People’s Republic of China’s economic diplomacy instruments in Southeast Asia-chosen aspects

The paper presents the issue of China’s use of economic diplomacy instruments in Southeast Asia. The authors have chosen those they consider to be the most important ones, and their use in Southeast Asian countries has been presented. The goal of the paper is analyzing the role of selected economical instruments used by the China’s government in Southeast Asian countries, and answering the following questions: which economical instruments are used by China in the region?; how important is People’s Republic of China as a trade partner for SEA states?; what is the role and scale of Chinese direct investment in Southeast Asian countries, including the Belt and Road Initiative?; what are the consequences of China’s activities for SEA countries? The methodology of the paper is based on literature review and statistical data analysis. The results show that China has become an important trade partner and a source of FDI for the SEA region, especially for less developed states. Countries such as Cambodia, Lao PDR or Myanmar (which are corrupt and fragile) are areas of PRC economic expansion, which also enhances PRC political influence in the region.


Introduction
China is a sleeping giant. Let her sleep, for when she wakes she will move the world -Napoleon Bonaparte is supposed to have said that over 200 years ago. Actually, even if these words were not spoken, China woke up and transformed the world economy and politics. After the period of 'national humiliation' (Wang 2012) (when China was a victim of Western colonialism, tsarist Russia's expansionism, and Japanese militarism and imperialism) and socio-economical experiments by Chairman Mao Zedong, in the end of 1970s People's Republic of China (PRC) initiated pro-market economic reforms, including the 'Open Door policy' and trade liberalisation. The results were spectacular. According to the U.S. Congressional Research Service, since opening up to foreign trade and investment and implementing free-market reforms in 1979 China has been among the world's fastest-growing economies, with real annual gross domestic product (GDP) growth averaging 9.5% through 2018, a pace described by the World Bank as "the fastest sustained expansion by a major economy in history". Such growth has enabled China, on average, to double its GDP every eight years and helped raise an estimated 800 million people out of poverty. China has become the world's largest economy (on a purchasing power parity basis), manufacturer, merchandise trader, and a holder of foreign exchange reserves (Morrison 2019). Table 1 presents the value of China's GDP, export and import in 1979 (the beginning of the transition), 1989, 1999, 2009, and 2018.  GDP, import and export value in 1979, 1989, 1999, 2009  Generally, China has some tools which could help it to achieve its goals in the SEA region: diplomacy, economy, and military power. Despite the fact that growing Beijing's military capabilities give the PRC significant advantage over the armed forces of any other SEA country, using the People's Liberation Army would be the worst option for the PRC. A military conflict in the region could destroy the fruits of China's economic reform and the image of the PRC as a 'status quo power' (Cheng 2013: 54). Additionally, China cultivates its 'soft power' and puts an effort into building a positive image of the whole country (Cheng 2013: 59-60). Thus, although powerful PRC armed forces are one of the pillars of China being a world power, using the army recklessly could only complicate Beijing's plans.
China's economic dominance over SEA would be the most effective and politically profitable, and therefore using economic diplomacy is an obvious solutions for the PRC leaders. Recently, economic dominance has been associated mostly with financial power. Increasing capital mobility combined with the developing countries' need for money may lead to a situation in which a large part of manufacturing industry, key infrastructure, natural resources or financial institutions fall into the hands of foreign owners. It may lead to the situation in which a country becomes dependent on foreign states (Luard 1984). According to Vannarith Chheang (2018), economic statecraft (using economic power to achieve strategic goals), combined with institutional statecraft (the development of multilateral mechanism led by China), are major components of Beijing's economic diplomacy.
In the SEA region, China uses various tools of economic diplomacy. The most important ones include: 1. Trade (overdependence on China as a major trade partner for the SEA countries, dominant Beijing's trading position and very strong balance of payment). 2. Direct foreign investments (the PRC as the key investor). 3. Financial aid (China as an important donor). 4. Credits and loans (overdependence on China as a source of money, risk of the debt trap).
Moreover, the Belt and Road Initiative (BRI), widely discussed and analysed (Google Scholar has shown over 19,500 results, EBSCO 950, and the Web of Science Core Collection 1,232 ones), is also a part of Beijing's economic diplomacy (Chheang 2018) and -despite all the risk and uncertainties -it will improve PRC position, both in the SEA region and international environment (Wang 2016). The Belt and Road Initiative (also called One Belt, One Road) is an ambitious PRC project to build the Silk Road Economic Belt and the 21st Century Maritime Silk Road. The aim of the programme, announced by China's President Xi Jinping in 2013, is construction of infrastructure. On land, China aims to connect its undeveloped regions to Europe through Central Asia (the Silk Road Economic Belt). The 21st Century Maritime Silk Road connects China's southern provinces with South East Asia, the Indian Ocean, part of East Africa, the Red Sea, and the Mediterranean Sea through ports and railways (Cai 2017). In the SEA region, the PRC promotes the China-Indochina Peninsula Economic Corridor, which aims to strengthen the cooperation between China and the Indochina states, and to support trade between the PRC and ASEAN countries, mostly by developing transport network (motorways, railways, and air connection (OBOReurope)). Belt and Road Initiative (BRI) hopes to deliver trillions of dollars in infrastructure financing to Asia, Europe, and Africa. If the initiative follows Chinese practices to date for infrastructure financing, which often entail lending to sovereign borrowers, then BRI raises the risk of debt distress in some borrower countries (Hurley et al. 2019: 152). The risk of the 'debt trap' or the debt problem is more serious in poorer, more fragile and corrupt SEA states which need credits, financial support or aid to improve their economy. However, weak and corrupt institutions do waste money. For Beijing, such situation creates an opportunity to enhance its political and economic influence in a country with a debt owed to official or quasi-official PRC moneylender.
This article presents chosen instruments of PRC economic diplomacy in the SEA region. In the age of growing US-Sino competition, it is important to analyze PRC activity in the SEA region, especially given the fact that China's policy has become more assertive. The goal of the paper is to analyze the role of selected economical instruments used by the Chinese government in Southeast Asian countries and to answer the following questions: which economical instruments are used by China in the region? How important is People's Republic of China as a trade partner for SEA states? What is the role and scale of Chinese direct investment in Southeast Asian countries, including the Belt and Road Initiative? What are the consequences of China's activities for chosen SEA countries?
A review of literature allows for a few remarks. First of all, more publications address the issue of China's economic involvement in African (Li et al. 2013) and South American countries rather than Southeast Asian ones (Quer 2019). Secondly, publications take into account the issue of the Sino-US or Sino-Japanese competition in selected countries in Southeast Asia (Qi et al. 2019). Thirdly, the issue of Chinese leadership in the region is much more often perceived in the context of political rather than economic influence.
In turn, publications present the issue of economic connection between China and Southeast Asia, as follows: • Chinese impact on regional institutions (Bünte 2018).

Methodology
The methodology of the paper is based on literature review and statistical data analysis. The thesis is interdisciplinary since it includes both political and economic aspects, which are interrelated. On the one hand, this interdisciplinarity has a positive dimension since it facilitates explaining many aspects which may be vague from an economist's point of view. On the other hand, it is difficult to estimate to what extent the economic instruments are used to serve economic growth and development, and to what extent they are only aimed at temporary or long-term political purposes.
The authors have chosen indicators such as trade balance, export and import value between SEA and the PRC, as well as the value of Chinese FDI and the scale of public debt in SEA countries. Problem of state fragility and corruption is illustrated by the Fragile State Index (FSI) and the Corruption Perception Index (CPI). Export and import value indicate PRC importance as a trade partner of SEA states. The FDI shows the scale of Chinese economic activity in the region. The scale of public debt, the FSI and the CPI are indicators which illustrate the problem of indebtedness and state fragility in the SEA region.

Results: People's Republic of China's economic diplomacy in Southeast Asia -chosen instruments
In a European Union's document, the term 'economic diplomacy' has been described as follows: There are at least three strands, each one wider in scope, that are common to all definitions of economic diplomacy: 1) facilitating access to foreign markets for national businesses; 2) attracting foreign direct investment (FDI) to a national territory; and 3) influencing international rules to serve the national interest. (…)The goal can be as narrow as boosting economic growth or as broad as developing geo-political influence and a diplomatic network (EP, Imbert 2017). The document also points out to selection of actors (the state, enterprises) and issues (e.g. natural resources). In Southeast Asia, China has implemented a wide range of economic instruments to become a major power in the region. This, in turn, is supposed to bring specific results (Figure 1), and finally the leadership in the region. As L.S. Lauridsen has emphasized, China has been seeking to expand its regional influence by engaging in regional rule-making and institution building. The two-pronged strategy of setting up new multilateral investment banks and overseas infrastructure projects (…) has lifted regional competition and infrastructure diplomacy to a higher level (Lauridsen 2018: 219).  (table 3). Corruption is a widespread problem in all the region, with the exception of Singapore and Brunei (table 3). NB: The higher the place in the FSI, the more fragile a state is. A lower score means lesser fragility of an indexed country. The CPI measures public sector corruption in 180 countries, giving each a score between 0 (highly corrupt) and 100 (very clean). The lower the place in the CPI, the less corrupt a state is.

China as a trade partner
In recent decades, the PRC trade value has expanded enormously and China became the top world exporter and the second largest world importer. For SEA countries, this situation is both opportunity and threat. China is becoming an important sales market for SEA economies (table 5). On the other hand, the PRC significantly increased its export to the region (table 5) and almost all the SEA region has a negative trade balance with the PRC (table 4).

Chinese foreign direct investment in ASEAN countries and Timor Leste
In 2017, foreign direct investment flows to ASEAN countries was on the level of 137 billion USD, whereas a year before it was 123 billion USD. Indonesia was the country which noted the highest increase of FDI between 2016 and 2017. The largest source of intraregional investment was Singapore -69%. It was also the largest investor of the region; the second place was taken by Japan, and the third by China. Among the top 30 digital MNEs present in ASEAN in 2016, the Chinese ones were Alibaba Group -metal and mining (selected locations: Indonesia, Malaysia, the Philippines, Singapore, Thailand, Vietnam) and Tencent Holdings -insurance (Indonesia, Malaysia, the Philippines, Singapore, Thailand, Vietnam). China was also on the second place according to active venture capital companies in terms of investments made in the region. China made investment in construction, real estate and finance. Taking into account the destination of investment and the largest investors, in 2017 Chinese companies dominated in Cambodia (77% of FDI) and Laos (77% of FDI). The third place was taken by Vietnam (10.1% FDI). The lowest level of activities was noted in Myanmar (0.7% of FDI). Table 7 illustrates the scale of Chinese FDI in the SEA region.  (Hong Kong, China) launched construction of cassava processing plant and National Petroleum Corporation (China) launched construction of a 620 million USD oil refinery. Moreover, Chinese enterprises also invest in garment and The Bank of China expands its operations. In Laos, PRC invests mostly in hydropower plants and railway construction. In Myanmar, China is investing in mining, production of animals feed, and garment. In turn, photovoltaic cells production was launched in Vietnam in 2017. Enterprises from China developing in the region include Alibaba, which set up a logistics base in Thailand, or Lenovo, which established a regional hub in the same country.
In total cumulative FDI in ASEAN in the period of 2010-2017, percentage share of China was 11.3% (including Hong Kong), with a value of 106.614 billion USD. At the same time, the share of USA was 12.8% and 120.988 billion USD. Apparently, the differences between the two countries are not very big. China took the third place in terms of greenfield ICT projects between 2013 and 2017. China also took a high position in terms of M&A deals in the period of 2014(ASEAN 2018. China also makes infrastructure investment in the region to promote the Belt and Road Initiative (BRI). As N. Ganesan emphasises, China [establishes] a number of a road and rail networks to bypass the Strait of Malacca and directly integrate the country into the region. The mentioned infrastructure investment is the following (Ganesan 2018: 1): Malaysia: railways (the East Coast Rail Line) and ports (the port of Kuala Linggi in Malacca); Myanmar: the port of Kyaukphyu in Rakhine state; the dams on the Salwen and Irrawaddy rivers; Thailand: part of the Southeast Asian Belt and Road Initiative.
Investment in Malaysia will help to connect the East and the West Coast of the country, and to develop the Eastern part in particular. Further, China would like to have access to the railway network which connects Singapore and Kunming in Chinese Yunan province. Chinese investment in Malaysia and Myanmar allow for access to the Indian Ocean (Ganesan 2018: 1).
China competes with Japan for infrastructure investment in the region. For instance, China is constructing the Jakarta-Bandung railway section and Japan is modernizing the Jakarta-Surabaya railway connections. In 2017 Japan, following the invitation from India, agreed to develop the Asia-Africa Growth Corridor (AAGC), a maritime route which would compete with China's Maritime Silk Road (Brînză 2018). Japan also provided Myanmar with a loan for construction of roads, power plants, ports, and train stations (Hong 2018: 7). However, there are also examples of cooperation between these two countries, such as the high-speed railway which connects Thailand's three main airports: Don Muang, Suvarnabhumi, and U-Tapao (Brînză 2018).
Infrastructure action taken by China are related with the Belt and Road Initiative. At the same time, Japan is developing two projects: the Partnership for Quality Infrastructure for the period 2016-2020, and the Expanded Partnership for Quality Infrastructure for 2017-2021, both in collaboration with the Asian Development Bank. The intended investment amounts to 100 billion USD and 200 billion USD, accordingly (Brînză 2018).
As Hong points out, while some mainland ASEAN countries like Laos and Cambodia view the Sino-Japanese competition as beneficial to their countries in terms of economic capacity-building, some maritime ASEAN countries like the Philippines and Indonesia are more concerned about major-power dynamics as a whole, especially Sino-US relations (Hong 2018: 5). He also describes China's infrastructure diplomacy: Currently, Chinese investment in the ten ASEAN countries is still much lower than that of Japan (…) and various public funds have been set up to support this venture. Chinese projects are managed by state-owned enterprises (SOEs), and are funded with government-provided loans. China is seen as more flexible and can complete infrastructure projects relatively quickly (Hong 2018: 14).
PRC investment is both chance and challenge for less-developed and more fragile and corrupt SEA states. On the one hand, it is an opportunity to build infrastructure and industry, and to boost economic growth. However, there have been cases that Beijing offered loans and investments not only for purely economic purposes. In 2017, the analysis of 'Project Syndicate' stated that China had been using debt to bend other states to its will and unlike International Monetary Fund and World Bank lending, Chinese loans are collateralized by strategically important natural assets with high long-term value (even if they lack short-term commercial viability) (Chellaney 2017). The PRC 'cash for resources' policy is mostly oriented on poor, fragile countries, which need to develop their infrastructure. In return, the PRC demands access to their natural resources and key existing infrastructure (Gopaldas). The Sri Lankan port of Hambantota is given as an example (Chellaney 2017;Gopaldas).
According to John Hurley, Scott Morris and Gailyn Portelance (2018: 152-153), Lao PRD is at high risk of possible debt distress related to the Belt and Road Initiative. Cambodia has been classified as less threatened; however, Chinese investment in this country are also significant. Both Lao PDR and Cambodia are amongst the poorest countries in the region and they have experienced problems related to state fragility and corruption (Table 3). Moreover, the value of public debt (also in relation to GDP) in the region is growing (Table 8), which creates a condition for 'debt-trap diplomacy', especially when a country is less-developed, corrupt and fragile.

Discussion
China is gaining importance as a trade partner in the SEA region primarily thanks to exports of goods, and also loans and foreign direct investments. The reasons for China using these economic diplomacy instruments, the role of each of them in target countries, and the effects of these actions both for China and SEA countries should all be analysed. Undoubtedly, the goal of China is to make countries dependent in order to gain access to raw materials or infrastructure, such as ports or railways. This, though, is part of the Belt and Road Initiative. In turn, countries of the region gain support on their path to development thanks to financial resources or support for infrastructural solutions. On the other hand, those countries are gradually becoming dependent on China, especially if they are the less developed and struggle with foreign debt. PRC loans and FDI are becoming an instrument of China's foreign policy and they are enhancing PRC political influence in the region, especially in countries highly dependent on PRC funds.
Further discussion should include detailed presentation of each country in the region, with the influence of economic instruments used by China taken into account. This would allow for obtaining comprehensive knowledge on the methods of selecting these instruments, depending on the situation of particular countries.