ISSN 2330-717X

China’s Neighborhood Diplomacy Under Xi’s Third Term – Analysis

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President Xi Jinping will go down in history as one the most powerful men to rule modern China. His unprecedented third term portends policy continuity, including that of his signature Belt and Road Initiative (BRI).  Beyond merely sustaining this nine-year-old global connectivity program, Xi has signaled China’s willingness to offer more solutions and public goods to the world, not only in the economic realm, but also in the security field. These new pitches will elicit mixed reactions depending on where one sits, but China can be expected to invest more resources into promoting and implementing the Global Development Initiative (GDI) and Global Security Initiative (GSI). As the U.S.-China great power contest intensifies, China is likely to shift gears and put more emphasis on neighborhood diplomacy. Southeast Asia is a natural staging ground and many regional countries are eager to ride the wave. 

Neighbors read the tea leaves well 

China already eliminated absolute poverty at home to achieve its first centenary goal of building a moderately prosperous society. It is now setting its sights on becoming a modern socialist country in all respects by 2049, its second centenary goal. As China transitions to producing higher-value, more sophisticated goods, and more supply chains may migrate to Southeast Asia. Rising production costs at home, the lure of a burgeoning nearby market, and the search for avenues to evade U.S. export controls and ways to sustain exports to Western markets may push more Chinese factories to relocate to ASEAN countries. 

Bracing for a possible decoupling, China will accelerate its drive for technological autonomy and leverage its huge trade and capital flows and physical connectivity to foster greater integration with ASEAN. If geopolitics will obstruct trade and technology exchange, Beijing hopes to get regional countries on the Chinese supply chain side or at least discourage them from joining efforts to constrain Chinese access to critical inputs and markets. When the U.S. imposed sanctions on Huawei and other Chinese companies in late 2019, many ASEAN countries balked at following suit, eschewing costly and counterproductive rip-and-replace of Chinese telecoms gear. Instead, they continued to welcome Chinese digital infra and tech investments. Beijing may be cautiously banking on this precedent being followed in the next stage of the trade war. 

Vietnam’s top leader, Communist Party of Vietnam Secretary General Nguyen Phu Trong, was the first foreign leader to visit Beijing after the 20th Party Congress. He was followed by Pakistani Prime Minister Shahbaz Sharif. Last July, Indonesian President Joko Widodo became the first foreign leader to visit China after the February Beijing Winter Olympics. This shows that regional leaders foresaw the possible shift of Chinese foreign policy away from major power relations to peripheral diplomacy and deeper engagement with the Global South.

Riding the soaring dragon 

The four-day visit of Nguyen Phu Trong (October 30-November 2) may have surprised some. But an appreciation of the historical political ties and deepening economic linkages between the two communist countries is revealing. China is Vietnam’s largest trade partner and third largest investor, while Vietnam is China’s sixth largest trade partner and biggest trade partner in ASEAN. Last November, China delivered Vietnam’s first metro line, despite much delay and unforeseen cost overruns. Chinese companies are also taking part in the massive North-South Expressway project. As the trade and tech war with the U.S. escalate, ASEAN became China’s largest trade partner in 2020 and two-way trade volume has since expanded. 

Belt and Road investments in Southeast Asia grew even during the pandemic. Current works, such as Indonesia’s Jakarta-Bandung high-speed railway and Malaysia’s East Coast Rail Link, are going full steam ahead and it’s not unlikely for a new pipeline of projects to be put on the table. China’s economic miracle and its success story in poverty reduction raised its credentials in launching the GDI, which will likely garner more interest than its sister initiative, the GSI. Due to mistrust and lingering territorial and maritime row with neighbors, including in the South China Sea, the GSI should get a tepid response. 

China now has the world’s largest bluewater navy and major powers raised the alarm over potential Chinese interest to acquire overseas bases if not backdoor entry through access provisions inserted in contracts for port investments. To infrastructure-deficient countries, concessional terms may seem attractive, especially absent alternatives. Hence, China’s rivals may have their hands full reacting to any rumored or possible deal. Host countries may dither, delay or disrupt projects to accommodate foreign pressures or drive harder bargains with Beijing. But there is a limit to pushing countries to disengage from such projects when they see other countries benefiting from it and the investor adjusting to host country demands. 

Disputes continue to put a damper on security cooperation 

On the South China Sea (SCS), China will be more assertive in responding to challenges to its maritime claims, especially by rival powers, at the same time wooing its neighboring coastal states. Confident of its position in the flashpoint after building its Great Wall of Sand, which extended its power projection in the region, Beijing is now supportive of concluding the Code of Conduct as soon as possible.  It will likely renew overtures for offshore energy joint development and other practical maritime cooperation activities, while discouraging other disputants from undertaking unilateral exploration and drilling. These may include regional commercial fish stock assessments, coordinated fishing moratoriums, marine environment conservation, meteorological cooperation, and aquaculture technology transfer and investments. China’s advances in mariculture or fish farming can help coastal states facing diminishing wild fish populations.  The country may draw down its vast deep sea fishing fleet whose activities in farther shores create more problems for Chinese foreign policy and far outweigh the worth of fish protein they bring home. This may open a new chapter for blue economy partnership among states bordering the semi-enclosed sea.  

Beijing may also invest more in confidence-building and coast guard diplomacy. It will invite regional countries to take part in its Xiangshan security forum, set up and test hotline communications and crisis management to better handle sea incidents, and conduct exercises with maritime law enforcement agencies of neighboring littoral states in the areas of maritime pollution response, search and rescue, humanitarian assistance and disaster relief exercises, counter-piracy and anti-seaborne transnational crimes. It will sustain bilateral high-level dialogue mechanisms on SCS with fellow disputants. Disputes may not be resolved and tensions may not dissipate, but keeping stable overall bilateral ties with neighbors is crucial to maintaining regional stability. China hopes to deny rival great powers involvement in regional hotspots like the SCS. This will remain an odyssey given power asymmetry among claimants and conviction of mainstay naval powers that they have a huge stake in the game. 

German Chancellor Olaf Scholz was the fourth foreign leader and first from the Western camp to meet Xi post the 20th CPC Congress. While that may offer some relief, expectations remain measured. Founded on like-minded values, trans-Atlantic ties remain strong, especially since the Russia-Ukraine War, and the U.S. will remain a factor in Sino-German or Sino-European relations. Nearer to home, Beijing sees Southeast Asia as a theater where it can better compete with Washington owing to closer cultural affinities, longstanding political ties and thickening economic bonds. China will double down on neighborhood diplomacy and its neighbors, driven by pragmatism, will take advantage of any opportunity that comes their way. 

This article was published by China-US Focus

Lucio Blanco Pitlo III

Lucio Blanco Pitlo III is a Research Fellow at the Asia-Pacific Pathways to Progress Foundation. He was a lecturer at the Chinese Studies Program at the Ateneo de Manila University and the International Studies Department at the De La Salle University and contributing editor (Reviews) for the journal Asian Politics & Policy. He is also a member of the Board of Directors of the Philippine Association for Chinese Studies. He obtained his Master of Laws from Peking University and is presently pursuing his MA International Affairs at American University in Washington D.C.

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