Ktetaichinh’s Blog

January 7, 2010

China-ASEAN pact offers more than win-win

Filed under: Uncategorized — ktetaichinh @ 5:52 am
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The formal inauguration of the ASEAN-China Free Trade Area (ACFTA) on January 1 marks the culmination of arguably the most successful big-power diplomacy of the post-Cold War era.

Since 1991, China’s relations with Southeast Asia have moved from an alliance of convenience with the Association of Southeast Asian Nations (ASEAN) against Vietnam, Cambodia and Laos to close and multi-dimensional interaction with an expanded 10-member ASEAN and with each of the association’s member states (in addition to the above-mentioned trio, the group now includes Myanmar alongside founding members Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand).

A similar pattern of China’s successful engagement with neighbors can be seen in the Shanghai Cooperation Organization with Russia and Central Asia and, less successfully, in the six-party talks in northeast Asia over North Korea’s nuclear program. With the exception of China’s trans-Himalayan border, promotion of regional multilateral institutions has progressed hand-in-hand with strengthening bilateral relationships.

The formula for China’s successful good neighbor policy has many labels, but the simplest is “win-win”. Every country in Southeast Asia has benefited from broader and deeper relations with China, and ASEAN as a regional organization has been strengthened by China’s involvement.

Trade, investment and tourism have blossomed. China’s willingness to sign the Framework Agreement on Comprehensive Economic Cooperation in 2002 and the Treaty of Amity and Cooperation in 2003 encouraged other nations to follow suit. Despite global economic uncertainty displacing US-centered globalization, China and ASEAN are off on the right foot in a new era. But the path ahead is not simply a yellow brick road of win-win policies.

Why not? What could possibly be wrong with win-win? A cynical power theorist would say that if one side wins more than the other, the one who wins less may end up being dominated by the one who wins more. But this hardly applies to Southeast Asia. No individual state in Southeast Asia has ever considered itself the equal of China. Moreover, China’s military budget surpassed the aggregate military budgets of Southeast Asia in the 1990s. And ASEAN is no North Atlantic Treaty Organization. Rather than being a security umbrella for coordinating action in crisis situations, ASEAN is more of a consensual parasol that works best in sunny weather. If losing parity with China were the tipping point for subjugation, Southeast Asia lost long ago.

Win-win is too simple a formula precisely because of the disparities between China and Southeast Asia. Individually and collectively, Southeast Asian nations are more exposed in their relationship with China than vice versa. According to estimates of the Central Intelligence Agency in the United States, all of ASEAN together in 2008 had only one-third of China’s gross domestic product (GDP) in terms of purchasing power parity (PPP). The economy of Shanghai is one-and-a-half times that of Singapore. Guangdong’s GDP exceeds that of Indonesia, while the combined economies of Guangxi and Yunnan, middling provinces by Chinese standards, exceed those of their neighbors Vietnam, Laos and Myanmar.

Therefore, Southeast Asia is necessarily more alert to the risks as well as the opportunities of its relationship to China. Proportionally, it has more at stake, and the sense of risk as well as opportunity is all the more vivid to individual states in Southeast Asia.

Southeast Asia’s dilemmas in dealing with China can be illustrated by the recent controversy in Vietnam over Chinese investments in bauxite mining and processing. It is certainly a win-win situation. The Chinese company involved, Chinalco, is a major global investor in bauxite mining and alumina processing. Bauxite occurs in limestone areas with poor agricultural prospects. Vietnam has the world’s third-largest bauxite reserves, and hopes to attract US$15 billion in investment in this area by 2025. It needs the investment in the current global economic climate, and it also needs to offset its severe balance of payments deficit with China.

But the Vietnamese people have been very concerned about Chinese bauxite development. They are concerned about the ecological effects of mining; about the major stake that a powerful Chinese company would have in central Vietnam; and about losing jobs to imported Chinese workers. They do not want to have the future of a major national resource in the hands of an outside power. Win-win is not enough. Vietnam wants reassurance about its long-term interests because it is dealing with a much larger neighbor.

Similarly, the proposal of two corridors, rail and highway, from Nanning, the capital of the coastal Guangxi autonomous region, bordering Vietnam, to Singapore would undoubtedly benefit Vietnam. The corridors would run most of the length of Vietnam, thereby improving domestic transportation as well as connections to China and to the rest of mainland Southeast Asia. However, given current patterns of trade, far more goods will be coming down the corridors from China than going up from Vietnam, and much of Vietnam’s exports would continue to be raw materials and resources.

This is still win-win for China’s producers and Vietnam’s consumers, but consumers also need to produce, and Vietnam’s economy must continue to modernize and become more sophisticated. It is therefore hardly a surprise that on such win-win projects China pushes forward while Vietnam hesitates. A change at the periphery of China’s economy could affect the heartland of Vietnam’s.

Vietnam is the most sensitive country in Southeast Asia to China, but the entire region is aware that its interests and China’s interests are not identical, even if many are compatible. The problem of asymmetric relationships cannot be solved, it can only be managed.

Take for example China’s single most successful gesture in its regional relations. In 1997, China held the value of the yuan steady against the dollar while the Southeast Asian currencies were falling. Its neighbors were impressed that China could succeed where they failed, and they were grateful that China prevented a race to the bottom in currency devaluations.

Since August 2008, China has pursued exactly the same policy, but its effects on Southeast Asia are the opposite of a decade earlier. Now the yuan’s peg to a declining US dollar is forcing neighbors to compress their currency values in order to maintain market share. China’s neighbors wonder how long currency compression will last and what will happen when the yuan finally does revalue. There is little reassurance from China, and no claim that it is helping the neighborhood.

The tension between China and Southeast Asian states over conflicting claims in the South China Sea has become the symbol of the region’s collective uneasiness concerning China’s commitment to cooperation. The “Declaration on the Conduct of Parties in the South China Sea” signed in 2002 was a watershed event in regional confidence-building, but there has been little further progress.

Moreover, China’s expansion of naval facilities on Hainan raises concerns throughout the region regarding China’s military transparency and intentions. In fact, however, multilateral cooperation is the only feasible way for any country, China included, to profit from the disputed area. It would be difficult to extract oil at gunpoint, and the costs to China’s regional and even global relations would outweigh any possible gains. The only winning path in the South China is one of more serious cooperation and reassurance.

While win-win is the slogan of the day, deeper principles have lain behind China’s successes of the past two decades. China’s willingness to work with multilateral regional institutions has been a big part of the winning formula. Participation in ASEAN’s general relationship with China buffers the exposure of each individual state. This benefits China as well as ASEAN.

Vulnerability causes smaller states to hesitate in asymmetric relationships, while collective agreements reduce individual vulnerability. Within each bilateral relationship, sensitivity to the dilemmas faced by the smaller side even in a win-win situation is essential for continued development.

For example, not only does Vietnam have reason to expand its merchandise market in China, but China has an interest in Vietnam’s marketing success. Currently, Vietnam’s weak sales to China are a major trade bottleneck; a more balanced relationship would enable trade volume to expand on a solid basis.

Finally and most importantly, China’s traditional respect for the sovereignty and autonomy of all states becomes ever more important with the growth of China’s relative power. As Sophie Richardson’s recent book on China-Cambodia relations demonstrates, the “Five Principles of Peaceful Coexistence” have been an especially important foundation of China’s relations with smaller states. [1] The time has come to multilateralize the five principles into a general respect for regional consensus and international agreements and institutions.

In the new era of global economic uncertainty, the risks that smaller countries face are more vivid than their opportunities. The special task faced by regional powers, whether China, or South Africa, or Brazil, or India, or Russia, is to earn regional leadership by reassuring neighbors that their interests and voices will be respected.

Moreover, they need to take the lead in regional projects that address common problems. But to do so effectively they must act in a spirit of multilateral respect. For the past two decades, China has led the cohort of regional powers in developing cooperative relationships with neighbors, and one of the fruits of success is the successful beginning of ACFTA. But it is only a successful beginning, it is not the end of the road.

1. China, Cambodia, and the Five Principles of Peaceful Coexistence, by Sophie Richardson. Columbia University Press, 2009.

Brantly Womack is the Cumming Memorial Professor of Foreign Affairs at the University of Virginia. His recent books include China and Vietnam: The Politics of Asymmetry (Cambridge University Press, 2006) and China among Unequals: Asymmetric Foreign Relations in Asia (World Scientific, forthcoming).

(Copyright 2010 Brantly Womack.)

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