Asia Economy Watch: Post-WTO China Potential Elusive
14:48, 2001-04-02
By Alan Yonan Jr. A Dow Jones Newswires Column
SINGAPORE (Dow Jones)--When Southeast Asian leaders last met as a group in November, Chinese Premier Zhu Rongji sought to allay their fears that they would be harmed by China's entry into the World Trade Organization.
``We would rather not join the WTO if we were a threat,' Zhu said as he arrived in Singapore to attend the annual summit of the Association of Southeast Asian Nations.
But as China inches closer to WTO entry, it is becoming increasingly clear that Southeast Asian economies have reason to be concerned about the prospect of increased competition from their giant neighbor to the north.
China, with its seemingly unlimited supply of cheap labor and huge manufacturing capacity, will no doubt grab a larger piece of Asia's economic pie after its WTO entry.
And there's not much its Asian competitors can do to stop that.
The trick for Asian economies will be to exploit their existing China connections as best they can to tap into the new economic opportunities that a more open China will offer, analysts say.
A review of the players in the region shows that on this front, the Northeast Asian economies have a clear advantage over their less prosperous neighbors in the Southeast.
The trade and investment linkages between China and Hong Kong, Taiwan and South Korea are three-to-five times greater than that of Southeast Asian economies, according to Friedrich Wu, head of economic research for DBS Bank in Singapore.
The Northeast Asian economies, excluding Japan, accounted for some 63% of total foreign direct investments in China between 1991 and 1999, according to a study Wu published in a recent economic journal.
That is expected to give multinational corporations in Northeast Asia a huge leg-up in the race to tap China's economic potential.
Southeast Asia, on the other hand, accounted for just under 7% of China FDIs during that period, and more than three-quarters of that was from Singapore.
Excluding Singapore, Southeast Asia is ``poorly positioned to tap the potential of the soon-to-be widely-opened Chinese market,' Wu said.
Taiwan, which has been investing in China since its open door policy was instituted in the late 1970s, has already moved large amounts of its computer assembly to China, where labor costs are less than 15% of Taiwan's. Northeast Asian Advantage
Taiwan now produces more CD drives, scanners, power supplies and desktop computers in China than at home.
Taiwan's Quanta Computer Inc. (Q.QTC), which does notebook design work for U.S. computer makers Apple (X.APC), Dell (DELL), Hewlett Packard (HWP), and Compaq (CPQ), is set to open a new Shanghai plant this spring where it will produce mother boards and eventually assemble notebook computers.
Acer Inc. (Q.ACE) of Taiwan, the world's number one notebook maker also is moving components of its production to China.
In terms of trade with China, the Northeast Asian economies also enjoy a significant advantage over their Southeast Asian counterparts.
In 1999, 38.6% of Hong Kong's total trade was with China, while 8.6% of South Korea's imports and exports were with China. Only 3% of Taiwan's trade was with China, but it would be a natural beneficiary of China's WTO entry, especially if Taiwan also is admitted to the global free trade club, Wu said.
In Southeast Asian countries, the percentage of total trade with China ranged from only 2.5% in the Philippines to 4.5% in Indonesia.
The Southeast Asian economies are further disadvantaged by the fact that they produce many of the same goods as China, and consequently compete in the same export markets.
``The Northeast Asian economies, plus Singapore, produce goods with more of a high-tech advantage and are less vulnerable to direct competition from China,' said David Cohen, director of economic research for Standard & Poor's MMS.
``Perhaps they could take advantage of the WTO rules to increase sales to China, whereas countries like Thailand and the Philippines may have less of an opportunity on that front,' he added.
The policy implications raised by China's move toward WTO membership are yet another example of the growing divide between Northeast and Southeast Asia that has emerged in the wake of the 1997-1998 Asian financial crisis, Wu notes.
For a decade before the crisis, the Northeast and Southeast Asian economies were not that far apart. But since then, Southeast Asia has lagged significantly both in growth rates and real gross domestic product size.
The Northeast Asian economies bounced back more sharply in 1999 than their Southeast Asian counterparts, Wu said. And going forward, Northeast Asia is expected to outperform Southeast Asia by 2.2 and 1.4 percentage points in 2000 and 2001 respectively, he said.
If Singapore is excluded, the growth differentials are expected to widen further to 3.2 and 1.6 percentage points respectively, he added By Alan Yonan Jr., Dow Jones Newswires
Copyright c 1999-2000 Dow Jones Inc. All rights reserved.
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