A Study On The Impact Of CAFTA On Foreign Trade Of China

Since Chinese and the Association of Southeast Asian Nations (ASEAN) leaders decided in 2002 to establish the China- ASEAN free trade area (CAFTA) after signing "the Agreement of Comprehensive Economic Cooperation Frame of China and the Association of Southeast Asian Nations ", the impact of CAFTA on China's foreign trade has been a hot subject for research of China's economy development. The paper examines CAFTA's real impact on China's foreign trade by analyzing China's foreign trade volume respectively from the commodity structure and the nationality structure, analyzes CAFTA's potential impact on China's foreign trade by comparing various foreign trade indexes, and econometrically proves CAFTA's impact on China's foreign trade by using the gravity model.The paper discusses CAFTA's impact on China's foreign trade with ASEAN and non-ASEAN countries respectively. In respect of CAFTA's real impact on the trade between China and ASEAN, the CAFTA relatively strongly promotes China's export to Singapore, Thailand, Indonesia and Vietnam, among which Thailand is the most. But it does not much promote the export to Malaysia, Burma, Laos, Cambodia and Brunei, among which Malaysia is the least. The CAFTA relatively strongly promotes China's import from Philippine and Thailand, among which Philippine is more. Meanwhile it does not much promote the import from Malaysia, Indonesia, Burma, Laos, Cambodia and Brunei. CAFTA's tariff reduction increases the diversity of trade commodity between China and ASEAN, and in turn promotes the complementary trade of the two sides. Therefore further tariff reduction will contribute to promote bilateral trade of them. If examined by the potential impact of CAFTA, because the 16th kind commodity makes up a large proportion of the trade between China and ASEAN countries, and also the 16th kind commodity trade between China and Singapore, Thailand, Malaysia and Indonesia, the country's four main trade partner, is in intra-industry specialization (tariff reduction promotes trade strongly in this pattern), the 16th kind commodity will play a main role in promoting the bilateral trade of the two sides. In respect of nationality structure, CAFTA relatively strongly promotes the trade between China and Singapore, Thailand, Malaysia and Indonesia, whereas potential trade promotion, under the management of CAFTA, is limited between China and Philippine, Vietnam, Laos, Burma, Cambodia and Brunei, among which Vietnam, Burma, Laos and Cambodia run relatively large trade deficit with China, and that does harm to the stability and development of the CAFTA. Thus China should raise direct investment to those less developed countries. On the one hand, not only will this contribute to increase their export to China, but will also contribute to improve the stability of the trade area. On the other hand, China can remove domestic industries that have lost their comparative advantage into those countries, increasing the efficient use of resources and production factors.In respect of CAFTA's impact on China's trade with non-ASEAN countries, CAFTA on the one hand has only slight trade diversion effect on countries like the United States and Germany, because the trade specialization of most commodities between China and those countries is at different level with the trade specialization between China with ASEAN and China with those countries. On the other hand, the CAFTA has relatively strong trade diversion effect on Japan and South Korea, because ASEAN, China and those two countries are somewhat similar in commodity specialization level for they all belongs to the goose pattern. Since ASEAN has started to establish the free trade area with Japan and South Korea respectively while China did not, CAFTA's trade diversion effect on Japan and South Korea lie only in China's substituting the import from ASEAN for the import form Japan and South Korea. The CAFTA's substituted effect has a relatively heavy impact on Japan, because the variety of affected commodities Japan exports to China is relatively great, and those commodities constitute relatively large proportion of China's import from Japan. Yet, although the variety of affected commodities South Korea exports to China is also relatively great, those commodities account for only relatively small proportion of China's import from Korea. Thus CAFTA's impact on South Korea is relatively weak. Under the trade diversion effect, Japan and South Korea has increasingly invested in China recent years, in order to weaken CAFTA's substituted affect on them.In respect of CAFTA's investment effect, the establishment of CAFTA increases China's foreign direct investment from non-ASEAN countries, and in turn promotes China's both import and export trade growth. The bilateral investment between China and ASEAN, which however has not notably increased, shows the establishment of the free trade area does not have much promotion on it. However, the increase of bilateral investment between China and ASEAN contributes to their trade growth, and the supplementary between the two sides. To conclude, from the analysis of trade and investment, to further reduce the trade and investment barrier between China and ASEAN will contribute to increase China's foreign trade.