Fear of China Not "Misguided"

As a Southeast Asian, I was momentarily excited to read in Edward J Lincoln’s book “East Asian Economic Regionalism” that “investment in China does not seem to have come at the expense of the rest of Asia”.

But that momentary excitement was dashed when the writer went on to say that “the particular problem faced by ASEAN countries in the past several years had little to do with China and more to do with their economic problems in the wake of the 1997 financial crisis.” Lincoln also added that much of the drop in investment in ASEAN from 1996 to 1999 occurred mainly in two countries – Indonesia and Malaysia.

I agree with Lincoln that investors’ decision to invest in a country is a multi-pronged one, where having a good legal framework and ease of international travel are just as important factors as low wages. I also agree with many analysts that the region as a whole needs to strengthen its investment environment through, among other things, financial and banking reforms, and ensuring greater transparencies.

But I am not convinced that the fears of ASEAN permanently losing out to China on investment flows are “misguided”. This lack of conviction is accentuated by the outdated figures employed by Lincoln. The latest figures he used to back up his position were 1999 figures, which does come across as a little feeble and unfortunate, given that the book was published in 2004. Certainly, he could have made used of more updated figures to strengthen his case.

Indeed, I would venture to say that the fears are not “misguided” at all, given the continued strong flow of foreign direct investments into China, and the rising sense of Southeast Asian countries feeling "left-behind". Indeed, the fears are so real, and so perceptible that China thought fit to eventually broach the idea of a China-ASEAN Free Trade Area.