Editorial: Will the Pinglu Canal increase ASEAN's trade deficit with China?

The Pinglu Canal has entered the formal operation stage. As the latest landmark project of China ASEAN connectivity, this canal is also a public good for the entire region. However, since the construction of the Pinglu Canal, there has been a clamor in the West and some ASEAN countries that the canal will significantly reduce logistics costs, leading to an influx of more Chinese goods into the ASEAN market and causing an imbalance in China ASEAN trade, posing challenges to the development of local industries in Southeast Asia.

The concerns of this part of public opinion are based on certain regional economic and trade realities, but the logic of "worry" is too simplistic. As is well known, China and ASEAN have been stable and mutually largest trading partners since 2020, with deeply nested industrial chains and intermediate goods trade accounting for over 60% of bilateral trade. At the same time, many ASEAN countries have a trade deficit with China while maintaining a large surplus with the United States and Europe. So, will the opening of the Pinglu Canal increase the trade deficit of ASEAN countries with China? This view is obviously biased for two reasons:

Firstly, the reality of the China ASEAN trade pattern is determined by the current division of labor in the regional industrial chain, rather than the Pinglu Canal. The current situation of bilateral trade division of labor between China and ASEAN countries does not exist independently, but exists in the triangular division of labor network and global industrial chain pattern formed in the region for a long time. The official opening of the canal will not change the comparative advantage of regional industries, nor will it create trade imbalances out of thin air. An important fact that cannot be ignored is that many ASEAN countries currently have trade surpluses with the European and American markets, and the basis of this surplus often comes from imported intermediate goods, components, and machinery from China. ASEAN undertakes the processing and assembly process, relies on the Chinese supply chain to provide raw materials and components, and exports the processed products to the European and American terminal markets. As a result, some ASEAN countries have experienced trade deficits with China and trade surpluses with Europe and the United States. This is the result of the current division of labor in the regional industrial chain, and the logistics convenience brought by the canal helps ASEAN countries rely on the regional supply chain to expand exports to third-party markets, forming a win-win effect at the regional industrial chain level.

Secondly, as a public product of regional infrastructure interconnection, the Pinglu Canal is a low-cost waterway that is equally open to all market entities at both ends of the channel, not just serving Chinese exporters. It can carry Chinese goods southward, but also more agricultural products, minerals, forest products, and components from ASEAN northward to enter China's huge inland consumption and production market, and even enter the Asia Europe market through this channel. Currently, the monthly year-on-year growth rate of imports in China has exceeded that of exports for six consecutive months, highlighting China's driving role in regional and even global trade and economy. In this context, the Pinglu Canal will help China import more ASEAN products in the future. The pattern of division of labor in the industrial chain is not static. Currently, ASEAN countries are actively promoting industrial upgrading, and their ability to export high value-added products continues to improve. In the context of high global energy prices, international transportation prices, inflation rates, and other factors that have led to increased costs and reduced profit margins for regional enterprises, the low-cost channel provided by the Pinglu Canal has become a timely booster for the upgrading of ASEAN manufacturing industry, helping ASEAN local manufacturing products to enter the Chinese inland market more conveniently.

From a longer-term perspective, the opening of the Pinglu Canal will strengthen the development of China ASEAN trade and the resilience of the industrial chain. At the same time as ASEAN goods enter the Chinese hinterland market at lower logistics costs, ASEAN countries' markets will also rely on the canal to deeply embed into the Chinese industrial chain. ASEAN products, whether they are agricultural and forestry products such as fruits, rice, rubber and palm oil, or mineral resources such as bauxite, will shift from "coastal penetration" to "western depth layout"; At the same time, the canal has strengthened the openness of China's central and western regions to ASEAN, and can effectively promote the development and transformation of Chinese industries.

It should be pointed out that the benefits of the Pinglu Canal in reducing comprehensive logistics costs can only be released through gradual construction. Taking the second-line ship lock of Xijin Water Conservancy Hub, which is regarded as the "bridgehead" of the canal, as a reference, a cumulative cargo volume of 70.8 million tons has been completed in the past three years. The process of releasing dividends is gradual and requires China and ASEAN countries to jointly establish and utilize a two-way logistics chain. In the process of ASEAN goods entering the Southwest China market channel at a lower cost, enterprises, ports, and logistics companies along the way are indispensable participants and shapers of the canal's new economy.

In summary, the so-called "one-way channel" in some public opinion is essentially a new variant of the "China squeeze theory". The mutually beneficial and win-win cooperation pattern between China and ASEAN has not changed and will not change. Only by expanding the cake of regional cooperation can China, ASEAN, and more countries potentially share a larger cake. The Pinglu Canal is both a multiplier for optimizing trade scale and a catalyst for structural optimization in this process.