China’s rise in Asia is founded on a simple fact: its vast economy, measuring US$10.9 trillion in 2015, is larger than the other economies of East and Southeast Asia combined. This mighty engine has driven regional development for at least a quarter of a century. China is the largest trading partner of most countries in Asia, including almost all of those in its immediate vicinity. This gives it enormous economic leverage.
China’s next goal is to boost regional investment, which it does not yet dominate. In Southeast Asia, for example, both the EU and Japan contribute more. This is a failing that the “Belt and Road Initiative”, also known as “One Belt, One Road” or the “New Silk Road”, is designed to rectify. The initiative describes two hugely ambitious projects to improve connectivity in Asia and beyond. On land, the “Silk Road Economic Belt” envisages new transport infrastructure and the construction of industrial corridors stretching across Central Asia to the Middle East and Europe. On water, the “21st Century Maritime Silk Road” will encourage investment in new ports and trade routes through the South China Sea and the Indian Ocean. This will be backed by financial brawn: China’s two policy banks—China Development Bank and the Export–Import Bank of China—already lend more in Asia than the World Bank and Asian Development Bank combined. By financing roads, railways, ports and power lines in underdeveloped parts of Asia, the Belt and Road Initiative aims to draw China’s neighbours ever tighter into Beijing’s economic embrace.
The initiative is Xi Jinping’s signature policy, designed to secure his legacy. Beijing is supporting it with new financial institutions, notably the Asian Infrastructure Investment Bank and the Silk Road Fund. This does not mean that China is rejecting the global architecture, as some have suggested. But it does mean that it wants to supplement and reshape it. It will use multilateral organizations such as the AIIB, the Shanghai Cooperation Organization and ASEAN Plus One, in which the US plays little or no role, to push its own regional agenda. The reality is that China is already challenging the post-World War II order established in Asia under the watchful eye of Washington.
Central Asian countries welcome investment that improves transport links and helps unlock their vast mineral wealth, especially if it decreases dependence on their traditional patron: Russia. China has replaced it as the leading economic presence in Central Asia over the past decade, even if Russia maintains deeper political and cultural roots. Vladimir Putin, who like Xi Jinping wants to re-establish his country’s historical sphere of influence, is busily pushing an alternative economic vision founded on a customs union of ex-Soviet states. China and Russia claim to be strategic partners; but as China’s leverage in Central Asia grows, there is potential for the traditional rivalry between the two countries to re-ignite.
In the Mekong economies of mainland Southeast Asia, China’s biggest rival is Japan, which has long financed and built infrastructure across the region. These days the most ambitious projects are Chinese: they include a completed US$4 billion highway running 1,800 km from the city of Kunming in Yunnan province to Bangkok, and a proposed 3,900 km railway line from Kunming to Singapore, stretching down through Laos, Thailand and Malaysia. Doubts remain about the viability of the railway, but transport connections between Yunnan and Laos are already convenient enough for that country to be overrun by Chinese investors. Cambodia, meanwhile, is so dependent on Beijing’s cash that it has been accused of acting as a Chinese stooge. Both countries are at risk of becoming appendages of their giant neighbour.
Back in 2010, the same could be said of Myanmar. After cultivating ties with the ruling military junta for more than two decades, Beijing saw Southeast Asia’s most reclusive state as a bridge to the Indian Ocean—“China’s California”—offering the valuable potential for direct access to a western seaboard. China has built twin oil and gas pipelines from the Bay of Bengal to its border town of Ruili, which is also a planned staging post along a proposed highway through Myanmar from Kunming to Kolkata, on India’s eastern coast. But China’s position has deteriorated significantly since Myanmar’s democratic transition led to a rapprochement with the West. Political liberalization has given ordinary people a voice to protest against China’s presence, forcing the government to postpone a giant dam and railway line. It will be fascinating to see how Aung San Suu Kyi’s government approaches the all-important China question.
Populist blowback will remain a hazard for Chinese firms operating abroad, especially in fragile states run by authoritarian regimes, where changing governments can see dramatic shifts in the prevailing political winds. After Myanmar, the best example is Sri Lanka. China lent extravagant funds to this strategically placed island, until its corrupt former president was ousted in 2015. The new government promised to review a number of dubious Chinese projects, vowing to renegotiate interest rates on loans that really served as backhanders to government cronies. But Sri Lanka is so reliant on Chinese funding that it will struggle to extricate itself from China’s economic grasp.
Across the Indian Ocean, China is using economic resources to secure strategic ends. Its engineering firms have built ports in Myanmar, Sri Lanka and Pakistan that could provide vital support to Chinese warships and submarines. It has promised US$46 billion to finance an “economic corridor” through Pakistan, linking the port of Gwadar on the Arabian Sea to the deserts of northwest China. And it will soon open its first overseas military base in Djibouti, in the Horn of Africa, where it plans to install several thousand troops. Indian military analysts argue that China is deliberately threading a “string of pearls” through the Indian Ocean—though some of these fears are overdone.
China’s presence in the Indian Ocean raises concerns in India about how rapidly its economic power is translating into military might.
China’s leaders are adamant that it is not, and never has been, an expansionary power. This is a highly selective reading of history: imperial China grew out of the Chinese state’s expansion beyond the Han heartland along the Yellow River. Moreover, since its founding in 1949, the PRC has occupied Tibet and colonized Xinjiang. But it is true that China has generally stuck to its borders since then, albeit with minor incursions into Vietnam and Indian-held territory.
The big caveat is China’s recent behaviour in the East and South China Seas, where its outrageous claim to vast areas of territory far beyond its land borders is greeted with anger and fear, especially in Japan, Vietnam and the Philippines. China has negated its long-term efforts to build a positive image in Southeast Asia, proving the hollowness of its much-touted “win–win” diplomacy. Its reclamation efforts in the South China Sea, which go far beyond those of other claimants, show it is now confident enough to flex its muscles over its borders. China’s determination to build a strong military capacity is militarizing the region, dragging the US into the fray. War remains unlikely, but China’s behaviour is reinforcing age-old resentments, even pushing Vietnam into the arms of the US.
This is an extract from China’s Asian Dream, by Tom Miller.
Image by UNIDO, 2016 – DG Li speaking at AIIB Seminar – Financing Green Infrastructure The Role of the MDBs