China: ASEAN?'s friend or foe?

China: ASEAN?'s friend or foe?

William Foreman, Vientiane/Associated Press

China would seem to be a scary neighbor for Southeast Asian nations, with its roaring economy that's vacuuming up vital jobs and foreign investment from the region.

But leaders of the Association of Southeast Asian Nations (ASEAN) were shelving some of their anxieties about China's growing economic power and seeking closer ties with the behemoth during their annual summit opening on Monday in the Laotian capital.

Judging whether China is the region's friend or foe isn't so easy. The Communist giant to the north is rapidly beefing its military with weapons that could be used to resolve simmering territorial disputes with Vietnam and others in the South China Sea.

However, Chinese have become big spenders and investors in Southeast Asia. They're also aid donors who rarely publicly criticize troubled countries like Myanmar and Cambodia that are ostracized by much of the world.

The 10 countries of ASEAN planned to adopt agreements with China to create the world's biggest free trade area by 2010 - a US$2.4 trillion market of nearly 2 billion people.

Parts of the pact to be signed on Monday would begin cutting tariffs on goods by mid-2005 and create a system for resolving trade disputes.

Some ASEAN nations and companies are worried the agreement will overwhelm them, said June Teufel Dreyer, a political science professor at the University of Miami in the United States.

"Many Southeast Asian states are worried about the advantage it will give big Chinese banks, big Chinese appliance manufacturers," Dreyer said.

Southeast Asian officials at the summit said their only option is closer ties with China.

"Whether we like it or not, we've got to trade with China," said Winichai Chaemchaeng, director general of Thailand's Trade Negotiation Department.

Ong Keng Yong, ASEAN's secretary-general, denied there was any anxiety about China within ASEAN. The region must work harder to attract investors and adapt to the new competition from China, he said.

"They'll always be there, Chinese imports, Chinese exports, Chinese businessmen, Chinese investors," Ong said. "Just like we have a lot of Japanese, American or European investors."

Ong said the ASEAN-China free trade agreements would help make the market fairer.

"We will try our best to avoid any of the ugliness or the rigors of fierce competition," he said.

Southeast Asia has benefited from China's ravenous appetite for raw materials. The Chinese are running a trade deficit with the region - China's fourth biggest source of imports.

ASEAN exports to China last year increased nearly 52 percent to $47.3 billion from the previous year, the group said. Chinese exports to ASEAN last year climbed 31 percent to $31 billion compared to 2002.

Chinese Vice Foreign Minister Wu Dawei said China's trade with ASEAN would surpass $100 billion this year, and this "offers an opportunity to development in the region and to our neighboring countries instead of a challenge."

But there's a downside for ASEAN. Investment dollars that could go to the region are flooding into China. The country sucked in $392 billion in net foreign direct investment from 1994-2003, while ASEAN attracted $147 billion, according to Morgan Stanley.

"China is a magnet for foreign investors, in many ways unbeatable as a manufacturing outlet," Indonesian President Susilo Bambang Yudhoyono said at the conference on Sunday.

Dan Lynch, an international relations professor at University of Southern California, said the elite ASEAN nations and companies will benefit from the trade agreement with China but the average farmer and worker in the region likely won't.

Unemployment will worsen and wages will drop as they try to compete with China, with its huge labor market and hidden state subsidies, he said.

But Lynch said the biggest problem facing Southeast Asia is that China's success removes the incentive for ASEAN elites to pursue substantive democratization.

"The winds of democratic change blew invigoratingly throughout much of Southeast Asia in the late 1990s, partly because of Western pressure," Lynch said. "But today, the region's business and political elites ask, 'Why bother? No one pressures China to democratize, so why should we?"'