China finds new fans in South-east Asia as US turns inward

China is already the top trading partner for most of the countries in the region. The world's second-largest economy has almost doubled foreign direct investment into the six biggest nations in the region this year.
China is already the top trading partner for most of the countries in the region. The world's second-largest economy has almost doubled foreign direct investment into the six biggest nations in the region this year.PHOTO: AFP

BEIJING • China is embracing South-east Asia with a renewed trade and investment push, a trend that is set to accelerate as the region grapples with the prospect of a more protectionist United States under Mr Donald Trump.

Aside from courting South-east Asian nations with a proposal for a trade pact, China has almost doubled foreign direct investment into the six biggest nations in the region this year, according to estimates from Credit Suisse Group.

The world's second-largest economy is already the top trading partner for most of the countries in the region. "China has a clear angle, they know what they want from this kind of mutually beneficial growth," said Mr Santitarn Sathirathai, an economist at Credit Suisse in Singapore.

"But it's not only government to government any more. There's also a rise of private companies taking a bigger initiative."

The Philippines and Malaysia have already made more explicit moves to align themselves with China. On his first visit to Beijing in October, President Rodrigo Duterte said he wants to cut the cord with the US, a key military ally, and pivot to China.

During a trip to Beijing in November, Malaysian Prime Minister Najib Razak signed about US$30 billion (S$42.9 billion) worth of deals from energy to rail infrastructure.

While the US is the largest investor in the Philippines, China is poised to take that title next year with US$24 billion of hard and soft investment and US$2.5 billion in inflows, according to estimates from HSBC Holdings.

Credit Suisse estimates Chinese FDI in the six largest economies in Asean will reach about US$16 billion this year. China already accounts for 30 per cent of all FDI into Thailand and 20 per cent into Malaysia, according to the bank.

In Indonesia, Asean's largest economy, China is now the No. 3 investor, behind Singapore and Japan, with FDI rising to US$1.6 billion in the nine months to September from about US$600 million for the whole of last year.

Tourism is another industry that is set to benefit from Chinese demand, said Mr Edward Lee, an economist with Standard Chartered in Singapore. According to his estimates, about one in four of all tourists in Thailand now come from China.

"Chinese tourism is pretty big for Asean now, and all the countries rely on Chinese visitors to keep coming and keep spending," Mr Lee said.

The economic ties belie political tensions that stem from competition in the South China Sea, one of the world's busiest shipping lanes. Asean nations have overlapping claims in waters where China has reclaimed thousands of hectares of land and increased its military presence. Tension has also risen between Indonesia and China about access to the waters.

"Countries have to bite the bullet," said Mr Harry Sa, a research analyst at the S. Rajaratnam School of International Studies. "The fact of the matter is that China can do wonders for the economy and the countries in the region understand."

Most of them "do welcome that, even the countries that have tensions with China", he said.

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A version of this article appeared in the print edition of The Straits Times on December 13, 2016, with the headline 'China finds new fans in South-east Asia as US turns inward'. Print Edition | Subscribe