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Economic Relations of India and China with ASEAN Countries

27488 words (110 pages) Dissertation Example in Economics

21/02/19 Economics Reference this

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A Comparative Analysis

ABSTRACT

India and China are two powers which relations are very difficult to determine: it is both cooperation and completion, conflict and collaboration. However, both China and India can been seen as countries that complement each other`s role in the relationships with ASEAN countries. On the other hand, the strategic differences between them are so large that there is a small chance that their differences will be resolved entirely in the near future. India and China remain two challengers in spite of their mutually beneficial economic associations. The only concern between them is economic cooperation.

This paper represents the main information about enigmatic relations between India and China, their economic interests in ASEAN countries and different economic formats of their collaboration. The final summarizes are evaluated on the statistical results, identified according to the data base of international organizations and institutions.

From the results obtained, it can be concluded that relationships between India and China is defined more by struggle than by cooperation, but there is still a lot of potential for collaboration between China and India, which has brought both of these countries closer to each other.

INTRODUCTION

China and India, sometimes referred to “Chindia” are geographically proximate nations, contain over one-third of the world’s population and are among the fastest growing economies in the world. A report by IMF dated January 21, 2015, predicts India overtaking China as the Fastest Growing Major Economy by 2016. The economic strengths of two states are widely considered complementary; China is stronger in hardware and physical markets while India is stronger in software and financial spheres. They have been named as countries with the highest potential for growth in the next 50 years in a BRICS (Brazil, Russia, India, China and South Africa) report.

India and China also share certain factual interactions; the spread of Buddhism from India to China and British-European trade via the Silk route are renowned examples. India is eyeing regional guidance while China is set to peacefully transformation the unipolar world order into a multipolar one. In this point of view, both China and India can be seen as complementing each other’s function while at the same time challenging the placement of the other. However, China does not feel threatened by India, but India feels afraid by China’s arise.

The timeliness of the topic is determined by the escalation in the relationships between India and China: all main parts of Asia bear the marks of their competitive strategic and economic outreach. Actually, relations between India and China have long been noticeable by an ambivalence that has led some observers to explain them as “neither friends nor foes.” In the master thesis, the author will follow up the factual development of their relationships and make a conclusion about the contemporary India- China relationship situation.

This topic is also relevant to Russia in order to understand the importance of the economic relations between China and India as two big powers in ASEAN countries region that can influence on the general economic situation in this region. Thus, Russia could obtain the knowledge of competent way to build economic relations with ASEAN countries, China and India individually. 

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The goal of the analysis is the determination of the China- India relationship current situation and the degree of rivalry between India and China in the relationship in the sphere of trade, investments and services with ASEAN countries.

According to the goal of the work there are several tasks that the author need to solve: to determine the amount of the China- ASEAN foreign trade, to understand the importance of China`s strategy «The Belt and The Road», to determine the amount of the India- ASEAN foreign trade, to describe the current situation of Chinese and Indian investments to ASEAN countries, to compare Chinese and Indian development of service sphere with ASEAN countries, to suggest several reasons of the rivalry between India and China in the relationships with ASEAN countries, to consider some options for the development of China-India relationships.

The object of the work is the relationships between China and India, the subject of the work is the rivalry between India and China in the field of foreign trade, investments and services with ASEAN countries. The chronological framework of the research is from mid-80s to 1990s years.

In the process of writing the master thesis, there were used such methods of scientific cognition as analyses and synthesis and economic- statistical methods of information processing. 

In general, the thesis is based on the fundamental concepts and categories of economic theory about the nature of international economic relations, internationalization and globalization and international competition. Theoretical and methodological basis of the dissertation research were the works of the classics of economic thought and contemporary researchers, the materials of governmental agencies and intergovernmental integration associations, international organizations and conferences.

The author analyzed and taken into account the results of the researches of some Indian and Chinese scientists, such as Tellis Ashley J., Malik J. Mohan, Chandrima Sikdar, Chunmei Yang, Li Xueren, Salidjanova Nargiza, Koch-Weser Iacob, Yu Sheng, Hsiao Chink Tang,  Xinpeng Xu etc. In the process of writing the thesis, the author also relied on ideological foundation of Russian scientific school, among the representatives of which are Galistcheva N.V., Kostiunina G. M., Lebedeva N. B., Zhuravleva E.S., etc.

However, the works of the scientists covers only some essential aspects of foreign economic policy of India and China towards ASEAN. There have not been written any general whole-scale work, that could give a comprehensive analysis of the relationships between India and China and their role in ASEAN region, and would deeply engulfed and scale the entire range of issues on this subject.

The master degree work consists of introduction, four chapters, conclusion and references.

CHAPTER 1. THEORETICAL ASPECTS OF FOREIGN TRADE

International trade is logically and historically the first structure of the world economic relations in the global economy. Despite the fact, that the primary shape of international economic relations is not the exports of goods, but foreign investment, nevertheless, the world economic relations contain 4/5 of the total amount. This is due to its large value for the development of national economies and to its location in the system of international economic relations.

It is difficult to overestimated the function of foreign trade for any nation. By J. Sachs`s definition, “economic achievement of any country in the world is based on foreign trade. No one has managed to make a healthy economy, being separate from the world economic system. “[1]

1.1 Concept, essence and forms of external trade

External trade is the trade between two countries, consisting of import and export of goods and services. It is implemented principally through commercial transactions, which are executed by foreign trade contracts. The government of the country regulates foreign trade, using particular tools such as licensing, customs tariffs, quotas, and other non-tariff barriers, as well as direct and indirect export subsidies and other measures.

External trade is historically the first and very portentous shape of international economic relations. It represents an exchange of goods between nationwide firms registered by the government. Due to contemporary situation, international trade involves all players of the world economy. It is based on the international dividing of labor.

The development of international producing specialization and the deepening of the dividing of labor (in total, private and individual forms) produce a variety of directions and forms of international trade. Scientific and technological revolution has an extensive impact on it, which can accelerate the qualitative modification of all elements of the changes and the productive forces in the geographical and commodity structure of world trade flows.

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The range of participation of individual nationwide economies into the foreign trade associated with the development level of their commodity production and commodity spreading. It is known that the start of commodity producing, circulation of commodities and foreign trade have already existed in the slave-owning system. However, in all pre-capitalist formations due to the predominance of subsisting farming only a little part of the products was concerned into the international exchange. The development of commodity producing and market economy provided a strong impulse for the increase of international trade as a particular sphere of commodity circulation – the trade between nationwide economies.

With the development of the market economy, the need of external markets increases. The development of large-scale machine industry as the foundation of mass-producing, the deepening division of labor and specialization, the grow of the optimal size enterprises need more effective participation of nationwide economies in international trade in import and export spheres. The sales of goods to foreign countries can partly determine the inherent contradiction in the market economy between producing and consumption. However, being not fully resolved by the export of goods, these contradictions appear in the area of world economic relations, which is reflected in standard characteristic of international trade – the strong competition.

The participation in it leads to an intensification of the reproduction procedure in nationwide economies in several directions: the improve of specialization, the appearance of the chance of mass production, the increase of the equipment utilization’s degree, the growth of the effectiveness of the new techniques and technologies integration.

At the same time the growth of foreign exchange, the increase of the role of export and import in nationwide economies give the synchronization of the economic cycle in the world economy. The relationship and interdependence of economic complexes become deeper, so that the disturbances in the functioning of some main player economy will inevitably involve international consequences, including the spread of the crisis on the area of other countries.

Thus, the function of international trade in the system of international economic relations is resolved by the fact that, firstly, all forms of world economic relations implemented through it – industrial collaboration, export of capital, technical and scientific collaboration. Secondly, the development of international trade of goods determines the dynamics of the international exchange of services. Thirdly, the development and the deepening of the interregional and interstate relationships is a consequential prerequisite for international economic integration. Fourthly, international trade contributes to the further deepening of the international dividing of labor and the internationalization of economic relations.

Forms of international trade can be systematized in three directions. The criteria for determining these forms are the regulation (ordinary, the most favored nation treatment, discriminative, preferential), the topic of trade (industrial goods, commodities, services, products of intellectual work) and the interaction of international trade players (trade with cooperation, traditional, compensational).

1.2 Basic methodological aspects of external trade

Foreign Trade Statistics describes the amount of exports and imports of goods, their dynamics, geographical allocation, freight train, the participation in the globe trade, as well as its consequence in the national economy.

Goods, which are pertain to practice processing, associated with the class of visible items in the worldwide statistical practice. In Foreign Trade Statistics the class of “visible goods” is a basic part of the foreign economic relations statistics, which in addition to taking into account the import and export of goods, mentioned above, provides the accounting of other operations, such as foreign trade services.

The export refers to the export of goods from the nation’s domestic producing, as well as re-export goods.

Domestic products also cover foreign goods imported into the country’s territory, which have undergone through material processing and have changed the technical characteristics or basic qualitative. But processing does not cover the operations necessary for preserving the goods, pre-sales product’s operations and preparations for shipment, uncomplicated gathering operations, mixing of goods, which are produced by other companies, even if the characteristics of the resulting product are not different significantly from the performance its constituent products.

By import, we usually understand the import of goods into the country’s territory. The imports cover that categories of goods, which are intended for consumption in the economy of the country or for re-export and some goods purchased for domestic companies.

The export (import) goods cover that types of goods, by the export or import of which the material resources of the country grow or reduce, for example: nonmonetary gold and silver, which does not have the function of payment, electric power, water, goods supplied by pipelines (oil and gas); military goods, bunker fuel, fuel, food and materials sold or purchased to foreign ships, trucks, aircraft; banknotes, securities and coins not in circulation (accounted for their commercial value), etc.

The export or import does not cover these kinds of goods: banknotes and coins in spreading, securities; movement of foreign goods through the territory of the country; monetary gold; goods exported and imported for a short period of time, impermanent import and export of animals for participation in races, racing, etc .; fish and other marine products, which was produced in neutral and foreign waters (on the concession conditions); equipment and vehicles sent for repair and returned after the repair; products manufactured for export, but sold to domestic organizations, etc.

The rating of goods is carried out from the prices of contracts with further clarification on the real prices. The price of goods sold through commission agents (brokers) is provided with a diminution of brokerage commissions.

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The evaluation of the import and export goods produced:

Export goods – at FOB prices. FOB is a term in international commercial law, specifying at what point the seller transfers ownership of the goods to the buyer. FOB is only used in non-containerized sea freight, and defines the ownership transfer. The owner of the goods is responsible for loss or damage during transport, so the point of ownership transfer is important.

Indicating “FOB port” means that the seller pays for transportation of the goods to the seaport of shipment, plus loading costs. The customer pays price of insurance, marine freight transport, unloading, and transportation from the arrival port to the final destination. The disappearing of risks occurs when the goods are weighted down on board at the port of shipment.

Import goods – at CIF price or ex frontier of the importing country. In CIF agreements, insurance and other costs are taken by the seller, with responsibility and costs associated with successful transit paid by the seller up until the goods are received by the customer. Goods are not considered to be delivered until they are in the buyer’s ownership.

The providing of goods can be carried out without payment. In such cases, the evaluation of export or import goods is carried out at the prices of goods in the markets of the countries involved and on the prices of comparable goods, which are used for export-import operations on commercial basis. In order to upgrade the measuring of foreign trade activities` results and the increasing of its reliability, to assure comparability of appropriate statistical indicators at the international level and to give information obligations to international organizations, including export-import operations and preparation of statistical reports on foreign economic relations it is recommended to use US dollars from the 1st of January, 1992.

For the purposes of international comparability, it is recommended to use the weight measurement units as extensively as possible, along with a definite unit of measurement. It gives a chance to get equable quantitative information, even if there are important differences in units of measure used in different countries for the same goods.

Goods, which are measured by the amount of weight, can be accounted by the net weight.

Commodity nomenclature of foreign economic activity (CN FEA) is used as a classifier of goods traded in the foreign trade.

In accordance with the Decree of the Government of the Russian Federation, the State Customs Committee of Russia is liable for development, collection and publication of data in the sphere of foreign trade based on information, which contained in the cargo customs declaration (CCD), like in many other countries of the earth.

Another significant viewpoint in the development of foreign trade data is the impossibility to cover the data of export or import  goods amount that do not cross over the customs border (bunker fuels) and goods purchased by Russian (or foreign) transportation in foreign (or Russian) ports into the results of customs statistics.

CHAPTER 2. CHINA’S AND INDIA’S FOREIGN TRADE POLICY TOWARDS ASEAN COUNTRIES

During a long period of time, we have seen the acceleration of the process of the globalization, the arise of regional trading arrangements, China’s rise as a worldwide economic force and the growing interdependence between ASEAN and China. China -ASEAN economic relations have grown dramatically, benefiting from the energy of their economies, the liberalization of their trade regimes and the changes in their trade system.

The contemporary situation of economic relationships between India and ASEAN countries presents a multitude of commercial, industrial, and investment opportunities.  India has been interested in ASEAN’s plans to create economic and political relationships with neighboring nations, and ASEAN and India have increasingly supported promoted foreign investment, bilateral trade, and strengthened diplomatic relations.

2.1. Comparative historical foreign trade data of China and India with ASEAN countries

China Import Partner Share (%)


Source: World Integrated Trade Solution. (date of access: 01.04.2017)

The data statistics of Chinese export to the ASEAN countries can be found in Appendix 1.

1980-1990 years

In 1980, China was not one of the important trade partner of ASEAN states. Only US$0.7 billion of ASEAN5 states’ exports (Malaysia, Indonesia, the Philippines, Thailand and Singapore) were directed to China and only US$1.7 billion imports were from China. China merely shared 2% of ASEAN5’s trades. This figure is far less than US and Japan shares, which amounted to 23% and 16%, respectively, in the same year. Despite the enactment of China’s open door policy in 1979, the protectionist feature of Chinese communism impeded and persisted trades between ASEAN states and China during throughout 1980s. In 1980, Hong Kong shared less than 3% of ASEAN5’s trade; it was more than China’s share. ASEAN5’s export to Hong Kong amounted to US$2.4 billion or three times higher than their exports to China.[2]

 ASEAN states’ trades with China started to increase in the mid-1980. Although ASEAN5’s export to China was less than US$1 billion, their import from China grew up to the figure of US$3.2 billion in 1985. ASEAN states’ trades with China increased significantly at beginning of 1990s. In 1995, their imports from and exports to China amounted to US$8.2 billion and US$10.0 billion, respectively. Nevertheless, China had not become a consequential trade partner of ASEAN states. It only shared less than 3% of ASEAN5’s trades, which was less than Hong Kong’s share of 4% share.[3]

1990-2000 years

ASEAN and China have significant and quickly growing trade and investment relations. The importance of trade with China is particularly correct for ASEAN countries with common borders with China –Myanmar, Laos and Vietnam. However, the bulk of ASEAN and China’s exports are still mainly focused on the main markets of Europe, the US and Japan (17, 5%; 14, 1%; 7%,   respectively).[4]There is also considerable overlap in the theme of their main export items, particularly in apparel and textiles and other labor-intensive manufactures. As China’s manufacturers climb the technology ladder, the overlap is spilling over into electronic and electrical products,[5] where a figure of ASEAN countries had initially established a lead.

In the 1990s, both ASEAN and China achieved extreme growth rates in foreign trade. During the decade from 1991 to 2000, China’s foreign trade grew at an average annual rate of 15%. In 2000, China’s exports amounted to US$249.2 billion, and its imports totaled US $225.1 billion. During the interval from 1993 to 2000, ASEAN’s foreign trade grew at an average annual rate of 10.9%, although the rate was lower during the financial crisis. In 2000, ASEAN-China trade totaled US $39.5 billion growing by an average of 20.4% annually since 1991, when overall trade amounted to only US $ 7.9 billion. China’s exports to ASEAN grew from US $ 4.1 billion in 1991 to US $ 17.3 billion in 2000, while its imports from ASEAN grew from US $ 3.8 billion in 1991 to US $ 22.2 billion in 2000.[6]

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ASEAN’s placement in China’s market has been on the arise with its ratio in China’s total exports increasing from 5.7 % in 1991 to 6.9% in 2000 and its ratio in China’s total imports rising from 6 % in 1991 to 9.9% in 2000. ASEAN is now China’s fifth biggest trading partner, next only to the USA, Japan, the European Union and Hong Kong. On the other hand, the share of China in ASEAN-6 (includes Indonesia, Brunei Darussalam, Malaysia, Singapore, Philippines and Thailand) exports grew from 2.2 % in 1993 to 3.14% in 2000, while the share of China in ASEAN-6 imports grew from 1.9 % in 1993 to 5.2% in 2000.[7]  The relatively little share of China in the trade of the older and more developed ASEAN countries has to be balanced with the gratitude of the consequence of China to the border trade of Myanmar, Laos and Vietnam, all of whom share a ordinary border with China. Anecdotal proof suggests that it is a consequential element of the economic relationship of the new ASEAN members (Laos, Cambodia, Myanmar and Vietnam) with China.

Configuration of ASEAN-China Trade in the early 1990s were fuel and oil, vegetable oils and fats, wood, computer/machinery and electrical equipment. Collectively, the share of these five products amounted to 75.7 % of all ASEAN exports to China.

By 1999, the categorization of importance had changed, away from commodities and towards manufactured products. Computers/machinery and electrical equipment grew from 12.4 % to 38.2 % of ASEAN’s exports to China. Moreover, ASEAN’s exports to China had been diversified, with the main five exports making up only 60.3 % of total exports to China. ASEAN’s imports from China were always more diversified. In 1993, the main five ASEAN imports from China included computer/machinery, electrical equipment, oil and fuel, tobacco and cotton. Collectively, they gained the number of a little less than 40 % of ASEAN imports from China.[8] By 1999, computers/machinery and electrical equipment continued to be the top imports, but their share had increased to nearly half of all ASEAN imports from China. The exports, where China enjoys the greatest superiority, are metal articles and base metal, footwear, textile and apparel, vehicles, vegetable products and prepared foodstuffs, stone/cement/ceramics and miscellaneous manufactured articles. They account for 38 % of China’s exports to ASEAN, but only for 8.8 % of China’s imports from ASEAN in 2000. [9]

The machinery and electrical appliances exported by China to ASEAN are mostly for common or particular use. On the other hand, a material part of the machinery and electrical appliances that China imports from ASEAN are devices and electronic components. For example, of the US $ 2.88 billion worth of electrical alliances and machinery that China imported from Malaysia more than half of them were transistors, kinescopes and integrated circuits and more than 40 % were electrical appliances and machinery.

Imports of integrated circuits, transistors and other electronic components and devices accounts for a huge share in China’s imports of electrical appliances and machinery from the Singapore, Philippines and Thailand. The exports where ASEAN has the greatest superiority are mineral products, wood and wood articles, plastics/rubber, pulp and paper and oils and fats. They account for 42 % of China’s imports from ASEAN, but these commodities constitute only 11.6 % of China’s exports to ASEAN in 2000.[10] Other sectors where intra-industry trade is big cover electrical appliances and machinery, optical, chemicals, and precision and musical instruments. Among them, electrical appliances and machinery account for 39% of China’s exports to ASEAN and 41 % of China’s imports from ASEAN.    Over the course of the last decade, the strongest rate of growth has been in the trade of manufactured products, with trade in electrical equipment and computers/machinery rising the most. The point that these products were both the leading exports and imports of both ASEAN and China suggests the consequence of intra-industry trade, brought about by product differentiation and economies of range.

Possible Reasons for Strong Growth

The main explanation for the quick growth of ASEAN-China trade during the 1990s was the vitality of the economies of ASEAN and China. During the period from 1990-2000, China’s real GDP grew by an average of 10.1 %, and was increasing until 1997, ASEAN’s regional GDP was growing at an annual average rate of 6.8%. Secondly, MFN (“Most Favored Nation”) tariff rates have been decreasing in both China and ASEAN. At the beginning of 1993, China reduced its tariffs on 3,371 import items and abolished import controls on more than 367 commodities. This movement reduced the trade-weighted average tariffs of China by 7.3%. [11]

A number of the ASEAN countries have also embarked on liberalization and deregulation measures over the course of the 1990s:

  • Applied MFN tariffs of Brunei’s were not so high, averaging 3.1 % in 2000, 3.6 % for non-agricultural products, and zero for agriculture.[12]
  • Malaysia has decreased its import tariffs by almost one-half since 1993, reducing defense for most manufactured and agricultural goods. The average applied MFN tariff rate has declined from 15.2%in 1993 to 8.1 % in 1997. Furthermore, whereas only 13 % of tariff lines were exempt from import duty in 1993, over half of all lines now transport duty-free applied rates.[13]
  •  In the Philippines, reduction and tariffication in tariff rates over the recent six years have significantly opened the economy. Applied tariffs were more than halved between 1992 and 1999 – from 26 % to over 10 %.[14]
  • For Thailand, applied MFN tariffs were about the average of 18 % in September 1999, which lower than 23% in 1995. Tariff peaks were reduced to 60 %, down from 100 % in 1995.[15]

2000-2012 years

ASEAN states’ trades with China grew at an average annual rate of 46% during the period of time between 2000 and 2010. In 2010, their trades amount was about US$374 billion, and ASEAN states recorded a trade overage of US $49 billion. China has become the biggest trade partners of ASEAN countries. While their share to ASEAN5‘s trades in 2005 reached the figure of 13.5% and surpassed the declining Japan‘s and US shares (7% and 14, 1% respectively), that in 2010 surged to nearly one fifth. In these ASEAN trades with China, ASEAN5 states contributed 88%, Singapore’s share was almost one third, Malaysia and Thailand contributed 23% and 16%, respectively.[16]

Manufacture products have been the main products ASEAN5’s exports to and imports from China with 72% in 2010. Among them, transport equipment and machinery products took the largest share with US $93 billion of exports and US$66 billion of imports. ASEAN5 states maintained their mining exports at a share of about 15%, but their agricultural exports contributed to only 4% of their total exports.[17] The growing manufacture trades show the growing manufacture networks and intra-industry trades between most of ASEAN countries and China. Under an economic development regime, ASEAN countries want to use international trades as a chance to enlarge their industry.

Actually, Indonesia had a different trade combination with China, compared to other ASEAN5 countries. For the Philippines, Malaysia, Singapore and Thailand, mass-produce trades contributed more than 80% to their total trades with China in 2010. This reflects intra-industry trades between the countries. In the same year, although almost 90% of Indonesia’s imports became manufacture products, manufacture exports only covered 21% of its total exports. Shares of agricultural exports and mining increased slowly and reached 47% and 29%, respectively.[18] This trade combination indicates that China and Indonesia have become more complement, rather than competitive. Because Indonesia also wants to bring out its industry, that trade combination implies, that Indonesia‘s industry is less competitive than China‘s industry. Among ASEAN5 countries, Indonesia is the only country that recorded trade deficiency with China.

The trades kept growing in the later period of 2000s. ASEAN5’s trade with China reached US $245.5 billion in 2010, representing a more than two-times grow from the 2005-year value. This means that trade with China grew 34-times in 20 years. China had become almost the main ASEAN5’s trade partner with a share of 12.9%, China’s share became bigger then Japan’s, whose share was about 10.7% in 2010. Between 2005 and 2010, imports of the other five ASEAN countries from China grew briefly from US $7.4 billion to US $30.2 billion.

From 2002 to 2012, ASEAN-China bilateral trade grew 23.6% annually to its 400 billion U.S. dollars.[19]

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 China currently is the largest trade partner for ASEAN, and ASEAN is the third-largest trade China’s partner. China and ASEAN set down a goal to regulate up two-way trade to one trillion U.S. dollars in 2020, more than double 2012-year’s trade amount.

In 2020, China is going to import a total of 3 trillion U.S. dollars’ worth of goods from ASEAN members and to invest more than 100 billion U.S. dollars in ASEAN countries.[20]

The collaboration between China and ASEAN has many chances for the development, as the two sides share a geographical neighborhood with a long trade history.

The development of trade relations between India and ASEAN countries and India`s “Act East” policy

India’s political and economic relationship with ASEAN is becoming stronger because of new regional dynamics. Many Indian businesses have sought to create themselves in ASEAN to take superiority of regional trade flows as well as to get access to the Chinese market.

Recently, Indian government has stepped up its efforts to improve its relationship with ASEAN. From November 1 to November 4 of 2015, Vice President Hamid Ansari visited Brunei and Indonesia to confirm ASEAN ties, while Indian government is also lobbying for an early ratification of a Free Trade Agreement (FTA) between India and ASEAN.

ASEAN-India dialogue relations have grown quickly from a sectorial dialogue partnership in 1992 to a full dialogue partnership in December 1995. Relationships were further raised with the convening of the ASEAN-India Summit in 2002 in Phnom Penh, Cambodia. Since then the ASEAN-India Summit has been held every year. All these meetings were held in a decade, which clearly signifies the consequence of the dialogue partnership to ASEAN and India and the progress that was made in the collaboration. At the ASEAN-India Commemorative Summit held on 20 December 2012 in New Delhi (India) the Leaders agreed to obtain the ASEAN-India Vision Statement and declared that the ASEAN-India Partnership stands raised to a Strategic Partnership.

India is one of the key partners of ASEAN.[21] With a total population of 1.8 billion and a combined GDP of US $7.98 trillion (PPP)[22] ASEAN and India together organize a consequential economic space in the world. Besides an economic partnership, India expects to advantage geopolitically as well from its rejuvenated relationship with ASEAN and other regional countries. In order for India to obtain a substantial position in East Asia, New Delhi has moved to an “Act East” Policy now, an update to the 25-year-old “Look East” Policy. As ASEAN remains central to India’s “Act East” Policy, India’s achievements from this strategy are worth watching.

India’s “Look East” policy

The “Look East” policy, initiated in 1991 by the Prime Minister of that time Narsimha Rao is the result of the post-cold war worldwide conditions. The primary objectives of this policy are: to advance close economic as well as strategic relations with the countries of this area and to avail better opportunities of capital, market, and technology for the quick and sustained economic, development of the country.

 This policy has been divided into two phase so far. The first phase of this policy covers the interval from 1991 to 2003. During this phase, the policy mainly focused on the enlargement of trade and investment linkages with the members of ASEAN. The second phase of this policy covers the interval from 2003 to the present. During this phase, the capacity as well as the reach of this policy has been expanded in the meaning that now it focuses on both the ASEAN and non-ASEAN countries of East Asia. Moreover, besides economic relations, it is equally focused on the deepening of the strategic relations in this area.

The search for better trade and economic opportunities as well as India’s fancy to play a greater function in the worldwide affairs also prompted India to look for greater involvement in this area. There is a historic fact that India launched its “Look East” Policy in 1991.

Over the years, the policy has evolved to cover broader security and defense ties across the whole Asia-Pacific, with India signaling its willingness to play a greater strategic function in the region. Given the fast changing security dynamics in the area, Indian PM Narendra Modi , who swept to power in a landslide triumph in the April-May election, rechristened the approach as the “Act East” policy, stating the significance of also looking for deeper ties with partners. Thus, acting in diagonal with its ‘Act East’ policy, Vice President Hamid Ansari made trips to Thailand and Brunei to bring out India’s ties with the two nations. [23]

The plan “The India–Myanmar–Thailand Trilateral Highway” is an aspiring plan of 1990 miles (3200 km) that will link India with the ASEAN region. The highway will tie Moreh in Manipur state (India), via Mandalay city (Myanmar) and to Mae Sot district (Thailand). It is also a part of India’s upgraded “Act East” policy, which looks for strategically constructing India’s bond with the Southeast Asian region. The project comes off the heels of the Bhutan, Bangladesh, India and Nepal Motor Vehicle (BBIN MV) Agreement, which was signed in June 2015, and the proposed India–ASEAN trade center.

Within the Trilateral Highway project, about 48.4 miles (78 km) of new roads will be constructed, and the existing 248.5 miles (400 km) of roads will be upgraded along with the building of all–weather approach lanes. The Trilateral Highway project will be completed by 2018.[24]

The India–ASEAN relationship received a new chance with the conclusion of the eighth Delhi Dialogue on 17–19 February 2016. Since 1991, India has been strictly pursuing the increasing of the strategic and trade relations with Southeast Asian Countries as a part of its “Look East” policy.[25] Now, ASEAN became India’s fourth largest trading partner after China, the United States and the European Union.

The aim of courting ASEAN was to construct cultural and historical ties, to enlarge markets; counter Chinese power in the region and upgrade India’s standing as a regional power. However, India’s relationship with its regional neighbors has not matured to the extent that it was originally envisaged. A stronger standing with ASEAN can give a main lift to India’s stature as a growing worldwide power. Since the conclusion of a free trade agreement (FTA) with ASEAN in 2009, trade has grown steadily and investment flows have been considerable, but the full potential of India–ASEAN relations is yet to be realized.

Trade Data

India Import Partner Share (%)

Source: World Integrated Trade Solution. (date of access: 01.04.2017)

The data statistics of India`s export to the ASEAN countries can be found in Appendix 2.

Amount of trade flows between ASEAN and India remained relatively not so high compared with other dialogue partners of ASEAN. Between 1993 and 2003, ASEAN-India bilateral trade grew at an annual rate of 11.2%, from US $ 2.9 billion in 1993 to US $ 12.1 billion in 2003. At the 10th ASEAN-India Summit in November 2012, the Leaders set the goal of US $100 billion by 2015 for ASEAN-India trade.[26]

There was a little decrease in the total trade between ASEAN and India, about 0.29 %, from US $67.9 billion in 2013 to US $67.7 billion in 2014. However, the release of a report from Standard Chartered forecasts that Indian exports into ASEAN would arise dramatically over the next ten years to US $280 billion a year, up from US $33.13 billion in the 2013/14 financial year. Two-way trade is currently locked in at around US $80 billion a year.[27]

Indian export possible in six areas: organic chemicals, petroleum products, vehicles (including auto parts), gems and jewelry, pharmaceuticals, and apparel and clothing accessories.

The first three are categories where ASEAN already accounts for a sizeable part of total Indian exports, and where export development is extreme. The last three areas are possible for India to grow export expansion rates. Meanwhile, ASEAN’s trading strengths would depend mainly on natural resources and electronics.

Although the last several years there have seen sizeable development in India-ASEAN relations, but there is also further space in these markets for important development in the coming years.

Singapore is India’s strongest linking to the ASEAN market, accounting for 25.9 % of all of India’s trade with ASEAN from 2013-2014.[28] The state has also benefited economically from its secure relationship with India, from which it imported US $7.1 billion in 2014.[29]

In adding to a healthy trade relationship, India and Singapore also appreciate a diplomatic political history of over 50 years. In 2014, India and Singapore again strengthened defense partnerships and recommitted to the procedure of joint military training exercises. As India’s portal to the rest countries of ASEAN, Singapore is likely to appreciate a mutually beneficial political and economic relationship with India for multiple upcoming decades.

India and Vietnam have also sought to renew their political and economic standing. Vietnam’s 2014 renewal of Indian oil blocks in the South China Sea is indicative of improved diplomatic and defense relations between two nations.

The economies of Vietnam and India are anticipated to increasingly rely on one another for trade in the upcoming years. From 2013-2014, bilateral trade between India and Vietnam totaled US $8.03 billion, and both countries’ governments foretell this figure to reach US $15 billion by 2020. In terms of exports from Vietnam to India, big investment opportunities exist in the pharmaceutical industries and textile.

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Indonesia and India’s economic relationship has grown exponentially recently. After signing a double taxation agreement (DTA) in 2012, bilateral trade between two countries totaled US $20 billion. In 2012, the Indian embassy in Jakarta launched the India Business Forum, in which Indian business owners committed to further interaction with the Indonesian market.

In 2014, Indonesia accounted for 38 % of ASEAN’s total GDP. By increasing trade with Indonesia, India will obtain significantly greater access to the Southeast Asian economy. At the same period of time, India’s population is over 1.27 billion, which presents a great market for the ASEAN countries’ main exports of gas, oils, and electronic equipment.

Acknowledging this tendency and recognizing the economic possibility of closer linkages, both sides recognized the opportunities for deepening trade and investments, and agreed to deal a framework agreement to pave the way for the foundation of an ASEAN-India Free Trade Area.

 India and ASEAN signed the ASEAN-India Trade in Goods (TIG) Agreement in Bangkok on 13 August 2009 after six years of negotiating. The signing of the ASEAN-India Trade in Goods Agreement gave a chance for the foundation of one of the world’s largest free trade areas (FTA) – market of almost 1.8 billion people with a combined GDP of US $ 4.6 trillion.[30]

2.2. India and China in services with ASEAN countries

With the financial globalization and regional financial integration, today’s universe witnesses the new round of industrial restructure with service and service commerce, which plays an increasing part in the nationwide economy. It is, actually, the center of global manufacture, shifting from manufacturing to service. Here we will talk about the commerce organization, then put forward the countermeasures for improving the service commerce arrangement between countries and enforcing the competitiveness of service industrial organization on the foundation of complementary benefit.

The globe economy has speedy turned into a ‘service economy’ since the 1990s. Services uprising across the planet has changed the trade map, so the way trade is conducted. Outstanding development of services sector has outstripped the increase in real GDP in a numeral of economies of Asia. While developed countries still account for the lion’s ration of services in world GDP and commerce, developing countries have recently started to cut out an increasingly larger portion of the pie for themselves. The extreme growth of services has been aided by the increase of commerce in services because of increased tradability of a range of business and other services. Among the different services sectors, trade in business and experienced services including accounting and connected fiscal services, data processing, ITeS (viz. BPOs), computer services, management consulting, legal, and architectural and engineering hardware, consulting services, have witnessed outstanding increase in current years. This, however, could mainly be attributed to a numeral of services sector firms from the US & EU, who have taken access to offshoring and outsourcing of their non-core activities to take dominance of the low-cost high-skilled professionals from the developing countries.

The relationship between China and ASEAN countries in services and suggestions for their improving

Since there was signed the Framework Agreement on Comprehensive Economic Cooperation between China and ASEAN (Association of Southeast Asian Nations) by China and ASEAN in November 2002, in which it was pronounced that the foundation of China-ASEAN Free Trade Area in 2012, the discussion of service commerce has been going during several years. The Service Trade Agreement was eventually signed on January 14, 2007 and took effect on July 1, 2007.

 According to the Agreement, on the foundation of the commitment made to the WTO, China made new commitment in 26 sectors under construction, transportation, environment preservation, business and sports. Besides, ASEAN makes commitment to unlock its markets in education, finance, tourism, telecommunications, medicines and construction spheres, including the further opening up of these markets, and fairness joint ventures and permission of solely funded and other collaboration, relaxing in the limit of stake ratio in establishing companies. In common, there are differences between two sides in each other’s industrial organization, development foundation and developing stage. These differences make the complementary commerce in service.

The current situation of different sectors in China and ASEAN countries

China’s service commerce has been developing quickly. The general annual grow rate is up by 18.4%, which is two times over the world one. While the global competitiveness in our service commerce is still not so high than in the developed countries and even in some developing countries. Service’s export quantity as a ration in the total export of China is still lower than 10%, which is just half of the world’s average level.[31]

ASEAN has become the main export market of China’s investment, labor service, contract engineering collaboration. Besides, the investment from ASEAN in marine and air transportation, construction, financial service and engineering service is also a significant part of China’s service import. The existing economic profit gained from the service trade has become the consequential foundation and possible motive power for the development of relationships between China and ASEAN.

Suggestions for China in order to improve relationships in services with ASEAN countries

China and the 10 nations of ASEAN have their own advantages in terms of sector organization, which effects in the large complementary between two sides. The Chinese businesses should attach great value to the ASEAN market and choices offered by the opening service trade market at both sides and take the business opportunities.

  1. To keep on strengthening the competitiveness in traditional service sector

The distinguishing natural and cultural sceneries of both China and ASEAN serve as generous travel resources and are the foundation for forming and developing the competitiveness of each other’s travel service. As travel accounts for large part in both China and ASEAN’s service trade export, and as developing countries, both have had gained their own competitiveness in this customary travel service at the same time, there should be more struggle than collaboration in travel service field between China and ASEAN. Under the force from ASEAN after the further opening of travel market, China should be committed to develop the differentiate and dissimilarity travel services, such as cultural travel, green travel, ecological travel, submarine travel, internet travel and other creative travel projects. The knowledge-based economy is changing the usual competitive way from resources and passenger flow direction to information and technology. The contention in future travel service will target on creating travel resources and particular travel services according to the passengers’ wish, economic situation, concern and required time instead of just selling travel rout or certain scenery point. These countries should also increase the opening of travel and use foreign assets to arrange the investment structure of their services. For example, they can change the service projects of their old and popular national lodging by using foreign capital, outsource human resources training of the travel agents, the information system‘s managing and developing, landscape hotel and other low-value-added links with the aim of pushing forward the management level of China’s travel agents.

2. To consolidate the cooperation in transportation and finance

In the area of transportation, the half of the export and import between ASEAN and China is carried by marine transportation. The amount of transportation trade from China to ASEAN has increased by 22.7% within recent five years, and the Mekong Rive transportation is still developing at the same time.  The increasing transportation of cargo and passengers between ASEAN and China construct the solid foundation for developing the transportation service of both sides. In compare with travel, there are more collaboration than contention in transportation service between ASEAN and China. China should strengthen on the construction of logistic infrastructural facilities for promoting the development of current transportation and logistics. Moreover, China should take the advantage of the huge amount of population of China-ASEAN Free Trade Area to bring out the range economy. Business is always regarded as “the first driving force” for the growth of regional economy. For the goal of wider field, larger range and higher lever collaboration, both sides should improve their collaboration in finance sphere for making finance play its role of configuration leadership and market regulation. For middle and long term, the collaboration between China and ASEAN should target on currency and financial supervision for keeping away from financial crises and the fluctuation caused by hot money, and the illegal activities, such as money laundering, arbitrage of exchange, swindle, and so on, which can damage the financial system and the hole economy.

3. To improve the level of high-technology service

Technology service is the center of world’s service trade. Information services and computer are going to increase potentially as high-value-added sectors. Except Singapore, the competitiveness in information service and computer of China and other ASEAN members is the same and must be improved. Both as being developing countries should prioritize the development of these sectors. While the risks and capacity of investment in these sectors are giant, it is very necessary for the country to offer leadership and subsidies in its production capability and R&D. However, facing the joining of Singapore`s transnational corporations (Singapore has been of international competitiveness in computer and information services), countries should lead its FDI efficiently to those high-value-added sectors. Meanwhile, China and ASEAN countries should advance their software outsourcing for constructing the compact foundation for them to enlarge export services and software, which is related to computer and information in the international market.

4. To enhance bilateral investment and enlarge service trade

The Service Trade Agreement, which was signed by China and ASEAN, is bringing out more bilateral investments. China’s enterprises’ investment in ASEAN market, which owns 500 million consumers, not only profitable for enlarging the current advantages of manufacturing industries, but also encourage the service export, which is related to the manufacturing industries. Because of the unlikeness of the service trade development among ASEAN members, the procedure of opening the service trade and acceptability is not the same for the countries. Countries should select the investment plan according to each country’s different feature. For example, Singapore has comparative superiority in the knowledge-intensive service, management, capital, attracting investment and facility in language. Countries can encourage investments from Singapore and set into their high-technology service sectors. Besides, they can invest in the service sectors of ASEAN market for promoting the economic development of both sides.

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In conclusion, there is a big potential collaboration in service commerce between China and the countries of ASEAN. Only if both sides enroll in enlarging collaboration, making resources conformity sufficiently, structuring systems and coordination policies well, they can continue from the new circular of industrial restructure with service and promote the service industry successfully.

China and ASEAN member states have their individual side in the service industry, as China is competitive in computer service, Thailand in tourist service, Singapore in legal, financial and exhibition services.

With the big gap between different countries in different service sectors, it is hard and challenging for these countries to unlock their service industry for other countries.  If China and ASEAN could sign agreements for further reducing the access restrictions to their private service industry, the service commerce between two sides could gain a large grow.[32]

The overview of the relationships in services between India and ASEAN countries

Over the last ten years, global trade in services has been growing at higher pace than trade in goods. The countries in the Asia-Pacific region with the sizeable demographic advantages have important beneficiaries in the development. Outstanding development of services sector has outstripped the development in real GDP in a number of economies in Asia. Both India and Members of the ASEAN have stakes in the sector, and under the India-ASEAN CECA negotiations, countries are working towards maximizing the possible benefits that may rise out the integration of the service sectors of the two trading partners.

In the example of India, services have been one of the force areas for over ten years. While agriculture continues to keep the leading position in the economy, give the high livelihood-insurer character and employment-generating facility of the sector in India, it can become the development machine in the economy in the last decade or so. Not only the sector has been growing at a stable pace of 10% for the last decade and contributing over half of India’s GDP growth each year, services exports from India has seen double digit growth in the last ten years and has continued to be one of the most important sources of imported exchange earning in the country.

India’s Foreign Trade Policy (FTP) recognizes the value of services in the overall trade performance of the country by suggesting to make a ‘Served from India’ brand, and setting up an incompatible export encouragement assembly for services sector along with schemes for helping and promoting home-grown service providers. The Council is expected to map opportunities for main services in the main markets, and bring out vital market access programs, including brand building in co-ordination with sectored players and recognized nodal bodies of the service industries. Common Facility Centers are also suggested to be set up for using by home-based service providers, particularly in areas like architectural and engineering design, software developers, multi-media operations, etc. to drag an unlimited multitude of home-based professionals into services export arena. It is expected that the new approach will be able to help broad-base services exports of the country to contain as many of the 161 tradable services covered under the General Agreement on Trade in Services, where payment for such services is received in free foreign exchange; service sector exports from India are currently more important than software exports.

In services, India pursued important reforms, especially in telecommunications and in infrastructure services and financial services, such as power and transport. At over 17% annually in the 1990s (with exports of software and IT enables services growing at around 46% since mid- 1990s), India’s services exports have accomplished one of the fastest growths globally in the last ten years, compared to the world average of 5.6% . Globally, India remained a network importer of services. In services, the areas of liberalization, policy center and high growth in India have been: IT`s (including financial IT services) & BPO, software, besides, emerging areas as healthcare (in particular diagnostics and surgeries), telecommunication, and more recently in distribution, professional services and government services. It should be told here that unilateral service sector liberalization in India has been most focused in mode 3 (or commercial presence), but mode 4 access (movement of natural persons) is still restricted in many services sectors.

Like India, ASEAN is also a net importer of services. Moreover, service imports of US$ 110.90 billion is over 2.8 times of India’s total service exports, which can describe a big possible market for India’s service exporters to seizure. The region is also increasingly becoming the main demander of services, which is reflected in ASEAN`s rising trade deficits in global trade in services (compared to a positive net merchandise trade balance).

Broadly, at current situation, prospects for enhancing ASEAN’s (particularly ASEAN 5) trade with India remain in the following Services categories: tourism, hospitality, distribution and logistics, IT and telecom, financial services and healthcare. An investigation of India’s service trade basket shows that India’s exports to ASEAN in services has concentrated in technical education, software and ITeS, finance, audiovisual and healthcare. ASEAN service firms (especially those from ASEAN5) have both exported several kinds of services to OECD countries and also invested in a several sectors like: healthcare, , education, business support services, professionals and specialists, construction and engineering, infrastructure development and real estate services, transport and tourism, commerce (wholesale and retail trade), financial services (including pension fund management) and telecommunication services. They are also partners with developed country service firms into third markets in several kinds of services. The target is to ease existing constraints particularly in impermanent business travel and common identification of professional credentials. The CECA can provide opportunities for India to get into an order where the country can get in touch with Indian service providers participant with established ASEAN service firms to service third country markets.

Besides FTA with ASEAN, India is negotiating almost identical market opening pacts with the grouping members. India has already implemented FTA with Malaysia and Singapore and is negotiating with Thailand and Indonesia in this view. The FTA would also macadamize the way for discussions about regional inclusive economic partnership (RCEP) that ASEAN plans to seal with its six main trade partners, which involve India.[33]

The India-ASEAN CECA deliberations should focus on setting out a wide set of AFAS-plus negotiating guidelines on complementary collaboration agreements and a lowest benchmark numerical goal for market access in services within the geographical field under the CECA, and not be restricted by the existing GATS commitments and tabled revised offers.

Suggestions for India in order to improve relationships in services with ASEAN countries

The increasing of improvements in Market Access and ensuring identical National Treatment for services suppliers, in a select critical figure of service sectors of complementary interest of the trade partners, service is provided in all four modes. Historically, the most part of ASEAN Members have set more force on mode 3 (with the exception of Philippines and now Vietnam), while India’s demonstrated expertness and competitive advantages lie in modes 1 and 4, which signifies complementarities in interests of the trade partners.

While India have defensive interests in certain sectors with a few Members, there are prospects of provocative opportunities in some other countries, in particular the CLMV nations. This needs to gain the balance during negotiations. In addition, while the ASEAN region and India would appear to be broadly competitors in a big range of services, there are some complementarities within special service sectors and with special Member countries that need to be carefully optimized. At current situation, ASEAN has concluded four packages of services commitments through three rounds of negotiations since 1 January 1996. These packages were signed by the AEM and supply the details of commitments from each ASEAN country to the others in the following services sectors:

  • Construction: civil engineering, construction of commercial buildings, rental of construction equipment, installation works etc.
  • Business services: IT services, auditing, accounting, legal, engineering, architecture, market research, etc.
  • Air transport: computer reservation, sales and marketing of air transport services, aircraft maintenance and repair, etc.
  • Financial services: insurance, banking, financial advisory, securities and broking, consumer finance, etc.
  • Tourism: hotel and lodging services, tour operator, food serving, travel agency, etc.
  • Telecommunication: mobile phone services, public telephone services, data and message transmission, business networks services, etc.
  • Maritime transport: storage and warehousing, international passenger and freight transport, etc.

While the India-ASEAN CECA should focus on including the liberalization into the above sectors and other critical service sectors such as Audiovisual, Distribution, Healthcare services and Education. In those sectors, where India has possibilities and interests of forging synergies, the quick track liberalization should be also considered.

 Determined sectors for the concentration during the India-ASEAN CECA negotiations could be healthcare, education services, telecommunication, audio-visual, banking and finance, tourism, insurance, e-commerce, trading, transportation and warehousing, distribution and logistics, and professional services such as accounting, legal consultancy, engineering and advertising.

2.3. The analyze of the India`s and China`s current foreign trade situation with AEAN countries

ASEAN countries in ACFTA and China`s strategy «The Belt and Road»

  • 2012- nowadays

The ASEAN-China Free Trade Area (ACFTA) is a free trade area between China and the ten ASEAN member states.

The initial framework agreement was signed on November 4, 2002 in Phnom Penh (Cambodia) intended to create a free trade area among the eleven nations by 2010. The free trade area became effective on the January 4, 2010.

The ACFTA is the biggest free trade area in the world according to the population amount, and it is the third largest in terms of nominal GDP, trailing the North American Free Trade Area and European Economic Area.

Within the free trade agreement, tariffs were reduced to zero on 7,881 product categories, or 90% of imported goods. This reduction already got results in China and the six first members of ASEAN: Indonesia, Brunei, Malaysia, Singapore, the Philippines and Thailand.

The average tariff rate on goods from China, which were sold in ASEAN countries, decreased from 12.8% to 0.6% starting January 1, 2010. Meanwhile, the average tariff rate on goods from ASEAN, which were sold in China, decreased from 9.8% to 0.1%.[34]

The primary attraction of ACFTA is that it offers unlimited opportunities and benefits to consumers and firms in member countries. Consumers advantage from having access to a sizeable variety and cheaper products and manufacture. Many ASEAN firms in particular can tap more effortlessly into the Chinese market, the fastest growing market in the world. The removing of tariffs also allows freer flows of intermediate goods between the two regions, benefiting producers at every stage of producing and deepening regional economic integration. Because of the increased importance of producing fragmentation in both regions, it is therefore useful to research more closely, how the free trade agreement will finally reshape production and trade relationships between ASEAN countries and China.

There are some predictions about the effect of The ASEAN-China Free Trade Area on future development of the China –ASEAN relationships. First, by explicitly accounting for component trade, ACFTA will have a fundamentally larger effect on the trade flows between China and ASEAN than what the existing data predicts—around 25 % more, which accounted for US $343 billion at 2008 constant prices .[35] Second, the larger trade flows between the two regions are more likely to be in parts and components and concentrated among a sub-group of member countries with stronger industrial linkages. This implies that industries in ASEAN and China will become more closely integrated. Eventually, the trade beginning in component trade between two regions will produce positive spillovers to the rest of the world. This comes about because finer specializations in the producing chain also include countries outside ACFTA. These trade beginning effects may in turn compensate trade diversion effects and further upgrade the social welfare in both China and ASEAN.

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China has proposed The Belt and Road initiative in 2013, as a trade and infrastructure network. It will link Asia to Europe and Africa through the Silk Road Economic Belt and the 21st Century Maritime Silk Road.

To support pragmatic collaboration between the two sides on the Belt and Road Initiative, China and ASEAN should target on five areas, namely road connectivity, policy communication, currency flowing, trade facilitation and mutual agreement between the peoples.

China sees ASEAN as a predominance region in implementing the initiative, which is set to encourage trade and infrastructure construction in Southeast Asia. According to the words of President Xi Jinping, China is willing to work with ASEAN countries to jointly construct the 21st Century Maritime Silk Road and which more important China-ASEAN community of common fate, which has charted the course for the long-term development of the China-ASEAN relations.[36]

The Belt and Road Initiative and supranational collaboration on producing capacity have already brought new opportunities for regional collaboration, from which ASEAN countries wish to obtain momentum for development. China and ASEAN’s joint bid for constructing the 21st Century Maritime Silk Road not only builds on the ancient maritime silk route and the bilateral conversation and collaboration over more than 20 years, but also reflects a common require for win-win collaboration and development. On interconnectivity, ASEAN countries need to further upgrade infrastructure construction and interconnectivity, while mechanisms such as the Asian Infrastructure Investment Bank and the Silk Road Fund project proposed by China can provide low-cost and long-term financing services for ASEAN countries.

Besides, both sides can jointly construct a range of industrial parks, invite Chinese enterprises to invest in ASEAN countries and complete the construction of regional supply, industrial and value chains, while elevating the status of China and ASEAN in worldwide industrial distribution.

Having finished the journey along China in 2015 year, diplomats from ASEAN said that China’s 21st Century Maritime Silk Road initiative could help to prompt economic development in the area, especially since the bloc is launching an ASEAN Economic Community at the end of 2015. The initiative aims to change ASEAN into a single market and producing base in order to lift the region’s connectivity and competitiveness.

For the period being, the five countries along the Greater Mekong River, namely Laos, Myanmar, Thailand, Vietnam and Cambodia, are engaged in construction of cross-national highways, linking north to south and connecting east and west.

The North-South Economic Corridor has been taking shape with the fully opening of the whole Kunming-Bangkok Highway in 2013. China has also completed construction of an expressway in Guangxi leading to the Dongxing port and Friendship Gate at the China-Vietnam border. The highway from Kunming to its border with Vietnam and Myanmar has also been constructed.

Constructing the existing infrastructure, Thailand and China have inked a settlement on a high-speed train project linking Thailand’s Nong Khai and Laos to the southern border and Malaysia, with the ground-breaking of the project , which was realized in December 2015.

China and Indonesia have also sealed an agreement to initiate a joint plan for a high speed railway linking Jakarta with West Java provincial capital of Bandung.

The plan will be conducted on business to business base, in which the Indonesian side is going to control 60 % of the joint venture’s stake, while the Chinese partner is going to control the left over 40 % share.[37]

Ties between China and the Philippines have chilled lately – a outcome of overlapping claims in the South China Sea. Still, the Philippines says the two nations can still cooperate within the plan.

Vietnam and China reached the agreement on expanding collaboration within the framework of the initiative and Vietnam’s “Two Corridors and One Economic Circle” plan,[38] as well as on producing capacity collaboration. Sharing a land border of over 1,000 km, Vietnam and China have been in close connection on infrastructure collaboration with new express roads and railways starting operations almost every year. The two countries have reached an agreement on a practicability study of the Hanoi-Lao Cai-Hai Phong Railway in northern Vietnam. New railways in Vietnam are only a piece of the infrastructure upgrading in Southeast Asia, as China promotes the aspiring Trans-Asian Railway that will link Malaysia, Laos, Thailand and Vietnam. Vietnam and China also signed several collaboration documents covering such fields as transportation, party-to-party exchanges, producing capacity, energy, railway, finance and local affairs. More than 1,000 km away from Vietnam, Singapore is also a important link in the Maritime Silk Road.

In a 20-point statement, China and Singapore agreed to collaborate in Belt and Road construction, city planning, trade, education and customs, among others. Two sides will encourage a third government-to-government project this time in Chongqing, southwest China, and examine collaboration between the enterprises in third markets. Other ASEAN countries have expressed their concerns about the fact, that the One Belt and One Road initiative could be part of Beijing’s push to assert itself as the region’s leader.[39]  In result, they will be watching closely as more details are revealed.

Currently, The Belt and Road initiate refer only to political sphere; it helps to expand relations between China and ASEAN countries, which will definitely have an influence on the economic sphere and the sphere of foreign trade in future.

In common, China’s actual wages are increasing, in tandem with an aging society, a byproduct of the One-Child Policy.[40] In similar, ASEAN’s developing members will practice the rise of a consumer-oriented middle class, which could shift economic activity from export-oriented manufacturing toward domestic consumption. ASEAN could also become an important service provider to China’s rising middle class. Tourism is a significant source of services exports for many ASEAN countries, particularly Thailand. In 2012 Chinese tourists made up the second-largest group visiting ASEAN countries, totaling just under ten million visitors (10.4 % of total tourism), while the United States was seventh with just under three million visitors. [41]

ASEAN – India Free Trade Area (AIFTA)

The India-ASEAN Free Trade Agreement (AIFTA) came into result on 1 January 2010 with view on Singapore, Malaysia and Thailand. India’s exports to ASEAN grow fundamentally, with the largest accesses that were gained in Cambodia, Thailand, Vietnam, the Philippines, Malaysia and the Lao People’s Democratic Republic. The primary sources of imports are going to Vietnam, followed by the other ASEAN countries, Malaysia, the Philippines, Singapore and Thailand. However, India experiences a welfare loss due to both allocative inefficiency and contradictory terms of trade capacity. In the ASEAN area, Singapore, Malaysia and Thailand present positive welfare that was gained with the largest obtaining accruing to Singapore. The smaller countries all appreciate positive welfare gains except the Lao People’s Democratic Republic, Cambodia and the Philippines. This welfare obtained by ASEAN countries is principally due to their improved terms of trade.

India’s trade with ASEAN is mainly concentrated in Malaysia, Indonesia, Thailand and Singapore. These four countries were and still are the largest markets for Indian 5 exports in the ASEAN region, as well as the largest sources for India’s imports from the ASEAN region. Among them, Singapore is the main goal for Indian goods (45.6% of total exports to ASEAN) and the largest source of imports for India (31.1% of India’s total imports from ASEAN), followed by Indonesia, Malaysia and Thailand. [42]

The trade agreement between ASEAN and India has already come into effectiveness with view to all these countries, with the exclusion of Indonesia. Starting from January 2010, the tariff liberalization within the India-ASEAN FTA was to slowly cover 75% of the two-way trade between the ASEAN and India member countries. The FTA led to the elimination of tariffs on some 4,000 products covering chemicals, electronics, machinery and textiles. These 4,000 products include 3,200 products that will have duties reduced by the end of 2013, while duties on the remaining 800 products were lowered to zero by the end of 2016.

The primary exports by India to the ASEAN region cover edible vegetables and fruit, meat, cereals, tobacco, cotton, mineral fuels, salt, organic chemicals, iron and steel, pharmaceutical products, electrical and electronic equipment, copper, and machinery. The primary imports by India from the ASEAN region cover animal and vegetable fats, mineral fuels, chemicals, rubber products, pharmaceutical products, wood products, wearing apparel, iron and steel, electrical and electronic equipment, ships, machinery, optical and photographic equipment, boats and floating structures, and musical instruments. With the implementation of the trade in goods agreement, most of these goods are granted duty-free access to the markets of the partner countries in the ASEAN region as well as in India.[43]

The terms of trade gains accruing to the biggest part of the ASEAN countries are because of the relatively larger falls in the prices of their import items, related to their exports, as an outcome of bilateral trade liberalization under the FTA. India’s loss to on the account of the negative terms of trade effect is as huge as US $ 695.62 million under full liberalization. India’s export prices within FTA much more than the import prices, resulting in the negative terms of trade effect. This is because the prices of the biggest part of Indian exports to the ASEAN countries fall as much as the tariff shock, or sometimes more than that, when they reach the ASEAN markets. The reason of this is the fact that domestic require for most of these goods falls in India, consequently pushing down their world (CIF) prices.

For goods imported to India from the ASEAN countries, the fall in the prices of the goods in India is less than the tariff shocks. This is explained by the arise in the CIF prices of the biggest part of twenty-five kinds of goods from ASEAN.

When trade between two sides is fully liberalized by lowering to zero all bilateral tariffs between ASEAN and India, the largest contribution to India’s allocate effectiveness can be obtained from the following sectors – vegetable oil and fat (US $ 372.62 million), oilseeds (US $ 29.57 million), textiles (US $ 15.48 million) and wearing apparel (US $ 18.26 million).[44]

India loses out significantly on allocative effectiveness due to the loss of import taxes (US $ 211.92 million) and due to a forbiddance list that comprise 13 out of 35 products. In addition, the sectors that provide an extreme loss of allocative effectiveness due to the lowering of import taxes cover chemicals, oil and gas, machinery, rubber and plastic and other metals. Following liberalization substantial tariff cuts have been made for all of these goods importing to India and, because of that, losses arise due to removal of import tariffs. However, with a big number of products on the negative list for India, there are relatively smaller declines in import prices in compare with export prices, thereby lowering the negativity in the terms of trade outcome.

FTA implementation will have effect in India and some of the smaller ASEAN countries (i.e., the Lao People’s Democratic Republic, Cambodia and the Philippines) incurring welfare losses. The loss for India is due to negative terms of trade, but for Cambodia and for the Lao People’s Democratic Republic the loss is due to both allocative inefficiency and the negative terms of trade effect. The Philippines experiences obtain from increased allocative effectiveness, but the negative terms of trade effect is relatively stronger. For other ASEAN countries, the terms of trade effect is positive and much stronger, resulting in large welfare gains. For India, the welfare position got the improvement with the expansion of the trade liberalization process, both with regard to the number of ASEAN countries with which its trade is liberalized, as well as the number of products, for which tariffs are lowered or eliminated.

Following the implementation of the FTA, bilateral trade between India and ASEAN increases phenomenally. While Indonesia, Cambodia, the Lao People’s Democratic Republic, Vietnam and the Philippines supply additional markets for almost all Indian exports, Singapore, Malaysia and Thailand supply markets for some of the fastest growing exports from India. Thailand, Malaysia and Vietnam become main importers of Indian goods in terms of total exports by that country to ASEAN countries. They also supply markets for the fastest growing items 32 exported by India. In particular, Thailand steadily provides a big market for Indian products. India’s imports from ASEAN grow because of increased exports by Malaysia, Indonesia, the Philippines, Thailand, Singapore and Vietnam, plus the other countries of ASEAN. These countries also provide the items that get the largest increases in India’s imports from ASEAN following the implementation of the FTA.

CHAPTER 3. INDIA AND CHINA IN THE FIELD OF INVESTMENTS IN ASEAN COUNTRIES

Attracting investments is an urgent need for every country to upgrade its financial situation, and therefore to get a priority in the discussion of regional issues. ASEAN countries has achieved an agreement of the gradual liberalization by all investment participants in five main sectors (fisheries, agriculture, forestry, manufacturing and mining). In addition, the program documents recorded the primary principles and the focus of free and open investment regulation, both for the investors of other ASEAN members and for investors from third countries, the introduction of advanced worldwide practices for the defense of intellectual property and investors’ rights, the ways for reduction the sector amounts with restrictions of international participation. Each country conduct this investment policy independently.

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3.1. The overview of the investment situation in ASEAN countries

Among the usual trends, ASEAN countries have launched institutional reforms and introduced amendments to the legislation, which were connected with foreign investments from both the ASEAN and other countries. Practically, each of the countries has the investment restrictions, which are connected with the legislation in the conformation of contradictory lists (i.e. there are several sectors, having limitations, in all other sectors countries take the duty not to impose restrictions), which makes the procedure more evident and foreseeable.

In 2014, the inflow of foreign investments in ASEAN countries amounted to more than US$136 billion, which has increased by 15.7% annually in the last seven years and exceeded the investment amount in China over the same time.  The amount of foreign investment goes to wholesale, manufacturing and retail sales, mining production and real estate. Two-thirds of the investment has come from the ASEAN countries themselves, the EU, the United States and Hong Kong. The biggest regional investor is Singapore; however, most of the country’s investment committed through the registration subsidiaries of foreign companies enterprises.

Source: ASEAN Foreign Direct Investments Datebase

In 2014–2015 ASEAN Member States introduced some measures, which could be beneficial to investment. They included measures for making investing easier, upgrade the investment conditions and enlarge transparency. Others included industrial growth policies, state investment policy reforms, investment facilitation, incentives and tariff reforms, streamlining of investment procedures, strengthening of institutional help for investors, infrastructure growth and foundation of more fiscal zones. The ASEAN Member States are also implicated with other investment-related agreements at the bilateral, plurilateral and regional levels at various stages of negotiation and development. They include investment agreements for ASEAN free trade agreements with the Regional Comprehensive Economic Partnership and Dialogue Partners. Some Member States continue discussing and implementing bilateral and plurilateral free trade agreements, which include investment agreements or chapters, and bilateral investment treaties.

The share of private foreign investment in infrastructure is increasing, in 2014 FDI in infrastructure and real estate accounted for 15% of the total number investment or US $20.4 billion. Against the factual numbers, the role of Chinese companies in infrastructure sector is also becoming stronger, as both owners and investors, and contractors for the accomplishment of projects. According to authority estimates, Chinese companies is going to invest US$50 billion in infrastructure projects until 2017.[45] The participation in many projects of modernization and construction of transport, energy and telecommunication infrastructure is caring by Korean, American, Japanese  and European companies.

Infrastructure investment and private sector players in ASEAN

Infrastructure plays an important role in the region’s public, financial and environmental development, including through boosting connectivity. As the determination of the economy in all the ASEAN Member States, it contributes to improving the region’s investment environment for attracting FDI. Greater connectivity of state transport infrastructure enhances logistical effectiveness and supports the enlargement of business, investment and trade. Investment in power infrastructure increases energy security, provides energy to industrial estates in country regions, which is necessary for achieving common access for everything. As with other infrastructure sectors, the providing of information and communication technology (ICT) infrastructure supports downstream businesses, such as e-commerce, and connects Member States with each other, as well as with the globe. Infrastructure development plays an important role in the reduction of the transaction costs in making trade in the region.

The infrastructure investment needs through 2025 includes transport, water and sanitation, ICT. Some US $110 billion a year will be needed for infrastructure investment in these spheres.[46] Given the current spending by Member States, the infrastructure investment space is equally big, but resources need to be found if the space is to be filled and expected demand is to be met. The private sector can play a greater role to help in filling the space. There is a need for a more concerted attempt by all stakeholders to transport and coordinate investment from additional possible resources to infrastructure. Filling the space is possible. For example, in adding to resources outside the region that can also be tapped, there is at least US $10 trillion value of assets in ASEAN Member States (mostly with the private sector) that can become possible sources of funding.[47]

The private sector, which participates in the region’s infrastructure, has a development possibility through several modalities. They include FDI, privatization, M&A`s, non-equity modalities (concessions and contracts), and consortium or partnership arrangements. Some modalities are more important than others for the private sector participation. The maturity of the M&A environment and the privatization of public infrastructure, including opportunities for getting assets in the host country, can have an impact on the private sector participation. Firms’ skill sets, knowledge and ability to overcome contracts are the additional influences. MNEs (multinational enterprises) from developed and developing economies, including ASEAN, are participating in infrastructure enlargement in the region through contractual arrangements, whether as engineering, procurement and construction (EPC) subcontractors or contractors. They also construct, invest, control and manage infrastructure assets. Concessionary arrangements and contracts, a conformation of NEM, are becoming the primary features of MNEs’ participation in the infrastructure development in ASEAN.

Regional players and intraregional corporate investment

Companies from ASEAN Member States have been actively investing and expanding regionally too – a tendency more noticeable a few years ago (AIR 2014). ASEAN companies that made regional investment in selected activities in 2014-2015 cover the following:

TOA Paint (Thailand), which has already operations in other ASEAN Member States such as Malaysia, Lao PDR, Myanmar and Vietnam, is planning to enlarge operations to Indonesia and Cambodia later in 2015. The target is to enlarge the company’s production base regionally and to be ready for the AEC. Other Thai companies are also expanding in the region in 2014.

They cover Saha Group in Myanmar, Siam Cement in Lao PDR and several Thai banks. Thai Oil, a refinery company of PTT (Thailand), is planning to spread out in Myanmar and Indonesia with new refinery capacity. Parkson, a subsidiary of the Lion Group (Malaysia), has been expanding in ASEAN. With fourteen stores in Indonesia, one in Myanmar and nine in Vietnam, Parkson has opened its first store in Cambodia later in 2015. The company opened a store in Indonesia in 2014 and another in Vietnam in January 2015, and it plans to open more stores in this area.

Wah Seong (Malaysia), through its subsidiary in Cambodia, is investing to construct a biomass power plant. It signed a power purchase agreement with Baitang Plc (Cambodia) in December 2014. The plant has started functioning in 2016. The corporation also expanded its business portfolio regionally in 2014, when it ventured into a river port business in Myanmar. The company plans to enlarge the port services, including constructing more storage tanks and a fabrication yard to help customers operating in the Thilawa SEZ. Keppel Land (Singapore) is expanding its foothold in real estate operations in ASEAN and further afield. In ASEAN, it is constructioning Phase 2 of the Saigon Centre in Ho Chi Minh City (Vietnam) as well as Phase 1 of the International Financial Centre Jakarta in Indonesia, which was completed in 2015, with Phase 2 to be completed by 2020.

The corporation is developing Phase 2 of its SM-KL Project in the Philippines and has acquired a 40% stake in a joint venture to advance the Junction City Office Tower in Yangon (Myanmar). Sembcorp in Singapore is structuring an industrial estate and integrated port in Indonesia and have already won a deal in 2015 to operate and develop a US $300 million, 225 MW, gas-fired power plant in Myanmar.[48] The corporation also started to construct its seventh Vietnam Singapore Industrial Park in Nghe Province in 2015. ASEAN insurance companies and banks have been making enterprise extension or new investments in the region. Many of the top twenty ASEAN banks, which had combined assets of US $2.1 trillion in 2014, expanded their operations regionally in 2014-2015. [49] Moreover, to Thai banks such as Kasikorn Bank, Bangkok Bank and Siam Commercial Bank, other ASEAN banks, including OCBC (Singapore), United Overseas Bank (Singapore), Maybank (Malaysia), RHB Capital (Malaysia) and CIMB (Malaysia), also expanded activities in other ASEAN Member States in 2014 and 2015. Vietnamese banks are also expanding in nearby ASEAN Member States.

These companies include the following:

  • Malaysia – CIMB, Gadang Holdings, Johor Corporation, SapuraKencana, Felda Global Ventures, Parkson, YTL and Top Glove
  • Indonesia –  Pharma Healthcare and Sinar Mas
  • Singapore – Jackspeed Corporation, LMIR Trust, Polaris, Boustead, Fraser and Neave, E-Power, Tembusu Industries and DBS, Wilmar, CapitaLand, Jubilee Industries
  • The Philippines –  JG Summit and Xurpas
  • Thailand – Electricity Generating PCL, Siam Cement, Bangchak Petroleum, Power Buy and B. Grimm Power

The importance of infrastructure to ASEAN

Infrastructure plays a significant role in the region’s social, economic, environmental and connectivity development. It is the spine of the economy of all the ASEAN Member States and is the main driver for realizing the ASEAN Economic Community. Countries in the region keep up to develop infrastructure for providing reliable services to businesses, households and industries. They identify the importance of infrastructure for supporting development and alleviating poverty.

Each ASEAN Member State has important infrastructure development plans; the question is how to implement these plans in the interval earmarked and to attract private sector participation. The value of infrastructure for supporting economic development, increasing competitiveness, improving quality of life and ensuring general access for all cannot be emphasized enough. Some proof indicates that the providing of sufficient infrastructure in services such as telecommunication, electricity and transportation can help lift GDP and tie together each Member State nationally and regionally as well as internationally (through land ports, transport and airports).

Greater connectivity of transport infrastructure enhances logistical productivity and supports the development of commerce, trade and investment. The deficiency of sufficient infrastructure has held back the economic development of some Member States, such as Lao PDR, Cambodia, Myanmar and Indonesia. With sufficient infrastructure, it is estimated that Indonesia’s GDP could develop at a rate between 7% and 9% annually, instead of the contemporary rate of 6% to 6.5%. [50] The overcrowded ports and the poor connectivity between the country’s islands have led to high logistics costs of about 24% of GDP, as compared with only 16% in Thailand.  If logistics costs could be brought down to 16% of GDP with improvements in nationwide transport infrastructure connectivity and marine logistics, Indonesian government, businesses and households could keep about US $70 billion to US $80 billion a year in logistics costs.

The study establish that better infrastructure can have clear impacts on poverty levels and income in the countries in the Greater Mekong Subregion. These countries are likely to practice the grow in GDP between 1.1% and 8.3%, with the highest increases in Lao PDR, Cambodia, Myanmar, Vietnam and Thailand. A deficiency of infrastructure increases economic costs. The study estimated that congestion in metropolitan Manila would lead to US $54 million in economic costs per day.  In Lao PDR investment and development in power plants over the years have expanded the providing of electricity to reach more houses. The access to electricity by household has increased from only 16% in 1995 to more than 70% today. Many of the power plants in Lao PDR built and owned by foreign investors export electricity to nearby countries. Investment in infrastructure can also create additional employment in a country. The enlarge of infrastructure investment equivalent to 1% of GDP could create an additional 700,000 jobs in Indonesia.[51]

Infrastructure investment needs in ASEAN are large, estimated to be about US $110 billion per year through to 2025. It is possible to encounter this need from resources held mainly by the private sector. Various studies have estimated the region’s infrastructure investment needs, which limits are from about US $60 billion to US $150 billion per year for different following periods and coverage of ASEAN Member States. UNCTAD has estimated that the area would need at least US $110 billion in annual investment in transport, power, telecommunication, and water and sanitation for the next decade. This approximate excludes investment needs for cross-border regional connectivity projects.[52]

3.2. Current situation of Chinese investments in ASEAN countries and the main investment funds operating in ASEAN

The Chinese players act not only as contractors, but also invest in, own and control infrastructure. Some of them have a wide regional presence through subsidiaries and contracts. In 2014, sixty-two Chinese companies were among the main 250 international contractors in terms of revenues, and a bulk of these companies are in or expanding their operations in ASEAN.

The finance, infrastructure and hospitality industries were the target of M&A purchases by ASEAN companies in 2014. Some of the cross-border M&A deals made by ASEAN companies exceeded US $1 billion. These mega deals were dominated by Singapore companies, which made two such deals in Hong Kong that averaged more than US $5 billion each of them. Government-linked companies and Sovereign capital funds based in the area were also dynamic in cross-border M&As. For example, Temasek (Singapore) acquired three oil blocks in the United Republic of Tanzania for $1.3 billion and a 25% share in Watson Holdings (Hong Kong, China) for US $5.7 billion. Other private companies from Malaysia, Singapore, Thailand, the Philippines and Indonesia also made important M&As abroad in various industries. OCBC (Singapore) bought 97.8% of Wing Hang Bank (Hong Kong, China) for US $4.8 billion. JG Summit Holdings (Philippines) purchased NZ Snack Food Holdings (New Zealand) for US $608 million. St James Holdings (Singapore) bought Perennial Real Estate Holdings (China) for US $2.8 billion. RGE (Indonesia) acquired Sateri Holdings Ltd-Viscose fiber assets (China) for US $863 million.[53]

Chinese investments in certain countries

FDI flows into Cambodia increased by 35% in 2014 and reached the number of US$1.7 billion. China remained the largest investor, followed by Hong Kong (China) and ASEAN. These economies accounted for about 60% of FDI inflows to the country last year. Chinese companies were the largest manufacturing investors, accountable for about 46% of FDI into that industry.[54] Some Chinese companies are relocating their operations to the host country because of the increasing of manufacture costs there. More foreign companies, particularly Asian MNEs, are also opening factories in labor-concentrated industries such as garments. Investments in agriculture activities in Cambodia were also numerous and were dominated by ASEAN, in particular Vietnam. Malaysia was an important regional investor in finance. ASEAN companies were also the largest investors in the construction sphere and real estate in 2014.

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Chinese companies continued to control in the infrastructure sector. China National Heavy Machinery Corporation (CHMC) started functioning of the US $540 million, MW Tatay River hydropower plant in 2014. It will merchandise electricity from the plant to the State-owned Electricity of Cambodia for forty-two years. Smart Axiata, a subsidiary of Axiata (Malaysia), expanded the 4G LTE network in Cambodia in 2014. South East Asia Telecom Group (China), through its subsidiary in Singapore, announced plans to enlarge in Cambodia in 2015, with a US $400 million investment in telecommunication infrastructure. It has already invested US$100 million in upgrading the Cambodian subsidiary’s networks.

FDI into Lao PDR rose by 113% to US $913 million in 2014. Infrastructure still remained as the leading target sector. Investment in SEZs also rose in the same year. Some two-thirds of FDI in 2014 came from China. More than 90% of Chinese FDI in Lao PDR was in the infrastructure sphere, 73% (US $420 million) of which went to power production activities.[55] Some companies like China National Heavy Machinery Corporation, China Huadian and China Electric Power Technology Import and Export Corporation are the structure power plants with expected commercial functioning dates in 2015.

FDI flows to Myanmar decreased, from US $2.6 billion in 2013 to less than US$1 billion in 2014. This decrease was not announced by media reports and company news; moreover, they indicated the growing of investments in Myanmar recently, including some big projects. According to statistics, about 44% of FDI in 2014 was in storage and transportation sphere, which was and still is the individual largest recipient industry. Chinese companies are still the largest investors in infrastructure projects and in extractive industries. For example, Zhejiang Orient Engineering was structuring a hydropower plant, which was completed in 2016.

FDI to Vietnam increased from US $8.9 billion in 2013 to US $9.2 billion in 2014, induced by an important arise in investment from the Republic of Korea and Hong Kong. These two economies together with ASEAN were the three largest investors in 2014, contributing 66% of FDI. FDI in manufacturing rose significantly, accounting for 71% of total inflows, as an effect of the rise in Korean investment.[56] Manufacturing FDI from ASEAN, Hong Kong and Japan was also important. Real estate and construction were the second and third largest recipients of FDI inflows, and also rose significantly, the former to three times and the latter to five times the level of 2013.

China has been announced to enter the top ten list of foreign investor in Indonesia since 2014. [57] As in many other countries, China’s main concern in Indonesia is in its mining sectors and energy. More than half of its investment has been directed to extractive industries. The Indonesian government welcomes Chinese hard cash; resource-rich countries are competing for capital amid the worldwide economic slowdown and commodities decline. Actually, China is also suffering from the downturn. The unfettered require of the commodities that we saw few years ago might be tempered significantly.

Little more than a ten years ago, China was a relatively unimportant actor in worldwide investment and finance. By 2014, China became the second largest worldwide investor, second only after the United States. Outbound investment has been made possible due to powerful backing from the Chinese state and financing from its policy and commercial banks. China has more power due to foreign financial institutions such as the Asian Development Bank and the World Bank. However, it has also grown increasingly frustrated with the dominance of developed nations and the restricted role of emerging economies within the control and direction of these institutions. In response, China has promoted the foundation of new institutions and initiatives, including the multilateral Asian Infrastructure Investment Bank (AIIB).

Chinese Investment Funds Operating in the ASEAN Region

Asian Infrastructure Investment Bank (AIIB)

The foundation of the Asian Infrastructure Investment Bank represents the biggest improvement of worldwide multilateral finance for years. China announced its plans for founding the bank in October 2013, and a year later twenty-one Asian countries signed a memorandum of arrangement agreeing to join.[58] By April 2015, fifty-seven countries had signed on becoming its founding members. The AIIB’s initial authorized capital is US$100 billion, but this number may grow in the future.[59] China holds the largest number of shares, approximately 30%, and controls over 26% of the voting share.  [60] The bank will concentrate on financing the infrastructure sphere and “other productive sectors” in Asia, with the goal of fostering sustainable economic development, creating prosperity and improving infrastructure connectivity in Asia. [61] The bank announced its first several projects in April and May of 2016.

AIIB Membership

Fifty-seven nations signed on becoming the founding members of the AIIB. Other nations still has an opportunity to join the bank, but they will not have the reputation as founder members, which are entitled to additional votes. The membership has two types: regional and non-regional members. Although new members can join the bank and existing members can enlarge their shareholding, the whole shareholding of regional members may not be lower than 75%.[62] According to the words of the AIIB president, up to June 2016, a further thirty countries were on the waiting list for joining.  A deadline for new applicants has been set down as September 30, 2016, and the bank expects to allow new members to enter from early 2017.

All ten ASEAN countries have become the founding members of the AIIB. Several leaders and senior officials from these countries have expressed their eagerness about joining the bank and have made several community statements about opportunities for the developing of the bank in order to support the development in their individual countries. The first amount of projects were announced by the AIIB, which have included one project in the ASEAN region: a slum upgrade project in Indonesia. With the growing of bank’s portfolio, it will seek to the opportunities for enlarging further in Southeast Asia. In May 2016, President Jin said to the media that he planned to visit Myanmar later in the year.[63]

China holds approximately 30% of the bank’s shares and over 26% of the voting shares. Russia and India are the second- and third-largest shareholders, respectively. Under the Articles of Agreement, main decisions require a supermajority of two-thirds of votes of all governors, representing no less than 75% of whole shares. As China holds over 26% of votes, it has the power to use a veto over certain decisions. During a press briefing, Deputy Finance Minister Shi Yaobin stated that China would not search for some opportunities to preserve this veto power, and as new members join the bank in the future, China’s share of votes will be diluted. [64]

As we can see from the chart, China’s voting share at the AIIB is much bigger than any other member`s, and even bigger than the combined share of Russia, India, Germany, Australia and South Korea, which are, by the way, next five biggest shareholders.

China has also stressed that the AIIB would complete the work of the existing multilateral financial institutions, rather than act as an opponent. The AIIB’s Articles of Agreement states that the bank will have close business relationships with other international financial organizations and institutions that involved into the economic development of the area.[65] Because of the fact that the bank is a new institution and still needs to mobilize a full staff to manage operations, the AIIB has to classify opportunities to co-finance projects with the institutions that were established before.

 At the time of writing, three of the bank’s five approved projects co-financing. In the first half of 2016, Asian Development Bank, the World Bank, European Bank for Reconstruction and Development European and Investment Bank signed agreements with the AIIB to examine opportunities for co-financing. As it was mentioned earlier, the AIIB has already approved co-financed projects with UK Department for International Development, the Asian Development Bank, World Bank and European Bank for Reconstruction and Development.

According to the information of the Asian Development Bank, Asia requires US$8 trillion in infrastructure investment between 2010 and 2020[66]. The ASEAN region alone requires US$60 billion in the investment sphere per year in road, rail, power, water, and other critical infrastructure.[67] In 2014, the World Bank provided approximately US$24 billion to the infrastructure sphere globally, [68] whereas the Asian Development Bank provides US$13 billion annually to infrastructure projects in this area. [69] Given the restricted funding capacity of existing foreign financial institutions, it is unsurprising that Chinese-led finance initiatives and institutions have been greeted so enthusiastically by the governments of many developing countries.  Moreover, China-ASEAN Investment Cooperation Fund (with the budget of US $10 billion) and the ASEAN Infrastructure Fund (US $485 million) were formed. The Association also expects to receive funding from the Asian Infrastructure Investment Bank.

China has also established investment funds such as the Silk Road Fund (丝路基金) in order to provide further capital to outbound investment.

The US$40 billion Silk Road Fund was established in December 2014 with the aim of promoting the “common prosperity and development of China and other countries and regions implicated in the Belt and Road Initiative.” [70]

The Silk Road Fund focuses on four broad areas: Resources and energy development, infrastructure, financial cooperation, industrial capacity cooperation.

The fund works with Chinese and foreign enterprises and financial institutions mostly through equity investments, but it can give loans and create new funds in partnership with other Chinese and international institutions. In June 2016, the fund signed an agreement with the European Bank on Reconstruction and Development. Within this agreement, the two sides agreed to push up collaboration and inform each other about future possible co-investment opportunities. According to the Silk Road Fund’s Articles of Association, it will concentrate on “major infrastructure development projects and other projects that can upgrade connectivity in this area.”  Senior Chinese officials have stated that the fund would operate in an equivalent way to a private equity fund, although it will invest for longer terms. The Governor of the People’s Bank of China has compared the fund with the International Finance Corporation. [71]

The China Development bank provided 5% of the Silk Road Fund’s primary capital, and it has definite funds for ASEAN infrastructure investment. For example, in 2014 Chinese Premiere Li Keqiang pledged US$20 billion to uphold connectivity between China and Southeast Asia. This included an advantageous loan for US$10 billion to ASEAN members and a US$10 billion specific loan set up by the China Development Bank for regional infrastructure development.[72]

The fund’s first project was the Karot hydropower dam in Pakistan. The fund afterwards signed MOUs with various state-owned banks and funds, acquired fairness in several companies, and supported Chinese state-owned firms to list on the Hong Kong Stock Exchange. The fund has only been operational for a short period of time, but the agreements and investments it has already finalized offer a suggestion of how the fund is likely to concentrate its activities in the future. In a meeting in April 2016, the Silk Road Fund met with Cambodia’s Minister of Foreign Affairs and discussed ideas for collaboration.[73] Now there is no investment projects, which are highlighted with the ASEAN countries, but there is a start of the collaboration between these countries and the Silk Road Fund.

China-ASEAN Investment Cooperation Fund

The China-ASEAN Investment Cooperation Fund received the agreement of state in 2013. China’s State Council guide this fund.  It targets investments in energy, infrastructure and natural resources in ASEAN countries.

China-ASEAN Investment Cooperation Fund Investment Areas

Source: China –ASEAN Investment Cooperation Fund. (date of access: 01.04.2017)

The fund’s task is to increase returns for investors and strengthen collaboration between ASEAN and China in order to enable mutual development. As can be seen above, the fund seeks to encourage investment in sectors almost identical to those targeted by the AIIB, and the chief executive of the fund has referred to the fund as a predecessor of the One Belt One Road initiative.[74]

As discussed throughout this paper, in promoting outbound investment, China aims to address infrastructure gaps, while also promoting its broader financial and strategic goals. In the example of the China-ASEAN Investment Cooperation Fund, this includes deepening collaboration between China and ASEAN. The fund uses frequent language of “mutual” development when describing its operations. For example, when announcing the fund’s investment in a potash mine in Laos, the chairman stated that the project was strategically consequential for the host country, while also supporting Chinese companies ‘going out’ and addressing the potash provide deficit in China.[75]

As well, an investment in digital TV Cambodia was described as a chance to upgrade nearby technology, while also opening the Cambodian market to Chinese investors. The China-ASEAN Investment Cooperation Fund was established with a primary US$1 billion, but has a goal of raising it up to US$10 billion. The China Eximbank led the creation of the fund and was the most important sponsor, contributing US$300 million of its starting capital. The World Bank’s International Finance Corporation holds fairness in the fund and contributed US$100 million (or 10%) of the stage one funding. [76] Several other institutions, including the China Investment Corporation and Bank of China, have a stake in the fund and its operation.

The CEO of the fund is Li Yao, former principle investment officer at the International Finance Corporation’s Asia and Pacific division.  The fund’s typical investment size is US$50-100 million, and it mostly invests through equity deals.  At least 20% of its first phase funds were allocated to investments in Indonesia.[77] According to the fund’s CEO, over 30% of the outstanding investment went to Myanmar, Cambodia, Vietnam and Laos, the other part spread across Southeast Asia.[78] During its first stage, the fund invested in eleven projects. Unfortunately, the fund’s website provides only summaries of the investments, with restricted project details, and no information on the terms or value of each investment.

First Phase Investments (up to May 2014)

The second stage of funding will be in place within the next two years, and China is seeking to elevate an additional US$3 billion. Within ASEAN, the fund will target its future investments on mainland Southeast Asia and Indonesia. According to the official source, there is no information about the second stage yet.

In compare with many other investment funds, the China-ASEAN Investment Cooperation Fund claims to have a set of “core values” that lead its investments. These stated values cover sustainable development and social responsibility. The fund also states that it specializes in sustainable investments that not only carry financial development to the investee company, but also important values to the community. However, as it was acclaimed above, the fund is targeting several very high-risk areas, including energy, mining and agro-industry. In the agriculture sector, the fund specifically highlights pulp, palm and rubber – all of which are associated with strict environmental and social impacts across the ASEAN region. Due to the high-risk nature of these investments, appropriate environmental and social policies are critical.

In order to protect the International Finance Corporation’s investment, the fund was required to put in place an social and environmental management system and ensure that the International Finance Corporation’s Performance Standards are applied to the fund’s investments. One of the stated objectives of the International Finance Corporation’s involvement was to pressure the fund to carry out the Equator Principles (which mirror the Performance Standards).

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The China-ASEAN Investment Cooperation Fund has established what it describes as a inclusive social and environmental management system, and claims that this system is an basic process of the investment team’s selection and evaluation of investment opportunities.

In July 2014, the fund issued the Social Responsibility and Environmental Protection Guidelines for Investments in the ASEAN Region. The guidelines were issued and drafted jointly by the fund and the ASEAN-China Centre, a data center set up by ASEAN member states and China. All projects and companies, that accept investment from the fund, are required to “accept and execute” the guidelines. Additionally, Chinese companies operating in ASEAN are encouraged to “refer” to them.[79]

The fund does not appear to have established a complaints instrument to help insure responsibility to the Performance Standards, despite the foundation of such a mechanism being a demand of International Finance Corporation policy.  [80] Thus, if project-affected people suffer damage from fund projects, they do not appear to have access through a formal mechanism. However, because of the International Finance Corporation’s 10% stake in the fund, they can submit a complaint to the its accountability instrument, the Compliance Advisor Ombudsman, and undertake to have their grievances addressed through its compliance review or debate resolution functions.

The One Belt One Road Initiative

 The main initiative that has emerged from China lately is One Belt One Road. This refers to a progress strategy announced by President Xi Jinping in 2013 that seeks to enlarge interconnectivity between China and numerous other countries en route to Europe. One Belt One Road seeks to encourage and facilitate development of energy, transport, trade and communications infrastructure, among other things.

Since the initiative was announced, there has been much theory about how it would be implemented, what projects would be included, how they would be financed and developed, and even which countries are included in the One Belt One Road route. Despite there being overlaps in geographical and sectorial concentration, the initiative is particular in compare with the AIIB. Rather than being an actual plan or single finance facility, One Belt One Road sets out an overall vision for China’s worldwide investment in the coming years. While it is packaged as a new initiative, it is in actuality a continuation of China’s on-going push to expose regional connectivity and trade routes, upgrade the international presence of Chinese companies, and enlarge access to worldwide markets. In this sense, it can be seen as the next step of China’s Going Out strategy.

Although One Belt One Road was announced in 2013, the Chinese government did not release any official documents on the initiative until March 2015, and there are still substantial information gaps. This part of the paper looks at what is currently known about this initiative, and how this relates to the ASEAN region.

ASEAN nations fall within the Bangladesh-China-India-Myanmar Economic Corridor and the China-Indochina Peninsula Economic Corridor. The OBOR Vision stresses the significance of southwest China as a gateway that connects with both the land and oceanic Silk Road routes. The document includes definite reference to linking Yunnan province to its neighbors, Laos, Myanmar and Vietnam, as part of a “pivot of China’s opening-up to South and Southeast Asia.” China’s foreign minister has stated that to facilitate this, the initiative can align with both individual and regional ASEAN members’ development strategies in order to encourage regional collaboration and development.  President Xi Jinping has also promoted One Belt One Road on state visits to Singapore and Vietnam, emphasizing that the initiative will push up bilateral ties and facilitate investment and trade between China and Southeast Asian nations.[81]

Chinese local governments are also actively promoting the initiative. Because of its location, China’s Guangdong province has a particular concentration on the ASEAN area. The province has selected several projects, in which they are going to support the initiative. This includes a power plant project in Vietnam, a five million-ton oil-refining project in Myanmar, and several banana plantations elsewhere in Southeast Asia.[82]

Cambodian Prime Minister Hun Sen said: “[One Belt One Road] is synonymous with openness, peace, incorporation and common agreement. All the countries alongside will have only advantage from it. This offer shows China’s determination in boosting the interconnection of countries and the exchange among the people.”[83] Senior officials from other ASEAN nations, including Vietnam, Thailand  and Myanmar, have also expressed powerful support for the initiative.

Despite this help, the initiative is complicated by the attendance of important maritime disputes in the South China Sea, especially China’s often strained disputes with the Philippines and Vietnam. However, One Belt One Road has been publicly welcomed by ASEAN officials and ministers from various nations. For example, the Chinese state media outlet Xinhua quoted one Lao authorized as saying that thanks to the initiative and the planned China-Laos railway, Laos will modify from a land-locked country into a “land-linked” country.[84]

In addition, as one of the first projects launched within One Belt One Road initiative in Laos, China’s Yunnan Provincial Energy Investment Group opened a factory to manufacture cement specifically for the China-Laos railway and other important infrastructure projects under the initiative. [85] There is nothing new about China’s fancy to work with surrounding countries to bring out infrastructure connectivity, and many cross-border projects have already been developed or were under conversation or in construction at the period the initiative was first announced. However, One Belt One Road is likely to introduce renewed energy to these efforts. Several main projects have recently been signed between China and governments in this area, including multibillion-dollar railway projects in Indonesia and Laos. Although they have been planned for some time, these projects are being referred to One Belt One Road initiative and highlighted as beginning successes of the initiative.

What does China do?

China already plays a main role in the development of energy, transport and telecommunications infrastructure in Southeast Asia. China is one of the main investor in Laos, Cambodia and Myanmar, while investment in Thailand, Vietnam, Indonesia and Malaysia is also important and also increasing. All ten ASEAN nations signed on as members of the AIIB, moreover, the area also lies within the One Belt One Road initiative. This situation has also increased the access to infrastructure financing, which is likely to have an important effect across the ASEAN region.

China’s relationship with some ASEAN nations is complicated by the presence of unsettled territorial disputes. At the same time, President Xi Jinping is earnest to support the concept of the “China-ASEAN Community of Common Destiny.” One Belt One Road, the AIIB and other financial initiatives are seen as a way to upgrade financial and diplomatic collaboration with the regional association. China’s foreign direct investment in ASEAN is growing each year, and according to China’s authorized statistics, official investment flows reached almost US$7.8 billion in 2014.[86] ASEAN is very important to the AIIB and One Belt One Road. All ten members are also members of the AIIB, and the One Belt One Road passes straight through ASEAN.

Senior officials and numerous leaders from ASEAN countries have publicly promoted the possible benefits of the One Belt One Road and the AIIB initiative for their own nations. In particular, regional integration is seen as a main precedence and a likely goal for infrastructure financing next years. Within the framework of Greater Mekong Subregion collaboration, various institutions look for supporting the implementation of projects in areas including energy, transport, telecommunications, trade, agriculture and private sector investment. Project pipelines are developed by single nations and financed by various institutions, including Asian Development Bank and the World Bank, but also Chinese policy banks and other investors. The multilateral Chinese policy, AIIB and commercial banks, and investment funds are all likely to uphold projects supporting integration of the area in the coming years.

The institutions and initiatives, which were  discussed here, could potentially rapid an influx of capital to the area, supporting a more quick roll-out of regional infrastructure investment, and contributing to enhanced connectivity. Besides, without sufficient safeguards, transparency and oversight, the benefits will be balance out by contradictory impacts on people and the environment. Civil society groups can play a significant role in engaging and monitoring with these new developments.

3.3. Current situation of Indian investments in ASEAN countries

India has signed the free trade agreement (FTA) in services and investments with the 10-member of ASEAN, two years after the discussions the pact was  concluded.

Foreign direct investment net inflows in ASEAN from selected partner countries/regions

Source: ASEAN Foreign Direct Investment Statistics Database. Date of access: 01.04.2017)

Over the previous decade, India has invested immensely in strengthening its financial and strategic ties with Japan, Southeast Asia and South Korea. The Narendra Modi government has sought to consolidate relations with Japan and Southeast Asia, while Washington has supported a greater part for New Delhi in the Indo-Pacific area. Washington has supported a greater role for India in the India-Pacific district as an economic player, asking New Delhi to help in improving the connectivity between India and Southeast Asia through the Indo-Pacific Economic Corridor, which will tie the country with Southeast Asia through Bangladesh and Myanmar.

While India has all the right ingredients to succeed (powerful demographics, a big domestic market), many obstacles stay behind. Its cumbersome business atmosphere, poor infrastructure and restrictive FDI policy can put off foreign investors.

For an aspiring financial superpower, large electric-grid default in August of 2012 that left 700 million people without electricity for days defectively damaged India’s reputation. Moreover, power cuts are hardly uncommon in India. “There is great need for infrastructure upgrading, and the deficiency of it has been a real hamper on international investment in India,” Pepper Hamilton’s Demont said. [87]

In an attempt to counter judgment, Indian Prime Minister Manmohan Singh laid out aspiring infrastructure development plans in June 2012. Under the scheme, US $1 trillion will be invested over the next five years to repair the country’s infrastructure.[88] Actually, this scheme was realized, but the infrastructure in India still needs to be improved.

However, the deficiency of talent is a main issue. “When the Indian government says ‘we need to construct 2,000 miles of roads today,’ the difficulty is, they don’t have the engineers in India to do that,” Pepper Hamilton’s Demont said.[89]

India has an elite-based higher education institution structure. The country produces brilliant graduates in several of top universities, but as a outcome of that elite-based structure, there is a deficit of highly educated labor. While a lot remains to be done, reforms are gathering speed, albeit slowly. One of the large areas of concentration has been the retail sector, which has opened up significantly to more foreign investments both for individual-brand and multi-brand retail.

“While China is well ahead, India is slowly but truly catching up,” Pepper Hamilton’s Demont said. “In the extensive race, there is value there, and India is emerging as one of the largest consumer-based countries on the planet with a growing and wealthier middle-market level, which has spending power and wants to expend.”

When we are talking about international investments in India, it is very hard to talk about its investments in ASEAN countries. The commerce between India and ASEAN is increasing every year, but India has many problems to figure out. While the infrastructure in India still needs many improvements, its investments into ASEAN countries will be prolonged.

However, there are still several steps that India is trying to do for India-ASEAN relations` upgrading. While Vietnam and China have suffered through late tensions, particularly over the South China Sea, India has sought to encourage strategic ties with Hanoi – including a US $500 million defense credit offered during the Modi’s visit to Vietnam in the first week of September. From this, US$ 100 million would be used for structuring patrol boats.  It was also definite that India would further grow assistance with military training.

What does New Delhi do?

First, India should keep up to woo Myanmar, Cambodia, Laos and Vietnam — countries which for too long were on the margins of ASEAN, but today are drivers of development and main economic players.  Apart from India’s pro-active strategic and economic outreach to these countries, it is significant that India focuses on strengthening connectivity and trade ties. Projects such as the India-Myanmar-Thailand highway need to be accelerated; extending it to Cambodia and Vietnam will help in strengthening India’s Act East Policy, as well as support projects like the Indo-Pacific Economic Corridor.

Second, while India may be not a competitor for China regarding investment and bilateral trade, India should construct on its strengths in areas like capacity building and in helping to create an unwasteful private sector. While India has been assisting Myanmar, Cambodia, Laos and Vietnam in IT, English language training and agriculture, it should enlarge the number of scholarships for students from these countries. There is also need to improve people-to-people connection and construct on historical links.

Third, India needs to confirm the relationship with countries like Indonesia and Thailand. Where there is a sizeable amount of goodwill, this has not been converted into closer ties in the economic and tactical sphere. While Malaysia, Singapore, Cambodia, Laos, Myanmar and Vietnam have been given high precedence, there is a dire need to confirm the relationship with Bangkok and Jakarta. There is a need for greater involvement of the political guidance in the same.

India has definite strengths in ASEAN, and while discovering common ground in the Indo-Pacific is one viewpoint of the Act East Policy, the contemporary government needs to make its own niche and play to its abilities without being disproportionately obsessed by the China factor.

CHAPTER 4. RIVALRY BETWEEN INDIA AND CHINA IN THE FIELD OF FOREIGN TRADE WITH ASEAN COUNTRIES

India and China both are rising as big powers, their complementary relationship will have a important impact not only on Asia, but on the whole world. Currently, the character of their relationship is something mixed: growing collaboration in the area of trade and commerce along with distrust and common suspicions in the strategic fields whether geographical or political. For these evident factors, the future relationship between China and India can be characterized by the collaboration in those fields whether mutual, regional or international, which may be beneficial for the peaceable arise of both these states and confrontation, struggle, and even hostility in some other areas where the respective interests of both the giants conflict with each other, for example, the border issue, relationship with other countries particularly Pakistan and US, their encirclement policies, nuclear arms race, striving for energy resources, etc.

However, at the international level, both countries would find convergence of interests by cooperating with each other solving the issues like climate change, international terrorism, reducing dependence of developing countries on developed countries, restructuring of international institutions, taking union stand on human rights issues, promoting multipolar world structure, and on some other problems.

4.1. Partnership between China and India

India and China had close relationship from 1949 onwards. Their cultural connection was termed as Hindu-Chini Bhai Bhai. From 1962 to 1969, relations were not developing because of border dispute. The period of rapprochement started in 1988, based on long-term advantageous and cooperative partnership on the base of “Panchsheel or Five Principals of Peaceful Co-Existence” that was based on Jawaharlal Nehru’s vision of “Resurgent Asia.” Narendra Modi had visited China for four times as the Chief Minister of Gujarat. Chinese President Xi Jinping’s  visit to India ion 2014 was the first visit as a Chinese President to India in last eight years. During his visit, Xi Jinping, in a special address on September 18, 2014 stated, “China supports India’s desire to play a more energetic role in the UN, as well as the UN Security Council.” 

Narendra Modi is a supporter of the “Chinese Model of Economic Development”, his government has initiated a program to change India into a “Global Manufacturing Hub.” Xi Jinping considers China and India as “the two engines of the Asian economy”.

According to an article in the Times of India (March 2, 2014), India’s trade with China was about US $7 billion in 2004, US $38 billion in 2008 and US $65 billion in 2013. [91] Both states name their trade relationship as “South to South Trade” and both have gained a goal of US $100 billion by 2016. Both are founding members of BRICS. The United Arab Emirates was India’s biggest trading partner in the 2012-2013 fiscal year; however, China emerged as its biggest trading partner in 2008, 2011 and 2014.

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India is a member of Bangladesh–China–India–Myanmar (BCIM) Forum for Regional Cooperation, which aim is to gain greater integration of trade and investment between these four countries. The forum plans to build a “multi-modal corridor” which will be the first expressway between China and India and will pass through Bangladesh to Myanmar. The projects Maritime Silk Road (MSR) and Silk Road Economic Belt (SREB) are the resurrection of age-old ties among China, India and the states along the road. Both states are members of the Regional Comprehensive Economic Partnership (RCEP).

4.2. Growing Rivalry between China and India

China and India are competitors for getting control and power in Asia, nevertheless, both have common goals of maintaining regional steadiness, taking advantages from globalization and maintaining access to markets and capital, fighting terrorism, taking union stand on climate change, issue of growth of nuclear weapons, etc. Further, mutual collaboration between India and China will be more productive in balancing U.S. influence in the region and also grow their negotiating placement with the sole super power.

Providing financial assistance to countries in Southeast Asia, India produces new markets for their goods, as well as favorable conditions for Indian companies to penetrate into the Southeast Asian region, which ultimately stimulates the growth of bilateral trade.[92] It is obvious that Southeast Asian countries are strategically important for India because of having a rich resource base and considerable scientific and technical potential base. In this region India pursues a policy of active technical assistance, financing infrastructure projects on the terms and conditions of grants and concessional loans. In addition, it also provides educational and advisory services, etc.

At the fourth ASEAN—India summit in Kuala Lumpur (Malaysia) 13 Dec 2005, the opening of special courses to improve the skills of the diplomats of the participating countries was announced. During the summit there were made constructional plans in Cambodia, Laos, Vietnam, Myanmar and centers of entrepreneurship development (Entrepreneurship Development Centers), that can assist the development of small and medium businesses, organize the English language classes and other disciplines, including through distance learning, etc. During the 8th ASEAN—India summit in Vietnam in October 2010, this center was opened in Hanoi.

India seeks to consolidate its presence in Southeast Asia by also providing financial assistance for the countries of the region in the development of their transport infrastructure, social sphere. For example, the government of India provides financial help to the Laos in the implementation of projects in the energy sector and restoration of architectural monuments, particularly the temple of the VI century Wat Phou, located in Champasak province, which was announced by UNESCO in 2001 as the world heritage site. In the 2000s, India provided the conditions of the grants of 100 million rupees to Vietnam for the construction of the Center for the development of information technology in Hanoi and 122, 07 million rupees for supporting the development of human potential in IT technologies in six educational institutions in Vietnam.[93] In terms of soft loans, India has undertaken construction of power lines, irrigation systems and water pumps in Cambodia.

 Indian financial help to the Republic of Indonesia is mostly allocated to the conditions of grants in the form of technical assistance[94], as well as elimination of consequences of natural disasters. For example, India was one of the first countries that provided financial assistance to Indonesia in the amount of US$ 1 million in connection with a massive tsunami in the Indian ocean that struck the island nation in December 2004. The Indian government has also allocated 40 tons of food, necessities and 3 tons of medical drugs and medical equipment. One of the ships was subsequently transformed into a floating hospital on the coast near Wanda Aceh [Price 2005]. It is notable that a significant part of the help was sent to the area of the city of Medan, where the majority of Indian Diaspora lives. After four months, India has contributed another US$ 2 million to eliminate the consequences of the earthquake that caused a significant damage to North part of the Sumatra 28 March 2005, a year later (in May 2006) US$2 million were contributed for liquidation of consequences of earthquake on Java island.[95]

A significant part of India’s financial assistance to Myanmar is contributing for liquidation the effects of natural disasters, and mainly on the conditions of the grants.

India’s policy of providing financial help to Southeast Asian countries clearly aims not only to consolidate India`s economic positions in the region, but also in a sense of spreading it to its geopolitical influence. This idea is supported by one of the leading American Professor of University of Pennsylvania Francine R. Frankel, noting that the conduct of the Indian government “Look East” policy aimed to actively develop bilateral ties with countries that have tense relations with China, which indicates a new round of India-China rivalry in Asia.

Actually, China`s financial assistance to ASEAN countries has the same form. Thus, Chinese Premier Li Keqiang was in Myanmar in November 2014 for the East Asia Summit, the China-ASEAN Summit, and the ASEAN Plus Three (Japan, China, and Korea) meetings. While in Naypyitaw, Li pledged US$20 billion in loans to Southeast Asia for regional infrastructure development. It is in addition to US$3 billion for the China-ASEAN Investment Cooperation Fund, which funds energy investments and infrastructure in ASEAN member countries, and US$480 million to help contend with poverty in Southeast Asia.[96] China also promised preferential treatment to ASEAN investors under an expanded China-ASEAN free trade agreement.

The financial push is a share of a scheme to encourage ASEAN member states that China’s arise is profitable for its neighbors and for the region as a whole. Several ASEAN members, most noticeably the Philippines and Vietnam, have long-standing territorial disputes with China, and Beijing’s late importance on maritime prowess has led to more clashes in the region.

China has also provided financial assistance for 3.6 billion Yuan (about US$560 million) for the developing member countries of the Association of Southeast Asian Nations in 2016 and has offered the loans amounted to US$10 billion for infrastructure projects in ASEAN countries.[97]

Although, there has been increasing collaboration between the two Asian giants in the economic, political or other fields in the past and is likely to continue so in the future, but the distrust, misperceptions, suspicion and hostility towards each other has not fully vanished and in future too. These features will characterize Sino-Indian relations along with collaboration. While India has always remained doubtful about China, the Chinese, on the other hand, remain doubting about India’s future course of action and policies. It will be not satisfactory for China to see India playing the role beyond South Asia or appear as an equal competitor to China. For example, India’s aspirations to play a more dynamic role in East Asia are not encouraged by China. China prefers that India remain in South Asia although, it plays lip service to the idea that India should be a main player in the worldwide affairs. India’s access to the ARF (ASEAN Regional Forum) was endorsed by the United States and Singapore and not by China.

A geopolitical rivalry for power and dominance in Asia is intensifying between India and China. China is Pakistan’s largest defense supplier. It is the most significant supplier of military aid to Myanmar. Recently, Myanmar has moved to advance commercial and strategic relations with India too. India considers itself as a regional powerhouse in South Asia. It is strengthening security and economic ties with Sri Lanka, Bangladesh, Nepal and Bhutan.

Both states are vying for investment. India has blocked Chinese investments in ports, telecom, and shipping due to safety concerns and made it hard for Chinese employees to get visas to work in India. India’s 2014-2015 trade deficiency with China was 55% of total China-India trade. Both states had agreed to invest US $100 billion in two-way trade by 2016, but China invested US $20 billion only. [98]

 However, in the short and medium term, neither side would do anything that would destabilize their contemporary bilateral economic or other relations. However, in the long term, there is chance of confrontations and even struggle between the two Asian giants over a number of issues, ranging from border issue to encirclement policies. Nevertheless, the size and nature of their rivalry will be resolved by how political, domestic and economic developments in these two countries affect their perceptions, their power, their security policies. It can be asserted and is possible that economically wealthy and militarily powerful China and India might come to terms with each other ultimately as their mutual containment policies start flexile diminishing results. Till then, both states would like to continue the status quo focusing on their political, economic, military and strategic development in future, keep the rivalry and competition as flexible and unprovokable as possible.

CONCLUSION

The relationship between India and China is based on three Cs: Cooperation, Competition and Conflict. It can be argued that there is a lot of potential for collaboration between China and India, which has brought both of these countries closer to each other. On the other hand, the strategic differences between them are so large that there is a bleak chance that their differences will be resolved entirely in the near future. India and China will remain two challengers in spite of their mutually beneficial economic associations. The only concern between them is economic cooperation.

International trade is logically and historically the first structure of the world economic relations in the global economy that represents an exchange of goods between nations. Due to this kind of nationwide relations, there is an opportunity to contact with other countries, borrow some knowledge and use some historical facts as the new chances for the countries in the process of building economic relations with other nations.

China – ASEAN economic relations have grown dramatically, benefiting from the energy of their economies, the liberalization of their trade regimes and the changes in their trade system. The increase of trade and investment relations has begun only in middle of nineties and it still continues growing fast. The main reason of this increase is the vitality of the Chinese economy and the economies of ASEAN countries. The export and import products in the trade between ASEAN countries and China is various. Due to the geographical neighboring with a long trade history, the economic ties between them became only stronger trough time. It is important to point out that ASEAN – China free trade area and the Belt and Road initiative give an additional force to keep the place of China in the top of the ASEAN partners list.

As to India, this country has been interested in ASEAN’ s plans with the aim to create economic and political relations with neighboring nations. ASEAN and India have increasingly supported promoted foreign investment, bilateral trade and strengthened diplomatic relations. The history of the relations between India and ASEAN countries began to develop actively only in nineties, and it is later than the beginning of relation between China and ASEAN for a decade. Following the implementations for the FTA, bilateral trade between India and ASEAN increases phenomenally. Now India became the key partner of ASEAN, and that is the result of India’s “Look East” policy of deepening not only economic relations with the countries of East Asia, but also the strategic relations in this area.

The service sector for both China and India has the same importance in the relationship with ASEAN countries; moreover, its quick development is approximately on the same level. Both countries pay much attention to infrastructure projects, transportation, IT technologies, etc. However, there are still a lot of problems that must be solved in the short period of time in order to bring the relations in service sphere up to the new level.

As to investment sphere, the biggest sector that needs a big amount of private foreign investment in ASEAN is infrastructure. Countries in the region keep up to develop infrastructure for providing reliable services to businesses, households and industries. Considering to China, Chinese players act not only as constructors, but also invest in ASEAN counties, own and control infrastructure. In order to get more power, China founded different investments funds for providing further capital to outbound investment , such as Asian Infrastructure Investment Bank , the Silk Road fund , China – ASEAN investment cooperation fund etc. All these initiatives are seen as a way to upgrade financial and diplomatic collaboration with the regional association. India also provide financial assistance to ASEAN countries, but, actually, India itself needs foreign investment for solving internal infrastructure problems, and it is difficult to confess that India is a competitor to China in this point.

If we are talking about the relationship between these two countries, it must be reiterated here, that the range of issues, confronting two countries are sufficiently diversified, so as to engender complex national strategies. In the biggest part of the cases, India and China will be faced with the duty of defending, deterring and reassuring each other simultaneously in the proximity of multiple actors, each with its own preferences, capabilities and constraints. In this situation, relationships between India and China will be defined more by struggle than by cooperation, but such struggle is unlikely to become malignantly rivalries, as U.S.-Soviet Competition was during the cold war. It is because, both China and India are still subordinate states in the global system, that deficiency untrammeled freedom of activity. They have sufficiently different strategic orientations in Asia that provide hope of avoiding unvarnished confrontations, and have defense capabilities wherein geography nuclear weaponry and conventional forces unify to bring out fairly robust defense dominance each other. If and when, these three conditions change, however, the stage would be set for serious dyadic rivalry. [99]

In the end, China-Indian future relations can be best summed up with the report of Jay Taylor which he made in the mid- 1980s, but remain related even today, especially in the second decade of 21st century. He said: Over the long term, India and China… will always tend towards a rival relationship and thus, each will look for a security link with a different super power… Both India and China want to keep away from war and focus on development…. Yet the changeable agents of nationalism and history make a mysterious chemistry…. Power and size carry with them their own rationale for status and influence, and both India and China may well find themselves drawn into future regional conflicts or perhaps intervening in neighboring countries because of some instability or action that is produced as threatening… the odds are that over the long term there will be more rivalry than cooperation between Hind and Hun.[100]

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Appendix 1

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China Export Partner Share (%)

Source: World Integrated Trade Solution (date of access: 01.04.2017)

Appendix 2

India Export Partner Share (%)

Source: World Integrated Trade Solution. (date of access: 01.04.2017)

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[2] IMF Directions of Trade. Various Issues.

[3] IMF Directions of Trade. Various Issues.

[4] The Ministry of Economic Development of the Russian Federation Data. – 2015.

[5] The Ministry of Economic Development of the Russian Federation Data. – 2015.

[6] Chinese Academy of International Trade and Economic Cooperation. – 28.05.2015.

[7] Overview paper of ASEAN-China dialogue relations, – January, 2016.

[8] Chinese Academy of International Trade and Economic Cooperation. – 28.05.2015.

[9] Overview paper of ASEAN-China dialogue relations. – January, 2016.

[10] Forging closer ASEAN- China economic relations in the twenty-first century./ ASEAN-China Expert Group on Economic Cooperation.- October, 2001.

[11] Zhang, Xiaoguang and Peter G. Warr, “China’s Re-entry to GATT: A General Equilibrium Analysis of Tariff Reduction”, China and East Asia Trade Policy, Pacific Economic Papers No.250, Australia-Japan Research Center, Canberra. (1995).

[12] World Trade Organization (2001). Trade Policy Review of Brunei Darussalam.

[13] World Trade Organization (1997). Trade Policy Review of Malaysia.

[14] World Trade Organization (1999). Trade Policy Review of Philippines.

[15] World Trade Organization (1999). Trade Policy Review of Thailand.

[16] The Ministry of Economic Development of the Russian Federation Data. – 2015.

[17] Overview paper of ASEAN-China dialogue relations, – January, 2016.

[18] Chinese Academy of International Trade and Economic Cooperation. – 28.05.2015.

[19] Chinese Academy of International Trade and Economic Cooperation. – 28.05.2015.

[20] China – ASEAN trade to bloom on new target// Xinhua.- 10.10.2013.

[21] Sampa Kundu. India’s ASEAN Approach: Acting East// The Diplomat.-08.04.2016.

[22] World Integrated Trade Solution URL:http://wits.worldbank.org/CountryProfile/en/Country/CHN/Year/LTST/TradeFlow/Export/Partner/all (date of access: 01.04.2017)

[23] India and ASEAN Member Countries Set to Strengthen Economic Ties in 2016// India Briefing.- 29.01.2016

[24] India–Myanmar–Thailand Trilateral Highway: An Investment Opportunity in the Making// India Briefing.- 07.01.2016.

[25] Geethanjali Nataraj. India looks east to ASEAN with Delhi Dialogue//East Asia Forum.- 04.03.2016.

[26] ASEAN – India Relations//ASEAN India. – February, 2016.

[27] ASEAN – India Relations//ASEAN India. – February, 2016.

[28] Why India and ASEAN Relations Are Set to Prosper// India Briefing.- 30.07.2015.

[29] International Trade Centre trade maps. Various Issues.

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[31]Chunmei Yang. Analysis on the Service Trade between China and ASEAN// International Journal of Economics and Finance. – 02.2015.

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[36] Chen Shilei. Spotlight: China, ASEAN envision new prospects for cooperation under Belt and Road Initiative// English.news.cn. – 24.11.2015.

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[39] Koh Jeremi. ASEAN diplomats welcome China’s One Belt, One Road initiative//Chanel NewsAsia.- 16.11.2015.

[40] Salidjanova Nargiza, Koch-Weser Iacob. China’s Economic Ties with ASEAN: A Country-by-Country Analysis// U.S. – China Economic and Security Review Commission. – 17.03.2015.

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[45] ASEAN Investment Report 2015. Infrastructure Investment and Connectivity.

[46] ASEAN Investment Report 2015. Infrastructure Investment and Connectivity.

[47] ASEAN Investment Report 2015. Infrastructure Investment and Connectivity.

[48] ASEAN Investment Report 2015. Infrastructure Investment and Connectivity. (Ch.1 -1.3.2.)

[49] ASEAN Investment Report 2015. Infrastructure Investment and Connectivity. (Ch.1 -1.3.2.)

[50] Thailand-Vietnam R10 route to be developed// World Highways. – 11.07.2013.

[51] ASEAN Investment Report 2015. Infrastructure Investment and Connectivity. (Ch.2 -2.2.)

[52] ASEAN Investment Report 2015. Infrastructure Investment and Connectivity. (Ch.2 -2.2.)

[53] ASEAN Investment Report 2015. Infrastructure Investment and Connectivity. (Ch.2 -2.5.2.1.)

[54] ASEAN Investment Report 2015. Infrastructure Investment and Connectivity. (Ch.1 -1.2.3.)

[55] ASEAN Investment Report 2015. Infrastructure Investment and Connectivity. (Ch.1 -1.2.3.)

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[57] Bria E. Winanti P. Can China champion accountable investments in ASEAN? – The Jakarta Post. – 01.02.2016.

[58] Bangladesh, Brunei, Cambodia, China, India, Kazakhstan, Kuwait, Laos, Malaysia, Mongolia, Myanmar, Nepal, Oman, Pakistan, the Philippines, Qatar, Singapore, Sri Lanka, Thailand, Uzbekistan and Vietnam.

[59] AIIB, Articles of Agreement, article 4.

[60] Understanding Chinese Infrastructure Investment in ASEAN// Inclusive Development International. – 23.08.2016.

[61] AIIB (2015), Articles of Agreement, article 1.

[62] AIIB (2015), Articles of Agreement, article 5.3.

[63] Gilmore S. China-led development bank to visit Myanmar// Myanmar Times. – 04.05.2016.

[64] Zheng Y. Lender to boost regional ties// China Dai. – 30.06.2015.

[65] AIIB (2016), Articles of Agreement, article 35.

[66] Asian Development Bank. Infrastructure for supporting inclusive growth and poverty reduction in Asia. – Mandaluyong  City, Philippines. – 2012.

[67] ADB (no date), ASEAN Infrastructure Fund. – 05.2016. (http://www.adb.org/site/aif/main)

[68] World Bank. World Bank Group’s Infrastructure Spending Increases to US$24 Billion. – 18.06.2014.

[69] Solovyov D. ADB head will be “very happy” to work with China’s Asia infrastructure bank// Reuters. – 02.05.2015.

[70] Silk Road Fund (no date), About Us.

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[72] China pledges over 20-bln-USD loans to boost Southeast Asian connectivity// Xinhua, Xinhuanet. – 13.09.2014.

[73] President Wang Yanzhi Meets with Minister Prak Sokhonn of Foreign Affairs and International Cooperation of Cambodia //Silk Road Fund. – 27.04.2016.

[74] Jiang X. Fund to foster economic ties with ASEAN// China Daily, USA. – 26.01.2015.

[75] China-ASEAN Investment Cooperation Fund (no date), CAF Invests into Asia’s Largest Potash Mine in Lao PDR.

[76] International Finance Corporation (2010, 25 January), China-ASEAN Fund on Investment Cooperation: Summary of Proposed Investment.

[77] China-ASEAN Investment Cooperation Fund (no date), Investment: Investment Approach.

[78] Li Y. Chinese investment fund aims to spread wealth, sustainability in Asean// Nikkei Asian Review. – 30.05.2014.

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[80] Policy on Environmental and Social Sustainability// International Finance Corporation. – Paragraph 54. – 01.01.2012.

[81] China Focus: Belt and Road to boost China-ASEAN economic ties// Xinhuanet. – 11.11.2015.

[82] Lin J. China Headlines: China pools strength on Belt and Road strategy // Xinhuanet. – 12.03.2015.

[83] Yao C. Asian Political Parties’ Special Conference on the Silk Roadopens in Beijing//China People’s Daily Online. – 15.10.2015.

[84] Spotlight: “Belt and Road” initiatives energize China’s neighborhood diplomacy// Xinhuanet. – 27.07.2015.

[85] China-invested cement plant inaugurated in Laos to serve China-Laos railway construction// Xinhuanet.- 03.12.2015.

[86] Statistical Bulletin of China’s Outward Foreign Direct Investment// Ministry of Commerce of the People’s Republic of China.- Beijing: China Statistics Press.- P.116.- 2015.

[87] Zhang M. India and ASEAN. Economics to become//International Business Times. – 25.01.2013.

[88] Anderson A., Ayres A. Economics of Influence: China and India in South Asia//Council of foreign relations. – 07.08.2015.

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[98] Mehraj Uddin Gojree. India and China: Prospects and Challenges// International Research Journal of Social Sciences.- №2.- 08.2013.

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