Stirring Up Asian Economic Rivalry
International Herald Tribune
May 30, 1994
Michael Richardson 

After initial concerns that China would emerge as a fierce rival for investment capital and export markets, Southeast Asian countries are viewing the regional giant more as an economic opportunity than a threat.

Mahathir Mohamad, the Malaysian prime minister, told a recent conference in Beijing on the future of the Chinese economy that "a prosperous China will become the engine of growth firstly for East Asia, including Southeast Asia, and then the world."

If 1.2 billion Chinese were "half as rich as the Americans, the size of the market will be almost unimaginable" and provide Southeast Asian nations a "huge" new opportunity for selling their plantation products, oil, natural gas and manufactured goods, he said at the conference, which was co-sponsored by the International Herald Tribune.

China's surging demand for imports is already of major benefit to Southeast Asia. China had a merchandise trade deficit of more than $12 billion in 1993 as rapidly increasing industrial and consumer demand sucked in imports.

China's trade with the world's industrialized economies grew by more than 60 percent between 1986 and 1992, from $42 billion to $69 billion. However, in the same period, its trade with the rest of Asia nearly quadrupled, from $21 billion to $81 billion.

Nonetheless, China's rapid rise as a a low- cost exporter and its enormous appetite for investment continue to pose a competitive challenge to growth prospects for Southeast Asia, officials and analysts say.

While reported investment in China from Asian countries - including Japan and the newly industrialized East Asian economies, Hong Kong, South Korea, Taiwan and Singapore - rose by over 500 percent in 1993 to reach $52 billion, capital inflow from the same sources to Indonesia dropped 12 percent to $3.5 billion, to Malaysia by 19 percent to $577 million and to Thailand by 52 percent to $148 million.

The effect of China's booming economy on investment flows was also evident in funds from the United States and Europe.

In 1993, U.S. investment in China rose by nearly 470 percent, to $3.1 billion. In the same period, U.S. investment in Indonesia dropped by 58 percent to $385 million. In Malaysia, it dropped 5 percent to $213 million and in Thailand it was down 86 percent to $16 million.

At the same time, European investment in China increased by 35 percent to just over $1 billion, while falling by 34 percent in Indonesia to $756 million, by 93 percent in Malaysia to $75 million and by 68 percent in Thailand to $35 million.

This trend coincides with a significant shift in foreign investor strategy in East Asia which favors countries with the biggest potential markets, such as China and India.

"Investors now seem more keen to access the domestic markets in Asia rather than merely seeking a production base for exports," said Sanjoy Chowdhury, chief economist for the Asia-Pacific region in the Singapore office of Merrill Lynch & Co.

As result, Southeast Asian countries will have to take steps to revive investor interest in their economies by introducing more business-friendly policies, cutting red tape and ensuring a good operating climate supported by strong infrastructure, he said.

Hastening implementation of ASEAN free trade area, which is on a slow 15-year phase-in track because of conflicting national interests among its members, would also help by opening up an integrated market of more than 340 million people.

ASEAN, the Association of Southeast Asian Nations, comprises Indonesia, Malaysia, the Philippines, Singapore, Thailand and Brunei.

Mr. Chowdhury said that although smaller than the 1.2 billion population of China, the relatively higher purchasing power of an ASEAN free trade area should make up for the shortfall in numbers.

Underlying concern in Southeast Asia about the competitive challenge from China is a suspicion that the region's economically powerful ethnic Chinese minorities are starting to funnel very large amounts of capital away from their adopted countries of citizenship and residence back to their ancestral homeland.

Lee Kuan Yew, Singapore's senior minister, cautioned China recently not to misread the mood of the region. He said that a comment by Beijing on anti-Chinese riots in Indonesia had "revived old fears that China has not abandoned its claim to the loyalties of all ethnic Chinese wherever they are."

CHINA'S attitude toward Southeast Asia is a sensitive issue in the region, where Chinese minorities in almost every country have a disproportionately large share of wealth and economic influence.

Malaysia refused to allow television reports of the rioting by the British Broadcasting Corporation to be shown, for fear of inflaming racial tension between majority Malays and Chinese.

However, Brian Caplen, editor of Asian Business magazine in Hong Kong, said that it was an "economic falsehood" to think that by investing in China, the ASEAN Chinese were in some way depriving their home countries.

He said that moves by the ASEAN Chinese into China "put both them and their countries in a win-win situation" because it would boost Southeast Asian exports to China and open channels for reverse investment by China in ASEAN countries.

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