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ASEAN’s Looming Anxiety
Region: Asia
Location: China, Malaysia, Vietnam
Published June 24, 2020
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The rise of China generally presents both opportunities and challenges, particularly in economic terms. In the past several years, new kinds of challenges have been emerging and are looming larger in ASEAN countries. While ties with Beijing are, by and large, cordial, there are several signs that relations below the state level are increasingly worrisome. First, Chinese foreign direct investment (FDI) is largely not oriented towards manufacturing. A considerable amount tends to be in non-real sectors, such as real estate and casinos, which may not generate much employment and can be unhealthy to local economies. Second, the way Chinese businesses expand tends to be predatory, as demonstrated in tourism-related businesses and the acquisitions of fruit businesses in Thailand. As a consequence, new Chinatowns are emerging as more Chinese are moving into the region. Third, even business expansion through the Chinese government, e.g., the train projects, is far from smooth. ASEAN countries find themselves in uneasy deals – including onerous loan terms, undue requests for land usage along the train lines, stringent technology transfers, and imported Chinese labor. Moreover, the recent COVID-19 outbreak reveals not only the fragility of economic overdependence on China, but also public resentment towards the Chinese. Overall, the relations at the level of business and the people are far from promising, which can become a risk factor in state-to-state relations. The situation apparently demands good management from both Beijing and the counterpart governments.

For Southeast Asia, the rise of China since the mid-1990s has also come with the "China Threat" theory, particularly due to the reemergence of the South China Sea disputes between China and four claimant countries in ASEAN. The 1990s saw increasing armaments in some ASEAN countries such as Malaysia and Vietnam, while the Philippines signed the Visiting Forces Agreement with the United States in combination with the Balikatan military exercises. However, thanks to the efforts of both ASEAN and China, the disputes, by and large, subsided from the late 1990s to the 2000s. China not only became ASEAN’s dialogue partner in 1992, but also joined the ASEAN Regional Forum (ARF) from its beginning in 1994. Later on, China-ASEAN relations significantly improved through a few developments, ranging from the ASEAN+3 process and subsequent regional architecture in the wake of the Asian Financial Crisis, the China-ASEAN FTA signed in 2001, and the Declaration on the Conduct of Parties in the South China Sea (DoC), issued in 2002.

Overall, during the 2000s China came up with the “policy of reassurance” represented by the discourse on “peaceful rise” and “peaceful development” under the Hu Jintao government.1 Through frequent high-level meetings and various cooperation schemes, Southeast Asia, by and large, enjoyed cordial relations with China throughout the decade.2 Yet, the 2010s onwards witnessed resurgent tensions, particularly on South China Sea issues, which came back acutely with U.S. involvement and China’s more assertive policy. As such, the rise of China tends to be viewed and discussed in security terms. In fact, the rise of China also came with quiet concerns and tensions in economic terms as well. The concerns, if not yet tensions, are increasing, as China is expanding its economic presence in the region, particularly through investment, tourism, and train projects. China’s Belt and Road Initiative (BRI) is indeed the grand project of the century that has both economic and security aspects.

Thus, this chapter focuses on economic concern with the rise of China in the region, emphasizing the case of Thailand, which is important for at least two reasons. First, Thailand is not only the second largest economy in ASEAN, but also usually plays a leading role in the regional grouping. Second, it is one of the ASEAN countries with the closest relations with China. If one wants to check concerns towards China, it is worth looking at a country that has good relations with China, since a hostile country tends to have a pessimistic view towards China anyway.

ASEAN’s economic concerns towards China have been diversifying over the past three decades. During the 1990s, ASEAN feared competition from China in terms of investment attraction, given low wages at that time and the sheer size of the Chinese market. As a response to this concern, the ASEAN Free Trade Area (AFTA), signed in 1992, aimed to integrate the market to keep appealing to foreign direct investment (FDI). In any case, FDI was continually being massively poured into China, making China a formidable ASEAN rival in terms of exports to other countries. From the 2000s onwards, an influx of imports from China has also been threatening to ASEAN economies, following the ASEAN-China Free Trade Agreement (ACFTA) which was signed in 2001. Trade deficits became even more severe after the ACFTA took full effect in 2010. This is particularly true for Indonesia, rendering a larger trade deficit for the Southeast Asian giant. In 2017, ASEAN’s total trade deficit to China reached as high as $43.4 billion.

Although the concerns on trade deficits and export competition remain for most ASEAN countries, from the 2010s there emerged a different kind of economic concern towards China, which has embarked on a variety of new economic interactions with ASEAN. If the race for FDI and exports represents concern 1.0 towards China, while trade deficits epitomize 2.0, now ASEAN is having concern 3.0, which is not purely economic but also involves socio-cultural aspects.

Below, in four parts, I cover current key economic interactions between China and Southeast Asia. The first section deals with China’s FDI in Southeast Asia, which tends to have distinct characteristics. The second portrays Chinese business practices, which have not only economic implications, but also socio-cultural ones. The third takes a closer look at the train projects in the region, which are under way in Laos, Thailand, and Indonesia. The last section gives an initial assessment on the impact of the novel coronavirus (COVID-19) pandemic on China-ASEAN relations. All of the issues have ramifications for relations with China, both bilaterally in Southeast Asian countries, and with ASEAN.

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