ASEAN faces a Chinese dilemma

by Michael Richardson

As the United States and Europe struggle with heavy debts and weak growth, China increasingly powers the expansion of nearly every economy in the Asia Pacific region. It raises a critical question, particularly for Southeast Asia and Australia: Which are the ties that bind — those of commerce and rising prosperity, or those of national security?

The U.S., in its current straitened circumstances, with one in nine of its workforce unemployed, finds it difficult to compete with China in negotiating attractive trade and investment deals with Asia Pacific nations, even though it remains the world’s biggest economy. Instead, U.S. diplomacy and the presence of its armed forces in the region help provide a counter-balance to China’s growing military power, a trend underscored on Aug. 10 when China sent its first aircraft carrier for a sea trial.

In the midst of debate last month over freedom of navigation and other maritime issues in the South China Sea during the ASEAN Regional Forum meeting, China’s Foreign Minister Yang Jiechi noted that Asia contributes 50 percent of current global economic growth, and China 26 percent. He added that in the next five years, China’s imports are expected to reach around $10 trillion and that most “will be from the countries represented here.”

It was a pointed reminder of how China seeks to use its economic clout to cement strategic relations with countries it considers important, among them Australia. China is now Australia’s biggest market. Its voracious consumption of Australian minerals, energy and agricultural exports have fueled growth in Australia, even as manufacturing, tourism and consumer spending slow.

The lure of China’s giant market has special appeal today with the U.S. and Europe in the doldrums, facing an uncertain future. In contrast, China offers its Asia Pacific neighbors a giant economic engine if they hitch their wagons to the train.

The mutual benefits are evident in the China-ASEAN Free Trade Agreement (CAFTA), the largest such accord among developing nations and the third biggest trading block, in terms of GDP, after the European Union and the North American Free Trade Agreement linking the U.S. , Canada and Mexico.

Since CAFTA came into force at the start of 2010, trade between China and Southeast Asia has mushroomed. China’s Commerce Minister Chen Deming said on Aug. 12 that the value of two-way trade has risen from $8 billion in 1991 to nearly $293 billion in 2010, up 37 times. According to Chinese customs figures, it jumped by a further 25 percent in the first half of 2011 from a year earlier, to reach $171 billion. Southeast Asia enjoyed a surplus of nearly $11 billion.

Gao Hucheng, China’s vice minister of commerce, said last month he was confident that the annual value of ASEAN-China trade would reach $500 billion by the end of 2015. He added that Beijing did not seek a trade surplus with Southeast Asia and welcomed more imports.

Indeed, some analysts believe that as China shifts from export-led growth to become an economy fueled more by domestic consumption, Southeast Asia will be a prime beneficiary. Chinese imports from the region will grow. In addition, rising wages will prompt Chinese industries to invest in lower-cost parts of Southeast Asia, just as Japan did on a large scale starting in the 1970s.

Already, the commerce ministry in Beijing says that China-ASEAN investment reached $80 billion by mid 2011, with Chinese investment in Southeast Asia amounting to $13 billion. China has become the largest trading partner of ASEAN and its second largest export market, while ASEAN since April has replaced Japan as the third biggest trader with China after the EU and the U.S.

China is a beacon of both rising economic and military strength, a geostrategic pole of the future. However, there is a contradiction that Beijing has been slow to recognize. While the prospect of greater trade and economic integration with China is generally attractive to Southeast Asia, China’s growing military strength and assertiveness in the South China Sea and elsewhere repels.

Chinese officials have been urging ASEAN to accept a tradeoff: Do not contest Beijing’s “indisputable” claim to control about 80 percent of the maritime heart of Southeast Asia in case it leads to conflict and upsets the promise of a bright economic future.

Yet as U.S. political scientist Minxin Pei pointed out earlier this year, the reality of geopolitics is different. “Nations may be greedy, but the most powerful motivating factor in international relations is fear, particularly the kind inspired by the uncertainty over a rising power.”

Several ASEAN member states, including Myanmar, Cambodia and to a lesser extent Laos and even Thailand, have succumbed to the lure of a China-centric region, partly because they are close to China and can see major economic advantage, and partly because they have no maritime claims in the South China Sea.

But others, including Vietnam, the Philippines, Malaysia, Indonesia and Singapore, have challenged the legitimacy of China’s claims. They have also strengthened their defenses and sought support from the U.S., Japan, India and other outside powers that have interests in the South China Sea. Australia has done likewise.

Economically, China and these countries have never been closer. Strategically, they are being driven apart by divergent aims and mistrust.

Michael Richardson is a visiting senior research fellow at the Institute of South East Asian Studies in Singapore.