The 2nd ASEAN Reader

102. ASEAN in a New Asia

500 Tan Kong Yam By: ROS Size: 7.5" x 10.25" J/No: 03-14474 Fonts: New Baskerville 102. ASEAN IN A NEW ASIA TAN KONG YAM Reprinted in abridged form from Tan Kong Yam, “ASEAN in a New Asia: Challenges and Opportunities”, in ASEAN and the New Asia: Issues and Trends, edited by Chia Siow Yue and Marcello Pacini (Singapore: Institute of Southeast Asian Studies, 1997), pp. 1–33, by permission of the author and the publisher. The competition for scarce capital, particularly in the form of FDI with its employment creation, wage increase, transfer of industrial technology, managerial expertise, and marketing know-how as well as stimulus to the development of local supporting and domestic industries, is likely to intensify in East Asia, particularly between Southeast Asia, Vietnam, and China. This is particularly so as the legitimacy of both democratic and authoritarian governments in the region has increasingly become dependent on delivering the goods to the people, especially in comparison with neighbouring countries. This competitive pressure in sustaining the ‘mandate of heaven’ is a key factor driving the process of unilateral liberalization in trading and investment regime in the region. In a way, the growing impetus of AFTA can be seen as the economic and security response on the part of ASEAN to the perceived competition and threat from China. This competitive dynamics among the developing East Asian countries has also significantly enhanced the bargaining power of Taiwan, a government with tremendous financial and business resources but weak diplomatic and political muscle. The diversion of direct foreign investment from ASEAN towards China has not yet significantly affected Singapore directly as its per capita income (US$24,000) and wage, skill, and technology levels are substantially above those of China. Like the other NIEs with per capita incomes of US$8,000–20,000, it is more complementary than competitive with the rapidly expanding Chinese economy , though segments of the rapidly developing cities and coastal region in China have begun to compete head-on with the NIEs. However, with GDP per capita comparable to that of China (US$370–2,000, depending on the region or statistical methodology used), Indonesia (US$700), Thailand (US$2,000), and Malaysia (US$3,000) are at wage, skill, and technology levels that are more competitive with various regions in China. The diversion of Japanese, Western, Taiwanese, and Hong Kong capital 102 AR Ch 102 22/9/03, 1:02 PM 500 ASEAN in a New Asia 501 By: ROS Size: 7.5" x 10.25" J/No: 03-14474 Fonts: New Baskerville has consequently been more severe for them. In addition, the overseas Chinese capital in these ASEAN countries has also been flooding into China, largely through companies located in Hong Kong. The simultaneous decline in FDI and local investment as a result of competitive pressure from China has generated some uneasiness, particularly in Indonesia. Consequently, the southward strategy of Taiwan since 1994 has come as a godsend to ASEAN. This could have moderated potential anti-Chinese feeling, particularly in Malaysia and, to a lesser extent, Indonesia. More significantly, the substantial surplus labour to be released from the agricultural sector in China over the next two decades as China industrializes would likely sustain China’s comparative advantage in labourintensive products for a much longer period than Japan or the other NIEs had sustained during their earlier period of labourintensive industrialization. This could mean that real wages for unskilled and semi-skilled workers in the East Asian region or even globally, would likely remain depressed for a sustained period. As real wages increase in the coastal region of China, labour-intensive industries would migrate inland, just as they have migrated from Japan to the NIEs to ASEAN over the past thirty years. For a country at a similar stage of development with surplus labour like Indonesia, it could mean that real living standard might remain depressed for a sustained period. Income and regional inequality could also worsen. This would have significant implications for social and political stability as well as ethnic Chinese and indigenous Indonesian relations. Again, the deliberate diversion of Taiwanese capital from China to Southeast Asia would help to sustain the industrialization process in Southeast Asia. More significantly, as the bulk of the Taiwanese investment is still in the labour-intensive industries, the employment and wage stimulus would have a major incomeequalizing effect, more so when Taiwanese capital flows away from major cities like Jakarta, Bangkok, and Penang into regional...