Global Economics & Markets Research Email: [email protected] URL: www.uob.com.sg/research Macro Note The Belt & Road Series: The Yunnan-ASEAN Chapter
Friday, 17 November 2017 The Belt & Road (B&R) Initiative, first mooted by China’s President Xi Jinping in September 2013, has created enormous business potential and possibilities. Through linking countries along the “Silk Road Economic Belt” and “21st-Century Maritime Silk Road”, the B&R Initiative encompasses connectivity and cooperation among the participating countries. Suan Teck Kin, CFA Head of Research [email protected] In the southwestern region of China, Yunnan’s strategic location where it shares borders with emerging ASEAN economies - Myanmar, Laos and Vietnam, enables the province to act as a Ho Woei Chen land-based connector between China and the members of ASEAN - one of the fastest growing Economist [email protected] and populous economic regions in the world.
O ER IEW OF YUNNAN PRO INCE
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The Belt & Road Series: The Yunnan-ASEAN Chapter Friday, 17 November 2017 1 Page The Belt & Road (B&R) Initiative The Belt & Road (B&R) Initiative, first mooted by China’s President Xi Jinping in September 2013, has created enormous business potential and possibilities as it involves more than 65 countries, 40% of global GDP, 4.4 bn of population, and 34% of global trade, along the B&R.
With the successful conclusion of the Chinese Communist Party’s 19th National Congress in October 2017, the B&R Initiative is expected to see continued strong support from the Chinese government in President Xi’s second five-year term, as the country ushers in a new era.
Through linking countries along the “Silk Road Economic Belt” and “21st-Century Maritime Silk Road”, the B&R Initiative encompasses connectivity and cooperation among the participating countries via policy coordination, facilities connectivity (such as infrastructure investment), trade and investment, financial integration, and cultural exchanges among peoples.
Within China, the B&R Initiative stretches from coastal provinces in the east to western provinces that connect to countries and economies in central Asia and southeastern and south Asia.
Source: The Straits Times
Yunnan Province: Growth And Investment Opportunities Sharing 4,060km of border In the southwestern region of China, Yunnan province shares borders with emerging ASEAN with Myanmar, Laos and economies of Myanmar, Laos and Vietnam that stretch 4,060 km. This natural advantage Vietnam enables the province to act as a land-based connector between China and the 10-member Association of Southeast Asian Nations (ASEAN), which is one of the fastest growing and populous economic regions in the world.
Close proximity to India, In addition, Yunnan is also within close Bangladesh, Thailand and proximity to India, Bangladesh, Thailand and Cambodia Cambodia. Together with Chinese regions including Guangxi and Chongqing, Yunnan is naturally positioned as an important passage to both Southeast Asia and South Asia by land, having strategic roles to play in enhancing border stability and cooperation with the neighbouring countries. Needless to mention, Yunnan is one of the core areas within China’s B&R Initiative.
Yunnan province achieved GDP of US$223 bn (RMB1.48tn) in 2016, equivalent to 2%
The Belt & Road Series: The Yunnan-ASEAN Chapter Friday, 17 November 2017 2 Page of China GDP. With a population of 47.7 mn, the per capita GDP of the province is around US$4,700 in 2016 vs. average national income of around US$8,100.
Establishment of the In 2015, China’s State Council approved the establishment of the Yunnan Dianzhong New Yunnan Dianzhong Area in Kunming, covering 482 square kilometers and is China’s 15th state-level New Area New Area since the first one was launched in Shanghai in 1992. The Yunnan Dianzhong New Area focuses on mid- to high-end industries such as automobile and equipment manufacturing, electronic information and biology.
In line with the central government’s aim of reducing income inequality in the country, there had been persistent and strong efforts to expand economic development towards inland and western China. Since 2011, the central government has adopted a national strategy to develop Yunnan province as a key bridgehead for the opening-up of southwest China.
Above national Yunnan province had been able to generate one of the highest economic growth rates growth rate amongst the Chinese provinces/cities. Yunnan’s real GDP growth had averaged 10.9% per annum between 2010 and 2016, well above the national average of 8.1% in the same period. Developing regions such as Yunnan are increasingly attractive to investors due to their growth potential.
Rebound in total trade Yunnan recorded US$21.3 bn total trade in 2016, with export at US$12.7 bn and import at US$8.5 bn, a near 60% increase from US$13.4bn in 2010. Following two preceding years of contraction, Yunnan’s total trade have rebounded strongly in the first nine months of 2017, at 10.2% y/y, in line with the national trade growth of 10.4%. Key merchandise exports for Yunnan are agricultural products and fertilisers as well as labour-intensive manufactured goods while imports are chiefly energy-related and commodities.
Trade facilitation efforts have contributed to expanding trade links with ASEAN which is Yunnan province’s largest trading partner. Merchandise trade between ASEAN and Yunnan totaled US$6.0bn (RMB39.84bn) in the first half of 2017, accounting for 63.1% of the province’s trade.
Tourism accounts for Services sector will become increasingly important with the rise of the tourism industry which nearly 25% share was almost a quarter of Yunnan’s GDP in 2016, up sharply from 14% in 2010.
Strong investment Fixed asset investment (FAI) in Yunnan province has grown rapidly over the past ten years. growth Despite the slowdown in China’s economic growth, total annual FAI in Yunnan province rose to US$242.7 bn (RMB1.6 tn) in 2016, nearly three times the amount in 2010. Projects and opportunities arising from the B&R initiatives and rising border cooperation are expected to drive greater investment flows to Yunnan in the coming years.
By sector, real estate, transport, utilities and manufacturing accounted for the largest amount of Yunnan’s FAI in 2016. Half of the investments were self-raised while domestic loans and state budget accounted for 18% and 13% of the FAI respectively, suggesting strong private sector’s initiative in seizing business opportunities.
Two-way Reflecting the close cooperation between Yunnan and ASEAN as well as rising business investment flows opportunities on both sides of the border, data from the Yunnan Provincial General Chamber of Commerce showed that the government of Yunnan Province has so far invested US$10 bn in Myanmar while private investments from Myanmar into Yunnan totaled US$100 mn to-date.
ASEAN: Rising Economic Bloc ASEAN’s 10-member bloc has a combined GDP of US$2.6 tn in 2016, which has nearly doubled since 2007. This is the 7th largest economies in the world. In terms of population size, ASEAN population of 630 mn not only makes it an attractive outsourcing market due to lower labour costs in countries such as Myanmar and Cambodia, but also increasingly a consumer market given the rising income level (GDP per capita of US$4,050).
With the establishment of the Asian Economic Community (AEC) in late-2015, trade and investment within its member countries is set to advance further as trade, investment, capital, and people flows increase.
The Belt & Road Series: The Yunnan-ASEAN Chapter Friday, 17 November 2017 3 Page Favourable demographic The favourable demographic and income trends will drive ASEAN economies to become and income trends one of the top economic regions for investment with its single production base and a large consumer market for global corporates. We expect the size of ASEAN economy to be larger than Japan’s economy by 2030.
ASEAN member countries are amongst the top of China’s trading partners, comprising 60% share. For ASEAN, outside of intra-regional trade, China is the largest trade partner accounting for 15% of ASEAN’s trade share. With the B&R Initiative,
China’s outward direct investment (ODI) flows into ASEAN had doubled to US$14.6 bn in 2015 from 2013. We see the potential for greater economic links between ASEAN and China as a whole.
Yunnan-ASEAN Connectivity Yunnan is a key part of the Greater Mekong Subregion (GMS) program that is being funded by the Asian Development Bank. The GMS connects Cambodia, China, Laos, Myanmar, Thailand and Vietnam, targeting implementation of high priority subregional projects in transport, energy, telecommunications, environment, human resource development, tourism, trade, private sector investment, and agriculture.
The province is also a key part of the Bangladesh-China-India-Myanmar Economic Corridor (BCIM). Despite initial delays in take-off, there is great potential for cooperation in connectivity, trade, investment and sustainable development. There is also a plan for a road linking India’s Kolkata and Kunming, the capital of Yunnan.
Various highways improve the land transport link between Yunnan and ASEAN. The 1,900km Kunming-Bangkok Expressway opened in 2008 runs from Kunming to Bangkok via Laos. There are also plans for Singapore-Kunming Rail Link (SKRL) – a high-speed railway (HSR) linking China’s Yunnan Province to Singapore via Laos, Thailand, and Malaysia under the B&R.
There are also four national-level border cooperation zones in Yunnan – Ruili, Wanding and Lincang which aim to promote trade and investment with Myanmar as well as in Hekou which serves Vietnam. Preferential tax policies amongst others have helped to attract investments into these regions. A China-Myanmar Border Economic Cooperation Zone is currently being planned.
Yunnan has also established various cooperative platforms with the bordering countries, including the Joint Committee on Coordination of Commercial Navigation on the Lancang- Mekong River (JCCCN1), the Economic Cooperation Consultation of Yunnan and Four Provinces of Vietnam, the Yunnan-North Thailand Cooperation Working Group, the Yunnan- Myanmar Economic and Trade Cooperation Forum among others.
As the Yunnan-ASEAN connectivity gradually becomes stronger and more visible, more business opportunities will be present on both sides of the border.
Opportunities From Deepening Cooperation Two-way connectivity Yunnan is ASEAN’s gateway into the enormous market in China. Similarly, China can increase its presence in ASEAN through Yunnan. This constructive relationship will propel further trade and investment between the two regions.
The potential in ASEAN makes for a compelling proposition for China which is now propelling an outward orientation mindset. Initiatives such as the AEC will be complementary to, and further enhanced by, other programs such as the Asian Infrastructure Investment Bank (AIIB), B&R Initiative, the upgrading of the China- ASEAN FTA, and Regional Comprehensive Economic Partnership (RCEP).
B&R presents huge B&R Initiative presents huge growth opportunities and channels for deepening cooperation growth opportunities between Yunnan and ASEAN. The regions are set to benefit from two of the six economic
1 JCCCN involves Myanmar, China, Laos and Thailand
The Belt & Road Series: The Yunnan-ASEAN Chapter Friday, 17 November 2017 4 Page corridors under the B&R Initiative – China-Indochina Peninsula Economic Corridor and Bangladesh-China-India-Myanmar Economic Corridor. Under B&R, China is seen playing a crucial role in filling the infrastructure gap in the ASEAN countries.
The strong investment flows into transport, utilities, real estate, and manufacturing sectors in Yunnan is set to continue and these are expected to propel the income growth of the province.
Tourism will be another key growth area in Yunnan where there is potential for deepening cooperation with the ASEAN countries, in particular the bordering countries.
Other than trade and investment, the large population size in ASEAN and Yunnan will be one of the bases for rapid growth in consumption demand in the coming years.
Conclusion As the main land link between China and major emerging ASEAN states of Myanmar and Vietnam, both Yunnan province and ASEAN are set to benefit significantly from the Belt & Road Initiative. Aside from geographical and historical links, this will be further enhanced by both economic potentials in Yunnan province as well as ASEAN region. ASEAN is the third most populous economic bloc in the world and the size of the economy is forecast to overtake Japan by 2030. As connectivity widens and deepens between Yunnan and ASEAN through policy coordination, facilities connectivity (such as infrastructure investment), trade and investment, financial integration, and cultural exchanges among peoples, it is reasonable to expect more business opportunities to arise as a result, and to benefit both sides of the border as China ushers in the new era.
Market Opportunities In ASEAN
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Source: IMF, UOB Global Economics & Markets Research (Data As At 2016)
The Belt & Road Series: The Yunnan-ASEAN Chapter Friday, 17 November 2017 5 Page China: Yunnan’s Nominal GDP More Than Doubled Between 2010 and 2016
Source: CEIC, UOB Global Economics & Markets Research
Comparison of GDP Size (USD bn) Guangdong 1217.4 Jiangsu 1165.2 Shandong 1024.2 Zhejiang 711.4 Henan 609.4 Sichuan 495.9 Hubei 491.8 Hebei 482.9 Hunan 475.1 Fujian 433.8 Shanghai 424.3 Beijing 386.5 Anhui 367.5 Liaoning 335.0 Shaanxi 292.1 Jiangxi 278.5 Guangxi 275.8 Inner Mongolia 272.9 Tianjin 269.3 Chongqing 267.1 Heilongjiang 231.7 Yunnan 222.7 Jilin 222.5 Shanxi 196.5 Guizhou 177.3 Xinjiang 145.3 Gansu 108.4 Hainan 61.0 Ningxia 47.7 Qinghai 38.7 Tibet 17.3 0 200 400 600 800 1,000 1,200 1,400 2016 2010
China: Large Population Size In Yunnan Will Be A Growth Driver
Source: CEIC, UOB Global Economics & Markets Research
Comparison Of Population Size (mn) Guangdong 110.0 Shandong 99.5 Henan 95.3 Sichuan 82.6 Jiangsu 80.0 Hebei 74.7 Hunan 68.2 Anhui 62.0 Hubei 58.9 Zhejiang 55.9 Guangxi 48.4 Yunnan 47.7 Jiangxi 45.9 Liaoning 43.8 Fujian 38.7 Shaanxi 38.1 Heilongjiang 38.0 Shanxi 36.8 Guizhou 35.6 Chongqing 30.5 Jilin 27.3 Gansu 26.1 Inner Mongolia 25.2 Shanghai 24.2 Xinjiang 24.0 Beijing 21.7 Tianjin 15.6 Hainan 9.2 Ningxia 6.7 Qinghai 5.9 Tibet 3.3 0 20 40 60 80 100 120 2016 2010
The Belt & Road Series: The Yunnan-ASEAN Chapter Friday, 17 November 2017 6 Page China: Large Potential For Income Growth In Yunnan As Investments Rise
Source: CEIC, UOB Global Economics & Markets Research
Comparison Of GDP Per Capita In 2016 (USD)
Gansu 4,134 Yunnan 4,707 Guizhou 4,988 Tibet 5,291 Shanxi 5,300 Guangxi 5,703 Anhui 5,886 Sichuan 5,977 Jiangxi 6,039 Xinjiang 6,087 6,088 Henan 6,361 Hebei 6,435 Qinghai 6,554 Hainan 6,663 Hunan 6,916 Ningxia 7,064 Liaoning 7,575 Shaanxi 7,588 National 8,127 Jilin 8,171 Hubei 8,287 Chongqing 8,718 Shandong 10,194 10,959 Fujian 11,134 Inner… 11,152 Zhejiang 12,578 Jiangsu 14,342 Shanghai 17,106 Beijing 17,263 Tianjin 17,323 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000 2016 2010
China: Yunnan Province Had Attained One of The Fastest Growth Rates
Source: CEIC, UOB Global Economics & Markets Research
GDP Growth By Province/Cities (%) Chongqing 10.7 Guizhou 10.5 Tibet 10.1 Tianjin 9.1 Jiangxi 9.0 Yunnan 8.7 Anhui 8.7 Fujian 8.4 Henan 8.1 Ningxia 8.1 Hubei 8.1 Qinghai 8.0 Hunan 8.0 Sichuan 7.8 Jiangsu 7.8 Xinjiang 7.6 Gansu 7.6 Shaanxi 7.6 Shandong 7.6 Zhejiang 7.6 Guangdong 7.5 Hainan 7.5 Guangxi 7.3 Inner Mongolia 7.2 Shanghai 6.9 Jilin 6.9 Hebei 6.8 Beijing 6.8 Heilongjiang 6.1 Shanxi 4.5 Liaoning -2.5 -4.0 -2.0 0.0 2.0 4.0 6.0 8.0 10.0 12.0 2016 Average 2013-2015
The Belt & Road Series: The Yunnan-ASEAN Chapter Friday, 17 November 2017 7 Page Yunnan: GDP Growth In Yunnan Cities Have Been Faster Than National Growth Since 2008 GFC
Source: CEIC, UOB Global Economics & Markets Research
18
16
14
12
10 GDP growth (%) 8
6
4 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 National Yunnan: Lincang Yunnan: Lijiang Yunnan: Baoshan Yunnan: Qujing Yunnan: Kunming
Yunnan: Secondary And Tertiary Industries Remain Key Growth Drivers
Source: CEIC, UOB Global Economics & Markets Research
Yunnan's GDP Growth By Industry (%) 20
15
10
5
0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Yunnan Overall Primary Industry Secondary Industry Tertiary Industry
Yunnan: Total Trade Rebounding In The First Nine Months Of The Year
Source: CEIC, UOB Global Economics & Markets Research
30,000 90
25,000 21.3bn 75 20,000 60
15,000 45
10,000 30
5,000 15
0 0
-5,000 13.4bn -15
-10,000 -30 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Jan-Sep 2017 Yunnan Total Trade (USD mn) % Change
The Belt & Road Series: The Yunnan-ASEAN Chapter Friday, 17 November 2017 8 Page Yunnan: Tourism Has Become An Important Industry
Source: CEIC, UOB Global Economics & Markets Research
60 30 23.5% 50 25
40 20
30 15
20 10
10 13.9% 5
0 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 % of Yunnan GDP (RHS) Yunnam Tourism Revenue (USD bn)
Yunnan: Investment Registered Sharp Increase In Recent Years
Source: CEIC, UOB Global Economics & Markets Research
FAI in Yunnan (USD bn) 300
250 242.7bn
200
150
100 81.7bn
50
0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Yunnan: FAI By Key Sectors Yunnan: FAI By Source
Source: CEIC, UOB Global Economics & Markets Research Source: CEIC, UOB Global Economics & Markets Research
FAI In Yunnan By Key Sectors (2016) FAI In Yunnan By Source Of Funds (2016)
Primary Others Industries Mining Manufactu State Education 11% 6% Budget 3% 2% ring Others 10% 19% 13% Electricity, Water Gas & Conservan Water cy, Production Domestic Environme and nt & Utility Loan Supply 18% Managem 5% ent 13% Self Transport, Raised Storage 50% Real and Postal Estate Service 34% 16%
The Belt & Road Series: The Yunnan-ASEAN Chapter Friday, 17 November 2017 9 P a g e Yunnan: FAI More Than Doubling Since 2010, Similar To The Trend In Key Chinese Provinces/Cities
Source: CEIC, UOB Global Economics & Markets Research
Annual Fixed Asset Investment (FAI) By Province (USD bn) Tibet Qinghai Ningxia Hainan Liaoning Shanghai Beijing Gansu Xinjiang Heilongjiang Tianjin Guizhou Jilin Shanxi Inner Mongolia Chongqing Yunnan Guangxi Jiangxi Shaanxi Fujian Anhui Hunan Sichuan Hubei Zhejiang Hebei Guangdong Henan Jiangsu Shandong 0 100 200 300 400 500 600 700 800 900 2010 2016
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