CEBU - Filipino Melanie Fernandez sources nearly half the merchandise in her fashion accessories shop from China these days, because it makes good business sense.

"Lipsticks, stockings, combs...these are all made in China and they are much cheaper than goods we stocked previously from Japan, which were quite expensive," Fernandez said at her shop in a trendy downtown shopping centre.

"We want more cheap goods. They satisfy our customer demand." Shopping centers in this resort island of Cebu stock Chinese products ranging from toys to televisions and clothes to calculators after a surge in trade between China and the Association of Southeast Asian Nations in recent years.

Trade totalled $160.8 billion last year, a 23 percent rise over 2005, according to Chinese Premier Wen Jiabao Sunday. The full-year 2005 figure of $130.4 billion was roughly 16 times that of 1991.

Wen was speaking at a summit with ASEAN in which the two sides signed an agreement set to give another boost to economic exchanges.

From July China will open its lucrative services sector to Southeast Asian firms in sectors including energy, telecommunications, real estate and information technology.

"This marks a key step forward for the establishment of a China-ASEAN free-trade area," Wen told ASEAN leaders before the signing. The free trade zone -- which would be the world's biggest, covering nearly two billion people -- is set to come into force in 2010.

"This should round out the liberalisation of the trade between ASEAN and China," said Rodolfo C. Severino, former ASEAN secretary-general and now senior research fellow at the Institute of Southeast Asian Studies in Singapore.

As a first step towards a free trade area, ASEAN and China signed an agreement on trade in goods in November 2004.

Liao Shaolian, deputy director of the Southeast Asia research centre at China's Xiamen University, said these deals are important for the eventual integration of Asian markets.

"China and ASEAN would have a better framework for the protection of trade...the economies would be more integrated and the service industries could grow more stably too," he said. With China now attracting much of the foreign investment that used to flow into ASEAN economies, there are some fears that closer trade links could be more of a threat than an opportunity.

But Severino said ASEAN countries have much to gain as China is beginning to invest in ASEAN countries too. For many manufacturers in the Philippines, the impending free trade pact means they must rise to the challenge of cheaper Chinese competition.

"The happy days are over," said Richard Tiu, chairman of industries at the Philippine Chamber of Commerce and Industry.

"They have to be more creative and efficient...each entrepreneur has to know how to find a niche."*AFP

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