Regional integration

Singapore’s former Foreign Minister and Chairman, Kerry Logistics George Yeo shared his thoughts on the Belt and Road initiative at the FutureChina Global Forum & Singapore Regional Business Forum in October 2018. We reproduce his speech below.

In early October 2013, President Xi Jinping outlined China’s new Belt and Road Initiative to Indonesia’s Parliament. It was broadcast ‘live’ in China and came a month after he first mooted the idea at Nazarbaev University in Astana. Noting that China-ASEAN trade was then US$400billion, he proposed to set a target of $1trillion by 2020. This target is within reach. Last year, China-ASEAN trade exceeded $500billion.

The current trade war will lead to even stronger links between China and ASEAN. In the logistics industry, we see trade diversion taking place. Multinationals, both Chinese and non-Chinese, are shifting investments from China to ASEAN and other regions. As trade tensions between China and US will rise and ebb for years to come, it is only rational for multinationals to reposition themselves away from the line of fire. We can also expect China to diversify its dependence away from the US and give a further push to the Belt and Road Initiative.

ASEAN neutrality

ASEAN must position itself as a neutral region which is friendly to all the major powers. China is already every member country’s No 1 trading partner. Every member country knows that China will become even more important. No one wants to have to choose between China and the US. I tell my American friends that if the US forces a choice, the choice may not be what they want to hear. Instead, the US should ride on the growth in intra-Asian trade and be a friend to everyone, including China. Everyone wants diversification and will welcome the US as a friend. ASEAN’s strategy should be to adopt policies which encourage all the major powers to engage us and wish us well. Even if conflict between the US and China worsens, ASEAN as a regional grouping must stay united and be very disciplined in not taking sides.

When the Framework Agreement for an FTA between China and ASEAN was signed in Phnom Penh in 2002, Premier Zhu Rongji affirmed that China did not seek for itself an exclusive relationship with ASEAN. China understands ASEAN’s wish to have good relations with all the major powers.

Chongqing Connectivity Initiative

For bilateral trade between China and ASEAN to reach US$1trillion, there must be a high degree of economic integration. Physical connectivity is a precondition. Road, rail, river, sea, air and electronic links are like the blood vessels connecting us. Then we need good logistics which is the lifeblood delivering a multiplicity of products in different directions throughout a dense regional network connected to the rest of the world.

The China-Singapore Chongqing Connectivity Initiative is therefore a farsighted plan to promote the Belt and Road Initiative especially in inland China. For China’s development to be healthy and sustainable, there has to be a balance between inland China and the coastal China. An important aim of the Chongqing Connectivity Initiative is to improve the connectivity between inland China and ASEAN.

Historically, the link between China and Southeast Asia has been by sea. The land connections were difficult because of high mountains and deep valleys. The Pearl River delta was the main portal connecting China to the Southern and Western Oceans. This goes back more than 2000 years ago to the Qin Dynasty. Incorporating southern China into the Qin Empire was difficult because of bad logistics. This was overcome by the construction of the Lingqu Canal which was a canal about the width of Singapore connecting the Xiang Jiang, a tributary of the Yangtze to the Li Jiang which flows into the Pearl River. One hundred thousand soldier worked over 4 years to dig the waterway and build locks, weirs and sluice gates . Once the canal linking the two river systems was completed, the Qin Army, with improved supply lines, was able to subjugate the Baiyue tribes after which Han culture flowed into the Pearl River delta with the first settlement established in Panyu. Guangzhou became the most important portal to Southeast Asia, supplemented in more recent centuries by Macao and Hong Kong.

In the last 20 years, the land links between China and ASEAN have improved dramatically. The long war in Indo-China finally ended in 1989 when Vietnamese divisions pulled out of Cambodia. In 2015, the military government in Myanmar handed over most powers to Aung San Suu Kyi. Year by year, physical connectivity within ASEAN and between ASEAN and China is improving.

The Mekong River which once divided two worlds during the Cold War now has many bridges crossing it and yet more are being built. Laos, from being landlocked, is now land-linked. China has two major corridors into Vietnam from Kunming and Nanning to Hanoi, a major corridor through Laos along which a high-speed rail is being built and which will eventually be linked to Bangkok, and two corridors into Myanmar which are progressively expanded. These land links will progressively integrate the economies of China and mainland Southeast Asia. One day, they will link China to India and Bangladesh.

Southern Transport Corridor

The links to maritime Southeast Asia are, however, still inadequate. There is huge potential for stronger trade and investment links between China and Malaysia, Indonesia and the Philippines.

While the Pearl River delta will play the dominant role, a new Southern Transport Corridor is needed. From China’s perspective, the Southern Transport Corridor will improve the connection between many inland provinces and maritime Southeast Asia.

Highway, high-speed rail and airport projects have greatly improved internal connectivity within China. This has helped to uplift communities far away from the sea. Guizhou, for example, used to be one of China’s poorest provinces. Last year, it was China’s fastest growing province. However, for growth to be sustainable, these inland provinces must be connected to all parts of the world. The Southern Transport Corridor will open up many new opportunities in maritime Southeast Asia for Guangxi, Guizhou, Yunnan, Sichuan, Chongqing, Qinghai, Gansu and other western provinces. Nanning, Guiyang, Kunming, Chengdu, Chongqing, Xining and Lanzhou will become major nodes in an inland China-maritime Southeast Asia network.

Developing a new corridor takes time because it is not only a matter of physical connectivity. Human networks have to be established for trade and finance. Customs, immigration and quarantine rules have to be updated to facilitate movement. Geography was a major impediment in the past. Difficult natural geography was the reason why Guangxi, Guizhou, Yunnan, Sichuan and Qinghai have such a diverse ethnic mix. China has 55 minority ethnicity group, almost all of which live in these provinces. Unlike the links to the Pearl River delta which go back many centuries, the Southern Transport Corridor is comparatively new and needs determined governmental support to succeed. Even so, it will still take decades and we are only talking about the China half of the corridor.

The second half of the corridor is in maritime Southeast Asia. China’s Belt and Road Initiative is helping the development of physical infrastructure in Southeast Asia including sea ports. In addition, we need business communities to meet, know one another and establish relationships of trust. For many businesses in maritime Southeast Asia, cities like Kunming, Chongqing, Chengdu, Xining and Lanzhou are distant places which we only read about or maybe visit occasionally as tourists. Much work will have to be done to build up the human networks.

Complementary Bays

The Beibu Gulf area centered on Qinzhou, but also including Beihaishi and Fangchenggang, will be the most important portal along the Southern Transport Corridor connecting inland China to maritime Southeast Asia. The Beibu Gulf International Port Group is already investing in a number of ports in Southeasts Asia. Beibu Gulf International Port Group and PSA are already cooperating in Qinzhou. I hope their cooperation will extend across all parts of Southeast Asia. We need a wide network of big and small ports, and shipping lines like PIL linking maritime Southeast Asia to Beibu Gulf.

Beibu Gulf will complement the Pearl River Greater Bay Area which is receiving considerable attention in China, Hong Kong and Macao. As the Pearl River Greater Bay Area becomes more developed, there will be a natural overflow into the Beibu Gulf especially for bulk and dangerous cargo. The market will decide how the two bay areas complement each other. Government support will help build up the critical mass in the Beibu Gulf. By concentrating on ASEAN, the Beibu Gulf can develop a special relationship with Southeast Asia.

Hubs along the Southern Transport Corridor

Looking ahead, we can therefore envisage 4 major portals linking inland China to ASEAN – Kunming and Nanning for mainland ASEAN, and Qinzhou and Hong Kong/Guangzhou for maritime ASEAN. Chongqing will be a major hub linking inland China to these 4 portals. Chongqing will become the key hub linking the Belt to the Road.

Singapore will naturally be a major hub for maritime ASEAN. But other ports like Manila, Jakarta, Laem Chabang and Port Klang will also play hub roles. For logistic companies, whichever route is cheapest will be chosen. Once there is a dense network, many alternatives become available and cost will be driven down by competition which is good for economic development.

There are therefore two key objectives to the Southern Transport Corridor development. First, it provides an additional connection for inland provinces in China which will help them catch up with the coastal region in economic development. Second, it provides an additional link for inland China into maritime ASEAN, opening up all kinds of new business opportunities.

Public and Private Sectors working together

Certain responsibilities can only be borne by governments. Once the right conditions are in place, and there is profit to be made, the private sector will react accordingly. For the private sectors in China and maritime Southeast Asia to be more familiar with one another, we need multiple platforms to meet, exchange information and know one another. For example, PSA and Beibu Gulf International Port Group have formed a joint venture to develop and implement a port community system in Beibuwan to improve movement of goods through the port. They are also working together to simplify documentation and related procedures for intermodal logistics along the Southern Transport Corridor like sea-rail. We will also have to feed back to our governments about unnecessary bureaucratic obstacles and help them formulate good policies and cross-border arrangements.

Importance of South China Sea

The South China Sea has always connected China to Southeast Asia from the Han Dynasty. Premier Zhu Rongji once said that China’s future and Southeast’s future are inseparable. The distance from Lanzhou to Chongqing is slightly more than 1000km, from Chongqing to Qinzhou also slightly more than 1000km. But the distance from Qinzhou to Singapore through the South China Sea is more than 2000km. For this reason, China and ASEAN must work together to maintain peace and freedom of navigation in the South China Sea. It is heartening that both sides have made good progress on the Code of Conduct in the South China Sea.