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Southeast Asia losing FDI fight to
China
By Phar Kim Beng
HONG
KONG - At the recent Eighth Summit in Phnom Penh, the
Association of Southeast Asian Nations and China agreed
to establish the ASEAN-China Free Trade Agreement by
2015. Upon its completion, the agreement will open up a
market of 1.7 billion consumers with a combined gross
domestic product of US$1.5 trillion to $2 trillion and
two-way trade of $1.2 trillion.
This is a
clearest signal yet that the bandwagon dynamic has begun
to operate in ASEAN-China relations. Implicit in the
concept of bandwagoning is that a group of smaller
countries will attempt to align itself with an emergent
power.
This is the case because ASEAN can no
longer depend on Japan for an economic lifeline. Japan
has been firing blanks for almost a decade. Deflation
and non-performing loans amounting to $1 trillion have
been plaguing Japan. Despite efforts by Japan's economic
czar Keizo Takenaka to reform the economy, the signs do
not appear promising.
Experience has also shown
that Southeast Asia cannot rely on the International
Monetary Fund and the World Bank for handouts. Both
institutions are based in the United States. They do not
want to be accused of creating a "moral hazard" that
would stonewall reforms in Southeast Asia. Such
accusations would make the international bodies
vulnerable to scathing criticism from the US Congress
that is now under the control of the Republicans.
To be sure, foreign direct investments (FDI)
into Southeast Asia have been declining dramatically. In
this context, it is easy to understand why ASEAN is now
trying to endear itself to China. In 2000, Southeast
Asia received just $10 billion, a 37 percent decline
from the $16 billion in 1999. The FDI figure was $27
billion in 1996 and $19 billion in 1998.
It does
not appear that this diminishment of FDI will abate any
time soon. In its 2001 projection released by the
Economist Intelligence Unit (EIU), the biggest
recipients of FDI for the years 2001-05 were forecast to
be the United States, the United Kingdom and Germany.
Each of these countries was expected to receive $236.2
billion, $82.5 billion and $68.9 billion respectively.
Other economies slated to receive a lion's share
of the FDI for the next five years were: China, France,
the Netherlands, Belgium, Canada, Hong Kong and Brazil.
Thus, of the 10 economies on the list, only two were in
Asia. None in Southeast Asia, however. And, given Hong
Kong's role as the de facto entrepot of China, the
possibility of a statistical double count is high.
Hence, China is in effect the lone beneficiary of the
investment flows.
While the growth of China
should be a boon to the rest of the world in the long
run, it can also be a cause for concern to Southeast
Asia in the short and middle terms. This is because
there is a limited amount of FDI each year. In 2000,
total global FDI reached $1.1 trillion. In 2001, it
peaked at $800 billion due to a slowdown in the United
States. And up to 70 percent of the FDI was bound to
concentrate narrowly in rich countries where the
financial returns were steadier and higher.
Therefore, the developing world was left to
battle for the remaining 30 percent of the FDI. When one
considers the fact that China is now expected to scalp
6.5 percent of the total FDI for the next five years,
the fight for the leftovers is even more severe. That is
to say, 10 Southeast Asian countries have to compete for
the remaining 23.5 percent of the FDI left by China - an
average of little more than 2 percent for each country.
As such, in competing for a major share of FDI,
Southeast Asia cannot buck the need for necessary
reforms. As one commentator affirmed, globalization has
now turned the world into a beauty contest where the
most attractive country or region will stand to gain the
most from the flows of funds.
Indeed, leaders of
Southeast Asia have to satisfy the expectations of
international investors in as many areas as possible.
Most notably, they have to firm up the region's business
environment where transparency, accountability and fair
competition become entrenched. There has to be a
concerted effort to address the issue of political
violence and terrorism too, as occasioned by the Kuta
bombing on October 12.
Barring such efforts,
money will continue to make its way into neighboring and
other regions to the detriment of Southeast Asia. Money,
as many international investors like to point out, is a
great coward: It only goes to places where returns can
be guaranteed.
Right now, unless ASEAN makes
Southeast Asia better and safer than China, the flows of
future FDI will continue to go northward.
(©2002
Asia Times Online Co, Ltd. All rights reserved. Please
contact content@atimes.com for information
on our sales and syndication policies.)
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