November 9, 2016
China’s Commercial Diplomacy—The Triumph of the Middle Kingdom
by Dennis Ignatius
At the height of the Cultural Revolution, “The East is Red” became the de facto national anthem of the People’s Republic of China. The composer, reportedly a farmer from Shaanxi province, had, of course, no way of knowing that his song was in fact a harbinger of things to come.
China has certainly come a long way from the days of the Cultural Revolution. Today, it is a massive economic and political behemoth with equally massive regional and global ambitions. Its new leaders have long since abandoned the veneer of modesty and respect for diplomatic niceties it adopted when it was seeking to gain acceptance in the region.
New star on China’s flag
China’s new rulers are now focused on the single-minded pursuit of regional hegemony as the first step in their quest for global supremacy.
Giant economic footprint
Nothing better illustrates China’s ambitions than its frenzied regional investment strategy. When viewed as a whole, the investment projects scattered across the region paint a picture of a country determined to use its wealth and economic influence to decisively dominate the region.
Consider, for example, the ambitious “One Belt, One Road” or New Silk Road initiative, which, among other goals, aims to position China as the hub of the entire region.
Stripped of all the rhubarb, it’s really a neo-mercantilist strategy of opening markets for China’s excess industrial capacity, making the yuan Asia’s international currency of choice, and cementing China’s economic dominance of the region.
In pursuit of its ambitions, Chinese state corporations are currently engaged in a staggering array of infrastructure projects, especially rail projects, in Myanmar, Laos, Cambodia, Thailand, Malaysia and Indonesia.
China is also building a deep-sea port in Myanmar which will give it direct access to the Indian Ocean. The project involves the construction of an oil pipeline as well that will allow Middle East crude to be offloaded in Myanmar and then transported overland to China, bypassing the Straits of Malacca. A third of all Myanmar’s foreign investments already come from China.
In Laos, Chinese investments already exceed US$S31 billion, a sum larger than the country’s GDP. China also built, financed and launched Laos’s only communications satellite. In neighboring Cambodia, Chinese companies completely dominate the country’s special economic zone.
Singapore, for its part, plays host to more than 7,500 Chinese companies. Its status as a banking and financial center in Southeast Asia is increasingly dependent on China’s regional economic plans.
In Indonesia, China may already be the largest foreign investor if investments through subsidiaries based in other countries are taken into account. Indonesia’s Investment Coordinating Board expects to secure Chinese investments worth USD30 billion in 2016, doubling to USD60 billion the following year.
Bandar Malaysia – China’s new regional capital
Malaysia needs China–1MDB Rescue
Malaysia, vulnerable, exposed and ripe for exploitation as a consequence of the massive 1MDB scandal, is set to be the jewel in the crown of China’s ambitious regional agenda. In exchange for a Chinese bailout, significant national assets and lucrative contracts are being handed over to China in a series of murky deals.
China Railway has been awarded both the RM7.13 billion (USD1.71 billion) Gemas-Johor Baru electrified double-tracking rail project and the RM55 billion East Coast Railway project and is a shoo-in for the RM60 billion Kuala Lumpur-Singapore High Speed Railway project as well.
And this comes after China was awarded the RM43 billion Malacca Gateway Project (deep-sea port and ocean park) and the main contract for the first package of the second Penang Bridge project (the longest bridge in Southeast Asia).
One has to wonder whether someone somewhere is dreaming up these projects just for China’s benefit? Is there some secret agreement giving China a lock on all mega-infrastructure projects in Malaysia?
The biggest catch of all, however, is expected to be the Bandar Malaysia project, a colossal monument to avarice and arrogance. With an expected gross development value of RM160 billion, it will feature the world’s largest underground city, shopping malls, indoor theme parks, a financial center as well as the RM8.3 billion regional headquarters of China Railway. When completed, it will turn the Malaysian capital into the most impressive Chinese railway station along the so-called Iron Silk Route linking Beijing with Singapore.
Malaysians haven’t as yet woken up to the monstrosity that is being foisted upon them. Bandar Malaysia, which will cost almost four times the reported cost of Putrajaya, the nation’s administrative capital, will distort the property market, add to the city’s already intolerable traffic congestion, reduce the city’s livability and see the introduction of thousands of PRC workers, contractors and staff.
No doubt much of the residential and office space at Bandar Malaysia will also be taken up by PRC nationals, already a growing presence in the local property market.
All in all, it is an outrageous project designed to benefit cronies, both local and foreign, at the expense of ordinary Malaysians. It serves China’s interest far more than it serves Malaysia’s.
And it would be naïve to believe that such massive investments will not translate into significant political and economic control especially given the almost total lack of transparency on most of these projects. At this rate, Malaysia may well find itself reduced to satrapy status within the emerging Chinese order with Bandar Malaysia the new Chinese regional capital.
ASEAN’s dependence on trade with China
China also dominates regional trade; it has been ASEAN’s largest trading partner for the last seven consecutive years with trade growing at an annual rate of 18.5 percent. Last year China-ASEAN trade was valued at USD472 billion. It is expected to reach US$1 trillion by 2020. Bilaterally, Malaysia, Indonesia, Thailand, Myanmar, Singapore, Vietnam and Laos all count China as their largest trading partner.
Again, such a commanding economic position coupled with critical control of national infrastructure assets across the region by state companies of a single nation will undoubtedly translate into unparalleled influence, power and control.
ASEAN nations are already so dependent upon China for their economic prosperity that they have no wriggle room left on most issues affecting China. The same can be said of many of the region’s corporations and business enterprises. Even the region’s academic institutions and think tanks have largely shied away from critical commentary on China for fear of being locked out of the web of lucrative Chinese-funded academic institutions, exchanges, grants and conferences.
Common cause with autocrats and corrupt politicians
China’s ascendency has also been facilitated by the rise of illiberal leaders in the region who depend upon China for support and cover in the face of international opprobrium and domestic unpopularity.
Beijing has, for example, long supported the military junta in Myanmar while securing for itself privileged economic access. It is also the Thai junta’s staunchest ally while Malaysia’s leader, faced with a scandal that is being investigated by several international jurisdictions for corruption and money laundering, is regularly feted in Beijing as a special friend.
Indeed, Najib is set to make yet another visit to Beijing next week, his sixth since becoming Prime Mminister in 2009. The visit will decisively shift Malaysia into China’s orbit.
Unsurprisingly, as well, Beijing has also endorsed President Duterte’s murderous campaign against drug pushers at a time when he is facing international condemnation for his actions.
ASEAN effectively neutralized
Taken together, the growing economic and political reliance on China has also given China the upper hand on the South China Sea file.
Malaysia, for example, is so fearful of offending China that it regularly goes out of its way to play down persistent Chinese incursions into its waters and the harassment of Malaysian fishermen. While the Chinese aggressively press their claims, Malaysia dithers and pretends that its “special relationship” with China will keep it safe from Chinese ambitions.
The Philippines, having won a landmark victory at The Hague, now appears to have recklessly squandered its advantage for the better relations with Beijing (and perhaps to foolishly spite the Americans).
Beijing’s terms for a restoration of relations with Manila, however, might prove costly to the Philippines. In a Xinhua report issued on the eve of Duterte’s recent visit to China, it was stated in no uncertain terms what Duterte would need to do to regain Beijing’s favour: abandon “the farcical South China Sea arbitration case brought by Duterte’s predecessor against China… avoid his predecessor’s idiosyncrasies of colluding with outside meddlers [read the US] and making unnecessary provocations [read challenging China’s claims].”
It went on to add that the Philippines must accept dialogue and negotiations over confrontation, conveniently overlooking the fact that it is China who is the aggressor, not the Philippines.
The implications are clear enough both for the Philippines and other Southeast Asian nations: good relations with China must be premised upon an acceptance of Beijing’s maritime claims, an end to close military cooperation with the US and a commitment to engage in meaningless and open- ended dialogue that allows China to pretend that it is a responsible international actor.
ASEAN, which was formed to leverage its strength as a group when dealing with bigger powers, is now proving itself to be hopelessly dysfunctional in dealing with China.
Insisting that territorial disputes must be settled bilaterally (where it is able to exploit its asymmetrical advantage to the fullest), China, with the help of its proxies, Cambodia and Laos, successfully stymied ASEAN efforts to take a firm stand on the issue.
Astonishingly, the Philippines Foreign Secretary called the Vientiane debacle “a victory for ASEAN.” If that was victory, what does defeat look like?
In any case, only the most gullible will believe that China is really interested in negotiations, bilateral or otherwise; it is simply buying time while it changes the facts on the ground and militarizes its positions in the South China Sea.
By keeping silent, waffling and pretending that somehow China is open to negotiations, ASEAN is simply acquiescing in a Chinese takeover of the entire South China Sea. It is also proving the hawks in Beijing right that strong-arm tactics work, that ASEAN does not have the courage to stand up to Beijing.
Witness also the timorous silence of ASEAN leaders with regard to the US policy of vigorously challenging China’s threats to impose exclusionary zones in the South China Sea. Though ASEAN leaders are too spineless to admit it, the US navy is now all that stands in the way of de facto Chinese control of the South China Sea.
Instead of backstabbing the only country that can help keep the region open and free, as President Duterte of the Philippines appears to be doing, ASEAN leaders should augment US efforts by insisting that China demonstrate its own sincerity by committing to a meaningful code of conduct, respecting the recent Hague ruling, and ceasing the militarization of disputed islands.
But, of course, China has so thoroughly neutered ASEAN that such a course of action is now unthinkable.
The triumph of the Middle Kingdom
More than 40 years ago, Southeast Asian leaders had a sense of foreboding about China. Even as they moved to normalize relations with China, they knew that there was going to be nothing normal about dealing with China. Nevertheless, they had hoped that they could foster close economic relations with China without being overwhelmed by it. They also felt confident that they could contain Chinese ambitions within a regional balance of power framework.
Clearly they underestimated the Middle Kingdom and the perfidy of their own successors.
Overdependence on China for investments and trade and the treachery of corrupt politicians have now rendered ASEAN completely vulnerable to Chinese hegemony.
The East is Red! ASEAN might as well hang its logo on the Chinese flag to reflect this new reality.
Dennis Ignatius served in London, Beijing and Washington and was Malaysian ambassador to Chile, Argentina and Canada