Image courtesy clio1789
As China has grown over the past three decades, Southeast Asia has followed along. The correlation is noticeable especially by looking at the lift in GDP per capita over the past 2 decades (see the graph below). After China transitioned power over to Deng Xiaoping and his market reforms took hold, their economy started to grow. For Southeast Asian economies that meant several things. China became richer and increased their role as a creditor, which funded projects throughout the region. Chinese commercial and consumer demand boomed, which meant imports from the region expanded greatly. Today, this continues as a trend, as the world's factory (China) has shifted to outsourcing labor. It only makes sense - just look again at the graph below. In a recent trip to Phnom Penh Special Economic Zone, I noticed the effect first-hand. Over 75 firms have opened up shop, most of them are export-focused manufacturing firms and many are exporting to China. Furthermore, at the Sihanoukville SEZ, the country's largest, 94 of 106 companies are Chinese. For better or worse, China's effect is substantial.
Historically, Cambodia, like many Southeast Asian nations was a tributary to China. That hasn't really changed. If we look to East Asia's Taiwan, there's a similar situation. 18% of China's intermediate imports come from Taiwan, which on one hand is great for Taiwan's economy. On the other hand, Taiwanese politicians have allowed the country to become so export-dependent that the current Trumpian trade war puts a major chunk of their economy in jeopardy. Much of the world recognizes Taiwan as an independent nation but they should be more aggressive about making that a reality if they want it. Turning our attention back to Southeast Asia, we could probably say the same thing of Laos.
Thailand is another country that was a tributary. China remains as their primary partner for imports and exports. The key question is whether they will seize the opportunity to fortify their economy and harness, not be controlled by, China's growing gravitational pull. The country, which, interestingly, has recently been ruled by several ethnically Chinese leaders, could have grown from a rising star into a legitimate star by now but its political scene is a mess. According to Ruchir Sharma, in his book Breakout Nations, Thailand is falling victim to the middle-income trap. In contrast with Japan, which was able to break through the trap by creating an environment conducive to domestic consumption and investment, Thailand has created an unstable environment conducive to halted investments and the evaporation of trust. They've done this through populist measures.
70% of Thailand's population is rural. This fact is a basis for why political populism and other forms of lacking discipline are destroying Thailand's future. The rural majority, the 'red shirts', are at odds with the 'yellow shirts', or the middle-to-upper income segment of the population. This is significant because the 15% of the population that is urbanized around Bangkok, account for 40% of national income. This sets the stage for a volatile political process and delicate decision-making. Nothing has been delicate about the past decade and a half. The prime minister's office has been marked by a game of musical chairs, with the chair being filled by 10 people from 2006 to 2014. Many of those leaders pandered to the 'red shirts, creating angst amongst the country's wealthy minority. Furthering the issues, Yingluck Shinawatra convincingly won an election and took the chair in 2011 by appealing to the masses. Then a few of her populist initiatives resulted in catastrophes, including suicides by farmers who couldn't pay off their debts. The 'red shirts' were unhappy, and the 'yellow shirts' protested. Instability rose to the point that the Hunger Games film series was banned, in fear that it would spark greater uprisings. The instability led to a military coup in 2014.
After the 1997 Asian Financial Crisis, you'd think Thailand would have learned the importance for fiscal and political discipline. Malaysia is sitting right there with them. Mahathir Mohamed took the post of Prime Minster in 2017 in his triumphant return to politics. He led the country in the same role from 1981 to 2003, and was known as a populist politician. He roused the majority Malay and other Islamic-segments of the population and alienated Indian and Chinese minorities through a series of initiatives, not to mention alienating much of the Western world. Although it's helped him get votes, he limited GDP growth by stifling the potential of Malaysia's bamboo network, by weakening the judicial and legislative systems and thereby allowing cronyism to infiltrate, and by scaring away foreign investment.
Mahathir could look no further than Malaysia's 'twin', Singapore, next door to see what it takes to turn things around. Thailand, Cambodia, and others could also learn from Singapore. They must create their own unique model, just as Lee Kuan Yew did for Singapore, but they should follow his lead to focus on three principles - discipline, clarity, and trust - that economist Peter Henry discusses in his book, Turnaround. At this phase, Thailand is weak in all three areas. Cambodia has some clarity but that's it. Malaysia has unusual amounts of clarity and even some discipline, but they do not have trust. These countries will need all three pillars in order to turn themselves around and fortify their economic futures.