China and Southeast Asia 2035: A Wikistrat Simulation

As the largest trading partner of all Southeast Asian countries, China has long exerted enormous influence over the economic and political agendas of governments throughout the region. With the rapid rise in Chinese GDP over the last ten years, the growing economic clout of China has many countries in the region increasingly worried over the extent their economies are influenced by economic and political events in China. At the same time, China is experiencing growing pains, as the Communist Party of China confronts lower rates of GDP growth (around seven percent instead of 10 percent), higher wage rates, debt problems at banks, declining foreign reserves, air and water pollution, and long-running territorial disputes with India and in the East and South China Seas. In addition, increased oversight and prosecution of foreign companies has caused some to consider shifting manufacturing to more investor-friendly (and lower wage) countries such as Vietnam and Cambodia. One business-research firm, Conference Board, even predicts China’s growth will slow to to 3.9 percent by 2020-2025. All of these factors have called into question whether China can sustain its huge influence over Southeast Asia.

The question of whether China can sustain its vast influence over Southeast Asian nations was recently addressed by Wikistrat, a crowdsourced consultancy. As part of an online simulation, Wikistrat requested its analysts to identify factors associated with Southeast Asia’s economic success (or failure) over the next twenty years. The results of the study, entitled “Southeast Asia 2035: A Realized Economic Promise?” were released last week and revealed that despite future economic and political challenges, Wikistrat analysts believe China will continue to play an important role in determining the economic future of countries in Southeast Asia. As part of the study, the 59 analysts (myself included) who participated in the online simulation generated more than fifty competing scenarios for individual countries in Southeast Asia, examining the political and social changes that might affect each country’s growth. These scenarios were then grouped into 4 distinct outcomes, a low-growth outcome entitled “Sweatshops,” a more integrated trading scenario named “Processing Zone,” and the higher growth outcomes of “The Joneses” and finally the utopian “Country Club.”

On a positive note for Southeast Asian nations, Wikistrat’s analysts believe the continuation of rising production costs in China will lead to more multinational firms looking to Southeast Asia for lower costs, and tapping into their better educated and increasingly prosperous middle classes. On the negative side, as wage levels rise in Southeast Asia, as they are in China, the region could fall into the “middle-income trap”, where per capita yearly incomes between $1,000 to $12,000 and countries fail to enter higher value-added markets, leading to economic stagnation. Other important developments cited by the analysts which could impact Southeast Asian nations include the participation of Southeast Asian nations in the U.S. Trans-Pacific Partnership (TPP) trade agreement and China’s Regional Comprehensive Economic Partnership (RCEP).

The Wikistrat study concludes that despite the many challenges faced by China, the country will remain the largest trading partner for all Southeast Asian countries by the year 2035. Of the challenges, perhaps the biggest identified by Wikistrat is the threat of falling into the “middle-income trap,” of failing to reap higher productivity and innovation — challenges which both China and Southeast Asian nations are now facing. Wikistrat analysts also highlighted the threat the region faces from increased hostility over territorial rights to the East and South China Seas and how Washington reacts as part of its “pivot” to support its allies in the region and contain China. Finally, conflict over the waters of the Mekong River, with its numerous dam projects undertaken by different countries, coupled with climate change, were raised as potentially flaring tensions in the region. According to the analysts at Wikistrat, how China reacts to these and other difficult domestic and regional challenges will continue to have profound consequences for Southeast Asian nations and we can expect China will continue to exert its vast influence on the region well into 2035.