Asean Versus China : Substitution

[cclub75]

http://www.atimes.com/atimes/Southeast_Asia/GH10Ae01.html

A good analysis and comparison regarding 5 countries of Asean : Thailand, Singapore, Malaysia, Indonesia, Philippines.

They all sufer from :

-decrease in growth rate

-decrease of exports, especially to China

-increase of imports (oil)

The main keyword of this article from my point of view is “substitution”.

Singapore and Malaysia suffer from a decline in exports of IT products.

Is the IT market shrinking ? No way. Sales of electronics products increase in Europe and USA.

What happen instead… China takes more market shares.

Substitution.

Exports to China decrease ? Is it because the growth in China decelerate ?

No. Actually, every day that passes, the Chinese industry improve its capacity. China needs less and less “processed materials” imports.

Substitution.

So what are the perspectives ?

Without talking about the financial issues of this phenomenon (current deficit, pressure on currency and interest rate) or the oil factor (very few people dare to say that the oil prices are going to fall), or political problems (South)… just from the industrial point of view, Thailand will have great difficulties.

The “tiger model” is dead. It was valid 25 years ago. But now, China rise changes everything. A small country like Thailand can't compete with China on the industrial ground.

They have to find a new model, like Singapore (who explores many different ways, from biotechnologies to the opening of casinos !).

[Blake7]

A good post - I certainly agree with the above.

[thedude]

a bit simplistic i'm afraid. what about domestic consumption? thailand has a large enough population to sustain some growth, unlike singapore. the growth we experienced over the past few years was almost all domestic consumption driven. what about entrenched export performers like Rice (world's largest exporter), and other farmed produce (including seafood) which is of high quality, and difficult for china to replicate in the short to medium term? and what about the strong (and growing) auto industry, which is strategically chosen to supply to the expanding regional markets and some brands even supplying to global markets? china's auto production capacity is struggling to cope with its own domestic demand. what about the burgeoning logistics sector? what about other as yet unexploited indigenous products? what about unique service industries like tourism? how many % of thai GDP is coming from easily replaced export-based manufacturing production? i am sure some of it will eventually be replaced by chinese production, if not already, but still here we are. china's manufacturing growth is old news, and i think much of the shift has already occurred. what about the manufacturing production index (MPI) which shows that we continue to hold high and sustainable levels of manufacturing capacity. what about the BOI's latest statistics which show an 185% growth beyond target in foreign direct investment for the first 6 months of this year? what about the 11% growth in business lending recorded by thai banks for the first half of this year, which points to continued growth in private captial spending and manufacturing growth? what about intra-regional trade with indo-china, for example the 33% annual growth in trade reported today with Vietnam, itself a market with over 75 million people. what about the opening up of the asean free trade market which will eventually expand the reach of thai products to an enlarged market of over 300 million people? for that matter, what are the implications for exports in a multilateral trade environment to which we are shifting? while china may take some manufacturing jobs away, a prosperous and open chinese market will also absorb more thai produce. this is far from a one-sided doomsday scenario.

Edited August 15, 2005 by thedude

[chownah]

I think that China's growth will be shocking. In many ways it already is. The growth of the economy is shocking enough but if you look at the spread of sophistication in highly technical fields and the development of the technologies needed it is mind blowing. The pace at which this has happened is incredable and the truly incredible thing is that it continues even still!!! I think that China has a real advantage in that they are not a democracy and as long as those in charge chart the correct path they will be able to follow it more easily because they are not a democracy. I don't think that China will let its neighbor's economies suffer too much because they know that these are the buyers that will fuel economic expansion once the Chinese market is satisfied....we are talking long term planning here...The chinese have a very very long history and they don't just think about next year or the next budget cycle...they plan for decades and they have the patience to not worry about small setbacks and to keep their sight on the long term. Its going to be quite a show and I'm enjoying watching it.

[mac1970]

Hi guys,

Yes, the growth is very fast here in China and you can really see it everywhere, new factories, officies, market blocks aso.

People have more and more money, but anyway the big problem stays. Too many very poor people trying to manage their everyday life. And you can see that too.

But anyway huge market, money aso are one reason. But also very open thinking about foreign companies and employees. So they have here a lot of western, Japanese and Korean companies and basicly coming here to work is surprisingly "easy" as compared to other well known country. Visa issues aso can be arranged quite easily by different companies and living conditions are not so bad, some smoke as you know

So chinese are using lot of foreign knowledge and of course their own huge reserve of well educated people. They just have lack of some knowledge, so still need us to be here and help them

But that's my opinion(one) how they make it happen.

M

[h90]

how would the world look like in 30 years?

will my grandchildren work as motorbike delivery for a rich chinese company in one of the poor european countries like Germany or France?

Definitly european don't want to work as cheap as chinese can do. Also they don't agree to a 60+ hour week. As China get more and more specialists and good university and own development, what europe can offer to get also a piece of the cake?

Now we are better educated and used to work smart, but not long time the education will be simillar......

Hi guys,

Yes, the growth is very fast here in China and you can really see it everywhere, new factories, officies, market blocks aso.

People have more and more money, but anyway the big problem stays. Too many very poor people trying to manage their everyday life. And you can see that too.

But anyway huge market, money aso are one reason. But also very open thinking about foreign companies and employees. So they have here a lot of western, Japanese and Korean companies and basicly coming here to work is surprisingly "easy" as compared to other well known country. Visa issues aso can be arranged quite easily by different companies and living conditions are not so bad, some smoke as you know 

So chinese are using lot of foreign knowledge and of course their own huge reserve of well educated people. They just have lack of some knowledge, so still need us to be here and help them 

But that's my opinion(one) how they make it happen.

M

<{POST_SNAPBACK}>

[chownah]

how would the world look like in 30 years?

will my grandchildren work as motorbike delivery for a rich chinese company in one of the poor european countries like Germany or France?

Definitly european don't want to work as cheap as chinese can do. Also they don't agree to a 60+ hour week. As China get more and more specialists and good university and own development, what europe can offer to get also a piece of the cake?

Now we are better educated and used to work smart, but not long time the education will be simillar......

<{POST_SNAPBACK}>

My opinion on this is that China will take the US's place on the economic world stage or at least share it with the US as more or less equals. However people have seen the US over the last 20 years or so will be the way they will start to see China (and perhaps the US too) in 30 years.

As an aside: In 30 years the technological advancement in fusion energy research could bear fruit and this is a possible time frame for the emergence of fusion powered electrical plants as viable energy sources. Of course there's no guarantee but the ITER facility (which is the beneficiary of international fusion research which has been advancing for a number of year) has recently announced that agreement has been reached on site location and it will be built in France. This is the one to watch. So far fusion research has been steadily advancing and so far there are no insurmountable difficulties identified that would bar the way to fusion as a power source. If fusion is eventually harnessed to create commercial power it will likely be far more revolutionary than the fission plants we have today and could likely change how national economies function.

Edited August 17, 2005 by chownah

[cclub75]

a bit simplistic i'm afraid.  what about domestic consumption?  thailand has a large enough population to sustain some growth, unlike singapore.

<{POST_SNAPBACK}>

An interesting view indeed.

This is all the point : try to find "alternatives" ways of producing wealth.

However I would like to add a few comments.

-Agriculture (rice, sugar etc.)

Those are not a value added products.

I'm not sure that to be proud of being the "world's largest exporter of rice" is a sign of good economic health, or good perspectives for the future...

Look at the figures (CIA Worldfact book)

GDP per sector

agriculture: 9%

industry: 44.3%

services: 46.7% (2004 est.)

And agriculture counts for 49 % of the labor force.

Good point (people have work), but weak point for the development (small wages)

-Domestic consumption

True. As you said, the strong growth Thailand has experienced last few years (Taksin) was for a large part "domestic driven".

But you have to look at the macro economy.

This consumption relied on debts.

If USA can do it (the world finances the american consumption) and "play around" with macro economy, a small country like Thailand can't : they have to look at their trade and current deficit.

Look at the pathetic way the thai government asked (or may ask) Thai Airways to... postpone the delivery of 2 Airbus next autumn, because… it would increase the deficit this year !

Last but not least, to illustrate my point : how many tons of rice you have to sell in order to buy… one Airbus... ?

-Tourism

I agree 100%. It's already a nice source of cash for the country.

Thailand for this regard has good cards to play (infrastructures, hotels and the new airport etc.). And we will see for sure more and more Chinese/asian tourists around.

However, a more aggressive policy would be welcome.

12 millions visitors. France has 60 millions. There is a potential of growth.

-FTA

Free trade agreements. Thaksin believes FTAs are the "holly graal".

I think it's too early to say so. We still need information regarding the effects of the Thai/Australia FTA for instance.

I believe FTA can be beneficial for both parties, if both parties are "equals" or so.

Did you follow the talks between Japan and Thailand for the new FTA ?

On one hand Thailand was trying to push it's agriculture products, and the other hands Japan tried to promote its luxury cars.

I'm not convinced that this can be a good "deal" for Thailand on the long term.

[thedude]

a bit simplistic i'm afraid.  what about domestic consumption?  thailand has a large enough population to sustain some growth, unlike singapore.

<{POST_SNAPBACK}>

An interesting view indeed.

This is all the point : try to find "alternatives" ways of producing wealth.

However I would like to add a few comments.

-Agriculture (rice, sugar etc.)

Those are not a value added products.

I'm not sure that to be proud of being the "world's largest exporter of rice" is a sign of good economic health, or good perspectives for the future...

Look at the figures (CIA Worldfact book)

GDP per sector

agriculture: 9%

industry: 44.3%

services: 46.7% (2004 est.)

And agriculture counts for 49 % of the labor force.

Good point (people have work), but weak point for the development (small wages)

-Domestic consumption

True. As you said, the strong growth Thailand has experienced last few years (Taksin) was for a large part "domestic driven".

But you have to look at the macro economy.

This consumption relied on debts.

If USA can do it (the world finances the american consumption) and "play around" with macro economy, a small country like Thailand can't : they have to look at their trade and current deficit.

Look at the pathetic way the thai government asked (or may ask) Thai Airways to... postpone the delivery of 2 Airbus next autumn, because… it would increase the deficit this year !

Last but not least, to illustrate my point : how many tons of rice you have to sell in order to buy… one Airbus... ?

-Tourism

I agree 100%. It's already a nice source of cash for the country.

Thailand for this regard has good cards to play (infrastructures, hotels and the new airport etc.). And we will see for sure more and more Chinese/asian tourists around.

However, a more aggressive policy would be welcome.

12 millions visitors. France has 60 millions. There is a potential of growth.

-FTA

Free trade agreements. Thaksin believes FTAs are the "holly graal".

I think it's too early to say so. We still need information regarding the effects of the Thai/Australia FTA for instance.

I believe FTA can be beneficial for both parties, if both parties are "equals" or so.

Did you follow the talks between Japan and Thailand for the new FTA ?

On one hand Thailand was trying to push it's agriculture products, and the other hands Japan tried to promote its luxury cars.

I'm not convinced that this can be a good "deal" for Thailand on the long term.

<{POST_SNAPBACK}>

and your point is?

any consumption will rely at least partially on debt, this is no different in china. its a question of sustainability, and thailand pulled in surpluses in the post crisis era all the way until this year. the present deficit situation is not so much due to high consumption as it is to high fuel prices. consumption growth has in fact slowed down since last year.

i think its easy to be dazzled by china. but a lot of what you see in china is also just a shiny surface, beyond the coastal cities, hundreds of millions of people are jobless and starving. and pray tell what sort of value add are they bringing to chinese exports? the whole idea of chinese exports so far have been "value minus", because they have millions of workers lining up to compete for the next lowest paying job. if you want to talk about value add, then please look to India, where they are replacing white collar jobs from the west (whereas China is replacing blue collar jobs from SE asia). India has an embarrasing bounty of technical and technological expertise that is more readily adaptable to the west. china has cheap workers and the wealth it has accumulated so far has been mostly from the exploitation of differentials in labour costs.

as for thailand, being the largest rice exporter is nothing to sniff at, especially when quality is high. it is wrong to assume there is no technology in rice production. you just didn't see all the crop research, developing good genetic strains, organisation of industry and constant improvement of the rice crop undertaken over the past decades to produce such a high yield, good quality grain that can be produced so effectively for export. thai rice has become an international standard by which others seek to match, so much so that there is a quality premium. its therefore not true that there is no value added here.

[chownah]

On the issue of rice I come down on the side saying that it will not be much of a factor in Thailand's hoped for economic growth. The gov't seems to agree with this since they are encouraging farmers to diversify away from rice growing to more profitable crops. This could mean that there is possibility for growth in agriculture but it will probably not come from rice. Also, rice is being heavily researched around the world and one of the main topics of this research is finding ways to extend the amount of farm land that will support the growing of rice. This means that probably in the future rice will be grown on more acreage in countries where it will not grow now. This could decrease the demand for importing rice in many places and create more competition for Thai rice exports. Thai farmers are not especially efficient in the use of their land in growing rice. If their practices improved they could increase yields by perhaps 25 to 50% on average based on what yields farmers in other countries are already achieving. This is a possible source of economic growth but farmers in general are very slow to change the way they do things.