Assessing the trade relationship between Guangxi Province and ASEAN countries under China-ASEAN Free Trade Area

From the horizontal perspective, first of all, the TCDs of Guangxi and ASEAN of each other are both greater than 1, which shows that the merchandise trade between Guangxi and ASEAN is closely related, and both sides are important export markets for each other; at the same time, the Trade Combined Degree (TCDga) of Guangxi to ASEAN is higher than that of ASEAN to Guangxi (TCDag) for 17 years, which indicates that Guangxi is more dependent on ASEAN markets. The trade combined degree of Guangxi and Vietnam to each other is far greater than 1, which supports the situation mentioned above: among ASEAN countries, Vietnam has always been the first trade partner of Guangxi, and Guangxi’s exports mainly flow to Vietnam. Secondly, the trade combined degree of Guangxi with Indonesia and the Philippines is above one. Although the merchandise trade volume between Guangxi and the Philippines is small, Guangxi has a high degree of trade dependence on the Philippine market as it has on Indonesia. Finally, the trade combined degree of Guangxi with Singapore, Malaysia and Thailand is almost less than 1, but the trade combination index of Malaysia and Thailand to Guangxi is mostly greater than 1, which shows that Malaysia and Thailand are more dependent on Guangxi market.

In the first stage of CAFTA construction, Vietnam, Indonesia, Malaysia and Thailand have all showed close trade cooperation, with Guangxi, while Singapore and the Philippines were relatively distant. In the second stage, Guangxi’s dependence on the markets of Malaysia and Thailand had weakened, while its trade cooperation with the Philippines became closer. In the third stage, Guangxi’s dependence on Thailand has increased, and that on other countries are basically the same as the second stage (Tables 4 and 5).

Methodology

Empirical model

The trade gravity model was proposed by Tinbergen (Tin et al., 1962, Poyhonen 1963). According to the two economists, the initial form of the model is stated as follows:

T_ij=A(Y_iY_j/D_ij) (2)

Where T_ij=the total trade volume between country or region i and country or region j

A=the trade constant

Y_i=the GDP of country or region i

Y_j=the GDP of country or region j

D_ij=the spatial distance between country or region i and country or region j

The significance of the model is that the total volume of trade between the two trading subjects is directly proportional to the GDP of both sides and inversely proportional to the distance between the two sides.

This paper extends the original trade gravity model and introduces three new variables, namely: Guangxi’s foreign direct investment, Guangxi’s population and ASEAN’s population, so as to study and analyze the influencing factors of merchandise trade between Guangxi and ASEAN countries. The extended trade gravity model finally obtained is as follows:

Trade_gt=C (gdp_g * gdp_t * fd_i * pop_g*popt)/distance (3)

In the formula, g=Guangxi; t=other ASEAN countries; tradegt=the total import and export trade between Guangxi and ASEAN countries; C=the trade constant; gdpg=the average income of Guangxi; gdpt=the GDP of ASEAN countries; fdi=Guangxi’s foreign direct investment; popg=the population of Guangxi; popt=the population of ASEAN countries; and distance refers to the distance between Guangxi and all ASEAN countries.

In order to avoid heteroscedasticity, a new model is constructed by taking logarithm from both sides of the equation, thus;

In the formula, β₀=constant; β₁, β₂, β₃, β₄, β₅ and β₆=regression coefficients while μ_ij=random error term.

Variables and their assumptions

In terms of Gross Domestic Product (GDP), the ability of a country or region to import or export largely depends on the size of its GDP. The larger the GDP, the greater the import and export capacity. The expected sign of the effect is positive.

For foreign direct investment, this may help Guangxi to achieve technological progress, which will further promote Guangxi’s export. Foreign investment and foreign trade tend to complement each other, and the increase of investment will have a positive impact on trade. The expected sign of effect is positive.

For population of a country or region, this can reflect the market size of the country or region. The more population, the greater the demand, and the more likely other countries are to export products to that country. The expected sign of effect is positive.

Distance in this paper takes the spatial distance between Nanning-the capital of Guangxi and the capital cities of ASEAN countries as the research parameters. In generally, the greater the distance between two trading entities, the higher the transportation and time costs of import and export of goods, and the trade flow will be relatively reduced. The expected sign of effect is negative.

Sources of data

This paper selected the relevant data of Guangxi and ASEAN countries from 2002 to 2018 to form a panel data covering 17 years of seven countries and regions, namely Vietnam, Indonesia, Singapore, Malaysia, Thailand, the Philippines and Guangxi Zhuang Autonomous Region of China. Due to scanty nature of some trade data from Cambodia, Laos, Myanmar and Brunei, and considering that there is less merchandise trade between these four countries and Guangxi province, and the fact that this paper focuses only on the impact of bilateral trade on Guangxi, these four countries were not taken into account in the analysis. Meanwhile, in the model, considering that the distance variable will not change with time, we directly applied the random effect to conduct the regression analysis. Among them, the total trade volume between Guangxi and ASEAN countries, Guangxi’s GDP, FDI, Population data were sourced from the Guangxi Statistical Yearbook, published by the Statistics Bureau of Guangxi Zhuang Autonomous Region in 2018. The GDP and population data of ASEAN countries were taken from the World Bank Database (2018), and the distance between Guangxi and ASEAN countries obtained from Baidu Map.

Results and Discussion

Econometric test and regression analysis

Entering In order to ensure the stability of the panel data and avoid pseudo correlation, we tested the stationarity of each variable in the trade gravity model with time using Fisher test. As shown in Table 6 below, through the Fisher test on the total trade volume between Guangxi and ASEAN countries, the GDP of ASEAN countries and the population of ASEAN countries, we found that the p-values of the four statistics corresponding to each variable were less than 0.01, so we rejected the original hypothesis of panel unit roots. Therefore, the panel data has stationarity, and there was no pseudo regression.

Considering that the bilateral distance does not change with time, we chose the random effect model to study the influence of different periods and variables on the merchandise trade between Guangxi province and ASEAN countries. The construction of CAFTA was divided into three stages in order to avoid the reduction of reliability due to the short time and less data in certain stages, and the regression analysis of the three-stage model was conducted. The detailed regression analysis results are shown in Table 7 below.

From the results above, the goodness of fit measured by the R-squared is 0.95, indicating a higher explanatory power of the regressors on the regrassand. In the first stage of CAFTA construction, Guangxi’s GDP, ASEAN countries’ GDP, Guangxi’s FDI, Guangxi’s population and ASEAN’s population have no significant impact on bilateral trade. This may be due to the fact that CAFTA was still under construction, and Guangxi province had had not yet established long-term and stable merchandise trade relations with ASEAN countries. However, the distance between Guangxi and ASEAN countries has a significant impact on bilateral trade, and passed the significance level test at 1% with the regression coefficient being -1.946. This means that, under the control of other variables, when the distance between ASEAN countries and Guangxi increases by 1%, the merchandise trade volume between Guangxi and other countries will decrease by 1.946%. In the second stage of the construction of free trade area, the influence of Guangxi’s GDP, FDI and the population of ASEAN countries on merchandise trade was still not significant. The reason might be that the construction of the free trade area was still at the growing stage at the time. However, at this stage, the GDP of ASEAN countries had a significant impact, which passed the significance level test at 5%. At the same time, the population of Guangxi and the distance between ASEAN countries and Guangxi also passed the significance level test at 1%, and there is a significant positive correlation between the GDP of ASEAN countries and the population of Guangxi province. More importantly, for the population of Guangxi, the correlation coefficient reached 10.3. At this stage, the population of Guangxi greatly helped to promote the development of bilateral trade. It is worth noting that the correlation coefficient of bilateral distance changed from -1.946 in the first stage to -2.127. It can be seen that with the closer trade exchanges between the two sides, distance has become an important influencing factor restricting bilateral trade. In the third stage of CAFTA construction, GDP of ASEAN countries, FDI of Guangxi, population and bilateral distance of Guangxi passed the significance level test, and the first three are significant and positively correlated, while the latter is significant but negatively correlated. Guangxi’s population is still the same as the second stage, which is the main factor which help to promote the development of bilateral merchandise trade, with the correlation coefficient of 6.074; the bilateral distance is still the main obstacle affecting bilateral trade, with the correlation coefficient of -2.095; compared with the second stage, Guangxi’s FDI also became one of the factors promoting the merchandise trade relations between Guangxi and ASEAN countries, showing a positive correlation at the significance level at 5%, with a correlation coefficient of 0.207.

Enhancing trade potentials

The value of trade potential is the result of dividing the actual amount of trade between two trading subjects and the predicted amount, which is used to estimate the development potential of trade between the two trading subjects. The formula is as follows:

TP=TV/SV (5)

In the formula, TP represents the potential value of trade between two trading entities; TV represents the actual value of total bilateral trade; SV represents the predicted value of total bilateral trade calculated by the model.

According to the value of trade potential, it can be roughly divided into three types based on the size: one is the potentials recreation, if TP>1.2, it indicates that bilateral trade is close to saturation, and both sides should look for new trade growth nodes to drive bilateral trade; the other is potential development type, at this time 0.8<TP<1.2, showing that there is certain trade potential between trade subjects, and their development space can be further expanded. The third type is great potential; TP is less than 0.8, which indicates that there is a huge trade potential between the two trade subjects. In this case, both sides should try their best to eliminate all obstacles in order to promote bilateral trade (Wan et al., 2019).

With the three-stage model, this paper calculates the forecast value of merchandise trade between Guangxi and the six ASEAN countries from 2002 to 2018, and calculates the potential value of trade between Guangxi province and other countries based on the actual value, as shown in Table 8. In the first stage of CAFTA construction, the potential values of trade between Guangxi province and Vietnam, Singapore and Malaysia were greater than 1.2, which belongs to first potential type. This shows that the merchandise trade between Guangxi and these countries is almost saturated, and it is necessary to find other trade growth points to develop the economy of Guangxi province. The value of trade potential between Guangxi and Indonesia was between 0.8 and 1.2, which belongs to the second potential type, indicating that there is certain trade potential between the two sides, and further cooperation can help achieve greater economic effects. The trade potential value of Guangxi with Thailand and the Philippines was less than 0.8, which belongs to the third potential type, indicating that the bilateral trade was still in the primary stage, and the volume of merchandise trade was far from reaching the normal level. In the second stage of CAFTA construction, the trade potential type between Guangxi and Vietnam, Singapore and Malaysia was maintained in the potential recreation, but the merchandise trade between Guangxi and Indonesia had developed further, from the original potential development type to the potential recreation. However, the momentum of merchandise trade between Guangxi and Thailand and the Philippines is still insufficient, which means there is still a huge trade potential to be developed. In the third stage of CAFTA construction, the potential value of trade between Guangxi and the six ASEAN countries declined. Since 2017, the potential value of trade between Guangxi province and Indonesia returned to between 0.8 and 1.2, and this indicates that there is still the need to break through all obstacles affecting trade and vigorously develop merchandise trade with Thailand and the Philippines.

Conclusion and Suggestions

Conclusion

Following the results and discussions above, it is crystalline clear that Guangxi province and ASEAN countries, especially Thailand, the Philippines and Indonesia, have great development potential in commodity trading. From the perspective of trade balance, Guangxi maintains a large trade surplus with the world, and there is the need for Guangxi province to increase imports from ASEAN countries to maintain trade balance and promote sustainable economic growth. In terms of total trade volume, Guangxi should maintain the existing trade cooperation with Vietnam, Indonesia, Singapore and Malaysia, and expand the commodity trade market with Thailand, the Philippines and other ASEAN countries. From the perspective of trade integration, Guangxi province should pay more attention to the market development of Thailand and the Philippines, which are increasingly dependent, and thereby increase imports from these countries. In terms of trade potentials, Guangxi province should further deepen cooperation with other countries such as Indonesia, Thailand and the Philippines, so as to help drive Guangxi’s economic growth through commodity trade. Finally, through the expansion of trade gravity model, we can see that the bilateral distance will hinder the development of bilateral trade, while the GDP of ASEAN countries, FDI in Guangxi and the development of Guangxi’s population have a favorable impact on the commodity trade between Guangxi province and ASEAN countries. Therefore, to achieve sustainable economic growth in Guangxi province, it is necessary not only to distinguish the main subjects of cooperation, but also to consider ways of reducing the main factors affecting trade relations between these regions.

Suggestions

Finally, the following suggestions have been put forward for consideration by stakeholders to help improve trade relations between Guangxi province and ASEAN countries.

Establish multilateral cooperation mechanism with ASEAN countries: With the development opportunity of ‘the Belt and Road Initiative’, Guangxi province and ASEAN countries should expand the breadth and depth of cooperation, remove all obstacles, and further increase Guangxi’s import of goods, and this can lead to Guangxi’s import and export trade to balance. Furthermore, Guangxi province should deal with the relationship with ASEAN countries, increase ASEAN’s dependence on Guangxi’s commodities by means of cultural export, so as to promote the growth of GDP and Guangxi’s economy.

Improve the living conditions of people: The government of the autonomous region of Guangxi should encourage qualified families to have two children so as to realize the population growth in the third stage of CAFTA construction. At the same time, the government also needs to increase publicity and investment in education to improve the quality, income and living standards of people, so as to make full use of the population advantage and improve the productivity and consumption potential of the whole society in Guangxi province.

Stabilize the foreign direct investment in Guangxi province: Guangxi province should make efforts to increase the introduction of foreign capital, attract the inflow of foreign capital through relevant policies, financing and other means, and fully protect the legitimate rights and interests of foreign investors, and create a harmonious business atmosphere for foreign firms to thrive. In addition, Guangxi province can build a stable supply chain for itself according to the comparative advantages of various regions, so as to stabilize its foreign investment.

Improve the construction of traffic: The spatial distance between Guangxi province and ASEAN countries is an inherent natural attribute between regions, which cannot be changed by external forces. However, the time distance can be shorten by improving the infrastructure of both sides. Guangxi province should improve its own infrastructure construction and help ASEAN countries develop flexible transportation and communication industry, through the convenient railway, highway, sea, air transportation and multimodal transport to realize the rapid transfer of materials, reduce the transportation cost and time cost of goods.

Acknowledgements

This paper is supported financially by the Construction of the Demonstration Base for the Industrial Development and Utilization of the Marine Resources in Beibu Gulf University (Project No. GUIKE AD17195082), the Beibu Gulf Ocean Development Research Center, as well as the Research on Port Resource Allocation Efficiency and Logistics Capability Improvement of Beibu Gulf Port (Poject No. BHZKY202018).

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