Tengku Zafrul: ASEAN, China must cooperate to mitigate risks, unlock economic gains

Speaking at the China Conference: Southeast Asia, an annual flagship conference organised by the South China Morning Post today, the minister said the risks included "a slowdown in China's economic growth and the contagion risk of potential global banking".

"The days of high single-digit or double-digit growth, which saw China powering the global economy out of the global financial crisis in 2008/2009, may well be over.

"Uneven recovery in the sectors post-pandemic, coupled with existing difficulties in the real estate sector as well as structural issues such as the challenges of an ageing population may continue to stifle its growth outlook, which is projected to be at 5.0 per cent this year, and moderating to below 5.0 per cent for the next decade," he said.

Tengku Zafrul pointed out that a slower-growing China would have profound implications for its trading partners like Asean.

He said China-Asean bilateral trade bucked the negative trend caused by the Covid-19 pandemic, jumping to US$975.3 billion in 2022 from US$641.5 billion in 2019.

Turning to the contagion risk of a potential global banking crisis, Tengku Zafrul said the global banking system is currently reeling from a series of shocks over the past week, prompted by the collapse of California's Silicon Valley Bank and the blows suffered by Credit Suisse in Switzerland.

"Fears of another banking crisis looms, confronting central banks with even more dilemmas as they try to fight inflation while ensuring financial stability.

"While a full-blown meltdown like that of 2008 may well be avoided given that banks are in a better shape now than they were then, there remains contagion risk which may hamper global economic growth, including in Asia as well.

"As a former banker, we know that banks are built on trust, and therefore it is important for banks now to rebuild and replenish their trust capital to ensure stability in the global banking ecosystem," he said.

He said the other two risks would be the escalation of a trade war between the US and China and increased geopolitical tension in East Asia.

Against this backdrop, Tengku Zafrul said Asean countries must work together to reposition themselves as stable, investor friendly, committed to environmental, social and corporate governance, and a competitive economic force in Asia.

"We must be able to spot trends and benefit from them. Whether we do it together as Asean or bilaterally depends on our strategic interests, but rest assured we will, and we must manage these risks and prepare ourselves for the challenges of the future," he said.

To that end, Tengku Zafrul said Asean should prioritise these issues moving forward and work together to boost ex- and intra-Asean trade growth.

"This includes implementing multilateral trade pacts and frameworks like the Regional Comprehensive Economic Partnership (RCEP), removing impediments to trade and encouraging digital trade.

"We also need to identify key growth areas that need to be nurtured and ensure that our small and medium enterprises benefit from the growth in trade.

"On this score, we also need to leverage each other's key strengths," he said.

Tengku Zafrul noted that China had witnessed a year-on-year trade increase of 15 per cent with Asean in 2022, the first year RCEP went into effect.

The minister hoped that Asean and China's relationship must always be premised upon mutual trust and respect.

"We fervently hope that any potential feud of the great powers will not spill over into our borders. But we appreciate their presence in and commitment to our region, especially in business, investment and trade.

"It is our earnest hope that Southeast Asia can remain a zone of minimal conflict and one that supports global cooperation, prosperity and peace.

"I am optimistic that, considering the vast untapped economic opportunities in Asia, ties between Asean and China will grow from strength to strength," he added.