Much has been made of US-China relations, pairing shared global responsibilities and regional tensions, a G-2 dominating world geopolitics for better or for worse
Both countries indeed have a vested interest in a duopoly, a zero-sum game leaving little choice to any other country except to opt for a loosely defined partnership or alliance with the super-powers
In South-East Asia, the rise of China and its ambition to recast the ancient Imperial Qing 'Great Harmony' of tributary ties with neighboring countries is fraught with ambiguity
Loose dependance on a global power (the US) and on the regional challenger (China) has grown into non-exclusive interactions
Secured by post-WWII alliances commanded by American security concerns, the US partnerships are confronted by growing regional economic interdependence with China
Ultimately, the largest countries - the ASEAN-5 : Indonesia, the Philippines, Vietnam, Thailand and Malaysia - might find themselves between a rock and a hard place
A balancing act growing more improbable over time...
Asian tigers in the making
The US and China have been sharing the assumption that ASEAN’s dependency would not shift in a fundamental way as the countries remain in thrall of China’s economic power and of America’s military influence
China harks back to the tributary relationship with neighboring ‘non-Chinese’ countries, a hierarchical view of the world order, putting the Emperor and the Celestial Court at the top
The US remains reasonably confident that its military guarantees, underpinning the alliances in South-East Asia, will hold up...
What if China's overlordship and America's military dominance were to lose their sharp edge ? What if some of Asia's largest nations were setting their own course ?
China’s tributary system mirrored the self-belief in its exceptionalism, founded on its advanced civilization and its immense wealth, shared benevolently across the Chinese universe…This confidence, inherited from Imperial Qing China (1636-1912), may not be as assured in the competitive 21st century
America’s military engagement in the region may be incontrovertible, but inconsistencies in its exercise favor ASEAN's cautious steps in boosting national military power, mostly with US encouragement
China’s rise in the world league – supported by Chinese demography and masterful access to global trade – might have opened a growth path no less spectacular for the ASEAN-5, the five largest economies of the region
Demography and economic growth are setting the trend
Demography - Future foretold
With a median age of 29.7 years in Indonesia, of 25.7 in the Philippines, and of 32.5 years in Vietnam (Worldometer - 2020), compared to a median age of 38.4 years in China, a generational shift is on the roll
...a hurdle which will be hard to overcome for a maturing nation such as China and an opportunity for South-East Asian (SEA) competition
| Population estimates in '000s | Growth rate (year) | ||||
| 2018 | 2022 | % of total SEA | 2018 | 2022 | |
| ASEAN-5 | 572,015 | 596,938 | 87.2% | 1.05% | 0.78% |
| Indonesia | 267,264 | 276,270 | 40.4% | 1.04% | 0.64% |
| Philippines | 106,778 | 116,335 | 17.0% | 1.52% | 1.47% |
| Vietnam | 96,651 | 98,486 | 14.4% | 0.99% | 0.74% |
| Thailand | 69,208 | 71,746 | 10.5% | 0.34% | 0.13% |
| Malaysia | 32,114 | 34,101 | 5.0% | 1.60% | 1.09% |
| Singapore | 5,805 | 5,993 | 0.9% | 2.50% | 0.35% |
| SEA total | 655,636 | 684,602 | 88.1% | 1.06% | |
| China | 1,421,864 | 1,425,887 | 0.48% | 0.0% | |
| sce - Population Review - Pininvest | |||||
The top 5 ASEAN countries weighed 42% of China's population in 2022
Although growth rates have been slowing notably (the COVID pandemic may have been a factor), the ASEAN-5's more youthful population holds a 10-year advantage over China
Economic growth rates - Holding promise ?
Held back by the pandemic in 2021 and expected to recover in 2022, according to the OECD macroeconomic assessment :
"growth in real gross domestic product (GDP) is forecast to be 5.2% for the Association of Southeast Asian Nations (ASEAN) in 2022 and 5.2% in 2023, albeit with countries in the region varying in the pace of their recoveries."
| Ranking | GDP estimates in billions US dollars | |||||
| 2018 | Dec. 2021 | 2022 (est.) | Latest 2022 | 2023 proj. | ||
| Indonesia | Lower-middle | 1,043 | 1,186 | 1,289 | 5.72% (Q3) | 5.0% |
| Philippines | Lower-middle | 347 | 394 | 412 | 7.60% (Q3) | 5.02% |
| Vietnam | Lower-middle | 303 | 363 | 409 | 13.67% (Q3) | 6.2% |
| Thailand | Upper-middle | 506 | 506 | 522 | 2.48% (Q2) | 3.7% |
| Malaysia | Upper-middle | 359 | 373 | 439 | 14.20% (Q3) | 4.4% |
| Singapore | High-income | 377 | 397 | 424 | 4.35% (Q2) | 2.3% |
| SEA total | 3,059 | 3,344 | 3,644 | 5.2% | ||
| China | 13,894 | 17,734 | 4.4% | |||
| sce - World Bank - Pininvest | ||||||
With ranking differentials from lower- to upper-middle economies (setting high-income Singapore apart), no definite advantage should be recognized for the region yet....
However, projected growth rates for the ASEAN-5 embed a 'launching pad' which could upend the regional balance
True to form, China will be addressing its aging demography and its loss of economic momentum, possibly with a measure of success...
...but the prospect of demographic maturity holding back its economic ambitions cannot be ignored
China - Facing down economic headwinds
In regional Asian competition, China can make a strong case to maintain the upper hand with a coherent supply chain strategy
The textile industry, which was key in the early days of China's industrialization, is a case in point
The world’s largest garment manufacturer and exporter, China is currently providing more than one-third of the global textile and apparel exports
To maintain its competitive advantage in labour-intensive textile products, the relocation of Chinese textile production bases to poorer Chinese provinces has been encouraged
However, the industry is also prompted to create capital-intensive textile goods and niche-products, a development model which allows China to remain a major player at every level of manufacturing, covering the full range of workers qualification while advancing with speed
In our note 'Trade is war and the fight is regional', we argued that, instead of following the familiar growth path of emerging markets,
- moving from low-tech products (apparel, commodities) with low-wage workers
- to mid-end products (such as household goods) as the work force gained expertise and more investments were directed both domestically and internationally
- and entering ultimately high-tech manufacturing
China exporters maintain a significant stake in global markets, from the low-tech to the high-end manufactured product
To explain dominance across the entire range of capital intensities, we referred to a 2016 study 'Structural Adjustments and International Trade - Theory and Evidence from China' by Hanwei Huang, Jiandong Ju, Vivian Z. Yue, who, by comparing data in 2007 and in 1999, came to the apparently contradictory conclusion that
- manufacturing productions became more capital intensive.
- on the other hand, exports became more labor intensive
To solve the puzzle, the authors demonstrate that, when modelled in three ranges, quite high - quite low and middling, capital intensity is a dynamic process
- Relative capital availability initially drives specialization - favoring the growth of either labor-intensive or capital-intensive industries - resulting in a stable export contribution in each case
- Over time, access to capital favors industries with intermediate factor intensities and, as capital intensive industries gain ground, their contribution to exports increase - and the contribution of less capital intensive activities falls
The game changer
In a moving landscape, the dynamics of the US-China relations are difficult enough to predict, further complicated by the growing assertiveness of the SEA-5
After establishing itself as global superpower with extraordinary speed, China will not settle easily into the comforts of middle age
However, rebalanced geopolitical influences across world's most populous region might offer an array of diplomatic opportunities to America
With growing confidence, the Asian countries might assert key principles of democratic governance
On China's doorstep, the credibility of Asian alternatives to its 'centrality' and 'inward-looking' policies might jolt the country into a profound rethink
As we expect to discuss shortly, lessons learned from history should not be ignored in the often troubled relationship between China and the West
The Second Opium War (1857-1860), a purely colonial endeavor by Western powers, with its wanton destruction, is still remembered in China 150 years later, in a 'century of humiliation'
But it was also the time China's traditional world outlook was transformed after centuries of Imperial insularity
China's isolation was bridged by none other than...Japan, as the era of Meiji reforms was gaining momentum in the country by opening up to Western thought, after 1868
History may not repeat itself but an ASEAN-5 model of government, democratic on Asian terms, could reach China no less effectively than Meiji, which in Chinese characters is a symbol of 'light' combining poetically representations of the sun and the moon
It would be the defining moment of the 21st Century