Free Trade, Disputed Waters

[CrazyExpat]

The Association of Southeast Asian Nations (Asean) has often been sidelined by bilateral dealings between China and Asean member-states. But on January 1, the organization scored a major victory when the free trade agreement (FTA) between China and Asean came into effect.

The FTA was a logical follow-up to the facts on the ground: Trade between the two sides more than quadrupled between 2001 and 2009, from $41.6 billion to $213 billion. With the FTA in place, trade between China and Asean is expected to surpass that between the United States and Asean by the end of 2012.

Also on the positive side, in late 2009, China and Asean decided to set up the $10 billion China-Asean Investment Cooperation Fund to underwrite infrastructure, energy, and information and communications technology projects across the region.

Some Asean members have substantial reserves of resources such as oil, natural gas, coal and other commodities that China needs, and new infrastructure development will be required to access them. In return, Asean member-states and their flagship companies get access to the vast and growing Chinese market, highlighted in July by the pledge of Thailand’s CP Group to expand its retail business in China to 1,000 outlets over the coming decade.

The full story of China-Asean relations, however, is a mix of good and bad. Both Thailand and Vietnam recently complained to China about the impact of a series of dams, both existing and proposed, to be built on the Mekong River (known as the Lancang River in China). A Chinese public relations exercise bringing lawmakers from neighboring countries to view dam projects in Yunnan failed to dampen anger. Thai officials said that the existing four dams have compounded the effects of drought for millions of Southeast Asians who depend on the river for their livelihood.

China’s bilateral trade with Burma reached $2.9 billion in 2009, second only to trade with Thailand among Asean countries, and China is the third-largest investor in Burma after Thailand and Singapore. With China set to pay the Burmese regime an estimated $970 million a year for gas from the Shwe field, economic links between the two neighbors will continue to grow. There were a few turbulent months after bilateral relations were damaged by Burma’s attack on the ethnic Chinese Kokang militia in Shan State last August, but China’s Premier Wen Jiabao received the red-carpet treatment in Naypyidaw in June, and some observers see Burma gradually slipping into a vassal-state relationship with China—although this probably underestimates the wiles of a Burmese regime adept at playing big powers against each other.

Vietnam is one Asean member-state that bristles at the notion of being a Chinese vassal. But Chinese investment in Vietnam comprises a third of all ongoing construction projects such as railways, ports and power plants, and the Vietnamese doi moi system—economic liberalization coupled with a one-party state—is modeled on Chinese reforms under Deng Xiaoping. One investment now causing friction, however, is the multi-billion dollar Chinalco-run bauxite mine in Vietnam’s central highlands. The Vietnamese are angry that 20,000 Chinese workers are filling jobs that locals could perform, perhaps contributing to Hanoi’s recently announced visa restrictions that are aimed at stemming the flow of illegal Chinese labor into the country.

The ongoing dispute over who owns what in the South China Sea puts China at odds with five Asean member-states, Vietnam included. At the turn of the year, China angered Hanoi by setting up local authorities on the disputed Paracel Islands, occupied by China since 1974 but regarded by Vietnam as part of its territory. In addition, the Philippines currently administers several islands claimed by China.

For the full story:

http://www.worldpress.org/Asia/3608.cfm