East Asia braces for 'Chinese shock'

Philippe Ries, Agence France-Presse, Hong Kong

China's imminent entry to the World Trade Organization has left the rest of East Asia bracing for the "Chinese shock" with the Asian giant attracting foreign investment like a magnet.

The only country still posting growth in a region languishing in the doldrums amid the global economic downturn, China is seen as a formidable competitor.

And the world's most populous country will become all the more attractive once it enters the multilateral trading system -- possibly by the end of the year.

Since 1997 the region has "suffered four shocks: the Asian shock, the IT shock, the Sept.11 shock and the China shock," South Korean Deputy Prime Minister Jin Nyum said on Tuesday.

There was "a trend toward the hollowing out of industry, technologies and markets to China," Jin, who also holds the economy and finance portfolio, told the members of the World Economic Forum meeting in Hong Kong for the East Asia Summit.

"Multinationals are in the process of relocating manufacturing facilities out of Japan, Korea, Europe and the U.S. into China," added Gordon Orr, Greater China director for consultants McKinsey and Company.

And that is not just for low value goods.

Japan is already experiencing the pressure on prices exerted by the competitiveness of products imported from China and the major macro-economic implications.

"China is going to be the ultimate source of deflation," said Alasdair Morrison, president of Morgan Stanley Asia.

That will benefit the consumers, as the Americans and Europeans have already found, but it will also mean that whole sectors of Asian industry will have to adapt or die.

For those Asian enterprises which have the means and technology that means joining the stampede towards China.

Douglas Tong Hsu, chairman of the Taiwanese Far Eastern Textile group, said: "In the past, Taiwan has been second to Japan in investing in Southeast Asia. But we see a vast change toward investing in China."

"The four Tigers have been quite successful in integrating with the Chinese economy," said Chu, referring to South Korea, Taiwan, Singapore and Hong Kong.

In fact "China's entry into the WTO is conducive to industrial restructuring in a global context," argued Chinese Trade Minister Shi Guangsheng, saying Beijing was confronted with a major problem in restructuring its burdened state enterprises.