China may soon cash in on Southeast Asian growth
HONG KONG: Southeast Asia appears to be on a roll.
The Philippines is boasting the second-fastest growing economy in Asia, Malaysia has posted its best growth figures in more than two years and Thailand in more than four.
The growth is being fuelled by China, whose expanding economic presence is propping up fundamental weaknesses around Southeast Asia.
It also underlines China’s dominance in a region that will be under increasing pressure to follow Beijing’s lead.
Even as the rest of the world feels the pinch of Beijing’s clampdown on outbound capital, China is ploughing money into Southeast Asia – much of it into infrastructure projects related to President Xi Jinping’s signature Belt and Road initiative.
Chinese tourists are also flocking to beaches, temples and shopping malls around the region. And trade is surging.
Exports to China from Indonesia and Malaysia grew more than 40 per cent in the first half of the year; from Thailand and Singapore it was almost 30 per cent, and more than 20 per cent from the Philippines, according to Reuters calculations.
China has been investing heavily in infrastructure and property in the region and buying commodities such as rice, palm oil, rubber and coal.
It is also buying electronic components and equipment from countries like Malaysia, Thailand and Singapore.
Going the other way is everything from cheap T-shirts to high-end telecommunications systems.
Welcome as all this economic activity is to the region, it could also present political problems, as countries confront China over
The large rise in Asean’s exports to China have increased potential vulnerabilities to geopolitical risks.
issues such as its claims in the South China Sea, as both Vietnam and the Philippines have found. And it raises the risk that China could apply economic pressure to get its way.
“The large rise in Asean’s exports to China have increased potential vulnerabilities to geopolitical risks,” said Rajiv Biswas, Asia Pacific chief economist for IHS Markit.
For a glimpse of how that feels, Southeast Asian countries could look at South Korea’s experience. The deployment in South Korea of a US anti-missile defence system that China opposed resulted in a sharp decline in Chinese tourists.
South Korean companies doing business in China, like Lotte Group and Hyundai have also been hit in the diplomatic fallout.
“The South Korea example is a highlight of how the geopolitical vulnerability to China can increase as the bilateral economic relationship expands,” Biswas said.
The Philippines found itself subject to a Chinese ban on its fruit in 2012 after challenging China’s maritime claims.
The ban was only lifted last year as President Rodrigo Duterte adopted a friendlier stance towards Beijing.
“Any sector that you have with a big exposure – tourism inbound like Thailand, bananas outbound like the Philippines, coal from Indonesia – is vulnerable,” said Dane Chamorro, senior partner and head of South East Asia at Control Risks, a global risk consultancy.
“You can imagine how that would be pretty easy for China to stop or hinder.”
Leaders of Malaysia’s ruling party last year voiced concerns after Prime Minister Najib Razak secured deals worth US$34 billion on a trip to Beijing, saying it opened the door for a more direct Chinese influence on Malaysia’s affairs, besides saddling the country with billions of dollars in debt.
Rajiv Biswas, IHS Markit Asia Pacific chief economist