How much for ASEAN? Why China’s cheque-book diplomacy may win them the South China Sea

Photo: Presidential Communications Operations Office

A series of big-money investment deals has brought ASEAN nations politically and economically closer to China. But in this big-stakes diplomatic game, the banker in Beijing will always win. 

By Oliver Ward

China has invested more than $200 million in Cambodian development each year since 1992. And that is on top of the USD$3 billion dollars worth of loans it has handed Phnom Penh to fund strategic projects. Militarily the two countries have also strengthened ties; China has provided the Royal Cambodian Armed Forces with trucks, aircraft, training, medical facilities and even uniforms. But what does China get in return?

In fact, as Chinese investment expands across southeast Asia, nowhere is its effect more noticeable than in Cambodia. The two countries have not only become close international partners and diplomatic allies since agreeing on a Comprehensive Partnership for Cooperation deal in 2006, but they strengthened those bonds again in 2010 by agreeing to an official strategic partnership.

A symbiotic relationship

This significant Chinese investment has brought much-needed infrastructure development to Cambodia and generated thousands of construction jobs. Meanwhile, an even greater number of unskilled textile workers are employed by Chinese textile companies, which make up around 80% of Cambodian exports. But these advantages come at a price.

In return for this investment, China can use Cambodia as its weapon to uphold Chinese interests within the ASEAN bloc. In 2012, when Cambodia had ASEAN chairmanship, it used its authority to back China in the South China Sea territorial dispute. Cambodia also refused to agree to a joint statement from ASEAN condemning China for constructing military bases in the region.

On both occasions, Cambodian noncompliance with the general ASEAN consensus threatened to undermine unity in the region and demonstrated the lengths the country is willing to go to protect its relationship with Beijing.

Chinese charm

These moves in Cambodia appears to be part of a broader Chinese objective to lure other ASEAN nations into accepting its South China Sea claims. Recent visits from Malaysian, Philippine and Vietnamese leaders have all followed a similar pattern; handshakes and smiles then they all left with economic incentives to support Chinese claims.

This is because, despite having their claim rejected by an international tribunal in July, Xi Jinping knows that he has one more weapon in his arsenal, Chinese money. If diplomatic channels fail, economic channels may provide the solution.

After state visits in September and October, China has dispersed multi-billion dollar investment packages to rival claimants and granted several concessions to charm them into abandoning their efforts to assert sovereignty. During his October visit, Philippine President Duterte alone signed 13 bilateral agreements with Beijing worth around $13.5 billion.

Xi Jinping also allegedly promised Filipino fishermen access to the disputed Scarborough Shoal, while Malaysia has been given the opportunity to purchase combat ships. Regional security expert Carl Thayer of the University of New South Wales attributes the new Chinese diplomatic charm to simple supply and demand. Most ASEAN nations need to secure vast sums of international investment to fund ambitious infrastructure development projects; China can provide the necessary financial backing for these. At the same time, Xi Jinping can use these economic cooperation agreements as a springboard to launch discussions on territorial disputes.

Undermining US influence

This Chinese investment is carefully considered, coming at a moment of relative neglect of the region by the United States. The fallout of US involvement in the Middle East and the financial crash of 2008 has fallen heavy on American policy, while Chinese economic growth boomed. Economic and political power has shifted.

As such, long-time allies of the US like the Philippines are beginning to turn to Beijing for assistance and investment, and they are finding a willing trading partner. Rodrigo Duterte, for one, has put the Philippines alongside Laos and Cambodia in the queue for Chinese condition-free aid, investment packages and low-interest loans.

Malaysia and Brunei are also drifting towards Chinese influence. Malaysian Prime Minister Najib Razak has signed deals worth RM143 billion (USD$32 billion) in recent weeks in return for Chinese investment in infrastructure and business development. And with the election of Donald Trump, whose campaign tapped into Islamophobic ideas, majority-Muslim Malaysia may well be less inclined to continue the close relationship with America enjoyed under the Obama administration.

Meanwhile, Brunei has also accepted vast sums of Chinese investment as part of the drive to diversify their economy and reduce reliance on the oil and gas industry. This comes as no surprise to Kung Phoak, the President of the Cambodian Institute for Strategic Studies. He explains, “the economy of any Asian country depends on China’s trade and investment”.

The fact is that the US can no longer provide a golden teat of financial aid and investment. Asian countries will therefore need to realign to ensure continued financial investment and development in their countries, but this will likely cost them their claims over the South China Sea.

The human cost

Cambodia is also an interesting case study for what may happen to other ASEAN nations that decide to improve economic and political ties with Beijing. For them, at least, Chinese investment brings with it a severe lack of transparency and disclosure. Projects like the Boeung Kak development in Phnom Penh, which has led to the illegal eviction of some 4,000 families, has drawn sharp criticism from human rights groups.

Furthermore, it is alleged that Chinese investment focuses on the interests of political and business elites. As such the average worker in Cambodia has experienced few benefits. There are jobs, but the increased wealth generated often leaves the country and lines Chinese pockets. As such, standards of living remain almost untouched.

As China capitalises on decreased US involvement in Asia to increase its influence in the region, we are entering a new phase of foreign policy. Xi Jinping’s charm offensive has enjoyed success in Cambodia, where the government has accepted his money with outstretched arms and aligned its foreign policy objectives with those of Beijing.

Now treading the same path may be enticing to other ASEAN nations like Laos, Malaysia, Brunei and the Philippines, but the price will be toeing Beijing’s diplomatic line. To Xi Jinping the tribunal in July only showed him one thing; his acquisition will come at a price, but the territory is certainly up for sale.