Bloomberg News

Asean Reaps Rewards as Clinton Counters China: Southeast Asia

July 09, 2012

U.S. Secretary of State Hillary Clinton

Hillary Clinton, U.S. secretary of state. Photographer: Andrew Harrer/Bloomberg

Southeast Asia’s growing economic importance is fueling a strategic competition among major powers, prompting the U.S. to step up its engagement in the region of 600 million people to counter China.

U.S. Secretary of State Hillary Clinton will visit Vietnam and Laos this week before she heads to Cambodia to join envoys from 25 Asia-Pacific nations and the European Union for an annual security meeting. She’ll also announce “very substantial new resources” for nations along the Mekong River, Assistant Secretary of State Kurt Campbell said on June 27.

U.S. allies Japan and South Korea are also pursuing closer ties in Southeast Asia to counter China’s influence in a region where economic growth rates are among the world’s highest. Defense Secretary Leon Panetta announced in May that the U.S. will deploy 60 percent of its naval power to the Pacific by 2020 as China’s growing economic and military might causes friction with its neighbors.

“Southeast Asian countries actually like a bit of creative tension between the U.S. and China because they can play one off against the other and derive benefits,” said Ian Storey, a visiting research fellow at the Institute of Southeast Asian Studies in Singapore. Greater economic integration means “a major conflict is out of the question because it’s in no one’s interest and the stakes are too high,” he said.

Asean Expansion

Five economies in the Association of Southeast Asian Nations -- Indonesia, Thailand, Philippines, Malaysia and Vietnam -- along with China and India will outpace the rest of the world over the next two years, the International Monetary Fund said in an April report. In 2013, the Asean-5 will grow 6.2 percent, compared with 2.4 percent in the U.S., 0.9 percent in the Euro area and 1.7 percent in Japan, it said.

“The United States is making substantially increased investments -- diplomatic, economic, strategic, and otherwise -- in this part of the world,” Clinton said yesterday in a speech in the Mongolian capitol of Ulan Bator. “The heart of our strategy, the piece that brings everything together, is our support for democracy and human rights.”

The U.S. is negotiating a nine-country trade deal that includes four Asean nations, and eased sanctions in May against Myanmar, formerly known as Burma, which has taken steps toward democracy after about five decades of military rule.

“This is a watershed moment for Burma and the United States stands ready to facilitate economic engagement,” David Adelman, the U.S. ambassador to Singapore who will lead a trade mission to Myanmar next month, wrote in an e-mail. “Southeast Asia is one of the focal points of the world’s economy right now and Burma is a market with tremendous growth opportunity.”

China’s Rise

U.S. moves to boost economic ties with Asean come after China replaced it as the 10-member bloc’s biggest trading partner over the past decade. China accounted for 11.3 percent of Asean’s total trade in 2010, compared with 9.1 percent for the U.S., the group’s data show. In 2000, U.S. trade represented 16 percent of Asean’s total, compared with 4 percent for China.

For all their economic expansion, the Asean nations remain overshadowed by China as a U.S. partner. The U.S. traded $503 billion in goods with China in 2011, more than two-and-a-half times the combined $194 billion traded with Indonesia, Thailand, Philippines, Malaysia, Vietnam and other Asean nations, according to the U.S. Census Bureau.

“The sheer volume of trade between China and the U.S. dwarfs anything that happens in Southeast Asia,” said Jeremy Haft, the founder of BChinaB Inc., which helps U.S. companies buy and sell goods in China. “Our mega-corporations have spent 15 years lining the supply chains and the logistics.”

Not Fragile

China remains the “premier dynamic trade relationship” for the U.S., said Haft, a member of the Council on Foreign Relations.

“It’s not so fragile that we can’t do business in the region,” Haft said in an interview. “I applaud Secretary Clinton for her recent maneuvering in the region. It’s the right message to China: We are strong there and will stay there.”

Nor does the U.S.’s plan to “rebalance” its military strategy toward the Asia-Pacific region signal a willingness to tangle head-on with China, a fellow nuclear power, according to Catharin Dalpino, a visiting scholar on South East Asia at Johns Hopkins School of Advanced International Studies in Washington.

“I don’t really think U.S. policy is intended to give false confidence to countries in the region” to act aggressively toward China, Dalpino said.

Territorial Claims

China’s economic importance has prevented Asean from forming a common position on issues such as territorial disputes in the South China Sea, according to Zhu Zhiqun, a professor at Bucknell University in Lewisburg, Pennsylvania. Vietnam’s state- run oil explorer warned China last month to halt efforts to develop disputed waters that Hanoi’s leaders already awarded to companies including Exxon Mobil Corp. (XOM:US) and OAO Gazprom.

Asean nations with no competing territorial claims see “their relations with China as probably more important than their relations with the Philippines, Vietnam or Brunei,” said Zhu, who is currently at the National University of Singapore’s East Asian Institute. “They may not openly support China in this dispute, but the understanding is that they don’t want to offend China.”

Philippine President Benigno Aquino said last week he may seek help from the U.S., a treaty ally, to help monitor intrusions in the South China Sea.

‘Without Threats’

“We have a national interest, as every nation does, in the freedom of navigation, in the maintenance of peace and stability, respect for international law, and unimpeded, lawful commerce in the South China Sea,” Clinton said July 8 in Tokyo. “Therefore we believe the nations of the Asia Pacific region should work collaboratively and diplomatically to resolve their disputes without coercion, without intimidation, without threats, and without conflict.”

China will work with individual countries involved in the dispute, Vice Foreign Minister Cui Tiankai said last week in Hong Kong, adding that the U.S. had no claims in the waters.

“We respect the role of Asean as being the ‘driver’ in East Asia cooperation,” Cui said. “China has never coveted dominance on regional affairs and we don’t think anyone should ever try to.”

Asean member states reached an agreement yesterday on a Code of Conduct in the South China Sea, and will seek talks with China, Kao Kim Hourn, an official with Cambodia’s foreign ministry, said in Phnom Penh.

“Right now what we have done was agreed on the key elements from Asean only,” Kao Kim Hourn said. “From now on, they have to start discussions with China.”

Mekong Nations

China, which implemented a preferential trade agreement with Asean in 2010, has established a state-backed private equity fund to invest in Southeast Asia’s infrastructure, energy and natural resources that aims to have $10 billion in assets under management. Its $6 trillion economy is about 15 times the combined size of others in the Greater Mekong Subregion, which includes Myanmar, Cambodia, Laos, Thailand and Vietnam.

The U.S. began the Lower Mekong Initiative in 2009 to boost ties with Cambodia, Laos, Thailand and Vietnam on health, education, the environment and infrastructure. After convening that meeting, Clinton will take executives to meet business leaders at a forum in Siem Reap, Cambodia.

Japan began similar meetings with Mekong nations in 2009 and in April pledged to invest 600 billion yen ($7.5 billion) in infrastructure over the next three years. South Korea last year held its first-ever meeting with representatives from countries along the river and is seeking further cooperation.

Dilute Efforts

Without proper coordination, the various development plans could dilute efforts by multilateral lenders such as the Asian Development Bank to get the highest return from aid money, according to Stephen Groff, a vice-president with the government-backed lender. At the same time, the increased interest is natural given the economic uncertainty in the U.S. and Europe, he said.

“It is the region of the world that is likely to be driving economic growth for the medium to long term,” Groff said in an interview. “As much as there are issues around China, it’s also the fact that this is where it’s going to be happening in the next 50 years, and these governments recognize that.”

To contact the reporter on this story: Daniel Ten Kate in Bangkok at dtenkate@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net


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