China’s lead in Southeast Asia appears fragile

Sea change. Xi Jinping is reinforcing friendships as fast as he’s letting others slide. China’s president visited Vietnam this week and lauded his country’s relationship with its largest trading partner in Southeast Asia. Days before, the Philippines accused the Chinese coast guard and maritime militia vessels of repeatedly firing water cannons at its supply boats and deliberately ramming another ship. As Beijing presses its sovereignty claims more assertively in the South China Sea, its ability to find new markets and open new factories for its companies will become more complicated.

Squabbles between China and Southeast Asian countries over the contested waters, a conduit for more than $3 trillion of annual ship-borne commerce, are not new. But recent incidents are hard to separate from China’s deteriorating relationship with the United States and their disagreements over Taiwan. Yet the People’s Republic is also flirting with deflation, potentially making it necessary rather than nice-to-have for Chinese companies like white-goods champion Midea, electric vehicle battery giant CATL and Huawei to push further overseas. That will only be possible if there is a welcome mat.

China has struggled to separate its security and investment priorities in the U.S., Europe and in India, and it could prove increasingly tricky in Southeast Asia too. The latest escalation with the Philippines follows newish President Ferdinand Marcos Jr’s visit to the White House in May, the first by a Philippines leader in a decade, just after he granted American troops greater access to its military bases; and it follows his decision not to pursue three China-funded infrastructure projects after promised investments did not materialise. Elsewhere, Xi’s visit this week to Vietnam follows hot on the heels of President Joe Biden’s jaunt in September to the country that is favoured by global companies seeking to reduce their supply chain dependence on China.

China still leads in obvious ways. Trade volume between the Association of Southeast Asian Nations (ASEAN) and China reached a new record of $722 billion in 2022, making it the bloc’s largest trading partner for 14 consecutive years, while the U.S. relationship is worth $520 billion. But if the long game is all about influence, the outlook for China is fragile. Only 39% of people think ASEAN should pick the Middle Kingdom over the United States if it were forced to choose a side, an annual survey by Singapore-based think tank ISEAS-Yusof Ishak Institute found, down from 46% in 2020. A majority of respondents from Indonesia preferred China, but as the country heads to the polls next year, its political leaning also could change. The struggle by the world’s second-largest economy to thread the geopolitical needle is getting tougher, and not just with the West.

Context News

China and Vietnam announced 37 deals, including on diplomatic ties, railways and telecommunications, during Chinese President Xi Jinping's first visit to Hanoi in six years, Reuters reported on Dec. 12. The Philippines on Dec. 11 accused the Chinese coast guard and maritime militia of repeatedly firing water cannons at its resupply boats and “deliberately” ramming one when its vessels were carrying out South China Sea resupply missions over the weekend. China's foreign ministry lodged a strong protest with the Philippine government over what it said was a collision.

Author: Anshuman Daga