China and Southeast Asia: Global Changes and Regional Challenges

2. THE LOGIC OF CHINA-ASEAN FTA: Economic Statecraft of “Peaceful Ascendancy” by Vincent Wei-cheng Wang

Logic of China-ASEAN FTA: Economic Statecraft of “Peaceful Ascendancy” 17 2 THE LOGIC OF CHINA-ASEAN FTA Economic Statecraft of “Peaceful Ascendancy” Vincent Wei-cheng Wang INTRODUCTION: RISING CHINA AND SOUTHEAST ASIA The regional political and economic order in East Asia1 has undergone a significant transformation since the end of the Cold War. One of the most important changes is China’s growing clout and influence in this region. Several important factors contribute to this development: China’s rapid and sustained economic growth (on average 9 per cent per year over the past two decades), Japan’s relative decline as a result of its decade-long recession, the 1997–98 Asian Financial Crisis that decimated several high-flying Asian economies, and the stretching-thin of the United States’ military resources and political capital due to the war on terror, the daunting task of rebuilding Iraq, and the challenge posed by a nuclear North Korea. Whereas China’s rise in the mid-1990s caused much concern among its neighbours and the United States,2 China’s further ascent in the early 2000s has instead generated more equanimity. This shift presents not only an intellectual puzzle but also an important policy question. China’s expanding economy is now regarded more as an opportunity than a threat, and its more polished foreign policy exudes confidence and poise.3 02 China & SEA Pt II/Ch 2 20/1/05, 12:21 PM 17 18 Vincent Wei-cheng Wang One of the most dramatic events of the past decade was the announcement by ASEAN and China in November 2001 that they intended to create an FTA (Free Trade Area) between them within a decade. One year later, at the Eighth ASEAN-China Summit in Phnom Penh, Cambodia, in November 2002, ASEAN leaders and Chinese Premier Zhu Rongji signed a Framework Agreement on Comprehensive Economic Co-operation, which provided the groundwork for the eventual establishment of an ASEAN-China FTA by 2010 for the older ASEAN members (Brunei, Indonesia, Malaysia, the Philippines, Singapore, and Thailand) and 2015 for the newer members (Cambodia, Laos, Myanmar, and Vietnam). The agreement went into force on 1 July 2003.4 Comparing today with ASEAN’s founding epoch, the contrasts cannot be more vivid: In 1967, China was mired in its angry self-imposed isolation called the Cultural Revolution, whereas ASEAN was established partly to form a collective counterweight against the regime that had exported revolutions and inspired guerrilla wars in Southeast Asia. Nowadays China is deeply engaged with the world and even assumes the hitherto unprecedented role as a trade promoter in East Asia. What explain these changes? What are the political and economic impetuses for the ASEAN-China FTA? What is the relationship between China’s current trade offensive and its “new” foreign policy thinking? Does it signify a long-term and fundamental shift in China’s economic statecraft or represent a short-term tactical expedient aimed at buying the crucial time needed for China to develop into an unparalleled power in the region capable of safeguarding its core interests? This chapter examines the ASEAN-China FTA in light of regionalism in East Asia and China’s new diplomacy. It argues that China’s FTA with the ASEAN is driven by a political logic to respond to challenges posed by competitive regionalisms in the world economy, to cement growing economic ties with Southeast Asian nations, to secure raw materials crucial to its economic development, and to ensure a peaceful and stable environment close to home so as to buttress China’s growing influence and counterbalance American and Japanese power. It is thus a concrete example of economic statecraft employed to facilitate China’s new foreign policy strategy — “peaceful ascendancy”. ASEAN nations are attracted by the opportunities brought about by China’s economic expansion and trade liberalization; they also seek to leverage their FTA with China to additional FTAs with important trading partners within (for example, Japan) or outside (for example, the United States) the region. However, because of the disparate levels of 02 China & SEA Pt II/Ch 2 20/1/05, 12:21 PM 18 Logic of China-ASEAN FTA: Economic Statecraft of “Peaceful Ascendancy” 19 development and policy priorities of its members, ASEAN’s FTA with China is likely to cause various challenges to individual members and the organization as a whole. This chapter is divided into five parts. The first part is an introduction setting...