How China is taking control over Asian region

Igor Kuchma

By Igor Kuchma August 23, 2019

If the 19th century belonged to Europe and the 20th century to the United States, the future belongs to Asia – an argument that Donald Trump has been anxious to dispel since before his election as president. In order to reverse the situation once in office, President Trump began taking significant measures such as imposing trade tariffs and threatening to penalize China’s attempts to get around Iran sanctions.

The American side can’t accept being in second place, but it also can’t stop China from becoming the world’s largest economy and a formidable military power. However, it doesn’t necessarily mean that China seeks to overturn the current world order; instead it may be looking to reshape it, especially in Asia.

Trade war

It is no secret that the negative impact of the ongoing trade war between two global superpowers affects almost every other developed or developing region, and the four Asian Tigers are no exception. Since the 1960s, these Tigers – Singapore, Hong Kong, Taiwan and South Korea – have been able to maintain consistent and sustainable economic growth rates. One of their secrets lies in rapid industrialization amid globalization that allowed them to become international exporters.

According to research provided by the Journal of Contemporary East Asia Studies, “Economically, China, ASEAN and other countries in the region are highly integrated. From an economic perspective, this is reflected in the rapid increase in trade and investment flows. As China grows fast and trade relations with its neighbors increase rapidly, the phenomenon may lead to a situation where China uses its trade strength against its partners as a political tool.”

However, exactly the same situation may happen when things are less than ideal.

It is important to take into account that stronger countries in the region such as Japan, South Korea, Malaysia and a few others export more to China than they import. Thus as China becomes a huge market for these countries’ goods, China’s relative power as a buying nation also increases, enabling it to dictate terms with most of these countries.

When things in China do not go well, all of these countries also experience a negative impact on their economies. For example, Goldman Sachs has already cut this year’s growth outlook for Hong Kong to 0.2% from 1.5%, citing the ongoing political protests and the weak global trade environment. The growth forecast for Singapore was dropped to 0.4% from 1.1%, because of the slowdown in external sectors. In the case of South Korea, the growth forecast decreased from 2.2% to 1.9% because of the sharp reduction in mandated maximum work hours, the ongoing dispute with Japan, and the US-China trade feud.

Taiwan also faces negative consequences. Its export orders fell 3.5% year on year to US$38.5 billion in June, the eighth consecutive month of contraction. Data show that orders from mainland China fell 14.6% in July after falling 13.9% in June, while orders from European and Japanese buyers fell 5.3% and 7.9% respectively.

However, If we compare the performance of their stock-market indices, the same distribution of power will be observed. The bar chart represents a complete Shanghai Composite Index, which since September of last year grew by 6.10%. The blue line corresponds with Hong Kong’s Hang Seng Index. During the same period, its value decreased almost 6%. The white and yellow lines are the Singaporean STI and Taiwanese TAIEX correspondingly. Their fall did not exceed 3%. The last and the most affected is Korea’s KOSPI, which plunged by 13.58%.

Theoretically, China may increase imports from the four Asian Tigers, thus improving these economies growth rates. But they will definitely ask for something in return. The economic dominance of China over the region will give it power to influence domestic policies of other countries, something the US has enjoyed for a long time, and China will now look ahead and try to consolidate this position.Asia Times is not responsible for the opinions, facts or any media content presented by contributors. In case of abuse, click here to report.US-China TradeAsian tigers

Igor Kuchma

Igor Kuchma

Igor Kuchma is a financial adviser who is passionate about economy and the capital markets in general. He has experience working with Russian, Spanish and American financial institutions. He helped to compile a course for the Series 7 exam, while some companies he has prepared investment portfolios and macro and microeconomic models in Excel, and has studied trends and historical data.