The implications of China's growth

The implications of China's growth

By Juwono Sudarsono

This is the first of two articles examining the rapid economic
growth of China and its repercussion to its politics and security
in the region.

JAKARTA (JP): No country is more important to the future
course of the Asia Pacific region than China. The repercussions
of its phenomenal economic growth rate has been felt throughout
the region's governments, boardrooms and shopfloors. The reality
of China's rising economic and political assertion has been
accentuated by the idea of "Greater China" comprising The
People's Republic, Taiwan and Hong Kong. According to estimates,
Greater China in the year 2002 will import roughly US$670
billion, compared to a $520 billion for Japan.

If economic growth can be sustained at seven to eight percent
a year for the next few decades, China's economy should multiply
four times every 20 years, making it the world's largest economy
by the year 2010. In terms of gross domestic product based on
comparable international prices, China's GDP should achieve $9.8
trillion, compared to $9.7 trillion for the United States. Even
allowing for the fact that many hundreds of millions will remain
poor, the magnitude and weight of the total economy makes China
an indispensable power to watch.

Because of its heavy emphasis on trade and investment with
China, Japan has a long-standing interest to ensure that
sustained economic growth in China will serve its strategic
interest. Japan has long regarded the domestic stability of
China as an important part of its overall strategy. It is in
Japan's interest that no major social upheaval takes place in
China. The major concern would be for an imploding or
disintegrating China resulting in mass exodus of refugees
throughout the East Asia region.

From the very beginning of the opening up of the Chinese
economy, Japan had moved factories to China to seek cheap labor
and refuge from the debilitating effects of the yen's
appreciation. After the surge of the mid and late 1980s, Japanese
companies are currently reviewing options to move their foreign
direct investment to Southeast Asia.

Part of the problem stems from growing realization that the
scope and speed of investment procedures often have not been
adequate. Inflation, poor infrastructure, difficulties in
securing components and spare-parts, as well as laws that often
change the terms and conditions of doing business has led many
Japanese firms to consider their plants to relocate to Indonesia,
Thailand, the Philippines and Vietnam.

The Japanese acknowledge that in the long-term, China still
promises to be an attractive venue to invest. China's large
economy continue to excite many businessmen who have found
saturated markets or rising pressure for protectionism in Europe
and North America.

For the immediate future the lure of Southeast Asia will
influence decisions on investments. For their part, governments
in Southeast Asia have liberalized investment regulations. Over
the past four years China's growing importance in trade and
investments have spurned major deregulation measures in Thailand,
Indonesia and the Philippines. The tug of war between China and
ASEAN implies that the rise of China's economy has truly resulted
in making leaders in Southeast Asia more aware of the
vulnerability of their economies to sudden changes in the
international environment, with China a major factor influencing
those sudden alterations.

One of the major concerns facing countries bordering with
China is the effects of fast-paced economic growth will have on
the environment and on comparative energy needs. The scramble to
construct factories, housing, industries and other capital-
intensive projects means that China must develop its military
capability to reinforce its drive to secure energy. The increase
of physical assets requires the protection from its armed
services.

China's need to change from coal to oil and gas means that it
will have to spend heavily on the construction of equipment and
pipeline to the Tarim Basin in the north-west and exploration in
the South China Sea, where promises of oil and gas has pitted
Beijing with claims from Malaysia, the Philippines, Brunei
Darussalam, Vietnam and Taiwan.

Although estimates of oil and gas reserves in the South China
Sea vary, the mere fact that the disputants are tenacious in
their claims is indicative that substantial deposits may be
within reach of being commercially exploitable in the near
future. China today has 21 percent of the world's population but
only 1.2 percent of the proven oil and gas reserves.

Apart from the economic implications of such disparate claims
for access to energy reserves, China has strong traditional
notions of viewing the South China Sea as its sphere of
influence. The fact that China maintains its claim based on
ancient notions of cultural primacy rather than modern day
concepts of state sovereignty makes the issue more perplexing.

In the future, as arms acquisition and military spending in
the region is increasingly geared to the possibility of a major
military crisis in the South China Sea, it is conceivable that
the next war may involve selected ASEAN countries with China.

To date, all sides seem to be eager to avoid any direct
confrontation for fear that an escalation of conflict may start
as a result of misreading about military intentions and
capability. The periodic deployment of naval forces or the
stationing of a token number of troops may suffice to satisfy
each claimant that although the area remains in dispute, it can
be at least kept in legal abeyance until a negotiated compromise
can be agreed upon .

China's military modernization, which began in 1988, must be
viewed in the context of China's new nationalism. Although most
observers agree that the Chinese armed services do not
immediately threaten the security of neighboring states, many
states in the region are not convinced that China's intentions
are benign.

Within the foreseeable future, as sustained industrialization
and competition for energy resources rises, the Chinese navy may
be capable of operating air craft carriers capable of deployment
in the South China Sea for extended periods. Chinese officials
have long insisted that the restructured forces remain defensive
and the upgrading of its armed services long overdue.