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A Balancing Act

by Mable-Ann Chang

November 4, 2020

Hans VriensHans Vriens, founder and Managing Partner of Vriens & Partners, looks at the growing relationship between China and South-East Asia

Hans Vriens has lived and worked in Asia since 1990 and is the founder and Managing Partner of Vriens & Partners, a leading government affairs, public policy and political risk analysis firm in South-East Asia. Headquartered in Singapore, the firm also has offices in Cambodia, Indonesia, Malaysia, Myanmar, Thailand, Vietnam and the Philippines.

Before establishing Vriens & Partners, Vriens was Vice Chairman, Asia, at management consulting company APCO Worldwide. He set up and served as Managing Director of the Indonesia practice for six years. Before that, he worked as a political economist at the Political and Economic Risk Consultancy in Hong Kong. He is a founding member of the Europe ASEAN Business Alliance as well as the founding chairman of the Dutch Chamber of Commerce in Singapore.

In this interview Vriens explores the direction in which relations between China and the ASEAN countries are moving and what factors are shaping the relationship.

How do you view the economic relationship between ASEAN countries and China, and where do you see it going in the years ahead?

It’s important to note that South-East Asia may be one region, but it’s also incredibly diverse. I foresee the relationship between ASEAN and China only becoming closer over the next decade. China is already exporting much of its excess capacity to South-East Asia in terms of products but is also involved in the building of infrastructure. Many Chinese state-owned enterprises are working on large infrastructure projects in South-East Asian countries, which is something that they need quite badly.

Chinese tech companies are also quickly expanding into South-East Asia and treating it as their backyard, so the economic bridge between the two is only going to get stronger. On the political side, however, things are much more sensitive, with some countries not exactly seeing eye to eye with China on various issues.

People talk about the shift of supply chains out of China and into South-East Asia. To what extent is South-East Asia capable of benefiting from this shift and what are the key obstacles that they are facing?

If there is one country benefiting from this, then it would be Vietnam. Not only have some multinational companies been moving part of their supply chains to the country, but Chinese companies are part of this trend as well. Many are shifting production to Vietnam to circumvent the economic sanctions that the United States has placed on China as part of the US-China trade war. But geographically, Vietnam is only the size of a single Chinese province, so they could never absorb all that demand alone. Another country that has benefited from this shift is Malaysia. Malaysia’s tech sector has had a strong presence in South-East Asia for many years. Originally some of these companies moved from South-East Asian countries to China because they found it cheaper to manufacture there, but now they are returning to countries like Malaysia because costs in China have risen.

Other countries like the Philippines and Indonesia are quite shocked to discover that they are barely benefiting from this trend or not benefiting at all. The regulatory framework and infrastructure are so poorly developed that the investments are usually focusing on the domestic market and not at the country’s own exporting. If you can’t get your goods out of the port because systems are so corrupt, it’s difficult to really set a part of your supply chain there.

One of the biggest obstacles so far appears to be in logistics. What do you see as the prospects for South-East Asia upgrading its logistical capabilities?

There are massive opportunities for this. What many countries in Southeast Asia must do, and are doing, is upgrade its ports, particularly Indonesia and the Philippines. It’s important not to forget, however, that these are two big archipelagos which are difficult to develop. Overall, infrastructure is poor and there is a lot of room for development.

Infrastructure in mainland South-East Asia, however, is making great progress. Thailand has made significant progress, Malaysia’s situation is good, and Vietnam is building rapidly. On the other side of the spectrum, Myanmar is still 20 years behind.

To what extent is South-East Asia likely to fall within the Chinese “sphere”?

South-East Asia can and will eventually fall in line with the idea of co-prosperity but there is an underlying nervousness in many countries. This nervousness is stemming from how aggressive Chinese behavior has been in the South China Sea and many countries in South-East Asia don’t want to become tribute or client states of China, as they are familiar with this treatment from the past.

What would be your advice to South-East Asia in terms of balancing its relationships between China, India and the West? What is the right relationship that they should have with these three parties?

My advice for balancing the relationship with China varies from country to country. Vietnam has been dealing with its northern neighbor for the past 2,000-3,000 years, and they have no illusions whatsoever. China has been humiliating Vietnam in the South China Sea by not allowing it to develop its own resources in its own economic zone, which has obviously been terrible for Vietnam. They realize that for there to be a balance and that maintaining the strength to stand up against China is an important part of the equation.

Other countries are also trying to strike a balance, though a major worry for them is the fact that the US is now completely missing in action with a president who is focused only on the US. There is a lot of concern. India is nearby, but they are maintaining focus on their domestic political and economic issues and aren’t able to project power, let alone military power in South-East Asia.

How would you rate the various countries of South-East Asia and Indochina in terms of their economic prospects in the next decade?

There is a distinction between potential and the ability to fulfill potential, so it is difficult to rate countries on their economic prospects. Indonesia, for example, has huge potential, but has always been unable to fulfill it. Vietnam is focused on a long-term vision of growth and prosperity. Singapore and Malaysia have clear economic prospects. The Philippines is another country where full potential isn’t being reached. So overall, Vietnam, Malaysia, Singapore, and hopefully Myanmar are the countries with the best economic prospects. It mostly depends on how the COVID-19 crisis plays out.

The relationship with the Chinese diaspora has at times over the past century been difficult. How do you see the relationship between Chinese people and locals in South-East Asia?

Today’s relationship between the diaspora and locals compared to the past differs from country to country. In some countries, more of an underlying tension is noticeable. We can only hope that another scenario like the one witnessed in Indonesia in 1998, which resulted in massive social unrest, doesn’t repeat itself. In other counties like Thailand, the Chinese diaspora are well integrated into society. In Singapore, they’re in charge. The Chinese diaspora are clearly important for the economy, but, for the most part, we see them going about their own business rather than working closely with mainland Chinese companies around South-East Asia.

What should be the role of Western businesses, specifically European and American, be in South-East Asia in the future, given the rise of China?

It’s better to think of it as China having had two bad centuries, but that it’s now back. Given that South-East Asia is in China’s backyard, it is of no surprise that they are economically active here. South-East Asian countries are relatively open to foreign investment and business. Besides Chinese involvement, Japan, South Korea, and America are already active participants in these countries as well. This is not going to change, so the nature of future competition is going to be interesting to witness. It is clearly the region where the US and Chinese tech companies will really go head to head. South-East Asia can only benefit from more competition.

To what extent is the China business and political model attractive to South-East Asian countries as opposed to the Western model?

How attractive the models are depends on the specific country being discussed. There may be admiration for the success of China’s rise over the last 30-40 years, but to some extent, the economic and political model right now is more a hindrance in the continuation of development. Countries in South-East Asia, despite them being young, post-colonial nation states, are open and realistic, which doesn’t seem to be what the Communist Party in China wants to adhere to.

How effective do you see the ASEAN alliance being and to what extent is it achieving the purposes it was essentially set up to handle?

ASEAN was set up to stop the domino-effect spread of communism in South-East Asia. Despite the alliance originally going against Vietnam’s interests, Vietnam is now its biggest, most enthusiastic member as it sees it as a way to slow down the power of China. However, economically speaking, the challenge is that most countries are focused on domestic issues and have no real interest or willingness to integrate their economies much deeper, particularly when it comes to going beyond lowering tariffs.

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