CHIANG MAI - A new investment fund and loan package to help alleviate the
impact of the global financial crisis for Association of Southeast Asian
Nations (ASEAN) represents the latest overture of China's "soft power" campaign
towards the region. Many believe the aid package unveiled in Beijing this month
was strategically announced to steal a commercial and diplomatic march over the
economically ailing United States.
The aid package includes a US$10 billion investment fund, geared for
cooperation in infrastructure construction, energy and natural resources
development, and improvements in information and communications. China also
announced it would extend a $15 billion line of credit over the next three to
five years to needy
ASEAN countries. Although the terms were not made public, the loans include
preferential terms for $1.7 billion in cooperation projects.
An additional $39.7 million was earmarked for "special aid" to Cambodia, Laos
and Myanmar, the 10-member groupings poorest members and closest China allies,
to meet "urgent needs". China also announced it would donate $5 million to the
China-ASEAN Cooperation Fund and an additional $900,000 to the ASEAN plus
China, Japan and South Korea cooperation fund.
Beijing also announced increases in other forms of cooperative aid, including
an offer of 2,000 government scholarships and 200 Master's scholarships for
public administration students over the next five years from developing ASEAN
countries. One thousand agricultural technicians will also have the chance to
receive training in China over the next three years. Beijing also donated
300,000 tons of rice to an emergency East Asia reserve intended to boost food
security and proposed a China-ASEAN scheme to create high-quality, high-yield
crop demonstration farms in ASEAN countries.
The aid package underscores accelerating economic integration. China's trade
with 10-member ASEAN has nearly doubled from $105.9 billion in 2004 to $202.5
billion in 2007. Even with the mounting global economic crisis, trade rose 14%
last year to US$231.12 billion, making ASEAN China's fourth-largest trading
partner. Gao Husheng, China's vice commerce minister, said at a preparatory
meeting for the 6th China-ASEAN Expo on April 9 that ASEAN would likely replace
Japan as China's third largest trade partner in the near future.
A proposed China-ASEAN free-trade zone would pave the way for faster trade
flows. The last step in those negotiations, the signing of an investment
agreement, was expected to be completed on the sidelines of the botched ASEAN
summit at Pattaya, Thailand, earlier this month. Once the agreement is signed
and implemented as early as 2010, annual bilateral trade volumes are expected
to reach $1.2 trillion, according to figures projected in China's
Chinese Foreign Minister Yang Jiechi unveiled the economic aid package for the
region on April 12 during a meeting with ASEAN envoys. On announcing the
package, Yang said, "As always, China firmly backs ASEAN integration and
community building, and firmly supports ASEAN to play a leading role in
The proposal was supposed to have been announced by Premier Wen Jiabao at the
postponed ASEAN summit, which was disrupted by anti-government protesters who
stormed the meeting's venue. Yang went on to call for joint efforts to reach an
investment agreement conducive to the establishment of the China-ASEAN
Friend in need
Economists say China's proposal would potentially give ASEAN nations hard hit
by the global economic and financial crisis other emergency funding options
beyond the International Monetary Fund or Asian Development Bank. The IMF's
rescue packages in the wake of the 1997-98 Asian financial crisis were strongly
criticized for measures perceived to favor foreign over local interests.
Beijing's recent aid offers are similar and notably more generous than the $4
billion it offered to financially distressed ASEAN states, including Thailand
and Indonesia, in the wake of that crisis.
Many remember how China held its fixed rate currency steady while ASEAN
countries depreciated their units, allowing several countries to export
themselves back to financial health. That marked a difference from Western
approaches at the time, which demanded economic and financial reforms that
would pave the way for greater foreign participation and ownership in
distressed Southeast Asian economies.
Those economic and financial gestures underscored an important policy shift
from Beijing's past destabilizing approach towards the region, marked in
particular by its past support for communist insurgencies, including the
radical Maoist Khmer Rouge in Cambodia and communist guerillas in Thailand.
That often confrontational policy was also seen in the 1979 invasion of Vietnam
and the conflict with ASEAN states over the ownership of islands in the South
While the new measures will go some way towards facilitating a quicker regional
recovery from the global economic and financial crisis, some analysts see a
more opportunistic side to China's aid announcement. China's soft power
campaign has taken the form of increased foreign aid, economic networking,
including the establishment of free-trade areas, and cultural transmission to
encourage pro-China sentiment in the region.
China's aid to the region, by some reports including a November 2008 estimate
from Taiwan's Center for Asia-Pacific Studies, has now surpassed that of the
US. For China the benefits of greater integration are as much political as
economic. For instance, a rising tide of pro-Chinese sentiment in the region
has made it easier for Chinese companies to secure deals for natural gas
exploration in Myanmar, land large scale agriculture projects in the
Philippines, and build transportation infrastructure in Thailand and Laos.
It all meshes with China's so-called "going out" policy, which aims to secure
natural resources and economic opportunities that serve local development
goals. That said, China's foreign aid activities often lack transparency;
despite the rising outflows, Beijing still lacks a centralized foreign aid body
or a regularized funding schedule. Nor does China publicly disclose data
related to foreign aid expenditures. Some aid disbursements more closely
resemble foreign direct investment (FDI), while other projects undertaken by
companies with strong government ties more closely resemble aid.
What is clear, however, is that China's foreign aid and government-supported
economic projects have grown dramatically in recent years. Research done by the
New York University Robert F Wagner Graduate School of Public Service indicates
that Chinese assistance to Africa, Latin America and Southeast Asia grew from
less than $1 billion in 2002 to $27.5 billion in 2006. The same research shows
that sum fell modestly to $25 billion in 2007.
Although the researchers caution that some figures may be inflated, certain
pledges and loans may not have been fulfilled and some multi-year projects
could have been double-counted, the dramatic increase in aid flows is
unmistakable. According to a February 25 Congressional Research Service (CRS)
report, many of China's aid operations don't correspond to the usual definition
of development assistance and that many of China's economic activities in
developing countries are supported by the government.
Many economic investments could be considered aid since "they are secured
through bilateral agreements, do not impose real financial risks upon PRC
[People's Republic of China] companies involved, or do not result in Chinese
ownership of foreign assets", the research said. In Southeast Asia, some
analysts suggest that China has become one of the largest sources of economic
assistance, even though it is not considered a major regional provider of
traditional overseas direct assistance.
Wagner School researchers compiled a list of Chinese aid and related investment
projects or offers to ASEAN from 2002-2007 and arrived at a combined total
value of $14 billion. They estimated that 43% of that figure went to
infrastructure and public works projects, 32% for natural resource extraction
or development, 3% to military, humanitarian and technical assistance and the
remaining 22% to unspecified activities.
China's assistance and economic interaction with ASEAN has come largely without
the political, legal and environmental strings attached to Western country aid.
It is also provided comparably faster and without the bureaucratic procedures
that major aid donors, multilateral financial institutions and multinational
corporations usually require.
The lack of interference in domestic affairs is especially appreciated by
ASEAN's more authoritarian regimes, including Myanmar, Laos and Vietnam, and
has earned a measure of public appreciation since it appears to be more
respectful of national sovereignty than Western donors. China has enhanced its
local reputations through various goodwill investments, including outlays for
national stadiums, cultural centers and friendship roads and bridges.
These projects are often very publicly announced at regional summit meetings -
such as the package planned for the Pattaya summit - and used to project an
image of Chinese fraternity with its developing world brethren.
Some analysts perceive China's soft power foray with ASEAN as a struggle for
dominance with the US, which for many years has been strategically linked to
ASEAN. They suggest that the balance of power is starting to tilt in China's
favor, as it increasingly leverages soft power initiatives into hard power
gains. Certain ASEAN nations are known to view China as a useful hedge against
US and Japanese influences.
China's improved relations with ASEAN are broadly geared towards providing a
security hedge in the event of a conflict with the US. The majority of China's
oil and gas imports still pass through the narrow Malacca Straits, a potential
strategic chokepoint. With China's ascension in 2003 to the ASEAN Treaty of
Amity and Cooperation in 2003, and the US still not a signatory, its not clear
what stance ASEAN would take should the US and China ever become engaged in a
To be sure, Southeast Asian opinion is still very much divided over China and
its rising influence. The maritime nations of Indonesia, Philippines, Malaysia
and Vietnam are known to be uneasy over Chinese intentions, particularly with
the recent advances in its naval capabilities and the unresolved claims to the
disputed and potentially fuel-rich Spratly Islands.
China has made firmer inroads with the mainland countries of Cambodia, Laos and
Myanmar, although even these countries try to balance Chinese influence with
other big countries, including the US and India. At the same time, there is
deep suspicion and angst over China's opaque plans for building a series of
hydroelectric dams on the upper reaches of the Mekong River, which flows
through and sustains the livelihoods of large populations in many mainland
While some ASEAN countries may still be wary of China's rising regional clout,
its recent aid proposal will no doubt be warmly welcomed across the region. And
as the gathering economic and financial crisis hits the US's and Europe's
ability to provide aid and assistance, ASEAN nations will have little choice
but to rely more on its increasingly magnanimous northern neighbor.
Brian McCartan is a Chiang Mai-based freelance journalist. He may be
reached at email@example.com.