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Economy

Integration set to accelerate Southeast Asian growth

A groundbreaking ceremony in Ayutthaya, Thailand, marked the start of a Thai-Chinese venture to build a railroad linking the two countries.

BANGKOK -- The ASEAN Economic Community, which aims to encourage growth by lowering trade barriers and integrating markets in Southeast Asia, will debut Thursday, creating a $2.5 trillion economic sphere with a larger population than the European Union.

     The launch is a major milestone in the history of the Association of Southeast Asian Nations, which began in 1967 as an alliance among Indonesia and four other countries against the threat of communism. It has since expanded to encompass 10 nations, which will form the AEC. ASEAN leaders signed a statement marking the occasion at a November summit in Kuala Lumpur.

One market, one base

Thailand's Siam Cement fully starts a new production line in January at a plant in Kampot, Cambodia, with a capacity of 1 million tons a year. The company holds the third-largest share of the ASEAN market, and President Kan Trakulhoon aims to take the top spot in three years.

     Siam Cement's investment in Cambodia anticipates the economic growth the AEC is expected to bring. Foreign direct investment within the region soared by a factor of 7.4 between 2004 and 2014 to a record $24.37 billion, official ASEAN data shows.

     Eliminating internal barriers will lead companies to view the region as a single production base, promoting a division of labor. Companies awaiting the AEC's launch are taking steps such as moving some production of autoparts, an often labor-intensive undertaking, from Thailand to countries with lower wages, including Cambodia and Laos.

     Mitsubishi Materials debuted a plant in Vientiane early this year to produce temperature sensors used in equipment such as air conditioners. The facility in Laos will handle final assembly of parts from neighboring Thailand.

     Such moves already have led to brisk circulation of goods within the region. Intra-ASEAN trade volume more than doubled over 10 years to $608.3 billion in 2014.

Opportunities in infrastructure

Infrastructure development will be a boon to distribution. Extensive transportation works, such as roads and railways, are key to drawing foreign investment. China is accelerating efforts to strengthen ties with ASEAN via support for infrastructure construction, eyeing the AEC's potential as both a manufacturing base and a massive market.

     Ho Chi Minh City, Phnom Penh and Bangkok were linked in 2015 by the Southern Economic Corridor, a roughly 900km transportation route. A top Chinese official attended a December groundbreaking ceremony in Thailand for a railroad to run between Bangkok and Kunming, China, via Laos. Chinese companies will be involved in the project, with funding and technology expected to be supplied by China as well. Beijing sees it as a profitable opportunity to work with ASEAN amid the region's economic integration.

     In Myanmar, where international sanctions have been eased, the infrastructure connecting the country with its neighbors is improving. A new two-lane road linking northern Thailand and Yangon opened in August. The old single-lane mountain road took three hours to traverse.

     Construction materials such as cement and steel products make up nearly all the freight carried along the road, meeting demand from projects such as industrial park construction in Myanmar. The country is expected to eliminate its remaining tariffs in 2018. Japan's Yusen Logistics is considering regular truck shipments between Bangkok and Yangon.

     Southeast Asia is a major investment destination for Japanese companies, which see opportunities in expanding infrastructure development. Some estimate that $3.3 trillion will need to be spent on infrastructure in the region by 2030. Japan Freight Railway and trading house Toyota Tsusho aim to get involved in rail shipping along the Southern Economic Corridor.

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