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"China: Competitor or Partner?"

May 22, 2002

His Excellency Lee Kuan Yew
Senior Minister, Republic of Singapore

◆Introduction:

In the 24 years since 1978 when China began its open door policy, its transformation has been dramatic. It has been growing at over 8% per annum. When the rest of East Asia suffered negative growth in 1997 and 2001, China made over 7% growth. Last year when all exports from East Asian countries slowed down because of the downturn in the US IT sector, China's exports held up because of many new foreign investments made in anticipation of its WTO membership. In the next 30 to 50 years China will play catch up. It will be what China could have been if it had never gone Communist in 1949, never entered the Korean War, but had a nationalist government that cooperated with the United States as Taiwan did." As China makes up for lost time, the rest of East Asia will have to adjust.

◆Both competitor and partner:

China will be both a competitor and a partner. For the industrialised Northeast Asia - Japan, South Korea, Taiwan _ in the 1st phase China will be more a partner. It provides a cheap base to relocate industries, reduce costs, improve competitiveness and increase profits. It also provides a huge market. Just as Hong Kong transferred all its light industries to Guangdong in the 1980s and 90s, now Taiwan's lower end electronics and IT sector are moving into Shanghai, and other coastal cities. South Korea and Japan are doing likewise. In the 2nd phase, after 20 to 30 years, as China learns production techniques, adapts technology and improves its R&D, it will become more of a competitor. For Southeast Asia, in the 1st first phase China is a competitor for FDI. Of the total FDI to Southeast Asia and China, 70% used to go to Southeast Asia, 30% to China. Now this ratio is reversed. Southeast Asia cannot compete with China's low costs, high skilled labour and ample land. In the 2nd phase, China will be more a partner with its huge market for tropical products which China cannot grow, and for unfinished inputs. As the World Bank report on China has said, Southeast Asia will be part of a value chain, with the high value in China. This will also be the relationship between South East Asia and Japan, South Korea and Taiwan.

◆Configuration of cooperation and competition:

Japan's edge on China will depend on Japan keeping its lead in R&D, high technology, and its ability to create new sophisticated products. Japan has to encourage more entrepreneurs and help them in their start-ups through venture capital. That is how the US economy forges ahead. China will take 30 to 50 years to catch up and compete in this area. By then it will be a very different world.

Titles of speakers, names of companies, etc., were correct as of the time when the forum was held.