America versus China; The Impact on Malaysia & Asia-Pacific

When United States of America faced its worst market crash in 2008 since the catastrophic 1929 Great Depression, little did its people know that the worst was yet to come. It took quite some time for the economic powerhouse to stabilise after continuous sluggish economic growth, severe unemployment and high national debt plagued the nation. Since day one after inheriting the “most sought after seat” from his predecessor, Barack Hussein Obama was seen discreetly struggling to put the Uncle Sam’s nation back on track. Nevertheless, he was not to be blamed as most of the problems were inherited from the previous Republican president, George Bush Jr.

            The market crash in early 2008 dubbed as the Great Recession, took place no thanks to unscrupulous bankers and corporate honchos in America’s financial district; the famed Wall Street. The subprime mortgage crisis shook everything apart, leaving many defaulting in their loan repayments and others retrenched without ample compensation. Worse, it was complemented with the much anticipated housing bubble burst. To the uninitiated, to put it simple, housing bubble burst occurs when supply of housing units overrides demand, thus in the process, dragging the market price to a remarkable low level. Whilst this left many new units unoccupied, the speculators who jumped on the bandwagon earlier to profit on the escalating real estate industry received the biggest blow.

            In a bigger scope, even the flamboyant MNCs in US were hit hard by the economic meltdown. Conglomerates like American International Group (AIG) were pushed to the periphery of bankruptcy but was fortunate enough to be bailed out by using America’s taxpayers’ money. To the unlucky ones like the once high-flying Lehman Brothers, it was the end of the road for its stakeholders.

            This maelstrom in Wall Street initiated a brutal domino effect that wrecked economies throughout the globe, most notably the poor and developing economies. Worst off, for export-reliant nations like Malaysia, the economic contagion spelt a heftier damage. Malaysian economy plunged and experienced reduction in private spending. This eventually triggered the Premier, Datuk Seri Najib Razak to announce the roll-out of two fiscal stimulus packages amounting to RM 67 billion in 2009. But, while many parts of the world were facing dampened economic growth, Malaysia’s economy continued to perform miraculously in a very stable and steady manner, spearheaded by the Government’s various plans and initiatives under the National Transformation Policy. The Economic Transformation Programme launched soon after, propelled the economy to a greater prospect despite the world being shrouded in economic uncertainty.

Now, in 2013, Malaysia boasts with sound economic growth and significant level of foreign direct investment (FDI) in its diverse fields, “turbo-boosted” by the five notable economic corridors. Those corridors are the North Corridor Economic Region (NCER), East Coast Economic Region (ECER), Iskandar Malaysia, Sabah Development Corridor (SDC) and Sarawak Corridor of Renewable Energy (SCORE). Scores of foreign investors have flooded Malaysian shores to invest in many projects and industrial developments. Not only that, Entry Point Projects (EPP) announced by the Prime Minister from time to time have managed to grab attention of not only domestic, but also international cornerstone investors.

            This scenario is not only visible in Malaysia, but also in various other nations in the Asian continent. Prompted by the subprime mortgage crisis in USA coupled with the turbulence in the 17-nations Euro group, investors have lost their “appetite” in the Western nations. After all, the sight of one by one nation in the Eurozone, being bailed out from bankruptcy by using rescue fund from International Monetary Fund did minimised their further interest in investing in those troublesome economies. Soon, in no time, with the limelight shining on Asia, “hot money” flowed into the developing countries which promised better future for their investments.

            And this is where another economic juggernaut rose to prominence. With United States losing its appeal, the Land of Sleeping Giant led by the Communist Party of China aggressively climbed to the top, pulling down Japan, to be “instated” as the world’s latest second biggest economy. The Great China has since become a living nightmare for America. Attracting regional and international investors due to its vast availability of low-cost labours and talent pool, People’s Republic of China became a destination for business-orientated individuals. Ever since Deng Xiaoping’s economic liberation in 1979, China has been growing remarkably outdoing its rivals, particularly after the economic crisis in 2008.

            Whilst some economists feel that China could outdo the US to be world’s biggest economic powerhouse by 2050, this nation is also bolstering itself in all possible aspects. China further advances by reinforcing its influence throughout the globe namely in the Asian Pacific region. This is the hardest blow to the United States and its Congress leaders. After all, most Americans would never have had a better impression on the capability of an Asian nation. Seeing China growing at a remarkable pace together with other better performing economies abbreviated as the BRICs which refers to Brazil, Russia, sub-continent India and China itself, is simply mind-boggling.

            Currently, China, world’s biggest carbon footprint producer, also claims all territories in South China Sea under its jurisdiction. Plus, the country is also struggling with many other issues like the spat over territorial islands rights with South Korea, the Philippines and Japan, the pressure by US to allow appreciation of the Chinese Renmimbi, rebellion in semi-autonomous Tibet and reunification with Taiwan.

            Democratic President Barack Obama saw this sudden growth of China as an imminent threat to America’s status quo in all four corners of the world. Thus, a year back, it was officially announced that the US shall no longer focus in the Middle East, and better US “diplomatic relations” will be fostered in the Asia-Pacific region. America’s involvement in Middle East started even before the Iran-Iraq war until the occupation of Afghanistan and Iraq in the post-9/11 incident period. Although USA categorically denied that its military intervention has failed in the region, by all means, its venture in Iraq and Afghanistan were major flops. With serious deficits hitting its national bottom line, the States is no longer capable to afford more intervention in those nations, in the name of combating terrorism.

            To counter-attack China’s emerging influence in Asian Pacific, the States is foreseeing many possible avenues. Most notably, US has enhanced its power in the region through its proxies, the Philippines, Republic of Korea and Japan. In the meantime, it held military exercise with its proxies as preparation against any untoward attacks. In addition to this, in 2012, America and Australia formally inked an agreement for better future cooperation between the two powerhouses in terms of defence. While the US troops have been gradually petering out of Afghanistan and Iraq as pledged by 2014, their presence in the Asian Pacific region in the past two years has been intensifying.

            Besides that, the Obama administration has pushed for more collaboration with other economies in the region through the currently discussed Trans Pacific Partnership. This agreement seeks to promote free trade and intellectual property protection amongst the participating nations. With the States aiming high in improving its influence in the Asian Pacific region to overcome the new “Chinese fever”, ostensibly there are yet more United States led-initiatives to come.

            Hypothetically, while these two powerhouses are on the chase to outdo each other, may it be in terms of ideology or even economic success, the Malaysian leaders should always be aware. For Malaysia, both nations contribute heavily to its foreign investments and export industries. Thus, good diplomatic liaison with these nations should always be maintained for Malaysia’s own prosperity. Economic developments in Malaysia in recent days have been commended by many international parties such as the World Bank and IMF. With the government rolling-out more action-based policies to spur the economy, Vision 2020 as envisaged by Tun Dr. Mahathir Mohammad can be successfully accomplished!

# My article in soon-to-be released Economics Faculty's magazine of University of Malaya.