alternative to soak up such inflows.[9] By the emergence of ASEAN Economic Community itself, the opportunity to attract more FDI is larger since ASEAN would be integrated as an economic entity with a single market and production based orientation. All ASEAN countries are important for foreign investors if they are considered as one node in a larger regional market of nearly 600 million people – a single market.[10]

ASEAN can maximize full-potentials of AEC to cover its wounds from China. The establishment of AEC which provides an access for free flow of goods and capitals could be utilized to increase trade and cross-border investment intra-region so that it should boost-up the region’s economy and reduce the trade-dependence on China.

[1] Luke Hunt, “Beware ASEAN’s coming economic bloom.” The Diplomat, Feb 12, 2016, accessed October 31, 2016,  http://thediplomat.com/2016/02/beware-aseans-coming-economic-gloom/.

[2] David Wilder, “Chinese crisis bites Asean and Latin America consumer sentiment.” Financial Times, March 16, 2016, accessed October 31, 2016, https://www.ft.com/content/8b474f76-e3ab-11e5-bc31-138df2ae9ee6.

[3] The Organization for Economic Co-operation and Development  (OECD). Economic Outlook for Southeast Asia, China and India 2016 Economic Outlook for Southeast Asia: Enhancing Regional Tie (2015), 1.  http://www.oecd.org/dev/asia-pacific/SAEO2016_Overview%20with%20cover%20light.pdf.

[4] The Organization for Economic Co-operation and Development  (OECD), ibid, 4.

[5] The Organization for Economic Co-operation and Development  (OECD), ibid, 5.

[6] Ibid.

[7] International Monetary Fund (IMF). Spillovers from China’s Growth Slowdown and Rebalancing to the ASEAN-5 Economies (2016), 6. https://www.imf.org/external/pubs/ft/wp/2016/wp16170.pdf.

[8] Steven Cranwell, “Southeast Asia Set to Benefit from China’s Economic Rebalancing.” HSBS, Oct 12, 2016, accessed Oct 31, 2016. http://www.about.hsbc.com.sg/news-and-media/southeast-asia-set-to-benefit-from-chinas-economic-rebalancing

[9] Steven Cranwell, ibid.

[10] “Asia Opportunities: Asean Economic Community (AEC) in 2015.” Business in Asia, accessed Nov 1, 2016, http://www.business-in-asia.com/asia/asean_economic_community.html