Opening Speech by Minister Raymond Lim at the Lianhe Zaobao-NTU Conference on China at Suntec Spore Ball Room, 3 June 2005

Distinguished guests

Ladies and gentlemen

1 I am pleased to join you today for the Lianhe Zaobao-NTU Conference on China. China's phenomenal economic rise is the single most important development for the region and the world. The statistics speak for themselves.

2 China's economy has been growing at an average of 9 percent annually for the past 25 years. This makes it one of the fastest growing economies in the world. Because of its size, this growth has led to changes in the existing pattern of trade and investments. In 2004, China's total trade reached US$1.15 trillion. This means that China has surpassed Japan as the world's third largest trading economy, after the United States and Germany. 50% of this trade was with Asia. China has become the largest trading partner for a growing number of regional economies. Last year, China overtook the US as Japan's biggest trade partner. In 2004, China overtook Japan as the largest buyer of Australia's mineral and energy exports.

3. China has also become the leading destination of foreign direct investment in the world, with a total US$60.6 billion, an increase of 13% from the year before. It is also the No. 1 investment destination for Singapore companies since 1997. In 2004, our cumulative investment in China amounted to US$25.5 billion. At the rate that it is growing, many experts predict that by mid-century, China's economy will be larger than the US's.

Impact on Southeast Asia

4 What does the rise of China mean for us in ASEAN? I have five observations. First, the rise of China has brought Asia into the centre of international relations as a major actor. Asia is not just an arena where major extra-regional powers jostle for influence. China's rise is re-shaping the old relationships and balance of power in the region and the world.

5 As a rising power, China will not easily acquiesce to the status quo if it sees it as not in its interest. As the pre-eminent power in the world today, the United States would prefer to maintain the status quo. This fundamental difference is real. But conflict is not inevitable. China's fundamental preoccupations are internal and its foreign policy emphasis is on a stable external environment to achieve economic development. China's economy is as much dependent on the world economy as the world is becoming increasingly dependent on it. No where is this better illustrated than in China-US economic relations. US MNCs are amongst the biggest investors in China. Some 130 of America's Fortune 500 companies have invested in China - from General Motors, Microsoft to Coca Cola. In turn, Chinese companies like Haier have invested in the United States. Take another example. China runs a huge trade surplus with the US which is in turn recycled back into the US as it buys large amounts of US Treasuries. So US-China relations which is the key relationship determining the stability of the region has sufficient points of common interests that gives us reason to believe that conflict is not inevitable.

6 Second, China's rise has a major impact on ASEAN economies directly. The initial reaction was anxiety as many Southeast Asian countries saw China as a major competitor in trade and FDI. But that perception is changing. China's growth has led to a huge rise in Chinese demand for Southeast Asia goods, as can be seen in the large trade surpluses that Southeast Asian countries enjoy with China. Trade between China and ASEAN reached US$105.9 billion in 2004, with ASEAN enjoying a surplus of over US$20 billion. This is expected to double by 2010.

7 Today, 80% of China's outward investments are in Asia. The absolute amount is small, but growing fast. China's investment in Indonesia's energy sector has already topped US$1.2 billion. In 2004, China's total outbound tourists reached a total of 28.85 million, with most of them visiting Asian countries. Last year, Singapore received some 800,000 visitors from China, an increase of 55 percent from 2003. Mainland Chinese comprise the fourth largest group of foreign tourists in Malaysia in 2004. Vietnam had some 774,000 visitors from China, its largest tourist source market in 2004. While it would be hard to put an actual figure to China's catalytic role in ASEAN's growth, few would dispute the fact that ASEAN on the whole has benefited from China's growth.

8 Third, conscious of its growing economic weight, China has actively sought to reassure its neighbours that its economic growth will not be disruptive and that China would not throw its new-found political weight around. Thus, China has been quick to reassure ASEAN countries of its readiness to share the fruits of its economic growth with them. Central to this approach is the offer of an FTA with ASEAN as a whole. The China-ASEAN FTA, with the trade in goods chapter to be implemented from 1 July this year, was unusual for its generous offer of an "Early Harvest" and the offer to review the China-ASEAN FTA should the subsequent balance of benefits turn out to be in China's favour. The China-ASEAN FTA would be further augmented by bilateral FTAs where possible.

9 In addition, China has assiduously made clear to ASEAN member states that it would go by ASEAN's consensus in regional strategic issues. China was the first Dialogue partner to sign ASEAN's Treaty of Amity and Co-operation on 8 October 2003. China has also stepped up its efforts to engage regional countries through strategic partnerships. China concluded the Strategic Partnership for Peace and Prosperity with ASEAN in 2003. In 2005, China inked a Strategic Partnership with Indonesia during President Hu Jintao's state visit.

10 The fourth effect of China's rise is to catalyse greater economic integration in Southeast Asia. ASEAN countries recognise that a Southeast Asia of 500 million people in 10 separate countries cannot compete with China with its market of 1.3 billion people. Individually, ASEAN economies are too small or weak to achieve the basic economies of scale. Southeast Asia's combined GDP is only 10% of China, ROK and Japan's GDP. But if ASEAN band together, it can become an attractive alternative. A McKinsey study estimated that an integrated ASEAN market could boost the region's GDP by 10% and reduce operational costs by one fifth. Integration is thus a matter of necessity and not a choice. ASEAN economic ministers have thus agreed on a "2+X" approach to fast forward regional integration. Singapore, Brunei, Thailand and Cambodia have since become parties of a multilateral agreement on cargo open skies. Singapore, Thailand and Brunei are finalising a similar pact on direct passenger services on all routes.

11 Thus the success of China has inspired ASEAN to work closely together. The Bali Concord II, endorsed by the ASEAN Leaders in 2003, which envisions the ASEAN Economic Community reflects this new resolve. In Vientiane last year, ASEAN leaders further agreed to accelerate integration in 11 priority sectors and work toward the development of an ASEAN Charter. A few weeks ago, ASEAN Foreign Ministers agreed to convene an Eminent Persons Group to guide the development of the ASEAN Charter.

12 My fifth and final observation is that a growing China means that ASEAN cannot afford to be closed and insular. As China increasingly opens up to the world, so must ASEAN. ASEAN has rightly embarked on various initiatives to stay outward looking, in particular, by broadening our engagement with our Dialogue Partners and by pursuing FTAs and CEPs. Besides the ASEAN+3 Summit, ASEAN now has annual summits with India, China, Japan and Korea. It had a commemorative summit with Australia and New Zealand in 2004 in Vientiane and will be having a Summit with Russia at the end of this year in Kuala Lumpur. At the Cebu FM's Retreat in April, ASEAN agreed to keep the East Asia Summit open, by admitting countries that fulfil three criteria. One, substantive relations with ASEAN; two, full Dialogue Partner status and three, acceded to or agreed to accede to the TAC. India, which qualifies on all three counts, will be invited to the inaugural EAS later this year, and the door is open to Australia and New Zealand to join.

Conclusion

13 In the coming years, as China continues to grow, it will play a more important and bigger role in the region. China has shown itself willing to accept new responsibilities as in its involvement in the Six Party talks on North Korea. By joining multilateral institutions such as WTO to promote trade rather than protectionism and pursuing free trade agreements with ASEAN and other countries, China has shown itself as willing to partner with the rest of the world in pursuit of win-win solutions. But, by virtue of its sheer size, it would have to tread with care. What China does will be as important as what it says. How China manages its growing presence on the world stage will be closely watched by countries big and small. The rise of China will likely be the defining event of the 21st century.

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