Get ready, get set … trade! China’s push into ASEAN: Things to note


From component manufacturing in Malaysia to power and oil and gas projects in Myanmar, the ASEAN region has seen an influx of Chinese investments. Over the last few years, China-ASEAN relations have topped the international investment agenda for both sides. China’s recently announced plan to upgrade and expand the ASEAN-China Free Trade Agreement (ACFTA) by November this year demonstrates just one of the many steps China is taking to engage with the region. The expanded ACFTA builds upon commitments from the original ACFTA signed in 2010 and seeks further tariff reductions and increased avenues for cooperation in areas such as customs procedures and trade facilitation.

Chia Kim Huat
Chia Kim Huat

China’s continuing rise and the One Belt, One Road and the New Silk Road plans announced by China’s leadership in late 2013 exert a powerful push for Chinese investments into ASEAN economies. Since 2009, China has been ASEAN’s largest trading partner, while ASEAN has been the third-largest trading partner of China since 2011. Bilateral trade between China and ASEAN totalled US$480 billion in 2014 and is expected to hit US$500 billion this year.

Venturing into the ASEAN region is now seen as a survival essential for many Chinese investors. According to an IMF study comparing global real GDP growth from 2000 to 2013, ASEAN had the third largest growth rate, just behind China and India. But before jumping on the ASEAN bandwagon, investors should first consider whether they have sufficient knowledge of ASEAN and are equipped to deal with the diverse regulatory environments within the region?

Andrew Ong
Andrew Ong

Here’s the reality check. From our experience, investors often struggle when entering the ASEAN market because they fail to appreciate the subtleties and differences in the laws of each ASEAN member country. The wide development gaps between ASEAN member states and diversity in legal, social and political factors mean that despite plans for the ASEAN Economic Community (AEC) to establish a single common market, there is no one-size-fits-all approach to investments in ASEAN. Divergence in the following areas of law illustrates just some of the issues Chinese investors may be faced with when looking to invest in ASEAN.

Anticorruption. On paper, all ASEAN member states have enacted domestic legislation to fight corruption. However, corruption continues to persist in varying degrees and forms across ASEAN member states. Myanmar, for example, ranks as 156 out of 175 countries on the Transparency International Corruption Perceptions Index 2014.

With the exclusion of Singapore and Brunei, corruption is still one of the key challenges faced by investors in ASEAN. The lack of a harmonized ASEAN anticorruption framework and substantive differences in each country’s domestic anticorruption legislation mean that investors need to adopt compliance programmes tailored to the laws and practices of each jurisdiction. For example, only a few countries in ASEAN have laws targeted at private sector bribery as opposed to bribery of government officials.

Antimonopoly. To date, the majority of ASEAN member states have cross-sector antimonopoly laws in place, with Myanmar, Brunei and the Philippines being the latest additions to the list. Cambodia and Lao PDR are still in the process of finalizing their antimonopoly laws.

Generally, there are three main pillars to any antimonopoly regime: The prohibition of anticompetitive agreements, the prohibition of abuse of dominance and the control of anticompetitive M&A transactions (i.e. merger control). In this respect, it is important for Chinese investors to note that these three pillars are not always a consistent feature in every ASEAN country. Singapore, for example, prohibits restrictive agreements amongst competitors but exempts vertical agreements unless one of the parties is dominant. Indonesia, on the other hand, prohibits anti-competitive horizontal agreements and agreements with suppliers or distributors which cause unfair competition (i.e. vertical agreements), as is the case with Malaysia.

Naturally, considering the differing stages of development in the competition laws of each member state, there would be differences in the extent of enforcement by regulatory authorities in long-standing regimes such as Singapore, Malaysia and Indonesia as opposed to countries such as Myanmar.

Minimum wage. One of the key goals of the AEC is to facilitate free movement of skilled labour within the region. However, the process of labour liberalization has often been obstructed by the diverse concerns of labour exporting and importing countries within ASEAN.

In an effort to raise labour productivity levels and avoid outbreaks of labour unrest, ASEAN countries have increasingly followed China’s strategy of pushing for higher minimum wage and stronger workers’ rights protections. Malaysia, for example, introduced the country’s first-ever minimum wage standards in 2013, set at MYR 900 (US$209) per month for employees in the Malaysian peninsula. This number is for review this year. Indonesia, on the other hand, has a decentralized system of governing minimum wages, where minimum wage rates are set by local governments and range between IDR 2,200,000 (US$155) per month in Jakarta to IDR 830,000 (US$58) per month in Central Java.

The minimum wage issue is a highly sensitive point of contention between investors and their local employees, especially in less developed ASEAN jurisdictions, as seen by the long-drawn negotiations in Myanmar between employers and employees regarding the appropriate rate of minimum wage. Parties finally settled on a rate of MMK 3,600 (US$2.80) per day, two years after the Myanmar Minimum Wage Law was passed in 2013.

Look before you leap. Both ASEAN and China have set ambitious trade targets in the years to come as investors anticipate ASEAN-China trade to reach US$1 trillion by 2020. However, it is simply not enough for companies to be aware of the region’s economic environment. A comprehensive grasp of the legal and practical peculiarities of each member jurisdiction is crucial before one can successfully invest in ASEAN. With a holistic compliance programme in place, Chinese investors will be well-placed to tap into the potential of the region.

Chia Kim Huat is regional head of Rajah & Tann Asias corporate and transactional practice. He can be contacted on +65 6232 0464 or by e-mail at

Andrew Ong is deputy CEO of Rajah & Tann Asia. He can be contacted on +65 6232 0259 or by e-mail at