ALTASIA, a new geopolitical and economic region that we will never forget

COVID and the subsequent problems in logistics chains have been an eye-opener for Westerners. The supposed globalization has ended up being a concentration of technological and non-technological production in a complex country, both politically and socially. First the Japanese and then the rest of the countries covered our eyes and ears and went like a bear to honey when we saw how cheap it was to manufacture in China, not considering the potential problems that such concentration of manufacturing could cause us.

Decentralization has already begun, and it has done so in the countries that make up the area around China, which has been given the name of ALTASIA, a name unknown to most people that either changes or will end up becoming very popular and may be the solution to the gigantic problem that we ourselves have created.

By Miguel ÁngelTemprano

February 27, 2023Reading time: 4.10 min

No more than four years ago all economists anticipated that China would overtake the US in GDP generation in the latter part of this decade. The US GDP is still 1.5 times the Chinese GDP, but the gap is not likely to shrink as fast as expected. Moreover, China may not even surpass US GDP by the end of this decade.

While we were thinking this and with a wild acceleration, probably due to the commercial weakness that the arrival of the COVID showed us, many companies, many more than we had imagined, started a relocation movement, but this time from China to neighboring areas.

“The COVID made us see that the globalization that had been so longed for and so vilified had really been nothing more than the concentration of world production in a very problematic country such as China”

For the first time we began to speak of a geopolitical term that even today is unfamiliar to most people: ALTASIA.

The countries included under this term are India, Bangladesh, Thailand, South Korea, Cambodia, Vietnam, Singapore, Indonesia, Philippines, Brunei, Laos, Taiwan and Japan. In other words, most of the countries whose geographic proximity to China might suggest that they are countries that could be or are already under its commercial and perhaps political influence.

To understand this “delocalization”, we will have to go back in history.

“Den Xiaoping will be remembered more for the repression at Tiananmen than for being the architect of China’s opening up”.

Between Mao Zedong and Xi Jinping there have only been three real presidents: Hu Jintao, Xi’s predecessor and a figure publicly vilified by him at the last congress of the Chinese Communist Party (CCP), Jiang Zemin and Den Xiaoping. The latter one is remembered more for being the Chinese leader who ordered the public repression in Tiananmen Square than for being the “architect” of the Chinese opening and the creation of the slogan: “one country two models”. Communist policy, capitalist economy, which has led China to be what it is today.

Our memory is not only selective but also temporal, and China “woke up” to the world in 1989 – just the year of the brutal repression of Tiananmen – when a Japanese company, Panasonic, the technological leader at the time, decided to move part of its production to China, taking advantage of the low labor costs and the opening up that Jiang (in Chinese the surname is written first, so nobody should think I am rude) was implementing.

It has not taken China more than three and a half decades to become not the sleeping dragon but the angry dragon.

What happened in Wuhan, 35 years ago, would have been impossible to even think about, since they lacked any kind of cutting-edge technology.

Today they are not only the world’s factory, but their technological know-how has led them to have the second largest army on the planet, with all that this means in terms of technology. The Americans no longer compete with the Russians to see who has the most advanced combat aircraft, now they compete with the Chinese, who already have their 5th generation aircraft, the Ja20, which competes head-to-head with the modern F35 and F22 (I make reference to this because historically the military industry has always been at the forefront of technological advances).

Shenzhen, the city bordering Hong Kong, today the cradle of the world’s technological manufacturing, was at that time a fisherman’s village. Today it has more than 30 million citizens.

“until 6 years ago most of the inhabitants, not even the cab drivers, of Shenzhen knew that their city had a port, today the new port has even 5* hotels.”

I remember the first time I visited the Empire State Building. Whoever accompanied me said to me, “what a shame, the symbol of our power today is Japanese”.

Yes, at that time Japan was the emerging power, which had achieved this thanks to bans on the manufacture of certain products, which had helped it to devote extra resources to the development of other things, to post World War II aid and to the passage of 40 years at this pace.

China, without any of that, has managed in less time to have a GDP 3.5 times that of Japan.

The arrival of Trump to the American chair only increased the imperial idea of China, which was already expanding into Africa and Latin America at full speed. And despite what is happening with Russia, they continue to do so and have even accelerated the pace.

The Chinese have set out to control the mineral markets -the rare earth minerals, which are so important today, they already have them- of most of the world and they have realized that in order to control these markets, they need to be in control of the world’s mineral markets.

They have realized that to have influence over the granting of exploitation permits for their companies, the first thing they have to do is to control their governments. And what better way than to control their public debt? China has just bought, among other countries, all of Zambia’s public debt.

But it seems that part, but not all, of China’s plans may be cut short because of the “de-globalization” I spoke of at the beginning.

“Until now, colonization was with weapons or Coca Cola. The Chinese have discovered a new way: buying public debt”.

And the reasons are a combination of strategy and economics, where curiously there is no participation, or at least to a large extent, of governments.

China today produces 1/3 of all electronic products or components used on the planet. Someone will think your idea is that they control more than that third but look at it from another point of view. It is crazy that in a “technologically dependent” world a single country controls one third of the world’s production.

In addition to being a global risk, it is itself insane.

But just as Panasonic moved from Japan to China for money, many others are doing the same. The average wage cost of production in China is around $8.25/hour, while the average cost in ALTASIA is $3.0/hour.

China’s gross labor force is around 950 million workers, while ALTASIA’s is much higher at 1.4 billion. And curiously the number of people with tertiary education -i.e. education beyond, let’s say, compulsory education- is 155 million in ALTASIA against 145 million in China.

But in addition to all these macroeconomic figures, there is something strategically critical: diversification. We no longer concentrate everything in China, but divide it into 14 countries, reducing the risk of sanctions, logistical problems, ……

“Manufacturing at $3 an hour instead of $8 an hour is a good incentive to offshore. The Chinese are tasting the soup they served us years ago”.

The question is, how did we get here? Well, the answer is easier than it seems. Humans are accommodating. As I often say, “why am I going to look for problems if they already come to me by themselves? Well, if I have many suppliers in China, I set up my factory in China and thus reduce the problems. At least logistical ones.

But as I said, things have started to change and have done so in a radical way. In the last two years the number of Japanese companies in China has dropped by 7%. Sony has moved its Chinese production center to Thailand. Samsung has decreased its Chinese workforce by 2/3 from its peak, moving much production to Vietnam where it is already the largest foreign investor. Hyundai has already opened its first electric car factory, not in Korea, not in China, but in Indonesia.

“The Chinese have promoted trade agreements among the countries of the region, which will allow for greater trade integration among them, to the detriment of China itself”.

But Apple’s main integrators, whose Chinese factories are famous, such as Foxconn or Pergamon, are moving their production to India, and it is expected that by 2025 at least 25% of all the world’s iPhones will come not from China, but from India. Dell has announced that by 2024 it will stop using Chinese chips. And so, I could fill pages and pages.

Incredible as it may seem, the various trade agreements, many of them promoted by the Chinese, have unintentionally led to greater economic integration among ALTASIA members.

The Regional Comprehensive Economic Partnership (RECP) includes, in addition to China, Bangladesh, Taiwan and India. This agreement aims to harmonize border rules for the movement of goods and especially intermediate products.

Japan and South Korea, the rich partners of the zone, signed the ASEAN (Association of Southeast Asian Nations) agreement with Brunei, Cambodia, Indonesia, Bangladesh, Laos, Malaysia, Singapore, the Philippines, Thailand, and Vietnam in 2020. Only two years later, Korean, and Japanese investments in the other partners of this agreement amount to USD 96 trillion, a figure already higher than that of South Korean investments in China.

But we cannot forget the puzzle that microchips are creating for the world economy. Firstly, because technological advances are far ahead of their production capacity and secondly, because the world’s largest producer is currently concentrating its production in Taiwan – perhaps because it is Taiwanese, TSCH – an island constantly threatened by the Chinese empire (because just as Putin thinks he is a Tsar, Xi thinks he is an Emperor).

Well, Malaysia already exports 10% of the world’s chips. It is important not to confuse the reader. Not all chips are the same and the main difference lies in size. The equipment we use has more and more technology in less and less space, which requires microprocessors to reduce their size while increasing the number of microchips they contain. These are not being manufactured in Malaysia, yet.

But Vietnam is also in the game. Intel is going to invest, or so it has said, 3.3 trillion in Vietnam to manufacture chips, just as Qualcomm, Apple’s main chip supplier, is already doing.

But let’s not fool ourselves, despite the speed of events, our dependence on China is still going to last, although just as Panasonic opened the spigot of the hole 35 years ago, another one has opened in the area, which in less than ten years will free to us, at least in part, from a yoke that we have put on ourselves.

“this change is going to be fast, the costs are imposing themselves, but not nearly as fast as we would like.”

Now it remains for us to prevent the Chinese from completing their conquest of Africa and Latin America, because we will complain about the colonialist ways of the Europeans and Americans, but the Chinese use the same ones.

One day I told a president of a Central American country that the first thing they would have to do was to raise the educational level of their youngest population, because if the Chinese colonization was successful, their compatriots would be more educated.

Ifthe Chinese colonization was successful, their poor compatriots would end up as “slaves” (*) of the Chinese.

The president paid no attention to me. Perhaps he was even offended by the truth.

(*)I use the word “slaves” as a symbol of unskilled people hired by foreign leaders to perform unsophisticated work for pittance wages.