Tug of War Over Indochina

Amid growing talk of creating an East Asian Community in recent years, Japan and China have been jockeying for the leadership role in what will be the long and arduous process of community building.

The two Asian powers have competed for stronger and closer ties with the Association of Southeast Asian Nations (ASEAN). Although the 10 ASEAN members are much smaller than Japan and China in economic size individually, they wield a strong voice in East Asian affairs as a group.
As East Asia began to move toward greater regional economic integration several years ago, China had a head start over Japan in strengthening ties with ASEAN by signing a free-trade agreement (FTA). The Sino-ASEAN FTA took effect in July 2005. Japan and ASEAN are still negotiating an FTA, although they are expected to ink the deal this year.

Two-way trade between China and ASEAN has been growing at a much faster pace than that between Japan and ASEAN. China's investment in ASEAN is also surging sharply, although the amount is still dwarfed by Japan's investment in the grouping.

China has taken a lead over Japan on the political front as well. China signed ASEAN's 1976 Treaty of Amity and Cooperation in October 2003, a few months before Japan did. Japan initially balked at signing the ASEAN treaty, which provides for, among other things, peaceful settlement of conflicts and non-interference in internal affairs, out of political consideration to its most important ally, the United States.

In 2001, China signed a "Declaration of Conduct" with ASEAN to prevent conflicts in the South China Sea, where China, four of the ASEAN members -- Vietnam, the Philippines, Malaysia and Brunei -- and Taiwan claim all or part of the Spratly Islands. In March 2005, China agreed with Vietnam and the Philippines to explore for oil in the disputed waters.

These aggressive Chinese peace overtures toward ASEAN apparently reflect a desire to assuage the perception of China among some in ASEAN as the most serious security threat to their countries and thereby to forge closer ties with the grouping. Cementing ties with ASEAN in general -- and the joint oil-exploration agreement with Vietnam and the Philippines in particular -- is also seen as part of efforts to preempt a possible U.S.-led containment of China.

The Sino-Japanese tug-of-war over greater influence in Southeast Asia has also opened a new front -- the Mekong River basin. Moves by Japan and China to help the development of the Mekong River basin have intensified in recent years.

The 4,425-kilometer Mekong River originates in Tibet and flows through China's Yunnan province, Myanmar, Thailand, Laos, Cambodia and Vietnam into the South China Sea. It is the main artery for Indochina. The Mekong basin, abundant in natural and human resources, has attracted much attention as an untapped frontier for development since the early 1990s, after an end to the civil war in Cambodia and other Cold War hostilities in the region.

The Mekong region is increasingly seen by many Japanese and Chinese companies as a promising investment destination. But for Japan and China, assistance in the development of the Mekong region has also become a very important avenue to strengthened ties with the entire ASEAN.

For ASEAN, correcting the so-called "ASEAN divide" -- the huge gap in wealth between rich and poor members -- is a high priority as the grouping accelerates its economic integration with an ultimate goal of creating a fully integrated ASEAN Economic Community by 2015. Per capita income of Myanmar, for example, is less than one-hundredth of that of Singapore. The Mekong River's development is widely believed to hold the key to the development of war-battered Indochina as a whole.

In the early 1990s, after years of civil war ended in Cambodia, Japan took the leadership role in efforts to develop the Mekong region, backed by its huge aid money, and secured a strong influence in the region. Japan also hosted an international peace conference for Cambodia in June 1990. It was the first time since the end of World War II that Japan had hosted an international conference to discuss peace in a third country. The warring factions in Cambodia signed a peace agreement in Paris in October the following year.

In 1992, Japan enacted a historic law enabling its Self-Defense Forces to participate in United Nations-sponsored peacekeeping operations abroad. Under the law, SDF troops were dispatched to join U.N. peacekeeping efforts in Cambodia prior to the country's first postwar election in the spring of 1993. It marked the first overseas mission for SDF troops. Sending troops abroad had previously been a taboo in Japan because of the country's war-renouncing, post-World War II constitution.

With the turn of the millennium, however, China began to turn the tables on Japan, while Japan rested on its laurels. China has aggressively sought to cozy up to individual ASEAN members, including in Indochina, as well as ASEAN as a whole in recent years. A greater commitment to the development of the Mekong region is part of such efforts. Unlike Vietnam, which has a relatively large economy, Cambodia, Laos and Myanmar have been heavily reliant on Thailand for economic growth. But Thailand's influence in Indochina has been eroded since the 1997-98 Asian economic crisis, and China has filled the gap.

Among other initiatives, China hosted the second summit of the Asian Development Bank (ADB)-sponsored Greater Mekong Subregion (GMS) Economic Cooperation program in Kunming, capital of China's Yunnan province, in July 2005. The GMS has Cambodia, Laos, Myanmar, Vietnam, Thailand and China as full members.

China has also offered financial and other assistance programs for the development of the GMS, has forgiven more than $1 billion in debts owed by Cambodia to China, and has expanded preferential tariffs for imports from Cambodia, Laos and Myanmar. China has set up a special fund totaling $20 million within the ADB for poverty alleviation of the region. China has also provided military as well as economic aid to Myanmar in defiance of international criticism of that military-ruled country.

It would be fair to note, though, that China has attached a particular importance to the development of the Mekong region, primarily for domestic reasons. China hopes to turn the poorer western part of the vast country into a magnet for domestic and foreign investors and thereby to correct the widening gap in wealth with the flourishing eastern coastal areas, an issue that could threaten the country's political stability and even the rule of the Chinese Communist Party.

Japan has funded infrastructure projects transcending national borders in Indochina on its own or in partnership with the ADB. China has also stepped up financial assistance for the development of that region, flexing its rapidly growing economic muscles.

Two big highway projects crisscrossing Indochina are seen by many as a symbol of the intensifying race for regional influence between Japan and China. One is the East-West Corridor project, led by Japan, to build a major highway, including the Second Mekong Friendship Bridge over the river, to link the port of Da Nang in central Vietnam, Savannakhet in southern Laos, Mukdahan in northeastern Thailand and then Mawlamyine in southern Myanmar. This project was almost completed at the end of last year.

The other is the North-South Corridor project, led by China, to build a highway linking Kunming and Bangkok via Laos. This project is expected to be completed by the end of next year. Japan balked at funding the Chinese-led project, partly for fear of lending China a hand to increase its influence southward in Indochina.

Apparently alarmed by China's rapidly growing political as well as economic influence, then-Prime Minister Junichiro Koizumi of Japan held talks with his counterparts from the so-called CLV nations -- Cambodia, Laos and Vietnam -- in Vientiane, the capital of Laos, in November 2004 for the first ever Japan-CLV summit. The second Japan-CLV summit was held in December 2005 in Kuala Lumpur.

At a foreign ministerial meeting between Japan and the CLV nations in the Philippines in January, Tokyo conveyed to the CLV nations its plan to host a ministerial meeting of Japan and five countries in the Mekong region, including the CLV nations, during fiscal 2007, which started in April, to discuss further cooperation for the region's development. In their talks earlier this month, Japanese Prime Minister Shinzo Abe also explained to visiting Laotian Prime Minister Bouasone Bouphavanh Tokyo's decision to make the Mekong region a priority target area for its economic assistance and expand aid for Laos and other regional countries over the next three years.

China remains by far the most powerful magnet for Japanese and other foreign investors in Asia. But Japanese companies have been on an investment spree in Vietnam as well in the past couple of years. Vietnam's economic size and population pale before China's. But the nation has even cheaper labor. Vietnam has become an increasingly popular investment destination for Japanese firms seeking to reduce their excessive dependence on China and spread their business risks in Asia.

The investment pact between Japan and Vietnam took effect in late 2004. Japan and Vietnam also kicked off FTA negotiations in January, separately from FTA negotiations between Japan and the entire ASEAN. Vietnam was also admitted to the World Trade Organization in January. WTO membership, which obliges Vietnam to open its markets wider to foreign competition and make its trade and investment rules and regulations fully compatible with international norms, is expected to fuel Japanese and other foreign investment in the country.

Meanwhile, Japan and Cambodia are expected to sign an investment treaty next month, and a similar pact between Japan and Laos is also in the works. Investment treaties, coupled with the full opening of the East-West and North-South corridors to traffic, might give a boost to Japanese investment in Laos and Cambodia as well as Vietnam.

In his talks with Abe earlier this month, Bouasone expressed "his strong wish and commitment to develop special economic zones in other areas besides Savannakhet to make full use of the Second Mekong Friendship Bridge and highways under the East-West Economic Corridor framework," according to their joint press statement. Many Japanese-funded companies in Thailand are becoming more interested in investing in neighboring Laos to take advantage of the closeness between the Thai and Lao languages -- many Lao people can speak or read Thai -- as well as much cheaper labor in Laos.

Meanwhile, with the construction of infrastructure such as roads and bridges and simplification of customs procedures progressing between China and Vietnam as well as within Indochina, international forwarders have begun to move to establish land transportation networks linking China and Southeast Asia. TNT of the Netherlands, for example, is preparing to complete a 4,000-kilometer-long truck transportation network from Singapore to China via Vietnam by the end of this year. Nippon Express Co., Japan's largest forwarder, also plans to activate a 7,000-kilometer network liking the Chinese commercial hub of Shanghai and Singapore early next year.