Question

2. Trade Blocs and Terms of Trade. Read the Article “Ajar for business” from The Economist (January 9th 2010 issue), that I posted on Blackboard. Then answer the following questions, keeping in mind your answer to Question (a) Why the Chinese press is optimistic about the deal? (b) Why “[...] not everyone in South-East Asia is happy” ? 3. The Production Possibility Frontier.

Answer 1

Ans 2 a)=Among ASEAN’s topmost exports to Republic of China include electrical equipment, machinery/ computer, lubricants/oil, organic chemicals, plastics, & rubber. Notably these articles are mostly intermediate products to China’s exports to 3^rd Countries. Hence, it can be believed that in the process of China’s economic growth & with the ACFTA in place, it will import more from ASEAN nations for its required resources in its production processes & for its requirements as its income & standard of living escalates.

By itself, China has been successful in attracting investors into its expanding economy for it has the key investment factors in place. China’s market prospects is already firm & its performance with regard to some gauges of institutional quality and political & macroeconomic stability is better than the other members of ASEAN. And despite the perceived insufficient legal framework, high rate of inflation & the pervasiveness of bureaucratic corruption & red tape, foreign investors are considering the long run advantages of investing in China more than its short issues.

Ans 2 b)=However, it must be noted that the resulting intensified competition in every region’s domestic market given the likeness in industrial structures of China & ASEAN may entail short term costs in the form of displacement of labor & rationalisation of some firms & industries. And as such, there would be a requirement for adjustments among workers & firms, particularly the medium & small enterprises.