NANNING: China and members of the ASEAN must do more to narrow the economic gap, according to ASEAN Secretary-General Ong Keng Yong.

Despite the fact that discussions on a Free Trade Area between China and ASEAN have begun to touch on substantive issues, "there are still many challenges ahead that need to be solved by all of us as soon as possible," Ong told China Daily.

"Bilateral trade cannot only stay as buy and sell, or imports and exports. It could go beyond that," he said.

While most international trade is based on finished products, China-ASEAN trade is currently focused on natural resources like wood and coal.

"But in the future, the situation will change," Ong said.

He suggested China and the 10 ASEAN nations set up a regional production network.

Ong said, as an example, Chinese auto companies should be encouraged to invest in ASEAN nations by setting up factories to produce parts.

They could then export these back to China where the cars can be assembled. The completed cars could then in turn be exported to ASEAN nations.

"This is a way to develop ASEAN's economy," Ong said, adding that it would also reduce ASEAN's trade deficit with China.

Since the ASEAN-China Framework Agreement on Comprehensive Economic Co-operation began in November 2002, the trade volume has grown rapidly. Bilateral trade reached US$130.3 billion in 2005, up 23 per cent year-on-year.

But ASEAN's imports from China outweigh the exports.

Although ASEAN exports to China have increased on average 46 per cent each year from 2000 to reach US$52.4 billion in 2005, compared with growth of 4.3 per cent to other markets, the overall trade deficit was US$9.6 billion in 2005.

China's foreign direct investment (FDI) in ASEAN is modest, averaging US$210 million annually between 2003 and 2004.

In comparison, global FDI in ASEAN was on average US$31.5 billion each year during 2004-05. ASEAN is a net investor in China, with annual FDI of US$300 million between 2002 and 2005.

As well as manufacturing, Ong said one area of growth should be agriculture, a sector in which China could learn from Viet Nam.

China and some ASEAN nations "can do more, modernizing the sector," he said.

Thanks to good irrigation systems and canals, Viet Nam's farmers can get up to three crops a year.

"China, where farmers generally get one or two crops annually, could learn from Viet Nam in this respect," said Ong.

At the same time, China can help ASEAN nations in seed quality, productivity and pesticides.