Accessibility links

China's Economic Growth Worries Some Neighbors - 2002-11-27

For the past several years China has been the fastest growing economy in Asia, attracting by far the largest flows of foreign direct investment going into any developing country. But among China's neighbors there is both envy and worry about the implications of China's rapid economic advance.

Increasingly, smaller Asian economies worry that they will not be able to compete with China. Lee Kuan Yew, the former leader of Singapore, sees a shifting of the economic scales with China as an elephant and Southeast Asian economies as a mouse. China is attracting $40 billion of foreign investments annually, four times the amount going into any other Asian economies.

Attracted by low wage rates and a skilled work force, some investors are closing plants in Southeast Asia and even Japan and shifting their manufacturing to China. Simon Ogus, an economic consultant in Hong Kong, says since beginning its market based reforms 25 years ago, China is emulating the economic model that worked well in other parts of Asia. "China is playing the game that many of the other Asians did, which is you restrict political and civil liberties in the first instance and the Faustian bargain you offer people is, "shut up and we'll make you rich."" Mr. Ogus believes that as Chinese citizens become richer they will demand greater political freedoms from their government.

Stephen Goldmann is the managing director of Exxon Mobil in Hong Kong. Formerly, Mr. Goldmann headed the American oil company's operations in Beijing. He says China is not an easy place for foreigners to do business. "China has made huge progress. But it is still at a stage where it is a difficult place to do business in that it takes a long time to negotiate arrangements," he says. "And the arrangements are still more dependent on the person or organization you're negotiating with. And that person or organization can change."

With huge sums of money invested in China, Exxon Mobil is strongly supportive of the economic reforms under way in China. But Mr. Goldmann says much more needs to be done to protect foreign investors and assure them equal treatment under Chinese law.

Adjacent to the fastest growing region of China, Hong Kong faces its own problems in competing with the mainland. Still much richer than its hinterland, business leaders in Hong Kong are not optimistic about that territory's future. "Hong Kong is suffering from what I call a self-inflicted confidence crisis," says Frank Martin, head of the American Chamber of Commerce in Hong Kong. "It is mainly due to the collapse of the property market, which is down about 65 per cent from the 1997 peak. It is due to a higher unemployment rate."

Prices in Hong Kong have declined for four consecutive years. Hong Kong serves as the export and financial services center for southern China but it faces growing competition from nearby Chinese cities.

Economic consultant Simon Ogus says it would be a mistake to assume that all is well in China and that its economic progress will continue unabated. "You know, China can pull this trick off for quite a bit longer. But it has internal dissent in terms of mass inequality of growth. The inner provinces, the countryside, the rust belt in the northeast are all lagging a long way behind," says Mr. Ogus. "That is causing the Chinese to put into place redistributive policies, also forcing them to clamp down on very localized forms of dissent at this stage."

But for the moment China is Asia's unquestioned economic success story. Incomes are rising, exports are booming, so much so, that China recently displaced Japan as the biggest Asian exporter to the United States.