In the re­la­tion be­tween ASEAN and China, lessons can be learned from China’s re­la­tion with Europe.

Norway-Asia Business Review - - Contents - JOERGEN OERSTROEM MOELLER, VIS­IT­ING SE­NIOR FEL­LOW AT ISEAS – YUSOF ISHAK IN­STI­TUTE.

Mul­ti­lat­er­al­ism is a key con­cept un­der­pin­ning growth and pros­per­ity. How­ever, the Euro­pean Union (EU) – like the US – analy­ses trade and in­ward and out­go­ing di­rect in­vest­ment with China in a bi­lat­eral con­text.

The EU ac­knowl­edges the re­form of the Chi­nese econ­omy, but sus­pects that the opaque work­ings of the Chi­nese econ­omy al­low the state to sub­sidise ex­ports. The role of the State Owned En­ter­prises ( SOE) throws doubt into the mind­set of Euro­pean pol­icy mak­ers whether they are deal­ing with en­ter­prises com­pa­ra­ble to what is seen at home or whether the Chi­nese gov­ern­ment is pulling levers be­hind the scene. These doubts ex­plain the Euro­pean hes­i­ta­tion to clas­sify China as a mar­ket econ­omy as de­fined by the World Trade Or­gan­i­sa­tion (WTO). Grant­ing such a sta­tus to China would re­duce the EU’s lever­age to de­fend its eco­nomic life in case China uses its eco­nomic struc­ture to bend the rules or rather in­ter­pret the rules dif­fer­ently from the EU stance.

In China’s per­spec­tive, its grow­ing ex­ports are noth­ing more than a re­flec­tion of com­par­a­tive ad­van­tages, and at­tempts by the EU to slow down Chi­nese trade pen­e­tra­tion into Europe is in­ter­preted as de­lib­er­ate dis­tor­tion of mar­ket forces. Chi­nese di­rect in­vest­ment re­flects a sav­ings sur­plus which nec­es­sar­ily looks for in­vest­ment abroad. China does not see any con­cep­tual dif­fer­ence be­tween what it is do­ing now and what Bri­tain did in the early days of the Bri­tish Em­pire and the US in the years af­ter 1945. Since the eco­nomic re­forms started in 1979, China has in­te­grated well into the global eco­nomic sys­tem set up by the US and Bri­tain in the im­me­di­ate post-World War II years. And China plays the mul­ti­lat­eral card.

Both EU and China strive to seek mu­tual ben­e­fits. More of­ten than not, it has been pos­si­ble to avoid ad­ver­sar­ial sit­u­a­tions. But they watch each other. The EU fears dump­ing in the trade area plus at­tempts to play mem­ber states against one an­other in the in­vest­ment sec­tor. China is de­ter­mined to get a role in Europe’s eco­nomic life and wor­ries about meet­ing closed doors just be­cause ‘it is China do­ing it’. EU AND CHINA

EU sees China pri­mar­ily as an eco­nomic com­peti­tor – and eco­nomic part­ner – and not as a ri­val or chal­lenger in the global power game. Cases where vi­tal in­ter­ests col­lide are dif­fi­cult to spot. EU’s em­pha­sis on hu­man rights has from time to time cre­ated ten­sions, but not de­railed am­i­ca­ble links. Both par­ties are

de­ter­mined to en­ter­tain a di­a­logue about this sen­si­tive topic. Cli­mate change/ global warm­ing are shared con­cerns and the Paris agree­ment signed by both has been made a virtue from this com­mon po­si­tion. State­ments by the Trump ad­min­is­tra­tion and lack of com­mit­ments to free trade at in­ter­na­tional meet­ings are in con­trast to the strong po­si­tions by China’s lead­ers about its wish to play a prom­i­nent role in de­fend­ing the sys­tem. EU and China nur­ture am­bi­tions to take over the role as de­fend­ers of the ex­ist­ing in­sti­tu­tion­alised eco­nomic glob­al­i­sa­tion – as sta­tus quo pow­ers.

In the geopo­lit­i­cal frame­work, the At­lantic Al­liance obliges the EU to be cau­tious in its China pol­icy so that its ac­tions are not in­ter­preted as strength­en­ing China’s hand vis-à-vis the US. The low at­ten­tion giv­ing to geopol­i­tics ex­plains why the At­lantic Al­liance only im­peded progress once and that was in 2005 when US ex­er­cised pres­sure on the EU not to lift the arms em­bargo on China in­tro­duced af­ter Tianan­men 1989.

China’s EU-pol­icy is steered by two goals at the same time. Pri­or­ity num­ber one is to keep EU in the geopo­lit­i­cal game as a po­ten­tial part­ner. A weak or even more so a col­lapse of the EU will un­avoid­ably strengthen US and Rus­sia, in China’s per­spec­tive. As the US and Rus­sia are seen as ri­vals po­ten­tially threat­en­ing vi­tal Chi­nese in­ter­ests, a com­par­a­tively strong EU is in China’s in­ter­est. The com­plex­ity of EU de­ci­sion­mak­ing may per­plex China which is used to deal­ing with Euro­pean na­tion-states. Grad­u­ally as China gets to know how the EU works, it will be able to strike the right bal­ance be­tween di­rectly in­flu­enc­ing EU in­sti­tu­tions and in­di­rectly sway­ing mem­ber states’ vot­ing pat­tern to achieve a de­ci­sion in con­form­ity with Chi­nese in­ter­ests. This is a del­i­cate bal­ance, as too heavy-handed an ap­proach can be counter-pro­duc­tive. Get­ting it wrong would cre­ate sus­pi­cion about China and jeop­ar­dise its eco­nomic ex­pan­sion in Europe. AP­PROACH­ING IN­DI­VID­UAL MEM­BER STATES

The most strik­ing ex­am­ple – and a re­cent one – of China us­ing its in­flu­ence on in­di­vid­ual mem­ber states came in July 2016 when the Per­ma­nent Court of Ar­bi­tra­tion in The Hague ruled in favour of The Philip­pines against China about con­trol over dis­puted wa­ters in the South China Seas (SCS). It took the EU three days to pub­lish a vague state­ment not go­ing fur­ther than ac­knowl­edg­ing the rul­ing. Al­legedly, Greece and Hun­gary op­posed stronger lan­guage sought by Bri­tain, France, and Ger­many. Both these coun­tries are re­cip­i­ent of big Chi­nese in­vest­ments with the sale of the port of Pi­raeus in Greece a sig­na­ture case of in­com­ing in­vest­ment at a time and on a scale that makes the re­cip­i­ent sen­si­tive to the cred­i­tor’s view. It came as a sur­prise that China would go to such lengths to in­ter­fere, es­pe­cially re­call­ing that EU is not di­rectly in­volved in the SCS dis­pute. It is even more sur­pris­ing that it was done in a for­eign- and se­cu­rity pol­icy case with no im­pli­ca­tions for eco­nomic re­la­tion­ships. The EU and mem­ber states might chew on whether this is a one­off case or an omen of strong re­ac­tions to come if EU-mem­bers re­ceiv­ing in­vest­ments fail to com­pre­hend what China re­gards as its cru­cial in­ter­ests.

The Euro­pean Com­mis­sion in 2008 started to in­ves­ti­gate ac­cu­sa­tions that China dumped steel on the Euro­pean mar­ket and con­cluded in 2013 that ev­i­dence was suf­fi­ciently strong to pre­pare plans that would al­low higher im­port du­ties. 14 mem­ber states op­posed this move. Among them was Bri­tain. This po­si­tion at­tracted at­ten­tion for sev­eral rea­sons. The Port Tal­bot Steel­work in Wales, the largest steel pro­ducer in Bri­tain, was strug­gling and its fu­ture un­cer­tain, which led some ob­servers to be­lieve that higher im­port du­ties would have helped to pre­serve jobs. Al­most at the same time, the Bri­tish gov­ern­ment was in full swing try­ing to at­tract Chi­nese in­vest­ment to Bri­tain in­clud­ing the City of Lon­don; these ef­forts cul­mi­nated in pres­i­dent Xi Jin­ping’s state visit in Oc­to­ber 2015. With­out firm ev­i­dence to sup­port such a view, there was sus­pi­cion that the Bri­tish po­si­tion was in­flu­enced by con­cerns of neg­a­tive reper­cus­sions on the broader strat­egy vis-a-vis China. What may have made the course of events more com­pli­cated was that Port Tal­bot Steel­works had been bought in 2007 by Tata, an In­dian com­pany.

Chi­nese in­vest­ments in Europe lags far be­hind the US – and other in­vestors – but the pic­ture is chang­ing fast, au­gur­ing China as a ma­jor in­vestor in a few years’ time. China’s Over­seas Di­rect In­vest­ment (ODI) go­ing to Europe reached an all-time high in 2015 stand­ing at EUR 20 bil­lion, bring­ing the size of its ODI stock in Europe to USD 54 bil­lion. Merg­ers & Ac­qui­si­tions (M&A) in­flu­enc­ing own­er­ship is grow­ing so fast that the EU is the largest re­cip­i­ent of China’s trans­ac­tions in this sec­tor of cap­i­tal move­ments. The ex­pan­sion has at­tracted at­ten­tion as has sev­eral in­vest­ments in view of the size of Chi­nese in­vest­ments or fear of Chi­nese buy­ing of en­ter­prises of strate­gic im­por­tance. In Ger­many the sale of Kuka, an in­dus­trial ro­bot maker, raised con­cerns about the trans­fer of tech­nol­ogy deemed to be im­por­tant for Ger­many’s com­pet­i­tive ad­van­tage in this sec­tor. The sale of Aix­tron, a chip equip­ment maker, was blocked by the Ger­man gov­ern­ment for na­tional se­cu­rity rea­sons. In Bri­tain, Prime Min­is­ter Theresa May in sum­mer 2016 tem­po­rar­ily blocked the Hink­ley Point C nu­clear power sta­tion partly fi­nanced by China al­legedly due to Bri­tain’s en­ergy se­cu­rity con­sid­er­a­tions.

The ac­qui­si­tion of the Greek Port of Pi­raeus in Septem­ber 2016 was and still is re­garded as an eco­nomic and com­mer­cial trans­ac­tion, pos­si­bly re­lated to the Belt and Road Ini­tia­tive (BRI). The ac­qui­si­tion may, how­ever, have been in­spired by the num­ber of Chi­nese cit­i­zens caught in Arab coun­tries bor­der­ing on the Mediter­ranean when the Arab Spring broke out in 2011. In Libya alone, 38,000 Chi­nese cit­i­zens had to be res­cued, trig­ger­ing the largest op­er­a­tion of this kind un­der­taken by China. [10] This is a kind of in­vest­ment with dual pur­pose ca­pa­bil­i­ties – com­mer­cial ones and po­ten­tially serv­ing na­tional se­cu­rity pur­poses. The EU’s Com­mon Ex­ter­nal Trade Pol­icy did not un­til the Lis­bon Treaty of 2009 em­body in­vest­ment, which ex­plains why mem­ber states (ex­cept Ire­land) have Bi­lat­eral In­vest­ment Treaties (BIT) al­low­ing China to deal with them sep­a­rately in­stead of via EU in­sti­tu­tions.

In 2015, the Euro­pean Com­mis­sion pro­posed to plug this hole through an EU In­vest­ment Treaty re­plac­ing the ex­ist­ing na­tional ones. Such a treaty would level the play­ing field and curb the pos­si­bil­ity of China play­ing mem­ber states against one an­other. [11] Para­graph I,2 of the EUChina Strate­gic Agenda for Co­op­er­a­tion says ‘Ne­go­ti­ate and con­clude a com­pre­hen­sive EU-China In­vest­ment Agree­ment that cov­ers is­sues of in­ter­est to ei­ther side, in­clud­ing in­vest­ment pro­tec­tion and mar­ket ac­cess’, which un­der­lines the im­por­tance both par­ties give to in­vest­ment flows – not for­get­ting Europe’s sub­stan­tial in­vest­ments in China.

Pres­i­dent Em­manuel Macron of France raised at the meet­ing on 22-23 June 2017 of the Euro­pean Coun­cil the topic of screen­ing for­eign in­vest­ment into the EU to pro­tect strate­gic in­ter­ests. The dis­cus­sion re­vealed that even if the idea res­onates with feel­ings in mem­ber states, there are hes­i­ta­tions of how far to go. Sev­eral coun­tries that are ben­e­fi­cia­ries of Chi­nese in­vest­ment projects re­sisted strong word­ing, lead­ing to a not very am­bi­tious phrase in the con­clu­sions, wel­com­ing “the Com­mis­sion’s ini­tia­tive to har­ness glob­al­i­sa­tion and, in­ter alia, to an­a­lyse in­vest­ments from third coun­tries in strate­gic sec­tors, while fully re­spect­ing Mem­bers States’ com­pe­tences. The Euro­pean Coun­cil will re­vert to this is­sue at one of its fu­ture meet­ings.”

One puz­zling case is that of mem­ber­ship in the Asian In­fra­struc­ture In­vest­ment Bank ( AIIB) launched by China in 2014. 17 mem­bers of the EU have joined, but with­out prior EU co­or­di­na­tion to es­tab­lish a com­mon po­si­tion as is of­ten done in in­ter­na­tional ne­go­ti­a­tions. Nor has there been any se­ri­ous anal­y­sis of whether EU in­sti­tu­tions like the Euro­pean Com­mis­sion and the Euro­pean In­vest­ment Bank (EIB) should be rep­re­sented, as is the case with the Euro­pean Bank for Re­con­struc­tion and De­vel­op­ment ( EBRD). De­pend­ing on how far and how fast the AIIB de­vel­ops, this could prove to be a costly over­sight or omis­sion.

On the ini­tia­tive of China, a frame­work has been set up for co­op­er­a­tion be­tween China and 16 Cen­tral and East­ern Euro­pean na­tions, five of which are not mem­bers of the EU. It is not per­fectly clear what the pur­pose is and how China in­tends to use this fo­rum. In view of five of the part­ners not be­ing EU mem­ber states, it looks un­likely to be an at­tempt to by­pass EUin­sti­tu­tions. It is more likely a case of tra­di­tional Chi­nese diplo­macy, e.g. Shang­hai Co­op­er­a­tion in Cen­tral Asia, and pos­si­bly also an in­stru­ment to fur­ther the Belt and Road Ini­tia­tive (BRI), which might ex­plain set­ting up an in­vest­ment fund to the tune of USD 11 bil­lion.

China has ex­pressed an in­ter­est to es­tab­lish a 5+1 co­op­er­a­tion with Nordic coun­tries. This could be ex­plained by in­ter­est in the Arc­tic plus the BRI. [16] Sim­i­lar ideas have been floated for a 6+1 plat­form with China and six South­ern Euro­pean coun­tries. CON­CLU­SION AND LESSONS FOR ASEAN

China’s stock of cap­i­tal in­vested in Europe is still small, but the EU feels a grow­ing pres­sure and a de­gree of un­cer­tainty about the mo­tives un­der­pin­ning Chi­nese in­vest­ment. Merg­ers & Ac­qui­si­tions are mon­i­tored both by in­di­vid­ual coun­tries and the EU in­sti­tu­tions. The EU in­sti­tu­tions have started to set up frame­works and pro­ce­dures to trans­fer mon­i­tor­ing of Chi­nese in­vest­ments from mem­ber states to the EU level. There is aware­ness that China may use its fu­ture eco­nomic clout to ac­quire strate­gic as­sets and en­ter­prises, in­ter­fere in EU de­ci­sion mak­ing by mak­ing smaller mem­ber states in par­tic­u­lar de­pen­dent on its in­vest­ment projects, and at­tempt to play mem­ber states against each other. The EU in­sti­tu­tions and mem­ber states seem to agree that the prob­lem is not what China is do­ing, but what China as the world’s largest saver might do in the fu­ture. EU’s dilemma is to en­ter into a closer eco­nomic re­la­tion­ship with China with­out risk­ing strate­gic as­sets or al­low­ing China to un­der­mine EU sol­i­dar­ity.

Whether this can be done suc­cess­fully de­pends to a large ex­tent on China whose geopo­lit­i­cal in­ter­est in EU must be rec­on­ciled with trade and in­vest­ment pri­or­i­ties. If China ac­ti­vates too ob­vi­ous poli­cies to by­pass EU rules or search for short term ben­e­fits dis­re­gard­ing longterm trust, EU-China re­la­tion­ship may be en­dan­gered. Both look on them­selves as no pushover and both ex­pect re­spect from those they do busi­ness with.

So far both have acted in con­form­ity with Deng Xiaop­ing’s words “cross the river by feel­ing the stones”, but there have been a few cases of raised eye­brows sig­nalling that mis­steps may oc­cur.

China is a more im­por­tant in­vestor for ASEAN than for the EU. From 2013 to 2015 the share of For­eign Di­rect In­vest­ment (FDI) com­ing from China has risen from 5.1 per­cent to 6.8 per­cent. Con­sid­er­ing that some Chi­nese in­vest­ments prob­a­bly go via Hong Kong, the share can be as high as 9.3 per­cent and 10.6 per­cent into the ASEAN re­gion.

China is fast set­ting up in­sti­tu­tional frame­works to fa­cil­i­tate much higher in­vest­ment flows into the re­gion. AIIB, BRI, and the New De­vel­op­ment Bank (NDB) formed by the so-called BRICS (Brazil, Rus­sia, In­dia, China, and South Africa) in­spired by China – will be used as a ve­hi­cle for Chi­nese in­vest­ment in South­east Asia, sup­ple­ment­ing gov­ern­ment to gov­ern­ment and the pri­vate sec­tor ini­tia­tives.

South­east Asia is used to re­ceiv­ing large scale FDI, but flows from main cred­i­tors – EU, US, and Ja­pan ac­count­ing for around 40 per­cent (2015) – have rarely been seen as a po­ten­tial threat to strate­gic in­ter­ests or linked their pos­ture on for­eign- and se­cu­rity ques­tions. The Euro­pean ex­pe­ri­ence con­firms, what has al­ready been seen in South­east Asia, that the same can­not be as­sumed for Chi­nese in­vest­ments. The prox­im­ity to China, its grow­ing eco­nomic weight and the South­east Asian coun­tries’ in­ter­est in re­ceiv­ing in­vest­ment means that it is for China to gauge how fast and how deep a link be­tween FDI and in­flu­ence it can look for with­out risk­ing a back­lash.

The cru­cial point for South­east Asian coun­tries and ASEAN is to fig­ure out whether they are dis­posed to sig­nalling this aware­ness that China should tread softly and if so whether they want to use a kind of ASEAN ap­proach. If han­dled adroitly lines may be drawn re­spect­ing South­east Asian coun­tries’ in­ter­ests. The ace up their sleeve is that while they may be ben­e­fi­cia­ries of Chi­nese FDI, so is China a ben­e­fi­ciary of its in­vest­ment in this part of the world – eco­nom­i­cally and po­lit­i­cally.

PHOTO: SHUTTERSTOCK

The core of eco­nomic glob­al­i­sa­tion is that the over­all bal­ance of pay­ments and in­vest­ment bal­ance paints a pic­ture of a coun­try’s eco­nomic strength or weak­ness.

Newspapers in English

Newspapers from Norway

© PressReader. All rights reserved.