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Southeast Asian Affairs 2005 The Economic Impact of China and India on Southeast Asia Manu Bhaskaran Introduction China's growing economic clout is increasingly felt in Southeast Asia. Competition has intensified in trade and foreign direct investment (FDI). Many companies in the region are finding it hard to compete against the lower prices offered by Chinese competitors. At the same time, China's voracious appetite for imports and the growing numbers of Chinese tourists have also brought good news. Just as the region is adjusting to China's growing economic presence, it is also now evident that India is also casting a potentially competitive shadow over SoutheastAsian economies — it is beginning to attract more FDI and it is clearly highly competitive in several service activities. This chapter will argue that the emergence ofChina and India will precipitate substantial policy and micro-level changes to the region. These adjustments will help Southeast Asian economies to respond to the growing competition and so permit them to find their own niches in the emerging new division of labour. In the process, there will be many winners and quite a few losers in the region. Whether the balance is a net positive or a net negative will depend on how effectively each country adjusts to the more competitive world that China and India create. It is argued here that the winners will be those countries that have the political will to reinvent policies and the entrepreneurial capacity to adapt and re-engineer the microeconomy. This chapter will begin with a review ofhow China and India have affected the regional economies in trade, investment and other economic areas. It will then review how these countries are adjusting to this new world and conclude with an assessment of what the net impact would be on economic growth and development in the region. Manu Bhaskaran is Partner, Centennial Group andAdjunct Senior Research Fellow, Institute of Policy Studies, Singapore. The Economic Impact of China and India on Southeast Asia 63 Recent Economic Trends Goods Trade: China's Increased Share of Exports not at Region's Expense Recent trends in global exports of merchandise goods and of services are presented in Figures 1 and 2 and Table 1. A number of important features stand out: • Both China and Southeast Asia increased their share of global merchandise exports in 1990-2002. China's increased share did not come at the expense of Southeast Asia in general. India's share has increased much more slowly in trade. Southeast Asia has seen its share of global merchandise exports slip a little from the peak it reached in the mid-1990s but generally has clung on to its global export position. Given that India's goods exports have not really posed a challenge to SoutheastAsia yet, we will focus on China's impact: • It is also noteworthy (see Figure 3) that China has increased its share of U.S. imports while many Southeast Asian economies have seen their share of the U.S. market diminish. FIGURE 1 China, ASEAN, raised share of merchandise exports Share of world merchandise exports % ------ China ------ ASEAN (5) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Source: Collated by Centennial Group using CEIC Database and World Trade Organization (WTO) data. 64 Manu Bhaskaran FIGURE 2 Southeast Asian share of U.S. market fell ... ASEAN 5 Share of U.S. Imports % 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Source: Collated by Centennial Group using CEIC Database and WTO data. TABLE 1 Shares of global merchandise exports by country 1990 1995 2003 China India ASEAN-5 Indonesia Malaysia Philippines Singapore Thailand 1.5 0.5 3.3 0.8 1 0.2 1.6 0.7 2.5 0.6 6.1 0.9 1.4 0.3 2.4 1.1 5.8 0.8 5.9 0.8 1.4 0.5 2.1 1.0 Source: Collated by Centennial Group using WTO data. China's goods imports from Southeast Asia have grown rapidly, in fact with extraordinary strength. As a result, China has seen its trade deficit with Southeast Asia grow rapidly. As Figure 4...

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Additional Information

ISSN
1793-9135
Print ISSN
0377-5437
Pages
pp. 62-81
Launched on MUSE
2011-03-30
Open Access
No
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