Southeast Asian countries have no choice except to change their current model of economic development in the face of intensified competition from China, a top regional economist said yesterday.

"What choices does Asean have?" Andy Xie ( pic ), chief economist for Morgan Stanley, China asked.

"The fear is psychological but in the end, they must understand the options they have," Xie added.

According to him, Asean could either choose to retain its current model which relies on cheap labour and face the possibility of having no economic growth or find an alternative model within the framework of the proposed China-Asean Free Trade Area.

The economist who holds a doctorate in economics from the Massachusetts Institute of Technology, was speaking at a plenary session on the issues pertaining to Asean-China economic integration at the inaugural Asean-China Partnership Forum in Kuala Lumpur.

The three-day forum organised by the Malaysia-China Chamber of Commerce which brought together businessmen and corporate figures from both Malaysia and China, was officiated by the International Trade and Industry Deputy Minister Kerk Choo Ting yesterday morning.

"For Asean with more than 500 million people no growth is not a choice. Change is inevitable," Xie said.

Free-trade area

Xie was responding to a participant's comment that, specialisation in each country as demonstrated by the European Union (EU) model might not suit Asean as it has yet to find much competitive advantage over China.

According to Xie, the days when Southeast Asia could still harness economic surpluses out of cheap labour are gone as China is able to offer labour at a much cheaper rate.

Thus, Asean must change and search for an alternative model, he stressed.

Xie added that he sees no better option than to integrate with China under a common market although it means individual Asean countries have to find their own area of specialisation with a competitive advantage over China.

The China-Asean FTA would be realised in 10 years following an agreement by Chinese Prime Minister Zhu Rongji and Asean leaders during the Fifth Conference of Asean-China Leaders last November.

Under the arrangement, Asean countries will enjoy preferential tariff reduction and early access into China's vast market as well as becoming China's preferred investment destinations.

The FTA will have a common market of 1.7 billion population, gross domestic product of US$2 trillion (RM7.6 trillion) and trade volume of US$1.2 trillion (RM4.56 trillion).