How can ASEAN cope with a slowing Chinese economy?
The 10 ASEAN (Association of South East Asian Nations) members Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam together represent a community of over 600 million people. At $2.6 trillion in 2014, the combined economies would be the 7th largest in the world, or the 3rd or 4th largest economy in the world by Purchasing Power Parity.
ASEAN’s total exports amounted to $1.3 trillion (2014), equivalent to about half of its Gross Domestic Product. Within ASEAN, the five most open economies (known as the ASEAN-5), are Malaysia, Thailand, Singapore, Indonesia and the Philippines, and in total, they attracted $136 billion in foreign investment (2014), exceeding the $128 billion invested in China alone.
In other words, ASEAN represents a significant economic bloc by itself. With the expected gradual implementation of the AEC (ASEAN Economic Community) blueprint by 2025, the AEC is only set to grow in stature and importance.
Does The Slowing Dragon Drag Down The Rest Of Asia?
The economic growth story of China has grabbed many media headlines over the last few years. More recently, however, its economy has slowed, and individual ASEAN countries are not immune to the consequences.
Indonesia, for example, exports many of its mineral resources and basic metals to China, while Thailand exports agricultural produce, machinery and electronic goods there. Malaysia and Singapore exports to China include electronic and chemical products, as well as fibre optic equipment, scientific instruments, LNG, palm oil and rubber. Vietnam and the Philippines export agricultural produce to the Chinese market.
So how can ASEAN members thrive in such challenging conditions?
Shielding Domestic Economies From External Turbulence
For the ASEAN-5, it is imperative that they retain their trade relations with the world for much needed economic growth, employment opportunities and for continued inflows of technology, investment, tourists, skilled workers and capital. To counteract the prospect of slowing or reduced exports to China, the ASEAN-5 can try to spur domestic consumption and spending.
Big ticket investments by the ASEAN-5 aimed at improving the quality of their ‘hardware’ – pertaining to physical infrastructure – and ‘software’ – pertaining to skills, legal and regulatory frameworks, simplified bureaucracy and enhancement of human capital – would do wonders for their long run living standards.
This is where the AEC kicks in. With its diverse mix of highly developed economies and fast growing, emerging markets, as well as a relatively young population, the steady implementation of the AEC blueprint should ensure innovation, and a freer flow of capital, goods, ideas, people, funds, human resources and tourists. Encouragingly, many technology startups are emerging in the leading ASEAN-5 markets of Malaysia, Singapore, Thailand, Indonesia and the Philippines.
Is Spending Their Way Out Of Economic Doldrums A Feasible Solution?
Infrastructure investments can certainly act as a ballast in volatile external economic situations, and help growth over the medium term. However, a broader program for economic transformation is more likely to minimize fluctuations in the rate of GDP growth and mitigate the impact of slowing external demand. The one planned in Malaysia – under the ETP (Economic Transformation Program) – is especially promising.
It covers a wide range of sectors, and includes reforming public finance and public service delivery, improving competitiveness and standards, and increasing liberalization of the economy, with plans for further human resource development while narrowing disparity within the country. Similar plans targeted at economic transformation are underway in Thailand, too. The Thailand Forward 2025 plan intends to turn Thailand into a developed country by 2025.
If the AEC blueprint is successfully implemented, it should enable greater domestic business activity to be generated within ASEAN. High tech sectors, capital intensive industries and labour intensive industries could all flourish simultaneously. And the ultimate goal would be to produce more sustainable, technology-intensive and knowledge-intensive goods and services.
What Is The Catch?
In the increasingly interconnected world of today, it is impossible to make reliable predictions about the complex web of interactions that define single economies, let alone about the outlook for an economic community comprising 10 independent countries.
Nevertheless, amid a possibly enduring slowdown in China, steady implementation of the AEC blueprint by ASEAN members and adoption of unique economic transformation programs, like those planned in Malaysia and Thailand, may be the key to boosting economic performance.
Most estimates suggest that the AEC is likely to remain one of the fastest growing economic communities in the world for years to come. This is of course provided that the AEC blueprint and much needed liberalization measures are adopted, at the same time as harmonization of standards and technology and knowledge-intensive industries are heavily promoted.