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What China Sees When It Looks At Southeast Asia

Article illustrative image Partner logo Xi Jinping's Oct.4 state visit to Malaysia

Following fast on the heels of President Xi Jinping’s recent trip to Indonesia and Malaysia, China’s Premier Li Keqiang also showed up in Southeast Asia, attending the East Asia leaders’ meeting before bilateral visits to Brunei, Thailand and Vietnam.

It is rare in China’s diplomatic history that its president and premier visit the same region within a short space of time, a sign of the growing importance of Southeast Asia in China’s current approach to foreign affairs.

Premier Li praised the “Golden Decade” of relations between China and the Association of Southeast Asian nations (ASEAN), but was also there to promote the Chinese government’s new so-called "2+7 Cooperation Framework," which is focused on economic development, notably the negotiations to expand the China-ASEAN Free Trade Area.

As an expression of the Chinese government’s policy toward Southeast Asia, this framework does well to address both the interests of bilateral relations and broader regional infrastructure development and financial cooperation. China also acknowledges the sour notes in these relations, including disputes with several ASEAN countries over territorial sovereignty and maritime rights.

According to estimates by the Asian Development Bank, between 2010 and 2020 Asian states need a total of $8 trillion in domestic infrastructure investment as well as $260 billion in transnational construction. An industry analyst pointed out that even building a railway from Kunming, China to Vientiane, Laos will cost more than $6 billion, which is equivalent to Laos’ entire annual GDP.

President Xi Jinping's idea to set up an Asian Infrastructure Investment Bank, which he outilined during his visit to Malaysia, was a targeted response to the construction bottleneck in ASEAN countries. The benefits could be mutual: As a large infrastructure-building country, China possesses both the experience and the funds needed in Southeast Asian countries, which then would become an ever more important market for Chinese contractors.

Lingering fears

In the financial arena, China proposes to enlarge the scope of bilateral currency swaps to expand cross-border trade currency settlement and reduce exchange-rate risks and settlement costs of trade and investment across the region. This will be a boost to the China-ASEAN interbank consortium efforts.

The ASEAN states hit hard by the 1997 financial crisis still face lingering fears and have criticized the International Monetary Fund’s tough stance of that time. It was in such a context that the sort of “mini IMF” — the Chiang Mai Initiative — was born. But now, in the face of a European debt crisis and America’s slow recovery, ASEAN states have an even greater need to protect their finances.

Of course, China-ASEAN relations aren’t all smooth. Currently the ASEAN countries that have maritime issues in the South China Sea with China include Vietnam, the Philippines, Malaysia and Brunei. The latter two countries’ disputes with China are relatively modest, which helps explain why both President Xi and Premier Li visited the two countries.

Compared with deep tensions caused by territorial disputes, perhaps an even greater long-term threat to China-ASEAN relations is the evolution of Southeast Asia’s own questions of self-identity. ASEAN member states have an uneven range of development, one from the other, as well as an array of cultural and religious backgrounds. There are well-developed economies such as Singapore, but also poor countries like Laos and Cambodia. Some states have mostly Muslim populations, but then there are countries such as Thailand where most are Buddhists.

Before the transition to democracy, Myanmar’s status an ASEAN member state raised major questions. Meanwhile, with a population of 240 million and stunning recent economic and social development, Indonesia is questioning its place in the ASEAN sphere, even as such countries as the Philippines attach ever greater importance to regional cooperation.

And then there is the United States, having pivoted its strategic center towards the Asia-Pacific region in recent years, and now anchoring a Trans-Pacific Partnership Agreement that attempts to form a regional trade zone with a status superior to a general free-trade agreement.

For China, Southeast Asia inevitably is an integral part of its diplomatic strategy. And it has not gone unnoticed in Beijing that Japanese Prime Minister Shinzo Abe has made frequent visits to the region since taking office.

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