KUALA LUMPUR: The China-Asean Free Trade Area (CAFTA) arrangement, which came into effect on Jan 1, is not expected to impact the local business community adversely, said Deputy International Trade and Industry Minister Datuk Mukhriz Mahathir.

"There will be a period of time of adjustment because China is competitive in cost and quality. However, we must not just look at our strength in commodity, which is palm oil, but focus on developing our SME products to enter the China market," he said in response to concerns that have been raised by the business communities in Asean.

Speaking after opening the Asia-Europe Alliance (Aseal) Summit on Paperless Trade today, he said there would be an increase in trade between China and Asean.

Mukhriz highlighted the fact that Chinese manufacturers had to value add their products with 40% Malaysian content so they could be exported under the Malaysian label.

"This is important or we would just be repackaging Chinese products. Local businesses can also look into importing cheap raw materials from China in making our products more attractive in the market," he said.

Mukhriz had said earlier that the CAFTA was part of Malaysia's effort to boost foreign direct investment (FDI) inflows this year while China was on the lookout for third countries like Malaysia to re-export its products.

China is Malaysia's second-largest trading partner with RM95.5 billion in total trade for the first nine months of 2009. It is also the second-largest export market and second-largest source of imports for Malaysia.