Experts downplay China's economic threat to neighbors

Experts downplay China's economic threat to neighbors

JAKARTA (JP): China will not pose a significant economic
threat to its neighboring countries and the Asia-Pacific region
for the next 20 years due to its internal constraints, experts
said yesterday.

Ronnie Chan, chairman of the Asia Society in Hong Kong, said
the most telling constraint of China is its rampant corruption
practices, which are considered by many to be the worst in the
region.

"Unless China dispels corrupt practices or at least contains
them, it will be unable to move on to the next economic
development to challenge its competitors," he told a conference
on the outlook of Southeast Asia and China, organized jointly by
The Jakarta Post and the Asia-Pacific Economics Group at the
Regent Hotel.

The meeting, opened by Minister of National Development
Planning Board Ginandjar Kartasasmita, was attended by foreign
and domestic businessmen and analysts.

Chan noted that China has no significant mechanism of
macroeconomic control, as its basic economic infrastructures are
not yet in place.

Prior to mid-1993, Chan said, China had no real central bank,
no commercial law and no capital market. The so-called commercial
banks were technically bankrupt.

"It will need at least 15 years (since 1993) to have all these
institutions really taking place," Chan said. "To set up all the
institutions is an easy task, but to change the mind-set of the
people takes time."

He said most of China's economic problems, such as high
inflation rates and trouble-ridden state firms, stem from the
lack of such economic infrastructures. "All these problems can be
tackled properly after all infrastructures are in place."

In addition, China has no significant industrial technology
capability to win future competitions.

Chan noted that only those which control front-end technology
and back-end networking distributions will make money in the
future.

"And China has none of these," Chan said, adding that China
relies too much on labor-intensive industries, such as textiles,
instead of industries that are technology- or capital-intensive.

While competition in the global market is basically between
companies, rather than between countries, Chan said, most of
China's companies -- moreover its state firms -- are not really
ready to compete due to their management constraints.

Chan blamed China's communist system -- which does not give
credit to individual accomplishments and thus discourages
competition -- as the scapegoat for diminishing the competitive
spirit of most companies, especially those that are state-owned.

"China is still searching for its own management style, while
Southeast Asian countries already have their own," Chan said.

Supporting Chan's argument, Singapore economist Ho Kwon Ping
highlighted China's inefficient state-owned companies, which may
slow down its move forward.

State-owned enterprises -- especially the large ones -- are
assigned to set up the whole gamut of social institutions
necessary for the functioning of a modern society, such as
nurseries, kindergartens, schools, universities, hospitals and
the like, Ho observed.

The implication, according to Ho, is that the size of their
work force is unbelievably large, anywhere from 10 to 50 times
larger than those in the market economies.

"And so, even when a change in strategic thinking or in factor
endowments necessitates any restructuring or downsizing, there
will be plenty of social and political resistance, probably
insurmountable," Ho said.

He noted that the state-owned sector, although now said to be
growing much more slowly than the private sector, still comprises
some 50 percent of the economy.

Unlike China, countries in the Association of Southeast Asian
Nations (ASEAN) have better hardware and more open societies, an
important consideration in promoting trade and economic
development, Ho added.

"ASEAN economies have sown resilience in the past and will
continue to do so. China's value as a trading partner and the
strength of its economy is well-known, but it has areas where we
can complement," Ho said. (rid)

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