Abdullah said it was crucial for the region to pool its resources and create a mass market of half a billion people to "position ourself in competing with China and India, the two giants of Asia that are coming up very, very quickly."

He told a two-day economics conference here that Malaysia did not view China as a threat but more of an opportunity due to its huge consumer market and as a challenge for the country to improve its competitiveness.

"A big economy like China is certainly an opportunity for us if we do not do the same thing that China does in producing goods cheaply because of the advantage of cheap labour cost," said Abdullah, who is also finance minister.

"We can find a niche for ourselves by producing quality goods using high technology. We need to be competitive."

UBS head of Asia-Pacific economics Jonathan Anderson told the conference that Asia has rebounded strongly after the 1997-98 regional financial crisis but economic integration remained a huge challenge.

"It is clear that Asia is back on its feet but Asean today remains a distressingly fragmented place. Asean needs to compete as a whole rather than individual states," he said.

Asean comprises Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.

The regional grouping hopes to have its own free trade area beginning 2010 and a European-style single market 10 years later. It is negotiating with China to create the world's biggest trade zone and similar plans are in the works with South Korea and India.