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The Rise of N. ASEAN

Asia's New Trade Corridor


Asia's New Trade Corridor


Strategically located between China and South Asia, the northern countries of ASEAN are planning a massive infrastructure binge with China's help that will change the face of trade in Asia.



Asia's New Trade Corridor

By Elaine Huang
From CommonWealth Magazine (vol. 556 )

At the end of 2015, the 10 countries in the Association of Southeast Asian Nations (ASEAN) will form an economic entity with a greater land area and bigger population than Europe – the ASEAN Economic Community.

It will be a fitting milestone for a group that has grown dramatically over its nearly half century, says former Thai prime minister Abhisit Vejjajiva, now the chairman of Thailand's Democrat Party who was three years old when ASEAN was established.

He described an ASEAN that is now 47 years old and has come a long way. Its political and economic situation and public infrastructure are more mature than in the past, and foreign investment is flowing in.

"I'm very optimistic about the future," Abhisit told CommonWealth Magazine after giving a speech at a conference on "Moving Forward in Building the ASEAN Community" held in Bangkok in August.

ASEAN's Two Worlds

Though talk is of an integrated ASEAN, a closer inspection of its development reveals that its northern and southern flanks are following clearly distinctive paths. The northern group, consisting of the countries north of Thailand's southern border (Thailand, Myanmar, Laos, Cambodia and Vietnam) and the southern group, consisting of Malaysia, the Philippines, Indonesia, Singapore and Brunei, are different in almost every respect, from religion and culture to regional development.

The northern countries are primarily Buddhist while those in the south are Muslim except for the Philippines. The north forms ASEAN's major land mass linked by the Mekong River and has come to be known as the Greater Mekong Subregion or "Continental ASEAN," in contrast to the island countries of the south, known as "Maritime ASEAN." The north serves as an economic hub linking South Asia and China, while the south leans toward the Islamic world. In terms of geopolitics and investment, the north is a fiercely competitive battleground, while the south, separated by the sea, watches on.

Only Taiwan Out of the Picture

According to the 2013 ASEAN statistical yearbook, China and Japan are the main forces in the region, their investment in the northern ASEAN countries double what it was just five years ago.

That trend was reflected in the Myanmar government's white paper on its five-year development seen by a Thailand-based Taiwanese businessman during a trip to Myanmar last year.

"The paper listed the major public infrastructure items. The investors listed, if they weren't Japan and South Korea, were Singapore and China. Taiwan was nowhere in sight," he exclaimed with a hint of regret.   

"In the past, the region was a buffer for the major powers, but now they (ASEAN) have learned to gain advantage from all sides," says Chen Pei-hsiu, a professor of Southeast Asian studies at National Chi Nan University, in describing the evolution of ASEAN members' attitudes.

Taiwan has not had a voice as the region has grown and matured, its diplomatic, trade and economic initiatives limited and lagging behind others.

The attitudes of many Taiwanese businesses toward the region remain stuck in neutral, treating it as nothing more than a base for low-cost production. But China, Singapore, South Korea and others see ASEAN not only as a factory but also as a market and perhaps most importantly a battleground to test their political and economic power.

In the 1990s, Japan used economic aid and its dominance in the Asian Development Bank to provide considerable financial support for Cambodia, Vietnam and Thailand. More recently, Japanese prime minister Shinzo Abe made it a point to visit all 10 ASEAN members within his first year in office to consolidate Japan's status in the South China Sea.   

Tokyo plans to invest about 180 billion Thai baht (NT$170 billion) over the next three years in basic infrastructure in the northern ASEAN countries, says Arkhom Termpittayapaisith, the secretary-general of Thailand's National Economic and Social Development Board.

Casting a Web via The Kunming-Bangkok Road

China is also exerting greater influence. "The northern ASEAN countries and China are moving closer together because of geographical reasons," National Chi Nan University's Chen says.

In 2009, then Chinese president Hu Jintao toured Yunnan province in southwestern China, and the "Outline of the 12th Five-Year Plan" positioned it as China's "bridgehead" to the ASEAN market. Yunnan shares a land border of more than 4,000 kilometers with Myanmar, Laos and Vietnam, making it an ideal channel through which China can extend its presence into its northern ASEAN "backyard."

"Over the past three years, Yunnan's total trade with ASEAN has grown more than 30 percent a year on average," says Yang Jing, the deputy director of the ASEAN division of Yunnan's Department of Commerce. "Last year alone, it rose 61 percent."

A trip on the Kunming-Bangkok Highway, which was fully opened at the end of last year, symbolized the massive flow of people, money and goods between China and its "backyard."

The 1,750-kilometer road, which starts in Kunming in southwestern China and finishes in the Thai capital of Bangkok, cuts through Xishuangbanna in China and Laos and Myanmar on the way. It's like a veiled beauty, at times seen, at times hidden, as it snakes through lush green tropical rain forest.

This is the first international highway in the northern half of Southeast Asia and has earned the reputation as China's prettiest cross-border roadway. Driving along it, there seems no end to the flat asphalt road, and never a minute goes by without a cargo truck zipping by. 

 "On the Kunming-Bangkok Highway, vegetables are transported to Bangkok to sell, and oil is brought back," says 40-year-old Chongqing businessman Li Zhao, who owns farmland in Xishuangbanna.

He often drives a black Toyota across the Laotian border into Thailand, to discuss the sale of agricultural products there. There are more than 90 border crossings from Yunnan into other countries that handle more than 20 million travelers coming and going each year – about the same as Taiwan's population.

"There is no other province in China that handles as much cross-border traffic," says He Shengda, deputy director of the China Society for Southeast Asian Studies.

After a free trade agreement between China and ASEAN began taking effect in 2010, Yunnan's geographical advantage made it an ideal "last mile" for companies eager to enter the ASEAN market through China, complete with tax incentives.

Shenzhen H&S Garment Co. was one of the companies that saw the appeal of the southwestern province. It decided to open a factory in the provincial town of Lincang with a capacity of 7 million pieces of apparel a year that can be quickly shipped by road just across the border to Hopang in Myanmar for further processing.

 "Products made in Myanmar and exported to Europe receive tariff-free treatment," says Li Jiming, deputy secretary-general of the Yunnan provincial government, explaining why the model is attractive.

Grape King Biotechnology Inc., a major Taiwanese producer of health food, announced earlier this year that it would cooperate with the Yunnan Baiyao Group, a state-run enterprise based in Yunnan province, to penetrate the ASEAN market.

"The integration of ASEAN is very attractive to Taiwanese businesses," says Grape King Bio Executive Vice President Andrew Tseng.

An unnamed Yunnan Baiyao executive also acknowledged the importance of Southeast Asia to his company's business. "ASEAN is actually our biggest overseas market." As if to emphasize the point, Yunnan Baiyao's headquarters in the new Chenggong District on the outskirts of Kunming overlooks the Kunming-Bangkok Highway.  

Laying Pipelines, Building High-speed Rail Lines

China has leveraged its geographical advantage to control the flow of goods, money and people in "Continental ASEAN" through a densely woven spider-like transportation web built by investing heavily in the region's basic infrastructure.

In Myanmar, which has recently opened up its economy, China has built oil and natural gas pipelines that connect the western Myanmar port of Kyaukpyu on the Bay of Bengal with Yunnan province. The oil pipeline, which has yet to begin operations, will enable oil from the Middle East to be transported to China without having to be shipped through the narrow and potentially risky Strait of Malacca separating Indonesia and Malaysia. The parallel gas pipeline, which went into operation in July 2013, removes the same risk.

In Thailand, the ruling junta approved a US$23 billion project in early August for two high-speed rail lines that will link up with China by 2021. The lines, seen as part of an ambitious Trans-Asian Railway project, are another step in Chinese premier Li Keqiang's "high-speed railway diplomacy."

 "By connecting itself through Thailand with the Southeast Asian countries, China is expanding its influence in the region," says Shao Yu, the chief economist at Chinese securities firm Orient Securities and a part-time professor at Nanjing University's School of Management and Engineering.

Behind Beijing's strategic infrastructure investments in Southeast Asia, from deep-sea ports to "high-speed railway diplomacy," is a desire to imitate Deng Xiaoping's   tour of southern China in 1992 that brought capitalist reforms and opened up markets to the south, creating an economic boom. China's leaders hope to expand the model across borders.

"Through regional economic integration and involvement in local infrastructure projects, China is not only hoping to extend its market network but also break through American containment in the Pacific Ocean," observes a Taiwanese scholar.

The Emergence of a European-Asian Corridor

Continental ASEAN's geographic importance as a horizontal corridor between the Indian and Pacific oceans becomes immediately evident when viewed on a map of Asia.

One of the terminals of the corridor will be Dawei in the Tanintharyi region of southern Myanmar, a remote coastal area that was long inaccessible by ground transportation but now connected by road to western Thailand. Three years ago, the Thein Sein administration in Myanmar signed a contract with Thailand to jointly open a "Dawei Special Economic Zone." The ambitious special economic zone project, covering an area of 196 square kilometers, will be centered around a deep-sea port and include a power plant, an oil refinery and a natural gas separation plant.

If a port is opened in Dawei, it will be accessible to Bangkok within half a day. A railway line will be directly connected to the port and stretch from Dawei to Bangkok and then on to Cambodia and Vietnam, connecting to South China Sea ports.

Pradap Pibulsonggram, Thailand's representative to the ASEAN Connectivity Coordinating Committee, told CommonWealth Magazine that once the port in Dawei becomes operational, it will be a gateway for ASEAN to India, Africa and Europe.  China will also benefit, Pradap said, because products it imports from Europe can first be shipped to Dawei and then transported by road or railway to their destination.

"This will open a new economic corridor connecting the Pacific Ocean and the Indian Ocean," says Somchet Thinaphong, managing director of Dawei Development Co., one of the companies involved in the project, while pointing to a huge graphic of the planned zone. 

That's why once this extensive transportation network is fully integrated, northern ASEAN will change the pathway of international trade.

A Market without Borders

The growing interconnectivity between the five northern countries of ASEAN represents just another indication of how quickly regionalism is moving forward in a globalized world.

"ASEAN countries must come together as a group. If they fail to embrace each other, their status will decline further. They have to become integrated," says He Shengda.

Once the regional transportation network has been completed, it will connect three huge markets: southwestern China, Southeast Asia and South Asia. The integration of ASEAN will mean visa-free treatment for citizens of countries within the bloc and tariff-free trade between its members, turning it into a regional market without borders.

Isolated in the middle of the sea, Taiwan may have a hard time appreciating the speed and power of cross-border flows in this borderless world.

But to people living in the region, the unleashed vigor is simply a part of daily life.

"Today I went to two countries," says overseas Chinese Liu Tai-yun, a Thailand resident who works as a driver along the Thailand-Myanmar border.

From Thailand border town Mae Sai, it is a two minute walk across the way to Tachileik in Myanmar.

Another overseas Chinese, Chang Ming-chu, who is in the golf-club business, has her shop in Tachileik but lives in Mae Sai. She makes at least one round trip between the two countries every day.

Northern ASEAN's regional economic zone and basic transportation network have gradually matured to the point where the border economy has boomed.

One overseas Chinese landlady in the area says several billion Thai baht worth of goods and money flow across the border every day. Many people use underground remittances to move money into and out of China, Myanmar and Thailand, with single transactions as high as 100 million baht. "There are several people like that every day," she says.

Major Challenges Still to Be Overcome

Moving toward its future as a common market, ASEAN seems to have a lot of promise. But He Shengda could not help but voice caution.

"Looking at the long term, we should indeed see major development, but transportation challenges still have to be overcome," he says. Among them: cross-border rail lines using different gauge tracks in different countries; and outside of the Kunming-Bangkok Highway, other roadways to Myanmar and Laos remain bumpy and difficult for heavy machinery used in construction projects to navigate.

"Transportation costs are extremely high," He says.

Yet those infrastructure challenges may still be relatively easy to deal with. More significant problems may originate from the fragility of the countries' governing structures and political risks.

Serious class contradictions also exist within ASEAN that could derail the visions of optimism. The growth ushered in by local governments joining hands with foreign investors has also engendered an increasingly growing sense of relative deprivation within society, a sense of an unfair disparity between the haves and have nots.

Suthiphand Chirathivat, an economics professor at prestigious Thai school Chulalongkorn University, notes that land and resources have all been grabbed up by outsiders, leaving few if any of the benefits of economic growth for local residents, a phenomenon he called the double-edged sword of development.

It's that sword and other major obstacles that the fiery rise of northern ASEAN, as promising as it may be, must still contend with to truly be called a success.

Translated from the Chinese by Luke Sabatier