Southeast Asia’s Pivot to China

ADINA-LAURA ACHIM evaluates the warming relations between China and Southeast Asian nations.

Warming Relations
Lu Zheng | Staff

Southeast Asian nations like Sri Lanka, Malaysia, and the Philippines have found a reliable partner in China, the second largest economy in the world. Yet, Western media has often portrayed these partnerships as examples of China’s manipulation and debt-trap diplomacy. Analyzing relations between China and Southeast Asian nations only through a geopolitical lens creates the illusion of a zero-sum game that pits China against the United States and forces Southeast Asian nations to take sides. As Singaporean prime minister Lee Hsien Loong noted, “It’s easiest not to take sides when everybody else is on the same side. But if you are friends with two countries which are on different sides, then sometimes it is possible to get along with both, sometimes it’s more awkward if you try to get along with both.” As China continues to establish itself as a pivotal partner in the region, the US may be surprised by the results if Southeast Asian nations were forced to choose sides today.

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One country that has actively sought China as an economic partner is Sri Lanka. China and Sri Lanka have deep historical ties, as Sri Lanka was one of the first countries to diplomatically recognize the People’s Republic of China in 1950. In 1952, the two countries signed the Rubber-Rice Pact, whereby Sri Lanka broke a US embargo on the export of strategic materials to China. During the ensuing years, Sri Lanka remained China’s trusted ally in the United Nations, blocking both Taiwan and Tibet’s attempts to gain membership. Despite strong cultural and historical ties between the two countries, relations have been strained by the controversy over Hambantota Port, which is now leased to China for 99 years for $1.12 billion. Popular public opinion held that Sri Lanka could never have repaid its obligations to China “and therefore had no choice but hand over the port to Chinese control to pay off the debt.” After coming to power in 2015, Sri Lankan president Maithripala Sirisena suspended Chinese-backed infrastructure projects, alleging corruption and rule-breaking.

However, according to recent research, “debt repayments for the loans obtained for Hambantota Port amount to only around 5 percent of Sri Lanka’s total annual foreign debt payments, and even less among total debt repayments.” Instead, Sri Lanka’s decision to lease Hambantota Port to China was primarily driven by a need to raise foreign currency to repay maturing international sovereign bonds, which “amounted to 39 percent of the total foreign debt as of 2017.” The shortage of foreign currency, in turn, can be attributed to the government’s failure to “fix structural issues such as the reduction of trade, rising protectionism, and reduction of government revenue.” The 2019 Easter bombings that targeted churches and luxury hotels and killed 258 people delivered a huge blow to the national tourism sector, further exacerbating Sri Lanka’s shortage of foreign currency.

In this context, it is understandable why Sri Lanka is now seeking further assistance from China instead of distancing itself. Faced with growing economic and political instability, Sri Lanka’s government is seeking a new loan for US$1 billion for energy and motorways from China-led development bank AIIB. Dr. Karunasena Kodituwakku, Sri Lanka’s ambassador in Beijing, was careful to emphasize that “every cent we have from China, those were decisions made in Sri Lanka and every loan given to us was on our own request […] We made a request with the intention to accelerate our development agenda. With goodwill the Chinese authorities and relevant agencies provided the loans.” 

Apart from investments in infrastructure, Sri Lanka has also reopened negotiations with Beijing over a free trade agreement. Sri Lankan presidential nominee and frontrunner Gotabaya Rajapaksa has pledged to “restore relations” with China if he wins the November 16 election. In the words of his advisor Palitha Kohona, “I suppose the thinking was if we upset China, the West would come to us with endless bags of gold […] But the bags of gold never materialized.” Thus, despite current president Sirisena’s suspicion towards Chinese investment, Sri Lanka appears poised to re-embrace China.

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Since returning to office in 2018, Malaysian Prime Minister Mahathir Bin Mohamad has cast doubts over China’s investments in Malaysia. Before taking office in May 2018, he “criticized predecessor Najib Razak as selling out to Beijing to build costly infrastructure financed by loans under the Belt and Road.” However, Mahathir has proclaimed that in the US-China trade war, his allegiance lies with China because the United States is “very unpredictable” while China is an impressive market that offers economic opportunities. 

Mahathir’s approach to China mixes a welcoming front with selective criticism. Mahathir has suspended the Chinese-funded $20 billion East Coast Rail Link (ECRL) project and a natural gas pipeline project in Sabah, but indicated openness to continued cooperation with China. For Malaysia, maintaining a long-lasting partnership with a global power transcends a few controversial projects. Speaking in a panel discussion, University of Malaya professor Edmund Terence Gomez stated that “When we opened the doors [to China], other investments also began flowing into the economy. And these were very dynamic investments also from mainland China … and does Malaysia benefit from these private investments? Yes, we do.” 

Malaysia eschews approaching China as a manipulative authoritarian power whose ambitions for world domination are exploiting “the political landscape of countries beyond their borders.” Instead, Malaysia’s pragmatic approach identifies areas of cooperation and mutual benefit while protecting Malaysia’s economic interests. As part of this pragmatic approach, Malaysia successfully renegotiated the reduction of the fee for the controversial East Coast Rail Link to RM44 billion (S$14.4 billion), which also demonstrated Chinese openness to dialogue and bolstered China’s image as a reliable partner. 

Malaysia’s pragmatic foreign policy suggests that addressing multi-faceted problems through a balanced, collaborative approach can solve ongoing disputes with China. In a March 2019 interview with the South China Morning Post, Mahathir revealed, “When China was poor, we were frightened of China. When China is rich, we are also frightened of China,” but Malaysia needs “to find some way to deal with China.” In a later interview with Nikkei Asian Review, Mahathir stated that “Southeast Asian countries need to work with Beijing,” and that they must “deal with China jointly, because that gives us more strength.” Straits Times reports that China and Malaysia have recently “agreed to 50-50 joint venture to operate the 640km line across Peninsular Malaysia, reducing Kuala Lumpur’s financial risks,” suggesting that more cooperation is in the horizon. 

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Throughout the years, Philippines president Rodrigo Duterte and Chinese president Xi Jinping have had a rocky relationship, struggling to reach consensus on a long-standing dispute over maritime claims in the South China Sea. Following a meeting in Beijing this past August, China’s state-run news agency Xinhua reported that “the two leaders expressed their readiness to push forward ties.” Moreover, President Xi stated that both countries can take a “bigger step” in joint oil and gas explorations. But despite the common willingness to move forward, the territorial claims over South China Sea are stalling any real advancements. In September 2019, Duterte revealed that China offered a controlling stake in a joint oil and gas exploration of disputed claims in the South China Sea in exchange for the Philippines setting aside the Permanent Court of Arbitration’s 2016 ruling against China, but the Philippines has remained “steadfast” in its territorial claims.

Despite continued tension over maritime disputes, China and the Philippines have seen rapid advancement in their trade and investment relations under Duterte’s administration. According to Eurasia Review, China has been Philippines’ largest trading goods partner and the country’s biggest investor since 2017. In addition, China has the potential to become Philippines’ biggest inbound tourist market, making it an even more enticing economic partner. China and the Philippines are currently expected to sign “some 18 agreements worth more than $18 billion across industries such as food, hydroelectric power, infrastructure, tourism and industrial estates” that “will create over 22,000 jobs.” Additionally, China has “pledged to help fund a $169 billion infrastructure renewal drive in the Philippines,” though currently the biggest provider of development aid in the Philippines is still Japan, which has already given the Philippines “a cumulative $24.4 billion in development support through 2017.”

Domestically, Duterte has been facing mounting pressure from anti-China politicians such as Defence Minister Delfin Lorenzana, and is strongly criticized by opposition and media; thus, there is a chance he might strengthen cooperation with the US at the expense of the Philippines’ burgeoning partnership with China. For the time being, Duterte is employing a pragmatic approach, keeping both the US and China at arm’s length. In terms of his broader foreign policy approach, Duterte has indicated plans to “expand the horizon of Philippine diplomacy” by deepening engagement with a variety of powers including Russia, which has “offered sales of advanced defense hardware to the Philippines’ multibillion-dollar military modernization program.” Given Duterte’s ambivalence towards the US, it is likely that he will continue fostering relations with rival powers like China and Russia.

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China’s growing influence in the Asia-Pacific region is simultaneously terrifying and thrilling to neighboring countries. China’s re-emergence as a global power brings unique opportunities to smaller nations that are pursuing their own agenda, especially in the shadow of perceived American decline. Under the Trump administration, the US has engaged with Southeast Asia by sending “a large number of officials to visit the region,” increasing its military operations in the South China Sea, and announcing “new funds for technological and infrastructure initiatives across Southeast Asia.” However, a February 2019 survey of 1,008 Southeast Asian experts, business leaders, and policymakers found that 68% believed the level of US engagement with Southeast Asia under the Trump administration has decreased or decreased substantially, and 68.1% “are unsure of or have little confidence in the US’ reliability as a strategic partner and provider of regional security.” Given the perceived power vacuum left by the United States, it is unsurprising that many Southeast Asian nations are turning to China as their preferred partner of the future.

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