China's WTO entry places squeeze on Southeast Asia

China's WTO entry places squeeze on Southeast Asia

Bernice Han, Agence France-Presse, Singapore

China's entry into the global trading community next month will place even more strain on Southeast Asia, already reeling from the worldwide downturn and repercussions of the September attacks in the United States, research reports said.

Unlike Hong Kong and Taiwan which are set to gain from Beijing's formal accession into the World Trade Organization on Dec. 11, Southeast Asia is seen as a loser in the medium-term on the currency and foreign investment fronts, the reports said.

"The most obvious challenge to Southeast Asia will be investment," Southeast Asia's biggest lender DBS Bank said in a report this week.

"Taking the blame here is China's twin allure of cheap and abundant labor, coupled with the promise of a huge domestic market," the Singapore-based bank said.

According to DBS, Southeast Asia's share of the foreign direct investment (FDI) that flowed into the region outside of Japan was a paltry 8.6 percent in 2000, compared with the 80 percent share held jointly by China and its territory, Hong Kong.

Southeast Asia's declining FDI share -- it had 33.5 percent in 1996 -- is also a reflection of the region's failure to improve its financial systems after the 1997-98 crisis, said DBS Bank.

"Investors are still wary the region is still licking its wounds from the Asian crisis, and that not enough progress has been made on reforms to rehabilitate weak financial systems," the bank said.

"For Southeast Asia, the message is simple. The room for complacency is getting narrower. Time to get back on the path of reforms."

On the currency front, U.S. investment bank JP Morgan said the Thai baht and Indonesian rupiah are likely to be Asia's biggest losers.

It said "the Thai baht will face some similar pressures to the rupiah following China's WTO entry as both trade and FDI inflows are likely to be lower."

Thailand is however expected to fare better than Indonesia, the U.S. company said as "Thailand's government is perceived to exert a more stable influence on local markets, and because markets themselves are relatively more open and liquid."

Turning to Hong Kong, JP Morgan said the territory will reap the benefits of China's WTO membership over the next five years.