In spite of the entangling and escalating disputes over the sovereignty of some islands in the South China Sea in recent years, the relationship between China and ASEAN as the two thriving economies in the Asia Pacific region has not been harmed as much as some media reports have portrayed.

These issues admittedly will continue to be major obstacles between the two sides. There are overlapping claims on land or sea, which are likely to play out over the next few years. However, territorial disputes are unlikely to halt the trend of economic integration between the two significant economic entities. To some extent, politics may be contrived by some nations as a temporary tactic, but I have little doubt that the future prosperity of the region will still depend more on economic issues than on the quibbling of politicians.

While China is being frequently trumpeted by English media in the region as a threatening and more aggressive power than before, its trade relationship with neighboring countries, especially the ASEAN countries, however, is making historical achievements. After the landmark enactment of the China-ASEAN free trade zone in 2010, the total trade amount between the two economic entities reached a historic high of $363 billion in 2011; the number grew continuously in the first eight months of 2012. In 2011, total foreign direct investment (FDI) from China to the ASEAN countries was $10.3 billion. That may not be as significant as the investments of Japan and the Western countries, but it definitely signals a big step for China, since it doubled the Chinese FDI of $5 billion in the region in 2008.

Grand trade fairs, such as the China-ASEAN Expo, have provided a perfect platform for business people to convene. In recent years, the main function of the China-ASEAN Expo has extended from its original goal of stimulating commercial exchanges, to a more comprehensive civil exchange (such as the China-ASEAN Think Tank Strategic Dialogues and the China-ASEAN Cultural Industry Forum). The deep cultivation of trade and economic cooperation between China and ASEAN has naturally promoted exchanges between the two entities from purely economic fields to culture and academic sectors.

But these should only mark the beginning of a more integrated and regionalized future for China and ASEAN. Basic socio-economic indexes show that these two entities are complementary rather than contradictory. While China's factories face a growing labor shortage due to the country's aging population, the demographic statistics of the ASEAN countries promise a large potential pool of young workers to support the manufacturing industries of the region.

Energy sectors also manifest a similar bright trend. Currently, Indonesia has replaced Australia as the largest coal exporter to China and now supplies more than one-third of China's total coal imports. Indonesia's low sulfur but low thermal efficiency coals have been proven by industrialists to be the perfect combination for China's coal sources, which are known for their high thermal efficiency but also high sulfur content (usually causing high exhaust and high pollution).

By combining the two different types of coal, China's thermal plants could have an ideal source of fuel. On the one hand, the combination will keep a high thermal efficiency to propel the generators to empower the nation's economic development; while on the other hand, it can greatly reduce the harmful environmental impact that would be generated if domestic coals were used as the only fuel.

Furthermore, as China increases the proportion of its domestic consumption to its GDP, its influence will not be confined to its own territory because of regionalization. With growing demand in China's domestic market, a new consumption center can be established in the Asia-Pacific region that can become an alternative to the USA as a major destination of exports for the developing countries of Asia. While ASEAN countries establish labor intensive industries on their path toward further industrialization, China could be an excellent destination to absorb their products. China's economy can provide great opportunities for its neighboring states to expand their exports, promote technology by attracting Chinese firms to invest, and have a stable foreign market as the destination for export industrial products.

Unlike the East China Sea dispute between two Asian powers (one rising, the other declining) competing for leadership in both political and economic fields, the controversies between the claimants in the South China Sea are much more reconcilable. As complementary factors prevail in many aspects of the relationship between China and the ASEAN states, it is unlikely that the South China Sea will one day escalate to the current dangerous level as currently exists in the East China Sea.

The author is former secretary for home affairs of the HKSAR government.

(HK Edition 09/27/2012 page3)