INTRODUCTION Investment levels are rising with greater cooperation within the region
Optimism on the horizon

The much-discussed giant Asean-China free trade area would be the world’s largest in terms of total consumers – nearly two billion people

he 10 members of the Association of South East Asian Nations (Asean), many of whom were once hailed as tiger economies before they ran into the financial buffers in the late 1990s, are more optimistic about their future. The economic outlook looks promising, investment levels are rising, and there is a greater sense of purpose and cooperation among the countries.
This may be partly because they all recognise the rising power of their giant neighbour, China. And if Hong Kong is not a member of the Asean, there are not a few Asean politicians and business leaders who think it should be.
Hong Kong is already an important source of direct investment in Asean members as well as a trading partner. As a gateway to and from mainland China it handles over $12billion of products with Asean countries.

Asean secretary-general Rodolfo Severino believes southeast Asia should “integrate the regional economy to a degree closer to the integration of the Chinese market”.
He says: “Asean’s response to China’s challenge is not to erect walls against it but to engage it, in order to take advantage of the potential of a surging Chinese market.”
The opening up of the Chinese economy and its entry into the World Trade Organisation has resulted in a surge of foreign investment in China, which has overtaken that in the Asean.
An Asean-China joint report indicates that an Asean-China free trade area would raise Asean exports to China by 48 per cent and Chinese exports to the Asean by 55 per cent. The free trade area was endorsed by both sides during the Asean summit in Brunei last November.
The first round of high-level talks between senior Chinese and Asean officials aimed at establishing the giant area kicked off in May this year. It will be the world’s largest free trade zone in terms of overall numbers of consumers – nearly two billion. The free trade area when implemented will produce trade worth $1.2 trillion.

The Asean members are: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Brunei, the Philippines, Singapore and Thailand. In the Asean free trade zone (AFTA), duties on 60 per cent of their products are to be eliminated by 2003, with zero duties by 2010.
In fact, around 95 per cent of intra-Asean tariffs, representing around 90 per cent of intra-Asean trade, is now in the 0-5 per cent tariff range. The average tariff on intra-Asean trade is now down to 3.2 per cent.
Mr Severino says Asean members realise the need to access foreign markets. “They recognise that small, fragmented national markets are much less attractive. Asean countries are doing things together to project southeast Asia as an integrated regional market,” he says.

Malaysia is among those Asean members pushing for an Asean-China free trade zone, expected to fully take off in 10 years’ time. Malaysian international trade and industry minister Rafidah Aziz says: “We can start with trade liberalisation first, or maybe China should give the Asean preferential treatment.”
For Malaysia, Asean is the largest trading partner, increasing at an average growth rate of 20.7 per cent from 1996 to 2000. Trade is expected to rise next year as AFTA comes into effect.

JAAFAR ALBAR, Malaysian minister of foreign affairs, says its 10 countries and 500 million people gives Asean strength in world affairs

Malaysia’s minister of foreign affairs, Syed Hamid bin Jaafar Albar, says: “We will always look upon Asean as a dynamic and challenging organisation, notwithstanding what the sceptics say about it. A region of 500 million people and 10 countries gives us the added importance and strength to be in mainstream world affairs.”
The minister says the poorer economies of the Asean – essentially its newest members, Cambodia, Laos, Myanmar and Vietnam (CLMV) – are not a disadvantage for the group. “Those countries in Asean that have moved and achieved progress will be able to accelerate the development of the others.

Finance ministers predict real GDP growth of 3.5 to four per cent across the region

“We have addressed the issue of CLMV and we talk about capacity building, eradication of poverty and illiteracy, and rural development. We talk about the development of the Mekong Basin and we have invited other countries to participate in the development of this area.”
For Thailand, whose economy was hit badly in 1997, the opening up of China has great potential. If, as is thought possible, an Asean-China free trade zone is partially launched as early as 2004, various Thai products could benefit from initial tariff reductions, such as tropical fruit, textiles, garments and forest and fishery products.
Asean exports to China are already bigger than the region’s exports to any other part of the world, according to Singapore’s senior minister for trade, industry and education, Tharman Shanmugarathnam. Asean’s electronics exports to the world’s most populous nation has been rising by 25 per cent a year, while the number of Chinese tourists visiting Asean states has been increasing by more than 30 per cent a year. More than 400,000 visited Malaysia in 2001.

Asean finance ministers forecast real gross domestic profit growth of 3.5 to four per cent in the region. However, they acknowledge that many states need to improve their fiscal strength through better revenue collection and expenditure management. Malaysia, Thailand, the Philippines and Myanmar are all aiming for balanced budgets in three to five years.
Finance ministers warn that many common risks remain for the diverse Asean economies, especially for commodities if a weather pheno-menon such as El Niño, which brought drought in 1998, were to hit again.
However, the US outlook has improved and the risk of a weakening Japanese yen, which could put pressure on Asean exporters and lead to regional devaluations, has eased.