Southeast Asia does not need Trump’s rhetoric

07 November 2017
Originally published in Nikkei Asian Review

For regional business, what matters is economic ‘boots on the ground’

The phrase “boots on the ground,” often used by American leaders to describe the importance of deploying actual soldiers to support U.S. interests, represented a military commitment and actual physical presence.

As he tours Asia, U.S. President Donald Trump would do well to apply the same principle to business. His greatest rival, Chinese President Xi Jinping is doing precisely that.

In Southeast Asia in particular, Beijing is developing its Belt and Road Initiative, a wide range of transport, energy and telecommunications links that will bring participant nations closer to China. Announced only in 2013, the BRI is supported by financial institutions like the China-backed Asian Infrastructure Investment Bank.

It is this kind of presence, with economic interests at its heart, that matters to the region and its businesses — the promise of connectivity, digitalization, infrastructure development and economic growth.

The AIIB, established by China less than two years ago, is functioning with 57 member states and about $100 billion capital, even if the total for committed projects so far is a fraction of that figure. The multilateral bank is taking it slow and steady, not wanting to be accused of rushing into blind support for BRI, as it becomes the centerpiece of China’s foreign policy.

China’s state banks and institutions like the Silk Road Fund are also bolstering China’s interests and adding muscle to Xi’s strategic visions for the country’s role in the world, now incorporated in the Chinese Communist Party charter.

U.S. initiatives such as the Trans Pacific Partnership trade pact and the much-vaunted “Asian pivot” from 2010 have run out of steam. On the other hand, the sweeping scheme announced by Chinese leader Xi Jinping in late 2013 — then called “One Belt One Road” and now BRI — is rapidly rolling out.

The U.S. flow of investments into the Association of Southeast Asian Nations remains much larger than China’s at $12.2 billion last year compared with $9.8 billion, according to ASEAN. But China’s total has risen rapidly since 2010 when it was just $3.5 billion, whereas the American flow is flat, having totaled $13.7 billion in 2010. The dynamic matters.

The U.S. seems to be taking the view that Beijing’s BRI offerings will be a poisoned chalice for recipients of this largesse. In Washington’s view, unsustainable projects, will put recipient states in China’s pocket for debts they cannot repay from the ruins of failure. Critics also warn that sub-standard physical infrastructure, with a dependence on shoddy replacement parts, will leave project recipients with costly third-rate roads, bridges, railways, ports and other white elephants, which could ultimately set them back for years.

Unequal friendships?

To many governments and businesses in ASEAN, all this sounds like sour grapes. There is a growing sentiment within the region that it can look after its own interests, thank you very much. And that it can take care of itself vis-a-vis China. After all ASEAN has a track record of handling overbearing outsiders, such as the “Ugly American” of decades past and the Japanese investors who once often imposed unfair terms.

It is quite normal that foreign investment, like foreign aid of old, comes with strings attached. But will the Chinese be particularly villainous, given the size and huge consequences of BRI? The naysayers warn that all Chinese investment strategies are an instrument of geopolitical dominance, particularly in Southeast Asia.

But Western countries which display concern at Chinese activities are of course not disinterested observers. However, whatever the merits of their arguments, the best way to counter the Chinese economic surge in Southeast Asia is for countries like the U.S. and Japan to launch schemes of their own — or even to participate in large Chinese projects.

It is a strategic mistake for the U.S. and Japan not to have joined the AIIB. It is still not too late. China controls 30% of the bank, and has made the point that it does not have majority control. The U.S. (and Japan) can still subscribe to the bank and win over a majority of the AIIB membership if their arguments are sound. But as we have seen time and time again, the U.S. always expects to walk into a position of control, and does not seem prepared to work for desired outcomes through consensus and persuasion.

There are ways in which genuine concerns over product and service standards as well as environmental sustainability can be communicated. The US-ASEAN Business Council, for instance, holds regular dialogues with the ASEAN Business Advisory Council, through which these matters could be raised and pursued in an objective manner.

The substantial U.S. military presence alone does not ensure economic benefit. Freedom of navigation exercises may serve a purpose, but do not drive business investment. The move by Jack Ma, co-founder and chairman of Alibaba Group Holding, to launch the Digital Free Trade Zone with the Malaysian prime minister does. As will his recently announced plans for a research hub for artificial intelligence in Singapore. Where are his U.S. counterparts? Where, for example, is Mark Zuckerberg, the Facebook founder?

There is an urgent need for big-name U.S. companies to do roadshows in the region: to fly the flag, both for company and country. If there is real concern about ensuring fair prices, good quality and sustainable development, in ASEAN, the U.S. presence must go beyond the military. American companies have substantial commitments to the region. But more is needed: Given the intensifying competition from China and its leading companies, there is an ever-growing need for more U.S. business boots on the ground.

Even Trump’s visit to the region for the Asia-Pacific Economic Cooperation forum and ASEAN meetings falls far short of furthering this aim. Too much time is spent at such gatherings talking about strategic messages. What is needed is generating and implementing specific business plans.

Tan Sri Dr. Munir is Chairman of CIMB ASEAN Research Institute, and also of Bank Muamalat Malaysia Berhad, of the Financial Services Professional Board, of ASEAN Business Advisory Council, Malaysia, as well as President of the ASEAN Business Club. He sits on the board of the Institute of Strategic and International Studies (ISIS) Malaysia and on the Financial Services Talent Council of Bank Negara Malaysia.