Asia's growth pole

Asia's growth pole

"Global manufacturing workshop for all kinds of products", "industrial juggernaut" and "global economic superpower" were some of the oft-quoted labels used by analysts at the East Asian Economic Summit in Hong Kong to describe the direction of China's growing economic clout. Analyses of its astronomical economic expansion over the last 10 years were full of huge numbers, creating the impression that China's growth potential was unlimited.

China's potential to become Asia's growth pole surfaced as economists analyzed the markedly changed global economic landscape after the Sept. 11 terrorist attacks on the United States that are pushing the world's largest economic powerhouse deeper into recession.

Analysts say the September tragedy has made the U.S., the largest destination of foreign direct investment until last year, much less attractive to investors. On the other hand, China, already the second-largest recipient of foreign investment, will become much more attractive. But countries such as Indonesia are considered less stable.

Indeed, China, with a population of more than 1.2 billion and per capita income of US$850, has been a magnet for foreign investors as almost all kinds of product -- low- and high-tech -- can be manufactured there at a fraction of the cost incurred in developed countries. Fast growth over the last decade has enabled it to develop adequate basic industrial infrastructure -- telecommunications, electricity and transportation.

Official statistics show that China attracted $348.5 billion in foreign direct investment over the last eight years and posted $475 billion in foreign trade last year. It boasts a huge pool of not only low-cost but also highly skilled labor and claims to produce one million science graduates every year.

Moreover, the source of its low-cost labor is considered still more than enough to support many thousands of new plants, as around 900 million of its population still depend on agriculture for their livelihood. No wonder that some economists foresee China's economic potential growing to 10 times that of Japan, which last year posted $4.75 trillion in gross domestic product.

China, together with Japan, provided the latter's economy can pick up from its deep recession within the next two years, could indeed become the main locomotive for Asia's economy. In fact, even Japan, the world's second largest economy, South Korea, Taiwan and Singapore have benefited greatly from China's dramatic economic expansion.

Even if China's market is exposed to free international competition after its entry into the World Trade Organization and its development reaches such a level as to make its labor costs less competitive, it will still be greatly alluring to large investors.

How, then, will Indonesia and other ASEAN countries, with a combined population of less than 500 million, be able to compete with China in attracting multinational corporate investors?

Obviously, Indonesia is in an awkward position with regard to economic linkages with China, especially after the massive anti- Chinese violence in May 1998, and the continued targeting of ethnic Chinese businesspeople for their alleged collusion with family members of former president Soeharto and with military organizations.

But as a group, the 10 countries of the Association of the Southeast Asian Nations could still be attractive for foreign investors. The problem, though, is that multinational companies have not yet seen any significant progress in the process of integrating the ASEAN economies. Rivalries and demands for exclusions from the tariff-reduction schedules were often the most prominent news emanating from ASEAN meetings.

The diminishing role of the U.S. as the largest destination of foreign investment, and the keener competition from China should jolt ASEAN countries to put aside their rivalries and hasten the integration of their economies into a large, common market.