Economy Effect Analysis Of The Free Trade Zone Between China And ASEAN

Based on relative theories of Free-Trade-Zone, a deep research of trade andeconomy has been conducted among nations of China-ASEAN Free Trade Zone. Theconclusion is as following:I. The Gravity Model proves and shows that by2003, the country sizes ofboth importers and exporters impede commercial trading of “The Early Harvest Plan”(The Plan), but it is not significant to both importers and exporters. Distancesignificantly impedes the commercial trading development between countries. It hasgreat influence of commercial trading if the two countries are next to each other,sharing borders, and the trading volume will surly increase.The model shows that the population of import country has negative impact oftrading. On the other hand, the population of export country has positive improvementof trading. However, the model was not widely tested. The progress of commercialtrading will enhance significantly because of the economy development of bothimport and export nations.II. The Gravity Model proves and shows that after2004, it has significantimpact on commercial trading to the country size of exporters, but not to importers.Distance, however, impedes the development of trading. To the import countries, thepopulation factor does increase trading, but is not significant. To export countries, onthe contrary, the population can greatly increase trading. The higher level of economydevelopment clearly enhances commercial trading to both import and export countries.If two countries share the same border, the trading volumes will surly increase.III. After the implementation of The Plan, all factors are significantlydifferent. The GDP of import countries increases due to the implementation of ThePlan. It is because of the decrease or even the vanish of trading barriers, whichincrease import volume. However, the export country’s GDP decreases significantlybecause it has less influence of the economy strength and development of exportcountries. The absolute distance factor of The Plan greatly increases compared withits implementation before. This is due to the implementation of The Plan has greatlyreduce the cost of tariff. However, The Plan cannot reduce the cost of long distancetransportation. The cost of long distance transportation becomes significant when allother costs of trading reduce. The influence of border factor reduces significantlybefore The Plan’s implementation. It might be the development of transportation and the reasons behind.The population factor of the export countries increases after the implementationof The Plan. Trend factors show obvious examination after the implementation of ThePlan, compared with its implementation before. This explains that the disappearanceof trading barriers reduce cost of trading which steadily increase commercial tradingamong countries. After The Plan, the country size factor of exporter passes thesignificant test. On the other hand, the country size factor of importer passes thesignificant test before The Plan. Several reasons may cause the results. After theimplementation of The Plan, it encourages each country does what they are good at.Bigger countries can spread different processes of manufacturing across domestically,which make the big countries focus more on domestic market. On the other hand, dueto smaller size of domestic market, smaller countries tend to develop industries toexport based on their own strength.Before the implementation of The Plan, because of the existence of tradingbarriers, the products, which are not competitive though, can still be sold in domesticmarket due to large domestic market size. For those smaller countries, they can onlyrely on import goods, which they do not have or produce.IV. The Plan does have the effectiveness of increasing trading, and it is30.6%in2004. The effectiveness of increasing trading can be continuous and it hasaverage16.99%of growth rate yearly.V. There is evidence shows that “exceeding trading” of products listed inThe Plan between the trading of China and Malaysia. It is the same to China andThailand. However, there is “un-sufficient trading” between China-Vietnam andChina-the Philippines in most years. The trading of China-Laos, China-Burma andChina-Singapore shows “exceeding trading” in early years of The Plan, and then turnsdown to become “un-sufficient trading”. The trading of China-Laos shows the sign of“un-sufficient trading” as early as in2001, and the other two countries show“un-sufficient trading” in2004. The trading of China-Cambodia shows the sign of“un-sufficient trading” from1996to1998. From1999to2003, it shows “exceedingtrading”, and it turns down to be “un-sufficient trading” after2004.VI. There is long-term stable relationship between China-ASEAN tradingand ASEAN nations’ GDP. If ASEAN nations’ GDP grows1%, there will be1.95%increase in The Plan of China-ASEAN. If China’s GDP grows1%, there will be1.43%increase in The Plan of China-ASEAN.VII. The economy development of ASEAN nations is the cause of The Plan to both short-term and long-term of The Granger Causality. Making the factor inlonger term to fit the adjustment is slow. The commercial trading is the cause of ThePlan to both short-term and long-term of The Granger Causality. Making the factor inlonger term to fit the adjustment is fast. The economy growth of China is the cause ofThe Plan to both short-term and long-term of The Granger Causality. Making thefactor in longer term to fit the adjustment is slow. Increasing trade of The Plan toChina is both short-term and long-term of The Granger Causality, and to adjust isslow.VIII. In general, The Plan makes Singapore and Indonesia increase import ofagriculture products from China. To Singapore and Indonesia, the increasing tradedeficit of agriculture products has significant influence on many industries and theirproduction. To the Philippines from2004to2005, The Plan did increase export toChina. However, as the Philippines increased agriculture products import from China,the Philippines agriculture trading with China turned from surplus to deficit, and thedeficit becomes larger and larger. On the other hand, The Plan makes Thailandincrease agriculture export to China and keeps on growing. The surplus agriculturetrading of Thailand influences their many other industries as well as their production,which Thailand benefits from The Plan a lot.Before The Plan, China had surplus trading in agriculture with ASEAN, andincreased steadily. However, The Plan turns opposite of the trend. Eventually Chinaturned out to be a net import country of agriculture products from ASEAN nations,and the deficit becomes increasing significantly. To all nations involved within ThePlan, it does not have much percentage weight of GDP compared with the entire scaleof economy. The contribution of The Plan to GDP and GDP absolute growth rate isless than1%. To the nations involved, The Plan has minimum influence to entireeconomy and its growth rate.