Home > Uncategorized > China Finds New Fans …

China Finds New Fans …

… in Southeast Asia as US Turns Inward

by David Roman

Bloomberg (December 11 2016)

* Foreign Direct Investment (“FDI”) into six largest Asean countries has doubled this year

* Faster economic growth, tourism helping to support sentiment

China is embracing Southeast 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 Southeast 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.

During a trip to Beijing in November, Malaysian Prime Minister Najib Razak signed about $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 $24 billion of hard and soft investment and $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.

Indonesia Surge

Credit Suisse estimates Chinese FDI in the six largest economies in the Association of Southeast Asian Nations will reach about $16 billion this year. China already accounts for thirty percent of all FDI into Thailand, and twenty percent 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 nimber three 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 three percent 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 five percent 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 ten 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 fifteen days. Indonesia waived visa requirements for Chinese tourists last year.

Credit Suisse estimates that a thirty percent increase in spending by Chinese tourists would boost Thailand’s GDP by about 1.6 percentage points, and Vietnam’s by almost one point.

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.

Before it’s here, it’s on the Bloomberg Terminal. Learn More: https://bloom.bg/dg-ws-core-bcom-a1


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