“One Belt-One Road Initiative” and ASEAN Connectivity: Synergy Issues and Potentialities

13 Jul 17

By Bruno Jetin, Institute of Asian Studies, Universiti Brunei Darussalam

Abstract

The “One Belt-One Road” (OBOR) strategy was launched in September 2013 by President Xi Jinping in Kazakhstan as regards the mainland area and in October 2013 in Indonesia as regards the maritime area. This is by far the largest project of interconnection between Asia, Europe and Africa that will last for decades, entail vast amounts of resources and involve a large multilateral collaboration. This Chinese initiative is potentially a good news for ASEAN which has huge infrastructure investment needs to implement its master plan for connectivity (AMPC). But this will depend on the capacity of ASEAN to maintain its centrality and speak with one voice to China when investment decisions will be taken. Otherwise, the risk is that the OBOR strategy may deepen existing divides between mainland ASEAN and maritime ASEAN, while the purpose of the AMPC is precisely to alleviate them. This paper will analyse these issues and explore the solutions to achieve a synergy between China’s OBOR and AMPC.

Alternative infrastructure initiatives in Asia

The OBOR initiative is not the only one in Asia. In fact, there is a proliferation of infrastructure initiatives (Szczudlik, 2016). India’s “Blue Economy” and “Act East Policies”, Korea’s “Eurasia Initiative” and Japan’s “Partnership for Quality Infrastructure: Investment for Asia’s Future”. This proliferation calls for multilateral talks. Infrastructure investments mobilise huge amount of money and are not always profitable. It does not make sense to compete in a field where large economies of scale are necessary. So, at one point, the search for synergy will have to include not only OBOR and AMPC but also avoid overlapping. But another possibility is that the different initiatives cover different geographical areas and/or needs. This is the case of India’s and Korea’s initiatives although OBOR also includes South Asia and Eurasia. Japan’s initiative is aimed at Southeast, Southwest and Central Asia so is potentially competing with OBOR. But Japan is trying to differentiate from OBOR and to focus on quality infrastructure investment and can potentially fill the gap left by OBOR. Japan leverages on its high technology capacities, its reputation for quality products and reliability of its industrial organisation. It can make a difference when Chinese products and firms’ reputation have sometimes been marred by quality issues and substandard technology, as in Indonesia concerning the construction of a ten million megawatt power plant (Fitriani, 2015). Japan’s initiative relies on creating jobs for local people and increasing local skills while Chinese firms abroad tend to employ mainly Chinese workers. Japan also wants to prioritise countries’ development plan so that synergy is built-in. It also emphasises ADB’s role in Southeast Asia of which Japan is the biggest stakeholder and which has been one of the biggest funding institutions of AMPC. Japan has also long been directly one of the major funders of AMPC with two priorities: the East-West and Southern economic corridors and the maritime ASEAN corridor. Japan can reinforce its influence by financing projects of the AMPC that are not considered as priorities by China in the Great Mekong Subregion. The Japanese alternative can be attractive to maritime AMS and a way to finance ARN. Two additional elements weigh in favour of Japan.

Firstly, Japan is providing new patrol vessels to the Philippine and Vietnam Coast Guard and aid to Indonesia to procure three new ones in a clear move to counterbalance China’s domination over the South China Sea (Lee, 2015). Secondly, the Japanese Parliament approved on May 11, 2016, a milestone change to the operating charter of the Japan Bank for International Cooperation (JBIC). This change will allow the bank to make riskier infrastructure investments through a special account so that it can compete more aggressively with China (Financial Times, (2016)). Too stringent risk guarantees are one of the reason why Japan lost the bid for the first high-speed rail project in Indonesia in 2015 in favour of China (Adi Syailendra, 2015). With the amendment, Japan expects to bid competitively for large investment infrastructure projects like the Kuala Lumpur- Singapore high-speed rail project.

Conclusion

The OBOR strategy has a huge potential for integrating Asia internally and Asia with the rest of the world. This potential is all the most important in Southeast Asia where it could help achieve the AMPC for the mutual interest of China and ASEAN. To achieve this goal, a fine balance must be reached between ASEAN and China’s interests to develop not only connectivity between the two entities but also the connectivity between AMS. It means that China has to include in OBOR infrastructure smaller projects that are not directly linked to China’s international trade and strategic interests but which also benefit the local economy, which has different connectivity needs. For instance, improving coasting trade in the case of maritime transport or secondary routes in the case of land transport may have a larger and more direct impact for small and medium enterprises and the local economy. This implies selecting sustainable projects that regional authorities and people may appropriate and control. It is crucial that infrastructure projects be inclusive and based on dialogue because they have a strong impact on the use of land and the environment on which depends the economic opportunities and wellbeing of many people at the lower end of the income distribution. Large and small infrastructure projects can be better selected and combined if based on a process of dialogue with local communities and if impact analyses on social and environmental issues are initially conducted. This would prevent these projects resulting in excessive sovereign debt and making huge losses. In short, the OBOR should not only be an initiative for economic but also for human development. For instance, mechanisms of inclusiveness or social and environmental conditionalities could be included in the selection process of the AIIB. For the moment, nothing of the sort seems to be planned.

A necessary condition for OBOR to synergise with AMPC and better serve human development is that ASEAN speaks with one voice in its dialogue with China. The AMPC, which represents ASEAN collective interest, should be the base of this dialogue to be sure that a coherent connectivity scheme is promoted that benefit all ASM and reduce development gaps between rich and poor ASM and between continental and maritime ASEAN. For the moment, negotiations are carried out in a piecemeal fashion between each ASM and China on a bilateral basis. ASEAN as such has not published any statement on OBOR, expressing ASEAN’s view on OBOR and how the AMPC could synergise with OBOR. The new “Master Plan on ASEAN Connectivity 2025” (ASEAN, 2016) adopted in Vientiane on September 6, 2016 does not mention OBOR, not even in the “ten trends that have important implications for the ASEAN connectivity agenda” (p 35). The existence of the AIIB is mentioned on page 31 as a new funding vehicle among others but without further elaboration. This lack of recognition reveals the inability of ASEAN to play a strategic role at a time when precisely a regional leadership is most needed. ASEAN could be the vehicle of negotiation between Southeast Asia and China to make sure that the AMPC benefit from the various financing vehicles linked to OBOR. One way to do it would be to act collectively in the AIIB which is a multilateral institution where projects to be financed will be discussed. Other financing vehicles such as the Silk Fund leave ample room for bilateral relation between China and individual AMS to attract additional funding for specific local infrastructure projects. An ASEAN collective action could also be useful to coordinate the Japanese and Korean infrastructure initiatives so that they do not compete directly but complement each other to avoid duplication and the waste of resources. Finally, the security issues are also key to the long-term outcome. The territorial dispute over the South China Sea is certainly an obstacle for the full development of the New Maritime Silk Road as it creates tensions and wariness. Separating sovereignty conflicts on one side and cooperative projects on the other side may work on the short-term but certainly not on the long-term if these conflicts do not find solutions which involve diplomatic initiatives and political compromises.

Please click to read the full report.

Comments