There was a lull in the mutual courtship between China and Southeast Asia during the first quarter of 2004, following a year of intense activity and the declaration of a “strategic partnership” at the Bali summit in October. The pause allowed some old problems to resurface, and drew attention to new ways in which China’s rise is impinging on its southern neighbors. Early tariff reductions under the China-ASEAN free trade negotiations, which China had touted as concessions to benefit the ASEAN countries, drew protests from exporters in Thailand and Vietnam, whose products faced frustrating obstacles in China’s southern provinces. Nongovernmental organizations in lower Mekong countries complained that China’s dam construction had drastically reduced the Mekong River’s flow to Cambodia and Vietnam, spoiling ricefields and fisheries and raising the specter of future conflict over water.  China took unusual steps to deal with the flow of drugs and HIV/AIDS from Burma into Yunnan, while avian flu, dengue fever, and other cross-border threats underlined the need for more transparency and cooperative action.  Beijing, Hanoi, and Manila tussled verbally over competing claims to the Spratly Islands, demonstrating again the failure of the 2002 China-ASEAN South China Sea declaration to calm the waters.  China-Southeast Asia relations remain on track for further development, but Beijing would be well advised to take seriously nongovernmental complaints about the effects of its actions, especially in the case of Mekong development.

China’s leaders made the most of the fall summit season in Southeast Asia, playing vigorous roles in the series of “ASEAN-plus” meetings in Bali in early October, and in the Asia-Pacific Economic Cooperation (APEC) summit in Bangkok later that month.  China and the 10 ASEAN governments declared a “strategic partnership for peace and prosperity” in Bali, where China formalized its accession to ASEAN’s Treaty of Amity and Cooperation, renouncing the use of force in the region in favor of negotiation and consultation.  Strategic partnership is to include, among other things, ambitious new goals for increasing trade, and a new security dialogue among the 11 countries.  Reacting to the perception that China is soaking up nearly all the foreign direct investment flowing to Asia, Beijing promised to increase its own investment in Southeast Asia, particularly in the energy and transportation sectors.

Some observers express heightened concern that China is replacing the United States in the region.  This may be Beijing’s ultimate aim, but for now, U.S. trade and security involvement in Southeast Asia, and improved U.S.-China relations overall, are necessary conditions for the climate of confidence in which China has achieved its striking gains in Southeast Asia.

China continued to make effective use of multilateral structures in Southeast Asia during the quarter to consolidate the “insider” role it is assuming in the region, and to foster economic and other forms of interdependence with members of the Association of Southeast Asian Nations (ASEAN).  Chinese initiatives are wearing well in most ASEAN capitals, especially proposals designed to protect Asian economic security and promote growth. Figures on China-ASEAN trade during the quarter showed major gains, and China’s non-energy investments in Southeast Asia were on the rise.

On the security front, China called for follow up to last December’s Declaration on Conduct in the South China Sea, and renewed a proposal for joint development of disputed areas there.  Beijing suggested linking counterterrorist efforts in Southeast Asia with those of China and Central Asian members of the Shanghai Cooperation Organization. High-level visits during the quarter advanced China’s particularly close cooperation with Malaysia and Thailand. Burma’s military junta, under heavy international pressure to release imprisoned democracy leader Aung San Suu Kyi and institute political reforms, sought China’s blessings for its unresponsiveness, and got them – at least for the public record.

The quarter began on a negative note with escalating concern about the spread among ASEAN countries of severe acute respiratory syndrome, or SARS, a new viral disease that originated in China and carried a death rate of up to 15 percent, and was transmitted by means that were not well understood. It threatened to create panic and devastate regional economies just as most were emerging from the economic crisis that began in 1997.  ASEAN played a key role in persuading China to take more effective action to halt the spread of SARS, and can take satisfaction that its often-maligned “way” of diplomacy, low key and nonconfrontational, was well suited to this particular crisis.

At the annual ASEAN ministerial meetings in Phnom Penh in June, China proposed the establishment of a new Security Policy Conference, comprised of senior military as well as civilian officials from the 23 ASEAN Regional Forum (ARF) countries. The objective would be to draft a new security pact to promote peace and stability in the region. Also at the ASEAN meetings, China won points by becoming the first major power to agree to sign ASEAN’s 1976 Treaty of Amity and Cooperation. Further steps were recorded in the march toward a China-ASEAN Free Trade Area as Thailand became the first country to gain concrete benefits from “early harvest” tariff reductions. A nascent Asian Monetary Fund emerged, including China and the original ASEAN five countries, among other members. China conspicuously stayed out of the growing consensus that pressure must be increased on Burma to institute democratic reforms. High-level visits between Hanoi and Beijing produced no new developments.

The quarter saw a relative lull in China’s intense Southeast Asian diplomacy.  This was understandable in light of Beijing’s preoccupation with crises in Iraq and North Korea, and the formal transfer of power in March to a new generation of Chinese leaders.  It signaled no decline in China’s keen interest in expanding ties with its southern neighbors. Leaders of the two Southeast Asian countries closest to Beijing, Thailand and Burma, visited China before the leadership transition for talks with Hu Jintao and members of his team as well as Jiang Zemin, Zhu Rongji, and other leaders relinquishing senior party and state positions.  Chinese commentary directed toward Southeast Asia strongly backed the anti-Iraq war stance of most ASEAN nations.  China’s observer at the Kuala Lumpur Nonaligned Movement (NAM) summit in February called for opposition to “unipolarity” and unilateralism, i.e., U.S. leadership, in international affairs.  Trade and investment, and the benefits to be gained by China’s neighbors from China’s growing economic power, continued to be major themes in China’s dialogue throughout the region, encountering broad agreement and occasional flashes of dissent and concern.

China capped a year of significant gains in relations with its Southeast Asian neighbors with a series of summit-level agreements with ASEAN in November, dealing with trade, investment, infrastructure, and security issues. Responding to increasing ASEAN concerns that China’s success in attracting foreign investment, at their expense, will keep their economies depressed, Beijing promised early trade liberalization measures, and agreed with ASEAN on a framework for negotiating the world’s largest free trade agreement (FTA).  A long road remains, however, and Southeast Asian countries are realizing that a China-ASEAN FTA will require painful structural adjustments on their part.  After several years of stalemate, China and ASEAN also agreed on a pledge of restraint in the South China Sea, although its provisions are vaguer than ASEAN wanted.  A separate summit of the six Mekong states led to agreement on accelerating transportation and energy programs in the Mekong subregion.  China committed to expand agricultural cooperation with ASEAN, to increase cooperation on “nontraditional” security issues, including narcotics and terrorism, and to sign on to ASEAN’s regional nuclear weapons free zone.

With world attention centered on Iraq, the Middle East, North Korea, and other hot spots, and much of China’s energy going into multilateral diplomacy during the quarter, bilateral relations with Southeast Asia proceeded less eventfully.  Border demarcation with Vietnam remains difficult.  Taiwan continued to seek ways to expand economic, and where possible political, relations in Southeast Asia during the quarter, but had to backtrack quickly when news broke that President Chen Shui-bian was planning a visit to Yogyakarta in Indonesia in December.

The global campaign against terrorism presents China with a conundrum. Its own interests require that it support that campaign, which it is doing.  At the same time, counterterrorism is expanding the U.S. military presence and involvement in the affairs of Southeast Asia, as in other regions on China’s periphery. China appears to have decided that the best course is to play for the long-term, and stress its comparative advantages.

The annual mid-year Association of Southeast Asian Nations (ASEAN) ministerial-level meetings in Brunei gave Beijing multiple opportunities to argue for its version of multilateral security and economic cooperation in Asia, and at the same time to empathize quietly with sensitivities bruised by superpower leadership. ASEAN’s failure to reach agreement on a code of conduct for the South China Sea permitted China once again to appear benign and forthcoming, without actually accepting any constraints on its activities. China’s decision to award a large natural gas contract to Australia rather than Indonesia was a sharp disappointment to Jakarta, tempered by the offer of a less lucrative deal in Fujian.  The Indonesian military announced it would consider buying weapons from China to avoid U.S. embargoes.  Hanoi resumed demarcating its border with China, but remains on the defensive about charges that it gave too much to Beijing in a 1999 bilateral boundary agreement. Taiwan aggressively exploited its economic leverage during the quarter to try to upgrade the level of contacts with several Southeast Asian governments.

With the United States preoccupied by the war on international terrorism and Southeast Asians concerned above all with economic recovery, China found new space during the quarter for increasing its presence and influence among its southern neighbors.  Beijing combined diplomacy with promises of expanded trade in an effort to counter Southeast Asian fears that China’s economic acceleration would leave them impoverished – at least by pre-1997 standards – and with few options for regaining rapid growth. The worries remain, but China may be succeeding in pushing them further into the future.

Meanwhile, admiration for China’s attentive cultivation of the region, including  successful visits by PRC Vice President Hu Jintao to Malaysia and Singapore, is widespread.  New Chinese energy investments in Indonesia, and Beijing’s invitation to Singapore to play a role in development of China’s western regions, furthered the impression of growing interdependence, rather than domination by China.

Relief is also widespread in most ASEAN capitals that the United States and China appear to be mending relations.  China’s political support for the war on terrorism, and its acceptance of operations near its borders, in Central Asia and the Philippines, that increase U.S. influence, generate comfort in Southeast Asian capitals.  Regional observers note the change from a year ago, in the aftermath of the EP-3 reconnaissance plane incident. ASEAN capitals are concerned that firmer, less ambiguous U.S. commitments to Taiwan’s security could lead to another, more serious, Taiwan Strait crisis but do not see this happening in the near term.

China rounded off an intense series of high-level visits to Southeast Asian capitals that began last year with a visit by PRC President Jiang Zemin to Vietnam.  The relationship is still troubled by border problems, and Jiang’s trip was higher on pomp and atmospherics than actual achievements.  Indonesia’s President Megawati Sukarnoputri made her first official bilateral visit to China in March.  Economic and trade goals were at the top of the agenda, but she was clearly seeking China’s political support as well at a time when her government faces international criticism on issues ranging from antiterrorism to human rights.  Trade and transnational crime issues along China’s southern borders are increasingly gaining Beijing’s attention, as evidenced by the range of initiatives China is taking to strengthen transportation links on the Mekong River and through its southern neighbors to the sea, and programs to counter the flood of narcotics into its southwestern provinces.

China’s response to U.S. steps in Southeast Asia to counter international terrorism, including sending a force of more than 600 military personnel to the southern Philippines to advise and support the Philippine armed forces in operations against the Abu Sayyaf terrorist/criminal group, has been mixed.  A lengthy analytical article in an official journal in February claimed that the “pretext” of antiterrorism had made it easy for the United States to expand its global military power and “set up bases around the world.”  On the other hand, according to some reports, Chinese sources say that China “recognizes that the U.S. has interests in Asia and does not challenge its presence.”  (If so, however, Vietnam may be an exception – see below.)

China’s efforts to woo Southeast Asian governments, and its proposal for a China-ASEAN Free Trade Area last year, may give ASEAN governments some welcome additional bargaining leverage as their economies struggle to recover.  China’s proposal may lie behind Japanese Prime Minister Koizumi Junichiro’s early January swing through five Southeast Asian countries and his own competitive free trade area initiative in Singapore at the end of his trip.  The state of Japan’s economy, however, and the lack of evidence of a real commitment to open Japan’s markets weaken the allure of  Koizumi’s initiative.  Taiwan sent an economic mission to Southeast Asia as well during the quarter.

Confronted with rapid and largely uncomfortable shifts in the security environment around China’s entire perimeter – the war in Afghanistan, U.S. military forces in Central Asia, new levels of military cooperation between the United States and both Pakistan and India, Moscow’s turn toward Washington, and Japan’s removal of some restrictions on use of its military forces – Beijing must regard Southeast Asia as the one arena in which it made some gains during the quarter.

China intensified efforts to strengthen economic and political relations with all its Southeast Asian neighbors. With high-level attention, and approaches tailored to the sensitivities of individual countries, it consolidated a close relationship with Myanmar, laid the groundwork for improved cooperation with Indonesia and the Philippines, and set much of the agenda for the ASEAN Plus Three summit in Brunei in November, where it won approval in principle for an ASEAN-China free trade area (FTA).  With its customary practice of establishing principles first in bilateral relations, China signed some 23 formal agreements with Southeast Asian governments during the quarter.

Many of the goals of China’s forward-leaning regional diplomacy are not inconsistent with U.S. interests, including increased intra-regional trade and investment, stability in energy relationships, and developing industrial infrastructure. Concerns center on whether growing interdependency in such areas binds China in an open, constructive regional system – as the Southeast Asians hope – or provides increased political leverage that Beijing can use to try to dominate its neighbors and weaken the U.S. role in Asia.