China an economic umbrella for Southeast Asia?

China an economic umbrella for Southeast Asia?

By Prasong Uthaisangchai
Senior Executive Vice President and Director of International Banking Group, Bangkok Bank
www.bangkokbank.com
Published on July 21, 2008

As more bad economic news pours out of the former economic powerhouses of America, Britain, Japan and Europe, there are increasing concerns that the world economy may fall into a recession.

The only thing which may stave it off, some commentators say, is the strong economic growth in China and other countries such as India, Russia and Brazil. But other observers believe that China will not be able to avoid being caught up in the worldwide economic storm.

Certainly, China is hurting. High oil prices and commodity prices have pushed up the inflation rate and caused many businesses to close down. The cost of imports into China has risen, while the economic slump has reduced demand from China's major markets. In the first half of this year, China's trade surplus totalled US$99

billion (Bt3.3 trillion), dropping $13.21 billion, or 11.8 per cent, compared to the same period last year.

Chinese Vice Premier Li Keqiang describes the Chinese economy as being at a critical stage however he is nonetheless positive. "China's economic fundamentals are sound and growth will still continue to be rapid," he said. To deal with the current challenge, he said, the government must take aggressive measures to support the economy. In particular, the government should work to improve the market system and seek to make price increases "acceptable" for both industry and the public.

The government must also develop China's foreign trade, improve the mix of imports and exports, and encourage Chinese enterprises to expand into the international market. Li has urged enterprises to raise their international competitiveness by speeding up transformation in line with the changing domestic and global economic situation.

GDP in China, despite slowing, still remains above 10 per cent according to the second half figures which were released last week.

Next year's forecast is for moderate growth but it will remain above 9 per cent. This growth is helping to underpin the economies of Southeast Asia which is indeed positive news for Thailand. Morgan Stanley recently raised its 2008 growth forecast for Singapore, Malaysia, Thailand and Indonesia to 5.6 per cent from an earlier estimate of 5.5 per cent.

It is clear that China is providing an umbrella for Southeast Asia during the current economic storm - and according to a recently released study by eminent American economist Albert Keidel, this will continue to be the case in the future. He forecast that the rise of China would continue and that it would overtake the United States as the world's largest economy by 2035.

Currently, China's GDP is about $3 trillion, compared to $14 trillion for the US. Despite the comparatively small size of the Chinese economy, its growth rate is so fast that it will rapidly catch up. Keidel said the growing economic clout of China will help China become a much more important power in other areas, including military and diplomatic affairs. "Leadership of international institutions will gravitate towards China - for example the World Bank, IMF and United Nations," he said.

So, despite the current difficult economic situation, there are still grounds for optimism. Indeed, Thailand could do well to study the economic plans outlined by Li, as it could also help to lift the economic prosperity of our country.