South-East Asia regains some of its old shine (Feature)

By dpa correspondents Aug 2, 2010, 8:05 GMT

Bangkok - South-East Asia's tiger economies, the darlings of foreign investors in the 1980-90s, have been in the shadow of fast-growing giants China and India for the past decade.

But impressive recoveries this year, with the implementation of free trade agreements and the threat of rising labour costs in China, make the regional cubs start to look cute again.

'It's not completely new that South-East Asia is also doing well, but for a long time the region had been basically forgotten because people were so concentrated on China and India,' said Stefan Buerkle, president of the German-Thai Chamber of Commerce.

The latest global crisis has made all of Asia look good.

Asia is expected to grow 7.5 per cent in 2010, led by China (10.5 per cent), India (9.4 per cent) and the 10 South-East Asian economies expected to grow by a collective 6.4 per cent, the International Monetary Fund said.

The impressive growth rates start from a low base, as the entire region was hard-hit by the global recession in 2009 when demand for Asian exports shrank.

A surge in export demand in the US and Europe, their traditional markets, provided an immediate impetus for growth, although that demand is forecast to slow in the second half of 2010 and in 2011.

South-East Asia's export-led economies have performed even better than expected.

Singapore expects growth of 13-to-15 per cent this year; Thailand, despite its political problems, 7 to 8 per cent; Vietnam 6.5 per cent and Indonesia and Malaysia at least 6 per cent.

Foreign direct investment (FDI) is likewise on the upswing.

Indonesia, the region's biggest domestic market with a population of 240 million, saw foreign and domestic investment rise 40 per cent in the second quarter year-on-year, while Vietnam's FDI inflow in the first half of this year jumped 5.9 per cent from the same period in 2009 to 5.4 billion dollars.

Malaysia's FDI inflow in the first quarter reached 1.65 billion dollars, more than the 1.38 billion it attracted in all of 2009. Thailand saw new applications for foreign investment tax privileges grow 7.4 per cent to 5.9 billion dollars worth of projects in the first half of 2010.

Foreign investors are returning the region for a number of reasons, including the draw of growing domestic markets and the implementation of regional free trade agreements such as the ASEAN Free Trade Area (AFTA) that went into force in January, slashing tariffs on intra-regional trade to 0-5 per cent.

According to a survey conducted by the Japan External Trade Organization in March, Vietnam and Indonesia are the two most attractive countries in the region for Japanese firms' future investment plans, largely because of their large domestic markets.

The survey found that that among the FTAs in effect in the Asia-Pacific region, AFTA was the most utilized, with about 33 per cent of trading firms citing its use.

Thailand's exports to AFTA countries rose 51 per cent in June, although much of this was just feeding in to the global supply chain that ultimately ends in the US and Europe.

But some of those exports were also going to ASEAN consumers, such as imports of made-in-Thailand automobiles.

'I think everyone now realizes that Thailand is a major automotive and parts hub for the region,' said Chao Kaengchon, chief economist for the Kasikorn Economic Research Centre. 'We have gained credibility as a relatively effective hub for production so when AFTA comes along we gain more.'

Ford Motors in June announced a 450-million-dollar expansion in Thailand, and at least six Japanese carmakers have committed to manufacturing small eco-cars in the kingdom.

Meanwhile, other ASEAN countries can expect to benefit, in the long run, from rising labour costs in China.

There are signs that the shoe industry is returning to Indonesia, where labour costs are now considerably lower than on China's eastern coast.

Vietnam, Cambodia, Laos and even Myanmar, where minimum wage ranges from 30 to 54 dollars a month, can expect to benefit from a production shift away from China in such labour-intensive sectors such as garment and shoe manufacturing.

In Myanmar at least six new garment factories have opened this year, backed by investors from Hong Kong, China, South Korea and Japan.

'Our business situation has improved because of some factors, such as rising labour costs in China, and at the same time Vietnam and Cambodia also cannot handle more orders,' said Myint Soe, chairman of the Myanmar garment manufacturers association.

In the future, the region as a whole can hope to benefit from China's rising wages in more than just a shift of labour-intensive industries.

'The rising wages and strikes in China are part of a rebalancing process, to the extent that if wages rise across the board in China the consumer is given more purchasing power,' said Tiziana Bonapace, chief economist at the UN regional office in Bangkok. 'This is where South-East Asia is in a good cross-roads position, because it has a good consumer base both in China and its own region.'