South-east Asia: A wider radius
 
By Tim Johnston
Financial Times
Published: January 27 2010
 
When Laos won its bid to host last month’s South-East Asian Games,
China offered to help the tiny nation by building a gleaming new venue
on the outskirts of the capital Vientiane. The facility included a
“natatorium” for swimming and a stadium for soccer. But for the
Laotian government, such generosity would not come cheaply.
 
China’s Suzhou Industrial Park Overseas Investment Co was promised a
50-year lease on 1,600 hectares of land on the outskirts of the
capital in return for building the venue. But an exceptional public
backlash, fuelled by news that the Chinese intended to bring in 3,000
labourers to do the job, forced the government to cut the size of the
concession to 200 hectares and promise to find extra land elsewhere to
compensate for the loss.
 
The episode illustrates both the gravitational pull exerted by China’s
economic and strategic might, drawing the nations of continental south-
east Asia into a tighter orbit, and the counterveiling tensions that
are becoming apparent as a result. Economic and diplomatic imperatives
are starting to clash with nationalist fears of becoming – in many
cases not for the first time – satellites of Beijing.
 
In Vietnam, Chinese plans to mine bauxite have run into heavy public
criticism; in Cambodia, farmers and fishermen are worried that their
land and water are being bought up; even in Burma, which has few other
friends, China’s growing stature and self-confidence are being watched
with a degree of trepidation.
 
It is not just within the region that there are worries. For years,
south-east Asia has provided a cheap and dependable reservoir of
labour for international manufacturers. While western investors
struggle to make a profit in China, the fat margins on Vietnamese T-
shirts or Malaysian hard drives have boosted many a multinational’s
balance sheet.
 
The threat to the delicate regional balance is being taken
increasingly seriously both within Asia and outside, particularly
given a flurry of recent arms purchases by Vietnam, Thailand and
Burma: all countries where the military sit close to the centre of
political power.
 
The fears on the streets of Asian capitals and in the boardrooms of
the west have forced the governments of the region into a delicate
balancing act. Given China’s sensitivity to criticism, they are having
to tread a fine line between placating the concerns of their citizenry
and keeping Beijing on side, while also reassuring investors. “There
is a difference between what the politicians say in public and what
the population feels,” says Malcolm Cook at the Lowy Institute for
International Policy in Sydney.
 
In many ways, China’s proximity is a blessing for its neighbours. In
the longer term, the rise of China as a power has given south-east
Asia a renewed geostrategic relevance in keeping with its economic
heft. The 10 members of the Association of South East Asian Nations
comprise nearly 600m people and have a combined gross domestic product
of some $1,500bn (€1,065bn, £925bn).
 
When Hillary Clinton stood on a podium at an Asean summit in Thailand
last year and told her audience, “We’re back,” her immediate reference
was to the wilderness years of US foreign policy under the
administration of George W. Bush. But for many, America’s south-east
Asia policy has been in a torpor for almost two decades. Jim Webb,
Democratic chairman of the Senate subcommittee on east Asian and
Pacific affairs, this week described the region as “a long-overlooked
area of our foreign policy, rooted in the often contradictory
standards we have used in the past and still use today in defining the
underlying parameters of our relationships with different countries
and different governmental systems”.
 
China’s willingness to spread its largesse without the troublesome
conditions regarding human rights that Washington commonly appends to
its assistance has also been welcomed in a region that has a rocky
relationship with democracy. The result is a renewed competition for
influence among the four regional powers: China, India, Japan and the
US.
 
“Asean is going through one of its sweetest moments in its history
because it has four suitors interested in it,” says Kishore Mahbubani,
a professor at the National University of Singapore. “It could be a
battlefield if the competition is military, but if it is economic it
will be wonderful for south-east Asia.”
 
Today, the US is more willing than before to engage with the region
regardless of democratic credentials – and countering the influence of
China is high on the agenda, particularly in the case of Burma. Much
of the enthusiasm of the Burmese junta in welcoming US overtures is
driven, say analysts, by the generals’ desire to counterbalance the
Chinese influence.
 
In the short term, proximity to Chinese economic success has taken
some of the edge off the impact of the global financial crisis; the
largesse of China’s domestic stimulus programme is also spilling over
its southern border to help buoy the economies of the region.
 
The most obvious manifestation is the gaudy tide mark of casinos and
golf courses that clings to the border through Burma, Laos and
Vietnam: 24-hour neon-lit extravaganzas where tipsy Chinese
apparatchiks rub shoulders with gangsters and entrepreneurs to risk
tens of thousands of renminbi on the turn of a card.
 
In many towns along the China-Burma border, there is little to tell
travellers they are not in China; shopkeepers prefer renminbi to the
local currency, the mobile telephone service comes from China Telecom
and, in at least one hotel, all the room numbers start with eight – a
lucky number for Chinese gamblers.
 
But the economic effect of the boom is less than it might seem.
Although China is growing in importance as a trading partner, it still
accounts for less than one-quarter of the consumption of emerging east
Asia’s exports and for many countries it is a direct competitor. (Even
the casinos are mostly Chinese-owned and most of the croupiers, bar
staff and prostitutes are recruited from across the border.)
 
For much of south-east Asia, the benefits of China as a neighbour are
tempered with foreboding that as its gravitational pull increases, it
might ultimately suck in their economies and societies. “One of the
fears is that China will take over the regional production chain: that
it will swallow south-east Asia’s lunch,” says Mr Cook of the Lowy
Institute.
 
It is a fear that is informed by the nations’ history. “They have a
lot of baggage with China,” says Thitinan Pongsudhirak, director of
the Institute of International and Security Studies in Bangkok. “The
Communist party of China has been supportive of local communist
insurgencies in almost all countries in the region.”
 
Anti-Chinese feeling has boiled over in a number of places in Asia-
Pacific in the past 50 years: there were anti-Chinese riots in Burma
in 1967; hundreds of thousands of ethnic Chinese fled Vietnam in the
wake of the Sino-Vietnamese war in 1979; dozens of Chinese were killed
in riots in Indonesia in 1969 and again in 1998; most recently,
Chinese businesses were burnt to the ground in Papua New Guinea last
year.
 
Indonesia has moved to delay the implementation of the China-Asean
Free Trade Agreement in important areas, particularly steel and
textiles, and in October accused China of dumping nails and imposed a
punitive tariff of 145 per cent on its shipments.
 
For its part, Beijing is sensitive to the effect it is having on its
neighbours and has tried to step lightly in the region. When the
Chinese and Asean leaderships meet, careful choreography ensures they
are portrayed as equals. China, on a charm offensive, last year
offered a total of $25bn to Asean nations: $15bn in loans, including
$6.7bn in preferential credit, as well as a $10bn investment fund.
 
Last month Xi Jinping, China’s vice-president and heir apparent to Hu
Jintao, took a swing through Asia, stopping in Burma to reaffirm
support for the regime and sign a slew of co-operation pacts,
including a deal to build an oil and gas pipeline to the heart of
China’s Yunnan province. In Cambodia, where China is the biggest
foreign investor, Mr Xi signed $1.2bn worth of deals, just two days
after the Cambodian authorities defied international pressure to
deport 20 Uighur asylum-seekers whom China suspected of involvement in
July’s unrest in the province of Xinjiang.
 
In spite of all this, the potential still exists for violent
confrontation in south-east Asia, particularly over the Paracel and
Spratly Islands, which are claimed in all or in part by Brunei, China,
Taiwan, Malaysia, the Philippines and Vietnam.
 
Beijing has recently become more assertive in the South China Sea,
which is believed to hold large oil and gas reserves. On new year’s
eve it announced plans to make the Paracels a “top-class” tourist
destination, provoking a sharp response from Vietnam. Last March it
dispatched China Yuzheng 311, the largest ship in its fisheries
protection fleet, to the South China Sea to fly the flag in response
to incursions including a number of landings among the atolls of the
Spratlys by officials from Malaysia.
 
There are also signs that south-east Asia is rearming. Vietnam
recently announced that it would buy six Kilo-class submarines and 12
fighter jets from Russia, Burma has been shopping for Russian combat
aircraft and Thailand has allocated money to re-equip its air force
with new fighters.
 
Internally, south-east Asia is a potentially toxic mix of raw
nationalism, resource competition and a kaleidoscope of political
systems that, democracy aside, ranges from absolute monarchy in Brunei
via military dictatorship in Burma to the communist regimes of Laos
and Vietnam.
 
Both the rise of China and renewed US interest are altering the
balance of an entente asiatique that has broadly held since the end of
the Vietnam war. If the competition is economic it could, as Prof
Mahbubani says, be good for the region, but there are no guarantees
that rivalries can be contained within the economic sphere.
 
As Mr Thitinan in Bangkok puts it: “Some Chinese think their role in
the past was as an imperial power in this region. This is their back
yard and they see a pattern of the past coming true again.”
 
HANOI PERMITS PUBLIC DEFIANCE OF ITS NORTHERN NEIGHBOUR – UP TO A
POINT
 
Vietnam has a long and confrontational history with its giant northern
neighbour. So in 2008, when Aluminum Corporation of China put forward
a plan to mine bauxite there, it struck a raw nerve.
 
A public argument erupted, startling observers of a country where most
important policy decisions are brewed behind closed doors then rubber-
stamped by the national congress.
 
Although the debate was couched in terms of potential environmental
and social damage, for many it was rooted in Sinophobia forged by a
millennium of Chinese rule – though it ended 1,000 years ago – and in
a simmering territorial dispute over the Spratly and Paracel islands
in the South China Sea. Vo Nguyen Giap, the 98-year-old architect of
victories against the French and Americans between the 1950s and
1970s, who once accused the Chinese of tearing up infants during the
abortive 1979 invasion, lent moral authority to opposition, calling
for an environmental survey to be completed first. A final decision on
the full project is pending, although a pilot is going ahead.
 
Why the Vietnamese government, which runs one of the world’s most
restricted media environments, allowed such a potentially incendiary
debate to take place in public is unclear. Some analysts say it
allowed the authorities to hold up the deal without offending China,
even if it was only to drive a harder bargain.
 
Whatever the reason, the authorities ensured the arguments focused on
the environmental and social cost. Once it became clear dissenters
were turning their criticism on China, they clamped down. Nguyen Hoang
Hai, a prominent blogger and human rights activist, was sentenced to
30 months in prison in September for tax fraud. Another blogger,
Nguyen Ngoc Nhu Quynh, was arrested in August and accused of “abusing
democratic freedoms to infringe on the interests of the state”. Both
had been vocal critics not only of the bauxite mine but also of
government policy on the disputed groups of islands.
 
FREE TRADE AND RISING TENSION
 
When the free-trade agreement between China and the 10 Association of
South East Asian Nations came into force this year, pulling together
1.9bn people and eliminating tariffs on 90 per cent of products, it
was greeted publicly as the dawn of a new era but privately with
concern. Producers in Indonesia, Thailand and the Philippines fear
markets will be swamped by competition from their larger partner, with
which Asean no longer runs a trade surplus. However, a recent Standard
Chartered Bank report shows that commodities exporters such as
Indonesia and Vietnam are likely to benefit from China’s rise, unlike
nations such as Thailand and Malaysia whose export profiles overlap
substantially with China’s.
 
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