Regional multilateral forums are giving China a solid platform to assert its rising strength. Years of stellar economic performance has allowed Beijing to exert quite the influence in the Asia-Pacific region through these forums. Initiatives of development bank, regional security grouping, trade deals and economic strategies are announced and underlined in these forums. But as the Chinese economy slows down with reduced growth projections for 2015, Beijing needs multilateralism more than before. After all, the success of China’s grand strategies depends on cooperation from the surrounding region. But is the region willing to cooperate? Urmila Rao and Manish Vaid examine the answer to this crucial question.
In the recent past China has forged itself to an active multilateral diplomacy alongside its enhanced engagements on bilateral basis. Buoyed with stronger economic growth and increasing foreign exchange reserves, it has been successfully able to pursue its regional diplomacy, leading to a series of regional as well as sub-regional cooperation framework in Asia such as ASEAN Regional Forum (ARF), Asia-Pacific Economic Cooperation (APEC), Asia-Europe Meeting (ASEM), Shanghai Cooperation Organisation (SCO) and more recently Bangladesh-China-India-Myanmar Economic Cooperation (BCIM-EC).
Chinese multilateralism, gives this country a leeway of mobilising its huge cash pile accumulated in the form of foreign reserves to fulfil its objective of rational political and economical order, which can promote peace, development and multi-polarisation, while offering security and economic cooperation to the countries concerned. While this argument holds sound and interesting, the origin of Chinese thought process behind reaching out to outside countries can be correlated with its ‘Going Out’ strategy, when Deng Xiaoping, in his efforts to open up China, stated that China’s economy rested in engagement with the outside world.
Riding on its ‘Going Out’ Strategy
This manifestation was further re-instated by former President Jiang Zemin and Premier Zhu Rongji to further prioritising to liberalise Chinese economy, as a result under their leadership China joined the World Trade Organisation. In fact, Jiang linked international expansion as critical to development, as he stated that, “Foreign funds, resources, technology and skilled personnel, along with privately owned enterprises that are useful supplement to our economy, can and should be put to use for the benefit of socialism.”
Jhu, on the other hand formally invoked the term “going out” (zou chuqu) in a 1999 speech, wherein he asserted a connection between the paucity of resources (particularly oil) and a need to go abroad, asserting, “Domestic development and production of oil can no longer keep pace with the needs of the country’s economic and social development, resulting in and increasing imbalance between oil supply and demand.”
This strategy helped China to boost its economic activity not only to feed its ever increasing energy intensive manufacturing sector but also to support the resultant economic activities. Consequently, China observed three and a half decades of near double digit growth, transforming nation from largely rural and poor society to world’s one of the leading trading nations. This growth further led to increased foreign exchange reserves to as high as $3.5 trillion, facilitating to expand its military expenditure.
Economic Slowdown to Hamper the Chinese Dream?
Undoubtedly, with strong ambition of fulfilling its own dream of becoming a the ‘Great Power’ in congruence with promoting peace and development across the world space possible, China has so far led from the front to create several multilateral forums, using its huge cash reserves.
But the romanticism of export led Chinese economy, propelled by property market is now seems to be ending, with current growth registering slowest since past 24 years. Most of the previous stimulus investments policies, since global recession of 2008 were financed heavily by the local governments, having limited resource and heavy debt burdens, which has escalated to an estimated $2 trillion, or 25 per cent GDP at year end 2012. If one scrutinizes August 2014 data ranging from property sales, investments and industrial production, they have shown sudden weakening of growth. The property sales which have fallen 8 per cent so far last year has eaten away the revenues of the local government, due to holding back on land purchase by property developers resulting from lean property markets.
Notably, China’s property sector accounting for 15 per cent of China’s GDP, has become one of the biggest factor slowing down of its economy, affecting overall demand growth of the Chinese which had in the past led to surge in resource quest, particularly the global crude oil. Now, global crude oil price, which fairly remained stable from 2010 until mid 2014 at around $110 a barrel, nose-dived to below $50 a barrel. And with International Monetary Fund further trimming growth forecast for China to 6.3 per cent in its January 2015 World Economic Report updates and Iran hinting of the oil price to fall further to $25 a barrel, leaves no scope of Chinese economy for early recovery.
Now, there is a big question mark on whether China would still be able to continue with its multilateral regional diplomacy and continue to economically pull its weight in strengthening ASEAN, APEC, SCO or even BCIM. With recent economic growth projections of China by international institutions like IMF and World Bank keeping it significantly low at 7 per cent which is even below that of India, which on the contrary is projected to grow from 5.8 per cent from 2014, ensures a scenario where China would be compelled to slow down unless it brings out strong stimulus package to boost its economy. Chinese economy is primarily based on exports and investments accompanied by low personal consumption, making it both energy and mineral intensive.
Overseas Investment Key for Chinese Multilateralism
China, in order to deal with current economic impasse has rather preferred to go for reforms instead of coming out with ‘strong economic stimulus’. But some of those reforms are too challenging to be implemented due to limited alternatives to China’s alternative growth model. Though, China believes that its ‘going out’ strategy through overseas investment in series of regional initiatives would support reversing its sluggish economic growth. Such regional initiatives further include, announcement of $40 billion Silk Road fund by President Xi Jinping, to provide financial support for infrastructure construction, resources exploration and industrial cooperation for countries along the “One Belt and One Road” and a proposal of building the Asian Infrastructure Investment Bank (AIIB), to support various regional infrastructure projects through realising inter-connectivity and mutual access of neighbouring countries.
Its ambition is reflected from the fact that China, for the first time in history became a net capital exporter where its outbound investment outnumbered foreign direct investment in 2014. The country’s investors, channelled capital into 6,128 overseas firms in 156 countries and region in 2014, with outbound investment reaching $102.89 billion, up 14.1 per cent from a year earlier, according to a press conference by the Ministry of Commerce (MOC), People’s Republic of China.
This according to China would help in maintaining its political and economic status in the Asia-Pacific region and its leadership in the world, while ensuring that the country gets better returns from such overseas investment projects, through spreading the risks involved in various projects as aforementioned. Therefore, the objectives of building forums like APEC, BRICS, ASEAN and BCIM are optimised and win-win conditions are provided to the member countries.
Dragon looks South via SAARC
The South Asian Association for Regional Cooperation (SAARC), which came into existence in Dhaka, Bangladesh, 1985, is one of the oldest regional organisations. It was constituted with an idea of working together on the common objectives like world peace, security and development. The basis behind any regional cooperation including SAARC has being to reap the benefits of common history and experiences of the past.
Therefore, underlying principle of the SAARC charter was to foster regional cooperation based on mutual trust and respect for the territorial integrity and sovereign authority of each member states. But now there has been a growing perception that since its inception SAARC, despite having all the charters and principles in place, has failed to bring out any concrete outcome out of this framework. And it is often argued that absence of a sound bilateral relationship among the member states and the effective functioning of an association as a whole, will continue to be problematic.
This was clearly witnessed during the 18th SAARC Summit where resurface of standoff between India and Pakistan yet again failed to optimise the benefit accrued to each of the member states, when at least three projects, namely, an electricity grid and trade in electricity, and road and rail connectivity appeared to be a non-starter, due to inconclusive internal process by Pakistan.
Though, it could have been the ongoing border incursion and ceasefire violations by Pakistan during that summit which may have played the spoilsport in clearing of these projects. The border tension, in fact was also reflected in Modi’s speech, where he stated that, “The bonds will grow. Through SAARC or outside it. Among us all or some of us.” Though it was hoped that this SAARC Summit would succeed in breaking new grounds, after some serious efforts made by Prime Minister Modi, while inviting SAARC member countries in the swearing ceremony and putting neigbours at the core of India’s foreign policy agenda. This effort seemed to offer fresh lease of life to the dying SAARC. On the other hand, China, that has long wished to be a member of SAARC and has continued to push for its greater role in South Asian region. For better communication and contact and to maximise the advantage as an observer member, China appointed permanent representative to SAARC. Further, China is being consistently pushing for its greater role with each of the member countries in South Asia, either bilaterally or through multilateral settings, such as China-South Asia Expo, the China-South Asia Business Forum and the China-South Asia Friendship Organizations’ Forum into important platforms.
Exerting Greater Weight Through APEC?
With Asia-Pacific Economic Cooperation (APEC), however, China is able to bring larger structural shift in the eco-politics of the Asian region. A stance to that effect, got clearly manifested in APEC 2014, held in Beijing. At the APEC Summit, President Xi Jinping underlined on “Asia Pacific dream” for open regional economy to boost free trade and investment.
In its Asia Pacific Dream, China has invited everyone including the US and India. Xi-Obama signed historic deal on reducing carbon emissions at the Summit. Both the countries also signed a military accord to avert clashes between each others’ planes and warships off the Chinese coast. There was also an understanding to cut tariffs for technology products and visa deal was agreed upon with potential strategic implications in the long-term. Calling further shots in the Summit, President Xi also proposed “One belt, One Road” plan in a bid to co-opt regional players and consolidate its rising economic profile.
It has been observed that Beijing’s tone and tenor with member-states is changing; inclined more toward cooperation as opposed to coercion. In APEC 2014, Beijing, the host, received Japan warmly. On the sidelines of the Summit, Xi-Abe had a formal meeting aimed at mending ties over their historical and territorial enmity. Russia too received a warm embrace as the two countries, keeping their historical differences aside, met to sign multi-billion dollar energy and resource cooperation. India, non-member of APEC, was invited in the Summit. In addition, Beijing also encouraged New Delhi to become a founding member of AIIB (backed by China).
Therefore, despite economic slowdown, it is expected that by 2015 Summit, China would wield more influence on the world stage. APEC accounts for nearly half of global trade. Beijing used the Summit 2014 to full use by exerting its rising economic and political influence not over merely Asia but also in the Pacific circles. APEC 21-member economies are home to around 2.8 billion people and represented approximately 57 per cent of world GDP and 47 per cent of world trade in 2012. In 2015, it is hoped that China would increase its normative profile, which till now looks like an un-worked patch in the rising-power discourse.
Beijing: Revising Eco-Politics?
Some assertions were clear by Beijing in APEC-2014, such as the plan of Free Trade Area of the Asia-Pacific (FTAAP) agreement. FTAAP is seen as a response to Washington’s Trans-Pacific Partnership (TPP) that includes 12 APEC nations including Japan and Australia, but not China. Both the countries are jostling with their own plans to turn the Pacific into a free-trade area and test their influence in the region. China however, believes in the “the eventual realisation” of FTAAP.
China is being looked upon as giving APEC an Asian identity which was missing earlier. Or perhaps it is the other way round. The multilateral venue, APEC, is becoming an official platform where China is showcasing its prowess. While APEC 2013, held in Bali, saw China proposing setting up AIIB (set with starting capital of $50 billion), APEC 2014 witnessed China’s launch of Silk Road Fund, with contribution of $40 billion. In proposing these initiatives, China sends out strong signals to the West as well to Asia. AIIB is seen as rival to West’s IMF, World Bank and Asian Development Bank. Further, China with its two funded initiatives, namely, the New Silk Road and BCIM, proposes a better infrastructure, an increased connectivity and more trade among the Asian nations.
The APEC summit, 2014 has been way beyond mere symbolism; it saw weight of China. It is expected that Beijing will be able to sustain its assertive leadership position in the Asia region and among the Pacific marvels even in the coming Summits (Philippines, 2015) and Peru (2016) with its long-term strategic vision.
Further, if one has to believe in the statement of Mr. Liu Zhenmin, Vice Foreign Minister of China, which was given at the opening session of the 18th Summit of the South Asian Association for Regional Cooperation, in Kathmandu, Nepal on November 26, 2014, one can get enough hints about China’s vision for South Asia as well. At this Summit, in order to realize the Chinese dream and making it align with transforming South Asia, Liu Zhenmin, urged for greater cooperation. While citing the importance of the visits been made by President Xi Jingping to countries such as Maldives, Sri Lanka and India, Liu laid emphasis to enhance China-South Asian trade and investment to $150 billion and $30 billion respectively. Clearly, China is leaving no stone unturned to use SAARC as effectively as it is using APEC.
For this China has planned several initiatives in 2015, including, the Seminar for Cadres from South Asian Political Parties, the symposium for promoting South Asian countries’ exports to China, the China-South Asia think tank strategic dialogue and the exchange program for SAARC countries’ radio and TV journalists, producers and hosts. Last year China took series of initiatives such as Economic Belt of Silk Road, 21st century Maritime Silk Road and Community of common destiny between China and ASEAN. The other initiatives included China-Pakistan economic corridor, BCIM Economic Corridor and the Asian Infrastructure Development Bank, along with announcement of the establishment of a $40 billion Silk Road Fund to highlight China plan to take it forward in 2015.
All these initiatives, according to China, would be possible only with the joint efforts of all the countries concerned, which will deepen practical cooperation, promote integration through opening-up and advance development amidst integration. These initiatives will only bolster the connectivity of policy, road, trade, currency and people across the region, providing economic prosperity.
China in ASEAN
Just as APEC, ASEAN (Association of South East Asian Nations), provides regional optimism to China, who as a dialogue partner, emerged as ASEAN’s largest trading partner. As shown in the figure, in 2013, ASEAN’s total trade with China was $350.5 billion that accounted for 14 per cent of ASEAN’s total trade and represented an increase of 9.7 per cent on year-on-year basis. In contrast, ASEAN trade with USA, Japan, EU-28 and Canada posted the lowest annual growth rates from 5 to 7 per cent per annum on an average.
China’s efforts of enhancing economic ties with the 10-member ASEAN countries, through increased trade and new continental and maritime connectivity has not come a day soon. By deepening economic integration and forging stronger regional ties, China is securing political consensus, and its own securitization in the ASEAN region.
Earlier China worked with ASEAN’s founding member, Singapore, to set up two flagship government-to-government projects, namely, Suzhou Industrial Park and Tianjin Eco-city. It evinced interest in setting up a third project during 2014 ASEAN Summit. China worked with the Malaysian government, another core ASEAN member, to set up China-Malaysia Qinzhou Industrial Park and announced another project viz, Kuantan Industrial Park in 2013, in bid to accelerate cross-border movement of manufactured goods. China’s cross-border cooperation zones with Myanmar and Vietnam is also in progress.
Through these sustained efforts, China not only plans to increase its own economic and political cachet in the region, but also aims to set up a bulwark against the US, which has growing interest in the region. The interest is fuelled by the vibrancy of the South East Asian markets. The US too, wants regional integration and according plans to consolidated position to contain China and its rising influence in the region.
As complex as US and China’s relationship can get in the background of South East Asia, predications too can get complicated. As a single geopolitical entity will China be favoured or the US? Or will the region seek role of multiple players to safeguard against one nation’s stifling dominance? Will the region itself get strong enough, given the huge disparities in income and structural deficiencies?
ASEAN visions include community-building, economic integration and stronger regional ties. In 2015, the spirit in which economic integration is sought, may not inch forward for ASEAN. One of the biggest roadblocks would be the ongoing dispute over South China Sea (SCS). Territorial claims in SCS are laid by China and partly by the Philippines, Vietnam, Malaysia, Taiwan and Brunei. In 2012 ASEAN summit, tensions ran high over the issue of SCS, never seen before in ASEAN’s 45-year history. It is quite likely that the national sentiments will gain precedence over supranational economic integration. Philippines is already locked in battle with China over it. A decision by the arbitral tribunal at The Hague on the Philippines’ case against China is pending. China has already ‘rejected’ the arbitral jurisdictions over the sea boundary limitations. The acrimony over SCS continues despite China and ASEAN signing a Declaration on the Conducts of Parties in the South China Sea in 2002, with the goal of promoting peaceful, friendly and harmonious environment. It is unlikely that in 2015 any amicable solution will be attained on this front. Several nations of the region covet the islands of South China Sea driven by the desire of domestic growth and by security concerns.
Nevertheless, China’s role in galvanizing region’s economic success can’t be overlooked. The year 2014 saw negotiations underway to build an upgraded version of the China-ASEAN Free Trade Area (CAFTA), an idea first mooted in 2002 and saw coming into effect first on 2010. In 2015, CAFTA may gain momentum. China is set to launch the fund-raising for ‘China-ASEAN Fund’ on Investment Cooperation. The China Development Bank is also setting up a China-ASEAN special loan for infrastructure development. Further, China-backed AIIB plans to provide financial support to regional infrastructure projects and priortise ASEAN connectivity. China-ASEAN Expo 2014 saw Chinese government and the ASEAN sign a MoU worth about $8.1 million on disaster management, to provide humanitarian assistance to help countries affected by disasters.
In taking lead on setting up these initiatives in the region, China continues to set up framework for political clout as well. This raises significant question: Will a deeper involvement add stability to the region or destabilize it? Regional countries are wary of China’s engagement and assertions. ASEAN Economic Community (AEC) originating from ASEAN Vision 2020, adopted in 1997, aspires to create a single market and production base with a free flow of goods, services, investments, capital and skilled labor by 2020. If AEC is created on its set target period of December 2015, it may add credibility to this group. China may take lead position in AEC. ASEAN since, 1967, has been the most significant multilateral group in Asia. Ironically, it never gained teeth to handle serious economic or security challenges, including disputes in the SCS. There is no formal mechanism yet established to facilitate cooperation or sort out differences. In 2015, the script may not be any different unless ASEAN countries, a region of 600 million people, together work in pooling of funds and gain an equal say on matters. Regional togetherness remains a product of good governance, equal economic strength of nations, robust coordination and structural capacity; ASEAN has to work on all.
New Beginnings with BCIM
BCIM or Southern Silk Road, which is yet another branch of China’s New Silk Road strategy, holds great importance in integrating economies of South Asia.
BCIM Forum for Regional Cooperation, also known as “Kunming Initiative” came into existence in August 1999, a year after Professor Che Zhimin, the then Deputy Director of the Economic and Technological Research Centre of the Yunnan Provincial People’s Government presented a note at a Conference hosted by the Institute of Chinese Studies (ICS) in New Delhi. He defined the scope of the proposed ‘sub-region of China, India, Myanmar and Bangladesh, which can lead to a ‘cooperative zone’.
After more than a decade and greater push by the Chinese the significance of the BCIM re-emerged, when during 2013, China and India spearhead the corridor with their urge to bring some momentum to it. The success of BCIM Car Rally of February 2013 between Kolkata and Kunming brought a decisive momentum to this corridor as a result this project found its mention in all subsequent joint declaration been made during exchange of bilateral visits of Chinese Premier Li Keqiang to India in May 2013 and subsequently by Indian then Prime Minister Manmohan Singh to China in October 2013. These bilateral exchanges then paved way for first JSG meet on December 18-19, 2013 in Kunming.
Recently, the second meeting of the Joint Study Group (JSG) of BCIM-EC on December 17-18, 2014 was successfully convened by bringing on the board modalities of the future course of action of this project. The initial total estimated cost of BCIM-EC project would be about $22 billion for which 55 per cent may be contributed from the multi-billion dollar fund, while the balance will be borne by the four governments and the private sector. Therefore, though BCIM finally succeeded in covering larger ground with concerted and coherent efforts of India and China, while also having a potential of becoming a model for similar such multilateral initiatives, it remains to be seen if either of these countries are eyeing membership through enhanced cooperative mechanism. The apprehension remains as to whether, China would come out well fighting its own economic crisis through these forum-pushes.
So the first challenge confronting China is the reforms which it wishes to undertake to bring its economy back on track, wherein right kind of reforms would play a major role. But a host of longstanding economic risks, such as escalating debt levels, waning property market and resultant defaults in the real estate sector, are likely to overshadow gains from lower oil prices. Economic reforms will have a bearing on Beijing’s political tone also. In a bid to obtain regional cooperation, China has to balance economic, political, cultural and diplomatic fronts. The task cut out is tough. But it is never easy for a rising power. Or is it?
Urmila Rao is Executive Editor, India-China Chronicle and Manish Vaid is Junior Fellow at the Observer Research Foundation, New Delhi.