CHINA AND THE MEKONG REGION IN THE NEW ERA

CHINA AND THE MEKONG REGION IN THE NEW ERA

LEI ZHUNING

WITH COMMENTARIES FROM CHALONGRAT CHAROENSRI AND TARIDA BAIKASAME

Asian Research Center for International Development (ARCID) School of Social Innovation Mae Fah Luang University Thailand

ASIAN RESEARCH CENTER FOR INTERNATIONAL DEVELOPMENT (ARCID) SCHOOL OF SOCIAL INNOVATION MAE FAH LUANG UNIVERSITY

OCCASIONAL PAPER SERIES In September 2017, the first of the series of occasional papers of the Asian Research Center for International Development (ARCID), School of Social Innovation, Mae Fah Luang University, was produced. The main purpose of the series is to provide a channel for the distribution of preliminary research results of the academic and scholarly community.

The occasional papers could cover a variety of fields in social sciences. The main regions of emphasis are basically East Asia (China, Japan and Korea) and ASEAN. This series should be of interest to policy makers, scholars, students and the general public.

China and the Mekong Region in the New Era © All Rights Reserved Author: Lei Zhuning Commentators: Chalongrat Charoensri and Tarida Baikasame

ISBN: 978-616-470-006-2

First published in 2018 by ASIAN RESEARCH CENTER FOR INTERNATIONAL DEVELOPMENT (ARCID) School of Social Innovation, Mae Fah Luang University 333 Moo1, Thasud, Muang, Chiang Rai 57100, Thailand Tel : +66 5391 7137 Email : arcid.social-innovation.school@mfu.ac.th, chinawatch.arcid@gmail.com

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CHINA AND THE MEKONG REGION IN THE NEW ERA

LEI ZHUNING

WITH COMMENTARIES FROM CHALONGRAT CHAROENSRI AND TARIDA BAIKASAME

OCCASIONAL PAPER NO. 5

About the Author: Lei Zhuning, Deputy Director of Institute of Myanmar Studies and former Deputy Director of Institute of Southeast Asian Studies, Yunnan Academy of Social Sciences, China. He had worked with the National Development and Reform Commission (NDRC) and Yunnan Development and Reform Commission (YDRC) to help design the further opening-up policy of Yunnan Province in order to turn the province into a gateway connecting China with South and Southeast Asia. He had also been a consultant of Asian Development Bank (ADB).

About the Commentators: Chalongrat Charoensri, Deputy Director of Asian Research Center for International Development and Lecturer of School of Social Innovation, Mae Fah Luang University.

Tarida Baikasame, Research Associate of China Watch Project, Asian Research Center for International Development, School of Social Innovation, Mae Fah Luang University.

China and the Mekong Region in the New Era

1

Contents  The Mekong Region in Belt and Road Initiative (BRI)  Regional Cooperation: the Difficulties and Challenges  The SWOT Analysis on the China-Laos CrossBorder Cooperation  The Chinese New Immigration in Northern Thailand  China and the Mekong River Commission (MRC)  The Bigger Picture: the Common Challenges  The New Potentials and Opportunities  The Greater Mekong Subregion (GMS) and The Lancang-Mekon Cooperation (LMC)  The Potentials for Deepened Regional Cooperation  Opportunities at Bilateral Levels  The Way Forward for Regional Cooperation

2

The Mekong Region in BRI

3

The Silk Road Economic Belt (which consists of 6 overland corridors) and the 21th Century Maritime Silk Road, i.e. the Belt and Road Initiative (BRI)

Advantageous position of the Mekong region in BRI  The Silk Road Economic Belt  The China-Indochina Peninsula Economic Corridor  The Bangladesh-China-India-Myanmar Economic Corridor (BCIM-EC)  The 21th Century Maritime Silk Road  Multifaceted relations between China and the Mekong Region: Geographical closeness, economic cooperation, historical links, cultural affinities, cross- border ethnic peoples, etc.

4

Regional Cooperation: the Difficulties and Challenges

5

The SWOT Analysis on the China-Laos Cross-border Cooperation

6

SWOT Analysis on Economic Drivers and Competitive Industries in Lao PDR (Luang Namtha) (Sept. 2015) Strengths  Tourism  Agriculture  Strategically located – GMS gateway and logistics hub

Weaknesses  Poor /inadequate infrastructure  Lack of labour force  Lack of capital  Lack of experience in international and regional integration  Weak law enforcement  Little co-ordination between SEZs  Tourism products negatively impacted by non-compatible economic activities

Opportunities  Logistics development  Tourism has large potential  Increased GDP and revenues  Increased domestic FDI  Increased agricultural exports and technology and knowledge transfer

Threats    

Low product quality Rely on foreign labour Illegal migration Road damage due to unregulated environment  Opportunities for agriculture will result in increased use of insecticides and land grabbing  Limited capacity and involvement in value chains.

Source: ADB

SWOT Analysis on Economic Drivers and Competitive Industries in PRC (Xishuangbanna/Sipsongpanna) (Sept. 2015) Strengths  Strategic location  Good transportation network  Hi tech and human resources- including bio-industry, agricultural and food production  Stable border area with shared ethnic heritage  Regional hub airport at Kunming gateway  Rapid economic growth  Good regional cooperation w/ LN  Several areas of complementary competitiveness

Weaknesses  Far from PRC’s main growth centers  Relatively low economic development along the border areas  Limited space for development at the border area  Low efficiency at the border crossing

Opportunities

Threats

 ‘One road one belt’  Economic growth initiative based on  Recently signed consumption of agreement for natural resources Mohan Boten Border  Difficult to attract Economic Zone and retain talent  Series of preferential  Mohan valley investment policies topography limits for this region future growth  Good private sector involvement  Investment in training for skilled labour  Many areas of mutual competitiveness

Source: ADB

7

Comparison of the SWOT Analyses on Both Sides of Lao PDR and PRC  Huge complementarities exist in industrial development.  Both sides face some common problems and challenges, such as poor infrastructure at border areas, lack of skilled labor, etc.  Environmental protection, low value-added of local products, quality of imported products, illegal immigration, etc. are the major concerns of the Lao side  Infrastructure construction/conditions and cross-border transport facilitation seem to be the main concerns of the Chinese side.

8

The Chinese New Immigration in Northern Thailand

9

Reasons for Chinese New Immigration in Northern Thailand 

Improved transport infrastructure and better conditions for cross- border trade and movement of people. With the opening of the 4th Thai-Lao Friendship Bridge over the Mekong River, the travel time Bangkok has been shortened from 48 hours to 20 hours.



Fast tourist development. In 2015,

300,000

from Kunming to

Chinese tourists arrived in

Northern Thailand through self-drive tour. The movie Tai Jiong

(Lost in

Thailand) made Chiang Mai a hot spot for Chinese tourists in 2012. Nearly 2 million Chinese visitors went to Chiang Mai in that year alone. 

Education centers in Northern Thailand have attracted Chinese

students.

Since 2000, universities in Northern Thailand have received around 100,000 students from China. One third of them have chosen to stay in Thailand after graduation and one fifth of them have got married

Impacts of Chinese New Immigrants on Northern Thailand 

The positive effects: 

Promote economic development and infrastructure construction, and strengthen Sino-Thai economic and cultural exchanges and cooperation.



The negative impacts: 

Northern Thailand has limited capacity to accommodate the explosively growing number of tourists and migrants.



Growing tourists and migrants push up the price level, causing discontent among local people.



Crime cases related to migrants are also increasing.



Cultural and language barriers between the new migrants and local people generate misunderstandings, social problems and even conflicts.

10

Regionally speaking, new trends are emerging  China now needs more labors and is preparing herself for receiving more migrants, and the cross- border migration is increasingly becoming two-way.  F.I. more than 100,000 migrant workers, students and traders from Myanmar now stay in Dehong Prefecture in west Yunnan which borders with Myanmar.  “Border people” from Myanmar, esp. Those from Shan State can stay in China for 7 days for one entry with the Border People's Pass.  There is sign that some migrants may return to higher income level there.

11

China due to

China and the MRC

12

China's Cooperation with the MRC  China and Myanmar are only dialogue partners of the MRC  The MRC and China maintain a cooperative relationship  The most important cooperation program between China and the MRC is the exchange of hydrological data, which is of vital importance for flood prevention, river navigation and the protection and allocation of water resources.

The Argument on Whether China Should Join the MRC in China  Some Chinese experts argue that hydropower development on the Lancang River has both positive and negative effects on riparian countries downstream. As a result, it would be near impossible to get unanimous approval of riparian countries for hydropower development on the mainstream Lancang River.  China sees that the stipulations of MRC's 1995 agreement will have restrictive effects on its water utilization within Chinese border if it joins the MRC.  China also doubts the MRC's neutrality or its “ownership”, as the organization is financially supported mostly by donors from outside the Mekong region.  China shares a concern as to what extent the MRC can actually enforce the 1995 Agreement and other decisions taken within the organization, or whether it is rather a subsidiary to the national interests of its member states

13

China also has much to gain from joining the MRC  Becoming a full member of the MRC will deepen mutual trust between China and the MRC member states  Joining the MRC by China will facilitate regional and integration.

cooperation

China responds to concerns of lower Mekong countries  China had planned to build project to control and ameliorate the disruption of the natural river flow caused by power generation of hydropower stations upstream.  Chinese officials have shown a more cooperative attitude towards the concerns of the MRC and other riparian countries.  More cooperation on regional water-resource management is expected through the newly established Lancang-Mekong Cooperation (LMC) mechanism.

14

The Common Challenges in a Bigger Picture -- Why we need the second generation Regional Cooperation and Integration (RCI v.2) ?

15

Why we need RCI v.2?  Since 1960 s’, Asia’s successful mobilization of resources and improved productivity has been key to Asia’s rapid economic growth. Now we are facing a different picture.  On the demand side, when the Asian financial crisis (AFC) and global financial crisis (GFC) hit, growth began decelerating. As a result, since the Asian Financial Crisis, developing Asia’s growth in total factor productivity (TFP) has been slowing down, and tumbling again—particularly sharply since GFC.  Supply side constraints: there are structural bottlenecks such as institutional constraints, limited human resources, and inadequate infrastructure connectivity that constrain productivity.

Productivity not improving

Source: Asian Regional Cooperation and Integration (RCI) Roundtable Conference at ADB headquarters, Nov. 2014, Manila, the Philippines

16

Disparities are growing

Source: Asian Regional Cooperation and Integration (RCI) Roundtable Conference at ADB headquarters, Nov. 2014, Manila, the Philippines

 Asia clearly faces the challenge of how to arrest and reverse this decelerating productivity trend and reduce inequality.

The regional disparity remains a problem  Sea ports play an important role in the region  Major cities, production and logistics centers are distributed along the coastal areas

Source: Howard Dick and Peter J. Rimmer (2003) Cities, Transport and Communications: The Integration of Southeast Asia since 1850. London: Palgrave Macmillan. Quoted from ADB consultant Prof. Douglas Webster

17

Lack of Innovation

Source: Innovation Networks and the New Asian Regionalism – A Knowledge Platform on Economic Productivity，Hans-Peter Brunner, ADB

Lack of Endogenous Drivers for Economic Development  Less-developed countries (LDCs) in the region taking similar development paths of the “ Four Little Dragons” and the Newly Industrialized Economies (NIEs)  LDCs depending on the labor-intensive, industries  LDCs competing for foreign direct overseas markets

18

export-orientated

investment ( FDI) and

Comparison of Intra-ASEAN trade in 2006 and 2014 Intra-ASEAN trade in 2006

Country

Value (million USD)

Intra-ASEAN trade in 2014

Share to total trade (%)

Value (million USD)

Share to total trade (%)

Brunei Darussalam

2633.2

28.9

3860.7

27.2

Cambodia

1226.5

19.1

7615.5

25.7

Indonesia

37862.3

23.4

90725.3

25.6

Lao PDR

790.5

79.8

3496.3

64.9

Malaysia

73270.2

25.7

118965

26.9

Myanmar

3324.4

59

11455

42

Philippines

18410.5

18.6

25370

19.6

Singapore

146102

28.6

203196.4

26.2

Thailand

50484

20.3

102725.3

22.6

Viet Nam

18667.7

24.2

40797.7

13.9

352771.4

25.1

608207.2

24.1

ASEAN

Data source: http://www.aseansec.org/18137.htm accessed in 2008; http://asean.org/resources/statistics accessed in June 2016

For LDCs in the region: more outside and internal challenges  The development of the export-oriented, labor-intensive industries is now facing more challenges  The demand side problems: The American and European markets are not improving after the 2008/2009 crisis  The supply side constraints in LDCs:    

Infrastructure problem Human resources problem Lack of Indigenous technology Lack of Industrial clusters

 Competition among Asian neighbors 19

A race to the bottom?  Development of the export-oriented, labor-intensive industry shoud be taken as just an initial stage of industrialization development.  Labour-intensive---capital-intensive---knowledgeintensive  Factor-driven---capital-driven---technology-driven--innovation-driven  However, there is danger of falling into the "low-tech trap"  Competition among regional neighbors for FDI and overseas market: have to use lower costs of labor and land to gain the upper hand  The difficulty to upgrade the industry and climb the global value chain grows as a result of rash and hastened opening-up of domestic market, dissolving of state-owned enterprises, weak state capacity, low R&D investment which restricts indigenous tech development  Competition to reach free trade pacts with outside countries may result in a lose-lose situation/zero-sum game for regional neighbors

For middle-income countries in the region: the middle-income trap  On the one hand, sustained growth and poverty reduction have pushed more and more Asian economies into middle-income status.  Meanwhile, many Asian economies face the risk of falling victim to a slowdown in productivity and growth.  ADB warns that 11 Asian economies—including China and India—now face the greatest risk of getting mired in the “middle-income trap”.

20

Other Challenges to RCI ď Ź Other factors, e.g., non-tariff barriers, transparency problems, border trade restrictions and bottlenecks on cross-border transportation, etc., are also hampering regional integration. ď Ź Promoting regional cooperation and achieving regional integration will be a long, gradual, and sometimes arduous process.

21

The New Potentials and Opportunities

22

The GMS and LMC

23

Major issues under discussion for RCI v.2  RCI v.2 to address the issues that RCI v.1 hadn’t done well  More investment in Infrastructure construction  Strengthen policy coordination and harmonization (pay more attention to the “software” environment  Establish regional value chain and promote innovation to improve productivity (GDP growth ≠ development )  LMC probably more in line with the need for RCI v.2 and may in reality become a pilot project of it.  LMC's success will largely depend on whether it can deal with the challenges more effectively and efficiently.

The GMS  Started in 1992, GMS has become an example of subregional cooperation and South-South cooperation  GMS in need of upgrading

Source: ADB

24

GMS and LMC: the Differences and the Complementarities

GMS

LMC

Geographical Area

Cambodia, Lao PDR, Myanmar, Thailand, Viet Nam, China (Yunnan & Guangxi)

Cambodia, Lao PDR, Myanmar, Thailand, Viet Nam, China

Focus of Development

Poverty alleviation and development of CLMV, as China and Thailand considered as "graduated students", mainly participating in TA programs

More investment in regional connectivity, int’l cooperation on production capacity (industrial development, technology transfer, regional production chain etc.)

Mainly in economic cooperation

All-round cooperation, including political and security, economic development, social programs and people-people contact

Cooperation Areas

ď Ź LMC and GMS will complement each other

25

The Potentials for Deepened Regional Cooperation

26

The Potential: Regional Market Access  The Chinese market: world’s No.1 in terms of the trade in goods since 2013

volume of

 China has been trying to rebalance its economy, partly by promoting urbanization to boost domestic demand to address the problem of over-dependence on export and investment  West China has been developing faster than East China since 2007, and will further opening up to neighboring countries  China continues to open up its market through concrete measures including promotion of importation. F.I. the 1st China International Import Expo will be held in Nov. 2018 in Shanghai

The potential for cooperation in infrastructure development is huge Status of the Asian Highway Network in Countries in the Region (05 February 2016 Primary

Class I

Class-II

Class III

Below Class III

Total

km

km

km

km

km

km

China

8437.20

230.27

1854.54

320.78

4.49

10847.28

2015

Lao PDR

0.00

0.00

244.00

2307.00

306.00

2857.00

2010

Myanmar

0.00

320.26

574.74

1702.08

1927.91

4524.99

2015

Thailand

616.80

4122.84

598.40

202.09

0.00

5540.13

2014

Cambodia

0.00

0.00

610.00

1346.00

0.00

1956.00

2015

Viet Nam

0.00

967.47

1872.21

281.47

0.00

3121.15

2015

Country

Source: UNESCAP

27

Status (Year)

Development of Transport Infrastructure on China Side  Total mileage of expressway reached 138,700 km by the end of 2017, World's No.1  Total mileage of high speed railway reached 25,000 km by the end of 2017, World's No. 1 and accounting for 66.3% of world total mileage of high speed railway  7 of the top ten world's busiest container sea ports are in China

Highspeed Train Station in Wuhan, Hubei Province, China

Prioritized and Fast Development of Transport Infrastructure Contributes Hugely to China's Economic Development  Effects of prioritized development of transport infrastructure：  Optimize the distribution of resources within the whole country, improving the overall economic efficiency；  Release the economic potentials of formerly land-locked interior areas;  Provide new domestic market space for stable and sustainable development of Chinese economy.

28

Development of Transport Infrastructure in Yunnan, China  Total mileage of expressway in Yunnan reached 4,921 km by the end of 2017  Target: 10,000 km in operation by 2020  Railway under construction in Yunnan reached 2,600 km by the end of 2017  Target: 5,000 km in operation by 2020

Yunnan's Connectivity with Neighboring Countries  Expressways from Kunming to major border ports with Myanmar, Laos and Viet Nam have been put into operation.  Railway from Kunming to Hekou (at China-Viet Nam border) was completed in 2014.  Railway from Kunming to Vientiane, Laos via Mohan-Boten will complete by 2022.  The Kunming-Dali high speed railway began operation in July 2018, covering 330 km in 2 hours. It is hugely popular among tourists and has been making profits from the very beginning.  The Dali-Ruili railway construction is expected to complete by 2022.

29

Kunming, the capital of Yunnan Province has been connected with Beijing and Shanghai with high speed railways

The Beijing-Kunming high speed railway, the longest in China, began operation in early 2017, covering 2760 km in 11 hoursďźŒsaving 23 hours.

The Shanghai-Kunming high speed railway began operation in Dec. 2016. A total length of 2252 km can be now covered in 8 hours, saving more than 12 hours.

30

Potential for Financial Cooperation  If a project has sound economic basis and applicable debt service plan, then loans should be sought after.  The financing solution provided by China’s competitive.

banks are allover

 Implement projects based on BOT ( Build- Operate-Transfer) terms  Mobilize funds from the private sector through PPP ( PublicPrivate Partnership)

Explore other financial means and sources  Explore the possibility of trade in kind or “barter trade” F.I. rice for highspeed train, natural gas for electricity  Explore new financial resources, F.I. Asian Investment Bank (AIIB)’s role: the Project (gas turbine

Infrastructure

Myingyan Power Plant

power plant) in Myanmar had been

approved by AIIB for loans of US$20 million in Sept. 2016

31

How to reduce the debt burden while carrying out large-scale infrastructure construction?

The Case of Guizhou Province of China  Area: 176,167 Sq. Km, of which 92.5% is mountainous area.  Population: 35.81 million (2017)  GDP Per Capita: RMB 38000 (2017)

 GDP growth rate: 10.2% (2017)

The Phenomenal Transport Infrastructure Development of Guizhou Province in Recent Years  10 years ago, expressway in Guizhou was less than 1,000 km.  By 2015, expressway had reached all the 88 Guizhou

counties in

 By 2017, total length of expressway reached 5,800 km  Ambitious Target: by 2020, total length of expressway reaching 10,000 km and linking all the townships in Guizhou.

32

Expressways in Guizhou Province

How can Guizhou make it?

-- adopting innovative financing models  BOT (Build-Operate-Transfer) + EPC (Engineering- Procurement - Construction): for projects with good economic returns  BOT + EPC + government subsidies: for projects with less economic returns  Equity Cooperation (PPP + government investment) + EPC + government subsidies in operation period : for projects which are money-losing but will bring huge overall social and economic benefits  In any case, government investment alone is far from enough.

It is necessary to fully mobilize financial resources from the businesses and the private sector

33

Potential for Regional Transport and Logistics Cooperation  China has opened International passenger and cargo transportation routes with 14 neighboring countries through 70 land ports by Sept. 2016  China-Europe Railway Express trains have been running for more than 10,000 times by Aug. 2018  International freight trains has been in operation between China and Viet Nam since Dec. 2017  China-Viet Nam-Laos railway-cumroad cargo transportation in operation since 2016

The China-Europe Express Trains link 48 Chinese cities with 42 European cities

34

The success story of the ChongqingXinjiang-Europe railway and what we can learn from it  The “Chongqing-Xinjiang-Europe” railway cargo transportation line has been put into operation since 2011, which passes through 6 countries (China, Kazakhstan, Russia, Belarus, Poland and Germany), covering 11,179 km within 12 days, with only one single customs check  By comparison, the cross-border transportation through the Kunming-Bangkok highway has to go through customs checks 4 times, i.e. at Mohan (China), Boten (Laos), Houayxay (Laos), and Chiang Khong (Thailand)

The Potential for Industrial Cooperation  Excess production capacity of China and the growing production costs in China  Export-oriented labor-intensive industries in China are relocated in interior China or moving out to neighboring countries  China has become a major source of FDI for other LDCs.  China can help develop various industries and transfer technology and knowhow to neighboring countries  Agricultural Cooperation:  China can provide appropriate agricultural technologies;  Export of agricultural products to Chinese market is promising, esp. the organic food.

35

Opportunities at Bilateral Levels

36

The China-Myanmar Economic Corridor  MOU on jointly building the China-Myanmar Economic Corridor signed on Sept. 9, 2018  Transport infrastructure construction, including road, railway and inland water way development  Cross-border cooperation  Kyaukphyu SEZ's development: planning in long term perspective

Spatial Planning of Myanmar

Other Potentials for MyanmarChina Cooperation  More SEZs and industrial parks in or near Yangon (for generating more jobs in labor-intensive export oriented industries)  Agriculture products trade and processing centers in Mandalay, Lashio (catering to Chinese market)  Cross-border power transmission and power trade  Cooperation in tourism, IT, environmental protection, finance, and poverty alleviation

Source: Public Works of Myanmar

37

Viet Nam: taking-off is beginning

“Two Corridors and One Belt” Cooperation between Viet Nam and China

 “Two Corridors and One Belt” and the Belt and Road Initiative (BRI)  Border trade and border economic cooperation zones (F.I .Lao Cai-Hekou)  Hanoi-Lao Cai Expressway opened in Dec .2014  Promote tourism development and poverty alleviation in the Northwest together with China and Lao PDR

The Kunming-Lao Cai-Hanoi-Hai Phong Economic Corridor  Kunmin – Lao Cai – Hanoi – Hai Phong Economic Corridor is the arterial road connecting north mountainous provinces of Vietnam and Yunnan of China  Lao Cai as a regional processing and logistics center  Objective: To make Lao Cai Border Economic Zone into an international level border economic zone connecting ASEAN with East Asia.

38

Cambodia: at an important development stage Road System of Cambodia

Siem Reap

Stung Treng Battambang

Kompong Cham Phnom Penh

National Network Frame Backbone National integration Multi growth pole

Sihaknoukville

Isolated provincial capital

 The Rectangular Strategy for Growth, Employment, Equity and Efficiency is compatible with BRI  Agriculture cooperation  Transport, energy and power infrastructure development  Undertaking industrial transfer and promote tourism development to create more jobs  Human resources development  Cultural cooperation (F.I. the dancing performance “Smile of Angkor”)

Lao PDR: from land-locked to land-linked

Railway Development Planning of Lao PDR

 The Boten-Vientiane Railway is planned to be completed by the end of 2021  Mohan-Boten Border Economic Cooperation Zone  Promote regional power interconnection and power trade  Promote tourism development  Agriculture cooperation  Poverty alleviation cooperation

Source: Public Works of Lao PDR

39

The China-Lao Railway: its role in regional tourism development and addressing regional disparity Major GMS Tourism Zones

Major Sea Ports in GMS

Source: ADB

Source: ADB

Night Map of GMS

Thailand: in need of new drivers for economic development

The Eastern Economic Corridor (EEC) of Thailand

 “Thailand 4.0” development strategy and “Made-in-China 2025”  The Eastern Economic Corridor (EEC) with BRI: development of sea ports and industrial parks  Tourism development  Cross-border e-commerce development

40

Cross-border E-Commerce and Cashfree Technologies Will Release Huge Market Potentials

Chinese travellers now can do shopping in Thailand using Wechat/Alipay at shops such as 7- Eleven outlets without using cash and at preferential exchange rate.

Chinese consumers now can buy products thru Taobao APP from Thailand (F.I. King Power online shop) directly using smart phones.

The only problem is that the customs clearance takes relatively longer time, sometimes about 2 weeks at Mohan (the port at China-Lao border).

41

The Way Forward for Regional Cooperation

42

Further Strengthening Regional Cooperation is Necessary  Deepened regional cooperation is particularly important in a time of more outside shocks/uncertainties  The need to pay more attention to inclusive growth and sustainable development, combining economic cooperation with poverty alleviation and environmental protection  The need to shift areas of cooperation from resource extractive industries and infrastructure to fields such as new energy, power interconnection, and service industries including tourism, logistics and finance  The necessity to improve the mode of cooperation, with better sharing of benefits among stakeholders

The Importance of Policy Coordination and People-to-People Connectivity  Promote policy coordination and harmonization. Multilateral regional cooperation such as LMC requires further coordination on various development plans and policies.  Strengthen people-to-people connectivity to enhance mutual trust and understanding among the peoples in the region is ever more important, which serves as the very basis for closer all-round cooperation

43

More flexible arrangement: following the win-win principle  Gradual opening-up instead of rash, not well thought-of and well prepared opening-up  Market force plus strong state capability and effective regional cooperation mechanisms to look beyond provincial interests, coordinate policies and redistribute the benefits more fairly.  More preferential treatment by China (such as market access) to the countries in the region to help them come along

To promote endogenous development  Endogenous development: self-sustainable catering to the need of the region, not overseas markets.

development over dependent on

 Promote the development of tourism, logistics, featured agriculture, content industry, featured urbanization by fully tapping this regions’ comparative advantages  Promote development of border areas and dry ports  Promote inclusive growth, sustainable development regionally balanced development

44

and

The Vision for Future  China was a very poor country 40 years ago. Its GDP per capita was at USD 8,800 (2017) and is estimated to become a highincome country by around 2022 (GDP per capita 12,000).

reaching

 There are now more complementarities than competitions between China and countries in the Mekong region. F.I. China's industries are shifting out to neighboring countries and China's market is further opening up.  It is quite possible for countries in the region to realize faster development by fully tapping the potentials and opportunities provided by deepened regional cooperation.

45

Commentary The Chinese Dream and Mekong Sub-Regional Integration Chalongrat Charoensri Since the end of the Cold War in 1991, a significant political change in international relations which can draw the attention of various analysts is the regionalism enhancing the bargaining power of small states or developing countries in different international power plays.

Regional economic integration was initiated in many parts of the world when both cooperation and conflict were overlapped especially on trade and development. Countries along the Mekong River in mainland Southeast Asia like Cambodia, Lao PDR, Myanmar, Thailand, and Vietnam were at the crossroads after the ideological conflict faded away. Regional integration in the name of the Association of Southeast Asian Nations (ASEAN) was proposed as a principal model while the other imperative, like locating close to China, led to the other model of cooperation, i.e., the Greater Mekong Subregion Economic Cooperation (GMS-EC) which was an attempt to seek for more cooperation and mutual economic prosperity and development among the Mekong countries and Yunnan province of China.

Professor Lei Zhuning’s special lecture on “China and the Mekong Region in the New Era” at Mae Fah Luang University, Thailand on September 18, 2018 illustrated the development of the sub-regional economic integration from the model of the GMS as the first version to the LancangMekong Cooperation (LMC) as the second one strongly supported by the Beijing government. The core message of the lecture is to emphasize the importance of binding the sub-region with the LMC as this is ‘more in line with the need’, and further activities in cooperation and development will be more effective and more efficient with the comprehensive cooperation (not only economic cooperation but also other aspects of international cooperation such as security, politics, social development and people-topeople relations) at a time when Beijing will pay full attention to this region as development partners.

Apart from the integration model, China also tries to extend the tailor-made bilateral cooperation with each country of the region in accordance with their specific development schemes. Notable examples are the Memorandum of Understanding on China-Myanmar Economic Corridor signed recently in September 2018, Two Corridors and One Belt between Vietnam and China and other logistics facility construction projects through the Belt and Road Initiatives (BRI), economic development and industrialization in Cambodia, Railway Development Planning and Special Economic Zones in Lao PDR, and the support for Thailand 4.0 46

development strategy in Thailand. All of these attempts seem to aim at tightening the relationships between China and her southern neighboring countries both multilaterally and bilaterally in addition to the GMS-EC (supported by Asian Development Bank-ADB) as another choice.

This act could be perceived as the attempt to connect other nations’ dreams to its ‘Chinese Dream’ (Zhonggou Meng) which has been continually repeated by Chinese President XI Jinping in many occasions in China and aboard since 2012. The original idea of this slogan is for the great revival of the Chinese nation with ‘Socialist market economy with Chinese characteristic’. As outlined by KUHN (2013) in New York Times, crucial elements of the Chinese Dream consist of: (1) Strong China (economically, politically, diplomatically, scientifically, militarily); (2) Civilized China (equity and fairness, rich culture, high morals); (3) Harmonious China (amity among social classes); and (4) Beautiful China (healthy environment, low pollution) so as to achieve the goal of the “Two 100s”, i.e., the 100th anniversary of the Chinese Communist Party in 2020 and the 100th anniversary of the People’s Republic in 2049.1 After that, Xi’s idea has been elaborated by Foreign Minister Wang Yi in his speech delivered to the Symposium on International Developments and China's Diplomacy in 2017 when he pointed out that “the Chinese Dream is increasingly linked with the dream of the world”2. According to the speech, win-win cooperation, fair and equitable governance, and balanced and inclusive development in the age of globalization through international development programs especially the BRI will be the major instruments for enhancing good relationship between Beijing and the rest of the world. Aiming at the accomplishment of the moderately prosperous (xiao kang) society, Chinese foreign policy implementation must work handin-hand with other policies in order to expansively support its people.

Therefore, merging other countries to China’s sphere of influence to create opportunity for the Chinese people in different parts of the world is one way to chase such dream.

The LMC becomes another mechanism for China to ensure the prosperity for the Chinese people of the inner provinces as well as the 1

Robert L. Kuhn. (2013). Xi Jinping’s Chinese Dream. https://www.nytimes.com/2013/06/05/opinion/global/xi-jinpings-chinese-dream.html (Retrieved on 11 October 2018) 2 Speech by Foreign Minister Wang Yi at the Opening of Symposium on International Developments and China's Diplomacy in 2017 (Delivered on 10 December 2017) https://www.fmprc.gov.cn/mfa_eng/zxxx_662805/t1518130.shtml?utm_content=buffer0899b&utm_me dium=social&utm_source=twitter.com&utm_campaign=buffer (Retrieved on 10 October 2018)

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interest of the people from other provinces. It is hoped that assorted kinds of transborder investments for mutual development between China and the sub-region would vitalize the economy of the area after spending huge amount of funding to improve the basic infrastructure and supporting systems.

It seems that the ‘dream’ is also localized to the people at the border area and its vicinity for having a better life through embracing this opportunity. One concern is the readiness of the target countries in the sub-region for dealing with the influx of the Chinese Dream (and also Chinese people) which might go beyond the capability of the local people to handle it.

Many cases of concessional area development projects, increasing number of Chinese and joint venture of agricultural produce compradors, and growing number of tourists and migrants in the sub-region are the major challenges to the sub-regional growth. Moreover, the introduction of innovation-driven industry to the area could be a problem while there is still a wide gap between the capacity in innovation development between China and GMS countries. If the appropriate capacity building especially human resource development and innovation development is not brought about, the dream would become a nightmare in a few years to come.

While China’s new design of LMC continues, the other competing major power like Japan is also trying to tighten its ties with GMS partners through Mekong-Japan Cooperation since 2008. Lately, as a result of 10th Mekong-Japan Summit, the leaders of Japan and GMS countries have adopted the Tokyo Strategy 2018 for Mekong-Japan Co-operation in the period of 2019-2021 to mutually pursue sustainable development in the sub-region especially on the utilization of the Mekong River.3 The balancing act of GMS countries with the major powers is likely to be the only choice to be made.

The increasing influence of China in the sub-region is still an important concern for GMS countries, especially in terms of over-dependency on China’s aid and other kind of assistance which facilitates Chinese politicoeconomic presence in this area as the great patron of their economic transformation in the 21st Century.

Aid and public investment might be good for improving the physical infrastructure and people’s well-being and strengthening the political ties among parties. However, the consequence from the influx of Chinese

3

Ministry of Foreign Affairs of Japan. Tenth Mekong-Japan Summit Meeting to be held in Tokyo.

(Released on 4 October 2018) https://www.mofa.go.jp/press/release/press4e_002182.html (Retrieved on 11 October 2018)

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companies and people might lead to some extent of mistrust. From my perspective, working hard on confidence-building with the GMS countries is the important task for Beijing. Professor Lei’s suggestion on people-topeople connectivity enhancing is necessary but the governments of LMC should not consider this as only a political gimmick. Connectivity among people should not be limited to facilitating the Chinese to connect with GMS countries as guests or business partners. It should rather be extended to the mutual understanding and respect among each other in order to establish the sub-regional economic integration for all and for the Chinese Dream to connect smoothly with other countries’ dreams.

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Commentary People-to-People Relations in the China Era Tarida Baikasame Prof. Lei Zhuning’s lecture on “China and the Mekong Region in the New Era” was very interesting and informative. It was very useful for anybody who is interested in China and the Mekong region issues. The lecture showed that China and Mekong countries, comprising Thailand, Laos, Cambodia, Vietnam, and Myanmar, have regional cooperation in various fields, especially in the developmental projects. They work together both in multilateral cooperation such as in the Belt and Road Initiative (BRI), the Greater Mekong Subregion (GMS), and the Lancang-Mekong Cooperation (LMC) and in bilateral cooperation in the Mekong region.

For example in Myanmar, China and Myanmar have just signed a Memorandum of Understanding (MOU) on jointly building the “ChinaMyanmar Economic Corridor” on September 9. The MOU will have infrastructure projects and create the Kyaukphyu Special Economic Zone (SEZ). In Vietnam, there is “Two Corridors and One Belt” cooperation between Vietnam and China and the Kunming-Lao Cai-Hanoi-Hai Phong Economic Corridor. Moreover, China invests in Thailand’s mega project “The Eastern Economic Corridor (EEC)”. It supported high-speed railway projects in Thailand, Laos, and Cambodia in order to advance the BRI. Prof. Lei also mentioned about the challenges China and Mekong countries have been facing together such as the regional disparity, the lack of innovation, and middle-income trap.

It can be seen from the lecture that China and Mekong countries can do very well in government-to-government relations as they have reached many projects for cooperation. However, it lacked information on the perspective of people-to-people relations or from the ground level. The development that China has brought into these countries has not only positive effects but also generated local resentment on Chinese behavior, environmental damage, and cultural insensitivity.

China is rising and it comes to this region with its money in the form of loans and aids. It can be said that this is China’s era. The Mekong River creates ties among China and Mekong countries. Such ties create not only relations, but also conflicts. China has built 6 major dams and plans to build another 21 dams in the country. China has also supported hydropower projects in the countries along the river. In Myanmar- the upstream country50

China financed it to build the Myitsone dam in the Irrawaddy River. In case of Laos, there are many China-backed hydropower projects such as the Pak Beng dam and the Pak Lay dam in the Mekong River, the Nam Khan 3 hydropower project, and the Nam Beng dam. These projects would help the Lao government’s goal to become the “Battery of Asia” and rise out of the Least Developed Country status by 2020.

Apart from building dams, China has planned to blast the Mekong River to serve big cargo ships but without environmental concerns. The dams and blasting will affect the river and people whose livelihood depends on it. The water level of the river does not follow the seasons. The blasting will change the way the river flows. It also affects people’s livelihoods, fisheries and local agriculture in the Mekong basin. The local people have been displaced and the compensation for them is not worth what they have lost. The perception of the local people along the river is that the Chinese are damaging the environment.

There were protests on the Mekong River issues. In 2017, a group of local activists and environmentalists in Thailand protested against the blasting plan on the Mekong River proposed by China. They called for the gathering of environmental information and public opinion. Finally, China had to postpone its plan. Since the construction of Myitsone hydropower dam in Myanmar, environmentalists and local residents have been staging protests many times, calling for their government to cancel this project.

Chinese firms and businesses are also creating problems. They set up investment hubs in Mekong countries. They have to exploit local natural resources and destroy the environment in order to build their business empire. Chinese businesses do not support local living conditions and upgrade their quality of life. The hubs are built and also run by the Chinese.

Therefore, they do not create jobs for locals. Some of the activities are not allowed or illegal in the country. Take a look at Cambodia’s Sihanoukville City, once a sleepy city. Now it has become a Chinese business hub as it is an important sea port which is a part of China’s BRI routes. It is full of hotels and resorts run by the Chinese. It has casinos for foreigners despite gambling are banned in Cambodia. There are prostitution rings which are illegal in the country. These business hubs increase more crimes in the city as well.

Locals are discontented with the special economic zones (SEZ). The establishment of special economic zones without participation from the locals and environmental concerns can create local resentment and anger.

Special Economic Zones need land to build business hubs, factories, and industries. Some locals have lost their farmland and the project does not provide job opportunities as promised or publicized. In 2015, the 51

Kyaukphyu SEZ in Myanmar was announced despite protests from more than 100 civil society groups, calling for the government to suspend or postpone this project. China wants to build the oil pipeline in the Kyaukphyu port, aiming to transport oil and gas from the Middle East through the route along a Kunming-Kyaukphyu railway. Experts said that this project violated Myanmar’s environmental laws. The protests wanted this project to be implemented with transparency, accountability, and responsibility.

What happened in Myanmar is also happening in Vietnam. In recent years, Vietnamese protested against three new SEZs in Quang Ninh Province, Khanh Hoa Province, and Phu Quoc Island. Some SEZs would allow Chinese 99-year leases. Vietnamese see these as attacks from China, their largest trading partner that would dominate investments in the SEZs. Hundreds of Vietnamese on the street in different parts of the country protested against these proposals, calling for adjustments.

In case of Thailand, there is a protest against the potash mine project set up by China Mingda Potash Corporation in Wanon Niwat District, Sakon Nakhon Province. In 2016, more than 500 villagers gathered at the district office to oppose the local mining project. Early this year, they blocked the entrance to the drilling site from the Chinese potash exploration team. They criticized the authorities for abandoning human rights protection and working in favor of the Chinese mining company. They want to protect the community, farmland, and environment. They see the potash mining project as a threat to their living. This project will affect the land in the area. Underground mining can destabilize land causing it to sink. In addition, the salinity intrusion will damage the farmland and pollute the rivers.

It can be seen from many situations above that China comes to this region with money and mega projects. It always claims that these projects are to promote “win-win cooperation”. But China’s money comes with conditions. The projects are created by the Chinese and support the Chinese.

China gives money to Mekong countries in the form of loans that they could not pay back. Therefore, this create nothing but more debts. It seems that China is trying to use the “debt-trap diplomacy” in this region.

The influx of Chinese people also raises problems in this region.

Notably, Chinese tourists misbehave around Mekong countries. They do not observe rules, regulations, cultures, and traditions of other countries. This happens even in Thailand where the people are quite tolerant of foreigners.

Thai comments on Chinese tourists are negative, such as their spitting, cutting into lines, littering, not following traffic laws, defecating in public areas, over eating and filling up bags at buffets. Thais are not the only ones unhappy with Chinese tourists but also other people around the region.

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Chinese immigrants and workers who work for infrastructure projects in Mekong countries have a problem in integrating with locals. They are looked as aggressive, noisy, unruly, and disrespectful of local cultures. Locals try to understand the Chinese. They may know that Chinese misbehavior as they see in the media does not reflect the behavior of the entire nation.

Nonetheless, locals still say that “we don’t like the Chinese, but we need their money”. It seems they are living in the so-called “love-hate relationship” with the Chinese. It seems that locals have no choice but to welcome the Chinese because of the dollars they bring in even they disagree with the governments and business sectors in their countries. The disaffection about China’s rising, its money and people creates anti-Chinese sentiments across Mekong countries. This may have negative effects on Chinese businesses and people.

The anti-Chinese sentiments can lead to violence such as incidents in Laos targeting at the Chinese. Back in 2016, there was a series of attacks on the Chinese in Laos. Chinese were killed and some were injured in Luang Prabang. They worked for a logging company that was clearing land for a dam. There was also a bombing attack in Xaysomboun in the same year, killing Chinese workers from the China-based mining firm. In 2017, some Chinese were shot in Xaysomboun. These were all because of the growing disaffection with China’s rising economic influence in Laos and local disagreements with their government. In Myanmar, there were hundreds of striking workers attacking the factory run by Hangzhou Hundred-Tex Garment (Myanmar) Corporation in Yangon in 2017. The factory employed local workers and Chinese managers. Local workers rushed into the factory, crashed windows, doors and other equipment. They detained Chinese staff members and took away their belongings. The Chinese staff members were helped by the Chinese Embassy in Yangon and local police.

It may be risky for the Chinese to live and travel in the Mekong countries in the light of the anti-Chinese sentiments. The trend is, there is the rise of nationalism in these countries as a result of the negative effects of Chinese business activities. Mekong countries have to protect themselves from over-relying on China. For many locals, China’s money and people are external threats. They also face internal threats when greedy governments and firms allow the Chinese to do what they want even if the activities are banned or illegal in the country. Most of the local people in Mekong countries live under communism or military governments. They have limited power to express their rights and freedom. They have less capacity to negotiate and protect their benefits. This may benefit socialist China to expand its influence in this region. However, for local people who have no options for them to solve their problems, the more pressure they have, the more violent they may choose.

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People-to-people relations may go into the opposite direction of government-to-government relations between China and the Mekong region. Perhaps it is time for China and Mekong countries to pay more attention to the relations on the ground level and strengthen people-topeople exchanges, enhance people communication and reduce anti-Chinese sentiments. This could be done by trying to understand the locals, improving the performance of Chinese firms and their staff, and deepening bilateral and multilateral cooperation. Because if China lets this anti-Chinese sentiments to continue, it has to pay a high cost. The cost could affect the livelihood of its people. Chinese President Xi Jinping has always stressed the phase “a community with a shared future for mankind�. This shared future is not just for some people, but for all people. Benefits should be shared with everyone. We should not leave anybody behind.

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OCCASIONAL PAPER SERIES

1. Bilveer Singh, “The Threat of Terrorism in ASEAN – Focus on Indonesia”, 2017 2. Nguyen Anh Thu , Vu Thanh Huong, Le Thi Thang Xuan, “Vietnam’s Trade Integration With ASEAN + 3 : Trade Flow Indicators Approach”, 2017 3. LEE Yo-Han, “Korea’s Policy on the South-South Cooperation and the Triangular Cooperation with ASEAN Countries: Focusing on Thailand”, 2018 4. Sueo Sudo, “Japan and ASEAN in the Global Insecurity Context”, 2018 5. Lei Zhuning, “China and the Mekong Region in the New Era”, with commentaries from Chalongrat Charoensri and Tarida Baikasame, 2018

All enquiries for the Occasional Papers should be sent to the following address: ASIAN RESEARCH CENTER FOR INTERNATIONAL DEVELOPMENT (ARCID)

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