China-ASEAN Summit -- Less reliance on U.S. market
November 1, 2006
The China-ASEAN Summit was held October 30th in Nanning, China. ASEAN is the Association of East Asian Nations, and includes Brunei, Indonesia, Malaysia, the Philippines, Singapore, Thailand, Cambodia, Laos, Myanmar and Vietnam. The free trade area will remove all tariffs on most normal products between China and the first six nations by 2010, and the remaining four nations by 2015. This will create the world’s third largest free trade area (after the EU and NAFTA), with 1.8 billion people and a GDP of $2 trillion.
Other notable occurences during the summit:
- China pledged $2 million to ASEAN initiatives.
- China agreed to support ASEAN's efforts to establish a Southeast Asia Nuclear-Weapon Free Zone.
- Progress on the agreement is going well enough that China-ASEAN trade may reach $200 billion by 2008, two years ahead of schedule.
What It Means:
The U.S. economy is slowing. The Bureau of Economic Analysis reported that third quarter U.S. GDP growth was 1.6%, which was slower than second quarter’s 2.6% and first quarter’s 5.6% growth.
China and the rest of Southeast Asia have been dependent on U.S. consumers to buy their low-cost exports. This is why China has been purchasing U.S. Treasury bonds, to keep the value of the dollar high and China's currency, the yuan, low. China's purchases of U.S. Treasuries have kept U.S. interest rates low, thus supporting its GDP growth.
However, with a larger market growing in Southeast Asia, China will not be as dependent on the U.S. market. Over the next 10 years, it will buy fewer Treasuries, and U.S. interest rates will rise. This will cause further slowing of the U.S. economy.
Action Steps:
None of this will happen tomorrow, but retirement planning needs to be over a 10-20 year horizon. Get with your financial planner to check your allocation of Southeast Asian mutual funds to take advantage of faster growth in the world's third largest free trade area.
Source: People’s Daily Online web site, ASEAN web site
|
