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Thursday, Dec. 26, 2002

A rising China lifts Asian economies


HONG KONG -- For many years now, a debate has raged over the political and economic implications of a rising China, both for the region and for the world. That China is rising is not a matter of debate.

For many Chinese, their country's rise was something that was long overdue, since China is the world's oldest continuing civilization and, at one time, was acknowledged as the fount of science and civilization. However, for others, China's rise was something to be feared, especially if the country continues to be an authoritarian one-party state.

Many observers attribute to China's current leaders a "Middle Kingdom" mentality, seeing their country at the center of the world with its neighbors as little more than vassal states.

Certainly, within the region, Japan sees China as a contender to be the most influential country in East Asia.

In the United States, there are people who doubt that China will be a benign power. "What does China seek to do with its increased influence?" one conservative Asia expert in Washington asked.

In the aftermath of the Tiananmen Square military crackdown of 1989, and especially after the disintegration of the Soviet Union, a school of thought emerged in the U.S. that asserted that China would become a threat to America. This was, in the words of one retired American diplomat, "enemy deprivation syndrome" in action, with the U.S. in search of a new enemy to replace the Soviet Union.

By and large, however, fear and suspicion of China's intentions have receded, partly because a new enemy has emerged: international terrorism.

"China is no longer viewed as an active threat to Japan, South Korea and Southeast Asia," one Washington-based security specialist observed. "There has been a shift in U.S. thinking."

But although the specter of China as military threat has faded substantially, there is still apprehension in some quarters, particularly in Asia, that China, the world's fastest growing economy, poses an economic threat to their very survival. Many are worried about their relationship with China.

But, instead of labeling China a threat, many are opting for the more diplomatic term "challenge," if not "opportunity."

On a governmental level, the tendency is to say that China is more of an opportunity than a threat. Thus, Philippine President Gloria Macapagal Arroyo, says: "I don't want to consider China as a competitor. We see China as an opportunity."

Economist Nicholas Lardy of the Brookings Institution says that China is more opportunity than threat. However, he warns that as China's economy grows, multinational companies are less likely to invest in Southeast Asia, and therefore members of the Association of Southeast Asian Nations have no choice but to quicken their own economic reform because of competition from China.

Trade between China and ASEAN has grown rapidly, expanding from about $8 billion in 1991 to almost $40 billion in 2000. While this rate of growth is impressive, it is not as fast as the growth of China's trade with the rest of East Asia, particularly Taiwan.

For the time being, at least, Southeast Asian countries are enjoying a trade surplus with China, and, increasingly, they are likely to be the recipients of Chinese investment, though at relatively low levels, at least initially. China needs the raw materials that Southeast Asian countries export to fuel its growth.

Jeffrey Garten, dean of the Yale School of Management, warned in June that the world economy was becoming increasingly reliant on Chinese factories. The reason for this is simple. China's wages are a third of Mexico's and 5 percent those of the U.S. or Japan. Its large and expanding domestic market is another attraction.

However, while terms such as "manufacturing superpower" and "world factory" are eye-catching, the proportion of China's industrial output value is still low compared with the U.S., Japan or Germany. Figures cited by the Chinese themselves show that, in 1999, China accounted for 5 percent of the world's total industrial output value, ranking behind the U.S., Japan and Germany.

The World Bank in October said that China presents not a threat but a huge opportunity for the rest of East Asia -- but only if the region's economies push ahead with economic reforms.

"There's a natural debate about the role of China in the coming years," said the World Bank's vice president for East Asia and the Pacific, Jemal-ud-din Kassum. "Is it an opportunity? Is it a threat?" Kassum concluded: "From our perspective, we come down on the side of very significant opportunities."

As Japan's economy remains in the doldrums, the positive impact of growth of China's economy is being increasingly recognized. Morgan Stanley's chief economist, Steve Roger, said in October that while the international economy is being trapped in hardship, China is like an oasis in a desert.

So while it is true that other countries will have to institute economic reforms to remain competitive with China, in the long run this is what they need to know in any event. And, if East Asian countries reform and integrate their economies, they will strengthen their ability to compete with the rest of the world.

Frank Ching is a Hong Kong-based journalist and commentator.


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