BSP warns vs protectionist response to China, India

The Bangko Sentral ng Pilipinas (BSP) has warned economic policy makers against a protectionist response to counter the combined economic force of China and India, saying that integration would present more opportunities.

BSP Governor Amando M. Tetangco Jr. told the Federation of Asean Economic Associations over the weekend that policy response in the wake of the economic expansion of China and India should take advantage of the two countries as markets instead of competitors.

Tetangco pointed out that countries, particularly in Southeast Asia could find suitable ways to fit into the emerging trade patterns beginning with the realization of the new Asean-China free trade agreement (ACFTA).

While China has become a competitor in the major export markets of Asean countries, Tetangco said it has also become a major market. India has shown the capacity to undercut the competition in terms of cost and innovation but he said this only translated into greater imports from the region.

"In the Philippines, the rapid expansion of the Chinese economy continues to have a very positive imprint on Philippine trade," he said.

According to Tetangco, Philippine exports to China grew from about two percent in 2000 to more than 10 percent in the first 11 months of 2005.

"Information technology-related products such as semiconductors, office machines and automatic data processing machines have dominated our exports to China," he said.

If and when the ACFTA finally pushes through, Tetangco said free trade would increase significantly as well as investments within the region. "We need to transform Asean economic relationship with China, specifically, from competition into complementation," he said.

This way, Tetangco said growth in one area, instead of impinging on growth prospects in other economies in the region, could instead act as an engine of growth for the region as a whole.

"Currently, Asean and China are direct competitors for foreign investment," he said. "In the long term, we hope to see China and the Asean as investors in each other’s economies," he said.

Tetangco said the Chang Mai Initiative would become even more critical in the coming years since it would facilitate the creation of a network of swap arrangements among Asean countries with China, Japan and Korea.

"The main challenge therefore is for Asean economies to respond not only to the enhanced competitive pressure but more importantly to develop channels of cooperation between our economies," he said.