9 - The Economic Emergence of China: Strategic Policy Implications for Southeast Asia

Summary

INTRODUCTION

When China adopted an open-door policy in 1978, Asian countries were not particularly concerned with the policy owing to the unsettled political uncertainties within China. After Deng's visit to Southern China in 1992, a political atmosphere in favour of drastic economic reform emerged in earnest. Foreign direct investment (FDI) started to pour in and reached a peak in 2005. Initial focus on manufacturing activities was directed at light manufacturing such as textiles, clothing, apparels, sport goods and toys. As multinational corporations (MNCs) from Taiwan, Hong Kong, Korea and Japan began to relocate their electronics plants to China, China switched its focus to the manufacturing of electrical, electronics and telecommunication products and was subsequently integrated into the Asian production networks. The rapid expansion of manufacturing exports from China has raised the concern among Southeast Asian countries that their exports might be crowded out by Chinese exports in third-country markets, in particular the U.S. market. This is because China's comparatively cheap labour may wipe out Southeast Asian labour-intensive industries. The concern is further aggravated by the accentuation of China serving as a magnet for attracting massive FDI at the expense of Southeast Asia as a region. With the accession of China into the World Trade Organization (WTO) in 2001, such fear of the “China threat” has caused much anxiety within the region and various policy proposals were adopted in response to the emergence of China as an economic powerhouse.

China has attempted to allay the fear by showing its willingness to join ASEAN's free trade zone as early as December 2000 so as to establish the ASEAN-China free trade zone by the year 2010. China also participated in other regional cooperation efforts such as the “Early Harvest Programme” in October 2003 and Chiang Mai Initiative (CMI) for financial cooperation in 2000. All these economic cooperations were well documented and updated by a recent book edited by Saw (2007).