China, Japan tug-of-war over Indochina

By Hisane Masaki Asia Times Oct 5, 2005

TOKYO – Moves between Japan and China over the development of the Mekong River basin show signs of intensifying as Tokyo is trying to regain some ground lost in recent years to Beijing in the economic backwater of East Asia.

Japan inaugurated a regular economic ministerial meeting with four countries in the Mekong region – Cambodia, Laos, Myanmar and Vietnam, or CLMV countries as they are often called collectively – in the Laos capital Vientiane at the end of last month.

It is the first such high-level dialogue forum between Japan and the CLMV countries, although various channels of dialogue for cooperation already exist between Japan and the whole of the 10-member Association of Southeast Asian Nations (ASEAN) – that includes the CLMV countries – including annual gatherings of top leaders and economic ministers.

The four countries on the Indochina peninsula are the least developed among the ASEAN members. Vietnam joined ASEAN in 1995, Laos and Myanmar in 1997 and Cambodia in 1999.

At the inaugural ministerial meeting, Japan and the CLMV nations agreed on a package of new Japanese assistance programs for the development of the Mekong region, which include cooperation in building a production and distribution network across the region and facilitating intra-regional trade through the use of IC tags (a digital medium that uses radio frequency identification).

Japan will also assist in capacity-building for economic planning and fostering human resources for the management of electric power networks. The Japanese government will also hold an exhibition and a seminar in Tokyo in February next year to promote imports from and Japanese investment in the Mekong region. The next meeting will be held in the autumn of next year in Kuala Lumpur.

The Mekong region has huge potential for economic growth. In the late 1980s, then Thai prime minister Chatichai Choonhavan advocated turning Indochina “from a battlefield into a market”. Now that Cold War conflicts are a thing of the past and the CLMV countries are accelerating free-market reforms launched in the late 1980s, Chatichai”s slogan is no longer a mere pipe dream, it is a reality, although it will still take some years for private-sector investment in the Mekong region to become a flood, not just a trickle.

To be sure, Japan’s inauguration of a regular economic ministerial meeting with the CLMV countries reflects a growing interest among Japanese businesses in the region as a promising investment destination. But the Japanese move is also widely seen as a thinly veiled attempt to counter the rapidly growing political as well as economic influence of China in the region.

Japan is still the world’s number two economy, after the United States. But its economic power – and its international clout – have declined relatively amid a prolonged slump. Official development assistance, or ODA, is Japan’s most effective foreign-policy tool because its contributions to the international community through military means is still strictly constrained by the post-World War II pacifist constitution. But Japan was replaced by the US in 2001 as the world’s biggest aid donor, the position it had held for a decade, due to continued cuts in aid budget amid tight fiscal conditions.

Meanwhile, China is rapidly ascending as a new economic as well as political and military power regionally and globally. The world’s most populous nation of some 1.3 billion people is already the world’s seventh largest economy in terms of gross domestic product, or GDP, and also the third-biggest trading nation after Germany and the US. China’s booming economy attracted foreign direct investment worth more than $60 billion in 2004, making it the world’s biggest recipient of such investment. China’s sharply swelling exports also brought huge foreign reserves into its coffers – now more than $700 billion, the second-largest amount after Japan’s nearly $850 billion.

Japanese Foreign Minister Nobutaka Machimura visited Brunei, Vietnam and Cambodia in June to seek support for Japan’s bid for a much-coveted permanent seat on the United Nations Security Council.

The tour of the three ASEAN nations came shortly before the Group of Four (G-4) countries – Japan, Germany, India and Brazil – submitted to the UN Secretariat a resolution to expand the Security Council, thus paving the way for Japan and a few other countries to obtain permanent council membership. Many countries, led by the US and China, which are permanent council members along with Russia, Britain and France, vehemently objected to the council expansion proposed by the G-4. China launched a fierce diplomatic campaign of rallying opposition to the G-4 resolution, especially among Asian and African countries.

In their meeting with Machimura, leaders of Vietnam and Cambodia as well as Brunei expressed support for Japan’s bid for permanent membership, but stopped short of agreeing to cosponsor the G-4 resolution. After realizing that they did not have enough support for their resolution among the some 190 UN members, the G-4 countries approached the 53-nation African Union (AU), which had a council expansion resolution of its own, in hopes of hashing out a unified resolution to expand the Security Council, to no avail. Both the G-4 and AU resolutions were quashed without being put to a vote during the last UN General Assembly session that ended in mid-September, dealing a devastating setback to Japan’s bid.

A senior Japanese Foreign Ministry official said of Machimura’s talks with leaders of Vietnam and Cambodia as well as Brunei, “Consideration to China made their support for Japan’s bid betwixt and between.” The official, who accompanied the foreign minister on his ASEAN tour, reportedly went on to say,” We felt at every turn how big China’s presence is.”

In the early 1990s, after years of civil war ended in Cambodia, Japan took the leadership role in efforts to develop the Mekong region, backed by its huge aid money, and secured a strong influence in the region. With the turn of the millennium, however, China began to turn the tables on Japan, while Japan rested on its laurels.

China woke up to the strategic as well as economic importance of joining the regional development, and Japanese policymakers have lost some sleep. While the Japanese economy is going downstream, the Chinese one is going upstream. Although Japan has begun to move to regain some influence lost to China in the Mekong region, it may be too late to reverse the political and economic currents there.

Japan’s gambit after the Cold War
In 1977, then Japanese prime minister Takeo Fukuda delivered a policy speech in Manila spelling out what became widely known later as the “Fukuda Doctrine”. Fukuda declared, among other things, that Japan would never become a military power again, strengthen relations with ASEAN based on “equal partnership” and “heart-to-heart understanding”, and also play the role of intermediary between the then five-member ASEAN and communist regimes on the Indochina peninsula. ASEAN was established in 1967 with Indonesia, Malaysia, the Philippines, Singapore and Thailand as its original members. Brunei joined in 1984.

Fukuda’s foreign-policy initiative toward Southeast Asia came after the end of the Vietnam War and also amid the detente in the Cold War superpowers – the US and the Soviet Union. But Japan’s bid to play the role of bridge-builder between ASEAN and communist regimes on the Indochina peninsula was thwarted soon afterwards by reignited regional and global tensions. Vietnamese troops invaded Cambodia, and the US-Soviet detente collapsed due to the Soviet troops’ invasion of Afghanistan.

About 1990, a year after then US president George Bush senior and Soviet president Mikhail Gorbachev declared the end of the Cold War at their Malta summit, Japan began to play an active diplomatic role in the Indochina peninsula again. Japan hosted an international peace conference for Cambodia in June 1990. It was the first time since the end of World War II that Japan had hosted an international conference to discuss peace in a third country. The warring factions in Cambodia signed a peace agreement in Paris in October the following year, ending years of conflict.

In 1992, Japan enacted a historic law enabling its Self-Defense Forces to participate in UN-sponsored peacekeeping operations abroad. Under the law, SDF troops were dispatched to join UN peacekeeping efforts in Cambodia prior to the country’s first postwar election in the spring of 1993. It marked the first overseas mission for SDF troops. Sending troops abroad had previously been a taboo in Japan because of the country’s war-renouncing, post-World War II constitution. Japan also showed the strongest enthusiasm about assisting the development of the Mekong region.

The 4,425-kilometer Mekong River, the world’s 12th longest, originates in Tibet and flows through China’s Yunnan province, Myanmar, Thailand, Laos, Cambodia, Vietnam and into the South China Sea. It is the main artery for Indochina.

The Mekong River basin, abundant in natural and human resources, has attracted much attention as an untapped frontier for development since the early 1990s, following an end to the civil war in Cambodia and other Cold War hostilities on the Indochinese peninsula. The river’s development has been widely believed to hold the key to the development of the war-battered Indochina as a whole.

Reflecting the new focus on the Mekong River basin, various international forums were created in the 1990s to promote the region’s development. The Asian Development Bank (ADB), to which Japan is the biggest financial contributor, has sponsored the Greater Mekong Subregion (GMS) Economic Cooperation program – the most high-profile and powerful vehicle for promoting development projects in the Mekong River basin – since 1992. The GMS program includes as members Cambodia, Laos, Myanmar, Vietnam, Thailand and China, along with international organizations and donor nations as observers.

The long-dormant Mekong River Committee, another international forum for Indochina development organized in 1957, was reborn as the Mekong River Commission in 1995. Its members are Cambodia, Laos, Vietnam and Thailand. International organizations and aid donor nations are cooperating with the commission.

Japan also jumped on the bandwagon. When he visited Bangkok in January 1993 on a Southeast Asian tour, then Japanese prime minister Kiichi Miyazawa proposed the creation of the “Forum for Comprehensive Development of Indochina”. The forum held its first ministerial-level meeting in Tokyo in February 1995, with 25 nations and eight international organizations attending.

Japan, by far the largest aid donor for all CLMV countries, has funded infrastructure projects transcending national borders on the Indochina peninsula on its own or in partnership with the ADB.

The most high-profile among those transnational projects is the “East-West Corridor” project to build a major highway, including a bridge over the Mekong River, to link Mukdahan in northeastern Thailand, Savannakhet in southern Laos and the port of Da Nang in central Vietnam. The highway, scheduled for completion next year, is to be extended to Mawlamyine in southern Myanmar down the road. The “Second East-West Corridor” project is also under way to build another highway linking Bangkok, Phnom Penh and Ho Chi Minh City. This project is also scheduled for completion next year.

China turns the tables on Japan
In December 1995, ASEAN took the initiative of its own for the development of the Mekong region. Top leaders of the then seven ASEAN members – Vietnam joined earlier that year – agreed to launch the Ministerial Meeting on ASEAN-Mekong Basin Development Cooperation to discuss assistance for Cambodia, Laos and Myanmar. The first ministerial meeting was held the following year.
During the 1997-1998 Asian economic crisis, which originated in Thailand – the most staunch proponent and major beneficiary of the Mekong subregion’s development – and spread to much of the rest of East Asia, however, ASEAN members were preoccupied by domestic economic woes, pushing the Mekong subregion’s development to the back burner temporarily.

As Asian countries recovered from the 1997-1998 economic crisis, Mekong development began to gradually come back into the spotlight about 2000. In November that year, the ASEAN leaders adopted the Initiative for ASEAN Integration (IAI), which is primarily aimed at shoring up the economic growth of the CLMV countries. Also, the Japanese and ASEAN leaders agreed to step up cooperation in the greater Mekong subregion as a means of narrowing the wide disparity in the level of development between the haves and have-nots within ASEAN.

Unlike Vietnam, which has a relatively large economy, Cambodia, Laos and Myanmar have been heavily reliant on Thailand for economic growth. But Thailand’s influence on the Indochina peninsula has been eroded since the 1997-1998 economic crisis, and China has filled the gap.

In late 2000, China adopted its 10th Five-year Plan starting in 2001. The basic national economic development plan features, among other things, the “Go West” strategy aimed at turning the poorer western part of the vast country into a magnet for domestic and foreign investors and thereby correcting the widening gap in wealth with the flourishing eastern coastal areas, an issue that could threaten the country’s political stability and even the rule of the Communist Party. Under that strategy, the Mekong region’s development became a top-priority project.

In November 2002, the six member nations of the ADB-sponsored GMS Economic Cooperation program held their first summit in Phnom Penh. Then Chinese premier Zhu Rongji unveiled a package of financial and other assistance programs for the development of the GMS.

In a surprise announcement, Zhu also told Cambodian Prime Minister Hun Sen that China would forgive an estimated more than $1 billion in debts owed by Phnom Penh to Beijing. The Chinese decision was apparently aimed at improving bilateral ties, which had been uneasy because China supported the notorious Khmer Rouge regime, which is blamed for the deaths of about 1.7 million Cambodians due to disease, overwork, starvation and execution during its 1975-1979 rule.

In early July this year, the second GMS summit was held in Kunming, capital of China’s Yunnan province. Chinese Premier Wen Jiabao announced that China would individually expand the range of products eligible for preferential tariffs from Cambodia, Laos and Myanmar as of January 1 next year.

Since 2002, China has cut or exempted tariffs for 600 products from the three underdeveloped ASEAN nations. China also signed a number of documents with the other five GMS countries to enhance cooperation in such areas as transportation, animal epidemics prevention, information superhighway construction, power trade, tourism and environmental protection.

Geography is on China’s side, not on Japan’s. Wen himself said in a keynote speech at the GMS summit that all GMS countries are close neighbors of China and that the peoples in the region, nourished by the same river, have fostered long-standing friendship. “A close neighbor is more helpful than a distant relative,” the Chinese leader said.

“I firmly believe that China’s development not only benefits its more than one billion people, but also presents development opportunities to other countries, its neighbors in particular, thus contributing to prosperity and stability of the region and the world at large,” Wen said, adding,”May our friendship and cooperation run as long and deep as the Lancang-Mekong River.”

Flexing its economic muscles, China has funded the “North-South Corridor” project to build a highway linking Kunming and Bangkok via Laos. The highway is scheduled to be completely opened to traffic in 2007. Japan balked at funding the project, partly for fear of lending China a hand to increase its influence southward on the Indochina peninsula. China also set up a special fund totaling $20 million within the ADB for poverty alleviation of the region last year.

Aside from the Mekong development, China has strengthened political and military as well as economic relations with Myanmar in defiance of US and European sanctions against the military-ruled country. China wants to secure stable oil and other energy supplies by land, as well as by sea, many experts agree. Speculation is rife about the idea of building an oil pipeline running across Myanmar to Kunming at an estimated cost of $2 billion.

China became a net importer of crude oil in 1993. It has continued to sharply increase oil imports to fuel a booming economy. It is now the world’s second-largest oil consumer, after the US. China already depends on imports for as much as 40% of its oil needs, nearly half of which come from the Middle East. About 80% of oil imported into China is shipped through the Malacca Strait, a waterway notorious for rampant piracies. There are also growing concerns after September 11 that tankers and other ships sailing through the waterway might be become a target for terrorism.

Leadership battle over East Asian community
For ASEAN, correcting the so-called “ASEAN divide” – the huge gap in wealth between rich and poor members – is a high priority as the grouping accelerates its economic integration with an ultimate goal of creating a fully integrated “ASEAN Economic Community” by 2020. Per-capita income of Myanmar, for example, is less than one-hundredth of that of Singapore. For countries outside ASEAN, like Japan and China, assistance in the development of the poorer ASEAN nations is becoming a very important avenue to strengthened ties with the entire ASEAN.

Amid growing talk of creating an East Asian Community (EAC) in recent years, Japan and China have been jockeying for the leadership role in what will be the long and arduous process of community building. And the two Asian powers have competed for stronger and closer ties with ASEAN. Although the 10 ASEAN members are much smaller than Japan and China in economic size individually, they wield a strong voice in East Asian affairs as a group on the strength of their number.

For Japan, further fortifying ties with the ASEAN has become important all the more because of its frosty ties with China and South Korea. Japan’s relations with the two other Asian economic powers have plunged to their lowest points in decades in recent years because of Prime Minister Junichiro Koizumi’s repeated visits to the war-related Yasukuni Shrine in Tokyo, a dispute over Japanese school textbooks authored by right-wing scholars and territorial disputes, among other things.

China has aggressively cozied up to the individual ASEAN members and ASEAN as a whole in recent years. A greater commitment to the development of the Mekong region is part of such efforts.

China had a head start over Japan in strengthening ties with ASEAN. On the economic front, China and ASEAN signed the Framework Agreement for Overall Economic Cooperation in November 2002, kicking off the process of creating the world’s biggest free trade zone with more than 1.8 billion people. Under that agreement, China and the non-CLMV ASEAN members will start zero tariffs on most normal products by 2010. China and the CLMV countries will do the same by 2015.

A year after the China-ASEAN framework agreement, Japan and ASEAN signed the similar Framework for Comprehensive Economic Partnership in October 2003, starting the process of creating a free trade zone by 2012. Japan has already concluded a free trade agreement, or FTA, with Singapore and reached basic FTA agreements separately with the Philippines, Malaysia and Thailand. Japan’s FTA negotiations with Indonesia and the whole of ASEAN got under way earlier this year.

Two-way trade between China and ASEAN has been growing at a much faster pace than that between Japan and ASEAN in recent years. China-ASEAN trade topped $100 billion in 2004, and soared 25% in the first half of this year from a year earlier to nearly $60 billion amid ongoing reductions in tariffs, compared with the about $74 billion trade conducted between Japan and ASEAN during the same period.

ASEAN is now China’s fourth-largest trading partner after the 25-nation European Union, the US and Japan. China has already superseded the US as the biggest trading partner of Japan and South Korea. For ASEAN, the US and Japan are still the two biggest trading partners. But many experts say that it is just a matter of time before China will replace the US and Japan as ASEAN’s biggest trading partner. China’s investment in ASEAN is also surging sharply. In 2004, ASEAN-bound Chinese foreign direct investment totaled $226 million, although the amount is still dwarfed by Japan’s such investment worth nearly $3 billion.

China took a lead over Japan on the political front as well. In October 2003, China signed ASEAN’s 1976 Treaty of Amity and Cooperation, a few months before Japan did. Japan initially balked at signing the ASEAN treaty, which provides for, among other things, peaceful settlement of conflicts and non-interference in internal affairs, out of political consideration to its most important ally, the US.

A cacophony of alarm bells from the US can be heard these days about the embryonic EAC, which some American experts see as a development that would lead to the formation of a regional trade bloc that not only excludes the US but also could reduce and even challenge the currently unrivaled US influence in the region under the domination of China.

There are some critics of the proposed community in Japan as well, many of them nationalists. They share fears that such a regional community could fall under the sway of China. The participation of India, Australia and New Zealand in the first East Asian Summit may ease concerns in Japan and the US about a possible Chinese domination of the proposed community.

Meanwhile, China is increasingly alarmed by the ongoing global “transformation” of the US military. The Bush administration insists that the transformation is aimed at ensuring stability in the “arc of instability”, an area stretching from the Middle East to Northeast Asia via South Asia and Southeast Asia. There are deep suspicions in China, however, that the real motive for the transformation might be what some people call the “soft containment” of China.

In 2001, China signed a “Declaration of Conduct” with ASEAN to prevent conflicts in the South China Sea, where China, four of the ASEAN members – Vietnam, the Philippines, Malaysia and Brunei – and Taiwan claim all or part of the Spratly Islands. In March this year, China agreed with Vietnam and the Philippines to explore for oil in the disputed waters in the South China Sea.

These aggressive Chinese peace overtures toward ASEAN apparently reflect a desire to assuage the perception of China among some in ASEAN as the most serious security threat to their countries and thereby to forge closer ties with the grouping. Cementing ties with ASEAN in general – and the joint oil-exploration agreement with Vietnam and the Philippines in particular – is also seen by some as part of efforts to preempt a possible US-led containment of China.

The proposed EAC will get a political boost when the first East Asia Summit is held in Malaysia in December. Leaders of the so-called ASEAN plus Three, India, Australia and New Zealand, will attend. ASEAN plus Three is made up of the 10 ASEAN members plus Japan, China and South Korea.

It remains uncertain, however, how far the region will go in integrating itself – and how fast. East Asia is immensely diverse in political systems, cultures and religions. Countries in the region are also at various levels of development. What is East Asia? Who are East Asians? What do “East Asians” have in common? What common values, if any, do they share? All these basic questions remain unanswered. Will the regional community come into fruition with relative smoothness and eventually become the Asian version of the European Union with common foreign and security policies and a single currency in the long-distance future? This is anybody’s guess.

At this moment, however, the proposed EAC appears very likely to develop in several stages, with the first significant stage coming with the formation of a region-wide FTA in the years ahead. Although there is no specific agreement yet on forming a region-wide FTA, a web of bilateral FTAs is now in the pipeline.

Whatever the final shape of the proposed EAC, the development of the impoverished Mekong region as a means of rectifying the wide wealth gap among regional countries is widely deemed one essential building block for any such community. So, how the tug-of-war between Japan and China over the development of the Mekong region will be played out could have ramifications for the future political and economic landscape of the entire East Asia.

In a speech made in Singapore in January 2002 during an ASEAN tour to spell out his Southeast Asian policy, Koizumi reminded the audience of the helping hand Japan extended to the countries battered by the 1997-1998 economic crisis.

“Japan at the time of Asia’s financial crisis played a role in easing that crisis,” he said. Japan extended a total of $80 billion in financial assistance, including $30 billion under the so-called New Miyazawa Initiative, to help Asian economies weather the crisis. “A friend in need is a friend indeed,” Koizumi said in the speech. Koizumi also said that in the 21st century, as sincere and open partners, Japan and ASEAN should strengthen their cooperation under the basic concept of “acting together – advancing together”.

For the 10 ASEAN members, the two sayings Wen and Koizumi cited – “A close neighbor is more helpful than a distant relative” and “A friend in need is a friend indeed” – may both be true. And the ASEAN members do not play the devil’s advocate with Koizumi’s call for them to act together and advance together. But perhaps they want to do so, not only with Japan, but also with China.

Hisane Masaki is a Tokyo-based journalist, commentator and scholar on international politics and economy. Masaki’s e-mail address is yiu45535@nifty.com