In China's shadow

In China's shadow

Economic potential of closer relations between Beijing and Asean is indisputable, but political and security irritations keep getting in the way

Home to 1.3 billion people spread across a land area of 9.6 million square kilometres, China is a force to be reckoned with. "When China sneezes, the world catches a cold" sums up the profound impact the world's second largest economy now has on global affairs.

But as mighty as it seems, China alone cannot command absolute respect and compliance on the international stage. Support from regional neighbours is crucial if Beijing wants to cement its status as a political and economic powerhouse. Bringing the 10 states of Southeast Asia into its sphere of influence is especially important, but the jury is still out on whether that influence will be benign.

China's growing influence in Asean is already potent. For a start, it accounts for the largest share of bilateral trade with Asean, at US$345 billion last year, or 15% of the total.

"We can also see China's growing footprint from the Asian Infrastructure Investment Bank and the One Belt One Road initiative as well as tourism and outward investment. Most vividly, we can see now that China has a virtual veto on Asean's joint statements when they impinge on the South China Sea issue," Thitinan Pongsudhirak, director of the Institute of Security and International Studies (ISIS) at Chulalongkorn University, told Asia Focus.

Massive amounts of Chinese capital have also been channeled into developing Southeast Asian economies for infrastructure projects, notably through loans worth $10 billion to Asean member states late last year and a $480-million loan to build the Laos-China high-speed railway earlier this year.


There is another saying that when China grows, Asean will grow with it. But every time China shakes, all of East Asia feels the impact, said Surin Pitsuwan, the former secretary-general of Asean and a former foreign minister of Thailand.

Such a notion is not an exaggeration given that China's gross domestic product (GDP) equates to 18% of global GDP, valued at around $11 trillion compared with Asean's collective GDP of $2.5 trillion, he said.

"We can say that we are overly exposed to China," he said. "We have been too dependent on China. 'China please consume, please keep coming [to Asean], please keep importing ...' and the next thing we know we are in trouble."

Asean, however, has had no choice lately but to further gravitate toward China, Dr Surin said, pointing to the fallout from the economic crisis that began in the United States in 2008 and is still being felt in terms of weak economic growth in North America and Europe.

At the same time, Asean has become an important platform for engagement in global affairs, he said. The East Asia Summit has shown that Asean leaders have to admit new countries to be part of the forum discussion, with the US and Russia as notable examples.

Chinese foreign direct investment (FDI) has also been significant in developing Asean countries, notably Cambodia and Laos, according to the Asean Investment Report 2016 compiled by Asean and the United Nations Conference on Trade and Development.

Chinese FDI accounted for 32% of FDI flows into Cambodia last year, mostly concentrated in the manufacturing industry. Chinese FDI inflows into Laos were a massive 62%, mainly for power plants. In total, FDI from China ranked fifth last year with a value of $8.2 billion, making up 6.8% of all FDI flows into Asean.

The influx of Chinese tourist arrivals in Asean is also highly visible. Despite occasional controversies surrounding Chinese tourists' behaviour, their spending is an important source of income for the services sector in the region.

The number of outbound Chinese tourists reached 59 million in the first half of this year, up 4.3% from the same period of 2015, according to the China National Tourism Administration. Indonesia, Malaysia, Thailand, and Singapore were among the top seven destinations.

Ren Yisheng, the consul-general of China in Chiang Mai, said there were approximately 2 million overseas Chinese residing in Thailand's northern provinces, while the number of Chinese tourists visiting Thailand was expected to reach 10 million this year.

"It is a pity that China's bid to build the bullet train between Bangkok and Chiang Mai failed, but the good thing is that at least the railway link between Kunming and Bangkok has succeeded. I am sure that in terms of infrastructure construction, there are still a lot of potential areas to dig up," said Mr Ren.

Despite having benefited disproportionately from a global rise in tourism numbers, Asean countries cannot afford to be complacent, said HSBC economist Nalin Chutchotitham.

Except for Singapore, Asean remains a laggard in global tourism competitiveness, which encompasses the vital factors of infrastructure, conservation of natural and cultural heritage, and quality of services, she said.

"Failure to address such weaknesses will risk squandering Asean's current advantage, not least if other less controllable risks -- namely, security and health scares -- deliver a blow to this vulnerable sector," said Ms Nalin.


The South China Sea, meanwhile, remains a contentious issue between China and four Asean member states: Brunei, Malaysia, the Philippines and Vietnam. Encompassing the Malacca Straits to the Strait of Taiwan with an area of 3.5 million square kilometres, the sea is a strategic location for trade and maritime activities, and also is believed to contain a huge amount of untapped oil and gas reserves.

China has not been timid about asserting its claim over vast swathes of the South China Sea. In 2014, the state-owned China National Offshore Oil Corporation set up an oil rig off the Paracel Islands. The move sparked violent protests in Vietnam as China's exploration was seen as a provocative attempt to exert its claim over the contested waters. As a result, thousands of Chinese nationals had to be evacuated from Vietnam due to strong anti-Chinese sentiment.

"China needs to be seen as a benevolent global leader undertaking commensurate international roles and responsibilities. Being seen as a petulant bully is not in China's interest. In the South China Sea disputes, China has exerted more hard than soft power," Dr Thitinan said.

China so far has got away with claiming and constructing artificial islands in violation of international law, creating a new status quo, said Dr Thitinan. That activity might be curbed now that the Permanent Court of Arbitration has ruled in a landmark case in favour of a Philippine claim, although Beijing refuses to recognise the ruling.

Beijing's efforts to assert its claims have included the building of infrastructure such as runways, buildings, loading piers, and possible satellite communication antennas. This has caused jitters among Asean countries and the United States, considered as their key ally, since they are concerned whether this is solely for civilian purposes as claimed by the Chinese government.

According to the Council on Foreign Relations, China's land development has profound security implications. The potential to deploy aircraft, missiles and missile defence systems to any of its constructed islands vastly expands China's power projection, extending its operational range south and east by as much as 1,000 kilometres.

"China has played a divide-and-rule game vis-à-vis Asean's mainland and maritime states. The best we can hope for now is a new status quo where China stops what it is doing in the South China Sea, de-militarises and civilianises the area, and, most importantly, genuinely works with Asean for an accelerated Code of Conduct," Dr Thitinan said.

As a veteran diplomat with an expertise in regional affairs, Dr Surin recalled Asean efforts to work toward a joint code of conduct in the South China Sea dated back to 2002.

"But lately the South China Sea has become a contentious issue, an issue that creates misunderstanding and mistrust," he said.

Disputes over the South China Sea territories should be resolved through international laws and norms, he said, noting that the 2002 Declaration on the Conduct of Parties in the South China Sea was a starting point although it took another nine years before specific conduct guidelines were agreed on.

Even today, Asean is still working on a final Code of Conduct, which will include norms that can be adhered to by China and Asean collectively, while the United Nations Convention on the Law of the Sea can also be adopted to resolve the South China Sea disputes.

However, he conceded that it will take time for Asean to work incrementally on the Code of Conduct, citing the 2002 declaration as an example. "The South China Sea opens the door for external engagement but if we could manage our affairs effectively then external influences will not be important."


Mr Thitinan said it would be increasingly difficult for Asean to reach consensus on certain hot issues, such as the South China Sea. Asean states have divergent interests and these interests are driven by geography, economic interest, political regime types and leadership dynamics in each individual country.

"Asean needs to close ranks and not allow China to divide it. Regional unity would enable the organisation to entice China to play by the rules toward a workable new regional order, particularly under a proposed Code of Conduct for the South China Sea," he said.

If Asean cannot find a way to ensure long-term peace, it may not be able to maintain its economic expansion. The group's divisions over the South China Sea, with largely maritime states more critical and confrontational toward China and inland members more supportive and sympathetic, have not led to intramural conflicts within the regional organisation.

"The exacerbating political damage, however, will increase the risks of an armed confrontation between China and maritime Asean states, supported by sea powers such as the US and Japan." Philippine President Rodrigo Duterte muddied the waters recently, indicating a preference toward closer ties with Beijing, according to the Manila Times.

While proclaiming a "neutral foreign policy", he said he might visit China more often to discuss issues related to the "West Philippine Sea" (South China Sea), including fishing rights for Filipinos in the disputed waters. Some observers are concerned that Mr Duterte will rush to cobble together a deal with Beijing that could have consequences for other Asean states with maritime claims.

Dr Surin, meanwhile, recalls how former Singapore prime minister Lee Kuan Yew frequently eased concerns about China's rise by saying the process would be peaceful. But lately there is concern that its rise will not be as peaceful or as stabilising Asean had hoped for.

"If we cannot settle this problem, then it is going to be an issue of uncertainty and confidence erosion," he said.

In the economic realm, it is now imperative for China and Asean members to speed up the Regional Comprehensive Economic Partnership (RCEP) negotiations in order to upgrade economic relations to the next level, said Zhang Yuyan, the Beijing-based director of the Institute of World Economics and Politics of the Chinese Academy of Social Sciences.

The RCEP is a multilateral free trade agreement between the 10 Asean member states and six other countries -- Australia, China, India, Japan, South Korea and New Zealand.

The current free trade agreement between China and Asean is still significantly underutilised, reaching only 6% of its full potential, compared with the 60% utilisation rate of the North American Free Trade Agreement, said Dr Zhang.

"Moving ahead, economic cooperation [between China and Thailand] might require a new module or trade sector, such as the tourism industry," he said.

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