China eyes Asean trade ties, but members fear ‘geopolitical trap’ as US also seeks regional influence

“It can be used as a bridgehead to connect overseas resources and logistics,” Hu Peihong, general manager of the CNGR base, told a media delegation in May. “We built and operated the industrial base [phase one] in such a short period of time so we can work with overseas partners and replicate it quickly out of China.”

One of the benefits is that shipping from the Chinese port city of Qinzhou to the Vietnamese industrial gateway of Hai Phong now takes just half a day.

In August 2019, when Beijing unveiled plans for a land-sea corridor in western China, it was largely regarded as yet another export-facilitation and revival initiative for China’s less-developed western region.

China’s policymakers had high hopes that coastal factories would relocate to inland provinces, lured by government incentives and cheaper labour costs, while their competitiveness would still be maintained with fast transport links to the nearest seaports.

Today, rail links and infrastructure projects have created a trade and logistics passage bridging western China with the Association of Southeast Asian Nations. And an economic rim around the Beibu Gulf – also known as the Gulf of Tonkin – serves as a testament to China-Asean cooperation.

Compared with the previous shipping choices of Shanghai or Guangzhou, Beibu Gulf ports – Qinzhou, Fangchenggang and Beihai – offer a shortcut for manufacturers around those regions.

However, this rush by many Chinese firms like CNGR to set up factories close to Asean countries also reflects a new reality – a growing number of labour-intensive manufacturers, such as electronics factories, have moved to Southeast Asia to avoid punitive US tariffs slapped on Chinese goods since 2018, and as Washington is still trying to replace China in key supply chains.

Meanwhile, efforts to tap American or European markets are hindered by “de-risking” attempts in a time of international financial hardships and slow economic recovery following the pandemic.

“A China-Asean common market is needed for both sides to respond to external challenges engendered by increasingly severe deglobalisation and geopolitical upheavals,” said Zheng Yongnian, director of the Advanced Institute for Global and Contemporary China Studies under the Chinese University of Hong Kong in Shenzhen.

Zheng, a prominent political scientist advocating for China’s rise on the global stage, was one of a few experts attending the symposium hosted by President Xi Jinping in August 2020 to explain China’s shift to an inward-facing “dual-circulation strategy” – a term that Beijing would go on to frequently use to highlight the need for self-sufficiency in the face of worrisome internal and external conditions.

The economic integration will provide Chinese companies with greater market space to absorb manufacturing capacity and facilitate the use of Chinese capital, technology, management and standards in the common market of 2 billion people, Zheng said at the China-Asean Economic Relations Seminar in late May in Guangzhou.

The 10-member Asean – a market of 600 million people – has surpassed the US and European Union to become China’s top trading partner.

Working together, the two sides can ensure that Asian economies remain at the centre of global goods trades while working to stabilise global industrial, supply and value chains, Zheng added.

Former deputy commerce minister Wei Jianguo said at the same seminar that a common market in Asia could restructure global production factors and reshape global economic structure and competition landscape.

“It is foreseeable that the formation of such a common market would leave markets in Europe and the United States far behind, regardless of the rules, laws and overall scale of users,” he said.

China was a big beneficiary of globalisation, becoming the world’s factory. However, geopolitical fragmentation – the Russia-Ukraine war, a strategic partnership between Beijing and Moscow, the US and the EU’s derisking from China – could reshape global manufacturing, trade and investment, potentially dividing the global production into three sub-centres: North America, Europe and Asia.

The 10-member Asean – a market of 600 million people – has surpassed the US and European Union to become China’s top trading partner.

However, China is not the only player in the region, as the US is also promoting its Indo-Pacific Economic Framework (IPEF), which comprises 14 Asia-Pacific countries, including Vietnam, Thailand, Malaysia, Philippines, Singapore and Brunei.

The push for regional infrastructure connectivity, including efforts through the Belt and Road Initiative and the Asian Infrastructure Investment Bank, is considered vital in proposals for a common market between China and Asean, especially when its relations with the US are expected to remain chilled.

The current land-sea corridor programme, which can already enable western Chinese provinces to closely link with Asean members and send their cargo to 107 countries and regions, is a crucial step in facilitating trade, investment and transport flows.

Beijing has said it intends to increase the regional sea-rail transport capacity to 500,000 twenty-foot equivalent units (TEUs) by 2025, while raising the total number of cross-border freight trains to 2,000. Container throughput at Beibu Gulf ports in Guangxi, and at Yangpu Port in Hainan province, is set to reach 10 million TEUs and 5 million TEUs, respectively, by 2025.

Enhancing transport capacity has moved higher on Beijing’s priority list because the Beibu Gulf ports and the whole Guangxi region sit well at the junction between China’s domestic and international circulations, and a new initiative is anticipated to lead to regional supply-chain restructuring.

“It has become an important engine for the economic development and opening-up of western regions,” Meng Wei, spokeswoman of the National Development and Reform Commission, said about the construction progress.

The top economic planner vowed to expand large-scale transport capacity as soon as possible, including land-sea transport, road-rail linkage or international rail freight transport. It also pledged to optimise industries and promote economic integration along the corridor.

“We need to persistently expand its range of influence, and keep enlarging its circle of friends,” Meng said at a media briefing in Beijing on June 16.

Trade and investment often come on the heels of infrastructure connectivity.

By last year, China’s trade with the 10-nation Southeast Asian block had jumped to US$975.3 billion – way up from US$641.5 billion in 2019. Both are highly connected through trade as each other’s largest trading partner. Asean accounted for 15.7 per cent of China’s total international trade from January-April.

“China and Asean are now in a win-win situation,” said Zhou Jinzhu, a researcher under the China Council for the Promotion of International Trade, a semi-official agency to promote Chinese trade and investment globally.

Southeast Asia’s main exports to China include electronic and electrical equipment, minerals and fuel, and Asean gets mechanical equipment, electronic products, clothing and textiles from China.