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.