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China’s rise takes centre stage at ADB annual meeting

China’s growing economic influence through the One Belt, One Road initiative and the newly operational Asian Infrastructure Investment Bank were key topics of discussion at the Asian Development Bank’s annual conference in Frankfurt this week.
The Chinese-led AIIB has 57 founding members with others expected to join. The One Belt, One Road (OBOR) project aims to strengthen infrastructure on the land and sea routes from China through Central Asia and Southeast Asia respectively – incorporating some 60 separate states.

Both initiatives affect Myanmar, as a member country of the AIIB and as a host to Chinese OBOR infrastructure projects – including a recently approved US$3 billion refinery near the southern city of Dawei.

By Steve Gilmore

Myanmar, May 11, 2016

Myanmar Time

China’s growing economic influence through the One Belt, One Road initiative and the newly operational Asian Infrastructure Investment Bank were key topics of discussion at the Asian Development Bank’s annual conference in Frankfurt this week.

The Chinese-led AIIB has 57 founding members with others expected to join. The One Belt, One Road (OBOR) project aims to strengthen infrastructure on the land and sea routes from China through Central Asia and Southeast Asia respectively – incorporating some 60 separate states.

Both initiatives affect Myanmar, as a member country of the AIIB and as a host to Chinese OBOR infrastructure projects – including a recently approved US$3 billion refinery near the southern city of Dawei.

Countries like Myanmar that lie along the OBOR routes are likely to receive fresh flows of foreign direct investment as China steps up its efforts to put capital to work outside the country. But China’s growing influence also raises concerns in those same countries.

The OBOR initiative is the economic foundation for Chinese President Xi Jinping’s “China dream agenda, which envisions China becoming the paramount nation of Asia and perhaps Eurasia by 2049”, said David Arase, professor of international politics at Johns Hopkins University’s Hopkins-Nanjing Center in China, during a panel discussion on OBOR.

As part of that initiative China wants trade connections with countries and regions across Eurasia, but with this will come influence.

“OBOR gives China tremendous ability to set agendas and advance [its] own interests,” said Mr Arase. “In the security dimension it will open up to China access to the rest of the region, because wherever China’s trade and investment goes [the country] will have an interest in securing its interests.”

This is already evident in countries like Djibouti and Pakistan, where a Chinese military presence has followed Chinese trade and investment, he added.

But AIIB president Jin Liqun, speaking at a separate panel discussion on Asia-European trade, said that the OBOR initiative is no longer just China’s project.

“China cannot reach out and impose all those [prospective] projects in those countries,” he said.

Countries along the OBOR route will only participate if they see benefits, he added, and therefore the OBOR’s success hinges on cooperation.

The AIIB and the ADB announced this week they intend to jointly finance Pakistan’s M4 highway project – a 64-kilometre stretch of highway in the east of Pakistan. This will be one of the first projects undertaken by the Beijing-based AIIB.

Conference delegates raised concerns that China could use the AIIB and OBOR to “export overcapacity” in certain sectors of its economy – for example using excess steel for projects in foreign countries.

But although overcapacity in industries like steel and cement is a serious issue in China, the idea that China would seek to export that through the AIIB or OBOR is misplaced, said Ligang Song, director of the China Economy Program at Australian National University, on the OBOR panel debate.

“The reason is simple,” he said. “First of all the overcapacity [problem] has to be solved in the short to medium term and the OBOR is a long-term strategy. Second, president Jin has mentioned [that the] AIIB has a very transparent way of running the bank.”

Overcapacity is most evident in Chinese firms that are inefficient and badly run, and such companies are unlikely to meet the high standards that the AIIB has promised for its tenders, Mr Song said.

China’s neighbour India recognizes the potential benefits of the OBOR plan, and bilateral trade between China and India has increased, said M M Pallam Raju, former minister of state in India’s Ministry of Defence. But India is not sanguine about the implications of the OBOR initiative.

“There’s a strong case for creating better infrastructure across the region … and if OBOR is [providing this], from an economic perspective India definitely welcomes it,” he said. “But at the same time we have certain concerns.”

There is a need for more information sharing between India and China, which is “not necessarily viewed as a benign power”, he added. “China has to be more transparent especially when it comes to sharing specifics regarding the [OBOR] project.”

China is also investing heavily in another of its neighbours, Kazakhstan – particularly in the oil and gas industry, where Chinese projects control more than 25pc of the country’s oil and gas production, according to Olzhas Khudaibergenov, director at the Center for Macroeconomic Research, Kazakhstan.

“Kazakhstan warmly welcomes the OBOR initiative, as Kazakhstan is a land-locked country and the initiative helps us use our transit potential,” he said. A World Bank-funded project to improve the Kazakh highway along the Western Europe-Western China road corridor will be finished this year, he added.

But protests have flared up in Kazakhstan in the past week due to concern over a law that would allow foreigners to rent land for up to 25 years. The protesters are particularly concerned about Chinese investment in agricultural land, Mr Khudaibergenov said.

“Cooperation between the [two] countries should be on a mutually beneficial basis,” he said. “China’s move into agricultural projects will not have any benefits for Kazakhstan.”

Kazakhstan’s population and GDP are both around 1pc of China’s, he said. . “If China [rents] 1 or 2 million hectares of land and can bring in its own labour force there will be many bad consequences.”

Territorial disputes in the South China Sea between China and other nations are one of the most visible manifestations of China’s growing economic and political ambitions. By threatening freedom of navigation the dispute threatens international free trade, said Mr Arase of the Hopkins-Nanjing Center.

“Freedom of navigation is the necessary condition for the World Trade Organization working,” he said. “If you don’t have freedom of navigation that treaty is worthless.”

In response to a question from The Myanmar Times on whether the South China Sea dispute threatened trade, AIIB president Mr Jin said that China believes the issue should be resolved amicably.

“I hope all the parties concerned will sit down and talk and seek peaceful resolution,” he said.

Stephen Groff, the ADB’s vice president for operations 2, responded to the same question during the Asian-European trade debate. He said that although territorial disputes are challenging and hard to overcome, Asian countries have far better diplomatic relationships than in the past.

“Look back 50 years in Asia – countries were at war,” he said. “Countries did not have diplomatic relations with one another. That’s not the situation we see today. These are challenging issues, but I’m optimistic that there are shared common interests at heart, whether economic or cultural, that can help resolve them.”

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