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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