China Casts Increasingly Large Investment Shadow Over Southeast Asian Neighbors

Thinking of opening a textile mill in Kampuchea?

A shrimp farm in Vietnam?

Anything at all in Laos or Myanmar?

Then think fast and act, as China is increasingly dominating is Southeast Asian neighbors' economies.

Doubting Thomases should have a look at the document released last month by China's National Development and Reform Commission, Ministry of Foreign Affairs, Ministry of Finance, and the Ministry of Science and Technology.

Blandly entitled, "Country Report on China' s Participation in Greater Mekong Subregion Cooperation I," the study delineates in detail Beijing's interest in the Greater Mekong Subregion (GMS) nations of Myanmar, Laos, Thailand, Cambodia and Vietnam, lying along the Mekong River, the world's tenth longest river, which originates from the Tanggula Mountain Range on the Qinghai-Tibet Plateau in China and runs 3,050 miles southwards through six nations before debouching into the South China Sea.

Beneath the leaden prose however is information that all potential southeast Asian investors should take cognizance of.

The report's Section Two begins, "Since the third GMS summit in 2008 and especially since the establishment of the China-ASEAN Free Trade Area, bilateral trade between China and the other GMS countries has demonstrated a momentum of greater development with a further improved trade structure and fast increase in bilateral investment. China has also participated, in the form of joint ventures or wholly Chinese-invested enterprises, in the development and construction of economic and trade cooperation zones in Cambodia, Thailand and Vietnam, and has thus boosted local economic development."

The report then delineates China's bilateral trade with other GMS nations.

In 2010, bilateral trade between China and Kampuchea totaled $1.44 billion, up by 27.4 percent over 2008.

Myanmar?

In 2010, bilateral trade between China and Myanmar reached $4.44 billion, up by 68.8 percent over 2008, hardly surprising, given China's interest in the country's hydrocarbon resources.

Bilateral trade between China and Thailand in 2010 was $52.95 billion, a 28.4 percent increase over 2008 figures.

As for Vietnam, bilateral Sino-Vietnamese trade in 2010 was worth $30.09 billion dollars, up by 54.6 percent over 2008 statistics, again, like Myanmar, because of China's interest in Vietnam's oil exports.

Bottoming out the GMS league is the Lao People's Democratic Republic, whose 2010 bilateral with China was a paltry $1.05 billion, but up by 150 percent over 2008.

It is the fine print of the report's bilateral trade figures that is most fascinating. In 2010 China's exports to and imports from Kampuchea were worth $1.35 billion and $90 million respectively, a massive imbalance more than 13 to one in favor of China. China's main imports from the Kampuchea included natural rubber, sawn timber, logs and agricultural products.

In other words - raw materials, while Chinese exports to Kampuchea were textiles, electromechanical products, hi-tech products, garments and steel -value added finished products.

Myanmar?

In 2010 Chinese exports to and imports from Myanmar were worth $3.48 billion and $9.6 million respectively, a grotesque trade imbalance more than 300 times in China's favor. Myanmar's exports included agricultural products, natural gas and logs, while China exported textiles, hi-tech products, rolled steel, motorcycles and automobiles.

As for Thailand, given its relatively well developed manufacturing base, in fact ran a significant trade surplus with China, whose exports in 2010 were worth $19.75 billion. Chinese exports included electromechanical products, hi-tech products, textiles and farm produce, while Thai exports, worth $33.2 billion, consisted of electromechanical products, hi-tech products, natural rubber and farm produce.

China's exports to Vietnam in 2010 were worth $23.11 billion, consisting primarily of electromechanical products, textiles, hi-tech products, rolled steel and agricultural products while Vietnam exports to China totaled $6.98 billion, a trade imbalance more than 300 percent in China's favor. Vietnamese exports to China included electromechanical products, coal, hi-tech products, agricultural products, textiles, crude oil and natural rubber.

As for the Lao People's Democratic Republic, Chinese exports there in 2010 were worth $480 million, consisting of electromechanical products, textiles, garments, hi-tech products, automobiles and motorcycles. Surprisingly, like Thailand, the Lao People's Democratic Republic ran a slight trade surplus in its exports to China, which were worth $570 million, but the trade imbalance is in fact hardly surprising, as Laotian exports consisted of copper ore, rolled copper, farm produce, sawn timber and natural rubber, all to feed China's omnivorous factories.

The long and the short of all this is that China, through the GMS, has a massive head start on regional investment, and while it proclaims, "Since the third GMS summit in 2008, the Chinese government has continued to provide financial support to GMS cooperation as its capability permits," it has no qualms about running up massive, lopsided trade surplus with its GMS neighbors, despite its stated policy of "realizing common prosperity and affluence with its neighbors."

In the West, any country facing a 3,000 percent trade imbalance would have its politicians screaming for protectionist tariffs, but given China's increasing economic and political clout in Southeast Asia, the legislatures there are mute.

But therein lies the potential advantage for investors from outside the reason. Astute foreign companies, if they can refrain from relentlessly pursuing buccaneering capitalist business practices to maximize profits at all costs and instead deal with GMS countries on the basis of respect and relative equality, then they are certain of finding a warm welcome for promoting more equitable trade practices than their giant "neighbor to the north."

Just don't expect an invitation to tea from the Chinese ambassador in Phnom Penh, Naypyidaw or Hanoi.

By. Dr. John C.K. Daly of Oilprice.com