Chinese President Hu Jintao’s visit this week is creating some buzz in the business community. It is not surprising, given China’s rising stature in the global economy.

“Take China out of the equation, and the rest of the region (East Asia) is recovering with less vigour… developing East Asia without China will grow more slowly in 2009 than South Asia, the Middle East and North Africa,” the World Bank says in its latest economic update on East Asia.

In the report released last week, the World Bank revised upwards China’s 2009 growth from 7.2% to 8.4%, which indicates that the Chinese economy is in full recovery mode. For 2010, the World Bank has projected an 8.7% growth rate for China.

Barclays Capital Research notes that by 2020, China and India will account for 62% of Asia’s gross domestic product (GDP) and a third of the world’s population.

China, then, is a market we cannot ignore, more so when it is growing so rapidly and the others are not.

Given the potential that China has to offer and its growing trade ties with Malaysia, especially in the last two decades, it is rather surprising that there still isn’t a free trade agreement (FTA) between the two countries.

According to DBS Group Research in a recent report “A China-Malaysia FTA?”, total trade between Malaysia and China has risen at an average pace of 22% per year for 18 years, reaching US$39 billion in 2008. Much of the growth came after China joined the World Trade Organisation (WTO). In fact, from 2000 to 2005, bilateral trade grew at an average of 31% per annum.

“With the rapid rise in bilateral trade, China has become Malaysia’s fourth largest trading partner, up from 11th spot in 1990. Turned around, Malaysia is China’s ninth-largest trading partner,” the DBS report notes.

In 2008, total trade between the two countries amounted to RM130.1 billion. For the first nine months of this year, latest data from the Statistics Department showed that China is the second-largest market for Malaysia’s exports valued at RM46.84 billion, with Singapore at the top of the list. The US is third, with exports valued at RM43.7 billion.

In terms of imports, China tops the list with an import value of RM42.2 billion.

Be that as it may, trade between the two countries is still dominated by electrical and electronic products as well as commodities like crude palm oil (CPO). Indeed, more than 60% of exports to and imports from China comprise electrical and electronic products, commodities and machinery and appliances.

Thus, there is huge potential to expand both trade and investment links with China.

Hu’s visit has sparked talk that China may be playing a bigger role in the Malaysian economy. For example, its Industrial and Commercial Bank of China (ICBC) will very likely be one of two foreign banks to be given a licence to set up shop in Malaysia in 2010. China’s banking presence in Malaysia at the moment is through Bank of China.

Also, rumours abound that the Malaysian government may also announce the divestment of a 10% stake in Sime Darby to a state-owned Chinese company during Hu’s visit.

A Malaysia-China FTA may not be a bad idea at a time when we are trying to wean our dependence on the US as a key export market, and when intra-regional trade is expected to become more important, given expectations that Asia will grow faster than the industrialised world in the next few years.

While China has inked the China-Asean FTA, an FTA between Malaysia and China may be worth the effort in view of the fact that China is the biggest and fastest-growing market in this region.

It makes sense to go beyond the Asean-China FTA.

Singapore, for one, has been quick getting off the blocks when it signed an FTA with China in 2008, notwithstanding the Asean-China FTA.

“As members of the Asean-China FTA, both Malaysia and China have made significant commitments on a wide range of areas. Yet the depth and scope of the commitments made within the regional pact are often less than those made in a bilateral setting. Given that the Asean-China FTA involves 11 parties at different development stages, the commitments made will naturally be less ambitious so as to accommodate the differences among members,” the DBS report says.

Under the Asean-China FTA, China will reduce import tariffs on more than 7,000 products from Asean. More than 9,000 products imported from China to Malaysia will be duty-free.

As with all FTAs, it involves giving and taking. The onus is on the negotiators to come up with an agreement that is satisfactory to both parties. Singapore’s FTA with China took two years to negotiate and complete.

We have signed FTAs with New Zealand, Japan and Pakistan, and are in the midst of negotiations with the US, India, South Korea, the European Union, Chile and Australia. So, why not with China?

This article appeared in Corporate page of The Edge Malaysia, Issue 780, Nov 9-15, 2009.