The China-ASEAN free trade zone kicks in on January 1, creating the world’s third-largest trade block behind the European Union and NAFTA and covering 1.9 billion people. More than 7,000 trading items will be free of tariffs across China and South East Asia.
Which is great news for Chinese shoemakers. Since 2006, Chinese shoes have been heavily taxed in Europe and earlier this month, the EU approved a 15 month extension of the anti-dumping duties on Chinese shoes.
In Wenzhou and Guangzhou, the twin capitals of shoemaking, exports to the EU have plunged. The big sportswear companies, such as Nike and Adidas, have moved their European orders to other factories in South East Asia and some manufacturers say that the EU only accounts for 10% of their business.
According to customs data, the overall business was down 3.4% in volume terms in the first ten months of 2009. In value terms, the European and US markets are both shrinking, but exports to South East Asia were up 49% in value to $710 million.
When the FTA kicks in, the Chinese manufacturers will finally be able to get around the EU blockade. They can set up factories in South East Asian countries and then import all the leather and rubber they need from China duty-free. It will be interesting to see how the EU responds.