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China's ASEAN fund boost to challenge Japan

April 16, 2009
ABC Radio Australia

China is continuing with plans to strenghten its economic presence in South East Asia, despite having to postpone the signing of a free trade agreement with ASEAN. Instead, the country's foreign minister, Yang Jiechi, has announced plans to allocate $US10 billion to an ASEAN infrastructure investment fund, and make $15 billion more available for loans.

Presenter: Helene Hofman
Speaker: He-Ling Shi, professor of economics at Melbourne's Monash University; Pande Silalahi, economist with the Jakarta-based think tank Center for Strategic and International Studies


HELENE HOFMAN: This month's ASEAN summit in Thailand should have marked a turning point in economic ties between China and ASEAN member countries. Had it not been cancelled because of Thailand's political protests, the summit would have overseen the signing of an agreement between the two - creating the world's largest free trade area. That agreement may have been delayed, but on a flight back from Thailand the Chinese foreign minister, Yang Jiechi, announced plans to inject billions of dollars into ASEAN in the form of aid and infrastructure funding.
He-Ling Shi, a professor of economics at Melbourne's Monash University says the timing of the announcement is not accidental.

HE-LING SHI: China basically wants to have a series of agreements with all these Asian countries so after they establish a free trade agreement china can export more goods and invest more in these countries. All these ASEAN countries, with the exception of Singapore, lack the funding to finance their infrastructure projects so they can use this funding to improve their infrastructure and we know that infrastructure is extrememely important for the future development of all these Asian countries.

HELENE HOFMAN: Over the next three years, China will contribute 10 billion US dollars to infrastructure projects which it hopes will improve its links with ASEAN member countries. A futher 15 billion US dollars will be available in credit, with part of that reserved for co-operation projects. It has also announced plans to offer almost 40 million US dollars to help Cambodia, Laos and Burma - the three ASEAN member states that have been hardest hit by the global economic downturn.

Pande Silalahi is an economist with the Jakarta-based think tank the Center for Strategic and International Studies.
He says the funding is part of a confidence-building exercise:

PANDE SILALAHI: This is the time for China to build confidence because if you look at the last few decades the Asean countries have become the centre of economic growth and I think China wants to contribute to that in the region. I think its a very important opportunity and I think the aim of China is to build the confidence.

HELENE HOFMAN: China has already made significant contributions to infrastructure projects in Burma, Laos and Vietnam - for the building of roads. But, this round of funding will go further than economic support, with the Chinese offering to train 1,000 agricultural technicians and give 2,200 Chinese government and public administration scholarships.

Dr Shi says its all part of China's intention to increase its influence in the region:

HE-LING SHI: At the moment Asia - there are some investment funds established by the Asia Development Bank, but that is mostly dominated by Japan so China basically wants to establish another mechanism in which China could dominate and so personally I believe that intention is behind that investment in the fund. But, if you noticed, in the announcement, in addition to this investment in the fund there's cultural and education exchange programs so I think its a starting point for China to exert a great influence on this area. Not just an economic influence but a cultural and political influence.

HELENE HOFMAN: The trade volume between China and ASEAN is already worth over 200 billion US dollars a year. Once the free trade agreement is signed this is expected to rise to over 1.2 trillion US dollars a year.