Southeast Asia better off with improved China ties

MANILA, Philippines – The rise of China as a world superpower can only bring prosperity to Southeast Asia and countries integrating in the region – including the Philippines – should attach themselves more with Asia’s largest economy, Singapore’s former top diplomat has said.

“Historically, every time you have a vigorous China in a period of domestic ascent, it put prosperity to Southeast Asia… The rise of China (now) will bring great opportunities to Southeast Asia and a new wave of prosperity,” said George Yeo, former foreign minister of Singapore.

Heading the city-state’s foreign policy from 2004 to 2010, Yeo considers as one of his milestones the US-led Trans-Pacific Partnership (TPP), a trading bloc of 11 countries in the Asia-Pacific which was recently finalized after five years of negotiations.

Now serving as chairman of Kerry Logistics, with a network of over 550 satellite offices from Southeast Asia to Greater China and the Americas, Yeo said the 10-member Association of Southeast Asian Nations (Asean) would do well separating politics from economics.

In general, relations between Asean and Beijing are “proceeding at peace,” Yeo said, and both sides realize that benefits of cooperation far trump the costs of conflict, especially in the sea of navigation where at least three Asean countries and China are holding claims.

According to Asean data, China now is the leading trade partner of the region, accounting for 11.6 percent of total exports and 17.5 percent of total imports last year. In comparison, US only accounted for 9.5 percent and 7.3 percent of shipments, respectively.

China’s influence has also spread through various deals it has been sealing across the region. Last October, the country edged out Japan on bidding for Indonesia’s first high-speed rail network, while a $2.3-billion deal between a Chinese firm and troubled 1MDB investment company made the country the largest foreign stakeholder in power assets in Malaysia.

Vietnam and Cambodia, on the other hand, are bound to benefit from the Maritime Silk Road China is pushing, which promotes trade across the Mediterranean Sea, including India and Africa. Singapore, Yeo said, had also boosted relations by having more flights in and out of the mainland.

“If we look at it at a more detached way, our relations have improved hugely in the last 20 years. The borders have become much more open. Travel has been eased a lot, connectivity has improved,” Yeo pointed out.

“China, for most of us, is our No.1 trading partner and our economies in recent years, have become increasingly correlated to China… So far from taking policies against China, I think our strategy must be how do we tap into China’s growth with direct prosperity for ourselves,” he added.

Not in the Philippines

But such is not the case for the Philippines. Under President Aquino, the country’s relationship with Beijing has turned from sour to bitter. At the center of the wobbly relations is the territorial spat at the West Philippine Sea where both nations are taking claims.

While other Asean members such as Vietnam also has similar contentions, ours took a turn for the worse when the government went to the UN International Court of Justice to question China’s reclamation activities in the disputed waters. The case is currently being heard despite the Communist nation’s non-participation.

Any possible retribution economically has been largely unfelt, thanks to the country’s minimal exposure to China. But Yeo said this has a downside especially with the Philippines’ growing investment needs as its young people get more educated, as well as China’s diversification to the services sector that saw factories based there exploring Asean for opportunities.

“The result is a big outflow of companies from China to Southeast Asia. Those countries which are best placed to receive those factories, they would grow quickly: Vietnam is a major beneficiary so to increasingly is Cambodia, maybe Indonesia,” Yeo explained.

“For the Philippines, too much growth driven by consumption, not by investments. So more needs to be done to make manufacturing investments more attractive. You need better logistics, you need simplification of rules. Maybe relaxation of investment restrictions and that’s very important because you need to generate jobs,” he said.

The same can be said on infrastructure, Yeo pointed out. Asean, as a whole, would need $8 trillion in infrastructure financing over the next five years, according to the World Economic Forum. Yeo said only a “fraction” of that could be provided by current multilateral institutions, hence, additional financing being promised by the Asian Infrastructure Investment Bank (AIIB) should be welcomed.

The Philippines and Kuwait are the only two countries left that have not joined the AIIB. These two countries have until the end of December to sign the agreement.

“The AIIB, to me, there’s no downside. If you’re part of it, you don’t have to make use of the facility. But it’s a facility that you can avail yourself of if you need it. And you need it… Asia will need trillions of dollars in infrastructure investments,” Yeo said.

He admitted though: “There will be political effects, but that is not the main purpose. (It is not there) to contest the IMF (International Monetary Fund) and the World Bank and to upset the global order.”

Trade agreements, political deadlocks

In another China undertaking, however, Manila may have been left with no choice.

The Regional Comprehensive Economic Partnership, China’s answer to the TPP, has put the entire Asean as a bloc as its member.

For Yeo, while trade agreements are attractive to most countries for its benefits such as lower tariffs and easier trade access, individual nations should be given power to decide whether or not to join.

Nonetheless, this should not pave for “exclusivity” in any groupings, which will not only be in violation of the World Trade Organization rules, but could also further complicate tensions among nations. “The idea is when we can work together, we work together. When we are unable to move together, but others are able to, let’s not stop them,” he explained.

Over 200 free trade agreements are present in Southeast Asia and the Pacific and for Yeo, their existence is proof that nations and their leaders are able to look past political misunderstanding for the greater good.

“The South China Sea is a problem but I don’t think it is, by any means, an insoluble problem. It cannot be resolved because the Philippines cannot renounce its claims. China cannot renounce its claims and each claim is incontrovertible,” Yeo said.