Thriving China forces ASEAN to raise its game<\/p>\n
Alan Wheatley, Reuters, Singapore<\/p>\n
After spending more than five years and millions of dollars on
\nplans to build a US$550 million power station, Michael Reading
\nknows how hard it it can be to do business in Southeast Asia.<\/p>\n
Reading remains confident the project will get off the ground,
\nbut his efforts to break into an industry dominated by state-run
\nincumbents have been an exercise in frustration.<\/p>\n
\"You have new entrants who are trying to come into these
\nmarkets and are competing against huge government-owned companies
\nthat are all related. It's very difficult to compete in that kind
\nof market,\" says Reading, who is managing director of Island
\nPower Co., a joint venture between Sime Darby Bhd and Intergen,
\n68 percent owned by Royal Dutch\/Shell.<\/p>\n
What makes Island Power's hard slogging instructive is that
\nthe market it is trying to tap is not communist Vietnam or
\nmilitary-ruled Myanmar but Singapore, which is legendary for
\nrolling out the welcome mat for foreign firms.<\/p>\n
If even Singapore, by far the most developed member of the 10-
\nstrong Association of South East Asian Nations, is hard to crack,
\nwhat chance does ASEAN have of stemming the tide of foreign
\ndirect investment to China?<\/p>\n
Aware of the challenge, ASEAN leaders meeting in the Lao
\ncapital, Vientiane, on Monday and Tuesday will endorse plans to
\nmake the bloc more attractive to foreign investors by
\naccelerating the pace of market liberalization in 10 priority
\nsectors including electronics, tourism and textiles.<\/p>\n
The stakes are high. Whereas China took in net foreign direct
\ninvestment of $392 billion from 1994-2003, ASEAN attracted just
\n$147 billion, with Singapore alone accounting for $82 billion,
\naccording to figures from investment bank Morgan Stanley.<\/p>\n
\"The likelihood that FDI could be the main motor for change
\nand growth in Southeast Asia is in doubt,\" said Malaysian
\neconomics professor Jomo Kwame Sundaram.<\/p>\n
From better infrastructure to cutting red tape, the list of
\nimprovements ASEAN needs to make to grab a larger slice of Asia-
\nbound FDI is well documented.<\/p>\n
Anwar Nasution, a professor of economics at University of
\nIndonesia, grumbles that it can take six hours to drive 180 km
\n(110 miles) from Jakarta to Bandung because of poor roads. But he
\nsays the top priority for new President Susilo Bambang Yudhoyono
\nmust be to strengthen the country's unpredictable legal system.<\/p>\n
\"This is the key to attract FDI. If we can't do anything about
\nthis, nobody will come to Indonesia to invest,\" said Nasution, a
\nformer senior deputy central bank governor.<\/p>\n
Yudhoyono's election is one of a series of political changes
\nacross Southeast Asia that could help the climate for clamping
\ndown on corruption and enforcing legal contracts, executives say.<\/p>\n
\"With all the political turnover in the region in the last
\nyear, we're hopeful that there are new mandates to take those
\nproblems on,\" said Walter Lohman of the U.S.-ASEAN Business
\nCouncil.<\/p>\n
In Malaysia, market-friendly noises from Prime Minister
\nAbdullah Ahmad Badawi during his first year in power have gone
\ndown well with U.S. firms, which were put off by the sometimes
\nanti-western rhetoric of his predecessor, Mahathir Mohamad.<\/p>\n
Boonler Somchit, who heads the Penang Skills Development
\nCorp., said this was one reason why Malaysia still attracted FDI.<\/p>\n
\"We are holding our own,\" he said. \"China is as attractive as
\never. But with the U.S. a little bit apprehensive about putting
\nall their eggs in one basket, that's a plus point for Penang and
\nMalaysia.\"<\/p>\n
Another plus point for ASEAN is a planned free trade agreement
\nwith China. The bloc's leaders will sign an accord on Tuesday
\nwith Chinese Premier Wen Jiabao to remove tariffs on most
\nmerchandise trade by 2010, going a long way toward creating a
\nsingle market of more than 1.7 billion people.<\/p>\n
ASEAN still has mountains to climb.<\/p>\n
Businessmen complain bitterly that, while tariffs are falling,
\nnon-tariff barriers of the sort faced by Island Power are as
\nformidable as ever and prevent international manufacturers from
\nintegrating cross-border operations efficiently.<\/p>\n
With Asia's economies more closely intertwined than ever,
\npolicy predictability and regional cooperation were vital,
\naccording to Japanese cabinet adviser Haruhiko Kuroda.<\/p>\n
\"Otherwise further deepening of interdependence and sustained
\nrapid growth in the region are unlikely,\" Kuroda told the
\nAustralian National University in Canberra last month.<\/p>\n
But optimists say ASEAN is heading in the right direction.<\/p>\n
\"They're talking, they're looking at their differences and
\nsaying 'in order to remain relevant we need to be more
\nintegrated',\" said John Phipps, senior director at the U.S.-ASEAN
\nBusiness Council.<\/p>\n
\"Nobody expected great things when the European Community got
\ntogether. Everyone said it was impossible. But over time success
\nbreeds success and I think you're going to see that also
\noccurring in ASEAN,\" Phipps said.<\/p>",
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