A Study On China 's FDI To ASEAN And Bilateral Trade

After the establishment of China- ASEAN Free Trade Area, there has been a strong growth in bilateral trade and investment. Compared to the trade, the investment appeared later and the scale was smaller, while the growth rate of investment is much faster than that of trade. The investment and trade, which are the two main activities in China-ASEAN Free Trade Area at the present stage and develop fast, has played an important role in promoting the economy of member countries. Many scholars have studied the relationship between international trade and international investment. With the development of economic globalization and multinational companies, there has been some new trends of the relationship for which are from inter-replacement to inter- promotion and then inter-fusion. If the International Trade and the Investment are substitutive for each other, the increase in investment will make the volume of trade reduce, and thus weaken the impetus to economic growth; if the relationship between the two are complementary, the direct investment and trade not only will promote the economic growth, but also boost the economic development by influencing the other part. Therefore, the study on the relationship of international investment and international trade between China and ASEAN can provide a theoretical basis for rational coordination of foreign trade policies which will promote a faster development of the China- ASEAN Free Trade Area.This article focuses on China’s foreign direct investment in ASEAN, studying the relationship between China-ASEAN bilateral trade and direct investment. Firstly, the article reviews the theory development of international trade and international investment for which the trend is from divergence to mutual integration. It also describes the relationship between investment and international trade from these two views of theoretical and existing empirical study, namely the relationships of mutual substitution, mutual promotion and uncertainty. By observing and analyzing the data of China’s direct investment to ASEAN and China-ASEAN bilateral trade, it is found that China’s direct investment in ASEAN and China’s exports to ASEAN basically show the same trends, and there has been two distinct departures between China’s direct investment in ASEAN and ASEAN’s exports to China. Secondly, this paper chooses the trade and investment data from 2003 to 2013 of China and ASEAN countries, then econometric model has been used to examine the linkages between China’s direct investment to ASEAN and the bilateral trade relations. ASEAN has been regarded as a whole and the data of China’s FDI volume to ASEAN and bilateral trade between the two are used to make cointegration and Granger causality test. The conclusion shows that the long-term co-integration relationship exists between the trade and the investment and China’s direct investment stock in ASEAN have promoted exports in both sides. Also, the stock of China’s investment in ASEAN shows one-way causality to China’s exports and ASEAN exports show one-way causality to China’s investment stock. At the same time, ten ASEAN countries are divided into four categories according to different levels of economic development and then test has been done with panel data. The results show that China’s direct investment in ASEAN countries for different categories exerts different influence on bilateral exports. With regard to Malaysia and Thailand, of which the development level is close to China, the effect of exports is the largest. The following countries are Indonesia, Brunei, the Philippines, Vietnam and Cambodia, Myanmar. For Singapore and the underdevelopment countries- Laos and Myanmar, the effect is small.China- ASEAN Free Trade Area has been a huge success with most commodities of zero-tariff. In the case that challenges may exist in a new round of trade negotiations about sensitive products and non-tariff barriers, the conclusion the investment and the trade have mutual promoting effect to each other achieved by empirical analysis in this paper provide a theoretical basis and policy support to establish a “upgraded” free trade area between China and ASEAN.