By Yu Yichun

ASEAN Economies Forecast To Grow Steadily

By Yu Yichun

According to a forecast included in a recent Asian Development Bank (ADB) report, against the backdrop of a sluggish world economy, Southeast Asia’s economic growth is expected to improve from 4.4 percent last year to 4.5 percent this year, before jumping forward to 4.8 percent in 2017. The large-scale infrastructure investment and industrial structural adjustment of ASEAN economies have turned out to be positive factors and represent opportunities for the region to attract investment, develop manufacturing and boost trade and domestic demand.

Position in Global Value Chain

Quite a few of the economies of ASEAN, one of the most dynamic regions in the world economy, have in recent years increased their investment in infrastructure development and readjusted their industrial structure, giving full play to their own advantages to be included in the global value chain (GVC).

Singapore has focused on the development of an innovation-driven economy. Malaysia has worked to forge a regional economic center. The Philippines has vigorously developed its service outsourcing industry. Cambodia has strived to upgrade its manufacturing industry. Thailand has concentrated on“the 10 major industries of the future”, including medical and digital industries. Indonesia, the largest of all ASEAN economies, has readjusted its policies this year to encourage private investment. The ADB believes that all of the above are indicative of steady prospects for ASEAN economic growth.

The ASEAN Economic Community, officially established on Dec. 31, 2015, has brought great opportunities to this region with a population of more than 620 million and a combined GDP of US$2.6 trillion. A survey of Malaysia’s Ministry of International Trade and Industry (MITI) shows that 83 percent of market participants believe that the building of the ASEAN Economic Community will have a positive impact.

By cutting trade tarif f s and reducing the cost of labor, services, capital flow and so on, the building of the ASEAN Economic Community will significantly enhance the region’s interconnectivity, improve its business environment and attract more investment, therefore allowing the bloc’s gross economic value to double before 2030.

Jan Elv, senior vice president of the Singapore branch of the Commercial Bank of Sweden, is optimistic about the prospect of ASEAN’s economic growth. Elv said that taking into consideration the amount of foreign direct investment to ASEAN in recent years, the region’s population advantages and its rising middle class, ASEAN’s overall economy has great potential for development.

ADB Sees Strong Prospects for ASEAN Growth

Deepening Cooperation with China

With ASEAN integration, the economic and trade cooperation between China and ASEAN has been further upgraded. China and ASEAN are important trade partners. Since the of ficial establishment of the China-ASEAN Free Trade Area (CAFTA), China has become the largest trade partner and fourth-largest investor in ASEAN, while ASEAN has become the third-largest trade partner, the fourth-largest export market and the second-largest source of imports to China. In 2015, China-ASEAN trade volume reached US$472 billion, and two-way investment exceed-ed US$156 billion.

Siwa Luangsongwin, research supervisor of the Kasikorn Research Center of Thailand, believes that China’s investment in the strategic industries of Southeast Asia will boost the region’s employment, exports and technology transfer.

According to Li Jianxiong, senior adviser to the president of the China-ASEAN Business Association (CABA), China has abundant capital and rich experience in development, while ASEAN, in the process of integration, has a huge requirement for infrastructure construction and industrial development. Cooperation between China and ASEAN has great potential.

Wichai Kinchong Choi, senior vice-president of the Kasikornbank of Thailand, uses his own country as an example. The Thai government has made efforts to establish Thailand as the world’s rubber tire center. Many Chinese tire manufacturers have invested in Thailand in the production of world-class tires. It is the investment enthusiasm of Chinese enterprises that has brought vitality to related industries in Thailand and promoted the development of the Thai economy.

“Tire production is a typical example,” Wichai said. “It has also been true of other industries. For example, with the Belt and Road Initiative, China has invested in the renewable energy industry in Thailand, including solar and wind, which has positively promoted the vigorous development of related industries in the country.”

Kung Phonk, president of the Cambodian Institute for Strategic Studies (CISS), said he appreciates the flexibility of the Belt and Road Initiative.

“Cambodia has also supported the Belt and Road Initiative, because it is a platform where we can find our own place,” Kung said. “Cambodia needs capital for the construction of roads, ports and airports, and Chinese enterprises have strong advantages in capital and technology. They are taking the lead in information technology. More importantly, China is ready to share with Cambodia its experience and achievements.”

Accelerating Integration

Some analysts believe that the fine momentum of development of the Southeast Asian economy owes mainly to the expectations of the increase in government spending and the price rebound of bulk commodities. On the whole, downside risks remain with economic growth in Southeast Asia due to the price decline of bulk commodities, the slowdown of the Chinese economy, the volatility of global financial markets, the curbing of consumer spending by household debt and other factors.

Statistics included in the ADB report show that the annual growth rate of the five core Southeast Asian economies in the first quarter of this year has generally been similar to that of the fourth quarter of last year. The actual GDP annual growth rate weighted average of Indonesia, Thailand, Malaysia, Singapore and the Philippines has reached 4.4 percent. The Philippines has maintained the strongest momentum of growth, while the growth of Indonesia, which primarily depends on the export of bulk commodities, declined to 4.9 percent, owing to declines in the price of resources and weak consumer spending. Malaysia has also been impacted by the falling price of bulk commodities and its growth rate has declined to its lowest point in six-and-a-half years.

Meanwhile, Siwa believes that the dependence and vulnerability of financial markets is a development concern of Southeast Asia’s rising economies. Laos, Cambodia and Myanmar are not yet closely connected with world financial markets. They are less likely to be af f ected by global market fluctuations, but are expected to maintain high growth rates of 7-8 percent. For ASEAN countries in this category, the greatest challenge is continuing to attract foreign direct investment.

“These countries have to develop their infrastructure and improve institutional factors, such as the macroeconomic environment, which is not easy for them,” Siwa said.

ASEAN economic integration is faced with a number of obstacles. According to studies conducted by the Kasikorn Research Center, within the framework of the ASEAN Free Trade Agreement, import duties on 96 percent of the goods in the ASEAN Trade Commodity General Directory had been canceled by 2015. However, member states have since taken more non-tariff barrier measures, which to a certain extent have weakened the growth potential of the total trade and investment in the region to a substandard level.

The region’s economy will develop as a whole only when integration is accelerated and cooperation strengthened.”

Malaysia’s iconic Petronas Twin Towers at the heart of Kuala Lumpur, the country’s capital city.