Monday, June 1, 2009

China’s Chance

MAY — JUNE, 2009 - VOLUME 17 NO.3
The Irrawaddy News

How the global financial crisis has helped Beijing expand its influence in Southeast Asia

BEIJING — The global financial crisis is proving a boon for a resurgent China, which is poised to exert ever greater influence in Southeast Asia.

While drawing neighboring countries back into China’s economic orbit has been part of the country’s strategy for restoring what it sees as its rightful place on the global stage, recent months of recession have furnished Beijing with new opportunities to further its leadership ambitions in the region.

After the political turmoil in Thailand led to the cancellation of an Association of Southeast Asian Nations (Asean) summit aimed at tackling the global crisis in April, Beijing made political mileage by inviting regional leaders and chief executive officers to the southern Chinese island of Hainan, where the annual Boao forum later that month was billed as a new “platform for emerging economies” to cope with the economic downturn.

With the theme “Asia: Managing beyond Crisis,” the meticulously organized Boao forum was held as a contrast to the failed Pattaya summit—with China pledging help and leadership to the region.

“Developed economies have long dominated international media,” said Long Yongtu, the forum’s secretary general. “Our aim is to offer a platform for emerging economies to present their voices. This is particularly important against the backdrop of the current financial crisis.”

China’s actions to further its leadership role in the region include a US $10 billion investment cooperation fund and an offer of $15 billion in credit to its Southeast Asian neighbors.

These are aimed at helping countries weather the current crisis. The fund will finance infrastructure development linking China and its neighbors while the loans will be offered as rescue packages over the next three to five years.

Chinese Premier Wen Jiabao pledged that China would take an active role in pursuing closer economic and trade cooperation in the region. “The fate of all nations is tied together. No one is immune from the global financial crisis and is able to conquer it alone,” he told the forum.

Wen Jiabao also vowed that Beijing would encourage trade settlement in Chinese yuan with neighboring countries to help ease foreign-exchange shortages and aid bilateral trade and investment. Beijing has already signed currency swap agreements with Hong Kong, Indonesia, Malaysia and South Korea this year.

At the forum, Chinese economists promoted the use of the yuan as a regional currency while at the same time blaming the toll of the global economic crisis in Asia on the region’s high degree of dependence on the US economy.

“Asia is heavily dependent on US markets partly because of the US dollar’s role as an international currency,” Fan Gang, a leading Chinese economist, said at the forum. “America’s attitude in the past has always been ‘this is our currency, but it is your problem.’ Asia, however, is now in a position to raise demands and choose its foreign exchange reserve currencies.”

Commentators in the mainland press have called on Chinese leaders to extend a helping hand to neighboring Asian countries in order to achieve greater trade diversity while using regional markets to absorb excess manufacturing capacity at home. As many neighboring economies are undergoing a flurry of new construction projects, investment is expected to create more employment chances for China’s workers.

“Along with the World Bank and other financial institutions, China should use part of its enormous reserves to help developing countries with the hope of promoting its own development and enhance its image as a responsible world power,” Ding Yifan, a researcher with the Development and Research Center under the State Council—China’s cabinet—wrote in the China Daily newspaper.

Ding Yifan noted that by providing capital to the US and by buying its government treasury bonds, China has been blamed for its “excessively” high savings rates and for causing the credit bubble.

“It [the US] is really an unreasonable debtor,” Ding wrote. “If we invest our capital in infrastructure programs of developing countries, there will be no such blame.”

The Mekong countries—Burma, Cambodia, Laos, Thailand and Vietnam—have been a particular focus of attention for China as it tries to further establish itself in Asia. Along with other proposals, Beijing has announced 270 million yuan ($ 39.7 million) in aid to Burma, Cambodia and Laos, and a donation of 300,000 tonnes of rice to an emergency East Asia rice reserve—boosting food security in the region.

“Stressing the Greater Mekong sub-region area is an important part of China’s whole periphery strategy of nurturing neighboring friendship,” said Zhang Xizhen, a professor at the School of International Studies of Beijing University.

A thousand years ago, the modern Chinese province of Yunnan was the center of the so-called Southern Silk Road, along which tea, salt, spices and medicinal herbs were transported between China, Tibet and India. Through trade and diplomacy, Chinese power spread deep into the Mekong region.

Today the countries that are bound by the Mekong River offer China’s southwestern regions the chance to catch up economically with the more prosperous provinces of the country’s east coast. The two Chinese provinces within the Mekong region, Yunnan and Guangxi, are being groomed for central roles in China’s plan to revive its influence in Southeast Asia.

Kunming, the capital of Yunnan, would be the Chinese terminus of two proposed pipelines—a gas pipeline from central Burma, and an oil pipeline from the Burmese port of Sittwe, which would create a route for Middle Eastern crude and bypass the strategically vulnerable Malacca Strait shipping route.

Guangxi—which has the advantage of being located near the economically vibrant Pearl River Delta in neighboring Guangdong Province—is focusing on increasing the seaborne traffic through the Tonkin Gulf.

Central and local government investment will finance infrastructure in the capital city of Nanning and along the coast—aiming to increase Guangxi’s access to Mekong region markets and those of Indonesia, Malaysia and the Philippines—creating a new channel for goods to flow between southwest China and Asean countries.

Cooperation with other Mekong countries is important, not only as a way of boosting foreign trade and development in southwest China and redressing the country’s imbalanced economic structure, but also as a diplomatic tool, according to Zhang Xizhen.

“Through cooperation with these countries, China can set up an example of a ‘win-win’ partnership to prove its peaceful rise to other Asean members and the world, and to counter the spread of a ‘China threat’ theory,” he said.

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