China’s Southeast Asia Gambit

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China’s Southeast Asia Gambit

“China paradoxically presents both threats and opportunities to Southeast Asia.”

China’s Southeast Asia Gambit

Demonstrators display placards as they chant anti-China slogans outside the Chinese Consulate in Makati City, Metro Manila, Philippines (July 12, 2016).

Credit: REUTERS/Erik De Castro

Just prior to a flight to Beijing for the Belt and Road Initiative (BRI) Forum on May 14-15, Philippine President Rodrigo Duterte showered China with praise to a group of journalists. Referring to Chinese loans and investments for Philippine infrastructural development, Duterte announced that “one thing is very certain actually: China, in all good faith, wants to help us.” But just days later, Duterte provided a startling revelation: President Xi Jinping had informed him that China was prepared to go to war if the Philippines drilled for oil in disputed parts of the South China Sea.

Duterte is not known for soft and diplomatic language and both the Chinese and Philippine foreign ministries have downplayed his comments. Yet Duterte’s remarks reflect the longstanding reality facing Southeast Asian countries in the face of China’s growing economic and military prowess – China paradoxically presents both threats and opportunities to Southeast Asia. Any Chinese attempt to embrace Southeast Asia, such as through the BRI, is likely to be met with strong suspicion.

Since the late 1990s, China’s relationship with Southeast Asia has improved significantly. In 1999, China initiated its “go out” policy, which encouraged Chinese enterprises to invest heavily in neighboring countries, including those in Southeast Asia. Since then, trade between China and ASEAN member-states has risen tenfold, from $41 billion in 2000 to $492 billion in 2015. In 2010, China and ASEAN launched a free trade agreement, which skyrocketed China’s place as a top three trade partner for all ASEAN member-states.

China’s rapid economic rise transformed its image in Southeast Asia, from a country once associated with communism and military aggression to one with prosperity and growth. Outside of the Philippines and Vietnam, China is viewed relatively well in Southeast Asia, with over 50 percent of Indonesians, Thais, and Malaysians perceiving China’s economic growth to be a good thing. Trade with and investment from China have thus become important factors driving China’s relationship with Southeast Asian countries. It is thus unsurprising that the BRI has also been framed in an economic light.

The BRI is an ambitious multibillion-dollar campaign for infrastructural development that Beijing hopes will kick-start a new era of trade and development across Asia, Europe, and Africa. Through the China Development Bank and Silk Road Fund, Beijing has set aside around $1 trillion to make concessionary loans for over 900 infrastructure projects in 60 developing countries that include projects to improve connectivity. Yet the purpose of the BRI goes beyond economic matters. In an effort to project China’s “peaceful rise,” the ethos of the BRI seems to be rooted in the Xi administration’s philosophy of “building a human community with shared destiny.” Beijing has rejected claims that the BRI has any underlying geopolitical basis, but as the BRI is held in conjunction with a series of disputes in adjacent seas, such as the South China Sea, it is difficult for observers not to speculate about the BRI’s geopolitical dynamic.

Southeast Asia and the BRI

Southeast Asia has become one of the primary focuses of the BRI, which includes projects like the China-Laos high-speed railway, hydropower plants in Cambodia, and Indonesia’s first high-speed railway, connecting the cities of Jakarta and Bandung. While Beijing has yet to present a clear BRI strategy, Southeast Asian countries have been quick to approach China to request loans or investments for region’s many infrastructure projects. Duterte and Malaysian Prime Minister Najib Razak have often been singled out as the BRI’s biggest supporters in Southeast Asia, as both leaders have made relations with China a centerpiece of their economic diplomacy. Jakarta has also increased its rapport with Beijing in an effort to attain the necessary funds for the Joko Widodo administration’s ambitious project to develop both land and port infrastructure.

Yet behind the diplomatic gloss and optimistic praises of China’s BRI lie major kerfuffles in financial delivery and the sustainability of constructing these investment projects. Corruption, bureaucratic red tape, and failure to attain necessary funds have left several projects in limbo. For instance, Malaysia’s TRX City Company, which is owned by the Ministry of Finance, recently pulled out of an agreement with the China Railway Engineering Corporation (CREC) on the massive Bandar Malaysia railway hub project in Kuala Lumpur due to the CREC’s failure to meet their financial obligations. In Indonesia, the government has thus far shelved the Jakarta-Bandung high-speed rail project due to financial and land issues. Environmentalists have also voiced concerns regarding the environmental impact of BRI-funded infrastructure projects. There have been complaints in Laos, Vietnam, and Cambodia regarding the environmental damage and droughts from hydropower projects along the Mekong River. Infrastructure projects in the Greater Mekong Subregion, which links the Chinese province of Yunnan and the infamous “Golden Triangle,” have also brought concerns surrounding the negative side effects of economic transnationalization, such as people trafficking and drug smuggling.

Indeed, problems with corruption, lack of funds, and concerns with environmental sustainability are common in any infrastructural development projects. But the main problem with promises of Chinese investments and loans is that such pledges are often not met. For instance, only 7 percent of planned Chinese investments in Indonesia from 2005 to 2014 have been realized. China has also delivered little of the promised $26 billion in aid and assistance to Manila since Duterte came to power.

And here’s the rub: because good relations between China and ASEAN member-states are dependent on good trade and investments, when problems arise, China’s influence in Southeast Asia weakens. The BRI is thus a huge gambit for Beijing. What will happen if loan recipients are not able to pay back their loans? Will China utilize loans and investments as bargaining tools to partake in the “Finlandization” of Southeast Asian countries? Such is the dilemma facing Southeast Asian countries accepting Chinese loans and investments.

A History of Concern and Suspicion

China has projected the BRI as a benign project that seeks to bring “harmony, peace, and prosperity.” Government officials have continuously rejected claims that the BRI is a geopolitical conspiracy or a scheme to change the international order. Yet, for Southeast Asian governments, it is difficult not to take Chinese strategic interests into consideration when China’s charm offensive via the BRI coincides with its more assertive behavior in the South China Sea and elsewhere.

Moreover, negative historical experiences with China during the Cold War, as well as a general distrust of external powers in Southeast Asia, has meant that certain sections of Southeast Asian society are inherently suspicious of Chinese intentions. Since its 1975 unification, Vietnam has fought in a series of conflicts with China, including one in 1988, when China seized and occupied six reefs and atolls in the Spratly Islands. China’s increasing militarization of the South China Sea since the 2010s has thus brought back anti-Chinese sentiments in Vietnam. In Myanmar, China is sometimes associated with ethnic and border conflict and deep-seated economic grievances toward ethnic Chinese populations in Malaysia and Indonesia have resulted in negative sentiments as well.

China is thus viewed with suspicion in Southeast Asian society. Some of the region’s militaries are notoriously hardline when it comes to dealing with China; Indonesian and Filipino generals sometimes express public disappointment when they perceive their leaders “giving in” to Chinese demands. More so than relations with the United States or Japan, relations with China are held to a much higher scrutiny because of China’s close geographic proximity and more recent histories of diplomatic or armed conflict.

The challenge for China in Southeast Asia has always been to garner political trust. While Beijing has worked hard to project its rise as one that is peaceful, its actions in adjacent seas and elsewhere show contrasting images that make it harder for Southeast Asian governments to determine their best course of action. Nonetheless, as much as Beijing tries to sugar coat the intentions behind the BRI, strategic considerations and questions of China’s geopolitical intentions will always occupy the minds of Southeast Asian policymakers and society in particular. If preliminary results of BRI-related projects are anything to go by, and indeed the negative externalities of the project are increasingly evident, it seems unlikely that Beijing will be able to realize much of the investments in the region’s infrastructural projects. Southeast Asian policymakers are thus risking much of their own political capital by advocating Chinese investments. China must move away from its dependence on trade and investment as foundations of good relations with Southeast Asian countries.

Chinese Firms and the BRI

One factor behind the failure (or at least slow start) of some BRI-related projects involves the private and state-sponsored firms that participate in the infrastructural development process. While China remains a centralized and authoritarian one-party state, the Chinese state seems to be far more fragmented and deconstructed than normally perceived. The British Chamber of Commerce in China argues that the Chinese state is more akin to the European Community of the 1970s than it is to the federal United States. Additionally, as China’s economy grows and private sector interests expand beyond the Chinese state, Chinese foreign policy has been increasingly swayed by forces beyond the central government. The BRI is largely driven by powerful state-owned enterprises (including banks), as well as private firms, that have growing overseas interests. Yet a lack of policy coordination, as well as collaborative feasibility studies, end up affecting how projects are run.

Last year, Chinese property developer Wanda Group was forced to shut down its Spanish office after a decision to tear down the historic Edificio España for a revitalization project was met with public outcry. Accusations were thrown at the Wanda Group for lacking respect for the city’s culture and the Wanda Group decided to cancel the project altogether.

Ongoing discussions on the construction of the Penang Port in Malaysia have also come under attack with accusations that the Chinese firms involved have a lack of concern for local sensitivities, with critics pointing to practices such as hiring a lot of workers from China and retaining significant oversight and decision-making authority (as opposed to giving such control to local Malaysian firms). In a country where ethnic politics remain prevalent, such moves can be politically dangerous for both China and the Malaysian policymakers who approve the project.

Beyond the issue of poor understanding of local sensitivities, Chinese-funded projects have often been accused of lacking transparency and proper feasibility studies. In the case of the Penang Port, questions continue to linger over what the financial arrangements are between Chinese and Malaysian firms and what role the Malaysian state would play in the project. Without greater transparency, such projects could end up like the Petroleum Hub project, which was forced to be decommissioned in 2012 (despite predictions of completion by 2009) after the government spent more than 100 million ringgit ($23 million) on land reclamation.

There is perhaps something that Beijing can learn from Japan’s similar experiences with Southeast Asia in the latter decades of the 20th century. In the 1980s and 1990s, Japan, with a large current account surplus and slowing domestic growth, pioneered vertically integrated regional production networks in South Korea, Taiwan, and Southeast Asia. But this was preceded by former Prime Minister Takeo Fukuda’s 1977 “Fukuda Doctrine” as a model of relations with Southeast Asia. The Fukuda Doctrine strove to construct “heart-to-heart” relations with Southeast Asian communities by prioritizing engagements with non-government bodies in the region, such as think tanks, which worked together with their Japanese counterparts to identify the wants and needs of communities in Southeast Asia.

Through its Official Development Assistance (ODA), Japan underpinned its economic engagement with Southeast Asia with a strategy of socializing Southeast Asian think tanks and NGOs, which allowed Japanese policymakers to have a better understanding of the region’s interests and wants. Japanese research institutes, such as the IDE-Jetro, worked together with Southeast Asian counterparts to provide research on not only economic matters, but also on cultural and anthropological matters. Their studies also aimed to assist locals in Southeast Asia, not just provide assistance to Japanese businesses and government.

At present, in terms of policymaking, China has been heavily relying on its personal business network (guanxi) and most Chinese think tanks’ research seem to exclusively focus on Chinese stakeholders and private sector interests. Engaging society as a whole would not only allow China to further understand (and perhaps even deliver) the interests of Southeast Asian communities, but also win the hearts and minds of Southeast Asians. While it’s unlikely that such a move would completely tilt Southeast Asian perceptions of China to a more positive light (especially with China’s militarization of the South China Sea), it may improve people-to-people relations and project China as a helpful great power.

Gatra Priyandita is a Ph.D. candidate at the Coral Bell School of Asia-Pacific Affairs, Australian National University. His research looks at Indonesia’s foreign policy and relations with China.

Trissia Wijaya is currently a MEXT Scholar in the Graduate School of International Relations at Ritsumeikan University, Kyoto, Japan. Her research interests primarily lie on the international relations in the Asia-Pacific, Sino-Indonesia relations, and state-business relationships.