Asean, China can leverage neighborly ties

EARLY IN September, China will host the 2016 G20 Leaders’ Summit in its scenic city of Hangzhou. But soon afterwards, it will hold a high-level event with Asean, to take place in Vientiane, the capital of Laos.

The big power club is for swapping ideas on some of the world’s long-term issues. But no long-range relations can match the closeness between China and Southeast Asia.

The dispute in the South China Sea, thorny as it may be, cannot overshadow the longstanding relations between the Chinese people and their southern neighbors, and even less the geoeconomic future they are bound to share.

News, by the way, came on Aug. 17 that China and the 10-member Asean had agreed to finish a framework for a code of conduct in 2017 to ease tension and avoid conflict in the disputed waters. Indeed, in the age of globalization, geoeconomics can be an important resource. One country can leverage its good-neighbor relations to improve its global positioning. This is obviously the case for China as it is for Asean.

At present, according to Chinese data, except for mutual import and export among the member-countries, China is already the largest partner of Asean, accounting for around 15 percent of its total trade—larger than the United States, the European Union, or Japan.

In investment, in the first five months of 2015, mutual capital commitment between China and Asean exceeded US$160 billion. Chinese foreign direct investment was certainly not a small amount in a time when most companies were hoarding cash.

Geoeconomic relations between China and Asean have several aspects of significance:

First, Asean is an important bloc power, especially economically. The total value that its 10 members produced was US$2.4 trillion in 2013, close to the GDP of France.

According to the Organization for Economic Cooperation and Development, for 2016-20 Asean’s average growth rate is projected to be the third in Asia, after only India and China (with India as the leader). Most noteworthy is that this is perhaps the only regional economy that can keep growing on a generally low level of government debt.

Even in the most alarmist investment reports, Asean can still turn out markedly better growth prospects than most other parts of the world. In all likelihood, this growth momentum will carry on, as the region is projected to become the fourth-largest economy in the world in 2050.

Second, Asean has unique features. They don’t easily go away, and are likely to result in closer ties between China and Southeast Asia.

Right now, Southeast Asian cities have taken over more and more processing operations relocated from China since 2008, to serve the markets in both the developed and more advanced developing countries.

Throughout Asean, the percentage of people living in the cities is projected to rise from about 47 percent in the mid-2010s to 56 percent in 2030, and then 67 percent in 2050, according to the UN World Urbanization Prospects (2014).

This being the case, the region is really one of the few places in the world able to combine an abundant labor supply, many coastal cities and port facilities, and a large number of small, flexible processing factories. Such operations may have a good chance to stay in Southeast Asia for a period of time, so long as they are matched by good public infrastructure and education.

The Asian Infrastructure Investment Bank (AIIB), founded in late 2015 on China’s initiative, can provide additional financing toward such purposes.

It has been some time since international investors were talking about the possibility of building “another China” in Southeast Asia. For that to eventually happen, local governments will have to learn to build and manage their common channel for enormous capital. But step by step, this will happen.

Third, on the part of China, it must learn to be an all-round service provider to participate more successfully in Asean’s development. Despite its current slowdown and adjustment to new realities in the postcrisis world, China should really see in a positive light that Southeast Asian countries are picking up the manufacturing activities relocated from the Chinese shore.

China will receive due returns. In a postcrisis environment, business usually recovers more quickly in societies of lower income and simpler industrial activities. But the stability and prosperity of Southeast Asian economies will in turn increase the demand for Chinese machinery and services.

China-Asean trade was US$472.16 billion in 2015, accounting for 11.9 percent of China’s total merchandise trade with the world. In 1991, the volume was only less than US$8 billion, accounting for less than 6 percent of
China’s trade with the world.

Also according to the Chinese Ministry of Commerce, from January to May this year, the construction contracts that China received from Asean amounted to US$10 billion, showing an increase of 8.2 percent year on year. This was
after a 41.2-percent increase in the construction deals that China received in 2015.

As Asean’s sizeable middle-class is expected to be more than double in 2025 to include 125 million households, its new consumers will buy not only brands from the West and Japan, but also products from China. For all the years since the 2008 global crisis, Southeast Asia has been an unsung hero in the world.

Despite all the seemingly messy ethnic, religious and territorial relations, people really can’t name any major, insurmountable uncertainty when comparing with many other parts of the world. All the nations here have managed to keep up stability, politically and financially. And by doing so, they have contributed to peace and development in the world.

They have supported no protectionism. They have curbed extremism. Indeed, one can hardly think of a better regional environment in the world today. It is an environment that makes China feel both lucky and proud to be its neighbor.

Ed Zhang is editor at large of the China Daily (Asia).