17 May 2018

Why does ASEAN need China_ (1)

Asia's 21st century great game is being played through economic deals rather than war.

Trade, investment and the building of infrastructure where none exists are tools of geopolitics. Capitalizing on the need of three ASEAN countries - Cambodia, Laos and Myanmar for them, China is advancing its economically and strategically important Belt and Road Initiative (BRI). At present China is not engaged in a territorial dispute with any of these countries.

Sustained by its $12-trillion-plus economy China's latest defence budget - $ 175 billion confirms that its growing military power and economic influence rest on more than four decades of economic progress. China's territorial hawkishness alarms most of its neighbours in Southeast Asia, but it is the top economic partner of many of them.

A mix of trade and investment, unmatched by any other country, has helped China to make economic and political headway in Cambodia, Laos and Myanmar. China is ASEAN's largest trading partner and the top source of imports for many ASEAN countries. In 2017 China's trade with ASEAN was $ 514 billion, America's $ 273 billion, India's around $ 72 billion. Regional investment could help China to confront its rising labour costs and slowdown in potential growth as it contributes to development, economic and strategic connectivity in its geopolitical neighbourhood to further its interests.

Cambodia illustrates the gains China makes by giving economic largesse. The year 2018 celebrates 60 years of China-Cambodia diplomatic ties. As Cambodia's largest trading partner and source of foreign investment China has invested substantially in transport and energy/hydropower projects aligned with its BRI. In 2016, China's contracted investment in Cambodia touched $11.8 billion, accounting for 34.3 percent of Cambodia's total foreign investment. Recently Japan signed a grant and loan agreement with Cambodia totalling more than US $90 million to develop economic and electricity transmission projects in Cambodia's capital Phnom Penh. This is good news for both countries but it is not as much as China invests.

In 2016 bilateral trade between China and Cambodia was $4.8 billion. At the end of that year China accounted for 39 percent of Cambodia's imports, Japan 4.5 percent, the US for 1.5 percent and India for 0.76 percent. China accounted for nearly 36 percent of $732 million in bilateral aid for 2016 - nearly four times more than the US.

China is also increasing military aid to Cambodia. Already the largest arms supplier to Cambodia, China has given training to its army and will provide Cambodia's military with tanks and armoured personnel carriers. As the relations of both countries with the US turned sour, they displayed their strengthening military ties with the Golden Dragon exercise in south Cambodia in March 2018. China has thus gained a strong Asian partner that supports its positions on issues ranging from Taiwan to the South China Sea.

Ties between Laos and China reflect analogous trends. Chinese investment has been a major driver of their relationship. Now Laos's largest foreign investor and donor, China regards Laos as a good place for Chinese companies to operate.

It is also the second largest trade partner of Laos. Two-way trade values between Laos and its two largest trading partners, Thailand and China, were US$5.3 billion and US $2 billion respectively. India-Laos trade stood at a little over $233 million in 2016-17. Imports from India account for 0.34 percent, from the US 0.50 percent, from Japan 2.1 percent, from China 19 percent, and from Thailand 61 percent. China buys 40 percent of Laos's exports, India 2.8 percent, Japan 1.8 percent and the US 0.61 percent.

In 2015 China launched the first communication satellite of Laos. Linked to the BRI are the building of a hydropower project, a railway and cross-border tunnel to connect Laos to China. Wanting to increase connectivity in the ASEAN region, China is involved in the Lancang-Mekong project. The project is named after the Lancang River which originates on the Qinghai-Tibet Plateau in southwest China and is called the Mekong River as it flows through Myanmar, Laos, Thailand, Cambodia and Vietnam, before emptying into the sea.

China hails the project, with its sea, road and air traffic lines closely connecting key economic zones and development resources of the six countries, highlighting prominent cooperation advantages. Beijing and Vientiane share the view that it is turning Laos from a "land-locked" to a "land-linked" country.

Myanmar is one of China's top three arms buyers, and the two countries are bolstering defence and trade ties. Bilateral border trade between India and Myanmar stands at $50 million: a contrast to Myanmar's trade with China, which was around $6 billion last year. Thirty-four percent of Myanmar's imports come from China, 7 percent from India, 0.95 percent from the US. China buys 41 percent of its exports, India 8.9 percent. China will benefit by developing Myanmar's oil and gas reserves. The Industrial and Commercial Bank of China will be the main financial services provider for BRI projects in Myanmar.

Chinese companies are building a deep sea port at Kyaukpyu, on the Bay of Bengal. And the Sino-Myanmar oil pipeline a pioneering BRI project linking Kyaukpyu with Kumming in the southwestern Chinese province of Yunnan -will help China to shorten the time needed to import Middle Eastern oil by avoiding the crowded Strait of Malacca.

Questions have been raised by international institutions about the indebtedness of Laos and Myanmar to China, about disagreements between China and Cambodia over the building of railways, environmental damage caused by the Mekong project - and generally on the chances of the success of BRI projects.

But, the ineluctable fact is that no other country offers Laos, Cambodia and Myanmar as much as China. So they are drawn into China's sphere of economic and strategic influence. .

Unsurprisingly, China has secured their diplomatic support on the South China Sea dispute at ASEAN meetings. By pushing forth investment, trading and strategic interests through its ties with Cambodia, Laos and Myanmar, China is enhancing its regional clout and world prestige.

This brings to mind the next question -- What is the impact of China's influence on ASEAN's security in the foreseeable future?

Anita Inder Singh, a Swedish citizen, is a Founding Professor of the Centre for Peace and Conflict Resolution in New Delhi.