China's Growth Beneficial to Asia in Long Term: Standard Chartered

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Last updated at: (Beijing Time) Friday, November 23, 2001

China's Growth Beneficial to Asia in Long Term: Standard Chartered

China's growing economic growth will add some strain to Asia's struggling economies but this is expected to favor the region in the long term, Standard Chartered Bank said Thursday in Singapore.

China's growing economic growth will add some strain to Asia's struggling economies but this is expected to favor the region in the long term, Standard Chartered Bank said Thursday in Singapore.

In its weekly report on the region's economic outlook, the British-based bank said it was best to view the challenge from the world's most populous nation as "the Chinese magnet."

"This factor will eventually be very positive for Asia," the bank said.

"In the very near term, it may be negative, adding to competitive pressures across the region."

The low wage levels of Chinese workers "could be negative for economies and currencies across Asia," the report said.

At the same time, however, it will also force the region's policymakers to craft an appropriate response which will ultimately allow Asians to ride on the Chinese economic powerhouse, now on the verge of formal entry into the World Trade Organization (WTO).

"China's WTO entry will open up the Chinese economy. This is the China magnet," said Standard Chartered.

"The skill and the challenge for each country across Asia is to re-invent itself to be able to take advantage of this new market and trading environment," it said.

Joining the body of international commerce will accelerate income levels across China and this will translate into greater demand for imports.

"Eventually it will boost intra-regional trade within Asia. Foreign inward investment into China and the rest of Asia is likely to rise," said the bank, which does most of its business in the region.

The onus is on neighbouring countries to reshape their economic policies to boost their competitiveness and the agreement between Southeast Asia and Beijing to create a free trade area in 10 years' time is a good start, said the bank.

"Such a free trade area reinforces the importance of the Chinese magnet effect as well as highlighting the existing competitive pressures across the region."

The ASEAN-China trading bloc, announced at a summit in Brunei early this month, is forecast to cover two billion consumers, have a combined economic output of two trillion dollars, and two-way trade of US$1.23 trillion by the time it is established.

ASEAN or the Association of Southeast Asian Nations groups Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.

Deflation and debt are the threats facing Asia now, said Standard Chartered.

Recession-hit Singapore, still Southeast Asia's wealthiest economy, faces deflationary pressures.

Both Hong Kong and Malaysia are affected by deflation and the Chinese magnet, said the bank. The two economies are likely to maintain their currency pegs to the United States dollar "to push and force through further economic restructuring," it said.

In contrast, Thailand is hurt by deflation and debt.

"This points to continued low interest rates for some considerable time, and increased emphasis by the authorities on addressing the debt and non-performing loan problem," said Standard Chartered, adding the Thai baht was also expected to remain weak.

Indonesia, still struggling to recover from the 1997-98 crisis, is faced with debt problems.

But the giant Southeast Asian economy is expected to benefit tremendously from the Chinese magnet because of its huge potential as an exporter of energy, crude oil and natural gas to fuel the Chinese economic engine.

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