Dr Fong (1) started the session with the observation that any seminar which mentions opportunities in China or India tend to attract good crowds; simply because they are the growth engines of the world. She believed that the next century was coming to Asia, mainly because: in terms of the market – at least half the world’s population sits in Asia, in terms of money – Asia has the five largest reserves, and finally, in terms of resources - currencies are cheap. She was, on the one hand, glad that Mark Mobius had come out openly bullish on Asia because money would come in, but on the other hand, she was a bit sad because he said so because Asia was dirt cheap in terms of labour and currency and had plenty of commodities. She expressed her hope that in ten to twenty years time, the reasons would be because of Asia’s quality, and no longer its cheap price.
Dr Lim (2) began by sharing his perspectives and insights on India and China and how Southeast Asia could leverage ahead. Based on three empirical studies that SIIA was involved in, he provided broad outlines on the topic: first, that perception and interpretation create gaps and second, that there was a need to look at policy direction and changes.
The size of India and China conjured up expectations of fear and hope that were sometimes irrational perceptions. The situation was not static, but rather evolved fast on issues of trade and investment. There was also a need to look at China and India’s links to powers such as the US.
The rise of India and China was a complex issue, involving policy with political overtones, and so one could not concentrate on trade and investment alone.
It was often said that Southeast Asia would become the breakfast, lunch and dinner of China and India. However, it was important to differentiate the sectors for comparison – whether it was resource-based, manufacturing or services. For example, China and ASEAN were complimentary in the services sector. A UNDP report on inward FDI ratio to GDP showed that Singapore, Malaysia, Thailand and Vietnam were more attractive for direct investment than China or India. Dr Lim emphasised that it was their size that distorted the attractiveness of India and China.
On the security front, China’s political security with ASEAN was more important than its trade security. Dr Lim also said that Myanmar and China were not as close as was thought. Singapore, Malaysia and Thailand tended to have a more positive opinion on China because of their needs in terms of geography, resource endowment and as a hub. ASEAN as the default hub was something that could not be taken for granted. If not for ASEAN economic cooperation, all ASEAN member countries would pursue bilateral cooperation which would be confusing and messy; therefore it was essential for ASEAN member countries to cooperate.
Dr Lim concluded that perceptions of India and China were not consistent with the realities of trade, investment and security. He noted that the situation changes rapidly and one should not analyse the issue in absolute numbers, but rather in relative terms. Using the example of Nike shoes made in China, he illustrated how one must not only notice the low retention of value-add in China, but instead one must factor in the scale with which China uses to compete. Finally, Dr Lim said ASEAN must be able to leverage with India and China, provided ASEAN accelerates regional cooperation and restructure its member economic structure.
Dr Faisal (3) started off with the description of the four thousand year old civilisation of India as a large and diverse land that had assimilated its invaders, and was a land of many countries in one. He provided a brief background: the pre-1989 India which was doing well as a socialist economy, and post-1989 India which went into crisis during the Gulf War when India lost billions in foreign exchange when Indian labourers working in the Middle East were repatriated. India also had to realign itself when the former Soviet Union, which had until then subsidised India’s fuel, broke up.
Describing India as a country that was not well-liked by its neighbours in South Asia, he pointed out that India was the largest entity, and all of South Asia combined would not be able to compete. India looked towards ASEAN because it was viewed with suspicion in South Asia, and so India joined ASEAN as a sectoral dialogue partner in 1992, the ASEAN Regional Forum in 1996, and the East Asia Summit in 2005 – the last being a great achievement considering India was not an East Asian country. As testimony to India’s position as a major power, it was lauded by US President George Bush. By contrast, Pakistan was much less important. And while the official response to the question on whether India benchmarks itself with China is no, Dr Faisal suspects otherwise.
India is chaotic: it has diverse languages, problems with law and order, governance problems – bureaucrats in India are not aligned; there are different mindsets in different parts of India. Given all this, is India worth bothering about? Dr Faisal’s answer is yes, but one must cater to a segmented market and must have trusted partners.
Dr Faisal remarked that the knowledge of India in Singapore is about twenty to thirty years out of date, especially in the area of engaging ASEAN and China. From ASEAN’s perspective, it engages India because it thinks it’s best to “bring in the big boys”. But ASEAN should take stock because India had its own plans. India would learn and absorb from the US and wait for its time. Further, the Indian diaspora is enormous.
The question and answer was first taken up by Jose Isidro Camacho from Credit Suisse who asked for Dr Lim’s views on how ASEAN as a grouping or individual member countries should play the relationship between ASEAN, China and the US - whether ASEAN could take advantage of US discomfort with China being the fastest growing market for ASEAN, and how ASEAN should respond when the US becomes confrontational. Dr Fong clarified Jose’s question to concentrate on what ASEAN could say in response to US-China pressure. To illustrate his point, Dr Lim used the example of Thailand during the Second World War, and how it played the powers with the view of its own permanent interests as the only important constant. Dr Lim felt that it was important for ASEAN not to declare any one position.
Jose reiterated his question with reference to US pressure on China to revalue the yuan. Dr Lim maintained that ASEAN need not pressure itself – it could choose to say nothing. Jose remarked that increasingly, ASEAN will be asked of its position on issues such as this. Dr Fong felt that in absolute terms, the US was still more important than China for ASEAN interests, and ASEAN could go back to its policy of non-interference. Lionel Ho from the East Asia Institute offered his take: when the EU was asked for its position, it played both sides. ASEAN could learn from this.
Michelle Tan from MINDEF wondered if ASEAN even had a collective interest to start with. Dr Lim said that the proposition for a common stand was not the ASEAN way. ASEAN always discussed, but never issued statements as ASEAN has never had a common stand; each member country having its own interests. He noted that China’s influence on ASEAN was much lower than most assumed it to be, and that the US is much more important in trade, investment and security.
Chang Chiou Yi from the Institute of Southeast Asian Studies asked whether it was time for China to revalue the yuan. Jose offered his opinion: that there was concern that a revaluation of the yuan would disrupt the Chinese economy. Dr Fong agreed, saying that the yuan should appreciate, and not revalue, as China’s businesses were based on huge volume, with a thin margin. Revaluation needed to be gradual otherwise it would spell trouble for Chinese companies relying on the thin margin. She was of the view that the yuan should appreciate because there was a need to balance off imports and exports. Furthermore, a more expensive yuan would force “rubbish” businesses out, as was South Korea’s problem. Many Chinese businesses were running on overcapacity and all would suffer if the yuan is revalued. She felt that the US should appreciate Asia’s cheap goods, and that killing China out of paranoia would hurt US interests. A member of the audience remarked that the issue was also about US domestic politics – the US had to say that the yuan should be revalued, but knew that it would benefit from a slow appreciation of the yuan instead. Lam Kam Kwong from the Hong Kong Economic and Trade Centre remarked that if the US pushed too hard, China would ignore it. China would progress on its own, as they did not see why China should heed the US in the solving of its own domestic problems. Dr Fong expressed her belief that Asian think tanks should open up to let the US know that it would be problematic if they continued to let a small group of conservative think tanks dominate.
While the US broadcasted that China was eclipsing it, Dr Lim felt that this was not true. He said that many Chinese companies that were counted in China’s trade and investment figures were actually foreign multinationals; US electronics still dominated, as did Japanese automotive manufacturing. Dr Fong wondered if this meant that the US was deliberately over blowing the threat of China. Dr Lim agreed, saying that US think tanks used this to propagate economic growth as well as democracy in East Asia.
Aruna from Nanyang Technological University posed this to Dr Faisal: it seemed that those who understand India are the Indian trans-nationals who are leveraging on their knowledge and investing from the outside in. Dr Faisal agreed with this view, candidly remarking that those who knew India were keeping quiet because they were too busy making money. One needed to know the right trends to pick in India. Unlike in China, the Indian media was truly independent, making it easy to obtain information, though one needed to decipher the information for oneself. Good journalists understand India; receiving trade information from think tanks and trade federations.
Report by Cynthia Chang SIIA Research and Public Education Coordinator
1 Dr Fong is responsible for developing Treasury & Markets' capabilities in bond analytic, foreign exchange and fixed income research. Prior to her current appointment, she was Chief Strategist, Asian Debt Capital Market and Senior Vice President/Executive Director for Nomura Singapore Ltd.
2 Dr Hank Lim, the Director of Research for the Singapore Institute of International Affairs, is no stranger to many in the field of economics. Formerly an economic Professor at the National University of Singapore and Director-General of the Pacific Economic Cooperation Council (PECC) Secretariat, Dr Hank Lim has done extensive research and fieldwork on ASEAN economies, Asia Pacific cooperation and economic development in East Asia.
3 Dr Faizal Yahya is an Assistant Professor with the South Asian Studies Programme of NUS. His former stints include being in the Ministry of Foreign Affairs and the former Ministry of Environment. Amongst his areas of expertise are India and ASEAN relations as well as India’s economic ties with China.