The economic slowdown in China is not beyond market expectations, and Asean countries should see it as an opportunity to rebalance and restructure their own economies, says Dr Supachai Panitchpakdi, the secretary-general of the United Nations Conference on Trade and Development (Unctad).
“When demand from China is reduced, how can we create our own demand continuously to help us survive? We (Asean) have to invest more to spur domestic demand,” says Dr Supachai.
Part of that restructuring should involve quickly integrating Southeast Asia’s economies and creating a value chain within the region in order not to rely so heavily on the world’s second largest economy, said Dr Supachai.
The former Thai finance minister also urged Asean members to consider the Regional Comprehensive Economic Partnership (RCEP) as the final goal to cooperate successfully.
Negotiations began in May to create the RCEP, which would comprise the 10 Asean member states plus China, Japan, South Korea, India, Australia and New Zealand.
Once formed in 2015 as scheduled, it would have a combined population of 3.35 billion and a gross domestic product of nearly US$18 trillion, or 27% of global GDP.
Speaking in Bangkok at Thailand Focus 2013, sponsored by the Stock Exchange of Thailand, Dr Supachai sought to ease Asean countries’ concerns about the economic growth slowdown in China, saying it was the normal path for any country.
“China enjoyed more than 10% [annual] growth for decades. It will experience an average of 7% growth for another decade and then 5% growth for sure,” he said. “Despite single-digit growth, China will grow stronger than in the past, so there is nothing to worry about for us.”
He said that despite the rapid economic progress it had made, China had also become more vulnerable over the past two decades and its government had realised this problem. It relied too heavily on exports and foreign investment and hence was susceptible to external shocks. In addition, the country made too much use of subsidies and most of the economic activities were pushed by state agencies, not the private sector.
China has now begun to rebalance and restructure its economy, and the timing has been good, he said. Progress can already be seen in the reduction of its current account surplus to 2% of from as high as 9% in the past.
Other Asian countries that rely on China need to undertake similar rebalancing, he said.
Countries that depend heavily on Chinese companies’ investments, such as Laos, Cambodia and Vietnam, should seek ways to reduce that reliance. Indonesia, a commodity-driven economy that benefited hugely from Chinese demand that has now ebbed, needs to change its strategy as well, Dr Supachai added.
Creating a value chain within the region is one of the aims of the Asean Economic Community (AEC), which is due to take effect at the end of 2015. An integrated value chain will also help increase economies of scale for production activities.
Dr Supachai sees Thailand as the potential hub for such a value chain given its geographic location. He has recommended that the Thai government place more emphasis on transport connectivity and logistics links within the greater Mekong subregion to strengthen its position.
“When demand from China is reduced, how can we create our own demand continuously to help us survive? We (Asean) have to invest more to spur domestic demand. The investment should also come from the private sector, not the public side,” he said.
Dr Supachai is confident that Asean nations can create their own value chain in order to grow sustainably from a stronger base. He noted that foreign direct investment (FDI) inflows to the region of US$80-90 billion per year were not that much smaller than the $120 billion recorded by China.
“FDI to China last year fell by 3% and further dropped by 10% in the first half of this year. But that to the CLMV countries (Cambodia, Laos, Myanmar and Vietnam) increased,” he said. “For FDI to the whole Asean, the size of $90 billion is no less attractive if compared with more than $100 billion in China. So, we can integrate for our own benefit.”
Apart from integration under the AEC, the RCEP will benefit Asean not only through tariff elimination, but also through energy and transport connectivity, market access and investment.
“The RCEP will be the final goal for Asean,” he said.