The beginning of this year showed that smart city development and the Belt and Road Initiative (BRI) projects in Southeast Asia continue to make the region more integrated despite challenges. Smart cities seem to provide fresh and engaging cooperation; even as the BRI tries to address public demands for transparency, sustainability, and a proper dispute settlement mechanism in time for the Belt and Road Forum in May. BRI also continues to struggle with domestic politics in Malaysia and the Philippines.
Philippines-China relations was initially low key in news until reports broke out of Chinese state-owned companies potentially taking over the shipbuilding facilities in Subic port that would be idle following the bankruptcy of Korea’s Hanjin. This was followed by controversy over a Chinese loan to develop Kaliwa Dam. These issues fueled anti-China sentiments in the run-up to the May mid-term elections.
Making cities smarter
The ASEAN Smart Cities Network (ASCN), Singapore’s legacy as ASEAN Chair in 2018, provides Thailand a starting point in planning and developing cities to become more advanced and integrated. Thailand is one of the few nations that have laid out concrete plans for smart cities which could dovetail into its priorities for this year’s ASEAN chairmanship.
One of ASCN objectives is to create a dynamic and adaptive urban government. Member-states are expected to build their own locally-tailored ASCN plans. The network also features public-private financing partnership. Countries like Australia, Japan (through the Japan External Trade Organization), the United States, and multilateral lenders such as United Nations Development Programme, who have track records for top-down development, have extended funding for the initiative. Despite Southeast Asian leaders’ support, it remains unclear who determines what gets implemented.
One citizen-centric project in Indonesia, which helps link local residents with government services and resources, has been so successful that ASCN adopted it as part of its initiative. One of its aims is to narrow the development gap between the rural and urban places. The project can be a good framework for sectors such as agriculture and fisheries.
Meanwhile, Australia launched a new AUD4.5 million program “E-commerce Aid for Trade Fund” for developing countries in the Indo Pacific to maximize the benefits of digital trade. The fund prioritizes building e-commerce capacity and capability, and ICT infrastructure investments. Grants for up to AUD500,000 are open to public and private sectors with local solutions for encouraging e-commerce activity.
Taiwan is likewise gearing towards developing smart cities. It recently signed an understanding with Indonesia’s West Java. New Taipei and West Java have a huge difference in population but share experience with technology and urbanization.
Southeast Asia managing BRI cooperation
In January, Singapore and China agreed to set up a mediation panel to help settle disputes arising from projects under the BRI. Senior Minister of State for Law and Health Edwin Tong emphasized that the panel, which is comprised of mediation professionals from countries involved in BRI projects, is expected to develop a "new way of settling cross-border commercial disputes that better reflects Asian values and is also tailored to Asia's needs". However, Singapore is not the only candidate for the location of choice for a BRI dispute-settlement body. Last year, Hong Kong’s leading international arbitration institutions established commissions to handle related cases. It was also announced in February that the dispute over a port in Djibouti between a port operator from the United Arab Emirates and a Chinese state-owned company would be brought to the Hong Kong High Court.
According to Singapore International Arbitration Centre (SIAC) representative, during the past five years SIAC handled more than USD30 billion worth of disputed claims in cases that involved more than 300 Chinese parties and most BRI participating countries; while the Hong Kong International Arbitration Centre has handled nearly USD800 million in 500 cases disputed by parties from the BRI countries over the same period.
In Malaysia, after Prime Minister Mahathir Mohamad had conveyed interest in cancelling or renegotiating projects with China in 2018, economics minister Mohamed Azmin Ali in January announced cancellation of its USD20 billion East Coast Rail Link (ECRL) project with contractor China Communications Construction Co Ltd (CCCC). The administration however backtracked a few days after the pronouncement, saying “no final decision” had been made and that discussion still continues between the two countries. Despite this recent stain in China-Malaysia ties, Mahathir signed up to attend the Belt and Road Forum in May.
Philippines’ cooperation in agriculture
The Council of Agriculture of Taiwan said its agricultural exports to targeted countries of its New Southbound Policy grew 9.3 percent. Vietnam topped the markets at USD469 million, followed by Thailand at USD300 million. Taiwan’s exports to the Philippines increased by 29.7 percent.
Meanwhile, according to China’s Global Times, Philippine farmers yielded an average of four tons per hectare in 2018 using the Chinese hybrid rice technology as compared to 3.4 tons in 2003. The Philippine side collaborated with Yuan Longping, known as father of hybrid rice and a Ramon Magsaysay Awardee, to produce local hybrid rice.
What’s next for Subic shipyard?
After Hanjin Heavy Industries and Construction acquired corporate defaults of USD400 in Philippine bank loans (aside from USD900 million owed to a Korean creditor), it expressed its intention to stop operation of its shipyard in Subic Bay, an area which used to host U.S. forces. According to Trade Undersecretary Cerefino Rodolfo, at least two major Chinese shipbuilders inquired about taking over.
On the other hand, some government officials like defense chief Delfin Lorenzana—taking the cue from the Philippine Navy—raised the idea that the Philippines should manage the shipyard instead, to turn it into a naval base and help beef up naval capabilities. The Navy hopes to buy 20 ships in the next ten years; while the Philippine Coast Guard and Bureau of Fisheries have pending orders for vessels. The question remained as to whether the entity that takes over should develop it into a commercial zone or a security one or both.
Water crisis and the Kaliwa Dam
Beginning in March, Metro Manila residents experienced a severe water shortage. While the construction of the Kaliwa Dam is seen as part of the solution to the crisis, it was again scrutinized because it involved Chinese funding. The Metropolitan Waterworks and Sewerage System considered the construction a “done deal” despite opposition from local residents, particularly indigenous people, environmentalists, and economists who believe the dam will not solve the problem.
The Osaka-based Global Utility Development Corporation still hopes the Philippine government will consider their unsolicited proposal to build a seven-meter high dam in lieu of the Chinese design. Despite it being lower than the Chinese group’s proposed height, it could still supply 550 million liters of water per day. The Japanese proposal is a mere water storage facility which will not submerge houses and families.
In addition to the taking over of the shipyard in Subic and the funding of Kaliwa Dam, an incident wherein a Chinese foreign student threw taho at a policeman inspecting bags at the MRT in February also stirred anti-Chinese sentiments.
Observations
The quarter showed that the trend of developing smart cities, e-commerce, and financial technology strengthen ASEAN economic integration as well as including other countries in the region, e.g. Australia, Japan, and Taiwan. ASEAN has a special potential to make Smart Cities successful because of its young population who are tech savvy and who have purchasing power. However, young population is not the only ingredient to make project successful—there is a need for advanced transportation and communications infrastructure, government subsidy, the willingness of the locals to learn and to use technology to transact, among others. On the other hand, BRI projects also aim to boost ASEAN’s economy through infrastructure cooperation and China’s Digital Silk Road (i.e., promoting partnership with Alibaba).
BRI country-partners including the Philippines continue to seek for more transparency and sustainability of the projects; and for some who are a little bit ahead on BRI cooperation, confidence in the dispute settlement body and procedures. The conflict over Doraleh Port in Djibouti is an example of how China is brought into international legal institutions, and according to experts, signals Beijing’s support for existing rules and legal system. However, experts added that a growing number of BRI cases can also mean China has more chances to influence international law according to its own values.
The more countries work toward integration, the more challenges they need to address and institutions need to be built. This does not only apply to multilateral arrangements, but each participating country has its share of groundwork to do.
During the campaign period for Philippine mid-term elections, the opposition to President Duterte hyped the issues involving China, even reviving Duterte’s statement in 2016 that he would personally ride a jetski to the South China Sea to assert Philippine sovereignty—knowing that Duterte’s China policy is among his weaknesses. Will President Duterte lose public trust because of his China policy? Will this have an impact on the election results in May, especially for candidates vying for the Senate; or will Philippines-China ties continue to have a brighter future with the new set of elected officials?