More likely, Southeast Asia and China will complement each other in an international division of labour, for example, with Southeast Asia providing the components and intermediate processing, and factories in China doing the final assembly for the Chinese market. The desire of MNCs to diversify their investments beyond one or two countries will also promote such an outcome. For our part, Singapore is actively positioning itself to benefit from China’s growth. When Chinese Vice President Hu Jintao visited Singapore recently, he proposed four areas for increased bilateral cooperation: high-tech industrial sectors, the economic development of China's western provinces, helping Chinese enterprises to exploit international opportunities, and the training of personnel and exchange of talent. Officials from both countries are pursuing these ideas. To help Chinese companies go international, Singapore has mooted the idea of setting up a base in Singapore to help Chinese companies market their products to the region and beyond. We are actively facilitating Singapore business ventures interested in China, providing market information, office space and consultancy services, and maintaining business networks. We have also launched an Asian Business Fellowship Programme, to develop a talent pool with operational experience, and network and market knowledge in China. Politics & Security Second, Southeast Asian governments must tackle the security problems resolutely and decisively. Terrorism is not unique to Southeast Asia. It is a global problem, originating in the Middle East, and spreading to every continent. Southeast Asia cannot be immunised against the terrorism virus.

But the dramatic and ongoing changes give investors hope and confidence that these problems will in time be overcome, making them feel that they cannot afford not to be in China. A second reason for Southeast Asia’s under-performance is the regional political and security situation. The Asian Crisis precipitated major social and political changes in many countries, deterring MNCs from committing to new investments in an uncertain climate. These overriding political concerns also distracted the governments from tackling urgent economic problems and implementing painful structural reforms to remedy weaknesses uncovered by the crisis. In contrast, South Korea’s aggressive post-crisis restructuring of its corporate sector has spurred a more rapid recovery. Most crucially, the Asian Crisis brought down the Suharto Government in Indonesia, and launched Indonesia on a new and uncharted path. For thirty years, a stable Indonesia, with a strong government focused on economic development, had provided a critical basis for confidence and peaceful cooperation in the whole of Southeast Asia. Suharto’s fall changed this. The subsequent Indonesian government abandoned Suharto’s longstanding policy of restraining political Islam, thus opening Pandora’s box. Islamic groups, including the militant ones, now wield considerable influence in Indonesia’s body politic. Indonesia’s political and social landscape has altered drastically and permanently, affecting the whole region. More recently, Southeast Asia has faced security problems from extremist Islamic terrorist groups linked to Al Qaeda. After September 11, such groups were discovered in Malaysia, the Philippines, Singapore and Indonesia.