ASEAN's Severino says China not to be feared

ASEAN's Severino says China not to be feared

Alan Yonan Jr., Dow Jones Newswires, Kuala Lumpur

Southeast Asia's pursuit of a free trade agreement with China is viewed skeptically by some in the region who fear the loss of market share to the emerging economic powerhouse.

But with the increased competition will also come opportunities for those countries that choose to engage China, said Rodolfo Severino, secretary general of the Association of Southeast Asian Nations.

"China in many ways is a competitor for certain countries' markets and especially for foreign direct investment to the region," Severino said in an interview on the sidelines of the World Economic Forum's East Asia Summit.

"One option is to resist it and put up walls against it and delay the competition with China as much as possible - as much as WTO (World Trade Organization) rules allow."

"The other option is to hasten the process of linking with China and interacting with it to take advantage of the opportunities," he said.

When Southeast Asian leaders meet the Chinese prime minister next month in Cambodia at ASEAN's annual summit, they will sign an agreement to form a free trade area within 10 years, Severino said.

ASEAN comprises Thailand, Malaysia, Indonesia, the Philippines, Singapore, Cambodia, Laos, Vietnam, Myanmar and Brunei.

"We envision that the negotiations could start in 2003 and that there would be some kind of 'early harvest' that could begin to liberalize trade in certain categories within three years," he said.

China's growing dominance as a player in trade and as a destination for FDI has been a constant theme in discussions at the three-day WEF summit, attended by business and government leaders from around the globe.

At an earlier session on Asian economic integration, Severino noted that China was "sucking in FDI at a much faster rate than FDI flows into ASEAN countries."

Indonesia, the Philippines and Malaysia, have expressed reservations about pushing ahead with a China trade pact too quickly. Officials have said that increased competition from Chinese imports could damage their economies.

Some Southeast Asian governments are already under pressure from their own businesses to delay the completion of an ASEAN Free Trade Area, or AFTA, that has been 10 years in the making.

Even without a formal free trade agreement, the volume of trade between China and ASEAN countries is on the rise. For the first eight months of the year, total trade between the two sides totaled $33.3 billion, up 24 percent from a year earlier, the Chinese government reported recently.

Severino also suggested that ASEAN members look at setting up some kind of body to monitor compliance and adjudicate disputes within AFTA, which takes effect at the start of 2003.

Regarding financial market developments, Severino said ASEAN is studying the possibility of forming a regional bond market that would help channel capital to countries with less developed local bond markets.

"It would create a system for tapping the savings within ASEAN," he said.

The need for such a market was first suggested following the 1997-98 regional financial crisis, although no concrete ideas have yet been put forward, he said.

Further along is a proposal by the Asian Pacific Economic Cooperation forum to invest $6 billion to establish a market for trading Asian bonds.

Philippine Finance Secretary Jose Camacho said over the weekend that each APEC member would be expected to contribute a small percent of its dollar reserves to invest in government and corporate bonds listed on the bourse.

Separately, Thai Prime Minister Thaksin Shinawatra renewed the call for the establishment of an Asian bond market.

"One of the ways suggested for the development of an Asian bond market is to establish a fund to purchase bonds issued by Asian countries through, on a voluntary basis, mobilizing 1% of each country's reserves," he said Sunday in an address at the World Economic Forum meeting.

An independent regional rating agency would be required to provide analysis of bond issuers and provide ratings, he added.