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31 Jul 2009

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ASEAN-China FTA: Opportunity for Thailand to Expand Service Business (Business Brief No.2579)

The trade liberalization negotiations between ASEAN and China now enter the second round of talks. It is expected that this proposed agreement will be concluded in time for the ASEAN Summit with China in October. Service liberalization between ASEAN and China as part of the ASEAN-China Free Trade Area is important to opening up opportunities for foreign investors, particularly those from ASEAN member states, to expand investments into China's service sector based on the new rules and conditions for foreign investments in service business there. At the same time, Chinese investors would have greater opportunities to invest in service business within ASEAN countries.
At present, China's economic growth is the strongest in the Asian region amid the global recession. China's economic growth in 2Q09 grew at 7.9 percent QoQ, while in 1Q09 it slowed to its lowest point in recent years at 6.1 percent. Consensus Forecasts in July projected that in 2009, the Chinese economy would achieve 7.5 percent growth, slightly lower than the 9 percent growth of 2008. It was also forecast that in 2010, it would reach 8.5 percent, which should help propel China's service sector toward higher growth, as well.
KASIKORN RESEACH CENTER (KResearch) views that service liberalization per the FTA ASEAN-China agreement would be helpful toward leveling the playing field for Thailand and other ASEAN states in the Chinese market. Other countries in Asia also being allowed similar benefits in China include Hong Kong, Macau and Taiwan. Moreover, Thai entrepreneurs can use the benefits of this agreement to invest in trade and service business in China that grew steadily during 2004-2007 based on China's 11th National Economic and Social Development Plan (2006-2010), plus other reforms in service business liberalization within China. Important service businesses there would include finance and banking, insurance, telecommunications, logistics, hospitals, tourism, hotels and restaurants, wholesale and retail business, education, etc.
However, with the global sluggishness last year, China faced economic deceleration. This forced the growth of China's service sector in 2009 to falter, achieving only 9.5 percent growth, with a value of CNY1.20487 trillion, accounting for 40.1 percent of their GDP. The recent National Bureau of Statistics (of China) report showed that in 1Q09, the value of China's service sector business totaled CNY290.7 billion, growing 7.4 percent YoY.
KResearch expects that service business in China in 2009 will slow somewhat in comparison to 2008, given the deceleration of their overall economy. Despite improvement since 2Q09, the fact that the global economy remains sluggish albeit with some signs of relief, the Chinese authorities are gradually launching policies to stimulate their economy and domestic purchasing power via financial and fiscal policies that have been implemented since the end of last year. These measures are expected to boost China's economic direction in 2H09. Moreover, the steadily growing incomes of Chinese workers over recent years and be an important factor to boost the growth of service business.
In the national development plans, Chinese authorities aim to increase service sector business to more than 50 percent of their GDP by 2020, against the current growth of over 40 percent of GDP.
Thai service business opportunities per the ASEAN-China FTA pact undergoing the second round of negotiations, and the competitiveness of Thailand and other ASEAN countries in the Chinese market, will likely improve over those benefits offered to the economies of Hong Kong, Macau and Taiwan. The talks cover 12 service businesses, more than mentioned before, to include retail business, hotels, restaurants, spas, tourism, logistics and education.
In addition, increased Thai service business exposure in China would be boosted by growing consumption there due to China's policy of promoting the service sector. However, Thai entrepreneurs will have to brace for rigid regulatory controls, which are regarded as a barrier to service business in China; these would include service and labor regulations and standards. Due to the Chinese government's promotional measures, demand for many services continues to increase, such as medical care bolstered by their healthcare reform plan. Chinese authorities expect to expand basic medical insurance to cover 90 percent of their 1.3 billion citizens by 2011.

On the other hand, KResearch views that this FTA pact will help increase Chinese investment in Thailand. As a result, domestic employment would increase, which would benefit our own national development. With this second round of negotiations, if successful, Chinese investors would be able to invest in other businesses in Thailand, such as construction and transportation. That would help boost the growth of Chinese service business here.

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