Most Southeast Asian experts are upbeat about the direction of the region’s economy, but many are wary of global trade agreements and divided on the consequences of the US -China trade war, a new survey has found.

A poll of more than 1,000 experts, analysts and business leaders found that more than 55 per cent believed Southeast Asia would experience moderate or strong growth in 2019. The first State of Southeast Asia: 2019 Report – by the Singapore-based ASEAN Studies Centre at ISEAS-Yusof Ishak Institute – found only about 20 per cent of respondents anticipated an economic downturn, with the pessimism most pronounced in Malaysia, Singapore and Thailand.

The authors of the report called the mostly positive outlook “somewhat surprising” given the disruption caused by the US – China rivalry.

Termsak Chalermpalanupap, a lead researcher at ISEAS-Yusof Ishak Institute, said the bullish forecast could be attributed in part to growing Asian trade driven by China.

“There has also been strong intra-ASEAN trade and investment under the evolving ASEAN Economic Community. This creates optimism. Strong tourism in the ASEAN region is another big plus to most Southeast Asian economies,” Termsak said on Tuesday, referring to the Association of Southeast Asian Nations.

Photo: Trade

But Professor Wang Yong, director of Peking University’s Centre for International Political Economy, put the optimism down to solid economic fundamentals.

“It’s not a surprise. I think many people in the region believe in the growing economic interdependence, believing that the US and China will find ways back to a stable economic relations. The Asia-Pacific has been the fastest growth region in the world and such a trend will continue despite the trade frictions,” he said.

“Furthermore, most ASEAN member countries are developing or emerging economies, and the domestic demand for growth remains strong. And China will keep a fast track growth mainly driven by its internal consumption, even though the US and China may have confrontation with each other in the near future. All these factors may be on the radar of ASEAN elites.”

The survey canvassed the views of regional experts across professional backgrounds. Its authors said it aimed to present the prevailing attitudes among those “in position to inform or influence policy on regional political, economic and social issues and concerns”.

The hopeful view on Southeast Asia’s economic resilience did not carry over into regional trade pacts, such as the proposed Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which went into effect on December 30.

The RCEP, which is still stuck in lengthy negotiations, includes the 10 ASEAN states as well as Australia, China, India, Japan, New Zealand and South Korea. Less than one-third of those surveyed thought the deal would be signed this year, and more than 23 per cent said the RCEP negotiations would probably be “a drawn-out affair” that was “unlikely” (21.3 per cent) or “highly unlikely” (2.4 per cent) to be wrapped up in 2019.

The CPTPP, described as the 21st century’s “first mega-regional trade agreement”, fared little better. The deal is already a market reality for Japan, Canada, Australia, Mexico, Singapore and New Zealand – and Vietnam is set to join next week. Malaysia and Brunei signed the agreement last year, but have yet to ratify it.

Thai Prime Minister Prayuth Chan-ocha, Australia's Prime Ministe_Scott_Morrison_&_Japans_Prime_Minister_Shinzo_Abe_IMAGE
Photo: Thai Prime Minister Prayuth Chan-ocha, Australia’s Prime Minister Scott Morrison and Japan’s Prime Minister Shinzo Abe.

More than 53 per cent of respondents from the six ASEAN nations that have not signed the CPTPP – Cambodia, Indonesia, Laos, Myanmar, the Philippines and Thailand – said it was “better to adopt a wait-and-see approach to ascertain the CPTPP’s viability”. Within that group, just 36 per cent of respondents supported joining the deal, led by Cambodia, the Philippines and Thailand.

Overall, only 18 per cent of respondents believed that the RCEP and the CPTPP would be “safe harbours to weather the US-China trade war”.

Domestic Priorities

Such scepticism is valid, according to Wang of Peking University.

“First, most countries of ASEAN are not part of the CPTPP except Singapore, Vietnam and Malaysia; and the RCEP has been moving very slowly due to the different expectations about standards of market openness,” he said. “That’s why these regional arrangements are not helpful either in counterbalancing the impact of US – China trade conflict or promoting the growth of the region.”

Tham Siew Yean, a senior fellow at ISEAS who works on regional trade and economics, wasn’t surprised, either. She said that Malaysia had delayed ratification and this may have sent a negative signal to the other ASEAN nations.

“Also, Thailand and Indonesia have domestic priorities such as elections to take care of in 2019, and will have to wait for the new government before they can form their country’s position on the issue,” Tham said on Tuesday.

She continued, “The more stringent requirements in trade governance in the CPTPP will require substantial domestic reforms for the ASEAN member countries, which are not parties to the CPTPP. And some countries are less ready for this than others. Therefore the ‘wait and see’ approach is taken rather than jumping on the bandwagon.”

Southeast Asian thought leaders were also divided over the ramifications of the US-China trade war: nearly 40 per cent said they were unclear about what the impact would be in their countries. Almost 20 per cent of respondents said their country’s economy would be affected negatively, led by Singapore, Thailand and Indonesia. Close to 14 per cent said that their country would benefit, with the sentiment strongest in Cambodia, Malaysia and Vietnam.

Wang, of Peking University, said the close economic integration of ASEAN and China would make the trade war bad for the region.

“When the Chinese economy is slowing down, partly caused by the US – China trade confrontation, the whole region will suffer because they will face shrinking demand from China.

Countries like Singapore, depending largely on China in the supply chain, suffer most,” he said. “Some other countries, like Vietnam, may get some positive results from the transfer of assembly lines out of China, but they also suffer from a reducing importing demand of China.”

Photo: Port Hambantota – Sri Lanka.

Belt & Road Projects

China’s Belt and Road Initiative proved far less divisive. According to the report, all ASEAN Nations, except for Singapore, have Belt & Road infrastructure Projects or are in negotiations for them.

Experts from these countries were asked to describe the lessons learned, in particular, from the Hambantota Port in Sri Lanka and the East Coast Rail Link in Malaysia. At least seven out of 10 respondents said their government “should be cautious in negotiating Belt & Road projects, to avoid getting into unsustainable financial debts with China”, with that answer prevalent in Malaysia (84.2 per cent), the Philippines (78.6 per cent), Thailand (72.7 per cent), Indonesia (72.6 per cent) and Cambodia (70.8 per cent).

Only 8.4 per cent of those surveyed said that “The Belt & Road benefits outweigh the potential Economic and Political fall outs”.