ASEAN’s Enormous Growth Rates

Over at Asia Sentinel, a new piece notes the extremely high growth rates posted in the third and fourth quarters of 2012 by major Southeast Asian economies. Most notably, Thailand posted a staggering 18.9 percent year-on-year growth rate in the fourth quarter of 2012. Although this growth is somewhat artificial, since it is compared to the anemic growth in the flood-wracked fourth quarter of 2011, it is still extremely impressive. The Philippines also is growing strongly, posted over 7 percent growth in the third quarter of 2012, and Malaysia, Singapore, and Indonesia also are booming. Of the largest economies in the region, only Vietnam, still facing a morass of bad loans at state banks and companies, and serious Party political infighting, is looking gloomy. Even second-tier ASEAN economies like Cambodia and Myanmar are doing well, with an increasingly attractive Myanmar poised to become one of the hottest emerging markets in the world over the rest of the decade.

Asia Sentinel correctly notes that ASEAN has become more competitive in many manufacturing industries than China, particularly in labor-intensive manufacturing. Many Japanese and Western firms, especially in electronics and auto manufacturing, have shifted operations to ASEAN or at least embarked on China+1 strategies that include ASEAN nations.

But this competitiveness is not largely due to proactive policymaking among ASEAN states, with the exception of the Philippines (where President Benigno Aquino has taken major strides to improve the investment climate) and to some extent Singapore, which is no longer home to much low-end manufacturing anyway. Instead, ASEAN is benefiting from China’s changing demographics, the result of the “one child” policy, as well as the beneficial demographics in ASEAN nations like Indonesia, which have large working-age populations today and small elderly populations. In addition, China’s increasingly aggressive behavior towards neighbors like India, Japan, and Vietnam have not only angered people in those countries but worried foreign investors, leading to greater willingness by investors to consider a China +1 strategy.

Benefiting from China’s demographics and mistakes isn’t bad: certainly, Thais would prefer 18.9 percent growth to last year’s weakness, and citizens of other ASEAN states are benefiting from the resurgence of manufacturing and boost in foreign investment. But for ASEAN to build on what it’s been given, it needs to be more proactive in fixing what still ails it. It needs to make good on its promises to improve regional rail and road architecture, empower its secretary-general with greater means to push for economic and trade interdependence, and actually achieve the goals of the ASEAN Economic Community—which are likely to be missed by the target date of 2015. Other than Singapore, ASEAN nations also need to reform their education systems, which still leave most citizens unprepared for a move into higher-end manufacturing. Only when these changes are made should ASEAN truly celebrate.