by David Roman December 5, 2016 — 4:00 PM EST Updated on December 6, 2016 — 1:03 AM EST
➞ Rising Chinese labor costs send companies to Cambodia and Laos
➞ Countries becoming more incorporated with China’s supply chain
China’s investment is transforming its smaller Southeast Asian neighbors like never before while helping turn Cambodia, Laos and Myanmar into bigger destinations for its exports.
That’s driving some of the world’s fastest economic growth rates and providing Chinese companies with low-cost alternatives as they seek to move capacity out of the country. It’s also helping Asia’s largest economy and nations in its orbit adapt to what looks more and more like a new era of waning U.S. commitment to the region from a more inward-looking administration of President-elect Donald Trump.
“China’s definitely looking at these countries in general as an area where it can sell products and get good return for its investments,” said Edward Lee, an economist with Standard Chartered Plc in Singapore. “China itself is getting more expensive for its companies, and that’s reinforcing this trend.”
China is investing in everything from railroads to real estate in Cambodia, Laos and Myanmar — the frontier-market economies of the Association of Southeast Asian Nations.
China Minsheng Investment Group and LYP Group, headed by Senator Ly Yong Phat, signed a $1.5 billion deal last week to build a 2,000-hectare city near Cambodia’s capital, Phnom Penh, with a convention center, hotels, golf course, and amusement parks, the official Xinhua News Agency reported. The spending equals roughly one-tenth of the country’s $15.9 billion gross domestic product.
In landlocked Laos, work started last year on the China-Laos railway, which will stretch 414 kilometers (257 miles) from the border to the capital, Vientiane. The project, part of Chinese President Xi Jinping’s One Belt, One Road initiative, will cost $5.4 billion, according to Xinhua. Xi met last week with Lao Prime Minister Thongloun Sisoulith in Beijing, where he pledged stronger ties.
Myanmar, which is liberalizing its economy and adopting market reforms after a transition to democracy, is forecast by the International Monetary Fund to expand 8.1 percent this year, the fastest in the world after Iraq. De-facto leader Aung San Suu Kyi has been quick to engage China since taking office this year, including visiting Xi in Beijing. China is its largest trading partner, accounting for about 40 percent of Myanmar’s total last year, and is building a special economic zone, power plant and deep-water seaport on the west coast.
Cambodia’s economy is projected to grow 7 percent this year, while Laos is set for 7.5 percent expansion. Myanmar’s currency, the kyat, was Asia’s top performer in the first five months of the year, but has weakened about 10 percent against the dollar since June as the U.S. currency strengthened
As Sino-Cambodian relations have flourished, so has trade, with two-way commerce climbing to $4.8 billion last year. That’s more than double from 2012, the year Cambodia warmed up to Beijing by opposing mention of China’s assertiveness in the South China Sea during a regional summit in Phnom Penh.
Most Chinese money flowing in to Cambodia, Laos, and Myanmar is lending on highly concessionary terms to finance construction projects run by Chinese firms, especially in Laos, said Derek Scissors, Washington-based chief economist at China Beige Book International, who specializes in studying the country’s foreign investment. Chinese construction and investment since 2005 equal about 15 percent of Lao GDP, which it couldn’t have financed from other nations, he said.
“The power sector is basically Chinese-built, bringing electricity to the majority of the population,” while China built several hydroelectric plants to increase electrification, Scissors said. “There were grand plans for Myanmar, but investment and construction actually realized is more conventional, in the energy and mining sectors.”
Cambodia, Laos and Myanmar are becoming more incorporated with China’s supply chains, buying intermediate goods from its factories and selling consumer items such as garments and shoes that are often made by companies owned or funded by China. Its imports from the three Southeast Asian economies more than doubled in the past five years, IMF data show.
Such dependence on China isn’t without risks. Beijing accounts for the largest chunk of foreign investment in Cambodia and also about 43 percent of the country’s total debt stock, mostly in loans from Chinese development banks to Cambodia’s government, according to the IMF. Similarly, China’s railroad in Laos equals about half of its $10.5 billion 2015 GDP.
“This reliance on a narrow production and export base has many downsides,” the IMF said in a recent report. “A majority of Cambodian garment factories concentrate on cut-make-trim processes, which are at the bottom of value chain and also small part of the overall production. As a result, firms in Cambodia have limited leverage and autonomy.”
Cambodia has gained particular appeal for Chinese manufacturers seeking to relocate, which aligns with China’s strategy to export industrial capacity through initiatives such as One Belt, One Road. Cambodia’s $121 average monthly wage is just a fifth of China’s $613 average, according to the International Labour Organization in Geneva.
The biggest risk for frontier Asean economies is that Chinese inflows create “extractive” elites who entrench themselves in power, said Song Seng Wun, an economist at CIMB Private Banking in Singapore.
“These economies are getting a lot of money and opportunity from China,” he said. “If wealth is concentrated in the hands of a few, that may lead to problems and instability. The key here is developing a middle income group that Chinese companies will be targeting as a consumer.”
Source: Bloomberg “China Is Transforming Southeast Asia Faster Than Ever”
Note: This is Bloomberg’s article I post here for readers’ information. It does not mean that I agree or disagree with the article’s views.
China and Laos are both committed to a high-speed rail project linking the Chinese southwestern city of Kunming with the Lao capital of Vientiane, officials from both countries said this week, and the project will go ahead despite delays.
The line should eventually stretch through Thailand and Malaysia to Singapore, and is part of an ambitious plan for China to develop infrastructure links across Asia, known as the “One Belt, One Road” project.
Vientiane hosted an elaborate ground-breaking ceremony for the $7-billion project in December, but nearly eight months later, construction has yet to begin in Laos.
Work has been delayed because Laos had yet to complete an environmental and social impact study, said a former deputy prime minister, Somsavat Lengsavad.
“The terms are all concluded, they are not changing,” he told Reuters in an interview at the prime minister’s office in Vientiane. “But the Chinese banks are very strict on us fully complying on the environment and social impact study.”
Somsavat ran the steering panel for the project for Laos until he retired early this year, and still maintains close contact with the ministries involved, he said.
Another issue was land allocation around the line, he added, with some land on the route having been snapped up by investors speculating ahead of government purchases.
“There is no work on the ground,” he said. “It is pending the study, and one of the pending problems is land reallocation.”
Reports that the Lao government was renegotiating the terms because it felt Somsavat had struck a deal that favored China were untrue, he said, adding that China would not get rights to develop land along the route.
China will hold a stake of 70 percent in the joint venture project, and Laos the rest, he said. Initial capital would be around $2.1 billion, with Beijing funding Laos’ contribution of $630 million with a loan at interest below 3 percent, he added.
Another reason for delays was that responsibility for the project had changed hands between ministries in China, he said.
But Beijing has also struggled to make progress in Thailand, as negotiating teams have disagreed on financing, cost and land rights.
“We will continue to push forward the construction of this rail project,” China’s Foreign Minister Wang Yi told reporters on the sidelines of a meeting of Southeast Asian nations this week. “It will bring benefit to people from both countries.”
(Additional reporting by Michael Martina; Editing by Clarence Fernandez)
Source: Reuters “China, Laos say rail project to go ahead, pending environment study”
Note: This is Reuters report I post here for readers’ information. It does not mean that I agree or disagree with the report’ views.
Reuters says in its report today that Kerry says Laos keen to avoid militarization of South China Sea. The above photo shows how happy he is at his success in subduing China with diplomacy.
However, China has repeatedly said that it has no intention to militarize the South China Sea. If so, what success Kerry has achieved in getting Laos to oppose the militarization.
Anyway, after China’s diplomatic successes in Russia, Central Asia, Pakistan and the Middle East, the US has learnt the lesson and is now intensifying its diplomatic efforts. Resolving problems even subduing an enemy with diplomacy is much better than fighting a war.
Comments by Chan Kai Yee on Reuters’ report.
Full text of Reuters’ report can be viewed below:
Kerry says Laos keen to avoid militarization of South China Sea
Laos wants to see maritime rights respected and avoid a military build-up in the South China Sea, U.S. Secretary of State John Kerry said on Monday, after a meeting with Laos’ Prime Minister Thongsing Thammavong to urge ASEAN unity in the face of Chinese claims.
Laos is the 2016 chair of the 10-nation Association of Southeast Asian Nations (ASEAN) and hosts a summit later in the year that will include the leaders of the United States and China.
“He was very clear he wants a unified ASEAN and he wants maritime rights protected, and he wants to avoid militarization and to avoid conflict,” Kerry told reporters after meeting Thongsing in Vientiane, the capital of Laos.
Kerry, only the third U.S. secretary of state to visit Cambodia since John Foster Dulles in 1955 and Hillary Clinton in 2012, was responding to a question whether Laos would take a strong line on territorial disputes in the South China Sea as ASEAN chair.
Laos has close political and economic ties with giant neighbor China, prompting the Obama administration to worry that Vientiane might behave like Cambodia did when it held the ASEAN chair in 2012.
Cambodia was accused of obstructing consensus in the bloc over standing up to China’s assertive pursuit of its South China Sea claims, which have since included the building of artificial islands suitable for military use.
“It is particularly important that Laos finds itself playing a critical role within ASEAN, and ASEAN itself is critical to upholding the rules-based system in the Asia-Pacific and ensuring that every country, big and small, has a say in addressing the matters of shared concern,” Kerry said.
“We want everybody to have a voice within the region without regards to size, power and clout.”
Kerry will travel on to Cambodia later on Monday as part of his effort to urge ASEAN unity ahead of a summit President Barack Obama has called with leaders of the bloc for Feb. 15-16 in Sunnylands, California..
Kerry heads to Beijing for talks on Wednesday with the leadership there.
A senior U.S. State Department official said Kerry would seek to set an encouraging tone in Laos by discussing increased U.S. aid, including more funds for work to dispose of unexploded U.S. ordnance left over from the Vietnam War, when Laos became one of history’s most heavily bombed countries, as the United States tried to destroy communist supply lines running through it.
Kerry, who fought in the Vietnam War and then became a champion of post-war reconciliation, said the United States had boosted funding for the disposal of unexploded ordnance over the years “and we are looking at whether or not that could be plussed-up even more.”
The number of people killed or badly hurt by such ordnance had fallen to about 50 a year, from about 300 a few years ago, he said, adding, “Fifty a year is still too many.”
The senior U.S. official said announcements on additional funding could be expected when Barack Obama becomes the first U.S. president ever to visit the country when he attends an ASEAN summit in Laos in September.
After meeting the prime minister, Kerry visited That Luang Stupa, the most important Buddhist monument in Laos, and offered a bouquet of closed white lotus blossoms dedicated to its people.
In Cambodia, Kerry will meet Hun Sen, now Asia’s longest serving prime minister, and will draw attention to U.S. concerns about human rights and the treatment of government critics by meeting opposition members and civil activists, the State Department official said.
Ties between the former Cold War foes have warmed over the last 15 years or so, following cooperation over efforts to locate American soldiers missing during the Vietnam war and to dispose of unexploded U.S. ordnance.
(Reporting by David Brunnstrom; Writing by Simon Webb; Editing by Clarence Fernandez)
U.S. Secretary of State John Kerry began a visit to Asia on Sunday in which he plans to press China to put more curbs on North Korea after its nuclear test and to urge Southeast Asia to show unity in response to Beijing’s claims in the South China Sea.
Kerry started what will be a three-day stay in the region in Laos, the 2016 chair of the 10-member Association of Southeast Asian Nations (ASEAN). He will head to Cambodia on Monday night and then on to Beijing for talks on Wednesday with the leadership there.
In Beijing, Kerry is expected to stress the need for a united front in response to this month’s North Korean nuclear test through additional U.N. sanctions, a senior official of the U.S. State Department said. He will also argue for a tough unilateral response from China, North Korea’s main ally and
“It is very important to present a united front … but that united front has to be a firm one, not a flaccid one,” the official told journalists traveling with Kerry.
It was particularly important to “cut off avenues of proliferation and retard North Korea’s ability to gain the wherewithal to advance its nuclear and its missile programs,” the official said, and that meant China doing more.
North Korea said on Jan. 6 it had successfully tested a hydrogen bomb, although Washington voiced skepticism as to whether the device was actually that powerful.
“North Korea is still engaged in illicit and proliferation activities,” the official said. “They have very few avenues for conducting business with the international community that don’t in some fashion involve transiting China.
“Despite the determination and efforts of the Chinese government, clearly there is more that they can do.”
In Beijing Kerry plans “in depth” discussions on the South China Sea, a source of increasing tension between China and ASEAN countries and the United States due to China’s building of artificial islands suitable for use as military bases, the official said.
First though in Vientiane, the capital of Laos, Kerry will seek to bolster ASEAN unity and the bloc’s resolve to stand up to China in the lead-up to a summit President Barack Obama has called with the bloc’s leaders for Feb. 15-16 in Sunnylands, California.
Laos has close political and economic ties with its giant neighbor China. The Obama administration worries that it might behave as Cambodia did when it held the ASEAN chair in 2012 and was accused of obstructing consensus in the bloc over the South China Sea.
Besides its China ties, as a landlocked country Laos has less interest in the maritime disputes that several ASEAN members have with Beijing.
The U.S. official said he had heard from virtually every ASEAN country that the Cambodian chairmanship had left “a black mark” on the bloc that was not to be repeated.
So far, Laos was off to a good start overseeing ASEAN statements on world events, the official said, adding: “It’s my expectation that the Lao will be a responsible chair for 2016.”
Kerry will seek to set an encouraging tone in Laos by discussing increased U.S. aid, including more funding for work to dispose of unexploded U.S. ordnance left over from the Vietnam War. During that conflict Laos became one of the most heavily bombed countries in history as the United States sought to destroy communist supply lines running through it.
The main announcements, though, are expected to come when Barack Obama attends a regional summit towards the end of the year and becomes the first U.S. president ever to visit Laos.
In Cambodia, Kerry will meet Hun Sen, now Asia’s longest serving prime minister, and will draw attention to U.S. concerns about human rights and treatment of government critics by meeting opposition members and civil activists, the State Department official said.
(Reporting by David Brunnstrom; Editing by Simon Cameron-Moore and Mark Trevelyan)
Source: Reuters “Kerry to press China over North Korea, urge ASEAN unity over South China Sea”
After his successful charm offensive in central and eastern Europe, Chinese Premier Li Keqiang directed such offensive to South East Asia. According to Reuters report today, Chinese government’s mouthpiece Xihua said in its report yesterday that Li offered more than $3 billion in loans and aid to neighbors Cambodia, Vietnam, Myanmar, Thailand and Laos to improve infrastructure and production, and to fight poverty.
It is interesting that Vietnam is included in the South East Asian countries in Li’s offer in spite of China’s maritime territorial disputes with it.
Reuters says in the report, “More than $120 billion has been promised by China since May to Africa, Southeast Asia and Central Asia as Beijing tries to present a softer, more cooperative side to the world following months of tension over territorial issues and other problems.”
It seems that China is conducting a spending spree to buy good relations with other countries with its huge foreign exchange reserve. This blogger believes it is a much better investment than buying other countries’ government bonds.
The following is the full text of Reuters report:
China offers $3 billion in aid and loans to neighbors: Xinhua
China has offered more than $3 billion in loans and aid to neighbors Cambodia, Vietnam, Myanmar, Thailand and Laos to improve infrastructure and production, and to fight poverty, state media reported on Saturday.
Chinese Premier Li Keqiang said the offer included $1 billion for infrastructure, $490 million for poverty alleviation and $1.6 billion in special loans for China’s production capacity export, Xinhua news agency said.
During a speech to the fifth summit of the Greater Mekong Subregion (GMS) Economic Cooperation in Bangkok, Li also pledged $16.4 million to dredge waterways along the Mekong River to prevent natural disasters.
“”These are important parts of our efforts to upgrade China- ASEAN cooperation … we are ready to work with the five countries to build a new framework to deepen cooperation and bring the GMS comprehensive partnership to a new level,” Li said.
He said China planned to export high-level production capacity in electricity, telecommunications, steel and cement to its neighbors on regional transportation routes, Xinhua reported.
Li is in Thailand attending a two-day summit of leaders of Mekong River region countries, the biggest international gathering in Thailand since its military seized power.
China will finance projects by offering special loans, currency swaps in cross-border transactions and by allowing a role for private enterprises, Li said.
On Friday, China said it would build an 867-km rail network in Thailand and buy two million tonnes of its rice..
Li offered $20 billion in loans for Southeast Asia during a regional meeting in Myanmar last month. It is not clear if the money announced in Bangkok was part of that figure or represented new funds.
More than $120 billion has been promised by China since May to Africa, Southeast Asia and Central Asia as Beijing tries to present a softer, more cooperative side to the world following months of tension over territorial issues and other problems.
“We’ll create new levels of industrial cooperation. China has become the most important trade partner in the sub region and our investment will increase. . . We have every reason to draw on each others’ strengths,” Li added.
China has set nerves of edge in Southeast Asia with its claims to the South China Sea, which have rankled Vietnam and the Philippines in particular.
Southeast Asia has also emerged as a new area of strategic competition between China and the United States, and China has been keen to present a softer side to the region, partly though offering massive new funding for infrastructure projects.
Source: Reuters “China offers $3 billion in aid and loans to neighbors: Xinhua”
- China’s Diplomatic Blitzkrieg at the US in APEC Summit dated December 2, 2014
- China’s Charm Offensive in Central, Eastern Europe dated December 18, 2014
According to Ming Pao’s exclusive report, Indochina has become an emerging hot spot for investment as Southeast Asian countries hope to establish an economic commonwealth by 2015.
In 2006, about 20 Asian countries signed an agreement on an Asian railway network. China-Laos high-speed railway will be part of the network.
For China the railway connection to Indochina will facilitate closer relations with Southeast Asia that will benefit both sides. Trade between them amounts to $370 billion and is expected to rise to $500 billion by 2015.
Moreover, China signed a cooperation agreement with Laos and Thailand for the construction of a high-speed railway connecting China, Laos and Thailand, which is of great strategic significance for China. It will enable China to go to the Indian Ocean through Indochina without passing through the Strait of Malacca so that China can have access to resources in Middle East and Africa even if the Strait was blocked by the US.
Out of jealousy at China’s rise, Western media fiercely opposed China’s loan to the project of the railway linking Laos with China’s Kunming, alleging that the railway is detrimental to environment due to the construction rubbish along the railway and that the cost of borrowing is too huge.
In fact, China lends the loan at a low interest rate for a long term of 30 years and Laos is to repay the loan by its mineral and agricultural products.
New York Times quotes an anonymous expert and advisor to UNDP as saying that the terms of the loan are too harsh and will threaten Lao’s macroeconomic stability. It moreover quotes an anonymous Asian diplomat as alleging that both Asian Development Bank and World Bank have expressed their worries over the project and that the IMF has warned Laos that it must be prudent.
Well-known rating agency Moody, however, gives a positive comment, saying that it will be a win-win project.
For Laos, the railway is certainly a very important route to the sea as it has no coastline. Laos expects it will receive $95 million from railway transport in the first year while the net profit from the railway transport will amount to $16.39 billion in 50 years.
High officials in Laos government are mostly former members of Pathet Lao who fought against the US along with North Vietnam in the past. They all do not like the US. However, in order to restrain China, US Secretary of State Hilary Clinton visited Laos last July in an attempt to draw Laos to its side.
In fact, the Sino-Laos high-speed railway project has encountered impedance now. When Chinese Premier Wen Jiabao attended the Asian-European summit last November, he was unable to attend the ground-breaking ceremony for the railway scheduled then due to the delay caused by the impedance.
In contrast, the project of the high-speed railway linking Laos with Vietnam that Malaysia’s Giant Consolidated invests $5 billion in, met little Western opposition. An agreement on it was entered into during the summit.
Source: Hong Kong’s Ming Pao