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Last Updated: Thursday, 6 January, 2005, 23:08 GMT
Asian success stories wary of China
By Jonathan Kent
In Kuala Lumpur

As Asian nations grapple with the economic blow to some of their poorest people from the Indian Ocean tsunami, another powerful but less dramatic trend threatens to engulf the region's economies - the rise of China.

Two women walk past Petronas Towers in Kuala Lumpur, Malaysia
Hard-won economic gains are at risk from changing world markets

In response, the Association of South East Asian Nations (Asean) is trying to create a regional free trade zone that reaches out to include China, Japan and South Korea.

The full vision - a vast single market of roughly one third of the world's population - could take years to materialise, though agreements do exist to cut many tariffs by 2010.

Meanwhile, entrepreneurs in South East Asia are starting to look over their shoulders at what some see as a 700-pound Chinese gorilla on their tail.

Opportunity or threat?

Inderjit Singh, a Singaporean MP and head of hi-tech components firm Infiniti Solutions, is among those who need to keep an eye on China.

We have to be candid we have already lost some of our customers to China
Infiniti Solutions vice president

"You can look at China either as an opportunity or a threat - if you compete head on with China then yes, it's a threat," he says.

Infiniti manufactures parts for mobile phones, handheld computers and the automotive industry, but only its headquarters are in Singapore.

Its research and engineering arm is in the US, close to its customers, its technical support is in India and its factory is in the Philippines.

Arriving in Manila, my cab weaves in and out between the jeepneys and takes me south of the capital to Cabuyao.

Chai Capati, a middle manager at Infiniti Solutions in the Philippines
Her skilled job has bought Chai Capati's family a comfortable home

There, I get a guided tour of Infiniti's factory; the machines checking microprocessors before assembly are making rapid fire 'phut phut phut' noises like a child spitting out pumpkin seeds.

According to the plant's vice president Anton Lichauco, about 60% of the Philippines' exports are hi tech and electronic goods. He is concerned about competition from China.

"We have to be candid, we have already lost some of our customers to China. So yes, China is a threat and will continue to be an increasing threat over time," he says.

The factory employs 1,200 people, mostly women and mostly in skilled jobs.

"We offer the quality of jobs that help a lot of the middle classes move up, develop more skills, develop more job opportunities."

"Without this sector, a lot of people would be stuck in the traditional service-sector type of job."

'Proud of achievements'

I hitch a ride home with one of them, Chai Capati, a middle manager in production control.

Container ship near China's southern port of Shenzhen
China's exports could undercut products from elsewhere in Asia

Chai's mother raised her and her five brothers and sisters alone.

"We shared everything. There was just one room for everyone. If you want to go to the bathroom you have to wait, you want to cook you have to wait because there's so many of us. I'm very proud we were able to get this house."

Chai lives half an hour's drive away in Acacia Lane - a little gated community - and though her small two-up, two-down may not seem much, it has been hard won.

But most important of all, her job allows Chai to dream of a better future for her own children.

"I was able to send them to good schools, private schools...to have a car and a house of our own."

Struggling

Chai's house would seem like a palace to Po, who lives with her husband Nongsot in a shanty village in the Cambodian capital Phnom Penh.

A textile factory in Cambodia
1.5 million Cambodians depend on the textile industry

Their home is a two-room shed on concrete stilts which they share with Po's brother and two sisters. While I'm there, the heavens open and rain beats down on the plastic sheets that form one of the walls.

But by Cambodian standards Po's job pays well.

She works in a garment factory. "Seventy dollars a month is not much to live on, but it's better than before. I can pay for everything, for my home and take care of my family. But if we spend a lot, the $70 (37) I make isn't enough."

To give you an idea of how far $70 goes in Cambodia, her policeman husband Nongsot earns just $23 a month.

If Po's job goes, he says, he'll have to take a second job as a motorcycle taxi driver.

And her job might go if competition from China increases.

The quota system which gave garment makers from countries like Cambodia, Sri Lanka and Bangladesh preferential tariffs when exporting to the US was scrapped at the beginning of January.

At risk

Ken Loo from the Garment Makers' Association of Cambodia (GMA) is worried. "At the moment, the industry estimates are that China will overwhelm the market in the first six months of 2005 and they're expected to take up 60% of the worldwide garment industry in two years."

ASEAN NATIONS
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Indonesia
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Malaysia
Philippines
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Vietnam

That may be overly pessimistic. The ratification of Cambodia's entry into the World Trade Organisation (WTO), and political moves by both China and the US could mitigate the impact.

Nevertheless, Mr Loo estimates that garment making generates about 40% of Cambodia's gross domestic product, and 90% of its export earnings.

GMA members' factories directly employ about a quarter of a million people, but 1.5 million Cambodians out of a population of 14 million, depend on the industry for their living.

Any dip in orders is sure to have a tangible effect on the country's economy.

Back in Singapore, Inderjit Singh talks about adding value - in essence making things China cannot.

"I think for now China will compete purely on cost, but over a period of time they will be able to compete on technology and on research too.

"We will always be ahead if we continue to invest in research and in the high end of technology," he hopes.

But for Cambodia, there is only so much value its factories can add - and amidst the hoopla about closer economic ties across East Asia some must be wondering whether getting into bed with a 700-pound gorilla is not simply a recipe for getting squashed.




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