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China finds new fans in South-east Asia as US turns inward

Monday, December 12, 2016 - 06:53

The Philippines and Malaysia have already made more explicit moves to align themselves with China. On his first visit to Beijing in October, President Rodrigo Duterte said he wants to cut the cord with the US, a key military ally, and pivot to China.

[SINGAPORE] China is embracing South-east Asia with a renewed trade and investment push, a trend that's set to accelerate as the region grapples with the prospect of a more protectionist US under Donald Trump.

Aside from courting South-east Asian nations with a proposal for a trade pact, China has almost doubled foreign direct investment into the six biggest nations in the region this year, according to estimates from Credit Suisse Group AG. The world's second-largest economy is already the top trading partner for most of the countries in the region.

"China has a clear angle, they know what they want from this kind of mutually beneficial growth," said Santitarn Sathirathai, an economist at Credit Suisse in Singapore. "But it's not only government to government anymore, there's also a rise of private companies taking a bigger initiative."

The Philippines and Malaysia have already made more explicit moves to align themselves with China. On his first visit to Beijing in October, President Rodrigo Duterte said he wants to cut the cord with the US, a key military ally, and pivot to China.

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During a trip to Beijing in November, Malaysian Prime Minister Najib Razak signed about US$30 billion worth of deals from energy to rail infrastructure. He said China and Malaysia have a special relationship based on a shared culture and mutual respect, and ties between the two countries are set to reach new highs.

While the US is the largest investor in the Philippines, China is poised to take that title next year with US$24 billion of hard and soft investment and US$2.5 billion in inflows, according to estimates from HSBC Holdings Plc. China unveiled a range of steps to strengthen economic ties with the Philippines, including boosting agricultural imports, encouraging companies to invest there, financing infrastructure projects, and lifting restrictions on foreign investment.

Credit Suisse estimates Chinese FDI in the six largest economies in the Association of South-east Asian Nations will reach about US$16 billion this year. China already accounts for 30 per cent of all FDI into Thailand, and 20 per cent into Malaysia, according to the bank.

In Indonesia, Asean's largest economy, Chinese investment has surged following five meetings between President Joko Widodo and Chinese President Xi Jinping in the past two years. China is now the No. 3 investor there behind Singapore and Japan, with FDI rising to $1.6 billion in the nine months through September from about $600 million for the whole of last year.

Beijing is not alone in seeking closer economic ties with Asean countries. Taiwanese and Japanese companies have also been beefing up operations in the region to take advantage of lower local wages and strong economic growth. All of the six largest Asean economies, aside from Singapore, are expected to grow more than 3 per cent this year.

Tourism is another industry that's set to benefit from Chinese demand, said Edward Lee, an economist with Standard Chartered Plc in Singapore. According to his estimates, about one in four of all tourists in Thailand now come from China, compared with 5 per cent as recently as 2008. Similar trends are clear across the region, with the number of Chinese tourists into Asia as a whole growing by a factor of 10 since 2000, he said.

"Chinese tourism is pretty big for Asean now, and all the countries rely on Chinese visitors to keep coming and keep spending," Lee said by phone.

Thailand is one of a handful of Asean countries that offer Chinese tourists visas on arrival, while Malaysia has waived the need for visas for trips shorter than 15 days. Indonesia waived visa requirements for Chinese tourists last year.

The economic ties belie political tensions that stem from competition in the South China Sea, one of the world's busiest shipping lanes. Asean nations including the Philippines and Vietnam have overlapping claims in waters where China has reclaimed thousands of acres of land and increased its military presence. Tension has also risen between Indonesia and China about access to the waters.

"Countries have to bite the bullet," Harry Sa, a research analyst at the S Rajaratnam School of International Studies, said by phone from Singapore. "The fact of the matter is that China can do wonders for the economy and the countries in the region understand."

Most of them "do welcome that, even the countries that have tensions with China," he said.


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