東南亞研究中心 Southeast Asia Research Centre Reuben Mondejar, Ming Yang and Lei Xu Business & Geopolitics: International Business Threatened by South China Sea Tensions Working Paper Series No. 115 November 2011 The Southeast Asia Research Centre (SEARC) of the City University of Hong Kong publishes SEARC Working Papers Series electronically ©Copyright is held by the author or authors each Working Paper. SEARC Working Papers cannot be republished, reprinted, or reproduced in any format without the permission of the papers author or authors. Note: The views expressed in each paper are those of the author or authors of the paper. They do not represent the views of the Southeast Asia Research Centre, its Management Committee, or the City University of Hong Kong. Southeast Asia Research Centre Management Committee Professor Mark R. Thompson, Director Dr Kyaw Yin Hlaing, Associate Director Dr Chiara Formichi Dr Nicholas Thomas Dr Bill Taylor Editor of the SEARC Working Paper Series Professor Mark R. Thompson Southeast Asia Research Centre The City University of Hong Kong 83 Tat Chee Avenue Kowloon Tong, Hong Kong SAR Tel: (852 3442 6106 Fax: (852) 3442 0103 http://www.cityu.edi.hk/searc BUSINESS & GEOPOLITICS: INTERNATIONAL BUSINESS THREATENED BY SOUTH CHINA SEA TENSIONS Reuben MONDEJAR, PhD, Dept of Management, City University of Hong Kong (corresponding author; [email protected]) Ming YANG, MA, Dept of Management, City University of Hong Kong Lei XU, PhD cand. , McGill University Abstract International commerce and business presumes that the criss-crossing of goods and services are unhindered. Geographical conflicts whether on land, air, or water, impose severe restrictions to the free flow of commerce and investments as has been demonstrated by the consequences of tensions in the Middle East and Africa. China and the ASEAN-member countries have recently shown some potential for increased tension because of overlapping claims of sovereignty over islands situated in the South China Sea. Up to 85 per cent of energy sources of the three East Asian countries comprising Japan, China, and South Korea pass through the South China Sea. Indeed, this waterway, which is near the U.S.-identified Malacca Straits “choke point”, is a lifeline for commerce and trade in the region. Up to about 30% of total trade between ASEAN countries and the three East Asian countries make use of the navigation access provided by this body of water. Seen from another angle, about 60% of the world’s water-transported oil passes through the South China Sea, mainly coming from the Middle East bound for East Asia. China every now and then proclaims that its rise in the world stage is characterized by a spirit of openness. When China celebrated in 2005 the 600th anniversary of the first of seven ocean voyages by the 15th century Ming dynasty admiral Zhen He, the message delivered was that China’s rise in economics as well as a military power is aimed at commercial engagement with international parties, exchange of knowledge, commodities, and services, all in the spirit of friendship and goodwill. Southeast Asia Research Centre Working Paper Series, No. 115, 2011 1 China is the eighth largest investor in ASEAN-Southeast Asia (around US$2.5 billion in 2010). Accumulated ASEAN investment in China is around US$60 billion in 2010. Up to about 7000 items are tariff-free between these countries as a result of a free-trade pact among the countries involved. All told, the intertwining between ASEAN and China is increasing. The recent tensions however caused by China’s insistence that it has sovereignty over the entire South China Sea where several ASEAN countries have littoral island claims has threatened the prospects of continues free flow of international business in the region. This paper studies the various factors that impinge on the overlapping effects of geopolitics, economics, and international business between China and the ASEAN with the South China Sea disputes as the locus of concern. Revisiting ASEAN - China Relations There is no doubt in anyone’s mind that China’s attempts to become globally competitive continues to gather momentum at breakneck speed. This paper posits the view that in this globalization process the relationship between China and ASEAN constitutes an important element, ASEAN being right in the heart of China’s own backyard. That being the case however much still has to be done. There is a lingering impression, gaining its own momentum, that the rise of China means that it has taken over the former role of Japan, as the region’s prime growth engine. It is in this light that ASEAN and China have to get their relations right in order for both entities to derive profit from this shifting axis in the region. Early ASEAN-China Relationship China’s relationship with Southeast Asia, and in particular with present-day ASEAN states dates back several centuries. It is well known that the Chinese have historically thought of themselves as the center of world order, in other words, that the world was Sino-centric. China was at the center of civilization and everybody else outside its concentric hierarchy was seen as contending for the blessing of a suzerain relationship with the Celestial Empire. The scholar John Fairbank points out in fact, China’s relations with other peoples and countries can be grouped into three main zones. First, there is the so-called “Sinic Zone”, consisting of the most nearby and culturally similar tributaries such as Korea and Vietnam, parts of which had anciently been ruled within the Southeast Asia Research Centre Working Paper Series, No. 115, 2011 2 Chinese empire. Included in this category are the Ryukyu Islands (now part of Japan), and even Japan itself. Second, there is the “Inner Asian Zone”, consisting of tributary tribes and states of the nomadic or semi-nomadic peoples of Inner Asia, who were not only ethnically and culturally non-Chinese but were also outside or on the fringe of the Chinese culture area, even though sometimes pressing upon the Great Wall frontier. Third, there is the “Outer Zone”, at a further distance over land or sea. Here is included Southeast Asia . Also included are the countries of South Asia and even beyond such as the Middle East and Europe, that were supposed to send tribute when trading. In theory, all the non-Chinese states and peoples were expected to be properly tributary to the Son of Heaven (the Chinese emperor), in the Central Country (i.e. China). It was through this ancient tribute system that the Celestial Empire once sought to dominate Asia. As could be expected, that view would not always find coincidence in the minds of the non-Chinese world. The worldview that there is only one world (unipolar in today’s jargon) and that China had the exclusive mandate of its governance did not square with how the others saw it. In the case of Southeast Asians, with the exception of the Vietnamese, who were in the first Sinic Zone, they did not on the whole consider themselves part of the Chinese world system as the Chinese believed them to be. Another scholar, Lucian Pye contends that “from the earliest times the Southeast Asians, living on natural maritime crossroads, conceived of the world as multipolar. Indeed, they were far more sensitive to other civilizations than the Sinic: politically they modeled their governments after the Hindu concept of the state; in religion they embraced Buddhism, Islam, and Christianity; and culturally they borrowed very little from the Chinese, a fact which has punctured Chinese pretensions of superiority towards Southeast Asians” (Pye, 1981:218). That, however, did not mean that China had no influence. In fact, several of the principal kingdoms of Southeast Asia at one time or another periodically sent tribute missions to the Han court. Jumping back and forth in a scale, as it were, China had varying degrees of influence over the Southeast Asian kingdoms at different historical epochs. On the whole, China, with its imperial history and a civilization that dates back earlier than 4,000 B.C., and thus ranks among the world’s oldest, was not unlikely to have a presence of some sort in the surrounding territories of Asia, including Southeast Asia. Southeast Asia Research Centre Working Paper Series, No. 115, 2011 3 Scholars of ASEAN-China history usually point out that the tributary relationship that lasted many centuries did not necessarily mean subordination by China of the Southeast Asian kingdoms. In fact, many of these kingdoms also harboured self-centered worldviews but did not push them too far as to conflict head-on with China. When ASEAN was formed in 1967 China interpreted the forging of the association as an immediate threat to its position. ASEAN was in fact accused of being an instrument of U.S. imperialism. Only two years earlier, China was announcing its desire to control Southeast Asia and ASEAN’s birth was seen as an obstacle to that scheme. In August 1965, Chairman Mao addressed the Communist Party politburo in Beijing saying: “We must without fail get hold of Southeast Asia, including South Vietnam, Thailand, Burma, Malaysia, Singapore. Southeast Asia is a very rich region, it abounds in minerals. In the future it will be very useful for the development of Chinese industry. After we get hold of Southeast Asia, the wind from the East will prevail over the wind from the West.” (Gahrana, 1984:7) If there is a historical restlessness of the ASEAN states over getting too close to China can be argued that there was some justification for such sentiment. Changes in Recent Decades The aftermath of the Cultural Revolution which impaired China’s image in the ASEAN states, the Vietnam War and China’s involvement in helping Vietnam only to part ways with Vietnam later on, the meteoric economic growth in the ASEAN countries as a whole, --- all of these, inaugurated a new attitude among the ASEAN governments with regard to their relations with China.