China embraces Southeast Asia with renewed trade, investment push as US turns inward
Beijing – already the top trading partner for most countries in region – has almost doubled foreign direct investment in its six biggest nations
China is embracing Southeast Asia with a renewed trade and investment push – a trend that is set to accelerate as the region grapples with the prospect of a more protectionist United States under US President-elect Donald Trump.
Aside from courting Southeast Asian nations with a proposal for a trade pact, China had almost doubled foreign direct investment (FDI) into the six biggest nations in the region this year, according to estimates from Credit Suisse Group.
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 wanted 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 US$30 billion worth of deals from energy to rail infrastructure.
He said China and Malaysia had a special relationship based on a shared culture and mutual respect, and ties between the two countries were 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 Holding.
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 Southeast Asian Nations (Asean) 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 third-biggest investor there behind Singapore and Japan, with FDI rising to US$1.6 billion in the nine months up to the end of September from about US$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 is set to benefit from Chinese demand, said Edward Lee, an economist at Standard Chartered 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.
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.
Credit Suisse estimated that a 30 per cent increase in spending by Chinese tourists would boost Thailand’s gross domestic product by about 1.6 percentage points, and Vietnam’s by almost 1 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 hectares 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,in Singapore, said.
“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.”