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Asean, China can leverage on ties

Good neighbourly relations are a geo-economic resource which can improve global positioning.

IN early September, China will host the 2016 G20 Leaders’ Summit in its scenic city of Hangzhou.

But soon afterwards, it will hold a high-level event with Asean, in Vientiane, capital of Laos.

The big power club is for swapping ideas on some of the world’s long-term issues. But no long-range relations can match the closeness between China and South-East Asia.

The dispute of South China Sea, thorny as it may be, cannot overshadow the long-standing relations between the Chinese people and their southern neighbours, and even less the geo-economic future they are bound to share.

News, by the way, came on Aug 17 that China and the 10-member group already agreed to finish a framework for a code of conduct in 2017 to ease tension and avoid conflict in the disputed waters.

Indeed, in the age of globalisation, geo-­economics can be an important kind of resource. One country can leverage its good neighbourly relations to improve its global positioning. This is obviously the case for China, as it is for Asean.

At present, according to Chinese data, except mutual import and export among the member countries, China is already the largest partner with Asean, accounting for around 15% of its total trade, larger than the United States, European Union or Japan.

In investment, in the first five months of 2015, mutual capital commitment between China and Asean exceeded US$160bil (RM646bil). China foreign direct investment was certainly not a small amount in a time when most companies were hoarding cash.

The geo-economic relations between China and Asean have several aspects of significance:

First, Asean is an important bloc power, especially economically. The total value that its 10 member nations produced was US$2.4 tril (RM9.7tril) in 2013, close to the Gross Domestic Product of France.

According to the Organisation for Economic Co-operation and Development, for the 2016 to 2020 period, Asean’s average growth rate is projected to be the third in Asia, after only India and China (with India as the leader).

Most note-worthy is that this is perhaps the only regional economy that can keep growing on a generally low level of government debt.

Even in the most alarmist investment reports, the region can still turn out markedly better growth prospects than most other parts of the world. This growth momentum will likely carry on, as the region is projected to become the fourth-largest economy in world in 2050.

Second, Asean has unique features which are likely to result in closer ties between China and South-East Asia.

Right now, South-East Asian cities have taken over many processing operations relocated from China since 2008, to serve the markets in both the developed and more advanced developing countries.

Throughout Asean, the percentage of people living in the cities is projected to rise from about 47% in the mid-2010s to 56% in 2030 and then 67% in 2050, according to the UN World Urbanisation Prospects (2014).

This being the case, the region is really one of the few places in the world able to combine an abundant labour supply, many coastal cities and port facilities, and many small, flexible processing factories.

Such operations may have a good chance to stay in South-East Asia, so long as they are matched by good public infrastructure and education.

The new Asian Infrastructure Investment Bank, founded in late 2015 on a Chinese initiative, can provide funds towards such purposes.

International investors have been talking about the possibility for building “another China” in South-East Asia for some time now. In order for that to eventually happen, local governments will have to learn to build and manage their common channels for enormous capital. But step by step, this will happen.

Thirdly, China must learn to be an all-round service provider to participate more successfully in Asean’s development.

Despite its current slowdown and adjustment to new realities in the post-crisis world, China should really see it in a positive light that South-East Asian countries are both picking up manufacturing activities which have left the Chinese shore.

China will receive due returns. In a post-crisis environment, business usually recovers more quickly in societies of lower income and simpler industrial activities. But the stability and prosperity of South-East Asian economies will in turn increase the demand for Chinese machinery and services.

China-Asean trade was US$472.16bil (RM1.91tril) in 2015, accounting for 11.9% of China’s total merchandise trade with the world. In 1991, the volume was only less than US$8bil (RM32.3bil), accounting for less than 6% of China’s trade with the world.

Also according to the Chinese Ministry of Commerce, from January to May this year, the construction contracts that China received from Asean amounted to US$10bil (RM40.37bil), showing an increase of 8.2% year on year. This was after a 41.2% increase in the construction deals that China received in 2015.

As Asean’s sizable middle-class is expected to be more than double in 2025 to include 125 million households, its new consumers will buy not only brands from the West and Japan, but also products from China.

For all the years since the 2008 global crisis, South-East Asia has been an unsung hero in the world.

Despite all the seemingly messy ethnic, religious and territorial relations, people really can’t name any major, insurmountable uncertainty when comparing with many other parts of the world.

All the nations here have managed to keep up stability, politically and financially. And by doing so, they have contributed to peace and development in the world.

They have not supported protectionism and have curbed extremism.

Indeed, as a regional environment, one cannot think of a better case in the world today. It is an environment that makes China feel both lucky and proud to be its neighbour.

Ed Zhang is editor-at-large with China Daily (Asia). The views expressed here are entirely the writer’s own.