China's "Soft Power" in Southeast Asia

^Pr^ep^ar^{ed f}^o^r^M^e^m^b^ers^an^d^Com^mⁱ^t^t^ees^of^C^ong^r^e^ss

China’s growing use of “soft power” in Southeast Asia—non-military inducements including
culture, diplomacy, foreign aid, trade, and investment—has presented new challenges to U.S.
foreign policy. By downplaying many conflicting interests and working collaboratively with
countries and regional organizations on such issues as territorial disputes and trade, Beijing has
largely allayed Southeast Asian concerns that China poses a military or economic threat. China’s
diplomatic engagement, compared to the perceived waning or limited attention by the United
States, has earned the country greater respect in the region. Its rise as a major foreign aid provider
and market for Southeast Asian goods has also enhanced its relations with Southeast Asian states.
Many analysts contend that China’s growing influence may come at the expense of U.S. power
and influence in the region.
This report provides evidence and analysis of China’s soft power in Southeast Asia. It does not
discuss the considerable U.S. military presence in the region. The report describes China’s
evolving diplomacy and more active role in regional organizations such as the Association of
Southeast Asian Nations (ASEAN). Although China’s foreign aid to Southeast Asia, as in other
regions, is difficult to quantify and includes a broader range of economic assistance than official
development assistance (ODA) offered by major industrialized nations, it is believed to be
relatively large. China is considered to be the “primary economic patron” of the small but
strategically important nations of Burma, Cambodia, and Laos, and also provides considerable
economic aid to Indonesia and the Philippines.
China’s trade with ASEAN countries is less than U.S. trade with the region ($160.9 billion
compared to $168.5 billion in 2006), but is expected to exceed that of the United States in 2007
and beyond. Furthermore, although China runs a trade surplus with the world, it runs a trade
deficit with ASEAN countries ($18.2 billion compared to the U.S.-ASEAN trade deficit of $53.9
billion). China appears to have moved more quickly than the United States in promoting trade
with the region through establishing free trade agreements (FTAs). However, although the
importance of the United States to ASEAN trade has declined somewhat relative to that of China,
the United States is still a major source of the region’s foreign direct investment (FDI), ranking ^th^th

4 from 2002 through 2006 compared to China (ranking 10).

Analysts differ over China’s longer-term intentions in Southeast Asia and their implications for
the United States. Some observers argue that the consequences of China’s growing soft power,
and Beijing’s aim, is the decline of U.S. influence in the region. Others contend that the
implications of China’s rise are not zero sum, and that, at least in the next 15-25 years, Beijing’s
priority will be economic development and that China’s leaders, as well as the leaders of other
Southeast Asian countries, view the United States’ continuing leadership role in the region as
beneficial. Competing U.S. policy approaches include continuing the current level of U.S.
political and economic engagement in the region, containing China’s rise, or bolstering the U.S.
diplomatic, foreign aid, and economic presence in tandem with China’s rise. This report will be
updated as events warrant.

China’s Diplomacy in Southeast Asia.......................................................................................2
Bilateral and Sub-Regional Relations.................................................................................2
Regional Organizations.......................................................................................................3
China’s Foreign Aid to Southeast Asia............................................................................................3
China’s Aid to the Least Developed Countries in the Region...................................................4
Burma .................................................................................................................................. 5
Cambodia ....................................................................................................................... ..... 5
Laos ..................................................................................................................................... 6
Vi et nam ........................................................................................................................ ....... 6
China’s Aid to the More Developed Southeast Asian Countries...............................................7
Indonesia ............................................................................................................................. 7
The Philippines...................................................................................................................7
A Comparison of U.S. and Chinese Economic Relations With ASEAN.........................................8
Comparing U.S. and Chinese Trade With ASEAN...................................................................8
Energy ................................................................................................................................. 9
The Importance to ASEAN of its Economic Ties With China and the United States.............10
Foreign Direct Investment.................................................................................................11
Tourism .............................................................................................................................. 11
China’s Efforts to Boost Economic Ties with ASEAN...........................................................12
U.S. Efforts to Bolster Trade with ASEAN.............................................................................13
U.S. Policy Implications................................................................................................................13
Trends, Effects, and Implications for the United States..........................................................13
Policy Options.........................................................................................................................15
Figure 1. Southeast Asia and Surrounding Countries....................................................................17
Table 1. Chinese and U.S. Trade With ASEAN...............................................................................9
Table 2. ASEAN Trade with the United States and China for 1995, 2000, and 2006 as a
Percent of Total Trade................................................................................................................10
Table 3. Major Foreign Investors in ASEAN: 2002-2006..............................................................11
Author Contact Information..........................................................................................................18

oreign policy observers often attribute China’s growing influence in Southeast Asia, and
other parts of the world, to its use of “soft power”—diplomacy, foreign assistance, trade, ¹
and investment, and the view of China as a vast, potential market. As part of its “charm F

offensive” in the region, the People’s Republic of China (PRC) has projected a “benign national
image” through adopting a more accommodating foreign policy, actively participating in regional
organizations, providing significant amounts of foreign assistance, and boosting its economic ties, ²
with considerable benefits accruing to Southeast Asian states. According to some analysts,
China’s rising soft power has become all the more striking in relation to tepid or inconsistent U.S.
attention to the region.
The term “soft power,” as originally conceived by Harvard Professor Joseph Nye, Jr., referred to
the ability to affect the behaviors of other countries by attracting and persuading others to adopt ³
one’s goals. By contrast, “hard power” was described primarily as military might. The United
States has exerted both hard and soft power in Southeast Asia. In terms of soft power, many
Southeast Asian peoples historically have been attracted to U.S. popular culture, democratic
values and institutions, human rights policies, free market system, high living standards,
technological advances, and internationally renowned institutions of higher learning. The United
States also remains influential as a large market for Southeast Asian exports. However, according
to some indicators, in the past decade, many of these forms of U.S. soft power have declined in
both absolute and relative terms.
For many analysts, China’s growing influence or soft power in Southeast Asia and elsewhere is
mostly economic rather than military (hard power), cultural, or political. China’s growing ability
to affect the actions of state actors largely stems from its role as a major source of foreign aid,
trade, and investment. The PRC has also wielded power in the region through diplomacy and, to a
lesser extent, admiration of China as a model for development and ancient culture, and an
emphasis on “shared Asian values.” In addition, overseas Chinese communities have long played
important parts in the economies, societies, and cultures of Southeast Asian states. Along with
offering economic inducements, China has allayed concerns that it poses a military or economic
threat, assured its neighbors that it strives to be a responsible member of the international ⁴
community, and produced real benefits to the region through aid, trade, and investment.
China may be gaining on the United States in the areas of cultural and political soft power as
well, at least in some countries in the region. A 2007 Pew Research poll found that only 29% of
Indonesians and 27% of Malaysians polled had a favorable view of the United States as opposed
to 83% of Malaysians and 65% of Indonesians who had favorable views of China. Americans

¹^So^uthe^a^s^{t A}^s^ia^inc^l^ude^s^Ea^s^t^Tⁱ^m^o^r^a^{nd the}¹⁰^m^e^m^b^e^r^s^of^the^A^s^s^o^cⁱ^a^tion^of^Sout^he^a^s^{t A}^s^ia^{n N}^a^tions⁽^A^SEA^N⁾^:
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²⁰⁰^7.

themselves are more popular than their country, with 42% of Indonesians having a favorable view
towards Americans in 2007. The figure for Indonesia is up slightly from a favorable view of only ⁵
15% in 2003 but remains well below the 2000 rate of 75%. One striking exception to this trend is
the Philippines, which ranks first in the world in trusting the United States to act responsibly in ⁶
global affairs, according to a 2007 survey. Such trends in polls led Joseph Nye to state that “...
although China is far from America’s equal in soft power, it would be foolish to ignore the gains ⁷
it is making.... It is time for the U.S. to pay more attention to the balance of soft power in Asia.”
China’s posture in Southeast Asia has undergone a transformation in the past decade. The PRC’s
support for various communist insurgencies in the region during the Cold War, its military
response to Vietnam’s incursion into Cambodia in 1979, and its forceful claims to disputed
islands in the South China Sea during the 1990s, created strains with its neighbors in the region.
However, since the Asian financial crisis of 1997, China increasingly has emphasized mutual
benefits, or soft power over hard power, or the threat of hard power, in its relations with Southeast
Asian states. In 1997, during the Asian financial crisis, China won praise in the region when it
refrained from devaluing its currency, which helped to stabilize the region’s economy. In 2002,
China and other claimants to disputed islands signed an agreement and a Declaration on the
Conduct of Parties in the South China Sea, which greatly reduced tensions on this issue. While
there is a general agreement that China’s tactics have changed to a more accommodating posture
with an emphasis on soft power, there is less certainty regarding its implications and whether
China’s goals have changed accordingly.
An analysis of China’s bilateral relations with Southeast Asia leads to a sub-regional division
between its relatively more influential position with mainland Southeast Asian states, particularly
Burma, Cambodia, and Laos, and its relatively less influential position with maritime Southeast ⁸
Asian states (Indonesia, the Philippines, and Singapore). Thailand, while more independent than
Burma, Laos, and Cambodia, and along with the Philippines a major non-NATO ally of the
United States, appears to be relatively more comfortable with close relations with China than
other regional states. Muslims in the region (Indonesia, Malaysia) look not so much to China as
they do to the rest of the Muslim world for models outside their national settings. Given that
Muslims represent approximately half the population of Southeast Asia, and are concentrated in
maritime Southeast Asia, this should place limits on the extent of Chinese soft power influence
there. Vietnam’s unique historical relationship with China, which includes past domination by
China and a more recent border war, will also place limits on the extent to which those two
nations will likely come together. Singapore, the most strategic thinking and trade dependent state
in the region, has promoted a balanced approach to the involvement of great powers in its region.

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⁸^P^e^rci^v^al^,^o^p^.^ci^t^.

A core difference between China’s and America’s soft power in Southeast Asia is the organizing
principle of their respective approaches. Both countries’ foreign policy approaches to the region
contain elements of an array of priorities including geopolitical, security, and trade interests. That
said, the U.S. approach places an emphasis on democracy and related objectives along with its
main theme of promoting U.S. security interests. By contrast, China’s “non-interference” policy is
less intrusive in the domestic affairs of regional states. While this approach may not garner
widespread admiration, it is more palatable to relatively authoritarian regimes in the region, and
sometimes earns public appreciation because it appears respectful of national sovereignty.
China’s changed bilateral relations with Australia are an interesting parallel to recent dynamics in
Southeast Asia and demonstrate how the economic aspect of soft power can transform a bilateral
relationship with a state that is a close treaty ally of the United States. Australia’s strong
economic growth in recent years has been to a large extent based on exports of raw materials to
China. This has produced a reticence to adopt policies that could anger China. It has even led to
some discussion of whether the Australia-New Zealand-United States alliance pertains to
potential future conflict over Taiwan. Australia clearly does not want to be forced to choose
between its robust and important security alliance with the United States and its rapidly growing ⁹
and lucrative trade with China.
China has been an increasingly active player in multilateral organizations that include Southeast
Asian states such as ASEAN plus three—ASEAN, China, Japan, and South Korea—and the East
Asia Summit (EAS), which includes China, Japan, South Korea, India, Australia, and New
Zealand, as well as the ASEAN states. The diplomacy surrounding the formation of the EAS in
2005 is particularly noteworthy. The lack of U.S. involvement with the EAS contrasts sharply
with the central role that the United States has played in the Asia Pacific Economic Cooperation ¹⁰
(APEC) group.
The formation of the EAS also demonstrated the differing levels of comfort that ASEAN member
states have with China. Some ASEAN states preferred bringing in India, Australia, and New
Zealand as a non-American balance to Chinese influence. One factor that appears to be in China’s
favor is increased regional support for a “more Asia-oriented grouping.” This reflects the desire
on the part of some regional states for a more Asia-centered focus rather than a trans-Pacific ¹¹
group that would include the United States. Movement in this direction can be traced back to
former Prime Minister Mahathir Mohammad of Malaysia who advocated an Asian state-only
grouping through the East Asia Economic Caucus.

China’s foreign aid has had a growing, tangible impact in many countries in Southeast Asia,
although it is difficult to quantify, due to a lack of data and to the unique characteristics of

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Chinese assistance.¹² In comparison to major bilateral donors in the region, China provides
relatively little development assistance and lacks a formal system for determining development ¹³
goals and allocating aid. The PRC administers a wider range of economic assistance that
includes non-development aid and low-interest loans, as well as trade and investment agreements.
According to some analysts, when these kinds of assistance are added, China becomes one of the
largest bilateral aid donors in Southeast Asia.
Furthermore, because China offers assistance without the conditions that other donors frequently
place on aid (i.e. democratic reform, market opening, and environmental protections), it often
garners appreciation disproportionate to the size of its aid, and thus has a large impact on ¹⁴
recipient governments. China’s policy of “non-interference in domestic affairs” often wins
friends not only among Southeast Asian governments but also by many peoples in the region
because it is regarded as respectful of their countries’ sovereignty. Although PRC assistance
reportedly is often not carried out as pledged, such aid, announced at lavish receptions with toasts ¹⁵
to the recipient countries, often carries great symbolic value. Many PRC aid projects, such as
government buildings, infrastructure, and energy facilities, often funded by loans from the China
Import-Export Bank and built by Chinese companies, are high profile efforts that primarily
benefit capital cities or the governments in power. Many foreign aid experts, non-governmental
organizations (NGOs), and local groups have criticized Chinese aid for failing to promote
democracy, widespread, sustainable development, and environmental conservation.
Many reports of PRC aid in the region focus on Burma, Cambodia, and Laos, the poorest
countries in Southeast Asia and ones that have had relatively unfriendly relations with the United
States. China is considered the “primary economic patron” of these countries and provides an ¹⁶
“implicit security guarantee.” China also provides considerable assistance to Vietnam, although
its influence upon its former adversary appears limited compared to other countries. The United ¹⁷
States has a major aid presence in Cambodia and Vietnam. However, according to data of
official development assistance, which does not include China, Japan is the largest bilateral aid
donor among these countries.

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Many observers fear that China’s unconditional and non-transparent aid efforts and growing
economic integration in Southeast Asia negate efforts by western nations to promote political and
economic reform, reduce corruption, and protect the environment in mainland Southeast Asia.
Others counter that, on balance, Chinese aid promotes development in Southeast Asia and that it
does not exclude other countries’ aid programs and objectives. Furthermore, in many cases, China
reportedly takes on aid projects that other donor countries have avoided due to difficulty or
hardship. In recent years, China has financed many infrastructure and energy-related projects in
Burma, Cambodia, and Laos that rely upon Chinese materials and technical expertise as well as
labor. Often these projects help China access raw materials and oil. There are some indications
that Chinese aid in this part of the region is diversifying, including support to counter-trafficking
in persons and counter-narcotics efforts, programs involving Chinese youth volunteers (Laos), ¹⁸
elections (Cambodia), and historical preservation (Cambodia).
According to some reports, China has been the largest source of economic assistance to Burma,
including $1.4 billion to $2 billion in weaponry to the ruling junta since 1988 and pledges of
nearly $5 billion in loans, plants and equipment, investment in mineral exploration, hydro power ¹⁹
and oil and gas production, and agricultural projects. China has helped the Burmese to build
roads, railroads, airfields, and ports. Following the imposition of U.S. trade sanctions against
Burma in 2003, China reportedly announced a loan to Burma of $200 million. In 2006, China
promised another $200 million loan, although some experts say that such funds were never ²⁰
actually provided. U.S. aid to Burma (an estimated $12 million in 2007), is restricted primarily
to humanitarian, health, education, and democracy programs for Burmese migrants and refugees
living along the Burma-Thailand border. In terms of official development assistance, Japan
reportedly is the largest bilateral donor to Burma, providing a yearly average of $26 million ²¹
(2004-2005).
Japan, the United States, France, Australia, and Germany are the largest bilateral sources of ODA
to Cambodia. Foreign aid to Cambodia is coordinated through the Consultative Group (CG) for
Cambodia, a consortium of international financial organizations and donor countries under the
auspices of the World Bank. Since 1996, the CG has met annually to extend aid packages ²²
averaging $500 million per year. China provides relatively little development assistance but may
be one of the largest sources of aid when including loans and support for public works,
infrastructure, and hydro-power projects in the kingdom. In 2006, PRC Prime Minister Wen
Jiabao pledged $600 million in aid and loans to Cambodia.

¹⁸^“^C^hina^r^a^nk^s^N^o^.²^{in A}ⁱ^ding^C^a^m^bodia^’^s^T^o^wⁿ^{, Sub-}^dⁱ^s^t^rⁱ^c^t^Ele^c^tions^,”^BBC^M^oⁿ^itori^{ng Asia Pac}^ific^{, O}^c^tobe^r¹²^,
²⁰⁰^6.
¹⁹^Jeff^re^y^Yo^rk^{, “T}^h^e^Juⁿ^t^{a’s En}^ab^l^e^rs,”^Inte^rnati^oⁿ^a^{l Ne}^ws^{, O}^c^to^be^r^6,²⁰^07;^D^a^vⁱ^{d Ste}ⁱⁿ^b^e^r^g^,^“^B^ur^m^a^{: Fe}^e^l^-^G^ood
^U^.^{S. Sa}^nc^ti^ons^W^r^oⁿ^g^h^e^a^d^e^d^,”^Y^a^le^G^l^o^bal^Oⁿ^li^ne^{, Ma}^y^19,²⁰^04;^htt^p^://w^ww^.na^r^inja^ra^.c^o^m^/Re^ports/BRe^port.A^SP.
²⁰^T^e^s^tⁱ^m^on^y^of^J^a^r^e^d^G^e^ns^e^r^{, “}^C^hina^’^s^R^o^leⁱⁿ^the^W^o^r^l^{d: T}^h^e^C^hⁱⁿ^a^-^B^u^r^m^a^R^e^l^a^tions^hi^p,”^U^.^S.^Ec^o^nom^ic^a^nd
^S^ecu^rⁱ^t^y^R^e^vi^e^w^C^o^mmi^ssi^oⁿ^,^Au^gu^st³^,²⁰⁰⁶^.
²¹^Org^a^niz^a^{tion f}^o^{r Ec}^o^nom^ic^Coop^e^r^a^{tion a}ⁿ^{d De}^v^e^lopm^eⁿ^{t (OECD). Se}^e^htt^p^://w^ww^.oe^c^d^.org^/hom^e^/^.
²²^Kyo^d^o^News^{, J}^une²¹^{, 2}⁰⁰²^.

In 2007, for the first time, China offered aid through the Consultative Group’s pledging process. ²³
The CG pledged $689 million in assistance to Cambodia, including $91.5 million from China.
For the 2007-2009 period, China pledged $236 million in unspecified aid compared to Japan’s ²⁴
$337 million and the EU’s $215 million. Cambodia is a relatively large recipient of U.S.
assistance. The United States provided approximately $55 million annually in 2006-2007 for
health care, HIV/AIDS programs, basic education, civil society, de-mining, counterterrorism
efforts, and other activities, mostly through non-governmental organizations (NGOs) in
Cambodia.
Laos receives approximately $250 million in foreign aid per year (20% of GDP), including loans
from the Asian Development Bank (ADB) and the World Bank worth $80 million and $40 ²⁵
million, respectively. According to one report, in 2001-2002, China was the second biggest aid ²⁶
donor to Laos. The top sources of official development assistance to Laos, on an average annual
basis (2004-2005), are Japan ($65 million), France ($21 million), Sweden ($19 million), Germany ²⁷
($15 million), and Australia ($12 million). Since the late 1990s, China has provided Laos with
critical grants, low-interest loans, high profile development projects, technical assistance, and
foreign investment. Development and other forms of aid include transportation infrastructure,
hydro power projects worth $178 million, youth volunteers engaged in medical and educational
programs, and agricultural training. In 2006, Chinese President Hu Jintao visited Vientiane and
offered $45 million in economic and technical cooperation and debt forgiveness. The United
States is a relatively small aid donor, providing an average annual total of approximately $4.5
million between 2005 and 2007.
According to some reports, China may be the second largest source of foreign aid to Vietnam
(including grants and loans). In 2005, the PRC reportedly offered nearly $200 million in grants ²⁸
and loans. In 2006, Beijing provided loans to Vietnam for railways, hydro-power development,
and ship building facilities. Japan and France are the largest donors of ODA to Vietnam, ²⁹
providing an annual average of $670 million and $116 million, respectively (2004-2005).
According to some experts, compared to Burma, Cambodia, and Laos, China’s influence in
Vietnam is relatively limited. In December 2006, Beijing halted aid to Vietnam in response to the
Vietnamese government’s formal invitation to Taiwan, a major investor in the country, to attend ³⁰
the APEC November 2006 summit in Hanoi.

²³^K^e^{r Mun}^t^hit^,^“^D^on^or’s^P^l^e^d^g^e^$⁶⁸⁹^m^{illion i}ⁿ^Aⁱ^{d f}^o^{r Ca}^m^bodia^,^”^Asso^cia^t^ed^{Press Newswires}^{, J}^u^ne²⁰^{, 2}⁰⁰⁷^.
²⁴^Ec^on^om^{ist Inte}^llig^eⁿ^c^e^Unit,^C^o^uⁿ^t^{ry Repo}^{rt: C}^a^mb^odⁱ^a^{, Se}^p^t^e^m^be^r²⁰⁰⁷^.
²⁵^A^s^ia^&^P^a^cⁱ^fⁱ^c^R^e^vⁱ^ew^W^o^r^l^{d of}^Iⁿ^f^o^r^m^a^{tion, J}^u^ly^{30, 2}⁰⁰⁷^.
²⁶^Jo^sh^u^a^K^u^rl^an^t^zⁱ^c^k,^“Chⁱⁿ^a^{’s Char}^m^:^I^m^p^lⁱ^catⁱ^oⁿ^s^o^f^Chⁱⁿ^{ese S}^o^f^t^P^o^w^e^r,^”^Carne^g^ie^Eⁿ^d^o^wmeⁿ^{t P}^o^lic^y^Brie^{f n}^o^.⁴⁷
⁽^J^une²⁰⁰⁶⁾^.^T^hⁱ^s^m^easu^r^e^m^en^t^o^f^P^{RC ai}^d^lⁱ^k^el^yⁱⁿ^cl^u^d^e^{s l}^o^an^s.^B^y^coⁿ^t^rast^,^U.^S^.^f^o^rei^gⁿ^assi^st^an^ce^,^wⁱ^t^h^t^h^e
^e^x^c^e^p^{tion of}^f^{ood a}ⁱ^{d, is}^pr^e^d^omⁱⁿ^aⁿ^tly^g^r^aⁿ^t-^ba^s^e^d.
²⁷^O^E^CD^da^ta^.
²⁸^“^V^ie^tna^m^{to B}^o^r^r^ow^N^e^a^r^l^y²⁰⁰^{Mln U}^.^{S. D}^o^lla^r^s^f^r^om^C^h^ina^:^R^e^por^t,”^Pe^ople^’^{s D}^a^ily^Onli^ne^,
^http:^//e^ng^lis^h.^pe^o^p^le^.c^om^.c^{n, O}^c^tobe^r³⁰^,²⁰⁰⁵^.
²⁹^O^E^CD^da^ta^.
³⁰^Rog^e^{r Mitto}^{n, “}^B^e^iji^ng^Re^f^u^se^s^Aⁱ^{d to Ha}^noi^a^f^te^{r Re}^buff^ov^e^r^Ta^iwaⁿ^,”^{Straits Time}^s^{, D}^e^c^e^m^b^e^r^22,²⁰⁰⁶^.

China also has provided considerable aid to the large and more developed countries in the region,
such as Thailand, Indonesia, and the Philippines. However, these countries also have extensive
security, economic, and aid ties with the United States. Since 2001, the United States has
dramatically increased development, security, and military assistance to Indonesia and the
Philippines as part of the global war on terror. Furthermore, Japan likely far surpasses both the
United States and China in foreign aid to these countries, particularly Thailand. China has few
reported aid projects in Thailand. However, after the United States government imposed sanctions
on military and security-related assistance to Thailand worth approximately $29 million
following the September 2006 military coup, China reportedly offered $49 million to Thailand in ³¹
military aid and training.
According to the Organization for Economic Cooperation and Development (OECD), the largest
bilateral donors to Indonesia, on an average annual basis (2004-05), are Japan ($963 million),
Germany ($191 million), the United States ($163 million), Australia ($145 million), and the
Netherlands ($128 million). Between 2002 and 2007, annual U.S. assistance to Indonesia totaled ³²
about $136 million. According to one expert, in 2002, China’s aid to Indonesia was roughly ³³
twice that of the United States. In 2005, PRC President Hu Jintao and Indonesian President
Susilo Bambang Yudhoyono signed a declaration proclaiming a “strategic partnership” that was
accompanied by a promise of preferential loans worth $300 million. Some foreign aid experts
criticized China’s relatively limited offers of disaster relief following the 2004 Indian Ocean
earthquake and tsunami. The PRC pledged $63 million to Indonesia compared to Taiwan’s $50
million and the United States’ $405 million.
The top five bilateral ODA donors to the Philippines in 2004-2005, on an average annual basis,
were Japan ($706 million), the United States ($114 million), Germany ($60 million), Australia ³⁴
($38 million), and the Netherlands ($20 million). In 2006, the United States extended $115
million in development, security, and military assistance to the Philippines. According other
sources, the PRC has become a major source of financing for development projects in the
Philippines, and in 2003, China’s aid to the Philippines, including loans, was roughly three times ³⁵
U.S. assistance. In January 2007, PRC Premier Wen Jiabao and Philippines President Gloria
Macapagal-Arroyo signed 20 economic agreements, including a contract for a Chinese company ³⁶
to build and renovate railroads, investment in agriculture, and loans for rural development.

³¹^A^l^aⁿ^Da^w^s^{on, “}^A^‘^W^in-W^{in’ Sit}^u^a^tio^{n f}^o^{r Be}^ijing^,^W^a^shing^t^oⁿ^,”^B^a^ng^ko^{k P}^o^st^{, Fe}^b^r^ua^r^y^{21, 2}⁰⁰⁷^;^“^C^ur^r^e^{nt T}^h^aⁱ^-
^China^Tⁱ^e^s^Se^eⁿ^a^s^‘More^Re^silie^{nt a}ⁿ^{d A}^d^a^p^ta^ble^’^t^h^aⁿ^U.S^.^Tⁱ^e^s^,”^{BBC M}^onit^o^rin^g^Asi^a^P^a^c^ific^,^F^e^br^ua^r^y^{12, 2}⁰⁰⁷^.
³²^Unite^d^Sta^t^e^s^A^g^eⁿ^c^y^f^o^{r Inte}^rna^tiona^{l De}^v^e^lopm^eⁿ^{t (USA}^ID).
³³^Ku^rl^an^t^zⁱ^c^k,^“Chⁱⁿ^a^{’s Ch}^arm^,^{” o}^p^.^ci^t^.
³⁴^O^E^CD^da^ta^.
³⁵^“Chⁱⁿ^a^L^o^an^{s t}^o^R^P^t^o^Hi^t^$2^Bi^l^lⁱ^o^{n i}ⁿ³^Years,^”^M^anil^a^Staⁿ^d^a^r^d^{, Fe}^b^r^ua^r^y^{6, 20}⁰⁷^{; K}^u^r^l^aⁿ^tz^ic^{, “}^C^hina^’^s^C^h^a^r^m^,^”
^{op. c}ⁱ^t.
³⁶^“P^hⁱ^lⁱ^p^pⁱⁿ^e^s,^Chiⁿ^{a S}ⁱ^{gn 20}^A^g^r^e^e^m^en^t^s^t^o^Bo^o^s^t^T^r^ad^e,^”^Xinh^ua^Fina^nc^ial^N^e^tw^or^k^{, J}^a^nua^r^y^16,²⁰⁰⁷^.

Over the past decade, China’s trade with the 10 countries that comprise the Association of
Southeast Asian Nations (ASEAN) has expanded sharply in terms of trade volume, percentage ³⁷
increase, and size relative to U.S. trade levels. According to Chinese data, from 1997-2006, its ³⁸
exports to, and imports from, ASEAN countries grew by 450% and 625% respectively. The
importance of China to the economies of ASEAN in terms of trade, investment, and tourism has
also increased sharply. These trends are expected to continue in the years ahead as economic ties
continue to deepen as a result of the implementation of the China-ASEAN Free Trade Agreement ³⁹
(FTA) and other cooperative initiatives. China’s soft power in the region is expected to grow as
Southeast Asian economies become more dependant upon or integrated with the PRC. Although
the United States remains an important partner for ASEAN in terms of trade, the relative
importance of that trade to ASEAN has declined.
According to Chinese data, its imports from ASEAN from 1997 to 2006, rose from $12.4 billion
to $89.5 billion, while U.S. imports from ASEAN (according to U.S. trade data) grew from $71.0 ⁴⁰
billion to $111.2 billion. China’s exports went from $12.7 billion to $71.2 billion, while U.S. ⁴¹
exports increased from $48.3 billion to $57.3 billion. Total U.S. trade (exports plus imports)
with ASEAN in 2006 was slighter larger than that of China’s ($168.5 billion versus $160.9
billion). Based on China’s rapid trade growth over the past few years, it is likely that its trade with
ASEAN will exceed that of the United States in 2007 and beyond. While China had a $178
billion trade surplus with the world in 2006, it had a $18.2 billion trade deficit with ASEAN; the
U.S. trade deficit with ASEAN totaled $53.9 billion.
Taken as a whole, ASEAN’s rank as a destination for Chinese exports was 4^th in 1997 and 2006,
which was also the case for U.S. exports. As a source of Chinese imports, ASEAN’s rank ^th^rd^th^th
increased from 5 to 3, while its rank for U.S. imports fell from 4 to 5. The share of China’s

³⁷^A^S^E^A^N^m^e^m^b^e^r^s^inc^l^ude^Iⁿ^d^oⁿ^e^sⁱ^a^,^Ma^lay^s^ia^{, the}^Phili^ppi^ne^s^,^Si^ng^a^por^e^,^T^h^a^ila^nd^{, B}^r^uⁿ^eⁱ^{, C}^a^m^bodia^,^L^a^os^,
^My^aⁿ^m^a^{r (Burm}^a^{), a}^{nd V}ⁱ^e^t^na^m^.^N^o^te^{: Ca}^m^bodia^w^a^s^{not a}^Me^m^b^e^r^of^A^S^E^A^N^until¹⁹^99.^For^the^s^a^k^e^of
^c^ons^is^te^nc^y^,^w^e^inc^l^ude^d^da^ta^f^o^r^C^a^m^bodiaⁱⁿ^t^h^e¹⁹⁹⁷^da^ta^.
³⁸^Chⁱⁿ^{a’s t}^r^a^d^{e d}^a^t^a^o^f^t^eⁿ^di^f^f^{er si}^gnⁱ^fⁱ^can^t^l^y^wⁱ^t^h^t^h^at^o^fⁱ^t^s^t^r^a^dⁱⁿ^g^p^a^rtⁿ^e^rs,^d^u^eⁱⁿ^l^a^{rge p}^a^rt^b^ecau^{se o}^f^t^h^{e w}^a^y^t^r^ad^e
^thr^o^ug^{h H}^o^ng^K^ong^is^c^o^un^te^{d. C}^h^ina^c^o^unts^H^ong^K^o^ng^a^s^the^de^s^tina^tio^{n of}^its^e^x^por^ts^s^e^{nt t}^h^e^r^e^,^e^v^eⁿ^g^oods^tha^t
^a^r^e^theⁿ^tr^aⁿ^s^s^hⁱ^ppe^{d t}^o^ot^he^r^m^a^r^k^e^t^s^.^B^y^c^ontr^a^s^t^{, the}^Uⁿ^ite^{d S}^t^a^t^e^s^a^{nd m}^aⁿ^y^of^C^h^ina^’^s^othe^r^tr^a^dⁱⁿ^g^pa^r^t^ne^r^s^c^o^unt
^C^h^ine^s^e^e^x^por^ts^t^h^a^t^a^r^e^tr^aⁿ^s^s^hⁱ^p^pe^{d t}^h^r^o^ug^{h H}^o^ng^K^ong^a^s^pr^od^u^c^ts^f^r^o^m^C^h^ina^,ⁿ^o^{t H}^o^ng^K^o^ng^{, i}ⁿ^c^l^ud^ing^g^o^o^d^s
^tha^t^c^oⁿ^t^aⁱ^{n H}^ong^K^o^ng^c^o^m^pone^nts^or^inv^o^lv^e^fⁱ^na^{l a}^s^s^e^m^b^l^y^or^p^r^oc^e^s^sⁱ^ng^{in H}^o^ng^K^ong^.^Se^e^a^l^s^o^C^R^S^R^e^por^t
^R^S²²⁶⁴^0,^W^h^{at’s t}^h^e^Diffe^re^nc^e^?^-Compariⁿ^g^U.S.^a^{nd C}^h^ine^s^e^Tr^ade^Dat^a^,^by^Mic^h^a^e^l^{F. Ma}^rtiⁿ^.
³⁹^Iⁿ^a^d^diti^on,^b^o^th^C^hⁱⁿ^a^aⁿ^d^A^S^EA^N^c^ontinue^t^o^eⁿ^j^o^y^r^a^{pid e}^c^ono^mⁱ^c^g^r^ow^{th. C}^h^ina^’^s^r^e^a^l^G^D^P^g^r^ow^{th in}²⁰^{06 w}^a^s
^11.^1%^a^{nd A}^S^EA^N^’^s^w^a^s^6.0%^.
⁴⁰^C^h^ina^r^e^por^ts^im^por^ts^on^a^c^o^s^t^{, i}ⁿ^s^u^r^a^nc^e^,^aⁿ^{d f}^r^eⁱ^g^h^{t (}^C^I^F⁾^ba^sⁱ^s^,^w^h^ile^the^U^.^{S. r}^e^p^o^r^t^s^im^por^ts^on^a^c^u^s^t^om^s^ba^sⁱ^s^,
^w^h^ic^{h e}^x^c^l^ude^s^the^a^dde^d^c^o^s^t^of^ins^u^r^a^nc^e^,^f^r^eⁱ^g^h^{t, a}ⁿ^d^ot^he^r^c^h^a^r^g^e^s^.^I^f^the^Uⁿ^ite^{d Sta}^t^e^s^r^e^por^te^d^im^por^ts^{on a}^C^I^F
^ba^sⁱ^s^,^{it w}^oul^{d r}^a^is^e^the^v^a^lue^ofⁱ^m^por^ts^by^a^{bout 1}⁰^%^.
⁴¹^Iⁿ¹⁹^97,^C^hⁱⁿ^a^’^s^of^fⁱ^cⁱ^a^l^ex^por^ts^{to A}^S^EA^N^w^e^r^e^26.3%^a^s^la^r^g^e^a^s^thos^e^by^r^e^por^te^d^by^the^Uⁿ^ite^d^Sta^t^e^s^{, but}ⁱⁿ
²⁰⁰⁶^,^C^hⁱⁿ^{a’s rep}^o^r^t^e^d^exp^o^r^t^s^t^o^A^S^E^A^{N ex}^ceed^ed^U.^S^.^exp^o^r^t^s^by²⁴^.⁵^%^.^Chⁱⁿ^{ese rep}^o^r^t^e^dⁱ^m^p^o^r^t^s^f^r^o^m^A^S^E^AN
^w^e^r^e^17.4%^of^thos^e^of^the^Uⁿ^ite^{d Sta}^t^e^sⁱⁿ¹⁹⁹⁷^aⁿ^{d by}²⁰⁰⁶^the^y^ha^{d r}ⁱ^s^eⁿ^to⁸⁰^.5%^.

exports going to ASEAN grew rather modestly, from 7.0% to 7.4%, while the share of U.S.
exports to ASEAN dropped from 7.0% to 5.5%. The share of China’s imports from ASEAN rose
from 9.0% to 11.3%, while the share of U.S. imports from ASEAN dropped from 8.2% to 6.0%
(see Table 1).
Table 1. Chinese and U.S. Trade With ASEAN
¹⁹⁹^{7 200}⁵²⁰⁰⁶²⁰⁰^5-20^{06 %}¹⁹⁹^7-20^{06 %}
^chan^ge^chan^ge
^{China’s Ex}^{ports to ASEAN}^($mill^ions)^12,6⁹⁸^55,4⁵⁹^71,3²⁵^28.6^450.⁰
^{U.S. Exports to ASEAN ($millions)}^48,2⁷¹^49,6³⁷^57,3⁰⁷^15.5^18.7
^{China’s Ex}^{ports to ASEAN}^{as a P}^{ercent of}
^{Total Exports (%)}^7.0^7.3^{7.4 — —}
^{U.S. Exports to ASEAN as a Pe}^rc^{ent of}
^{Total Exports (%)}^7.0^5.5^5.5^—^—
^{China’s Imports F}^{rom ASEAN ($}^mill^ions)^12,3⁵⁷^75,0¹⁷^89,5³⁸^19.4^624.⁶
^{U.S. Imports From ASEAN ($millions)}^71,0¹³^98,9¹⁵^111,²⁰¹^12.4^56.6
^{China’s Imports F}^{rom ASEAN as}^{a Percent}
^{of Total (%)}^9.0^11.4^11.3^—^—
^{U.S. Imports From ASEAN as a P}^{ercent of}
^Total^(%)^8.2^5.9^{6.0 — —}
^Source:^{World Trade Atlas.}
^Note:^{Based on officia}^{l Chinese and U.S. trade data.}
China’s mineral fuel imports from ASEAN rose from $3.3 billion in 1997 to $7.4 billion in 2006.
However, China’s mineral fuel imports from ASEAN as a percent of China’s total mineral fuel
imports declined from 26.8% in 1997 to 8.2% over this period. Despite this drop, China has been ⁴²
active in developing ties with ASEAN countries on a number of energy related projects. To
illustrate:
• In January 2007, the Xinhua News Agency reported that China National
Petroleum Corporation signed production sharing contracts with Myanmar’s
Ministry of Energy covering crude oil and natural gas exploration projects in
three deep-water blocks off the western Myanmar (Burma) coast; Reuters
reported that a Chinese oil company would join with two other foreign firms in
investing $5.5 billion to produce biofuels in Indonesia; and Dow Jones Chinese
Financial Wire reported that the Vietnamese government had recently authorized
state-owned PetroVietnam to begin joint oil and gas operations with China
National Offshore Oil Corporation in the Gulf of Tonkin.

⁴²^A^lthoug^{h C}^h^ina^ha^s^pu^rs^ue^{d a}^nu^m^b^e^r^of^eⁿ^e^r^gy^re^la^te^{d a}^c^tiv^itie^s^w^{ith v}^a^rious^A^S^E^A^N^c^ountrie^s^{, t}^h^e^P^{RC is}^a^l^s^o
^eⁿ^g^a^g^e^{d in te}^r^r^itorⁱ^a^l^dis^p^ute^s^w^{ith s}^o^m^e^A^S^E^A^N^c^ountrⁱ^e^s⁽^s^uc^{h a}^s^Vie^t^na^m^,^Ma^la^y^s^ia^{, a}^{nd the}^Phi^lⁱ^ppi^ne^s⁾^ov^e^r
^te^rritory^{in the}^S^out^{h C}^h^ina^Se^a^tha^t^m^a^y^c^ontaⁱⁿ^{oil a}ⁿ^{d g}^a^{s de}^p^o^s^its.

• In April 2007, the Xinhua News Agency reported that China would build a
pipeline from the Myanmar (Burma) port city of Sittwe to Kunming, China, to
transport natural gas.
• In May 2007, BBC Monitoring reported that two Chinese firms planned to invest
$343 million in an oil refinery and a gas processing plant in Pahang, Malaysia.
• In June 2007, the Xinhua News Agency reported that China’s National Offshore
Oil Corporation signed a production-sharing contract with the Cambodian
National Petroleum Authority to explore for oil and natural gas.
• In July 2007, Interfax China reported that Chinese oil companies planned to
invest as much as $14 billion in Indonesia’s oil and gas exploration sectors; and
the Vietnam News Brief Services announced that the government planned to
jointly build a $360 million oil refinery with China in Vietnam.
• In September 2007, the Xinhua News Agency reported that China would build an
oil pipeline from Myanmar (Burma) to Chongqing, China.
From ASEAN’s perspective, China is becoming a major trading partner. Using ASEAN data, ^th^nd^th
China ranked as ASEAN’s 5 largest trading partner in 2005 (the U.S. ranked 2) its 5 largest ^nd^rd^th⁴³
export market (the U.S. was 2) and its 3 largest source of its imports (the U.S. ranked 4).
ASEAN data show total trade with the United States and China in 2006 at $174.4 billion and ⁴⁴
$143.8 billion, respectively. As Table 2 indicates, ASEAN exports to China as a share of total
ASEAN exports rose from 2.1% in 1995 to 8.9% in 2006 (while the U.S. share fell from 18.5% to ⁴⁵
about 13.9%). The share of ASEAN’s imports from China rose from 2.2% to 11.4% (while the ⁴⁶
share from the United States fell from 14.6% to 10.3%).
Table 2. ASEAN Trade with the United States and China for 1995, 2000, and 2006 as
a Percent of Total Trade
^{ASEAN Imp}^{orts (%}^{of total)}
¹⁹⁹^{5 200}^{0 200}⁶
^{United States}^14.6^14.0^10.3
^{China 2.2}^5.2^11.4

⁴³^R^a^nk^ing^s^f^o^r²⁰⁰^{6 w}^e^r^e^{not a}^v^a^ila^ble^.^N^o^te^{: A}^S^EA^N^tr^a^d^e^da^ta^dif^f^e^r^f^r^o^m^da^ta^r^e^por^te^d^by^C^h^ina^a^{nd t}^h^e^Uⁿⁱ^t^e^d
^S^t^at^es.
⁴⁴²⁰⁰⁶^da^ta^e^x^c^l^ude^L^a^os^a^nd^My^anm^a^r⁽^B^ur^m^a⁾^.
⁴⁵^A^S^E^A^{N da}^ta^indic^a^t^e^tha^t^{its 2}⁰⁰⁶^e^x^{ports t}^o^t^h^e^Unite^{d Sta}^t^e^s^aⁿ^d^China^w^e^re^$10^5.^{5 bi}^llio^{n a}ⁿ^d^$6^7.6^bill^io^n,
^resp^ectⁱ^v^el^y^.
⁴⁶^A^S^E^A^Nⁱ^m^ports^f^r^om^the^Uⁿ^ite^{d Sta}^t^e^s^a^{nd C}^h^inaⁱⁿ²⁰⁰⁶^w^e^re^$68.^{8 b}^illi^{on a}^nd^$7^6.^{2 bi}^llio^{n, re}^s^p^e^c^tiv^e^l^y^.

^{ASEAN Exp}^{orts (% o}^f^total)
¹⁹⁹^{5 200}^{0 200}⁶
^{United States}^18.5^18.0^13.9
^China^{2.1 3.5 8.9}
^Sources:^{ASEAN Sec}^retariat,^{2005 and 2006 ASEAN Yearbook}^{and Inter}^{national Monetary F}^und,^{Direction of}
^{Trade Stat}^istics^{, June}²^007.
^Notes:^{Data for 2006 do}^{not inc}^{lude Laos and Mya}^{nmar (Bu}^{rma); ASEAN trade data differ}^{from th}^{at reported}
^{by its trading pa}^rtne^rs.
Although the importance of the United States to ASEAN trade has declined somewhat relative to
China, it is still a major source of ASEAN’s foreign direct investment (FDI). From 2002-2006,
U.S. FDI flows to ASEAN were $13.7 billion (or 8.0% of total), making the United States ^th
ASEAN’s 4 largest source for FDI. Over this period, China’s FDI totaled $2.3 billion or 1.3% of ^th⁴⁷
total, making China the 10 overall source of ASEAN’s FDI (see Table 3). In 2006, U.S. FDI in
ASEAN totaled $3.9 billion versus $937 million for China.
According to ASEAN tourist data, China was the 3^rd largest for source of tourist arrivals from ^th
2001 to 2005 at 13.8 million, accounting for 6.2% of total. The United States ranked 8 at 9.8
million, accounting for 4.4% of total. In 2005, arrivals from China were 3.0 million versus 2.3 ⁴⁸
million from the United States.
Table 3. Major Foreign Investors in ASEAN: 2002-2006
^(millions^{and %}^{of total)}
²⁰⁰^{6 200}^2-20⁰⁶^(Cumulative)
^{Percent of}^{Percent of}
^Value^Total^Value^Total
^Europea^{n U}^nion^13,3⁶²^25.5^44,9⁵⁶^26.3
^{Japan 18,8}⁰³^18.0^30,8¹⁴^18.0
^{ASEAN 3,76}⁵^11.9^19,3⁶⁸^11.3
^{United States}^3,86⁵^7.4^13,7³⁶^8.0
^{China 937}^1.8^2,30³^1.3
^{Total FDI in ASEAN}^52,3⁸⁰^—^170,⁸²²^—
^Source:^{ASEAN Sec}^retariat.
^Note:^{Ranked according to cumulative investment}^{for 2}⁰⁰^2-20^06.

⁴⁷^Chⁱⁿ^{a est}ⁱ^m^at^{es cu}^m^u^l^a^tⁱ^v^{e F}^D^{I f}^r^o^m^A^S^E^{AN t}^h^r^o^u^{gh 20}⁰⁶^at^$41^.⁹^bⁱ^l^lⁱ^oⁿ^.
⁴⁸^A^c^c^o^r^d^ing^t^o^C^hⁱⁿ^e^s^e^da^ta^{, f}^r^om^J^a^nua^r^y^-^N^ovem^b^e^r²⁰⁰⁶^{, 3}^.^{5 m}^ill^ion^to^ur^is^ts^f^r^om^A^S^E^A^N^c^ountrⁱ^e^s^vⁱ^s^ite^{d C}^h^ina^.

China entered into Dialogue relations with ASEAN in 1991 and obtained full ASEAN Dialogue ⁴⁹
Partner status in 1996. In 2000, Chinese officials suggested the idea of a China-ASEAN FTA. In
November 2002, ASEAN and China signed the Framework Agreement on Comprehensive ⁵⁰
Economic Co-operation to create an ASEAN-China Free Trade Area (ACFTA) within 10 years.
In November 2004, the two sides signed the Agreement on Trade in Goods of the Framework
Agreement on Comprehensive Economic Co-operation between the Association of Southeast
Asian Nations and the People’s Republic of China, which included a schedule of tariff reductions ⁵¹
and eventual elimination for most tariff lines (beginning in 2005) between the two sides. For
example, for the relatively more developed “ASEAN6” nations (Brunei, Indonesia, Malaysia, the
Philippines, Singapore, and Thailand), tariffs lines of over 20% are to fall to 20% in 2005, 12% in

2007, 5% by 2009, and zero by 2010. Tariffs between 15% and 20% are to fall to 15% in 2005,

8% in 2007, 5% by 2009, and zero by 2010. Certain “sensitive” products have longer phase-out ⁵²

periods. ASEAN-China cooperation covers a variety of areas, including agriculture, information
and communication technology, human resource development, two-way investment, Mekong ⁵³
Basin development, transportation, energy, culture, tourism and public health.” In January 2007,
China and ASEAN signed the Agreement on Trade in Services of China-ASEAN Free Trade Area
which is intended to liberalize rules on trade in services.
In a 2005 speech to commemorate the 15^th anniversary of the China-ASEAN Dialogue relations,
Chinese Premier when Jiao Bao listed four main conclusions that he drew from the growth in
bilateral relations:
• Peaceful development is the prerequisite for the growth of China-ASEAN
relations. Both sides pursue a policy of good neighborliness and friendship, see
each other as cooperative partners and take each other’s development as an
opportunity, not a threat.
• Equality and mutual trust are the foundation of China-ASEAN relations. Both
sides treat each other as equals and endeavor to develop consensus by seeking
common grounds while putting aside differences.
• Win-win cooperation is the goal for China-ASEAN relations.

⁴⁹^C^u^r^r^e^{nt A}^S^EA^N^Dⁱ^a^l^og^ue^P^a^r^t^ne^r^s^inc^l^u^d^e^A^u^s^t^r^a^lia^{, C}^a^na^da^{, C}^hⁱⁿ^a^,^the^Eur^ope^aⁿ^Uⁿ^io^{n, I}^ndia^,^J^a^pa^{n, S}^o^u^t^h
^Ko^rea,^New^Z^e^al^an^d^,^t^h^{e Ru}^ssi^{an F}^e^d^e^ratⁱ^o^n,^t^h^{e Un}ⁱ^t^e^{d S}^t^at^es,^and^t^h^{e U}ⁿⁱ^t^e^d^Natⁱ^oⁿ^s^Devel^o^p^m^en^t^P^r^o^g^ramme.
⁵⁰^T^h^{e agree}^m^en^tⁱⁿ^cl^u^d^e^d^an^“earl^y^h^a^r^v^est^”^p^r^o^vⁱ^sⁱ^oⁿ^t^o^redu^{ce and}^elⁱ^mⁱⁿ^at^{e t}^a^ri^ff^{s o}ⁿ^{a n}^u^m^b^e^{r o}^f^agri^cu^l^t^u^ral
^p^r^od^u^c^t^s^(su^c^{h as,}^m^eat^s,^fⁱ^sh^,^lⁱ^v^{e an}ⁱ^m^al^s,^t^r^ees,^d^aⁱ^r^y^p^r^o^d^u^ce,^v^e^get^a^b^l^es,^an^d^edⁱ^b^l^e^f^r^uⁱ^t^s^aⁿ^d^nu^t^s^).^T^h^{e agree}^m^en^t
^c^a^lle^{d f}^o^{r bot}^{h pa}^rtie^{s t}^o^be^gⁱ^{n im}^ple^m^eⁿ^ting^the^c^u^{ts be}^gⁱⁿⁿ^ingⁱⁿ²⁰⁰^{4. T}^h^a^ilaⁿ^d^ne^g^o^tia^te^{d a}ⁿ^a^g^re^e^m^eⁿ^{t w}^{ith China}
^{to e}^lim^ina^t^e^ta^riff^s^f^o^{r v}^a^{rious f}^r^{uits a}^{nd v}^e^g^e^ta^ble^s^{, e}^f^f^e^c^tiv^e^Oc^to^be^{r 20}⁰³^.
⁵¹^T^h^e^A^C^F^T^A^w^{ould im}^ple^m^eⁿ^t^m^o^s^t^ta^rⁱ^f^f^r^e^duc^tions^be^tw^e^eⁿ^C^hⁱⁿ^a^a^{nd t}^h^e^A^S^EA^N^{6 na}^ti^ons^by^{2010. C}^a^m^bodia^,
^L^a^os^{, B}^u^r^m^a^,^a^{nd Vie}^t^na^m^w^{ould be}^a^b^le^t^o^m^a^inta^{in hig}^h^e^r^ta^rⁱ^f^f^s^,^but^the^s^e^w^ould^be^p^h^a^s^e^d^o^u^{t a}ⁿ^{d c}^o^m^p^le^te^ly
^e^lim^ina^t^e^d^by^2015.
⁵²^Bure^a^u^of^Na^tio^na^{l A}^ffa^irs,^Iⁿ^te^r^nati^oⁿ^a^{l Tr}^ade^Re^por^te^r^{, O}^c^to^be^r^6,²⁰^05,^p.¹⁵⁹⁰^.
⁵³^A^lⁱ^s^tⁱⁿ^{g o}^f^agre^e^m^en^t^s^an^d^d^ecl^aratⁱ^oⁿ^s^can^b^e^f^o^un^{d on}^t^h^{e A}^s^eaⁿ^S^ecret^ari^a^t^’^{s w}^e^b^sⁱ^t^e^at
^http:^//www^.a^se^aⁿ^se^c^.^org^/^.

• People’s support is the driving force behind China-ASEAN relations, in part
because cooperation helps reduce poverty, narrow [the] development gap, speed ⁵⁴
up growth and delivers a better life.
In 2006 Ong Keng Yong, Secretary General of ASEAN, described growing ASEAN-China
economic ties this way:
^ASE^A^{N v}ⁱ^e^w^s^C^hⁱⁿ^{a as}^a^clos^{e n}^eⁱ^g^h^bor^an^{d an}ⁱ^m^po^rtan^{t Dialogu}^{e P}^a^rtn^e^r^w^ith
^t^r^e^m^en^dous^pot^en^tⁱ^a^l^t^o^off^e^r.^Wi^t^hⁱ^t^s^rapi^{d econ}^o^mⁱ^c^g^r^o^w^t^h^an^{d a popu}^l^a^tⁱ^oⁿ^o^f^abou^t^1.3
^b^illioⁿ^p^e^o^p^l^{e, C}^hⁱⁿ^a^is^a^h^u^g^e^coⁿ^s^u^m^er^o^f^ASE^A^N^p^r^o^d^u^{cts a}ⁿ^d^also^a^so^u^r^{ce o}^f^f^u^tu^r^e
^FDI^to^th^{e r}^e^gⁱ^oⁿ^{. I}ⁿ^ad^d^itioⁿ^,^ASE^A^{N is b}^eⁿ^e^f^ittiⁿ^g^f^r^o^m^t^h^e^lar^g^{e n}^u^m^b^er^Chⁱⁿ^e^s^e^t^o^u^rⁱ^s^ts⁵⁵
^vi^si^tⁱⁿ^{g t}^h^e^r^e^gi^oⁿ^aⁿ^d^vi^c^e^-^v^e^r^sa^.
In October 2002, the Bush Administration launched the Enterprise for ASEAN Initiative (EAI),
with a stated goal of seeking closer economic ties with ASEAN countries, including the
possibility of bilateral free trade agreements with countries that are committed to economic
reforms and openness. A potential FTA partner would need to be a member of the World Trade
Organization (WTO) and have concluded a Trade and Investment Framework Agreement (TIFA)
with the United States, a forum designed to resolve major trade and investment disputes. The
United States has signed TIFA agreements with Brunei, Cambodia, Indonesia, Malaysia, the
Philippines, Singapore, Thailand, and Vietnam. It has an FTA with Singapore (effective 2004) and
is the process of negotiating one with Malaysia. FTA talks with Thailand were suspended in 2006,
due to the political crisis there and public opposition. On August 25, 2007, USTR Susan Schwab
signed a TIFA with ASEAN. In September 2007, President Bush met with seven ASEAN leaders
attending the APEC summit in Australia and announced that the United States would nominate an
ambassador to ASEAN.

According to some analysts, China’s rising influence has coincided with a period of episodic and
inconsistent U.S. attention toward Southeast Asia, or even a developing power vacuum, during ⁵⁶
the past decade. Since September 11, 2001, the U.S. government has become somewhat more
diplomatically engaged in the region and increased foreign aid funding, but with a focus largely
limited to counterterrorism. The perception of U.S. inattentiveness to the region has continued to
be reinforced. In 2007, Secretary of State Condoleezza Rice bypassed the annual ASEAN
Regional Forum (ARF) gathering, and instead traveled to the Middle East, while President Bush
postponed the U.S.-ASEAN summit, set for Singapore in September, and left the APEC summit a

⁵⁴^Chⁱⁿ^ese^P^r^emⁱ^e^{r W}^eⁿ^Ji^ab^ao^{’s sp}^eech^at^t^h^{e C}^hⁱⁿ^a-A^S^E^A^{N su}^mmⁱ^t^,^Joⁱⁿ^Ha^nd^{s t}^o^Crea^t^e^A^Be^tte^{r Future}^f^o^r
^Chin^a-AS^{EAN Re}^la^tio^ns^{, O}^c^to^be^r^30,²⁰⁰⁶^.
⁵⁵^“^A^SE^A^N^-^C^hina^R^e^la^tions^{: H}^a^r^m^ony^a^{nd D}^e^v^e^lopm^eⁿ^t,”^by^Oⁿ^g^K^e^ng^Y^ong^{, Se}^c^r^e^t^a^r^y^G^e^ne^r^a^{l of}^A^S^E^A^N^,^a^t^a
^Com^m^e^m^o^ra^tiv^e^S^y^m^posium^{to Ma}^rk^the¹⁵^th^A^nniv^e^r^s^a^r^y^of^C^h^ina^’^s^Dⁱ^a^l^og^ue^w^{ith A}^S^EA^N^,^D^e^cem^be^r^{8, 2}⁰⁰⁶^.
⁵⁶^Ro^b^e^{rt G}^.^Su^tter,^Chⁱⁿ^{a’s Rise}ⁱⁿ^{Asia: Pr}^omise^s^an^{d Pe}^rils^(Ne^w^York^{: Rowm}^aⁿ^a^{nd L}^ittle^fⁱ^e^l^{d, 20}^05).

day early reportedly because of commitments related to the Iraq war, renewing “concerns about ⁵⁷
the U.S. commitment to the region.”
Despite a possible decrease in relative influence, however, the United States continues to exert
both hard and soft power in Southeast Asia. In terms of soft power, for example, the United States
maintains multi-faceted foreign aid programs with clear objectives and large development and
humanitarian components. The United States was also a major contributor to countries hit by the ⁵⁸

2004 Indian Ocean tsunami, which affected several Southeast Asian countries. The United ^nd^th^th

States remains ASEAN’s 2 largest trading partner (China ranks 5) and its 4 largest source of ^th
foreign direct investment (China ranks 10), and has sought free trade agreements with several
countries in the region.
While there is a general agreement that China’s tactics have changed to a more accommodating
posture with an emphasis on soft power, there is less certainty regarding its implications and
whether China’s goals have changed accordingly. According to one view, China is pursuing a zero
sum game where expansion of its influence is, or will be, at the expense of the United States.
Joshua Kurlantzick writes that “China may want to shift influence away from the United States to
create its own sphere of influence, a kind of Chinese Monroe Doctrine for Southeast Asia [where]
countries would subordinate their interests to China’s, and would think twice about supporting the ⁵⁹
United States.”
By contrast, some analysts argue that, on balance, China’s growing economic influence of the
past decade has been beneficial to the region and not detrimental to U.S. interests. Regarding
China’s goals, some observers contend that China’s most pressing concerns, at least in the
medium term, are likely to be domestic (focusing on economic growth and social stability) and
that Beijing favors a stable periphery and appreciates the dominant U.S. role in helping to
maintain regional security. Regional stability serves as a foundation for Southeast Asian and
Chinese economic development. China may seek to isolate Taiwan and to increase its influence in
the region, but only to forestall the possible “containment” of China rather than to replace the ⁶⁰
United States.
Another view suggests that regardless of China’s intentions in Southeast Asia, its capabilities
often are exaggerated, its soft power is limited, and its friendships in the region are transient. In
2007, for example, as concerns rose throughout many parts of the world regarding the safety of
Chinese products, officials in Indonesia, Malaysia, and the Philippines reportedly complained that
the PRC government was pressuring them not to raise the issue, even when such imported goods
were found to be dangerous. When they banned the sale of unsafe items from China, the PRC
government reportedly threatened and/or imposed retaliatory actions, causing consternation ⁶¹
among many Southeast Asian leaders.

⁵⁷^She^l^d^oⁿ^Sim^{on, “}^U^.S^{. S}^out^he^a^s^{t A}^s^ia^R^e^la^tions^,”^C^o^m^p^ar^at^iv^e^C^o^nne^c^tio^ns^,^O^c^to^be^r^,²⁰⁰⁷^{; R}^a^l^ph^C^o^s^s^a^a^{nd B}^r^a^d
^G^l^o^sser^m^an^,^“Regi^oⁿ^a^l^Overvi^e^w^,^”^C^o^m^p^ar^ativ^e^C^o^nne^c^tio^ns^,^O^c^t^obe^r^,²⁰^07.
⁵⁸^For^f^u^r^t^he^r^inf^o^r^m^a^{tion, s}^e^e^C^R^S^R^e^por^{t R}^L³¹³⁶^2,^U^.^S.^For^e^ig^{n A}ⁱ^{d t}^o^Eas^t^a^nd^So^ut^{h As}ⁱ^a^:^Se^le^c^t^e^d^Re^cⁱ^pieⁿ^ts^{, by}
^T^hom^as^L^u^m^.
⁵⁹^J^o^s^hua^K^u^r^l^aⁿ^tz^ic^k^,^“^C^hi^na^’^s^C^h^a^r^m^Of^f^e^ns^iv^e^{in Sout}^he^a^s^{t A}^s^ia^,^”^Cu^rren^t^Histo^r^y,^Se^pte^m^be^r²⁰⁰^6.
⁶⁰^S^{ee P}^e^rci^v^al^,^op^.^ci^t^.^;^Ri^ch^ar^d^W^.^Hu^“Chⁱⁿ^a^an^{d E}^a^st^A^sⁱ^aⁿ^Co^mm^uⁿⁱ^t^y^-Buⁱ^l^dⁱⁿ^g:^Im^p^lⁱ^catⁱ^oⁿ^s^&^Ch^al^l^eⁿ^g^es
^A^h^ead^,^”^The^Brookⁱ^{ngs I}ⁿ^stitu^tio^n,^p^r^e^s^eⁿ^ta^tion^oⁿ^Oc^to^be^{r 2,}²⁰⁰⁷^{; Ro}^be^{rt G}^.^Sutte^r,^Chⁱⁿ^a^’^s^{Rise in}^Asi^a^{, op.}^c^it.
⁶¹^A^rⁱ^aⁿ^a^E^uⁿ^j^un^{g Ch}^a,^“A^si^an^{s S}^a^y^T^r^ad^{e Co}^m^p^la^{ints Bring}^o^u^{t t}^h^e^Bully^{in Chi}ⁿ^a^,^”^W^a^s^hⁱ^ngt^on^Pos^t^{, Se}^pte^m^be^r^5,
²⁰⁰^7.

Even some of the main beneficiaries of China’s largesse in Southeast Asia remain wary of the
PRC or seek to dampen its growing influence in the region. For example, many Cambodians,
mindful of the PRC’s former support of the Khmer Rouge, reportedly feel antagonistic towards
China. The Lao government maintains close ties with both China and Vietnam, while the
Vietnamese government reportedly has quietly encouraged Lao leaders to cultivate better ties
with the United States as a means to counteract Chinese power. Vietnamese citizens held anti-
China demonstrations, likely with the encouragement of the Vietnamese government, in Hanoi
and Ho Chi Minh City in December 2007, to protest Chinese military exercises simulating
invasions of the disputed Spratly Islands in the South China Sea and the creation of a new PRC
administrative unit that would include the islands.
Discussion of how to address China’s expanding soft power in Southeast Asia soon leads to a
broader discussion of Chinese strategic objectives. As noted above, there is general agreement
among analysts and observers that China has moved away from hard power to soft power over the
past decade as it has sought to promote its interests in the region. It remains unclear if this shift in
tactics also connotes a shift at the strategic level to more positive sum approaches relative to the
United States and its interests in the region. Concern over China’s rising influence in Southeast
Asia, and beyond is leading some in the United States to be increasingly wary of China and its
motives out of a fear that if China’s power and influence continue to increase, Beijing will
eventually seek to constrain and/or undermine America’s ability to promote and protect its
interests in the region. However, there also appears to be a real danger that American responses
could lead to a self-fulfilling prophesy as hedging strategies evolve into what could be perceived
by Beijing as efforts to contain or constrain China.
There are a range of options that could be employed to address China’s growing soft power in
Southeast Asia. On one side are policy-makers who tend to not see China’s rise in zero sum or
threatening terms and who would favor policies that are basically status quo oriented. They
advocate minor changes to refine existing U.S. policy positions. Furthermore, according to these
analysts, U.S. moves to contain China could be counterproductive if they push regional states
away from the United States.
On the other side are those who are more concerned about China’s increasing regional influence.
They can be grouped roughly into two schools of thought. One school favors enhanced
engagement with regional states as a means of maintaining U.S. power while accepting China’s
rise. Another school favors strategies that would offset, or balance, Chinese power in the region
and/or hedge against the possibility that China’s rise may be more aggressive in the future.
The following are possible policy options.
• Place renewed emphasis on reinvigorating America’s alliance relationships in the
region while not emphasizing a policy of containing China. While some of
America’s alliance relationships in Asia, such as with Australia and Japan, as well
as our Strategic Framework Agreement with Singapore, are relatively robust,
others in Southeast Asia, such as with Thailand and the Philippines, are not as
close as they once were. New initiatives to reinvigorate these relationships could
not only take into account American interests but also genuinely seek to
accommodate our strategic partners’ concerns.

• Reach out to other regional states and seek to develop closer relationships on a
bilateral basis through trade agreements and other means of engagement.
• Increase foreign assistance funding and/or develop a foreign aid approach that
addresses the attractiveness of China’s policy of “non-interference in domestic
affairs.”
• Develop new programs to assist emerging democracies in the region, particularly
Indonesia. Use American soft power as a champion of democracy to gain
influence with emerging democracies in the region.
• The United States could sign the Treaty of Amity and Cooperation (TAC) and
seek to join the East Asia Summit process. The TAC binds signatories to peaceful
coexistence and respect for the principles of sovereignty, territorial integrity, and
non-interference. The United States reportedly has been reluctant to sign the TAC
for fear that it could constrain U.S. military freedom of action.
• Raise the priority given to regional and multilateral engagement. The lack of high
level diplomatic attention sends the wrong signal to regional states and increases
attention paid by regional states to China. The United States would have to
consistently participate in regional fora to continue to be taken seriously by
regional states. The United States would also likely achieve more of its regional
goals by engaging ASEAN states not only on American priorities but on ASEAN
ones as well.
• Establish a new dialogue process with China with the goal of reassuring China
that the United States does not seek to counter China in Southeast Asia or to
contain China more broadly. Such an approach could have the effect of diverting
China from strategies aimed at neutralizing American regional influence.
Although hedging strategies may be prudent to deter what could possibly be a
less than peaceful rise by China, reinvigorating and expanding confidence
building measures and other forms of engagement that seek to reassure China
that the United States and its allies are not trying to contain China may be equally
important to prevent China from adopting a strategic posture that would lead to
strategic rivalry between the United States and China in the region and beyond.
• Initiate a new program aimed at engaging regional Muslim states and populations
in a way that both supports moderate Islam in its struggle against radical Islam
and brings the United States closer to regional Muslim states.
• Welcome Indian, Japanese, and Australian involvement in the region, where
regional states desire such involvement, as a means of multilateralizing external
power engagement and preventing it from being perceived in bi-polar terms
between the United States and China.
• Pursue FTA negotiations with ASEAN and /or provide greater effort to obtain a
broad trade agreement within APEC.
• Pursue more robust hedge strategies through enhanced cooperation among allies
and friends. Some have advocated the use of the trilateral group of Australia,
Japan, and the United States as a starting point for such cooperation. Others have
also suggested the inclusion of India into such a group. Recent political change in
Australia, Japan, and India make such an approach less likely to gain approval by
these states if it appears to be aimed at containing China.

Figure 1. Southeast Asia and Surrounding Countries
^Source:^Ma^{p Resources. Adapt}^e^d^{by CRS.}

^Th^o^m^a^s^L^u^m ^B^r^u^{ce Vau}^ghn
^Sp^ecialistⁱⁿ^A^s^iaⁿ^Af^f^a^ir^s^Sp^ecialistⁱⁿ^A^s^iaⁿ^Af^f^a^ir^s
^t^l^u^m^@^crs^.^l^o^c.g^o^v^,^7-⁷⁶¹⁶^bv^aug^hn@^crs^.^l^o^c.g^o^v^,⁷^-³¹⁴⁴
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