Southeast Asia faces onset of democracy, China

Southeast Asia faces onset of democracy, China

By Karim Raslan

KUALA LUMPUR: Southeast Asia has been hit by a double whammy
-- two body blows in quick succession. The first is the onset of
democracy and the second is the rise of China.

Southeast Asia, with the notable exception of Singapore, is in
the midst of an era of "transition politics". For the record even
the lurch towards greater authoritarianism in Malaysia will be
unsustainable. No amount of central control will pacify the cries
for change.

Understandably new democracies -- especially in Indonesia --
are fraught with anxiety, tension and tragedy as the key players
experiment with the new freedoms, testing the limits of the
acceptable and the unacceptable.

Democracy, for men such as Indonesian President Abdurrahman
Wahid and Speaker of the People's Consultative Assembly Amien
Rais, is like a new toy: something they've heard about and
discussed but never grown up with it. And because they are
unfamiliar with it when they play, they can be very rough. In
fact there are times when they try to force the new toy to do the
impossible, breaking it in the process.

After decades of authoritarian rule, the more open, free-
wheeling environment makes many people uneasy. And, of course
businessmen are the most edgy since most of them loathe what they
term euphemistically as "externalities" that affect their
cherished business projections: political will, human rights and
environmentalism.

Contrary to popular thinking there is no such thing as a
democracy premium. If there were, foreign direct investment into
Taiwan should have sky-rocketed after President Chen Sui Bian's
election. Businessmen prefer good governance to democracy any day
-- look at Singapore. They don't care about the means only the
ends because democracy -- pure and simple -- scares the hell out
of them.

Unfortunately, their skepticism has been proven right in
certain cases. The removal of restrictions of the freedom of
expression and assembly have permitted, at least in Indonesia, a
worryingly escalation of age-old and barely contained ethnic,
religious and class tensions. They silence the "do-gooders" by
pointing at the clashes between the Dayaks and Madurese in
Sampit.

The second blow is the emergence -- to our north -- of China.
The futurists have talked excitedly about the Middle Kingdom's
potential for decades. Well now it's real. In fact China has
become the economic competitor we've always feared and more.
Moreover, this year's Leaders' Summit of the Asia Pacific
Economic Cooperation forum in Shanghai will provide an excellent
opportunity for the Chinese to showcase their strengths.

The torrent of mindless China boosterism pouring off the
television screens and pages of the international media will have
a deep impact on an America slipping into recession.

With real economic growth of over 8 percent per annum, China's
threat to Southeast Asia is twofold. Firstly it is now the
strongest magnet for foreign direct investment in the developing
world, eclipsing even Brazil.

Secondly after eight years of 7 percent growth, the
manufacturing capacity accumulated means that it is also a vast
engine room churning out inexpensive goods that are in turn
flooding our markets.

From Vietnam and Thailand to the north, to Indonesia and
Malaysia to the south, Chinese goods have become a major source
of competition for the region's low cost manufacturers and
assemblers.

Home appliances, electronic goods and motorbikes from China
have been popping up in department stores, malls and street-
markets across Southeast Asia. Last year alone exports
grew at over 25 percent reaching a phenomenal US$249 billion.

Indonesia has been very badly hit by the double whammy. As a
low cost manufacturing platform the republic has the most to lose
with China's economic growth. Furthermore, Jakarta's political
life is the most uncertain and violent.

Confusion is the order of the day as President Abdurrahman --
a man plucked from the world of non government organizations --
has proven to be such a disappointment both as a democrat and as
an administrator.

Nonetheless, Indonesia presents the best, if also the most
extreme, of challenges Southeast Asian policy-makers are facing
from the double whammy.

One of the best examples of the changing face of business in
the region is the way the motorcycle industry in Indonesia (for
decades the preserve of the Japanese assemblers) is being
challenged by Chinese competitors.

Many of the wealthier students shuttling to and from the
political demonstrations are probably riding Chinese manufactured
Sanex, Jialing and Beijing branded motorbikes.

In the past Honda, Yamaha, Suzuki and Kawasaki controlled the
vast Indonesian market with sales on over 1.8 million alone in
1997. However the situation today is an example of what the
future may hold for Southeast Asia.

Whilst the locally assembled brands (all Japanese with the
exception of Vespa) used to dominate the local market, their
position is being rapidly eroded. According to the Indonesian
Motorcycle Assemblers Association as reported in Tempo magazine,
in 1999 Chinese brands had barely 1.9 percent of the domestic
market.

However, as of mid 2000 Chinese motorcycles had wrested some
17.2 percent of the market. A Chinese-made Sanex Beta costs Rp
7.2 million as compared with Rp10.8million for a Honda Astrea
Impressa. Such a large price differential has a big impact on the
Indonesian consumer.

In fact it appears that Chinese motorcycles, despite their
poor reputation for service and reliability vis-a-vis the
Japanese, will continue to gain momentum. The Japanese have
actually been entirely displaced from markets such as Cambodia
and Vietnam.

Despite the gloom, Southeast Asia can defend itself from the
double whammy.

China is riding the crest of a wave and only a fool would seek
to break the momentum. However such flashes of interest, as well
as the wall of money, always temporary and many investors will be
dismayed by China's structural weaknesses, the level of
corruption and the administrative flaws.

Three other reasons will assist Southeast Asia's comeback.
Firstly, Chinese society is less orderly and stable than
appearances would suggest. Rural bomb-blasts and the Falungong's
tenacity hint at the impending social upheaval. China has yet to
experience the democratic transition we are undergoing. When the
Chinese democratize the shock waves will be felt all over Asia.
Let's hope that having begun democratization earlier we will
emerge faster.

Furthermore, Southeast Asian societies are a more open and
syncretic. We absorb new ideas and make them our own.

If -- and this is a big if -- we manage to marry the forces of
democracy and good governance we will secure our future and
emerge stronger and more dynamic. Democracy -- if we are clever
-- will be our weapon.

Secondly, China's cheap exports (or "dumping") have been
generated from a deluge of easy money. The investment bankers and
multinationals are inadvertedly creating an asset bubble similar
in scope to Southeast Asia's infamous mid-90s bubble. If, in five
years time, the socialization of costs in China continue to be
ignored, the banking system will collapse.

Thirdly, Southeast Asia has to plunge ahead with the long
avoided administrative and corporate reforms. We cannot hope to
compete against the Chinese unless we have set in place the
"soft" infrastructure of law courts, legal enforcement, as well
as greater accountability and transparency in governance.
Southeast Asia cannot compete in terms of cost.

These reforms will not result in an immediate turnaround in
our competitive position vis-a-vis the Chinese. It will take
time.

Eventually, however, the respect for the rule of law -- and
zero tolerance of corruption -- as well as the sanctity of
contract in Southeast Asia will become a major factor in our
competitive make-up.

The writer is a Kuala Lumpur-based lawyer and author.