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Leverage Asean-China ties to improve global positioning

Early next month, China will host the 2016 Group of 20 Leaders' Summit in its scenic city of Hangzhou. But soon afterwards, it will hold a high-level event with Asean, to take place in Vientiane, capital of Laos. The big-power club is for swopping ideas on some of the world's long-term issues. But no long-range relations can match the closeness between China and South-east Asia.

The dispute in the South China Sea, thorny as it may be, cannot overshadow the longstanding relations between the Chinese people and their southern neighbours, and even less the geo-economic future they are bound to share.

News, by the way, came on Aug 17 that China and the 10-member group had already agreed to finish a framework for a code of conduct in 2017 to ease tension and avoid conflict in the disputed waters.

Indeed, in the age of globalisation, geo-economics can be an important kind of resource. One country can leverage its good neighbourly relations to improve its global positioning. This is obviously the case for China as it is for Asean.

At present, according to Chinese data, except for mutual import and export among the member countries, China is already the largest partner of Asean, accounting for around 15 per cent of its total trade, larger than that of the United States, European Union or Japan.


Workers making soft toys at a factory in China's Jiangsu province. As the size of Asean's middle class is expected to more than double by 2025 to include 125 million households, its new consumers will buy not only brands from the West and Japan, but also products from China. PHOTO: AGENCE FRANCE-PRESSE

In investment, in the first five months of last year, mutual capital commitment between China and Asean exceeded US$160 billion (S$216 billion). China's foreign direct investment was certainly not a small amount in a time when most companies were hoarding cash.

The geo-economic relations between China and Asean have several aspects of significance:

The dispute in the South China Sea, thorny as it may be, cannot overshadow the longstanding relations between the Chinese people and their southern neighbours, and even less the geo-economic future they are bound to share.

First, Asean is an important bloc power, especially economically. The total value that its 10 member nations produced was US$2.4 trillion in 2013, close to the GDP of France.

According to the Organisation for Economic Cooperation and Development, for the 2016-20 period, Asean's average growth rate is projected to be the third in Asia, after only India and China (with India as the leader).

Most noteworthy is that this is perhaps the only regional economy that can keep growing on a generally low level of government debt.

Even in the most alarmist investment reports, the region can still turn out markedly better growth prospects than most other parts of the world. In all likelihood, this growth momentum will carry on, as the region is projected to become the fourth-largest economy in the world in 2050.

Second, Asean has unique features. They don't easily go away, and are likely to result in closer ties between China and South-east Asia.

Right now, South-east Asian cities have taken over more and more processing operations relocated from China since 2008, to serve the markets in both the developed and more advanced developing countries.

Throughout Asean, the percentage of people living in cities is projected to rise from about 47 per cent in the mid-2010s to 56 per cent in 2030 and then 67 per cent in 2050, according to the UN World Urbanisation Prospects (2014 revision).

This being the case, the region is really one of the few places in the world that are able to combine an abundant labour supply, many coastal cities and port facilities, and a large number of small, flexible processing factories.

Such operations may have a good chance to stay in South-east Asia for not a short period of time, so long as they are matched by good public infrastructure and education.

The new Asian Infrastructure Investment Bank, founded late last year on a Chinese initiative, can provide additional financing towards such purposes.

For some time now, international investors have been talking about the possibility of building "another China" in South-east Asia. In order for that to eventually happen, local governments will have to learn to build and manage their common channel for enormous capital. But step by step, this will happen.

Third, on the part of China, it must learn to be an all-round service provider to participate more successfully in Asean's development.

Despite its current slowdown and adjustment to new realities in the post-crisis world, China should really see it in a positive light that South-east Asian countries are picking up the manufacturing activities that have left the Chinese shore.

China will receive due returns. In a post-crisis environment, business usually recovers more quickly in societies of lower income and simpler industrial activities. But the stability and prosperity of South-east Asian economies will in turn increase the demand for Chinese machinery and services.

China-Asean trade was US$472.16 billion last year, accounting for 11.9 per cent of China's total merchandise trade with the world. In 1991, the volume was only less than US$8 billion, accounting for less than 6 per cent of China's trade with the world.

Also according to the Chinese Ministry of Commerce, from January to May this year, the construction contracts that China received from Asean amounted to US$10 billion, showing an increase of 8.2 per cent year on year. This was after a 41.2 per cent increase in the construction deals that China received last year.

As the size of Asean's middle class is expected to more than double by 2025 to include 125 million households, its new consumers will buy not only brands from the West and Japan, but also products from China.

For all the years since the 2008 global crisis, South-east Asia has been an unsung hero in the world.

Despite all the seemingly messy ethnic, religious and territorial relations, people really can't name any major, insurmountable uncertainty when comparing with many other parts of the world.

All the nations here have managed to keep up stability, politically and financially. And by doing so, they have contributed to peace and development in the world.

They have supported no protectionism. They have curbed extremism.

Indeed, as a regional environment, one can hardly think of a better case in the world today. It is an environment that makes China feel both lucky and proud to be Asean's neighbour.

  • This is the ninth article in a series of columns on global affairs written by top editors from members of the Asia News Network and published in newspapers across the region.
A version of this article appeared in the print edition of The Straits Times on August 27, 2016, with the headline 'Leverage Asean-China ties to improve global positioning'. Print Edition | Subscribe