Commentaries

ASEAN and the Belt and Road Policy Initiative: Prospects and Challenges*

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Map by National Development and Reform Commission | Photo from: MarineLink.com 

For many who study China, the land-based Silk Road Economic Belt and 21st Century Maritime Silk Road, which could more effectively extend China’s economic and geopolitical presence halfway around the globe, seem a natural progression of the country’s rise on the global stage. In order to advance to a higher level of development, this economic juggernaut, with its population of 1.3 billion, requires ever-increasing access to resources and markets. And, if history is our guide, China is in a better place than those who came before it and had climbed to the top of the global economy in record time. Up until the first half of the 20th century, rising global powers had to contend with closed and segmented markets.  In contrast, China’s rise since the 1990s has largely been a product and comes during a period of open markets and free trade. Regardless of how one views the relationship between states and markets, globalization and economic integration today are the name of the game. Even among developing countries that jealously guard their sovereignty, state intervention has in fact meant readying the domestic economy for global competition. What this means is that China’s path parallels those of others in the developing world that are globalizing and seeking ways to gain from the greater flow of goods, services, ideas, and capital.

In this light, for many developing countries, including those in Southeast Asia, China’s rise has been a welcomed development. Since the late 1980s, China has worked to improve relations with ASEAN member-states.  China-ASEAN relations, which officially began in the 1990s, have culminated in a number of treaties, most notably the ASEAN-China Free Trade Area (ACFTA) in 2010. China today is ASEAN’s biggest trading partner; total trade between China and ASEAN reached US$350 billion in 2014 alone. ASEAN economies have also benefited from the flow of investments from mainland China. The raft of bilateral and multilateral agreements toward greater liberalization and the ASEAN member-states’ membership in the China-led Asian Infrastructure Investment Bank (AIIB) attest to the countries’ common economic interests. 

Philippines-China economic relations have also been robust, albeit to a lesser degree than other Southeast Asian emerging economies. According to Philippine government data, in 2014, China was second only to Japan as the Philippines’s largest trading partner, with the total trade between the two countries amounting to US$18.337 billion. Of this amount, Philippine export receipts from China totaled US$8.467 billion while payments for imports reached US$9.870 billion. Chinese investments in the Philippines, however, have been minimal: in 2014, Chinese investments, registered with incentives-providing agencies (IPAs), totaled only about US$243.34 (at current prices).

It is noteworthy, however, that the flow of Chinese investments in the Philippines has dramatically shifted over the last five years, from the energy sector to manufacturing.  IPA-approved investments from China in the energy sector peaked in 2011, making up 90 percent of the total investments for that year. On the other hand, investments in manufacturing had increased annually since 2010, amounting to US$215.34 or 88% of total investments in 2014.  This trend parallels the Philippine government’s effort to revitalize its manufacturing sector, rolling out 29 industry roadmaps that it drew up with the domestic private sector. Besides manufacturing, the 2014-2016 Philippine Investment Priorities Plan has identified agro-industry, information-technology- business process management, tourism, logistics, and construction as strategic sectors. Definitely, there is much room for the economic relations between the two countries to grow, and the Philippines’s participation as founding member in the AIIB signals the national government’s intention to explore new areas of cooperation with China, regardless of the territorial dispute between them. 

Similarly, Southeast Asia’s emerging economies have still some ways to go to reach their full growth potential. One finds that the basis of growth among some of these countries is a mirror image of that of China. In contrast to China’s investment-led growth, that in emerging markets such as the Philippines and Indonesia has been largely fueled by private consumption, mainly due to a rapidly expanding middle class. Recent experience, however, is showing that consumption-led growth in countries with relatively low GDP per capita is not only unsustainable, but has also contributed to growing social inequality. For these economies to go to the next level would mean shifting toward a production-led growth. Avoiding the so-called middle-income trap also requires these countries to invest in their people and raise labor productivity, undertake massive infrastructure development, and improve public and corporate governance.

China can do much in helping promote balanced and sustainable growth in ASEAN member-states. Non-traditional development financing can go into facilitating the linking up of small and medium-scale farmers and enterprises to production and distribution networks in the region. With substantial Chinese investments abroad going to the energy and mining sector, much can be done in setting up environmental standards and ensuring that these are upheld in host countries. Moreover, there are a lot of untapped potential for manufacturing in Southeast Asia’s growing domestic markets.

The Belt and Road initiative – bold as it is – requires not only all to pull together, but also for all to strive for creative responses to the challenges posed by a global order in flux.  Specifically for Southeast Asia, the Maritime Silk Road brings great opportunities but also, perhaps by virtue of its ambition, presents risks for smaller countries. Issues, notably steeper competitive pressures and territorial and maritime disputes, remain. It is not surprising, therefore, that Southeast Asia, which sits along strategic sea lanes and boasts of fast growing economies, appears to be contested. Leaders from the region are today engaging in a delicate balancing act among major powers – all apparently toward maintaining autonomy and preserving our hard-won peace and prosperity.

As history has shown, Southeast Asian states can be quick to partner with major powers as a way to advance their national interests. We must however ensure that such partnerships  (whether addressing economic or political-security challenges) and the roles that major powers play, ultimately contribute to a cooperative and harmonious regional order, while upholding universal norms and the peaceful settlement of disputes. Our fervent hope is that the Belt and Road policy initiative will be a major step in this direction.

In fact, China’s Maritime Silk Road comes during a time when ASEAN has set for itself the goal of developing into an economic community, characterized as having a single production base and market.  Much remains to be done to turn this vision into a reality. Nevertheless, the formation of AEC reflects an attempt of Southeast Asia’s small states to increase their leverage in the international community.  Thus, there is a need to study how the Maritime Silk Road Initiative will interact, if not dovetail, with ASEAN’s goal of regional integration.

It has been said that Asia today is on track to claiming the 21st century as its own. No doubt, China is driving this trend.  As a growing power, nevertheless, the question is whether it will present a distinct type of leadership, one that echoes back to its historic past of peaceful coexistence with its neighbors.

 

* Prepared for the “Building the Belt and Road: Connection, Innovation and Sustainable Development” Dialogue and Silk Road Think Tank Association Conference, 22-24 February 2016, Shenzhen, China.

** The author wishes to thank Dr. Aileen Baviera for her inputs and suggestions, and Philip Vincent Alegre for his assistance in data-gathering.