NYT: China's Economic Power Unsettles the Neighbors

While China's massive fiscal policy response to this crisis has been a boon to the region, we continue to see signs of angst among neighbors - even those currently thankful for China's impact on their economies. The New York Times follows up on a theme offered via Australia back in the summer. [Jun 13, 2009: Australia in Perfect Position Aside China, but at a Cost?]

• (Indonesia) In the Dickensian depths of the Dunia Metal Works here, all is cacophony: the bam bam bam of grease-drenched punches; the rhythmic clank of unspooling steel wire; the storm and stress of glinting, freshly minted nails cascading onto a broad metal table for boxing.  But for all the industrial din, Dunia is undergoing a painful slump. Today it runs at 40 percent of its capacity, its domestic nail business imperiled — and its exports wiped out — by cheaper Chinese alternatives.  “We have been competing with the Japanese and the Koreans,” said Juniarto Suhandinata, the factory’s director. “But the Chinese — no chance.”
• The Chinese are tough competitors, and Dunia is hardly the first to find out. But Mr. Suhandinata’s lament speaks to something different: a sense of disquiet, even in developing Asian nations in Beijing’s orbit, over the implications of China’s swift, seemingly boundless economic growth.
• China has long claimed to be just another developing nation, even as its economic power far outstripped that of any other emerging country.  Now, it is finding it harder to cast itself as a friendly alternative to an imperious American superpower. For many in Asia, it is the new colossus.  “China 10 years ago is totally different with China now,” said Ansari Bukhari, who oversees metals, machinery and other crucial sectors for Indonesia’s Ministry of Industry. “They are stronger and bigger than other countries. Why do we have to give them preference?”
• To varying degrees, others are voicing the same complaint. Take the 10 Southeast Asian nations in the Association of Southeast Asian Nations, known as Asean, a regional economic bloc representing about 600 million people. After a decade of trade surpluses with Asean nations that ran as high as $20 billion, the surplus through October totaled a bare $535 million, according to Chinese customs figures, and appears headed toward a 10-year low. That is prompting some rethinking of the conventional wisdom that China’s rise is a windfall for the whole neighborhood.
• Vietnam just devalued its currency by 5 percent, to keep it competitive with China. In Thailand, manufacturers are grousing openly about their inability to match Chinese prices. India has filed a sheaf of unfair-trade complaints against China this year covering everything from I-beams to coated paper. In Southeast Asia, Indonesia is having second thoughts about a free-trade pact China negotiated with the six core Asean nations. 
• Jong-Wha Lee, the chief economist for the Asian Development Bank, noted that Japan and South Korea were also seen as juggernauts — and were criticized — when their state-backed industries rapidly increased exports. But the challenge from China seems different.  “Not just the size, but the speed of China’s emerging power is really unprecedented in the region,” Mr. Lee said. “So it creates a lot of issues — not just trade and exchange-rate policies. But in the future, what will be the role of China?”
• China has taken some steps to mollify complainers. In April, it proposed a $10 billion investment fund to help build badly needed roads, railways and ports in Southeast Asia, (very similar "Trojan Horse" methodology as China uses in Africa) and a $15 billion fund to give Asian nations low-interest development loans.
• But it has so far done little to address regional and global unease over the value of its currency, the renminbi. Because the currency is lashed by effective government fiat to the sinking American dollar, China’s exports have become significantly cheaper in countries whose own currencies have not compensated for the dollar’s recent fall.  (a very important point)
• In Asia, the renminbi is doubly significant. During the 1997 Asian economic crisis, the values of many regional currencies collapsed, making their goods cheap to foreign buyers. The Chinese then won the gratitude of their neighbors — and cast their country as a responsible power — by keeping the renminbi’s value fixed. That prevented a competitive spiral of devaluations that many economists feared might make the crisis much worse.  The latest financial crisis tells a different story: China’s exchange rate controls are cited as a leading cause of huge global imbalances that contributed to the collapse of 2008.  This time, China has resisted pressure to untie the renminbi from the dollar and let it rise. And its neighbors’ exports have suffered as a result.
• Indonesia is especially vulnerable to the shift. It is the most populous and arguably the least economically advanced nation among the onetime Asian Tigers, and perhaps the least able to accommodate itself to a new regional order dominated by China.   Didik J. Rachbini, a professor and the founder of an economic research institute here, said that in the past four years, Indonesia had swung from more or less parity in bilateral trade to a deficit equal to one-third of its annual exports to China — and rising.
• Beyond supply, Chinese state-run banks support industry with construction loans so cheap that credit can be almost free, holding down operating costs. (wheras in the US, the financial oligarchs keep almost the entire spread for themselves - who needs functioning businesses, anyhow?  Main Street is here to support Wall Street)
• (Indonesia) Export markets have dried up.  Like Dunia Metal, Surabaya Wire, a nail maker in east Java, has given up on exports altogether. “I used to have 450 workers,” said, Sindu Prawira, the chief executive of Surabaya. “Now, we have 170. Almost everybody is like that.”
• In October, Indonesia’s Trade Ministry invoked World Trade Organization rules and slapped a 145 percent safeguard tariff on Chinese nail imports, pending negotiations to settle complaints that the Chinese are competing unfairly.
• “China is China, you know?” he said, shrugging. “Even the U.S. cannot talk to China.”