The Dark Side of Sino-ASEAN Relations

Image Retrieved from Xinhuanet

Image Retrieved from Xinhuanet

The ASEAN Economic Community has been a hot topic for many years, where China emerges once again as one of the most active dialogue partners. [1] However, before we proceed with the discussion, it is relevant to first understand why China is heavily involved in a region-specific integration to begin with.  

This question illuminates a major problem in the largely optimistic coverage of Sino-ASEAN relations: China’s extensive power in the ASEAN internal politics, and the lack of ASEAN mechanism to prevent China from having a free hand in the ASEAN region.[2]  

 

China’s power extends over the ASEAN interests

This is one of the greatest challenges that the ASEAN community needs to overcome before turning its attention to the fostering of economic trade. China’s power is especially prominent in the political strife regarding South China Sea, where China’s land reclamation activities have intensified in 2015, superseding the scales of its ASEAN counterparts. This includes the expansion of the land area of the islands by sucking sediments and transferring them on the reef, as well as constructing port facilities, military buildings and airstrips. In Derek Watkin’s words, “the installations bolster China’s foothold in the Spratly Islands, a disputed scattering of reefs and islands in the South China Sea more than 500 miles from the Chinese mainland.”[3]

From his remark, we see that not only is China’s activities causing harm to the environment, it is questionable whether China’s conduct complies with the United Nations Convention of the Law of the Sea.

China has, until now, defended itself under the name of “mutual benefit”. Yet, even behind this questionable argument of “mutual benefit”, it is clear that its national benefit overshadows that of others. During the enactment of ACFTA, the Chinese State Councilor Dai Bingguo said, “China will support the development of ASEAN-China free trade agreement (ACFTA) steadily and elaborately through close communication and negotiation with ASEAN, so as to seek mutual benefits and win-win results.”[4]

However, the extent to which this benefit is mutual is questionable, given that, since the establishment of ACFTA, ASEAN’s goods trade with China has gone from surplus to a $45 billion deficit in 2013?[5]

Prashanth Parameswaran explains China’s strategy as the following: an “incremental assertiveness, a two-pronged approach where China is gradually strengthening its position while cementing economic ties with neighboring states to draw them closer into China’s orbit, thereby making them think twice about challenging Beijing.”[6]

 

Lack of integration in ASEAN

The key challenge for ASEAN is that it has little common ground and it is a loose collection of countries with different economies at various stages of development. For example, the average GDP per capita for ASEAN as a whole was $12,254 in 2013, but ranged from Cambodia ($1,008) at the low end to Singapore ($55,182) at the high end (see Table 5). The World Bank classifies Singapore and Brunei as high-income economies, and the remaining eight ASEAN members as developing economies.[7] There has not been a united voice that contests that of China’s, and the ASEAN Way of going with the flow has resulted from this.

 

Ongoing Corruption in individual ASEAN countries

The current disparities in economic power are worsened with the major corruption scandals, such as Malaysia’s Prime Minister Najib Abdul Razak’s case of corruption of more than $600 million from state-run investment firm 1Malaysia Development Berhad (1MDB), Indonesia’s House Speaker Setya Novanto’s request for a 20 percent stake in a $4 billion company, and Philippines’ Vice President Jejomar Binay’s plunder charges related to past contracts he signed as a Mayor.[8]

The ASEAN region faces a twin problem, where China’s national interests are driving its aggressive policies and the ASEAN countries lack regional unity to counteract it. The first step that needs to be taken is to counter China’s autonomy by strengthening the voice of the ASEAN countries. Possibly, Singapore could take the lead as the region’s economic powerhouse, given its intimate relationship with China. These concerted ASEAN efforts could gradually help the ASEAN countries stand firmly by their economic and political interests.

An Overview of Current Developments: Sino-ASEAN relations

Image Credit: Mckinsey

Image Credit: Mckinsey

As we look back in 2015 at the development of Sino-ASEAN relations, terms such as ACFTA, ASEAN Economic Community and South China Sea might come to mind. There seems to be exciting developments brewing between China and ASEAN, but the news articles are quite disparate, with deep focus on only one aspect. This article will aim to tackle these relations from three broad dimensions: political, economic, and cultural.

Political

China and ASEAN’s territorial disputes concerning the South China Sea are not a new crisis. However of late, political leaders from China and ASEAN nations have set aside their geopolitical ideals to facilitate a dialogue towards the direction of promoting national interest by improving economic ties. China has achieved this by engaging in multiple bilateral agreements with each member state of the ASEAN community. The ASEAN committee, on the other hand, is adopting a less proactive approach of seeking common grounds, for the ends of multilateralism.[1]

Furthermore, each party is rich with resources that the other lacks. As Zhang of China Council for the Promotion of International Trade (CCPIT) has stated, “Chinese market has a strong demand for farm produce, mechanical processing and marine products, and those make up the bulk of ASEAN's exports to China.”[2]

China continues to play an important role as a global manufacturing base. These interests have taken the form of organizations and dialogue platforms, such as the ASEAN-China Summit, ASEAN Regional Forum (ARF), ASEAN-China Defense Ministers' Informal Meeting, and ASEAN-China Joint Cooperation Committee (JCC).  

Economic

China’s aggressive efforts to strengthen its presence in the ASEAN region have led to extensive economic collaboration in response. According to China’s Ministry of Commerce, trade between China and ASEAN increased by 9.2 % in the first quarter of 2012, while only 2.6% between China and EU and declined by 1.6% with Japan.

He Weiwen, Co-Director of China-U.S.-EU Study Centre at the China Association of International Trade, predicts that this trend is likely to continue, "China's trade with ASEAN will increase faster than with the U.S. and EU, and ASEAN is likely to become China's largest trading partner in the coming years," [3]

Though the economic collaboration ACFTA (ASEAN-China Free Trade Agreement) is the third largest Free Trade Agreement, in order to accommodate the heterogeneous member states interest, ACFTA has achieved little more than reducing tariffs and requirements for goods shipping. It is questionable whether this platform is truly a mutually beneficial one, for, since the establishment of ACFTA, ASEAN’s goods trade with China has gone from surplus to a $45 billion deficit in 2013.[4]

The current economic platform will transit into ASEAN Economic Community at the end of this December that will enact a single market and production base. Not surprisingly, China is one of the major dialogue partners between the member states, reflecting China’s position in this new milestone.

Cultural

Although cultural aspects of the Sino-ASEAN seldom appear in the spotlight, they show the holistic approach governments are using to achieve their political and economic interests. Cultural programs have appeared in two forms: (1) regional initiatives, (2) bilateral initiatives.

One regional initiative is the First Senior Diplomatic Officials’ Meeting of Lancang-Mekong River Dialogue and Cooperation held in Beijing this April. China and Thai’s Foreign Ministers co-chaired this conference, and senior officials from Cambodia, Laos, Myanmar and Vietnam attended the meeting. Meetings such as these have often concentrated on sustainable development in terms of environment, with goals to create a cooperation mechanism.[5]

Bilateral initiatives often manifest themselves in the form of non-profit organizations such as China Myanmar Friendship Association (CMFA). The CMFA was reestablished in 2010 by the Chinese government entrusted organization Chinese People’s Association for Friendship with Foreign Countries (CPAFFC). In March 2015, the delegation of the CMFA met the Chinese Vice Minister of Foreign Affair Liu Zhenmin and other government officials. At the same time, another meeting with the foreign ministries officials from Myanmar and China in the Shan State border town of Muse was held to discuss about restoring law and order in their border area. Was it a coincidence that the ‘friendly’ meeting with CMFA that states “friendship between China and Myanmar, and to safeguard world peace” as its mission took place on the same week as another meeting regarding tensed territorial issues? [6]

In summary, across three dimensions, we have seen China’s critical role in “improving mutual ties”. It is also clear that China’s method of systematic and strategic usage of bilateral negotiations regarding socio-political issues in the ASEAN region has drawn a path for the region to follow, and the ASEAN Way has prevented a unified ASEAN voice to be projected clearly. Furthermore, nations that hold strong economic stake with China (basically all the ASEAN nations) hesitate a full confrontation with China regarding territorial issues.[7]

China has managed to gain another platform to extend its state-owned enterprises, but it is too early to conclude whether ASEAN is on the right track with China. But history shows that there are setbacks to relying on a single economic partner, and wiser long-term strategies through dispersing ASEAN’s trading partners should be considered.

China-ASEAN Maritime Silk Road: A Path Towards Mutual Benefits or China’s Free Ride into ASEAN?

Image Credit: Southchinasea.com

Image Credit: Southchinasea.com

“The Tang Dynasty opened up the Silk Road one thousand years ago in order to sell silk, tea and porcelain to other parts of the world. Five hundred years ago, Zheng He, the famous diplomat navigator of the Ming Dynasty, led seven maritime expeditions to seek friendly ties with other countries, taking along China's exquisite products, advanced farming and handicraft skills.”[1]

 

This is an extract from Chinese Premier, Mr. Wen Jiabao's speech at Harvard University in 2003, where he proudly referenced to the Silk Road and the maritime cooperation as China’s greatest achievements in history.

 

Positive impacts of Maritime Cooperation

The benefits that arise from the infrastructure construction procured by the Maritime Silk Road Bank and Asian Infrastructure Investment Bank (AIIB) will undeniably be immense. China will contribute half of the $100 billion USD in capital for the AIIB, $40 billion in capital for the Silk Road Fund, and attract $16 billion in investment for the Maritime Silk Road Bank. This initiative will especially benefit marine industries, by creating the basic infrastructure that the ASEAN businesses lack. [2]

Beyond infrastructural gains, this initiative has been the common ground for both China and ASEAN to put aside their political differences to pursue mutually beneficial plans. The main motive for the Maritime Silk Road was to pacify neighboring countries threatened by China’s aggressive territorial claims in the South China Sea. 

 

Challenges that need to be overcome

However, Chinese leaders and the state media’s claims of “peaceful economic development absent from political strings” may be too idealistic. Indeed, China has continued its unilateral claims and expanded its territory in the South China Sea, turning reefs into islands, complete with airstrips that could be used by the People’s Liberation Army. Implicitly, this could potentially facilitate more frequent People’s Liberation Army Navy (PLAN) deployments in the Indian Ocean.

At present, China is at a serious disadvantage due to U.S. Navy presence and the predominance of allied navies. Beijing is thus seeking to align its investment and trade policies to those of ASEAN, in attempts to forge closer China-ASEAN ties given the brewing tense atmosphere. [3]

Thus, the Maritime Silk Road aims not only to accrue economic benefits, but to also expand its economic penetration of Southeast Asia.

 

What can be done?

The Maritime Cooperation should not be a primary concern that ASEAN nations hold on to, but a component of numerous other opportunities. This could be done by actively seeking trade and social cooperation within its region, and blazing its own trail to other less prominent partners – such as neighboring Southeast countries or other emerging markets in South America or Africa.

One ASEAN country would Singapore. Singapore, one of the first countries to sign a bilateral FTA with China, have moved forward to diversify its trade partners through signing a total of 32 (most FTA agreements in the world) FTAs internationally.[4]

Other than its proactive approaches, Singapore has also held China at considerable stakes through its high investment in China. Between 2003 and 2013, cumulative Singapore FDI in China stood at $44 billion, accounting for fully 41 % of all ASEAN investment. Furthermore, the sectors that Singapore is investing in China are decentralized and spread across various industries: logistics, finance, electronic information, equipment manufacturing, chemicals, automobiles and motorcycles, consumer services, and pharmaceuticals. These efforts have placed both countries on equal footing, and both countries have since collaborated in important infrastructure projects in China (Sino-Singapore Tianjin Eco-city project, building Datansha Island in the provincial capital of Guangzhou, and Sino-Singapore Guangzhou Knowledge City)

It is Singapore’s role to stress the combined ownership that the ASEAN region has, and delineate the limit to which China can dominate. This will set the stage for a mutually beneficial partnership between China and ASEAN.

Contest for control in the ASEAN region: China, Japan, U.S. or ASEAN?

Image Credit: Shindo Maaya

Image Credit: Shindo Maaya

While media spotlight has been on Africa’s various civil wars, ongoing conflict in the Middle East, ThIailand’s coup d’etat, and the international war against terrorism, another battle has gone largely unnoticed. The battle for the virtual ownership of the ASEAN region.
 

Recent rise of power – China

One recent contestant is China. Since the ASEAN-China Free Trade Area (ACFTA) in 2008, Chinese presence and its intimate economic relationship with ASEAN are undeniable.

China’s fight for influence is not restricted to the domain of trade, but also through foreign aid. A recent effort is its establishment of the Asian Infrastructure Investment Bank (AIIB) in 2015. The AIIB will focus on the development of infrastructure and other productive sectors in Asia, including energy and power, transportation and telecommunications, rural infrastructure and agriculture development. Much of Southeast Asia is in need of such investment. However, the AIIB and the Maritime Silk Road (read above article) will increase China’s weight in ASEAN’s decision making. Thus, as the ASEAN nations prosper, China continues to have a piece of the pie (if not more than the ASEAN nations themselves). [1]
 

Traditional Influence –Japan

Another player has quietly accumulated its efforts, rarely flaunting its plans to stop China from holding full control in this area: Japan. Japan has had deeper ties with ASEAN countries prior to China’s recent big move to dominate the region with its resources. Since the post-war period, Japan began its relations with ASEAN through contributing significant amount of ODA. In 1973, Japan first established informal dialogue relations with ASEAN, her first partner for the region. Japan and ASEAN trade extensively, and Japan also invests almost a third of its total funds to ASEAN; globally, Japan is only second to EU. Japan and ASEAN have created partnerships such as the ASEAN-Japan Comprehensive Economic Partnership (AJCEP) in 2008 in order to consolidate all their bilateral FTAs and create one accumulated agreement.[2]

Furthermore, in the ASEAN Business and Investment Summit 2015, Japan’s Prime Minister Shinzo Abe announced new regulations and stimulus packages in the ASEAN region. These include, over the next five years, Japan (under the Asia Development Bank (ADB) infrastructure financing at a scale of US$110 billion, JICA and the ADB will undertake US$10 billion in co-financing, JICA’s investments of up to US$1.5 billion towards private sector projects, and equity investments through the Japan Bank for International Cooperation (JBIC). Through these diverse assistance and partnerships, Japan is certainly striving to maintain its presence in ASEAN.[3]
 

ASEAN nations can have sovereignty over their own region

The ASEAN nations have also taken initiative to maintain sovereignty through a platform where their voices can be projected uninterruptedly by foreign power: the ASEAN Economic Community. The agreement of all 10 member states to collaborate into one greater entity shows signs of willingness to bridge the enormous disparities of the ASEAN nations. This holds great hope for the ASEAN nations to remain autonomous despite increasing international pressures.

Here, we observe a changing trend – a trend that shifts away from the reliance on the often-unfair structure of developed countries’ aid, to one where developing countries look to emerging markets for socioeconomic collaboration. This is a huge paradigm shift, and a positive one at that.

Not only is this trend seen in regional agreements, it is also starting to emerge in bilateral movements within the ASEAN region. For example, Thailand and Vietnam have been pursuing close communication tis. In 2012, an official Taiwanese delegation headed by Deputy Foreign Minister Nonrischai Jullapong, visited Nicaragua to discuss business opportunities such as an increase in trade and investment. Nicaragua has facilitated Thailand’s efforts by promoting itself as a springboard to Latin America to Thai investors, raising aspects such as low labor costs and the 10-year-tax-exemption policy.

Vietnam is also looking to Latin American nations, such as Peru. In 2014, a key milestone was the establishment of economic ties between these two countries, started with the launching of the first commercial oil flow in Peru as a result of co-operation between the major oil companies in both countries, PeruPetro and PetroVietnam, and Vietnam’s 3G telecommunication service provider, Viettel, for more than one million Peruvians so far. In Vietnam, the presence of Peruvian companies has been led by the AJE group, a beverage making corporation, and Aqua Expeditions. Their commercial relationship has grown more than 84 % in just one year, and is predicted to strengthen further by signing the Intergovernmental Commission on Economic and Technical Co-operation, a bilateral agreement that will increase economic relations once established.[4]

Naturally, by breaking away from the long-trodden path formulated by developed countries, emerging countries will face greater risk. Furthermore, in order to address the desires increasingly seen in the SMEs of these emerging markets, the obstacles – resource constraints and networking capacities – must be addressed. These challenges require ASEAN to review the current business structure that emphasizes the success of ASEAN large companies, and revise accordingly. Each government in the ASEAN region will need to help alleviate the costs that ASEAN SMEs face, including high production costs.
 

Information Technology Platform

In order for greater initiatives that encourage emerging market to emerging market relationship, an increased support using information technology is critical to its widespread. Instead of solely relying on the government’s volatile funds, the ASEAN businesses can utilize the existing frameworks they hold with countries of greater resources, such as China, Japan, U.S., and E.U. The aforementioned ACFTA, AIIB, AJCEP, and private FDIs will cause sustained and increased flow of capital into ASEAN. It is incumbent for ASEAN nations to persist with strategic dialogue among themselves as well as with other emerging markets in different geographical locations.

The ASEAN Economic Community: A Preliminary Step Towards ASEAN Integratio

Image Credit to www.theantdaily.com 

Image Credit to www.theantdaily.com 

As ASEAN-China trade ties strengthen, major corporations have started to make the international headlines. China’s Road and Bridge Corporation, for instance, have benefited from tariff reductions, and other ASEAN MNCs have actively exported intermediary goods and electric components to China.[1]

However, in the midst of rapid trade growth, a pressing question remains: how will these transnational business negotiations affect SMEs in emerging markets?
 

Unrecognized Presence of SMEs
Given the sheer scale and job-providing power of SMEs, their piece of the pie cannot be understated. In ASEAN economies, SMEs account for 97 to 99.9 % of all enterprises. This is a significant weight.
 

Solutions needed in the current ACFTA

The ASEAN-China Free Trade Area (ACFTA), enacted in 2010, is said to have been the impetus that emerging markets needed. The key motivations of ASEAN for ACFTA include accessing the growing Chinese market and create one of the world’s largest trading areas.[2]

However, the gains of ACFTA for ASEAN remain unclear. Various ASEAN communities expressed that they have not received the benefits that the governments and large enterprises reaped. In particular, the gripes revolve around ACFTA encouragement of the specialization of industries and importation of cheap Chinese products, reducing the market share and competitiveness of local ASEAN SMEs.[3]

While the economic and trade liberalization are bound to have long-term benefits for the local industries, it is critical that governments strengthen the SME sector through funding and incentive programs in order to ensure the competitive advantage and quality of their goods.[4] Unfortunately at present, government policies’ prove to lack foresight. In order to quell the locals’ demands to eradicate the ACFTA, the Indonesian government resorted to non-tariff barriers and quotas, which further encouraged nepotism.[5]

 

ASEAN Economic Community – Potentially SME-Friendly

To fully benefit from the ACFTA, ASEAN should first keep its momentum with the ASEAN Economic Community (AEC) and emphasize its unity. The four pillars of the AEC are (1) Single Market and Production Base, (2) Competitive Economic Region, (3) Equitable Economic Development, (4) Integration into the Global Economy.[6]

The AEC is expected to accelerate business transactions, increase the flow of goods and information, and boost the resilience of SMEs. However, AEC’s efforts to create a business-friendly environment could widen existing disparities. Furthermore, due to the increased push for privatization and liberalization, the AEC could be detrimental to the locals in the longer run, in undermining the competitiveness of small-scale farmers.[7]

 

Increasing Local Business Opportunities through Inclusive Pathway

What can be done? The Ibon Foundation offers an alternative AEC, an integration that is “truly people-centered by abandoning the market-led growth strategy and focusing more on people’s concerns such as food sovereignty, climate change, and respect for human and collective rights.”[8]

This approach requires a shift away from heavy reliance on the economy as the primary indicator of quality of life, to one where the state considers social factors along with basic economy.[9]

If we can achieve a shift away from liberalization (Pillar 1) to preparing SMEs to face the global competitive economy (Pillar 3) through concrete mechanisms of human development, R&D support and brand development, we may be able to witness a reconciliation of the local business concerns with expansion goals of MNCs. Only when these gaps are narrowed can a level playing field for SMEs emerge.