Yangon C HINA B RIEFING The Practical Application of China Business China’s Neighbors e In association with 2point6billion.com and Dezan Shira & Associates A summary of each of China’s 14 neighboring countries and how they are positioned, including: Afghanistan, Bhutan, India, Kazakhstan, Kyrgyzstan, Laos, Myanmar, Mongolia, Nepal, North Korea, Pakistan, Russia, Tajikistan and Vietnam Who is influencing China and who China is influencing in the new emerging Asia CHINA ’ S NEIGHBORS 邻国 Mumbai Chennai Vientiane Naypyidaw
Transcript
Yangon
CHINA BRIEFINGThe Practical Application of China Business
China’s Neighbors
eIn association with 2point6billion.com and Dezan Shira & Associates
A summary of each of China’s 14 neighboring countries and how they are positioned, including: Afghanistan, Bhutan,
India, Kazakhstan, Kyrgyzstan, Laos, Myanmar, Mongolia, Nepal, North Korea, Pakistan, Russia, Tajikistan and Vietnam
Who is influencing China and who China is influencing in the new emerging Asia
CHINA’SNEIGHBORS
邻国Mumbai
Chennai
VientianeNaypyidaw
China's Neighbors | 3
Published by: Asia Briefing Ltd.
All rights reserved. No part of this book may be reproduced, stored in retrieval systems or transmitted in any forms or means, electronic, mechanical, photocopying or otherwise without prior written permission of the publisher. Although our editors, analysts, researchers and other contributors try to make the information as accurate as possible, we accept no responsibility for any financial loss or inconvenience sustained by anyone using this guidebook. The information contained herein, including any expression of opinion, analysis, charting or tables, and statistics has been obtained from or is based upon sources believed to be reliable but is not guaranteed as to accuracy or completeness.
"China Briefing" and logo are registered trademarks of Asia Briefing Ltd.
Asia Briefing Ltd is a Dezan Shira China Group company.
Dezan Shira & Associates: www.dezshira.com
China’s Neighbors
Contributors: Chua Siew Joo, Chris Devonshire-Ellis, Joyce Roque, Andy Scott and Nazia Vasi; cover design and maps
by Chris Wei; layout by Becky Jian and Chris Wei
Edited by Andy Scott and Chris Devonshire-Ellis.
4 | China's Neighbors
This book is a timely reminder of the profound changes that an emerging China is having on the rest of Asia. Rather like throwing a pebble into a pond, the ripples that have spread out from the opening up of China over the past twenty years are having a knock-on effect on the economies just across its borders. These are not just restricted to an increase in regional wealth—as China has grown in confidence and stature, so has with it the emergence of a new political force to be reckoned with—it is China now, and not the United States or Russia that is the dominant force shaping the landscape of the new emerging Asia.
That has been further underlined by the stature of the Shanghai Cooperation Organization, founded in 2001 in Shanghai by the leaders of China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan. The SCO was originally formed due to growing security concerns in the region, following the 9-11 attacks on the United States, but its role has subsequently been extended to encompass economic benefits to member countries as well. India, Iran, Mongolia and Pakistan remain observers to the SCO. The United States applied for observer status but was denied in 2005.
SCO countries (full members and observers) comprise a hefty 25 percent of Earth’s land area. Although the declaration on the establishment of the Shanghai Cooperation Organization contained a statement that it “is not an alliance directed against other states and regions and it adheres to the principle of openness”, many observers believe that one of the original purposes of the SCO was to serve as a counterbalance to NATO and the United States and in particular to avoid conflicts that would allow the United States to intervene in areas near both Russia and China.
With a total border length of about 5,000 kilometers,, and with 14 neighboring countries, China has a huge vested interest in what is going on just next to its own territories. Likewise, its neighbors too want to both share in China’s new found wealth, but can also find the country intimidating. Nevertheless, as further developments in global trade and the WTO create influence and stability, old border disputes may be resolved in “agree to disagree” statements to allow countries to focus on developing trade ties rather than on old regional disagreements. The development of direct trade routes with India is a case in point.
Further west, the rise of extremist Islamic groups is being slowly tempered by the development of commercial trade routes—exchanging tribal conflicts for the ability to trade. Southeast Asian development also looks set to boom, as ASEAN members combine to form a massive Free Trade Zone. Yet east, problems still remain. The North Korean problem does not look like being settled any time soon, and with the country permanently on the edge of economic collapse, China is having to support the regime, while at the same time try and coax it into reform to allow it at least some measure of international trade to keep the nation intact. Failure for China would see a huge flood of economic refugees into its own territory with all the human rights issues that would bring. The eastern coast then is still volatile.
While this book cannot claim to be an exhaustive account of the region (that would take at least 500 pages just to start), it is however intended to be an introduction to the area and to at least attempt to
ABOUT CHINA'S NEIGHBORS
China's Neighbors | 5
explore the diversity and developments that are taking place. Much of the commentary in this book has been courtesy of China Briefing research, with articles of the various countries appearing regularly in a series on the news section of the website. Thanks also must go to 2point6billion.com,, whose regional articles on emerging Asia have also been hugely useful. Finally, this project—as is the case with all China Briefing instigated and funded by the professional services firm Dezan Shira & Associates.
Of these, three individuals in particular stand out for praise, Andy Scott and Joyce Roque of China Briefing, and Nazia Vasi of 2point6billion.com. Thank you to all parties who contributed.
Chris Devonshire-EllisPublisher, Asia Briefing Ltd. Senior Partner, Dezan Shira & Associates
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China's Neighbors | 7
CONTENTS
PREFACE .............................................................................................................................8World Bank report on ease of Asian businessAsia’s regional economies: The cost of a bowl of rice a dayThe Shanghai Cooperation Organization gathers regional strength
RUSSIA ................................................................64Partners and competitorsRussia joins the China-India bandwagon
TAJIKISTAN ....................................................70Investing in stability
VIETNAM .........................................................74Infrastructure and trade pave way for development
As ASEAN develops, Kunming becomes vital trade link
8 | China's Neighbors
World Bank report on ease of Asian business
The ease of doing business across Asia varies significantly. According to the "Doing Business Report 2009" prepared jointly by the International Finance Corporation and the World Bank, Singapore retains its number one position on the overall regulatory ease of doing business for a third consecutive year. While due to poignant regulatory reforms China’s rank improved from 83 from 90, out of 181 countries. India, however, slipped two notches to rank at 122nd, below its neighbors Nepal, Bangladesh and Pakistan which have been placed 121, 110 and 77 respectively in the overall ranking.
Among Asia-Pacific countries, the Philippines, ranked 140th, lags behind most of Asia for ease of doing business behind even Cambodia at 135 and only ahead of Laos at 165 and East Timor at 170. The average ranking for East Asia is 8. Consequently, Bangladesh is ranked 110 and has reduced the time needed to register property from 425 to 245 days. Bhutan is ranked 124th.
Eastern Europe, Central Asia and the Caucasus, led by Azerbaijan, made more changes than any other region to make doing business easier over the past year, according to the report. Azerbaijan improved its ranking by 64 places and is this year’s top reformer. Large economies that fell in the rankings include Germany, which dropped to 25 from 20, Mexico, to 56 from 42, and Russia, to 120 from 112.
The report ranks economies based on 10 indicators of business regulation that record the time and cost to meet government requirements in starting and operating a business, trading across borders, paying taxes, and closing a business.
The rankings do not reflect such areas as macroeconomic policy, quality of infrastructure, currency volatility, investor perceptions, or crime rates, said the report.
Asia's regional economies: The cost of bowl of rice a day
In a region comprising the giant populations of China (1.3 billion), India (1.25 billion) and the emerging nations of Southeast Asia (collectively, about 880 million), much of the economic data on China trends misses two points; the massive impact on China that emerging Asia has; and the financial impact of the poverty level rising by just one more affordable bowl of rice a day, per person.
In the scramble to unravel China’s economics, and the questions inflation and a slowing GDP ask, much has been made of a potential recession in the U.S. markets and the competitive impact of a resurgent India. While the recession has made an impact, the rise in wealth of China’s neighboring countries also has had a major impact on the region, and on China. India’s population is set to shortly (if it hasn’t already) overtake China’s ageing one, while the combined populations of Indonesia, Pakistan, Bangladesh, the Philippines, Vietnam, Thailand, Myanmar, Malaysia, Cambodia and Laos are collectively close to three quarters of both China and India individually.
In the rush to understand China economics, the populations of smaller countries, such as Vietnam (85 million) have been forgotten. Yet collectively, the third part of the Asian triangle is nearly as large as the other two.
Such oversights are misleading. Emerging Asia has a huge impact on what goes on in China and how it affects prices. While growth regionally in countries such as Cambodia and Laos—relative minnows with populations of 14 and 7 million each—would not seem to have any clout or impact on the China price, when included with the other regional markets—all growing from between 7-10 percent annually—the implications seem to become more serious. Just raising the level of wealth in these countries enough to allow each
A Preface to Regional Issues
China's Neighbors | 9
person an additional bowl of rice a day is having a profound impact.
While rice consumption in China has fallen by 860,000 tons annually over the past three years (the only Asian nation in which this has occurred), it has been far outstripped by an increase in consumption in India of 6,522,000 tons. Consumption in the additional emerging Asian economies we mention above collectively rose by a further 6,419,000 tons, almost equivalent to that of India’s rise. That’s an increase of over 12 million tons since 2005. Considering that in terms of global productivity for rice per acre, that means a rough estimate of an extra 8 million acres has had to be set aside during that same period just to meet that demand – and from a region whose arable land mass is far from efficient.
The cost impact has been huge, and is also difficult to track down. With such a stress on domestic suppliers, governments have been subsidizing the true cost of production by giving farmers handouts, and by literally digging into reserves. Cyclones earlier this year in Southeast India destroyed crops, forcing the government to step in to write off debt and keep families alive. Rice reserves held in stock are dropping, and much has been found to have been poorly warehoused. Meanwhile, prices in Pakistan have increased by US$200 per ton or about 30 percent in the past 28 months and prices have risen by similar amounts in Thailand and Vietnam.
China and emerging Asia’s continued growth and development is raising several questions: who has really factored in the micro-elements impacting the economies; what is truly the impact of an additional bowl of rice, per day, per head of regional population; and what are the costs and impacts upon the regional economies, including that of China, to deliver just such a basic staple.
Emerging Asia may be booming, but much of the commodity price impact, as the region places more demands on resources will surely affect China’s own provision of its basic resources as well as the China costs in doing so.
The Shanghai Cooperation Organization gathers regional strength
With the rise of Asia and the emergence of Central Asia in global economics and politics the role of the Shanghai Cooperation Organization is growing in importance. Founded in 2001 in Shanghai by the leaders of China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan, the SCO was originally formed due to growing security concerns in the region. Its role has been extended to encompass economic benefits to member countries as well. India, Iran, Mongolia and Pakistan remain observers to the SCO.
SCO countries (full members and observers) comprise a hefty 25 percent of Earth’s land area. Although the declaration on the establishment of the Shanghai Cooperation Organisation contained a statement that it “is not an alliance directed against other states and regions and it adheres to the principle of openness”, many observers believe that one of the original purposes of the SCO was to serve as a counterbalance to NATO and the United States and in particular to avoid conflicts that would allow the United States to intervene in areas near both Russia and China.
On the economic front, SCO member’s have agreed to improve the flow of goods in the region while prioritizing joint energy projects in the oil and gas sector the exploration of new hydrocarbon reserves, and joint use of water resources.
In order to bolster security among member nations, the SCO focuses on eradicating the threats faced from terrorism, separatism, extremism and drug trafficking. As a result, joint military exercises between the member countries play an important part in securing the region.
Cultural cooperation also occurs in the SCO framework, with member countries holding art festivals and culturals exhibitions in each others countries.
Exports: US$274 million; not including illicit exports or re-exports
Border crossings: No open border crossings
Afghanistan’s strategic location along the ancient Silk Road, sandwiched between the Middle East, Central Asia and the Indian Subcontinent, makes it vulnerable to geopolitical conflicts.
Afghanistan’s strategic location along the ancient Silk Road, sandwiched between the Middle East, Central Asia and the
Indian Subcontinent, makes it vulnerable to geopolitical conflicts. In more recent times, it has been a battle ground during the Cold War and from the late 1970s, has been in a virtual state of civil war.
Since the fall of the Taliban in 2001, the fledging democratic government, inaugurated in 2005, has been fighting to build national unity. With international aid, the recovery of its agricultural sector and service sector growth, real GDP growth exceeded seven percent in 2007.
China has just won a US$3.5 billion contract to develop Afghanistan’s Aynak Copper field, which is the largest foreign direct investment project in the history of Afghanistan.
The 28-square-kilometer copper field in Logar province is expected to yield an estimated US$88 billion worth of ore. The Chinese government will be building a 400-megawatt coal-fired power plant and a freight railroad passing from western China through Tajikistan and Afghanistan to Pakistan.
Despite volatility in the region, it is imperative for the Chinese government to establish cross border connections to Central Asia, South Asia and Iran, mainly in resource development, as part of its West China Development strategy.
Afghanistan’s poppy cultivation and opium trade, which make up more than 50 percent of its economy, took a hit in August this year. According to the latest “Afghan Opium Survey” published by the United Nations, production fell by 19 percent in 2008, due to drought, higher wheat prices and stronger leadership by local governors. An over supply of opium last year also contributed to the fall in prices.
Afghanistan is a member of the South Asian Association for Regional Cooperation (SAARC).
China's Neighbors | 11
AFGHANISTAN
At one time, Afghanistan was the center for some of the world’s most important civilizations. The arts and sciences thrived,
cultivation and advanced farming techniques turned the plains around Kabul into a great bread basket. Then in 1219, the Mongols came. They left a devastating path of destruction that that the country has never quite recovered from. Since then, the land has become one that has inevitably been in between, acting as a bit player in The Great Game, and a prominent role in the collapse of the Soviet Union. Following the terrorist attacks on the United States on September 11, Afghanistan once again played host to world powers. Situated as it is in Asia, it is something that shouldn’t have come as a surprise.
Afghanistan sits at the heart of Asia, dividing and linking the Middle East to South Asia and Central Asia. It lies at the westernmost part of the Himalayas. Afghanistan’s land corridor represents, as Stephan Tanner points out in his military history of the country, an invasion route that has borne witness to armies of Persians, Greeks, Mauryans, Huns, Mongols, Moghuls, British, Soviets and Americans. It borders Pakistan, Iran, Turkmenistan, Uzbekistan, Tajikistan, and for a mere 76 kilometers, China.
“An unlucky country”Ahmad Shah Durrani created the Durrani Empire in 1747, and by 1751 had conquered the entire present-day Afghanistan, Pakistan, Khosaran and Kohistan provinces of Iran, along with Delhi in India. Durrani established his capital in Kandahar, where his tomb, a pilgrimage site for many, remains to this day. Following his reign, the capital was shifted to Kabul and much of Afghanistan’s territories ceded to the British in the 19th century. After becoming a buffer state in The Great Game played between Britain and Russia, Afghanistan regained full independence from the United Kingdom on August 19, 1919, following the third Anglo-Afghan war.
After relative peace and prosperity in the first half of the 20th century, Afghanistan has suffered under a continuous and brutal civil war. Beginning with Abdul Qadir’s Soviet-backed coup of the ruling government of Mohammad Daud in 1978 (who himself had come to power in a coup of King Mahammead Zahir Shah), and followed closely by the Soviet invasion in 1979, the country has suffered under a brutally continuous civil war. Following the Soviet pull out in 1989, Afghanistan once again lost any chance for peace as regional factions squared off.
A Place In Between[ By Andy Scott ]
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12 | China's Neighbors
AFGHANISTAN
With the emergence of the Taliban, the country was virtually cut off from the modern world, while war continued as the anti-Taliban forces of Ahmed Shah Massoud and the Northern Alliance retreated to the mountains of Northern Afghanistan and the Taliban took control of country. The U.S-led invasion that toppled the Taliban from power failed to bring peace to the country, and while NATO troops assisted the government of current-President Hamid Karzai gain control of the major urban centers and billions of dollars have been provided by the international community for reconstruction, the Taliban has remained in concentrated pockets and war continues in the country.
Cause for concernChina watched the rise of the Taliban with apprehension, the militant Islamic ideology that the regime practiced was a cause for concern. China’s vast frontier province of Xinjiang, inhabited by the Uyghur Muslim minority with traditional ethnic ties to Afghanistan and the other Central Asian Republics, is a security concern for Beijing. Ethic unrest, which flared up again recently in parts of Xinjiang, represents an internal pressure that Beijing remains wary of. The resurgence of the Taliban in parts of Afghanistan and the continued virtual statelessness of many parts of the country are a concern for Beijing. China is interested in a stable, moderate state, open to Chinese investment and, perhaps most importantly, also free of Western military presence. However, if current trends continue, it could be years before NATO forces are out of Afghanistan. China meanwhile, is keen to keep the simmering tensions in Xinjiang under control and will likely remain non-committal towards Western forces in the region while the Taliban is still a significant problem.
Commercial and strategic interestsAfghanistan was initially overlooked in Beijing’s hop-scotch shopping trip through Central Asia in the late 1990s. Having played an important role in the Afghan civil war and a key source of small arms to the Mujahideen during the war with the
Soviets, China invested in Southeast Asia, Siberia and other Central Asian states. That all changed in 2006 when the State-owned China Metallurgical group invested a staggering US$3.5 billion in Afghanistan’s Aynak copper field. The largest foreign direct investment the country’s history, involves not only mining, but according to a report from the Central Asia-Caucasus Institute, also the construction of a US$500 million electrical plant and a railways from Tajikistan to Pakistan to support exploration.
The investment could only be the start of a new Sino-Afghan relationship. Afghanistan has large unexplored reserves of oil and natural gas in the northern part of the country. It also has large iron ore deposits between Heart and the Panjsher Valley as well as gold reserves in the province of Badakshan, Takhar and Ghazni.
As China demands increasing amounts of raw materials for its rapidly expanding economy, these reserves will become strategically important to Beijing. It is unlikely that other foreign investors will be able to outbid the Chinese when it comes to securing the rights to explorer these fields as Chinese State-owned companies have been quite active in the developing world, in many cases doubling the projects bids of their foreign rivals.
Afghanistan is also important for China because of its proximity to Pakistan. According the Jamestown’s China Brief, Pakistan, China’s foremost ally in South Asia and instrumental in China’s emergence on the global scene, is constrained by its lack of geographic depth. Often touted as a strategic weakness in Pakistan’s confrontation with India, Pakistan’s military view a friendly Afghanistan gives them additional strategic depth, a major reason for Pakistan’s support of the Taliban. China also, like Czarist Russia, wants access to the India Ocean, and has invested heavily in the port of Gwadar on Pakistan’s Mekran Coast. The port will enable China to project its military presence into global petroleum shipping routes and the oil states of the Middle East. Should the port be connected to the oil and gas fields of Central Asia and road and rail links improved, the port would become economically as well as strategically important.
China's Neighbors | 13
There is not currently a viable route between Afghanistan and China, however ancient mountain passes, fit only for donkeys at
best litter the Pamir mountains in this area. The border crossing between the two countries is officially closed. However, this does not prevent Afghani traders, from the northern frontier regions (mainly anti-Taliban Pashtuns) from turning up in numbers at the regional Sunday market in Kashgar, in western Xinjiang. Kashgar is Central Asia’s largest outdoor market, with trade in every imaginable kind of commodity. It is also the site of the annual Central and Southeast Asia Commodities Fair, held each June, and is linked to the rest of China via rail, road and air.
There have been however discussions taking place between the Afghani and Chinese governments concerning the feasibility of developing the Wakhjir Pass into Afghanistan’s northern frontier, which if completed would provide access overland to Kabul through the Pamir mountains across the Hindu Kush from Taxkorgan, where China already has overland port facilities at Khunjerab (currently serving Pakistan). This would provide a direct route from Kabul to Kashgar. The distance from Kabul to Taxkorgan is about 700 kilometers.
There are regular flights between Kabul and Urumqi.
Further reading Kashgar: China Briefing Regional Guide to West China
A U.N. report concerning securing Afghanistan’s borders with Central Asia can be found at the website: www.unodc.org
The English language Bakhtar News Online website is www.bakhtarnews.com
Border CrossingsAfghanistan
A summary of each of China’s 14 neighboring countries and how they are positioned, including: Afghanistan, Bhutan,
India, Kazakhstan, Kyrgyzstan, Laos, Myanmar, Mongolia, Nepal, North Korea, Pakistan, Russia, Tajikistan and Vietnam
Who is influencing China and who China is influencing in the new emerging Asia
CHINA'S NEIGHBORS
China’s Neighbors provides an exciting, in-depth look at the countries that border the People’s Republic of China. This book contains thorough and in-depth analysis of who is influencing China and who China is influencing in the New Emerging Asia. China’s Neighbors is a companion book to the China Briefing Business Guides to Beijing and Northeast China, Shanghai and the Yangtze River Delta, South China and the Greater Pearl River Delta, Central China, and West China.
China Briefing online: www.china-briefing.com“China Briefing” and logo are registered trademarks of Asia Briefing Ltd.Asia Briefing Ltd. is a Dezan Shira China Group companyDezan Shira & Associates: www.dezshira.com
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