India and China are two powers which relations are very difficult to determine: it is both cooperation and completion, conflict and collaboration. However, both China and India can been seen as countries that complement each other`s role in the relationships with ASEAN countries. On the other hand, the strategic differences between them are so large that there is a small chance that their differences will be resolved entirely in the near future. India and China remain two challengers in spite of their mutually beneficial economic associations. The only concern between them is economic cooperation.
This paper represents the main information about enigmatic relations between India and China, their economic interests in ASEAN countries and different economic formats of their collaboration. The final summarizes are evaluated on the statistical results, identified according to the data base of international organizations and institutions.
From the results obtained, it can be concluded that relationships
between India and China is defined more by struggle than by cooperation, but there is still a lot of potential for collaboration
between China and India, which has brought both of these countries closer to
each other.
China and India, sometimes referred to “Chindia” are
geographically proximate nations, contain over one-third of the world’s
population and are among the fastest growing economies in the world. A report
by IMF dated January 21, 2015, predicts India overtaking China as the Fastest
Growing Major Economy by 2016. The economic strengths of two states are widely
considered complementary; China is stronger in hardware and physical markets
while India is stronger in software and financial spheres. They have been named
as countries with the highest potential for growth in the next 50 years in a
BRICS (Brazil, Russia, India, China and South Africa) report.
India and China also share certain factual
interactions; the spread of Buddhism from India to China and British-European
trade via the Silk route are renowned examples. India is eyeing regional
guidance while China is set to peacefully transformation the unipolar world
order into a multipolar one. In this point of view, both China and India can be
seen as complementing each other’s function while at the same time challenging
the placement of the other. However, China does not feel threatened by India,
but India feels afraid by China’s arise.
The timeliness of the topic is determined by the
escalation in the relationships between India and China: all main parts of Asia
bear the marks of their competitive strategic and economic outreach. Actually,
relations between India and China have long been noticeable by an ambivalence
that has led some observers to explain them as “neither friends nor foes.” In
the master thesis, the author will follow up the factual development of their
relationships and make a conclusion about the contemporary India- China
relationship situation.
This topic is also relevant to Russia in order to
understand the importance of the economic relations between China and India as
two big powers in ASEAN countries region that can influence on the general
economic situation in this region. Thus, Russia could obtain the knowledge of
competent way to build economic relations with ASEAN countries, China and India
individually.
The goal of the analysis is the determination
of the China- India relationship current situation and the degree of rivalry between India and China in the relationship in
the sphere of trade, investments and services with ASEAN countries.
According
to the goal of the work there are several tasks that the author need to solve:
to determine the amount of the China- ASEAN foreign trade, to understand the
importance of China`s strategy «The Belt and The Road», to
determine the amount of the India- ASEAN foreign trade, to describe the current
situation of Chinese and Indian investments to ASEAN countries, to compare
Chinese and Indian development of service sphere with ASEAN countries, to
suggest several reasons of the rivalry between India and China in the
relationships with ASEAN countries, to consider some options for the
development of China-India relationships.
The
object of the work is the relationships between China and India, the subject of
the work is the rivalry between India and China in the field of foreign trade,
investments and services with ASEAN countries. The chronological framework of
the research is
from mid-80s to 1990s years.
In
the process of writing the master thesis, there were used such methods of
scientific cognition as analyses and synthesis and economic- statistical
methods of information processing.
In general, the thesis is based on the fundamental
concepts and categories of economic theory about the nature of international
economic relations, internationalization and globalization and international
competition. Theoretical and methodological basis of the
dissertation research were the works of the classics of economic thought and
contemporary researchers, the materials of governmental agencies and
intergovernmental integration associations, international organizations and
conferences.
The author analyzed and taken into
account the results of the researches of some Indian and Chinese scientists,
such as Tellis Ashley J., Malik J. Mohan, Chandrima Sikdar, Chunmei Yang, Li Xueren, Salidjanova Nargiza,
Koch-Weser Iacob, Yu Sheng, Hsiao Chink Tang,
Xinpeng Xu etc.
In the process of writing the thesis, the author
also relied on ideological foundation of Russian scientific school, among the
representatives of which are Galistcheva N.V., Kostiunina G. M.,
Lebedeva N. B., Zhuravleva E.S., etc.
However, the works of the scientists
covers only some essential aspects of foreign economic policy of India and
China towards ASEAN. There have not been written any general whole-scale work,
that could give a comprehensive analysis of the relationships between India and
China and their role in ASEAN region, and would deeply engulfed and scale the
entire range of issues on this subject.
The master degree work consists of
introduction, four chapters, conclusion and references.
International
trade is logically and historically the first structure of the world economic
relations in the global economy. Despite the fact, that the primary shape of
international economic relations is not the exports of goods, but foreign
investment, nevertheless, the world economic relations contain 4/5 of the total
amount. This is due to its large value for the development of national
economies and to its location in the system of international economic
relations.
It
is difficult to overestimated the function of foreign trade for any nation. By
J. Sachs`s definition, “economic achievement of any country in the world
is based on foreign trade. No one has managed to make a healthy economy, being
separate from the world economic system. “[1]
External
trade is the trade between two countries, consisting of import and export of
goods and services. It is implemented principally through commercial transactions,
which are executed by foreign trade contracts. The government of the country
regulates foreign trade, using particular tools such as licensing, customs
tariffs, quotas, and other non-tariff barriers, as well as direct and indirect
export subsidies and other measures.
External
trade is historically the first and very portentous shape of international
economic relations. It represents an exchange of goods between nationwide firms
registered by the government. Due to contemporary situation, international
trade involves all players of the world economy. It is based on the
international dividing of labor.
The
development of international producing specialization and the deepening of the
dividing of labor (in total, private and individual forms) produce a variety of
directions and forms of international trade. Scientific and technological
revolution has an extensive impact on it, which can accelerate the qualitative
modification of all elements of the changes and the productive forces in the
geographical and commodity structure of world trade flows.
The
range of participation of individual nationwide economies into the foreign
trade associated with the development level of their commodity production and
commodity spreading. It is known that the start of commodity producing,
circulation of commodities and foreign trade have already existed in the
slave-owning system. However, in all pre-capitalist formations due to the
predominance of subsisting farming only a little part of the products was
concerned into the international exchange. The development of commodity
producing and market economy provided a strong impulse for the increase of
international trade as a particular sphere of commodity circulation – the trade
between nationwide economies.
With
the development of the market economy, the need of external markets increases.
The development of large-scale machine industry as the foundation of
mass-producing, the deepening division of labor and specialization, the grow of
the optimal size enterprises need more effective participation of nationwide
economies in international trade in import and export spheres. The sales of
goods to foreign countries can partly determine the inherent contradiction in
the market economy between producing and consumption. However, being not fully
resolved by the export of goods, these contradictions appear in the area of
world economic relations, which is reflected in standard characteristic of
international trade – the strong competition.
The
participation in it leads to an intensification of the reproduction procedure
in nationwide economies in several directions: the improve of specialization,
the appearance of the chance of mass production, the increase of the equipment
utilization’s degree, the growth of the effectiveness of the new techniques and
technologies integration.
At
the same time the growth of foreign exchange, the increase of the role of
export and import in nationwide economies give the synchronization of the
economic cycle in the world economy. The relationship and interdependence of
economic complexes become deeper, so that the disturbances in the functioning
of some main player economy will inevitably involve international consequences,
including the spread of the crisis on the area of other countries.
Thus,
the function of international trade in the system of international economic
relations is resolved by the fact that, firstly, all forms of world economic
relations implemented through it – industrial collaboration, export of capital,
technical and scientific collaboration. Secondly, the development of
international trade of goods determines the dynamics of the international
exchange of services. Thirdly, the development and the deepening of the
interregional and interstate relationships is a consequential prerequisite for
international economic integration. Fourthly, international trade contributes
to the further deepening of the international dividing of labor and the
internationalization of economic relations.
Forms
of international trade can be systematized in three directions. The criteria
for determining these forms are the regulation (ordinary, the most favored
nation treatment, discriminative, preferential), the topic of trade (industrial
goods, commodities, services, products of intellectual work) and the interaction
of international trade players (trade with cooperation, traditional,
compensational).
Foreign
Trade Statistics describes the amount of exports and imports of goods, their
dynamics, geographical allocation, freight train, the participation in the
globe trade, as well as its consequence in the national economy.
Goods,
which are pertain to practice processing, associated with the class of visible
items in the worldwide statistical practice. In Foreign Trade Statistics the
class of “visible goods” is a basic part of the foreign economic
relations statistics, which in addition to taking into account the import and
export of goods, mentioned above, provides the accounting of other operations,
such as foreign trade services.
The
export refers to the export of goods from the nation’s domestic producing, as
well as re-export goods.
Domestic
products also cover foreign goods imported into the country’s territory, which
have undergone through material processing and have changed the technical
characteristics or basic qualitative. But processing does not cover the
operations necessary for preserving the goods, pre-sales product’s operations
and preparations for shipment, uncomplicated gathering operations, mixing of
goods, which are produced by other companies, even if the characteristics of
the resulting product are not different significantly from the performance its
constituent products.
By
import, we usually understand the import of goods into the country’s territory.
The imports cover that categories of goods, which are intended for consumption
in the economy of the country or for re-export and some goods purchased for
domestic companies.
The
export (import) goods cover that types of goods, by the export or import of
which the material resources of the country grow or reduce, for example:
nonmonetary gold and silver, which does not have the function of payment,
electric power, water, goods supplied by pipelines (oil and gas); military
goods, bunker fuel, fuel, food and materials sold or purchased to foreign
ships, trucks, aircraft; banknotes, securities and coins not in circulation
(accounted for their commercial value), etc.
The
export or import does not cover these kinds of goods: banknotes
and coins in spreading, securities;
movement of foreign goods through the territory of the country; monetary gold; goods exported and imported for a
short period of time, impermanent
import and export of animals for participation in races, racing, etc .; fish
and other marine products, which was produced in neutral and foreign waters (on
the concession conditions); equipment and vehicles sent for repair and returned
after the repair; products manufactured for export, but sold to domestic
organizations, etc.
The
rating of goods is carried out from the prices of contracts with further
clarification on the real prices. The price of goods sold through commission
agents (brokers) is provided with a diminution of brokerage commissions.
The
evaluation of the import and export goods produced:
Export
goods – at FOB prices. FOB is a term in international commercial law, specifying at what point the seller
transfers ownership of the goods to the buyer. FOB
is only used in non-containerized sea freight, and defines the ownership transfer. The owner of the
goods is responsible for loss or damage during transport, so the point of
ownership transfer is important.
Indicating “FOB port” means
that the seller pays for transportation of the goods to the seaport of
shipment, plus loading costs. The customer pays price of insurance, marine
freight transport, unloading, and transportation from the arrival port to
the final destination. The disappearing of risks occurs when the goods are
weighted down on board at the port of shipment.
Import
goods – at CIF price or ex frontier of the importing country. In CIF
agreements, insurance and other costs are taken by the seller, with
responsibility and costs associated with successful transit paid by the seller
up until the goods are received by the customer. Goods are not considered to be
delivered until they are in the buyer’s ownership.
The providing of goods
can be carried out without payment. In such cases, the evaluation of export or import goods is carried out at the prices of
goods in the markets of the countries involved and on the prices of comparable
goods, which are used for export-import operations on commercial basis. In
order to upgrade the measuring of foreign trade activities` results and the
increasing of its reliability, to assure comparability of appropriate
statistical indicators at the international level and to give information
obligations to international organizations, including export-import operations
and preparation of statistical reports on foreign economic relations it is
recommended to use US dollars from the 1st of January, 1992.
For
the purposes of international comparability, it is recommended to use the
weight measurement units as extensively as possible, along with a definite unit
of measurement. It gives a chance to get equable quantitative information, even
if there are important differences in units of measure used in different
countries for the same goods.
Goods,
which are measured by the amount of weight, can be accounted by the net weight.
Commodity
nomenclature of foreign economic activity (CN FEA) is used as a classifier of
goods traded in the foreign trade.
In
accordance with the Decree of the Government of the Russian Federation, the
State Customs Committee of Russia is liable for development, collection and publication of data in the sphere of foreign trade based on information, which contained in the cargo customs declaration (CCD),
like in many other countries of the earth.
Another
significant viewpoint in the development of foreign trade data is the
impossibility to cover the data of export or import goods amount
that do not cross over the customs border (bunker fuels) and goods purchased by
Russian (or foreign) transportation in
foreign (or Russian) ports into the results of customs statistics.
During
a long period of time, we have seen the acceleration of the process of the globalization, the arise of regional trading arrangements, China’s rise
as a worldwide economic force and the growing interdependence between ASEAN and
China. China -ASEAN economic relations have grown dramatically, benefiting from
the energy of their economies, the liberalization of their trade regimes and
the changes in their trade system.
The contemporary situation of economic relationships between India and ASEAN countries presents a
multitude of commercial, industrial, and investment opportunities. India has been interested in ASEAN’s plans to create economic and
political relationships with neighboring nations, and ASEAN and India have
increasingly supported promoted foreign investment, bilateral trade, and strengthened diplomatic
relations.
China Import Partner Share (%)
The data statistics of Chinese
export to the ASEAN countries can be found in Appendix 1.
In
1980, China was not one of the important
trade partner of ASEAN states. Only US$0.7 billion of ASEAN5 states’ exports
(Malaysia, Indonesia, the Philippines,
Thailand and Singapore) were directed to China and only US$1.7 billion imports were from China. China merely shared 2% of ASEAN5’s trades. This figure is
far less than US and Japan shares, which amounted to 23% and 16%, respectively,
in the same year. Despite the enactment of China’s open door policy in 1979,
the protectionist feature of Chinese communism impeded and persisted trades
between ASEAN states and China during throughout 1980s. In 1980, Hong Kong
shared less than 3% of ASEAN5’s trade; it was more than China’s share. ASEAN5’s export to Hong Kong
amounted to US$2.4 billion or three times higher than their exports to China.[2]
ASEAN states’ trades with China started to
increase in the mid-1980. Although ASEAN5’s export to China was less than US$1
billion, their import from China grew up to the figure of US$3.2 billion in 1985. ASEAN states’ trades with
China increased significantly at beginning of 1990s. In 1995, their imports from and exports to China amounted to US$8.2 billion and US$10.0 billion, respectively.
Nevertheless, China had not become a consequential trade partner of ASEAN
states. It only shared less than 3% of ASEAN5’s trades, which was less than
Hong Kong’s share of 4% share.[3]
ASEAN and China have significant and quickly growing
trade and investment relations. The importance of trade with China is
particularly correct for ASEAN countries with common borders with China
–Myanmar, Laos and Vietnam. However, the bulk of ASEAN and China’s exports are
still mainly focused on the main markets of Europe, the US and Japan
(17, 5%; 14, 1%; 7%, respectively).[4]There
is also considerable overlap in the theme of their main export items,
particularly in apparel and textiles and other labor-intensive manufactures. As
China’s manufacturers climb the technology ladder, the overlap is spilling over
into electronic and electrical products,[5]
where a figure of ASEAN countries had initially established a lead.
In
the 1990s, both ASEAN and China achieved extreme growth rates in foreign trade.
During the decade from 1991 to 2000, China’s foreign trade grew at an average
annual rate of 15%. In 2000, China’s exports amounted to US$249.2 billion, and its imports totaled US $225.1 billion. During the interval from
1993 to 2000, ASEAN’s foreign trade grew at an average annual rate of 10.9%,
although the rate was lower during the financial crisis. In 2000, ASEAN-China
trade totaled US $39.5 billion growing by an average of 20.4% annually since
1991, when overall trade amounted to only US $ 7.9 billion.
China’s exports to ASEAN grew from US $ 4.1 billion in 1991 to US $ 17.3
billion in 2000, while its imports
from ASEAN grew from US $ 3.8 billion in 1991 to US $ 22.2 billion in 2000.[6]
ASEAN’s
placement in China’s market has been on the arise with its ratio in China’s
total exports increasing from 5.7 % in 1991 to 6.9% in 2000 and its ratio in
China’s total imports rising from 6 % in 1991 to 9.9% in 2000. ASEAN is now
China’s fifth biggest trading partner, next only to the USA, Japan, the
European Union and Hong Kong. On the other hand, the share of China in ASEAN-6
(includes Indonesia, Brunei Darussalam, Malaysia, Singapore, Philippines and Thailand) exports grew from 2.2 % in 1993 to 3.14% in
2000, while the share of China in ASEAN-6 imports grew from 1.9 % in 1993 to
5.2% in 2000.[7] The relatively little share of China in the
trade of the older and more developed ASEAN countries has to be balanced with
the gratitude of the consequence of China to the border trade of Myanmar, Laos and Vietnam, all of whom share a ordinary border with China.
Anecdotal proof suggests that it is a consequential element of the economic
relationship of the new ASEAN members (Laos, Cambodia, Myanmar and Vietnam)
with China.
Configuration
of ASEAN-China Trade in the early 1990s were fuel and oil, vegetable oils and
fats, wood, computer/machinery and electrical equipment.
Collectively, the share of these five products amounted to 75.7 % of all ASEAN
exports to China.
By
1999, the categorization of importance had changed, away from commodities and
towards manufactured products. Computers/machinery and electrical equipment
grew from 12.4 % to 38.2 % of ASEAN’s exports to China. Moreover, ASEAN’s exports to China had been diversified, with the main five exports making up only 60.3 % of total exports to China. ASEAN’s
imports from China were always more diversified. In 1993, the main five ASEAN imports from China included computer/machinery, electrical
equipment, oil and fuel, tobacco and cotton. Collectively, they gained the number of a little less than 40 % of ASEAN imports from China.[8] By
1999, computers/machinery and electrical equipment continued to be the top
imports, but their share had increased to nearly
half of all ASEAN imports from China. The exports, where China enjoys the greatest superiority, are metal articles and base metal, footwear, textile and apparel,
vehicles, vegetable products and prepared foodstuffs,
stone/cement/ceramics and miscellaneous manufactured articles. They account for
38 % of China’s exports to ASEAN, but only for 8.8 %
of China’s imports from ASEAN in 2000. [9]
The
machinery and electrical appliances exported by China to ASEAN are mostly for
common or particular use. On the other hand, a material part of the machinery
and electrical appliances that China imports
from ASEAN are devices and electronic components. For example, of the US $ 2.88
billion worth of electrical alliances and machinery that China imported from Malaysia more than half of them were transistors, kinescopes and integrated circuits and more than 40 % were electrical
appliances and machinery.
Imports
of integrated circuits, transistors and
other electronic components and devices accounts for a huge share in China’s
imports of electrical appliances and machinery from the Singapore, Philippines and Thailand. The exports where ASEAN has the greatest
superiority are mineral products, wood and wood articles, plastics/rubber, pulp and paper and oils and fats. They account for 42 % of China’s
imports from ASEAN, but these commodities constitute only 11.6 % of China’s
exports to ASEAN in 2000.[10]
Other sectors where intra-industry trade is big cover electrical appliances and
machinery, optical, chemicals, and precision and musical instruments. Among
them, electrical appliances and machinery account for 39% of China’s exports to
ASEAN and 41 % of China’s imports from ASEAN.
Over the course of the last decade, the strongest rate of growth has
been in the trade of manufactured products, with trade in electrical equipment
and computers/machinery rising the most. The point that these products were both the leading exports and
imports of both ASEAN and China suggests the consequence of intra-industry
trade, brought about by product differentiation and economies of range.
The main explanation
for the quick growth of ASEAN-China trade during the 1990s was the vitality of
the economies of ASEAN and China. During the period from 1990-2000, China’s
real GDP grew by an average of 10.1 %, and was increasing until 1997, ASEAN’s
regional GDP was growing at an annual average rate of 6.8%. Secondly, MFN
(“Most Favored Nation”) tariff rates have been decreasing in both
China and ASEAN. At the beginning of 1993, China reduced its tariffs on 3,371
import items and abolished import controls on more than 367 commodities. This
movement reduced the trade-weighted average tariffs of China by 7.3%. [11]
A
number of the ASEAN countries have also embarked on liberalization and
deregulation measures over the course of the 1990s:
ASEAN
states’ trades with China grew at an average annual rate of 46% during the
period of time between 2000 and 2010. In 2010, their trades amount was about
US$374 billion, and ASEAN states recorded a trade overage of US $49 billion.
China has become the biggest trade partners of ASEAN countries. While their
share to ASEAN5‘s trades in 2005 reached the figure of 13.5% and surpassed the
declining Japan‘s and US shares (7% and 14, 1% respectively), that in 2010
surged to nearly one fifth. In these ASEAN trades with China, ASEAN5 states
contributed 88%, Singapore’s share was almost one third, Malaysia and Thailand
contributed 23% and 16%, respectively.[16]
Manufacture
products have been the main products ASEAN5’s exports to and imports from China
with 72% in 2010. Among them, transport equipment and machinery products took
the largest share with US $93 billion of exports and US$66 billion of imports.
ASEAN5 states maintained their mining exports at a share of about 15%, but
their agricultural exports contributed to only 4% of their total exports.[17]
The growing manufacture trades show the growing manufacture networks and
intra-industry trades between most of ASEAN countries and China. Under an
economic development regime, ASEAN countries want to use international trades
as a chance to enlarge their industry.
Actually,
Indonesia had a different trade combination with China, compared to other
ASEAN5 countries. For the Philippines, Malaysia, Singapore and Thailand,
mass-produce trades contributed more than 80% to their total trades with China
in 2010. This reflects intra-industry trades between the countries. In the same
year, although almost 90% of Indonesia’s imports became manufacture products,
manufacture exports only covered 21% of its total exports. Shares of agricultural
exports and mining increased slowly and reached 47% and 29%, respectively.[18]
This trade combination indicates that China and Indonesia have become more
complement, rather than competitive. Because Indonesia also wants to bring out
its industry, that trade combination implies, that Indonesia‘s industry is less
competitive than China‘s industry. Among ASEAN5 countries, Indonesia is the
only country that recorded trade deficiency with China.
The
trades kept growing in the later period of 2000s. ASEAN5’s trade with China
reached US $245.5 billion in 2010, representing a more than two-times grow from
the 2005-year value. This means that trade with China grew 34-times in 20
years. China had become almost the main ASEAN5’s trade partner with a share of
12.9%, China’s share became bigger then Japan’s, whose share was about 10.7% in
2010. Between 2005 and 2010, imports of the other five ASEAN countries from
China grew briefly from US $7.4 billion to US $30.2 billion.
From
2002 to 2012, ASEAN-China bilateral trade grew 23.6% annually to its 400
billion U.S. dollars.[19]
China currently is the largest trade partner
for ASEAN, and ASEAN is the third-largest trade China’s partner. China and
ASEAN set down a goal to regulate up two-way trade to one trillion U.S. dollars
in 2020, more than double 2012-year’s trade amount.
In
2020, China is going to import a total of 3 trillion U.S. dollars’ worth of
goods from ASEAN members and to invest more than 100 billion U.S. dollars in
ASEAN countries.[20]
The
collaboration between China and ASEAN has many chances for the development, as
the two sides share a geographical neighborhood with a long trade history.
India’s
political and economic relationship with ASEAN is becoming stronger because of new regional dynamics. Many Indian
businesses have sought to create themselves in ASEAN to take superiority of
regional trade flows as well as to get
access to the Chinese market.
Recently, Indian government has stepped up its efforts to improve its relationship with
ASEAN. From November 1 to November 4 of 2015, Vice President Hamid Ansari visited Brunei and Indonesia to
confirm ASEAN ties, while Indian government is also lobbying for an early
ratification of a Free Trade Agreement (FTA) between India and ASEAN.
ASEAN-India
dialogue relations have grown quickly from a sectorial dialogue partnership in
1992 to a full dialogue partnership in December 1995. Relationships were further raised with the convening of the ASEAN-India Summit in 2002 in
Phnom Penh, Cambodia. Since then the ASEAN-India Summit has been held every year. All these meetings were held
in a decade, which clearly signifies the consequence of the dialogue
partnership to ASEAN and India and the progress that was made in the collaboration. At the ASEAN-India
Commemorative Summit held on 20 December 2012 in New Delhi (India) the Leaders agreed to obtain
the ASEAN-India Vision Statement and declared that the ASEAN-India Partnership
stands raised to a Strategic Partnership.
India is one of the key partners of
ASEAN.[21]
With a total population of 1.8 billion and a combined GDP of US $7.98 trillion (PPP)[22]
ASEAN and India together organize
a consequential economic space in the world. Besides an economic partnership,
India expects to advantage geopolitically as well from its rejuvenated
relationship with ASEAN and other regional countries. In order for India to
obtain a substantial position in East Asia, New Delhi has moved to an “Act
East” Policy now, an update to the 25-year-old “Look East” Policy. As ASEAN
remains central to India’s “Act East” Policy, India’s achievements from this
strategy are worth watching.
The “Look East” policy, initiated in
1991 by the Prime Minister of that time
Narsimha Rao is the result of the post-cold war worldwide conditions. The
primary objectives of this policy are: to advance close economic as well as
strategic relations with the countries of this area and to avail better
opportunities of capital, market,
and technology for the quick and sustained economic, development of the
country.
This policy has been divided into
two phase so far. The first phase of this policy covers the interval from 1991
to 2003. During this phase, the policy mainly focused on the enlargement of
trade and investment linkages with the members of ASEAN. The second phase of this policy covers the interval from
2003 to the present. During this phase, the capacity as well as the reach of
this policy has been expanded in the meaning that now it focuses on both the
ASEAN and non-ASEAN countries of East Asia. Moreover, besides economic relations, it is equally focused on
the deepening of the strategic relations in this area.
The search for better trade and
economic opportunities as well as India’s fancy to play a greater function in
the worldwide affairs also prompted India to look for greater involvement in
this area. There is a historic fact
that India launched its “Look East” Policy in 1991.
Over the years, the policy has
evolved to cover broader security and defense ties across the whole
Asia-Pacific, with India signaling its willingness to play a greater strategic
function in the region. Given the
fast changing security dynamics in the area, Indian PM Narendra Modi , who swept to power in a landslide triumph in the
April-May election, rechristened the approach as the
“Act East” policy, stating the significance of also looking for deeper ties with partners. Thus, acting in diagonal
with its ‘Act East’ policy, Vice President Hamid Ansari made trips to Thailand
and Brunei to bring out India’s ties with the two nations. [23]
The plan “The
India–Myanmar–Thailand Trilateral Highway” is an aspiring plan of 1990 miles
(3200 km) that will link India with the ASEAN region. The highway will tie
Moreh in Manipur state (India), via Mandalay city (Myanmar) and to Mae Sot
district (Thailand). It is also a part of India’s upgraded “Act East” policy,
which looks for
strategically constructing India’s bond with the Southeast Asian region. The project comes off the
heels of the Bhutan, Bangladesh, India and Nepal Motor Vehicle (BBIN MV)
Agreement, which was signed in
June 2015, and the proposed India–ASEAN trade center.
Within the Trilateral Highway
project, about 48.4 miles (78 km) of new roads will be constructed, and the
existing 248.5 miles (400 km) of roads will be upgraded along with the building of all–weather approach
lanes. The Trilateral Highway project will be completed by
2018.[24]
The
India–ASEAN relationship received a new chance with the conclusion of the eighth Delhi Dialogue on
17–19 February 2016. Since 1991, India has been strictly pursuing the increasing of the strategic and trade relations with Southeast Asian
Countries as a part of its “Look East” policy.[25]
Now, ASEAN became India’s
fourth largest trading partner after China, the United States and the European Union.
The aim of courting ASEAN was to construct cultural
and historical ties, to enlarge markets; counter Chinese power in the region
and upgrade India’s standing as a regional power. However, India’s relationship
with its regional neighbors has not matured to the extent that it was
originally envisaged. A stronger standing with ASEAN can give a main lift to
India’s stature as a growing worldwide power. Since the conclusion of a free
trade agreement (FTA) with ASEAN in 2009, trade has grown steadily and
investment flows have been considerable, but the full potential of India–ASEAN
relations is yet to be realized.
India Import Partner Share (%)
The data statistics of India`s
export to the ASEAN countries can be found in Appendix 2.
Amount
of trade flows between ASEAN and India remained relatively not so high compared with other dialogue partners of ASEAN.
Between 1993 and 2003, ASEAN-India bilateral trade grew at an annual rate of
11.2%, from US $ 2.9 billion in 1993 to US $ 12.1 billion in 2003. At the 10th
ASEAN-India Summit in November 2012, the Leaders set the goal of US $100
billion by 2015 for ASEAN-India trade.[26]
There was a little decrease in the total trade between ASEAN and India, about 0.29 %, from US $67.9 billion in 2013 to US $67.7
billion in 2014. However, the release of a report from Standard Chartered
forecasts that Indian exports into ASEAN would arise dramatically over the next
ten years to US $280 billion a year, up from US $33.13
billion in the 2013/14 financial year. Two-way trade is currently locked in at
around US $80 billion a year.[27]
Indian
export possible in six areas: organic chemicals, petroleum products, vehicles (including auto
parts), gems and jewelry, pharmaceuticals, and apparel and clothing accessories.
The first
three are categories where ASEAN already accounts for a sizeable part of total Indian exports, and
where export development is extreme. The last three areas are possible for
India to grow export expansion rates. Meanwhile, ASEAN’s trading strengths would depend mainly on
natural resources and electronics.
Although the last
several years there have seen sizeable development in
India-ASEAN relations, but
there is also further space in these markets for important development in the coming
years.
Singapore is India’s strongest linking to the
ASEAN market, accounting for 25.9 % of all of India’s trade with ASEAN from
2013-2014.[28]
The state has also benefited economically from its secure relationship with
India, from which it imported US $7.1 billion in 2014.[29]
In adding to a healthy trade relationship, India
and Singapore also appreciate a diplomatic political history of over 50 years.
In 2014, India and Singapore again strengthened defense partnerships and
recommitted to the procedure of joint military training exercises. As India’s
portal to the rest countries of ASEAN, Singapore is likely
to appreciate a mutually beneficial political and economic relationship with
India for multiple upcoming decades.
India and Vietnam have also sought to renew their
political and economic standing. Vietnam’s 2014 renewal of Indian oil blocks in
the South China Sea is indicative of improved diplomatic and defense relations
between two nations.
The economies of Vietnam and India are
anticipated to increasingly rely on one another for trade in the upcoming
years. From 2013-2014, bilateral trade between India and Vietnam totaled US
$8.03 billion, and both countries’ governments foretell this figure to reach US
$15 billion by 2020. In terms of exports from Vietnam to India, big investment
opportunities exist in the pharmaceutical industries and textile.
Indonesia and India’s economic relationship has
grown exponentially recently. After signing a double taxation agreement (DTA)
in 2012, bilateral trade between two countries totaled US $20 billion. In 2012,
the Indian embassy in Jakarta launched the India Business Forum, in which
Indian business owners committed to further interaction with the Indonesian
market.
In 2014, Indonesia accounted for 38 % of ASEAN’s
total GDP. By increasing trade with Indonesia, India will obtain significantly
greater access to the Southeast Asian economy. At the same period of time,
India’s population is over 1.27 billion, which presents a great market for the
ASEAN countries’ main exports of gas, oils, and electronic equipment.
Acknowledging this tendency and recognizing the economic
possibility of closer linkages, both sides recognized the opportunities for
deepening trade and investments, and agreed to deal a framework agreement to
pave the way for the foundation of an ASEAN-India Free Trade Area.
India and ASEAN signed the ASEAN-India Trade
in Goods (TIG) Agreement in Bangkok on 13 August 2009 after six years of
negotiating. The signing of the ASEAN-India Trade in Goods Agreement gave a chance for the foundation of one of the world’s largest
free trade areas (FTA) – market of almost 1.8 billion people with a combined
GDP of US $ 4.6
trillion.[30]
With
the financial globalization and regional financial integration, today’s
universe witnesses the new round of industrial restructure with service and
service commerce, which plays an increasing part in the nationwide economy. It
is, actually, the center of global manufacture, shifting from manufacturing to
service. Here we will talk about the commerce organization, then put forward
the countermeasures for improving the service commerce arrangement between
countries and enforcing the competitiveness of service industrial organization
on the foundation of complementary benefit.
The
globe economy has speedy turned into a ‘service economy’ since the 1990s.
Services uprising across the planet has changed the trade map, so the way trade
is conducted. Outstanding development of services sector has outstripped the
increase in real GDP in a numeral of economies of Asia. While developed
countries still account for the lion’s ration of services in world GDP and
commerce, developing countries have recently started to cut out an increasingly
larger portion of the pie for themselves. The extreme growth of services has
been aided by the increase of commerce in services because of increased
tradability of a range of business and other services. Among the different
services sectors, trade in business and experienced services including
accounting and connected fiscal services, data processing, ITeS (viz. BPOs),
computer services, management consulting, legal, and architectural and
engineering hardware, consulting services, have witnessed outstanding increase
in current years. This, however, could mainly be attributed to a numeral of services
sector firms from the US & EU, who have taken access to offshoring and
outsourcing of their non-core activities to take dominance of the low-cost
high-skilled professionals from the developing countries.
Since
there was signed the Framework Agreement on Comprehensive Economic Cooperation
between China and ASEAN (Association of Southeast Asian Nations) by China and
ASEAN in November 2002, in which it was pronounced that the foundation of
China-ASEAN Free Trade Area in 2012, the discussion of service commerce has
been going during several years. The Service Trade Agreement was eventually
signed on January 14, 2007 and took effect on July 1, 2007.
According to the Agreement, on the foundation
of the commitment made to the WTO, China made new commitment in 26 sectors
under construction, transportation, environment preservation, business and
sports. Besides, ASEAN makes commitment to unlock its markets in education,
finance, tourism, telecommunications, medicines and construction spheres,
including the further opening up of these markets, and fairness joint ventures
and permission of solely funded and other collaboration, relaxing in the limit
of stake ratio in establishing companies. In common, there are differences
between two sides in each other’s industrial organization, development
foundation and developing stage. These differences make the complementary
commerce in service.
China’s service commerce has been developing quickly. The general annual grow rate is up by 18.4%, which is two times over the world one. While the global competitiveness in our service commerce is still not so high than in the developed countries and even in some developing countries. Service’s export quantity as a ration in the total export of China is still lower than 10%, which is just half of the world’s average level.[31]
ASEAN
has become the main export market of China’s investment, labor service,
contract engineering collaboration. Besides, the investment from ASEAN in
marine and air transportation, construction, financial service and engineering
service is also a significant part of China’s service import. The existing
economic profit gained from the service trade has become the consequential
foundation and possible motive power for the development of relationships
between China and ASEAN.
China
and the 10 nations of ASEAN have their own advantages in terms of sector
organization, which effects in the large complementary between two sides. The
Chinese businesses should attach great value to the ASEAN market and choices
offered by the opening service trade market at both sides and take the business
opportunities.
The distinguishing natural and cultural sceneries of both China and ASEAN serve as generous travel resources and are the foundation for forming and developing the competitiveness of each other’s travel service. As travel accounts for large part in both China and ASEAN’s service trade export, and as developing countries, both have had gained their own competitiveness in this customary travel service at the same time, there should be more struggle than collaboration in travel service field between China and ASEAN. Under the force from ASEAN after the further opening of travel market, China should be committed to develop the differentiate and dissimilarity travel services, such as cultural travel, green travel, ecological travel, submarine travel, internet travel and other creative travel projects. The knowledge-based economy is changing the usual competitive way from resources and passenger flow direction to information and technology. The contention in future travel service will target on creating travel resources and particular travel services according to the passengers’ wish, economic situation, concern and required time instead of just selling travel rout or certain scenery point. These countries should also increase the opening of travel and use foreign assets to arrange the investment structure of their services. For example, they can change the service projects of their old and popular national lodging by using foreign capital, outsource human resources training of the travel agents, the information system‘s managing and developing, landscape hotel and other low-value-added links with the aim of pushing forward the management level of China’s travel agents.
2. To consolidate the cooperation in transportation and finance
In
the area of transportation, the half of the export and import between ASEAN and
China is carried by marine transportation. The amount of transportation trade
from China to ASEAN has increased by 22.7% within recent five years, and the
Mekong Rive transportation is still developing at the same time. The increasing transportation of cargo and
passengers between ASEAN and China construct the solid foundation for
developing the transportation service of both sides. In compare with travel,
there are more collaboration than contention in transportation service between
ASEAN and China. China should strengthen on the construction of logistic
infrastructural facilities for promoting the development of current
transportation and logistics. Moreover, China should take the advantage of the
huge amount of population of China-ASEAN Free Trade Area to bring out the range
economy. Business is always regarded as “the first driving force” for the
growth of regional economy. For the goal of wider field, larger range and
higher lever collaboration, both sides should improve their collaboration in
finance sphere for making finance play its role of configuration leadership and
market regulation. For middle and long term, the collaboration between China
and ASEAN should target on currency and financial supervision for keeping away
from financial crises and the fluctuation caused by hot money, and the illegal
activities, such as money laundering, arbitrage of exchange, swindle, and so
on, which can damage the financial system and the hole economy.
3. To improve the level of high-technology service
Technology
service is the center of world’s service trade. Information services and
computer are going to increase potentially as high-value-added sectors. Except
Singapore, the competitiveness in information service and computer of China and
other ASEAN members is the same and must be improved. Both as being developing
countries should prioritize the development of these sectors. While the risks
and capacity of investment in these sectors are giant, it is very necessary for
the country to offer leadership and subsidies in its production capability and
R&D. However, facing the joining of Singapore`s transnational corporations
(Singapore has been of international competitiveness in computer and
information services), countries should lead its FDI efficiently to those
high-value-added sectors. Meanwhile, China and ASEAN countries should advance
their software outsourcing for constructing the compact foundation for them to
enlarge export services and software, which is related to computer and
information in the international market.
4. To enhance bilateral investment and enlarge service trade
The
Service Trade Agreement, which was signed by China and ASEAN, is bringing out
more bilateral investments. China’s enterprises’ investment in ASEAN market,
which owns 500 million consumers, not only profitable for enlarging the current
advantages of manufacturing industries, but also encourage the service export,
which is related to the manufacturing industries. Because of the unlikeness of
the service trade development among ASEAN members, the procedure of opening the
service trade and acceptability is not the same for the countries. Countries should
select the investment plan according to each country’s different feature. For
example, Singapore has comparative superiority in the knowledge-intensive
service, management, capital, attracting investment and facility in language.
Countries can encourage investments from Singapore and set into their
high-technology service sectors. Besides, they can invest in the service
sectors of ASEAN market for promoting the economic development of both sides.
In
conclusion, there is a big potential collaboration in service commerce between
China and the countries of ASEAN. Only if both sides enroll in enlarging
collaboration, making resources conformity sufficiently, structuring systems
and coordination policies well, they can continue from the new circular of industrial
restructure with service and promote the service industry successfully.
China
and ASEAN member states have their individual side in the service industry, as
China is competitive in computer service, Thailand in tourist service,
Singapore in legal, financial and exhibition services.
With
the big gap between different countries in different service sectors, it is
hard and challenging for these countries to unlock their service industry for
other countries. If China and ASEAN
could sign agreements for further reducing the access restrictions to their
private service industry, the service commerce between two sides could gain a
large grow.[32]
Over
the last ten years, global trade in services has been growing at higher pace
than trade in goods. The countries in the Asia-Pacific region with the sizeable
demographic advantages have important beneficiaries in the development.
Outstanding development of services sector has outstripped the development in
real GDP in a number of economies in Asia. Both India and Members of the ASEAN
have stakes in the sector, and under the India-ASEAN CECA negotiations,
countries are working towards maximizing the possible benefits that may rise
out the integration of the service sectors of the two trading partners.
In
the example of India, services have been one of the force areas for over ten
years. While agriculture continues to keep the leading position in the economy,
give the high livelihood-insurer character and employment-generating facility
of the sector in India, it can become the development machine in the economy in
the last decade or so. Not only the sector has been growing at a stable pace of
10% for the last decade and contributing over half of India’s GDP growth each
year, services exports from India has seen double digit growth in the last ten
years and has continued to be one of the most important sources of imported
exchange earning in the country.
India’s
Foreign Trade Policy (FTP) recognizes the value of services in the overall
trade performance of the country by suggesting to make a ‘Served from India’
brand, and setting up an incompatible export encouragement assembly for
services sector along with schemes for helping and promoting home-grown service
providers. The Council is expected to map opportunities for main services in
the main markets, and bring out vital market access programs, including brand
building in co-ordination with sectored players and recognized nodal bodies of
the service industries. Common Facility Centers are also suggested to be set up
for using by home-based service providers, particularly in areas like
architectural and engineering design, software developers, multi-media
operations, etc. to drag an unlimited multitude of home-based professionals
into services export arena. It is expected that the new approach will be able
to help broad-base services exports of the country to contain as many of the
161 tradable services covered under the General Agreement on Trade in Services,
where payment for such services is received in free foreign exchange; service
sector exports from India are currently more important than software exports.
In
services, India pursued important reforms, especially in telecommunications and
in infrastructure services and financial services, such as power and transport.
At over 17% annually in the 1990s (with exports of software and IT enables
services growing at around 46% since mid- 1990s), India’s services exports have
accomplished one of the fastest growths globally in the last ten years,
compared to the world average of 5.6% . Globally, India remained a network
importer of services. In services, the areas of liberalization, policy center
and high growth in India have been: IT`s (including financial IT services)
& BPO, software, besides, emerging areas as healthcare (in particular
diagnostics and surgeries), telecommunication, and more recently in
distribution, professional services and government services. It should be told
here that unilateral service sector liberalization in India has been most
focused in mode 3 (or commercial presence), but mode 4 access (movement of
natural persons) is still restricted in many services sectors.
Like
India, ASEAN is also a net importer of services. Moreover, service imports of
US$ 110.90 billion is over 2.8 times of India’s total service exports, which
can describe a big possible market for India’s service exporters to seizure.
The region is also increasingly becoming the main demander of services, which
is reflected in ASEAN`s rising trade deficits in global trade in services
(compared to a positive net merchandise trade balance).
Broadly,
at current situation, prospects for enhancing ASEAN’s (particularly ASEAN 5)
trade with India remain in the following Services categories: tourism,
hospitality, distribution and logistics, IT and telecom, financial services and
healthcare. An investigation of India’s service trade basket shows that India’s
exports to ASEAN in services has concentrated in technical education, software
and ITeS, finance, audiovisual and healthcare. ASEAN service firms (especially
those from ASEAN5) have both exported several kinds of services to OECD
countries and also invested in a several sectors like: healthcare, , education,
business support services, professionals and specialists, construction and
engineering, infrastructure development and real estate services, transport and
tourism, commerce (wholesale and retail trade), financial services (including
pension fund management) and telecommunication services. They are also partners
with developed country service firms into third markets in several kinds of
services. The target is to ease existing constraints particularly in
impermanent business travel and common identification of professional
credentials. The CECA can provide opportunities for India to get into an order
where the country can get in touch with Indian service providers participant
with established ASEAN service firms to service third country markets.
Besides
FTA with ASEAN, India is negotiating almost identical market opening pacts with
the grouping members. India has already implemented FTA with Malaysia and
Singapore and is negotiating with Thailand and Indonesia in this view. The FTA
would also macadamize the way for discussions about regional inclusive economic
partnership (RCEP) that ASEAN plans to seal with its six main trade partners,
which involve India.[33]
The
India-ASEAN CECA deliberations should focus on setting out a wide set of
AFAS-plus negotiating guidelines on complementary collaboration agreements and
a lowest benchmark numerical goal for market access in services within the
geographical field under the CECA, and not be restricted by the existing GATS
commitments and tabled revised offers.
The
increasing of improvements in Market Access and ensuring identical National
Treatment for services suppliers, in a select critical figure of service
sectors of complementary interest of the trade partners, service is provided in
all four modes. Historically, the most part of ASEAN Members have set more
force on mode 3 (with the exception of Philippines and now Vietnam), while
India’s demonstrated expertness and competitive advantages lie in modes 1 and
4, which signifies complementarities in interests of the trade partners.
While
India have defensive interests in certain sectors with a few Members, there are
prospects of provocative opportunities in some other countries, in particular
the CLMV nations. This needs to gain the balance during negotiations. In
addition, while the ASEAN region and India would appear to be broadly
competitors in a big range of services, there are some complementarities within
special service sectors and with special Member countries that need to be
carefully optimized. At current situation, ASEAN has concluded four packages of
services commitments through three rounds of negotiations since 1 January 1996.
These packages were signed by the AEM and supply the details of commitments
from each ASEAN country to the others in the following services sectors:
While
the India-ASEAN CECA should focus on including the liberalization into the
above sectors and other critical service sectors such as Audiovisual,
Distribution, Healthcare services and Education. In those sectors, where India
has possibilities and interests of forging synergies, the quick track
liberalization should be also considered.
Determined sectors for the concentration
during the India-ASEAN CECA negotiations could be healthcare, education
services, telecommunication, audio-visual, banking and finance, tourism,
insurance, e-commerce, trading, transportation and warehousing, distribution
and logistics, and professional services such as accounting, legal consultancy,
engineering and advertising.
The
ASEAN-China Free Trade Area (ACFTA) is a free trade area between China and the
ten ASEAN member states.
The
initial framework agreement was signed on November 4, 2002 in Phnom Penh (Cambodia) intended to create a free trade area
among the eleven nations by 2010. The free trade area became effective on the January 4, 2010.
The
ACFTA is the biggest free trade area in the world according to the population amount, and it is the third largest in terms of nominal GDP, trailing the
North American Free Trade Area and European Economic Area.
Within the free trade
agreement, tariffs were reduced to zero on 7,881 product categories, or 90% of
imported goods. This reduction already got results in China and the six first members of ASEAN:
Indonesia, Brunei, Malaysia, Singapore, the Philippines
and Thailand.
The
average tariff rate on goods from China, which were sold in ASEAN countries, decreased from 12.8% to 0.6% starting January 1, 2010. Meanwhile, the
average tariff rate on goods from ASEAN, which were sold in China, decreased from 9.8% to 0.1%.[34]
The
primary attraction of ACFTA is that it offers unlimited opportunities and
benefits to consumers and firms in member countries. Consumers advantage from
having access to a sizeable variety and cheaper products and manufacture. Many
ASEAN firms in particular can tap more effortlessly into the Chinese market,
the fastest growing market in the world. The removing of tariffs also allows
freer flows of intermediate goods between the two regions, benefiting producers
at every stage of producing and deepening regional economic integration.
Because of the increased importance of producing
fragmentation in both regions, it is therefore useful to research more closely, how the free trade agreement will finally reshape production and trade
relationships between ASEAN countries and China.
There
are some predictions about the effect of The ASEAN-China Free Trade Area on
future development of the China –ASEAN relationships. First, by explicitly
accounting for component trade, ACFTA will have a fundamentally larger effect
on the trade flows between China and ASEAN than what the existing data
predicts—around 25 % more, which accounted for US
$343 billion at 2008 constant prices .[35]
Second, the larger trade flows
between the two regions are more likely to be in parts and components and
concentrated among a sub-group of member countries with stronger industrial
linkages. This implies that industries in ASEAN and China will become more
closely integrated. Eventually, the trade beginning in
component trade between two regions will produce positive spillovers to the
rest of the world. This comes about because finer specializations in the
producing chain also include countries outside ACFTA. These trade beginning
effects may in turn compensate trade diversion effects and further upgrade the
social welfare in both China and ASEAN.
China has proposed The Belt and Road initiative in 2013, as a trade and
infrastructure network. It will link Asia to Europe and Africa through the Silk
Road Economic Belt and the 21st Century Maritime Silk Road.
To support pragmatic collaboration between the
two sides on the Belt and Road Initiative, China and ASEAN should target on
five areas, namely road connectivity, policy communication, currency flowing, trade facilitation and
mutual agreement between the peoples.
China sees ASEAN as a predominance region in
implementing the initiative, which is set to encourage trade and infrastructure
construction in Southeast Asia. According to the words of President Xi Jinping,
China is willing to work with ASEAN countries to jointly construct the 21st
Century Maritime Silk Road and which more important China-ASEAN community of
common fate, which has charted the course for the long-term development of the
China-ASEAN relations.[36]
The Belt and Road Initiative and supranational
collaboration on producing capacity have already brought new opportunities for
regional collaboration, from which ASEAN countries wish to obtain momentum for
development. China and ASEAN’s joint bid for constructing the 21st Century
Maritime Silk Road not only builds on the ancient maritime silk route and the
bilateral conversation and collaboration over more than 20 years, but also
reflects a common require for win-win collaboration and development. On
interconnectivity, ASEAN countries need to further upgrade infrastructure
construction and interconnectivity, while mechanisms such as the Asian
Infrastructure Investment Bank and the Silk Road Fund project proposed by China
can provide low-cost and long-term financing services for ASEAN countries.
Besides, both sides can jointly construct a
range of industrial parks, invite Chinese enterprises to invest in ASEAN
countries and complete the construction of regional supply, industrial and
value chains, while elevating the status of China and ASEAN in worldwide industrial
distribution.
Having finished the journey along China in 2015 year,
diplomats from ASEAN said that China’s 21st Century Maritime Silk Road
initiative could help to prompt economic development in the area, especially since the
bloc is launching an ASEAN Economic Community at the end of 2015. The
initiative aims to change ASEAN into a single market and producing base in
order to lift the region’s connectivity and competitiveness.
For the period being, the five countries along the
Greater Mekong River, namely Laos, Myanmar, Thailand, Vietnam and Cambodia, are
engaged in construction of cross-national highways, linking north to south and
connecting east and west.
The North-South Economic Corridor has been taking
shape with the fully opening of the whole Kunming-Bangkok Highway in 2013.
China has also completed construction of an expressway in Guangxi leading to
the Dongxing port and Friendship Gate at the China-Vietnam border. The highway
from Kunming to its border with Vietnam and Myanmar has also been constructed.
Constructing the existing infrastructure, Thailand and China have
inked a settlement on a high-speed train project linking Thailand’s Nong Khai
and Laos to the southern border and Malaysia, with the ground-breaking of the
project , which was realized in December 2015.
China and Indonesia have also sealed an agreement to
initiate a joint plan for a high speed railway linking Jakarta with West
Java provincial capital of Bandung.
The plan will be conducted on business to business
base, in which the Indonesian side is going to control 60 % of the joint venture’s
stake, while the Chinese partner is going to control the left over 40 % share.[37]
Ties
between China and the Philippines have chilled lately – a outcome of overlapping claims in the
South China Sea. Still, the Philippines says the two nations can still
cooperate within
the plan.
Vietnam
and China reached the agreement on expanding collaboration within the framework
of the initiative and Vietnam’s “Two Corridors and One Economic
Circle” plan,[38] as well as on producing capacity collaboration.
Sharing a land border of over 1,000 km, Vietnam and China have been in close
connection on infrastructure collaboration with new express roads and railways
starting operations almost every year. The two countries have reached an
agreement on a practicability study of the Hanoi-Lao Cai-Hai Phong Railway in
northern Vietnam. New railways in Vietnam are only a piece of the
infrastructure upgrading in Southeast Asia, as China promotes the
aspiring Trans-Asian Railway that will link Malaysia, Laos, Thailand and
Vietnam. Vietnam and China also signed several collaboration documents
covering such fields as transportation, party-to-party exchanges, producing
capacity, energy, railway, finance and local affairs. More than 1,000 km away
from Vietnam, Singapore is also a important link in the Maritime Silk Road.
In a
20-point statement, China and Singapore agreed to collaborate in Belt and Road
construction, city planning, trade, education and customs, among others. Two
sides will encourage a third government-to-government project this time in
Chongqing, southwest China, and examine collaboration between the enterprises
in third markets. Other ASEAN countries have expressed their concerns about the fact, that the One Belt and One Road initiative could be part of
Beijing’s push to assert itself as the region’s leader.[39] In result,
they will be watching closely as more details are revealed.
Currently,
The Belt and Road initiate refer only to political sphere; it helps to expand relations
between China and ASEAN countries, which will definitely have an influence on
the economic sphere and the sphere of foreign trade in future.
In common,
China’s actual wages are increasing, in tandem with an aging society, a
byproduct of the One-Child Policy.[40] In similar, ASEAN’s developing members will practice
the rise of a consumer-oriented middle class, which could shift economic
activity from export-oriented manufacturing toward domestic consumption. ASEAN
could also become an important service provider to China’s rising middle class.
Tourism is a significant source of services exports for many ASEAN countries,
particularly Thailand. In 2012 Chinese tourists made up the second-largest
group visiting ASEAN countries, totaling just under ten million visitors (10.4
% of total tourism), while the United States was seventh with just under three
million visitors. [41]
The India-ASEAN Free Trade
Agreement (AIFTA) came into result on 1 January 2010 with view on Singapore, Malaysia and Thailand.
India’s exports to ASEAN grow fundamentally, with the largest accesses that were gained in Cambodia, Thailand,
Vietnam, the Philippines, Malaysia and the Lao People’s Democratic Republic.
The primary sources of imports are going to Vietnam, followed by the other ASEAN countries, Malaysia, the Philippines, Singapore and Thailand. However, India experiences a
welfare loss due to both allocative inefficiency and contradictory terms of
trade capacity. In the ASEAN area, Singapore, Malaysia and Thailand present positive welfare that was gained with the largest obtaining accruing to Singapore. The smaller countries all
appreciate positive welfare gains except the Lao People’s Democratic Republic, Cambodia and the Philippines. This
welfare obtained by ASEAN countries is principally due to their improved terms of trade.
India’s trade with ASEAN is
mainly concentrated in Malaysia, Indonesia, Thailand and Singapore. These four countries were and still are the
largest markets for Indian 5 exports in the ASEAN region, as well as the largest
sources for India’s imports from the ASEAN region. Among them, Singapore is the
main goal for
Indian goods (45.6% of total exports to ASEAN) and the largest source of
imports for India (31.1% of India’s total imports from ASEAN), followed by
Indonesia, Malaysia and Thailand. [42]
The trade agreement between
ASEAN and India has already come into effectiveness with view to all these
countries, with the exclusion of Indonesia. Starting from January 2010, the
tariff liberalization within the India-ASEAN FTA was to slowly cover 75% of the
two-way trade between the ASEAN and India member countries. The FTA led to the
elimination of tariffs on some 4,000 products covering chemicals, electronics, machinery and textiles. These 4,000 products include 3,200 products that will have duties reduced by
the end of 2013, while duties on the remaining 800 products were lowered to zero by the end of
2016.
The primary exports by India
to the ASEAN region cover edible vegetables and fruit, meat, cereals, tobacco, cotton,
mineral fuels, salt, organic chemicals, iron and steel, pharmaceutical products, electrical
and electronic equipment, copper, and machinery. The primary imports by India
from the ASEAN region cover animal and vegetable fats, mineral fuels, chemicals, rubber products,
pharmaceutical products, wood products, wearing apparel, iron and steel, electrical and electronic
equipment, ships, machinery, optical and photographic equipment, boats and floating
structures, and musical instruments. With the implementation of the trade in
goods agreement, most of these goods are granted duty-free access to the
markets of the partner countries in the ASEAN region as well as in India.[43]
The terms of trade gains
accruing to the biggest part of the ASEAN countries are because of the relatively larger falls in the prices of their
import items, related to their exports, as an outcome of bilateral trade
liberalization under the FTA. India’s loss to on the account of the negative terms of trade
effect is as huge as US $ 695.62 million under full liberalization. India’s export prices within FTA much more than the import
prices, resulting in the negative terms of trade effect. This is because the
prices of the biggest part of Indian exports to the ASEAN countries fall as much as
the tariff shock, or sometimes more than that, when they reach the ASEAN
markets. The reason of this is the fact that domestic require for most of these goods falls in
India, consequently pushing down their world (CIF) prices.
For goods imported to India from the ASEAN
countries, the fall in the prices of the goods in India is less than the tariff
shocks. This is explained by the arise in the CIF prices of the biggest part of twenty-five kinds of goods from
ASEAN.
When trade between two sides is fully
liberalized by lowering to zero all bilateral tariffs between ASEAN and India,
the largest contribution to India’s allocate effectiveness can be obtained from the
following sectors – vegetable oil and fat (US $ 372.62 million), oilseeds (US $ 29.57 million), textiles (US $ 15.48 million) and wearing apparel (US $ 18.26 million).[44]
India loses out significantly
on allocative effectiveness due to the loss of import taxes (US $ 211.92 million) and due to a forbiddance list that comprise 13 out of 35 products. In addition, the sectors that
provide an extreme loss of allocative effectiveness due to the lowering of import
taxes cover chemicals, oil and gas, machinery, rubber and plastic and other metals. Following
liberalization substantial tariff cuts have been made for all of these goods importing to India and, because of that, losses
arise due to removal of import tariffs. However, with a big number of products
on the negative list for India, there are relatively smaller declines in import
prices in compare with export prices, thereby lowering the negativity in the terms of trade
outcome.
FTA implementation will have effect in India and some of
the smaller ASEAN countries (i.e., the Lao People’s Democratic Republic, Cambodia and the Philippines)
incurring welfare losses. The loss for India is due to negative terms of trade, but for Cambodia and for the Lao People’s Democratic
Republic the loss is due to both allocative inefficiency and the negative terms
of trade effect. The Philippines experiences obtain from increased allocative
effectiveness, but the negative terms of trade effect is relatively stronger. For
other ASEAN countries, the terms of trade effect is positive and much stronger, resulting in large welfare gains. For India, the
welfare position got the improvement with the expansion of the trade liberalization process, both with
regard to the number of ASEAN countries with which its trade is liberalized, as well as the number of
products, for which tariffs are lowered or eliminated.
Following the implementation of the FTA,
bilateral trade between India and ASEAN increases phenomenally. While
Indonesia, Cambodia, the Lao People’s Democratic Republic, Vietnam and the
Philippines supply additional markets for almost all Indian exports, Singapore, Malaysia and Thailand supply
markets for some of the fastest growing exports from India. Thailand, Malaysia and Vietnam become
main importers of Indian goods in terms of total exports by that country to
ASEAN countries.
They also supply markets for the fastest growing items 32 exported by India. In
particular, Thailand steadily provides a big market for Indian products. India’s
imports from ASEAN grow because of increased exports by Malaysia, Indonesia, the Philippines, Thailand, Singapore and Vietnam, plus
the other countries of ASEAN. These countries also provide the items that get the largest increases in
India’s imports from ASEAN following the implementation of the FTA.
Attracting investments is an urgent
need for every country to upgrade its financial situation, and therefore to get
a priority in the discussion of regional issues. ASEAN countries has achieved
an agreement of the gradual liberalization by all investment participants in
five main sectors (fisheries, agriculture, forestry, manufacturing and mining).
In addition, the program documents recorded the primary principles and the
focus of free and open investment regulation, both for the investors of other
ASEAN members and for investors from third countries, the introduction of
advanced worldwide practices for the defense of intellectual property and
investors’ rights, the ways for reduction the sector amounts with restrictions
of international participation. Each country conduct this investment policy
independently.
Among the usual
trends, ASEAN countries have launched institutional reforms and introduced
amendments to the legislation, which were connected
with foreign investments from both the ASEAN and other countries. Practically,
each of the countries has the investment restrictions, which are connected with the legislation in the conformation of contradictory lists (i.e. there
are several sectors, having limitations, in all other sectors countries take the duty not to impose
restrictions), which makes the procedure more evident and foreseeable.
In 2014, the inflow of foreign investments in ASEAN countries amounted to more than US$136 billion, which has increased by 15.7% annually in the last seven years and exceeded the investment amount in China over the same time. The amount of foreign investment goes to wholesale, manufacturing and retail sales, mining production and real estate. Two-thirds of the investment has come from the ASEAN countries themselves, the EU, the United States and Hong Kong. The biggest regional investor is Singapore; however, most of the country’s investment committed through the registration subsidiaries of foreign companies enterprises.
In 2014–2015 ASEAN Member States introduced some measures, which could be beneficial to investment. They included measures for making investing easier, upgrade the investment conditions and enlarge transparency. Others included industrial growth policies, state investment policy reforms, investment facilitation, incentives and tariff reforms, streamlining of investment procedures, strengthening of institutional help for investors, infrastructure growth and foundation of more fiscal zones. The ASEAN Member States are also implicated with other investment-related agreements at the bilateral, plurilateral and regional levels at various stages of negotiation and development. They include investment agreements for ASEAN free trade agreements with the Regional Comprehensive Economic Partnership and Dialogue Partners. Some Member States continue discussing and implementing bilateral and plurilateral free trade agreements, which include investment agreements or chapters, and bilateral investment treaties.
The share of
private foreign investment in infrastructure is increasing, in 2014 FDI in
infrastructure and real estate accounted for 15% of the total number investment
or US $20.4 billion. Against the factual numbers, the role of Chinese
companies in infrastructure sector is also becoming stronger, as both owners
and investors, and contractors for the accomplishment of projects. According to
authority estimates, Chinese companies is going to invest US$50 billion in
infrastructure projects until 2017.[45] The participation in many
projects of modernization and construction of transport, energy and
telecommunication infrastructure is caring by Korean, American, Japanese and European companies.
Infrastructure
plays an important role in the region’s public, financial and environmental
development, including through boosting connectivity. As the determination of
the economy in all the ASEAN Member States, it contributes to improving the
region’s investment environment for attracting FDI. Greater connectivity of
state transport infrastructure enhances logistical effectiveness and supports
the enlargement of business, investment and trade. Investment in power
infrastructure increases energy security, provides energy to industrial estates
in country regions, which is necessary for achieving common access for
everything. As with other infrastructure sectors, the providing of information
and communication technology (ICT) infrastructure supports downstream
businesses, such as e-commerce, and connects Member States with each other, as
well as with the globe. Infrastructure development plays an important role in
the reduction of the transaction costs in making trade in the region.
The
infrastructure investment needs through 2025 includes transport, water and
sanitation, ICT. Some US $110 billion a year will be needed for infrastructure
investment in these spheres.[46]
Given the current spending by Member States, the infrastructure investment
space is equally big, but resources need to be found if the space is to be
filled and expected demand is to be met. The private sector can play a greater
role to help in filling the space. There is a need for a more concerted attempt
by all stakeholders to transport and coordinate investment from additional
possible resources to infrastructure. Filling the space is possible. For
example, in adding to resources outside the region that can also be tapped,
there is at least US $10 trillion value of assets in ASEAN Member States
(mostly with the private sector) that can become possible sources of funding.[47]
The
private sector, which participates in the region’s infrastructure, has a development
possibility through several modalities. They include FDI, privatization,
M&A`s, non-equity modalities (concessions and contracts), and consortium or
partnership arrangements. Some modalities are more important than others for
the private sector participation. The maturity of the M&A environment and
the privatization of public infrastructure, including opportunities for getting
assets in the host country, can have an impact on the private sector
participation. Firms’ skill sets, knowledge and ability to overcome contracts
are the additional influences. MNEs (multinational enterprises) from developed
and developing economies, including ASEAN, are participating in infrastructure
enlargement in the region through contractual arrangements, whether as engineering,
procurement and construction (EPC) subcontractors or contractors. They also
construct, invest, control and manage infrastructure assets. Concessionary
arrangements and contracts, a conformation of NEM, are becoming the primary
features of MNEs’ participation in the infrastructure development in ASEAN.
Companies
from ASEAN Member States have been actively investing and expanding regionally
too – a tendency more noticeable a few years ago (AIR 2014). ASEAN companies
that made regional investment in selected activities in 2014-2015 cover the
following:
TOA
Paint (Thailand), which has already operations in other ASEAN Member States
such as Malaysia, Lao PDR, Myanmar and Vietnam, is planning to enlarge
operations to Indonesia and Cambodia later in 2015. The target is to enlarge
the company’s production base regionally and to be ready for the AEC. Other
Thai companies are also expanding in the region in 2014.
They
cover Saha Group in Myanmar， Siam Cement in Lao PDR and several Thai banks. Thai
Oil, a refinery company of PTT (Thailand), is planning to spread out in Myanmar
and Indonesia with new refinery capacity. Parkson, a subsidiary of the Lion
Group (Malaysia), has been expanding in ASEAN. With fourteen stores in
Indonesia, one in Myanmar and nine in Vietnam, Parkson has opened its first
store in Cambodia later in 2015. The company opened a store in Indonesia in
2014 and another in Vietnam in January 2015, and it plans to open more stores
in this area.
Wah
Seong (Malaysia), through its subsidiary in Cambodia, is investing to construct
a biomass power plant. It signed a power purchase agreement with Baitang Plc
(Cambodia) in December 2014. The plant has started functioning in 2016. The
corporation also expanded its business portfolio regionally in 2014, when it
ventured into a river port business in Myanmar. The company plans to enlarge
the port services, including constructing more storage tanks and a fabrication
yard to help customers operating in the Thilawa SEZ. Keppel Land (Singapore) is
expanding its foothold in real estate operations in ASEAN and further afield.
In ASEAN, it is constructioning Phase 2 of the Saigon Centre in Ho Chi Minh
City (Vietnam) as well as Phase 1 of the International Financial Centre Jakarta
in Indonesia, which was completed in 2015, with Phase 2 to be completed by
2020.
The
corporation is developing Phase 2 of its SM-KL Project in the Philippines and
has acquired a 40% stake in a joint venture to advance the Junction City Office
Tower in Yangon (Myanmar). Sembcorp in Singapore is structuring an industrial
estate and integrated port in Indonesia and have already won a deal in 2015 to
operate and develop a US $300 million, 225 MW, gas-fired power plant in
Myanmar.[48]
The corporation also started to construct its seventh Vietnam Singapore
Industrial Park in Nghe Province in 2015. ASEAN insurance companies and banks
have been making enterprise extension or new investments in the region. Many of
the top twenty ASEAN banks, which had combined assets of US $2.1 trillion in
2014, expanded their operations regionally in 2014-2015. [49]
Moreover, to Thai banks such
as Kasikorn Bank, Bangkok Bank and Siam Commercial Bank, other ASEAN banks,
including OCBC (Singapore), United Overseas Bank (Singapore), Maybank
(Malaysia), RHB Capital (Malaysia) and CIMB (Malaysia), also expanded
activities in other ASEAN Member States in 2014 and 2015. Vietnamese banks are
also expanding in nearby ASEAN Member States.
These
companies include the following:
Infrastructure
plays a significant role in the region’s social, economic, environmental and
connectivity development. It is the spine of the economy of all the ASEAN
Member States and is the main driver for realizing the ASEAN Economic
Community. Countries in the region keep up to develop infrastructure for
providing reliable services to businesses, households and industries. They
identify the importance of infrastructure for supporting development and
alleviating poverty.
Each ASEAN Member State has important infrastructure development plans; the question is how to implement these plans in the interval earmarked and to attract private sector participation. The value of infrastructure for supporting economic development, increasing competitiveness, improving quality of life and ensuring general access for all cannot be emphasized enough. Some proof indicates that the providing of sufficient infrastructure in services such as telecommunication, electricity and transportation can help lift GDP and tie together each Member State nationally and regionally as well as internationally (through land ports, transport and airports).
Greater
connectivity of transport infrastructure enhances logistical productivity and
supports the development of commerce, trade and investment. The deficiency of
sufficient infrastructure has held back the economic development of some Member
States, such as Lao PDR, Cambodia, Myanmar and Indonesia. With sufficient
infrastructure, it is estimated that Indonesia’s GDP could develop at a rate
between 7% and 9% annually, instead of the contemporary rate of 6% to 6.5%. [50]
The overcrowded ports and the poor connectivity between the country’s islands
have led to high logistics costs of about 24% of GDP, as compared with only 16%
in Thailand. If logistics costs could be
brought down to 16% of GDP with improvements in nationwide transport
infrastructure connectivity and marine logistics, Indonesian government,
businesses and households could keep about US $70 billion to US $80 billion a
year in logistics costs.
The
study establish that better infrastructure can have clear impacts on poverty
levels and income in the countries in the Greater Mekong Subregion. These
countries are likely to practice the grow in GDP between 1.1% and 8.3%, with
the highest increases in Lao PDR, Cambodia, Myanmar, Vietnam and Thailand. A
deficiency of infrastructure increases economic costs. The study estimated that
congestion in metropolitan Manila would lead to US $54 million in economic costs
per day. In Lao PDR investment and
development in power plants over the years have expanded the providing of
electricity to reach more houses. The access to electricity by household has
increased from only 16% in 1995 to more than 70% today. Many of the power
plants in Lao PDR built and owned by foreign investors export electricity to
nearby countries. Investment in infrastructure can also create additional
employment in a country. The enlarge of infrastructure investment equivalent to
1% of GDP could create an additional 700,000 jobs in Indonesia.[51]
Infrastructure
investment needs in ASEAN are large, estimated to be about US $110 billion per
year through to 2025. It is possible to encounter this need from resources held
mainly by the private sector. Various studies have estimated the region’s
infrastructure investment needs, which limits are from about US $60 billion to
US $150 billion per year for different following periods and coverage of ASEAN
Member States. UNCTAD has estimated that the area would need at least US $110
billion in annual investment in transport, power, telecommunication, and water
and sanitation for the next decade. This approximate excludes investment needs
for cross-border regional connectivity projects.[52]
The Chinese players act not only as contractors, but also invest in, own and control infrastructure. Some of them have a wide regional presence through subsidiaries and contracts. In 2014, sixty-two Chinese companies were among the main 250 international contractors in terms of revenues, and a bulk of these companies are in or expanding their operations in ASEAN.
The
finance, infrastructure and hospitality industries were the target of M&A
purchases by ASEAN companies in 2014. Some of the cross-border M&A deals
made by ASEAN companies exceeded US $1 billion. These mega deals were dominated
by Singapore companies, which made two such deals in Hong Kong that averaged
more than US $5 billion each of them. Government-linked companies and Sovereign
capital funds based in the area were also dynamic in cross-border M&As. For
example, Temasek (Singapore) acquired three oil blocks in the United Republic of
Tanzania for $1.3 billion and a 25% share in Watson Holdings (Hong Kong, China)
for US $5.7 billion. Other private companies from Malaysia, Singapore,
Thailand, the Philippines and Indonesia also made important M&As abroad in
various industries. OCBC (Singapore) bought 97.8% of Wing Hang Bank (Hong Kong,
China) for US $4.8 billion. JG Summit Holdings (Philippines) purchased NZ Snack
Food Holdings (New Zealand) for US $608 million. St James Holdings (Singapore)
bought Perennial Real Estate Holdings (China) for US $2.8 billion. RGE
(Indonesia) acquired Sateri Holdings Ltd-Viscose fiber assets (China) for US
$863 million.[53]
FDI
flows into Cambodia increased by 35% in 2014 and reached the number of US$1.7
billion. China remained the largest investor, followed by Hong Kong (China) and
ASEAN. These economies accounted for about 60% of FDI inflows to the country
last year. Chinese companies were the largest manufacturing investors,
accountable for about 46% of FDI into that industry.[54]
Some Chinese companies are relocating their operations to the host country
because of the increasing of manufacture costs there. More foreign companies,
particularly Asian MNEs, are also opening factories in labor-concentrated
industries such as garments. Investments in agriculture activities in Cambodia
were also numerous and were dominated by ASEAN, in particular Vietnam. Malaysia
was an important regional investor in finance. ASEAN companies were also the
largest investors in the construction sphere and real estate in 2014.
Chinese
companies continued to control in the infrastructure sector. China National
Heavy Machinery Corporation (CHMC) started functioning of the US $540 million,
MW Tatay River hydropower plant in 2014. It will merchandise electricity from
the plant to the State-owned Electricity of Cambodia for forty-two years. Smart
Axiata, a subsidiary of Axiata (Malaysia), expanded the 4G LTE network in
Cambodia in 2014. South East Asia Telecom Group (China), through its subsidiary
in Singapore, announced plans to enlarge in Cambodia in 2015, with a US $400
million investment in telecommunication infrastructure. It has already invested
US$100 million in upgrading the Cambodian subsidiary’s networks.
FDI
into Lao PDR rose by 113% to US $913 million in 2014. Infrastructure still
remained as the leading target sector. Investment in SEZs also rose in the same
year. Some two-thirds of FDI in 2014 came from China. More than 90% of Chinese
FDI in Lao PDR was in the infrastructure sphere, 73% (US $420 million) of which
went to power production activities.[55]
Some companies like China National Heavy Machinery Corporation, China Huadian
and China Electric Power Technology Import and Export Corporation are the
structure power plants with expected commercial functioning dates in 2015.
FDI
flows to Myanmar decreased, from US $2.6 billion in 2013 to less than US$1
billion in 2014. This decrease was not announced by media reports and company
news; moreover, they indicated the growing of investments in Myanmar recently,
including some big projects. According to statistics, about 44% of FDI in 2014
was in storage and transportation sphere, which was and still is the individual
largest recipient industry. Chinese companies are still the largest investors
in infrastructure projects and in extractive industries. For example, Zhejiang
Orient Engineering was structuring a hydropower plant, which was completed in
2016.
FDI
to Vietnam increased from US $8.9
billion in 2013 to US $9.2 billion in 2014, induced by an important arise in
investment from the Republic of Korea and Hong Kong. These two economies
together with ASEAN were the three largest investors in 2014, contributing 66%
of FDI. FDI in manufacturing rose significantly, accounting for 71% of total
inflows, as an effect of the rise in Korean investment.[56]
Manufacturing FDI from ASEAN, Hong Kong and Japan was also important. Real
estate and construction were the second and third largest recipients of FDI
inflows, and also rose significantly, the former to three times and the latter
to five times the level of 2013.
China has been announced to enter the top ten list of
foreign investor in Indonesia since 2014. [57]
As in many
other countries, China’s main concern in Indonesia is in its mining sectors and
energy. More than half of its investment has been directed to extractive
industries. The Indonesian government welcomes Chinese hard cash; resource-rich
countries are competing for capital amid the worldwide economic slowdown and
commodities decline. Actually, China is also suffering from the downturn. The
unfettered require of the commodities that we saw few years ago might be
tempered significantly.
Little
more than a ten years ago, China was a relatively unimportant actor in
worldwide investment and finance. By 2014, China became the second largest
worldwide investor, second only after the United States. Outbound investment
has been made possible due to powerful backing from the Chinese state and
financing from its policy and commercial banks. China has more power due to
foreign financial institutions such as the Asian Development Bank and the World
Bank. However, it has also grown increasingly frustrated with the dominance of
developed nations and the restricted role of emerging economies within the
control and direction of these institutions. In response, China has promoted
the foundation of new institutions and initiatives, including the multilateral
Asian Infrastructure Investment Bank (AIIB).
Asian Infrastructure Investment Bank (AIIB)
The
foundation of the Asian Infrastructure Investment Bank represents the biggest
improvement of worldwide multilateral finance for years. China announced its
plans for founding the bank in October 2013, and a year later twenty-one Asian
countries signed a memorandum of arrangement agreeing to join.[58]
By April 2015, fifty-seven countries had signed on becoming its founding
members. The AIIB’s initial authorized capital is US$100 billion, but this
number may grow in the future.[59] China holds the largest number of shares,
approximately 30%, and controls over 26% of the voting share. [60]
The bank will
concentrate on financing the infrastructure sphere and “other productive
sectors” in Asia, with the goal of fostering sustainable economic development,
creating prosperity and improving infrastructure connectivity in Asia. [61]
The bank announced its first several projects in April and May of 2016.
AIIB Membership
Fifty-seven nations signed on becoming the founding members of the AIIB. Other nations still has an opportunity to join the bank, but they will not have the reputation as founder members, which are entitled to additional votes. The membership has two types: regional and non-regional members. Although new members can join the bank and existing members can enlarge their shareholding, the whole shareholding of regional members may not be lower than 75%.[62] According to the words of the AIIB president, up to June 2016, a further thirty countries were on the waiting list for joining. A deadline for new applicants has been set down as September 30, 2016, and the bank expects to allow new members to enter from early 2017.
All
ten ASEAN countries have become the founding members of the AIIB. Several
leaders and senior officials from these countries have expressed their
eagerness about joining the bank and have made several community statements
about opportunities for the developing of the bank in order to support the
development in their individual countries. The first amount of projects were
announced by the AIIB, which have included one project in the ASEAN region: a
slum upgrade project in Indonesia. With the growing of bank’s portfolio, it
will seek to the opportunities for enlarging further in Southeast Asia. In May
2016, President Jin said to the media that he planned to visit Myanmar later in
the year.[63]
China
holds approximately 30% of the bank’s shares and over 26% of the voting shares.
Russia and India are the second- and third-largest shareholders, respectively.
Under the Articles of Agreement, main decisions require a supermajority of
two-thirds of votes of all governors, representing no less than 75% of whole
shares. As China holds over 26% of votes, it has the power to use a veto over
certain decisions. During a press briefing, Deputy Finance Minister Shi Yaobin
stated that China would not search for some opportunities to preserve this veto
power, and as new members join the bank in the future, China’s share of votes
will be diluted. [64]
As
we can see from the chart, China’s voting share at the AIIB is much bigger than
any other member`s, and even bigger than the combined share of Russia, India,
Germany, Australia and South Korea, which are, by the way, next five biggest
shareholders.
China
has also stressed that the AIIB would complete the work of the existing
multilateral financial institutions, rather than act as an opponent. The AIIB’s
Articles of Agreement states that the bank will have close business
relationships with other international financial organizations and institutions
that involved into the economic development of the area.[65]
Because of the fact that the bank is a new institution and still needs to
mobilize a full staff to manage operations, the AIIB has to classify
opportunities to co-finance projects with the institutions that were
established before.
At the time of writing, three of the bank’s
five approved projects co-financing. In the first half of 2016, Asian
Development Bank, the World Bank, European Bank for Reconstruction and
Development European and Investment Bank signed agreements with the AIIB to
examine opportunities for co-financing. As it was mentioned earlier, the AIIB
has already approved co-financed projects with UK Department for International
Development, the Asian Development Bank, World Bank and European Bank for
Reconstruction and Development.
According
to the information of the Asian Development Bank, Asia requires US$8 trillion
in infrastructure investment between 2010 and 2020[66].
The ASEAN region alone requires US$60 billion in the investment sphere per year
in road, rail, power, water, and other critical infrastructure.[67]
In 2014, the World Bank provided approximately US$24 billion to the
infrastructure sphere globally, [68]
whereas the Asian Development Bank provides US$13 billion annually to
infrastructure projects in this area. [69]
Given the restricted funding capacity of existing foreign financial
institutions, it is unsurprising that Chinese-led finance initiatives and
institutions have been greeted so enthusiastically by the governments of many
developing countries. Moreover,
China-ASEAN Investment Cooperation Fund (with the budget of US $10 billion) and
the ASEAN Infrastructure Fund (US $485 million) were formed. The Association
also expects to receive funding from the Asian Infrastructure Investment Bank.
China
has also established investment funds such as the Silk Road Fund (丝路基金) in order to provide further capital to outbound
investment.
The
US$40 billion Silk Road Fund was established in December 2014 with the aim of
promoting the “common prosperity and development of China and other countries
and regions implicated in the Belt and Road Initiative.” [70]
The
Silk Road Fund focuses on four broad areas: Resources and energy development,
infrastructure, financial cooperation, industrial capacity cooperation.
The
fund works with Chinese and foreign enterprises and financial institutions
mostly through equity investments, but it can give loans and create new funds
in partnership with other Chinese and international institutions. In June 2016,
the fund signed an agreement with the European Bank on Reconstruction and
Development. Within this agreement, the two sides agreed to push up
collaboration and inform each other about future possible co-investment
opportunities. According to the Silk Road Fund’s Articles of Association, it
will concentrate on “major infrastructure development projects and other
projects that can upgrade connectivity in this area.” Senior Chinese officials have stated that the
fund would operate in an equivalent way to a private equity fund, although it
will invest for longer terms. The Governor of the People’s Bank of China has
compared the fund with the International Finance Corporation. [71]
The
China Development bank provided 5% of the Silk Road Fund’s primary capital, and
it has definite funds for ASEAN infrastructure investment. For example, in 2014
Chinese Premiere Li Keqiang pledged US$20 billion to uphold connectivity
between China and Southeast Asia. This included an advantageous loan for US$10
billion to ASEAN members and a US$10 billion specific loan set up by the China
Development Bank for regional infrastructure development.[72]
The
fund’s first project was the Karot hydropower dam in Pakistan. The fund
afterwards signed MOUs with various state-owned banks and funds, acquired
fairness in several companies, and supported Chinese state-owned firms to list
on the Hong Kong Stock Exchange. The fund has only been operational for a short
period of time, but the agreements and investments it has already finalized
offer a suggestion of how the fund is likely to concentrate its activities in
the future. In a meeting in April 2016, the Silk Road Fund met with Cambodia’s
Minister of Foreign Affairs and discussed ideas for collaboration.[73]
Now there is no investment projects, which are highlighted with the ASEAN
countries, but there is a start of the collaboration between these countries
and the Silk Road Fund.
China-ASEAN
Investment Cooperation Fund
The
China-ASEAN Investment Cooperation Fund received the agreement of state in
2013. China’s State Council guide this fund.
It targets investments in energy, infrastructure and natural resources
in ASEAN countries.
The
fund’s task is to increase returns for investors and strengthen collaboration
between ASEAN and China in order to enable mutual development. As can be seen
above, the fund seeks to encourage investment in sectors almost identical to
those targeted by the AIIB, and the chief executive of the fund has referred to
the fund as a predecessor of the One Belt One Road initiative.[74]
As
discussed throughout this paper, in promoting outbound investment, China aims
to address infrastructure gaps, while also promoting its broader financial and
strategic goals. In the example of the China-ASEAN Investment Cooperation Fund,
this includes deepening collaboration between China and ASEAN. The fund uses
frequent language of “mutual” development when describing its operations. For
example, when announcing the fund’s investment in a potash mine in Laos, the
chairman stated that the project was strategically consequential for the host
country, while also supporting Chinese companies ‘going out’ and addressing the
potash provide deficit in China.[75]
As
well, an investment in digital TV Cambodia was described as a chance to upgrade
nearby technology, while also opening the Cambodian market to Chinese
investors. The China-ASEAN Investment Cooperation Fund was established with a
primary US$1 billion, but has a goal of raising it up to US$10 billion. The
China Eximbank led the creation of the fund and was the most important sponsor,
contributing US$300 million of its starting capital. The World Bank’s
International Finance Corporation holds fairness in the fund and contributed
US$100 million (or 10%) of the stage one funding. [76]
Several other institutions, including the China Investment Corporation and Bank
of China, have a stake in the fund and its operation.
The
CEO of the fund is Li Yao, former principle investment officer at the
International Finance Corporation’s Asia and Pacific division. The fund’s typical investment size is
US$50-100 million, and it mostly invests through equity deals. At least 20% of its first phase funds were allocated
to investments in Indonesia.[77]
According to the fund’s CEO, over 30% of the outstanding investment went to
Myanmar, Cambodia, Vietnam and Laos, the other part spread across Southeast
Asia.[78]
During its first stage, the fund invested in eleven projects. Unfortunately,
the fund’s website provides only summaries of the investments, with restricted
project details, and no information on the terms or value of each investment.
The second stage of funding will be in place within the next two years, and China is seeking to elevate an additional US$3 billion. Within ASEAN, the fund will target its future investments on mainland Southeast Asia and Indonesia. According to the official source, there is no information about the second stage yet.
In
compare with many other investment funds, the China-ASEAN Investment
Cooperation Fund claims to have a set of “core values” that lead its
investments. These stated values cover sustainable development and social
responsibility. The fund also states that it specializes in sustainable
investments that not only carry financial development to the investee company,
but also important values to the community. However, as it was acclaimed above,
the fund is targeting several very high-risk areas, including energy, mining
and agro-industry. In the agriculture sector, the fund specifically highlights
pulp, palm and rubber – all of which are associated with strict environmental
and social impacts across the ASEAN region. Due to the high-risk nature of
these investments, appropriate environmental and social policies are critical.
In
order to protect the International Finance Corporation’s investment, the fund
was required to put in place an social and environmental management system and
ensure that the International Finance Corporation’s Performance Standards are applied
to the fund’s investments. One of the stated objectives of the International
Finance Corporation’s involvement was to pressure the fund to carry out the
Equator Principles (which mirror the Performance Standards).
The China-ASEAN Investment Cooperation Fund has established what it describes as a inclusive social and environmental management system, and claims that this system is an basic process of the investment team’s selection and evaluation of investment opportunities.
In
July 2014, the fund issued the Social Responsibility and Environmental
Protection Guidelines for Investments in the ASEAN Region. The guidelines were
issued and drafted jointly by the fund and the ASEAN-China Centre, a data
center set up by ASEAN member states and China. All projects and companies,
that accept investment from the fund, are required to “accept and execute” the
guidelines. Additionally, Chinese companies operating in ASEAN are encouraged
to “refer” to them.[79]
The
fund does not appear to have established a complaints instrument to help insure
responsibility to the Performance Standards, despite the foundation of such a
mechanism being a demand of International Finance Corporation policy. [80]
Thus, if project-affected people suffer damage from fund projects, they do not
appear to have access through a formal mechanism. However, because of the
International Finance Corporation’s 10% stake in the fund, they can submit a
complaint to the its accountability instrument, the Compliance Advisor
Ombudsman, and undertake to have their grievances addressed through its
compliance review or debate resolution functions.
The One Belt One Road Initiative
The main initiative that has emerged from
China lately is One Belt One Road. This refers to a progress strategy announced
by President Xi Jinping in 2013 that seeks to enlarge interconnectivity between
China and numerous other countries en route to Europe. One Belt One Road seeks
to encourage and facilitate development of energy, transport, trade and
communications infrastructure, among other things.
Since
the initiative was announced, there has been much theory about how it would be
implemented, what projects would be included, how they would be financed and
developed, and even which countries are included in the One Belt One Road
route. Despite there being overlaps in geographical and sectorial
concentration, the initiative is particular in compare with the AIIB. Rather
than being an actual plan or single finance facility, One Belt One Road sets
out an overall vision for China’s worldwide investment in the coming years.
While it is packaged as a new initiative, it is in actuality a continuation of
China’s on-going push to expose regional connectivity and trade routes, upgrade
the international presence of Chinese companies, and enlarge access to
worldwide markets. In this sense, it can be seen as the next step of China’s
Going Out strategy.
Although
One Belt One Road was announced in 2013, the Chinese government did not release
any official documents on the initiative until March 2015, and there are still
substantial information gaps. This part of the paper looks at what is currently
known about this initiative, and how this relates to the ASEAN region.
ASEAN
nations fall within the Bangladesh-China-India-Myanmar Economic Corridor and
the China-Indochina Peninsula Economic Corridor. The OBOR Vision stresses the
significance of southwest China as a gateway that connects with both the land
and oceanic Silk Road routes. The document includes definite reference to
linking Yunnan province to its neighbors, Laos, Myanmar and Vietnam, as part of
a “pivot of China’s opening-up to South and Southeast Asia.” China’s foreign
minister has stated that to facilitate this, the initiative can align with both
individual and regional ASEAN members’ development strategies in order to
encourage regional collaboration and development. President Xi Jinping has also promoted One
Belt One Road on state visits to Singapore and Vietnam, emphasizing that the
initiative will push up bilateral ties and facilitate investment and trade
between China and Southeast Asian nations.[81]
Chinese local governments are also actively promoting the initiative. Because of its location, China’s Guangdong province has a particular concentration on the ASEAN area. The province has selected several projects, in which they are going to support the initiative. This includes a power plant project in Vietnam, a five million-ton oil-refining project in Myanmar, and several banana plantations elsewhere in Southeast Asia.[82]
Cambodian
Prime Minister Hun Sen said: “[One Belt One Road] is synonymous with openness,
peace, incorporation and common agreement. All the countries alongside will
have only advantage from it. This offer shows China’s determination in boosting
the interconnection of countries and the exchange among the people.”[83]
Senior officials from other ASEAN nations, including Vietnam, Thailand and Myanmar, have also expressed powerful
support for the initiative.
Despite
this help, the initiative is complicated by the attendance of important
maritime disputes in the South China Sea, especially China’s often strained
disputes with the Philippines and Vietnam. However, One Belt One Road has been
publicly welcomed by ASEAN officials and ministers from various nations. For
example, the Chinese state media outlet Xinhua quoted one Lao authorized as
saying that thanks to the initiative and the planned China-Laos railway, Laos
will modify from a land-locked country into a “land-linked” country.[84]
In
addition, as one of the first projects launched within One Belt One Road
initiative in Laos, China’s Yunnan Provincial Energy Investment Group opened a
factory to manufacture cement specifically for the China-Laos railway and other
important infrastructure projects under the initiative. [85]
There is nothing new about China’s fancy to work with surrounding countries to
bring out infrastructure connectivity, and many cross-border projects have
already been developed or were under conversation or in construction at the
period the initiative was first announced. However, One Belt One Road is likely
to introduce renewed energy to these efforts. Several main projects have
recently been signed between China and governments in this area, including
multibillion-dollar railway projects in Indonesia and Laos. Although they have
been planned for some time, these projects are being referred to One Belt One
Road initiative and highlighted as beginning successes of the initiative.
China already plays a main role in
the development of energy, transport
and telecommunications infrastructure in Southeast Asia. China is one of the main investor in
Laos, Cambodia
and Myanmar, while investment in Thailand, Vietnam, Indonesia and Malaysia is
also important and also increasing.
All ten ASEAN
nations signed on as members of the AIIB, moreover, the area also lies within the One
Belt One Road initiative. This
situation has also increased the access to infrastructure financing, which is likely to have an important effect across the ASEAN
region.
China’s
relationship with some ASEAN nations is complicated by the presence of
unsettled territorial disputes. At the same time, President Xi Jinping is
earnest to support the concept of the “China-ASEAN Community of Common
Destiny.” One Belt One Road, the AIIB and other financial initiatives are seen
as a way to upgrade financial and diplomatic collaboration with the regional
association. China’s foreign direct investment in ASEAN is growing each year,
and according to China’s authorized statistics, official investment flows
reached almost US$7.8 billion in 2014.[86]
ASEAN is very important to the AIIB and One Belt One Road. All ten members are
also members of the AIIB, and the One Belt One Road passes straight through
ASEAN.
Senior
officials and numerous leaders from ASEAN countries have publicly promoted the
possible benefits of the One Belt One Road and the AIIB initiative for their
own nations. In particular, regional integration is seen as a main precedence
and a likely goal for infrastructure financing next years. Within the framework
of Greater Mekong Subregion collaboration, various institutions look for
supporting the implementation of projects in areas including energy, transport,
telecommunications, trade, agriculture and private sector investment. Project
pipelines are developed by single nations and financed by various institutions,
including Asian Development Bank and the World Bank, but also Chinese policy
banks and other investors. The multilateral Chinese policy, AIIB and commercial
banks, and investment funds are all likely to uphold projects supporting
integration of the area in the coming years.
The
institutions and initiatives, which were
discussed here, could potentially rapid an influx of capital to the
area, supporting a more quick roll-out of regional infrastructure investment,
and contributing to enhanced connectivity. Besides, without sufficient
safeguards, transparency and oversight, the benefits will be balance out by
contradictory impacts on people and the environment. Civil society groups can
play a significant role in engaging and monitoring with these new developments.
India has signed the free trade agreement (FTA) in
services and investments with the 10-member of ASEAN, two years after the
discussions the pact was concluded.
Foreign direct investment net inflows in ASEAN from selected partner countries/regions
Over the
previous decade, India has invested immensely in strengthening its financial
and strategic ties with Japan, Southeast
Asia and South Korea. The Narendra Modi government has sought to consolidate
relations with Japan and Southeast Asia, while Washington has supported a
greater part for New Delhi in the Indo-Pacific area. Washington has supported a
greater role for India in the India-Pacific district as an economic player, asking New Delhi to help in improving the connectivity between India and
Southeast Asia through the Indo-Pacific Economic Corridor, which will tie the
country with Southeast Asia through Bangladesh and Myanmar.
While India
has all the right ingredients to succeed (powerful demographics, a big domestic
market), many
obstacles stay behind. Its cumbersome business atmosphere, poor infrastructure
and restrictive FDI policy can put off foreign investors.
For an
aspiring financial superpower, large electric-grid default in August of 2012
that left 700 million people without electricity for days defectively damaged
India’s reputation. Moreover, power cuts are hardly uncommon in India. “There
is great need for infrastructure upgrading, and the deficiency of it has been a
real hamper on international investment
in India,” Pepper Hamilton’s Demont said. [87]
In an
attempt to counter judgment, Indian Prime Minister Manmohan Singh laid out
aspiring infrastructure development plans in June 2012. Under the scheme, US $1 trillion will be invested over
the next five years to repair the country’s infrastructure.[88]
Actually, this scheme was realized, but the infrastructure in India
still needs to be improved.
However, the
deficiency of talent is a main issue. “When the Indian government says ‘we need
to construct 2,000 miles of roads today,’ the difficulty is, they don’t have
the engineers in India to do that,” Pepper Hamilton’s Demont said.[89]
India has an elite-based higher
education institution structure. The country produces brilliant graduates in several of top universities, but as a
outcome of that elite-based structure, there is a deficit of highly educated
labor. While a lot remains to be done, reforms are gathering speed, albeit
slowly. One of the large areas of concentration has been the retail sector,
which has opened up significantly to more foreign investments both for
individual-brand and multi-brand retail.
“While
China is well ahead, India is slowly but truly catching up,” Pepper Hamilton’s
Demont said. “In the extensive race, there is value there, and India is
emerging as one of the largest consumer-based countries on the planet with a
growing and wealthier middle-market level, which has spending power and wants
to expend.”
When we are talking about
international investments in India, it is very hard to talk about its
investments in ASEAN countries. The commerce between India and ASEAN is
increasing every year, but India has many problems to figure out. While the
infrastructure in India still needs many improvements, its investments into
ASEAN countries will be prolonged.
However, there are still several
steps that India is trying to do for India-ASEAN relations` upgrading. While Vietnam
and China have suffered through late tensions, particularly over the South
China Sea, India has sought to encourage strategic ties with Hanoi – including
a US $500 million defense credit offered during the Modi’s visit to Vietnam in
the first week of September. From this, US$ 100 million would be used for
structuring patrol boats. It was also
definite that India would further grow assistance with military training.
First, India should keep up to woo
Myanmar, Cambodia, Laos and
Vietnam — countries which for too long were on the margins of ASEAN, but today
are drivers of development and main economic players. Apart from India’s pro-active strategic and
economic outreach to these countries, it is significant that India focuses on
strengthening connectivity and trade ties. Projects such as the
India-Myanmar-Thailand highway need to be accelerated; extending it to Cambodia
and Vietnam will help in strengthening India’s Act East Policy, as well as
support projects like the Indo-Pacific Economic Corridor.
Second, while India may be not a competitor for China regarding investment and
bilateral trade, India should construct on its strengths in areas like capacity
building and in helping to
create an unwasteful private sector. While India has been assisting
Myanmar, Cambodia, Laos and
Vietnam in IT, English language training and agriculture, it should enlarge the
number of scholarships for students from these countries. There is also need to
improve people-to-people connection and construct on historical links.
Third, India needs to confirm the relationship with countries like Indonesia and
Thailand. Where there is a sizeable amount of goodwill, this has not been
converted into closer ties in the economic and tactical sphere. While Malaysia,
Singapore, Cambodia, Laos, Myanmar and Vietnam have been given high
precedence, there is a dire need to confirm the relationship with
Bangkok and Jakarta. There is a need for greater involvement of the political
guidance in the same.
India has definite strengths in ASEAN, and while
discovering common ground in the Indo-Pacific is one viewpoint of the Act East
Policy, the contemporary government needs to make its own niche and play to its
abilities without being disproportionately obsessed by the China factor.
India and China both are
rising as big powers, their complementary relationship will have a important
impact not only on Asia, but on the whole world. Currently, the character of their relationship is something
mixed: growing
collaboration in the area of trade and commerce along with distrust and common
suspicions in the strategic fields whether geographical or political. For these
evident factors, the future relationship between China and India can be
characterized by the collaboration in those fields whether mutual, regional or
international, which may be beneficial for the peaceable arise of both these states
and confrontation, struggle, and even hostility in some other areas where the
respective interests of both the giants conflict with each other, for example,
the border issue, relationship with other countries particularly Pakistan and
US, their encirclement policies, nuclear arms race, striving for energy resources, etc.
However, at the international
level, both countries would find convergence of interests by cooperating with
each other solving the issues like climate change, international terrorism, reducing dependence of
developing countries on developed countries, restructuring of international institutions, taking
union stand on human rights issues, promoting multipolar world structure, and
on some other problems.
India and China had close relationship from 1949
onwards. Their cultural connection was termed as Hindu-Chini Bhai Bhai. From
1962 to 1969, relations were not developing because of
border dispute. The period of rapprochement started in 1988, based on long-term
advantageous and cooperative partnership on the base of “Panchsheel or Five
Principals of Peaceful Co-Existence” that was based on
Jawaharlal Nehru’s vision of “Resurgent Asia.” Narendra Modi had visited China
for four times as the Chief Minister of Gujarat. Chinese President Xi
Jinping’s visit to India ion 2014 was
the first visit as a Chinese President to India in last
eight years. During his visit, Xi Jinping, in a special address on September
18, 2014 stated, “China supports India’s desire to play a more energetic role
in the UN, as well as the UN Security Council.”
Narendra Modi is a supporter of the “Chinese Model of Economic Development”, his government has initiated a program to change India into a “Global Manufacturing Hub.” Xi Jinping considers China and India as “the two engines of the Asian economy”.
According to an
article in the Times of India (March 2, 2014),
India’s trade with China was about US $7 billion in 2004, US $38
billion in 2008 and US $65 billion in 2013. [91] Both states
name their trade relationship as “South to South Trade” and both have gained a
goal of US $100 billion by 2016. Both are founding members of BRICS.
The United Arab Emirates was India’s biggest trading partner in the 2012-2013
fiscal year; however, China emerged as its biggest trading
partner in 2008, 2011 and 2014.
India
is a member of Bangladesh–China–India–Myanmar (BCIM) Forum for Regional
Cooperation, which aim is to gain greater
integration of trade and investment between these four countries. The forum plans to build a “multi-modal corridor” which
will be the first expressway between China and India and will pass through
Bangladesh to Myanmar. The projects Maritime Silk Road (MSR) and Silk Road
Economic Belt (SREB) are the resurrection of age-old ties among China, India
and the states along the road. Both states are
members of the Regional Comprehensive Economic Partnership (RCEP).
China and India are competitors for getting control and power
in Asia, nevertheless, both have common goals of maintaining regional steadiness,
taking advantages from globalization and maintaining access to markets and capital,
fighting terrorism, taking union stand on climate change, issue of growth of nuclear
weapons, etc. Further, mutual collaboration between India and China will be
more productive in balancing U.S. influence in the region and also grow their
negotiating placement with the sole super power.
Providing financial assistance to
countries in Southeast Asia, India produces new markets for their goods, as
well as favorable conditions for Indian companies to penetrate into the
Southeast Asian region, which ultimately stimulates the growth of bilateral
trade.[92]
It is obvious that Southeast Asian countries are strategically important for
India because of having a rich resource base and considerable scientific and
technical potential base. In this region India pursues a policy of active
technical assistance, financing infrastructure projects on the terms and
conditions of grants and concessional loans. In addition, it also provides
educational and advisory services, etc.
At the fourth ASEAN—India summit in
Kuala Lumpur (Malaysia) 13 Dec 2005, the opening of special courses to improve
the skills of the diplomats of the participating countries was announced.
During the summit there were made constructional plans in Cambodia, Laos,
Vietnam, Myanmar and centers of entrepreneurship development (Entrepreneurship
Development Centers), that can assist the development of small and medium
businesses, organize the English language classes and other disciplines,
including through distance learning, etc. During the 8th ASEAN—India summit in
Vietnam in October 2010, this center was opened in Hanoi.
India seeks to consolidate its
presence in Southeast Asia by also providing financial assistance for the
countries of the region in the development of their transport infrastructure,
social sphere. For example, the government of India provides financial help to
the Laos in the implementation of projects in the energy sector and restoration
of architectural monuments, particularly the temple of the VI century Wat Phou,
located in Champasak province, which was announced by UNESCO in 2001 as the
world heritage site. In the 2000s, India provided the conditions of the grants
of 100 million rupees to Vietnam for the construction of the Center for the
development of information technology in Hanoi and 122, 07 million rupees for
supporting the development of human potential in IT technologies in six
educational institutions in Vietnam.[93]
In terms of soft loans, India has undertaken construction of power lines,
irrigation systems and water pumps in Cambodia.
Indian financial help to the Republic of
Indonesia is mostly allocated to the conditions of grants in the form of
technical assistance[94],
as well as elimination of consequences of natural disasters. For example, India
was one of the first countries that provided financial assistance to Indonesia
in the amount of US$ 1 million in connection with a massive tsunami in the
Indian ocean that struck the island nation in December 2004. The Indian
government has also allocated 40 tons of food, necessities and 3 tons of
medical drugs and medical equipment. One of the ships was subsequently
transformed into a floating hospital on the coast near Wanda Aceh [Price 2005].
It is notable that a significant part of the help was sent to the area of the
city of Medan, where the majority of Indian Diaspora lives. After four months,
India has contributed another US$ 2 million to eliminate the consequences of
the earthquake that caused a significant damage to North part of the Sumatra 28
March 2005, a year later (in May 2006) US$2 million were contributed for
liquidation of consequences of earthquake on Java island.[95]
A significant part of India’s
financial assistance to Myanmar is contributing for liquidation the effects of
natural disasters, and mainly on the conditions of the grants.
India’s policy of providing financial
help to Southeast Asian countries clearly aims not only to consolidate India`s
economic positions in the region, but also in a sense of spreading it to its
geopolitical influence. This idea is supported by one of the leading American
Professor of University of Pennsylvania Francine R. Frankel, noting that the
conduct of the Indian government “Look East” policy aimed to actively
develop bilateral ties with countries that have tense relations with China,
which indicates a new round of India-China rivalry in Asia.
Actually, China`s financial assistance to ASEAN
countries has the same form. Thus, Chinese Premier Li Keqiang was in Myanmar in
November 2014 for the East Asia Summit, the China-ASEAN Summit, and the ASEAN
Plus Three (Japan, China, and Korea) meetings. While in Naypyitaw, Li pledged
US$20 billion in loans to Southeast Asia for regional infrastructure
development. It is in addition to US$3 billion for the China-ASEAN Investment
Cooperation Fund, which funds energy investments and infrastructure in ASEAN
member countries, and US$480 million to help contend with poverty in Southeast
Asia.[96]
China also promised preferential treatment to ASEAN investors under an expanded
China-ASEAN free trade agreement.
The financial push is a share of a scheme to encourage
ASEAN member states that China’s arise is profitable for its neighbors and for
the region as a whole. Several ASEAN members, most noticeably the Philippines
and Vietnam, have long-standing territorial disputes with China, and Beijing’s
late importance on maritime prowess has led to more clashes in the region.
China has
also provided financial assistance for 3.6 billion Yuan (about US$560 million)
for the developing member countries of the Association of Southeast Asian
Nations in 2016 and has offered the loans amounted to US$10 billion for
infrastructure projects in ASEAN countries.[97]
Although, there has been increasing collaboration
between the two Asian giants in the economic, political or
other fields in the past and is likely to continue so in the future, but the
distrust, misperceptions, suspicion and hostility towards each other has not
fully vanished and in future too. These features will characterize Sino-Indian
relations along with collaboration. While India has always remained doubtful
about China, the Chinese, on the other hand, remain doubting about India’s
future course of action and policies. It will be not satisfactory for China to see
India playing the role beyond South Asia or appear as an equal competitor to
China. For example, India’s aspirations to play a more dynamic role in East
Asia are not encouraged by China. China prefers that India remain in
South Asia although, it plays lip service to the idea that India should be a
main player in the worldwide affairs. India’s access to the ARF (ASEAN Regional
Forum) was endorsed by the United States and Singapore and not by China.
A
geopolitical rivalry for power and dominance in Asia is intensifying between
India and China. China is Pakistan’s largest defense supplier. It is the most
significant supplier of military aid to Myanmar. Recently, Myanmar has moved to advance commercial and
strategic relations with India too. India considers
itself as a regional powerhouse in South Asia. It is strengthening security and economic ties with Sri
Lanka, Bangladesh, Nepal and Bhutan.
Both
states are vying for investment. India has blocked Chinese investments in
ports, telecom, and shipping due to safety concerns and made it hard for
Chinese employees to get visas to work in India. India’s 2014-2015 trade deficiency with China was 55% of total
China-India trade. Both states had agreed to invest US $100 billion in two-way
trade by 2016, but China invested US $20 billion only. [98]
However, in the
short and medium term, neither side would do anything that would destabilize their
contemporary bilateral economic or other relations. However, in the long term,
there is chance of confrontations and even struggle between the two Asian
giants over a number of issues, ranging from border issue to encirclement policies. Nevertheless, the size and
nature of their rivalry will be resolved by how political, domestic and
economic developments in these two countries affect their perceptions, their
power, their security policies. It can be asserted and is possible that
economically wealthy and militarily powerful China and India might come to
terms with each other ultimately as their mutual containment policies start
flexile diminishing results. Till then, both states would like to continue the
status quo focusing on their political, economic, military and strategic
development in future, keep the rivalry and competition as flexible and
unprovokable as possible.
The
relationship between India and China is based on three Cs: Cooperation, Competition and Conflict. It can be argued that there is a lot of
potential for collaboration between China and India, which has brought both of these countries
closer to each other. On the other hand, the strategic differences between them
are so large that there is a bleak chance that their differences will be
resolved entirely in the near future. India and China will remain two
challengers in spite of their mutually beneficial economic associations. The only
concern between them is economic cooperation.
International
trade is logically and historically the first structure of the world economic
relations in the global economy that represents an exchange of goods between
nations. Due to this kind of nationwide relations, there is an opportunity to
contact with other countries, borrow some knowledge and use some historical
facts as the new chances for the countries in the process of building economic
relations with other nations.
China
– ASEAN economic relations have grown dramatically, benefiting from the energy
of their economies, the liberalization of their trade regimes and the changes
in their trade system. The increase of trade and investment relations has begun
only in middle of nineties and it still continues growing fast. The main reason
of this increase is the vitality of the Chinese economy and the economies of
ASEAN countries. The export and import products in the trade between ASEAN
countries and China is various. Due to the geographical neighboring with a long
trade history, the economic ties between them became only stronger trough time.
It is important to point out that ASEAN – China free trade area and the Belt
and Road initiative give an additional force to keep the place of China in the
top of the ASEAN partners list.
As
to India, this country has been interested in ASEAN’ s plans with the aim to
create economic and political relations with neighboring nations. ASEAN and
India have increasingly supported promoted foreign investment, bilateral trade
and strengthened diplomatic relations. The history of the relations between
India and ASEAN countries began to develop actively only in nineties, and it is
later than the beginning of relation between China and ASEAN for a decade.
Following the implementations for the FTA, bilateral trade between India and
ASEAN increases phenomenally. Now India became the key partner of ASEAN, and
that is the result of India’s “Look East” policy of deepening not only economic
relations with the countries of East Asia, but also the strategic relations in
this area.
The
service sector for both China and India has the same importance in the
relationship with ASEAN countries; moreover, its quick development is
approximately on the same level. Both countries pay much attention to
infrastructure projects, transportation, IT technologies, etc. However, there
are still a lot of problems that must be solved in the short period of time in
order to bring the relations in service sphere up to the new level.
As
to investment sphere, the biggest sector that needs a big amount of private
foreign investment in ASEAN is infrastructure. Countries in the region keep up
to develop infrastructure for providing reliable services to businesses,
households and industries. Considering to China, Chinese players act not only
as constructors, but also invest in ASEAN counties, own and control
infrastructure. In order to get more power, China founded different investments
funds for providing further capital to outbound investment , such as Asian Infrastructure
Investment Bank , the Silk Road fund , China – ASEAN investment cooperation
fund etc. All these initiatives are seen as a way to upgrade financial and
diplomatic collaboration with the regional association. India also provide
financial assistance to ASEAN countries, but, actually, India itself needs
foreign investment for solving internal infrastructure problems, and it is
difficult to confess that India is a competitor to China in this point.
If
we are talking about the relationship between these two countries, it must be
reiterated here, that the range of issues, confronting two countries are sufficiently
diversified, so as to engender complex national strategies. In the biggest
part
of the cases, India and China will be faced with the duty of defending, deterring and
reassuring each other simultaneously in the proximity of multiple actors, each
with its own preferences, capabilities and constraints. In this situation,
relationships between India and China will be defined more by struggle than by
cooperation, but such struggle is unlikely to become malignantly rivalries, as
U.S.-Soviet Competition was during the cold war. It is because, both China and
India are still subordinate states in the global system, that deficiency untrammeled freedom of activity. They have sufficiently
different strategic orientations in Asia that provide hope of avoiding
unvarnished confrontations, and have defense capabilities wherein geography
nuclear weaponry and conventional forces unify to bring out fairly robust defense
dominance each other. If and when, these three conditions change, however, the
stage would be set for serious dyadic rivalry. [99]
In the end, China-Indian future relations can be best
summed up with the report of Jay Taylor which he made in the mid- 1980s, but
remain related even today, especially in the second decade of 21st century. He
said: Over the long term, India and China… will always tend towards a rival
relationship and thus, each will look for a security link with a different
super power… Both India and China want to keep away from war and focus on
development…. Yet the changeable agents of nationalism and history make a mysterious
chemistry…. Power and size carry with them their own rationale for status and
influence, and both India and China may well find themselves drawn into future
regional conflicts or perhaps intervening in neighboring countries because of
some instability or action that is produced as threatening… the odds are that
over the long term there will be more rivalry than cooperation between Hind and
Hun.[100]
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