Cafta Study On The Effect Of China's Trade With Indonesia Under The Framework Of Cooperation

November 2002, China and ASEAN signed the "China-ASEAN Framework Agreement on Comprehensive Economic Cooperation", which marks the China - ASEAN Free Trade Area (CAFTA) officially started. July 2005, both sides launched a comprehensive tariff reduction process, China - ASEAN Free Trade Area entered a substantive stage. The trade between China and ASEAN has been increasing since 2002, now China has become the fourth largest trading partner of ASEAN, and ASEAN became China's fourth largest trading partner. This paper chooses China and Indonesia whose economic level is similar with China and analyzes their static trade creation effect, trade diversion effect and the dynamic effect of trade structure under CAFTA framework.Firstly, this paper analyzes the trade creation and trade diversion effect of China and Indonesia in the framework of CAFTA using statistical methods, like trade growth and trade share. And this paper finds that there are trade creation and trade diversion effect in both China and Indonesia in the framework of CAFTA.Secondly, this paper uses gravity model to measure the trade creation and trade diversion effect of China and Indonesia under the CAFTA framework. Then this paper gets the conclusion that both China and Indonesia exist trade creation and trade diversion effect and their trade creation effect are greater than trade diversion effect, so their welfare have been increasing under the CAFTA framework. Besides, China's trade creation effect is more significant than Indonesia and China's welfare is greater than Indonesia's.Thirdly, this paper analyzes China and Indonesia's trade effects from the angel of trade pattern. Combined with industry trade competitiveness index, this paper analyzes the changes of trade patterns about China and ASEAN, Indonesia and China. The results show that the tariff reduction and the formation of a large market in CAFTA help China and Indonesia's highly trade competitive industries to develop more quickly and divide of Inter-industry more deeply than before. Some industries of Indonesia and China both have week or high trade competitiveness with trade competitiveness, and these industries of Indonesia have been shocked by the competition from China, and the trade pattern of Indonesia and China turned into intra-industry trade from inter-industry trade.Finally, on the basis of analysis of the trade effects, this paper gives some possible recommendations for China and Indonesia's trade development:According to the comparative advantages of member countries in CAFTA to implement different levels of trade cooperation, to promote the formation of a unified market within the region and vigorously develop intra-industry trade as well as to encourage enterprises to increase direct investment in the region.