China-Malaysia Relations Pass Into A Chilly Phase

RELATIONS BETWEEN MALAYSIA and China have a history of blowing hot and cold. Malaysia’s new prime minister, if new is an appropriate adjective for the 93-year old Mahathir Mohamad, has brought a renewed chill, even though he has been a longtime friend of China by dint mainly of his criticisms of the West.

Mahathir has halted several high-profile, big-ticket infrastructure projects involving Chinese firms for review, including:

• the $20 billion East Coast Rail Link under construction by China Communications Construction Co. and mostly financed by Export-Import Bank of China;
• the $10 billion Melaka Gateway project , which involves three artificial islands and a cruise ship terminal, being developed by PowerChina International; and
• the $2.5 billion trans-Sabah natural gas pipeline led by a subsidiary of China National Petroleum Corp.

Restrictions have also been imposed on the sales of units in Forest City, a $100 million real estate development on four artificial islands aimed at buyers from China.

There is also a report that three pipeline projects suspended in July have been cancelled outright, an oil and gas pipeline in peninsula Malaysia and another on Borneo, and a pipeline linking a Petronas refinery and petrochemical plant in Johor to Malacca. They had a combined cost of $2.8 billion.

Mahathir has several reasons for applying the brake.

One is purely financial. The first three are expensive projects that saddle the country with even more debt. Malaysia can just about manage its foreign-currency debt, but only just about. It cannot afford to let its financial position deteriorate, which, if the troubles of Argentina’s peso and Turkey’s lira spillover into other emerging market currencies, it could do quickly. Furthermore, Mahathir had long held that the country’s debt holds back its development. Nor does he want to risk Malaysia going the way of Sri Lanka, which had to yield control of a new port to China to settle debt it could not repay.

A second is political. In the wake of the 1MDB scandal. Mahathir is cracking down on what it believes is a whole raft of corruption-tainted deals struck during the previous administration of Najib Razak. The three deals mentioned above were all made within Najib’s time, and Mahathir has criticised them for being opaque.

A third is geopolitical. Mahathir is concerned about China’s increasing activity in the disputed waters of the South China Sea, where Malaysia has claims of its own over a dozen Spratly islands and a large acreage of oil and gas. Being in hock to China, which is also Malaysia’s largest trading partner, weakens Kuala Lumpur’s hand in pushing back against Beijing’s maritime assertiveness. Mahathir is strengthening relations with Japan and Australia to counterbalance China’s influence.

A fourth reason Malaysia’s relationship with its city-state neighbour, Singapore. The two nation’s relations with China tend to be the inverse of each other. Singapore’s relations with China are currently on the up.

Mahathir has said he will hand over the presidency to his deputy Anwar Ibrahim at some point, but may choose to make that point further into the future than he initially indicated (within two years). Anwar, though he has backed the review of the Chinese investments, would likely be more favourably disposed towards China. The further out the hand-over, the longer Malaysia-China relations will remain chilly.

Update: The Financial Times is reporting that Pakistan is initiating a similar review of the China-Pakistan Economic Corridor. That would have greater weight for Beijing than Malaysia’s review because of the corridor’s strategic importance, including its access to Gwadar, the port on Pakistan’s south coast on the Arabian Sea.

Trump’s 3-D Re-engagement with Asia: Development, Defence and Diplomacy

THE BELT AND Road Initiative and the United States’ vision for the Indo-Pacific have a common end if different means.

Both are critical components of establishing the two powers’ respective influence over a region that is already well on its way to becoming the world’s economic centre. The former uses state-led infrastructure; the latter seeks to unleash the commercial might of private business, primarily US private business.

The Trump administration’s withdrawal from the Trans-Pacific Partnership, one of its earliest acts, cemented regional fears among the United States’ allies that the ‘America First’ rhetoric of the Trump campaign in 2016 presaged US withdrawal from the region, leaving a vacuum that China would need little encouragement to fill.

Whatever the validity of that fear — and US commercial imperatives were always going to mitigate against significant disengagement — Washington has had a struggle to reassure its traditional regional allies, who, after all, still have to live cheek-by-jowl with their huge neighbour, regardless of the tweet-du-jour coming from Washington.

The uncertainty surrounding the outcome of both Trump’s putative trade war with Beijing and his intervention in North Korea through a summit with North Korean leader Kim Jong-un have kept nerves taught.

While the political scientists hijacked the term Indo-Pacific from the marine biologists and oceanographers slightly more than a decade ago, it has only been over the past five years than it has gained currency with political leaders in the four key Into-Pacific powers, the United States, India, Japan and Australia. In the past year, it has started to take shape as an economic entity.

Today, US Secretary of State, Mike Pompeo, put some more flesh on those bones by announcing $113 million of investment in technology, energy and infrastructure investments in the region. This was, he said, a ‘down payment’ on a new era of US economic commitment to peace and prosperity in the region.

US officials say that this commitment is not aimed at countering the Belt and Road Initiative, but the underlining of the transparent and commercially led nature of the investments and the choice of phrases such as ‘strategic partnerships, not strategic dependence’ speak for themselves, as does Pompeo’s assertion that the United States would oppose any country that sought to dominate the region.

The money will go to improving partner countries’ digital connectivity and expanding US technology exports to the region ($25 million), helping regional energy production and storage (some $50 million) and creating a US government agency to support infrastructure development ($30 million). Much of the remainder of the money will go to a fund to let regional nations access US private legal and financial advisory services.

There will not be, it seems, a return of the United States to TPP. Pompeo said that the Trump administration would only be doing bilateral trade deals in the region.

He did, though, trail a coming announcement by US President Donald Trump on regional security assistance, reaffirming the administration’s emerging three-D approach to the region: development, diplomacy and defence.

Compared to, say, the $62 billion that China is providing for the China-Pakistan Economic Corridor and the estimated $1 trillion of Belt and Road Initiative projects underway, $113 million looks like small beer, and especially as much of the money will end up delivering export sales of goods and services to US firms. An America First foreign policy is still an America First policy.

The question becomes then, can US business leverage that into a credible competitive alternative model for regional development. Washington’s traditional regional allies will still take some convincing as much as they would like to have a strong counterweight in the United States to China’s growing regional power and influence.

How Much Candidate Trump Will President Trump Contain?

THE U.S.PRESIDENT-ELECT, Donald Trump (above), had few kind words for China during the presidential election campaign. He accused it of stealing millions of American manufacturing jobs and threatened protectionist tariffs against Chinese exports.

Yet to China he was the preferable candidate. His Democratic rival, Hillary Clinton, was seen, on the basis of having been seen at close quarters as U.S. secretary of state, to be no bosom buddy of Beijing.

The maverick nature of Trump’s campaign and his questioning of the basis of the United States’ traditional security alliances had, however, caused some optimism in Beijing that his election would weaken America’s international standing in the region and that his reservations about free-trade agreements would kill the Trans-Pacific Partnership (TPP), the economic prop of Washington’s ‘Asian pivot’.

However, set against that the uncertainty and volatility in regional affairs that a prospective Trump presidency will bring, in particular on the Korean peninsula. Beijing does not like uncertainty, and there less than anywhere.

Worse, long-cultivated contacts with the Washington China-policy and financial elite have been rendered for nought by the imminent arrival of a US president who at 70 has never held elected office and so has no track record, no known team and no known thought-through China strategy. Beijing also has reason to fear that Trump’s victory will put at risk the forces of globalisation that have propelled China’s economic and thus global ascendency.

It is unrealistic to expect that a Trump administration can repatriate low-wage manufacturing jobs. Those that automation and technology have not rendered redundant are already going to Vietnam and elsewhere in Southeast Asia if they are going anywhere as China ‘rebalances’. Moreover, China is only one aspect of the economic trends that are transforming the US economy in a way that leaves so many Americans, especially older, white ones, feeling left behind, a sentiment Trump so expertly tapped during his election campaign.

That is not to say that Beijing will not try to score points against electoral democracy, though it will not want to examine too closely the insurgence of rank-and-file voters against a ruling political class. Beijing is also unlikely to pass the opportunity to take an early measure of the next US president, probably by being more assertive in the South China Sea.

That, though, is a double-edged sword. It risks prodding Trump in the direction of politicising the issue rather than contesting it on legalistic grounds — such as through asserting freedom of navigation rights and using the UN Convention on the Law of the Sea. That approach, adopted by the Obama administration, has given Beijing scope to build its presence in the South China Sea with a lessened risk of direct US military confrontation.

Beijing’s scope for action now will also be tempered by the reactions of other regional nations to Trump’s election victory. Japan, for one, may see an opportunity to fill a potential vacuum both by building up its military capabilities and by being more active with its development aid and investment in the region. The Asian Development Bank, which falls under its sway, easily outguns the Beijing-created Asian Infrastructure Investment Bank.

South Korea, too, may end up with nuclear weapons from a Trump administration, a development that would be unwelcome in Beijing, not least because it ups the nuclear stakes on the peninsula, elevating the risk of instability that Beijing so abhors.

Further south, the Philippines, Malaysia, Thailand and Indonesia are all calculating where their strategic interests lie between China and the United States.

There has been a quiet (pace the Philippines new president Rodrigo Duterte) shift of emphasis towards developing stronger economic links with China while retaining Washington’s security umbrella. That shift will be being recalibrated in the light of candidate Trump’s criticism that US security partners are ‘free-loading’.

He is not the first US president to have made that complaint, but few have suggested that the US will take its umbrella away if its regional allies do not contribute their fair share to the costs.

Whether President Trump will take the same view as candidate Trump on this and all the other issues that touch on China is probably as much of a guess in Beijing as it is in the rest of the region, and even possibly, at this point, in Washington.

Myitsone Dam Hangs In The Balance

WITH LESS THAN a fortnight left before the commission set up to assess the trade-offs between the economic benefits and the social and environmental damage of planned hydropower dams on the Irrawaddy (seen above) is due to submit its report to Myanmar’s president, word is emerging that the commission may recommend that the controversial Myitsone dam project is scrapped. If so, that would kick a potentially politically prickly decision to President Htin Kyaw (nominally) and (in practice) de facto leader Aung San Suu Kyi’s new NLD-led government.

The $3.6-billion-dollar dam is heavily China-backed. China Power Investment Corp. (CPI) is financing the 4,600MW project and Sinohydro doing the construction — such as it is to date; then Myanmar President Thein Sein suspended work on the dam in 2011 in the face of local protests over village displacement, traditional livelihoods being at risk and dissatisfaction that China will get 90% of the electricity generated.

Beijing has since been pushing hard for a resumption of work, and at times it has seemed set to restart. In March, Vice foreign minister Liu Zhenmin called the project crucial for China.

While China has six other hydroelectric projects in Myanmar, not to go ahead now with Myitsone would rupture relations between Beijing and the new democratically elected government in Naypyidaw. Aung San Suu Kyi has been carefully rebuilding the relationship with Beijing, coloured by its support for the former military dictatorship and her desire to open Myanmar to a broader range of foreign investors.

However, when she visited Beijing in August, the Myitsone dam was conspicuously absent from a range of projects on which she and her hosts agreed to enhance their cooperation. The two sides agreed to no more than “to work together find a solution to the issue of the stalled Myitsone Dam project”. Termination of Myitsone would set precedents for other unbuilt or in-construction Chinese-backed infrastructure projects in the region that would be unwelcome to China’s ‘One Belt One Road’ aspirations.

However, cancellation of Myitsone would be popular within Myanmar. Myitsone is in Kachin state. Many ethnic Kachin reportedly said they voted for the NLD in the recent historic elections because they saw the party as their best hope of getting Myitsone stopped.

Alienating those voters risks making the NLD government’s hoped-for settlement with Myanmar’s ethnic armed groups more complicated. The armed wing of the Kachin Independence Organisation, the Kachin Independence Army (KIA), is one of those still fighting the government.

Beijing will not want an even more unstable border than it has now. Since the breakdown of a ceasefire between the KIA and the Myanmar military in 2011, It has already had to take thousands of Kachin refugees fleeing the conflict into camps on the Yunnan side of the border. It has brokered talks between the KIA and Naypyidaw in the hope of bringing some stability to the area.

There is a thriving but illicit trade in gems, timber, drugs and increasingly people across the border. China is also the biggest (legitimate) purchaser of Myanmar’s jade, has two oil and gas pipelines that pass through Kachin state and six other dam projects apart from Myitsone, the most notable of which is the Dapein Dam 1, which started generating power in 2011.

There is more than a single dam project in play. Myitsone will be being weighed in the balance of that greater calculation in both capitals while frantic efforts are made to see whether there is any face-saving deal that can be struck. Stakes are high on both sides. As a result, we may well not see the details of the commission’s report when it is handed over on November 11.

Myanmar And China Reset Rocky But Key Relationship

 

LITTLE UNDERLINES CHINA’S importance to Myanmar as much as Myanmar’s de facto leader Aung San Suu Kyi choosing to make a meeting with China’s foreign minister Wang Yi , seen above, her first with a foreign leader since her party historically took office on March 30.

China is Myanmar’s largest trading and investment partner, but the two countries have had a rocky relationship over the past few years. Points of dispute have been the fighting in the northeast of the country between Myanmar’s military and ethnic insurgent groups seeking greater autonomy, including ethnic Chinese Kokang, which periodically spills over into China, and controversial Chinese-backed infrastructure projects, notably the Myitsone dam near the headwaters of the Irrawaddy river and an oil and gas pipeline from Yunnan to the Indian Ocean that would let Chinese energy imports from the Gulf bypass the chokepoint of the Malacca Strait.

When Myanmar was still under military rule, China was able to take advantage of crony deals with Myanmar’s generals and some ethnic elites to exploit the country’s natural wealth; huge volumes of illicit timber and jade as well as drugs flow across the border into China.

Former President Thein Sein sent the relationship into a spin in 201o when he unexpectedly and unilaterally suspended the Myitsone project, which was being built by state-owned China Power Investment Corp. and its sub-contractor SinoHydro.

Wang and Suu Kyi at their meeting this week chose to emphasize resetting the relationship on a more positive footing, not discussing what her spokesman described as ‘controversial’ Chinese projects. Wang subsequently said that China would ‘guide’ Chinese companies operating in Myanmar to ‘respect’ Myanmar’s regulations, society, and environment.

That probably means paying a bit more than lip service to local concerns about environmental protection, land-grabs and lack of compensation for displaced communities, and bringing in Chinese labour to build Chinese-financed projects. A deal is likely to be struck to restart Myitsone in some form, probably addressing some of the social responsibility concerns and earmarking more of the electricity the dam will generate for consumption in Myanmar and less to be transmitted back to China.

Nothing is likely to happen until after the end of the rainy season in October at the earliest. However, Beijing has a diplomatic card it can play to support its infrastructure ambitions — helping to broker peace with some of Myanmar’s ethnic insurgent groups. Suu Kyi’s government will need Chinese cooperation if it is to generate the national peace settlement it has said is a priority.

However, while China will remain a key economic and political neighbour, Suu Kyi will want to be careful to avoid over-reliance on Beijing. She will also court U.S. trade, aid and investment and that from other regional powers, notably Japan and India, both of which have reasons of their own or wanting to counterbalance Beijing’s influence in a critical corridor between East and South Asia.

Mekong River: Pouring Money On Troubled Waters

 

THE MEKONG RIVER rises on the Tibetan plateau, flows through Yunnan as the Lancang river and then on to Myanmar, Laos, Thailand, Cambodia and Vietnam before discharging into the South China Sea.

Some of those countries have been involved in its cooperative management since the 1950s and all six since the mid-1990s. But the vehicle for that, the Mekong River Commission, wasn’t Beijing’s creation and China only held ‘dialogue partner’ status. Cue a standard response from Beijing’s international relations playbook: set up an alternative institution of its own.

The first Lancang-Mekong Cooperation summit has just been held in Sanya, the resort city on southern Hainan island. Premier Li Keqiang made it clear who was paying the piper when he promised the five other Mekong countries $1.5 billion in preferential loans and $10 billion in credits for infrastructure and industrial projects, $200 million in poverty-alleviation aid and $300 million for small and medium-sized cooperation projects.

The largesse was not only to ensure that the China-led summit got off to a well-oiled start. It was also intended to offset some of the regional tensions over the South China Sea, thus defusing the potential appeal of Washington’s ‘Asia pivot’. But most of all, Beijing wanted its generous development aid to provide the wherewithal for the five countries to buy the infrastructure development envisioned under China’s One Belt, One Road’ initiative. 

That is the point where the summit runs directly in the controversial development of the Mekong and its tributaries as a giant generator of hydroelectric power to fuel power-hungry South-east Asia’s industrial expansion, likely at a devastating cost to the river’s sustainability.  Between its headwaters and estuary, 32 dams have been built along the Mekong and its tributaries since the first was commissioned in 1971 — 20 of them since the turn of the century.  At least another dozen are under construction.

China’s stretch accounts for no more than around a seventh of the total length of the river, but its upstream location gives it considerable impact on downstream waters, especially where the river flows along the Thai-Lao border.

China completed its first hydroelectric dam on the Mekong in 1993.  The five it has since built (with two more under construction and another planned) have made it subject to voiciferous downstream criticism for the ecological and riparian damage they cause to the river and to the livelihoods of those living along it.

China regulates the flow of water on grounds of ‘flood control’. The most recent example was the release of water from the Jinghong dam in Yunnan announced on March 10, with further releases planned until April 10, purportedly to help ease drought downstream. 

Their critics say that these releases causes the river’s level to rise and fall between seasons far more rapidly than in the pre-dam era, endangering fisheries. The longer-term concern is that the dam-building will change the river’s hydrology, blocking fish migration and affecting the river’s ecology throughout its length.

One of the outcomes of this month’s summit was an agreement on a water resource centre to manage hydropower development, floods and droughts. The question is whether that will prove to be a way for China to institutionalize its control of the river’s management while allowing the Mekong River Commission to atrophy.

The Lancing-Mekong Cooperation framework makes the management of the river a matter of government-to-government negotiations, to the exclusion of non-governmental and community groups who might question whether large hydropower dams continue to be sustainable development model. By increasing its political sway over its neighbours, Beijing may succeed in keeping domestic political priorities in those countries tilted in favour of meeting their energy needs through hydropower over the interests of sustainable management.

This Bystander recalls a telling incident in the mid-1990s when China held back the Mekong’s waters upstream by filling a dam reservoir. This just happened to coincide with a ceremonial sailing from Thailand to Vietnam to mark the establishment of the Mekong River Commission. The vessel ran aground, so shallow were the river’s waters downstream. Today, Beijing finds it can cause much the same policy effect by controlling the flow of money.

Bangkok Bomb’s Possible Uighur Connection Presages New Crackdown

SUSPICION, IF SCANT hard evidence, is growing that there is a Chinese Uighur connection to the bombing of the Erawan shrine in the Thai capital Bangkok last month.

Thai police say that an alleged accomplice to the still-fugitive bomber had in his possession when captured near the Cambodian border a Chinese passport identifying him as Yusufu Mieraili, born in Xinjiang, home to China’s Turkic Muslim Uighur minority. Unnamed Chinese officials have declared to state media that Mieraili is a member of the Muslim separatist East Turkistan Islamic Movement (ETIM).

Thai authorities said at the weekend that they had issued a warrant for the arrest of the suspected organiser of the plot, whom they named as Abudusataer Abudureheman, a 27-year-old from Xinjiang. He is reported to have fled Thailand.

Muddying the picture is reports of Malaysian police arresting three people suspected of helping the bombers leave Thailand. They are two Malaysians and a Pakistani.

Authorities in Beijing are known to be watching the case closely. If, as it is being suggested, the bombing was retaliation for Thailand’s repatriation to China in July of 100 Uighurs, then it would provide Beijing with vindication — at last — for its long-standing claim that the ETIM is an international terrorist threat.

The group, which Washington, at Beijing’s urging, also put on its list of foreign terrorist organizations post-9/11 but now seems to have quietly dropped, wants an independent East Turkistan state stretching from Xinjiang somewhat indeterminately westwards. Most of the 8 million Uighurs live in Xinjiang, but the diaspora spreads to Kazakhstan, Kyrgyzstan, Uzbekistan, Afghanistan, Pakistan, Turkey and a lesser extent beyond.

East Turkistan has had two brief periods as an independent state. Mao’s revolution put an end to that. In 1955, it was declared to be China’s Xinjiang autonomous region.

Uighur militants have been fighting a low-key war with Beijing for years. More recently, particularly since late 2013, they have been able to extend attacks beyond Xinjiang, despite a hardening security crackdown on Uighurs in the region. The Turkistan Islamic Party (TIP), which may be a splinter cell from ETIM or the ETIM in another incarnation, claimed responsibility for fatal attacks in Shanghai, Beijing, Guangzhou and notably Kunming, where 33 people, including four of eight knife-wielding attackers, died at the railway station. In Urumqi, a car bomb killed 42 people including all four attackers, all believed to be Uighurs.

However, the opaque and obscure ETIM, which was first heard of around 1997, has scarcely shown the capacity to operate across international borders with any consistency, if at all. One of its founders, who moved the organization in the late 1990s from Xinjiang to the Afghanistan-Pakistan border, was reportedly killed shortly after in a U.S. drone strike against al-Qaeda bases; another languishes in a Chinese jail.

Its current leader is reputedly Abdullah Mansour, although little is known about him or the rest of the leadership. Mansour told the Reuters news agency last year that it was his Islamic duty to fight China. However, it seems more focused on the Middle East than the Middle Kingdom. A ‘Turkistan brigade’ of foreign fighters, including Uzbeks, is reportedly in Syria alongside al-Qaeda aligned forces, supported by militant Uighurs in Turkey.

It is nigh impossible to know the strength of the ETIM though it probably numbers in the low hundreds. Reuters news agency quoted Pakistan intelligence sources as putting the number at 400. More than 20 Uighurs captured by the U.S. in 2001 in Afghanistan fighting with the Taliban were held for several years in Guantanamo Bay. Once released, they were not repatriated to China by the United States. Pakistan, however, has been readier to hand over captured Uighurs to Beijing.

As in other parts of the western Marches, minorities have long complained of the Han colonisation of the regions in which they have traditionally lived, a suppression of their religions and cultures, and a worsening of their economic prospects compared to the newcomers. Shortly after the revolution, in 1953, three-quarters of Xinjiang’s inhabitants were Uighur. In the latest published census (2000) they accounted for barely two-fifths. Beijing says its sole intention is to promote economic development.

If indeed the Bangkok attack is Uighur-related, Beijing is likely grab with both hands the opportunity to jump on any signs of separatism in Xinjiang regardless of whether the ultimate instigators of the Bangkok bombing were the ETIM or sympathizers in Xinjiang or Turkey.

Separatism is a prime fear of Beijing’s and provokes well-armed counterterrorism measures whenever it is perceived. Stability in Xinjiang is a particular concern. The region is not only mineral- and energy-rich, but it is also a critical corridor through which the One Belt (New Silk Road) of the One Belt One Road project passes.

Beijing Counts Its AIIB Blessings — And Reaches 46 So Far

THE ASIAN INFRASTRUCTURE Investment Bank (AIIB) is turning into the gift that just keeps on giving for Beijing. State media report that the China-instigated lending institution attracted 46 applications by the March 31 deadline for would-be founding members. The list includes the likes of Australia, the U.K. and a raft of other European nations who defied Washington’s desire that its allies have nothing to do with the AIIB.

It also includes Taiwan. Even this potentially awkward application for Beijing (and controversial one in Taipei) is being turned by Beijing to its advantage. “The AIIB is open and inclusive,” Taiwan Affairs Office spokesman Ma Xiaoguang is quoted as saying. “We welcome Taiwan to participate in the AIIB under an appropriate name.” (Taiwan belongs to the Asian Development Bank as Taipei, China.) Beijing’s magnanimity in accepting its “renegade province” pointedly makes the U.S. stance look even more mean-spirited.

It also opens the door to Hong Kong to join by the time the founders list is finalised on April 15. Members’ stakes seem set to be based on relative GDP. Hong Kong membership would provide Beijing with a conveniently captive wodge of votes to add to its own, and the AIIB with the city-state’s financial markets expertise.

The April 15 date might also provide time for the sole Asian holdout, Japan, to come on board, though June is the more likely date being mentioned in Tokyo. As for the U.S., the only position that would be worse than being left isolated over the AIIB would be to join now in what the rest of the world would inevitably regard as an embarrassing climb-down. Even Beijing would scarcely believe its good fortune should that happen.

China’s Unexpected European Bank Bonus

CHINA IS PLAYING a long game when it comes to gaining the power and influence over the world’s multilateral institutions to befit its standing as an emerging global power. But it has gained a big short-term win with its proposed $100 billion Asian Infrastructure Investment Bank (AIIB).

Britain, first, and now France, Germany and Italy have broken ranks with the United States in signing on to be founding members. South Korea and Australia are reconsidering their initial adherence to the U.S.’s line of having nothing to do with the AIIB.

The new bank will be a rival to the World Bank (U.S. dominated) and to the Asian Development Bank (dominated by Japan) when it comes to funding development projects in the region — although Asia’s infrastructure needs, at an estimated $8 trillion, are so great there would be plenty of lending demand to go around. However,  an ability to dispense large scale investment funding will give Beijing new-found political clout in the region, not to mention an order pipeline for China’s state-own engineering firms and their legions of suppliers — a honeypot also irresistible to the Europeans.

Beijing is already backing two other development funding initiatives, the $100 billion BRICS Bank with Brazil, India, Russia and South Africa, and its own $40 billion Silk Road Fund. For its part, Washington is promoting the TransPacific Partnership, a trade and investment agreement that Beijing has pointedly not been invited to join and is countering with the partly overlapping proposed common market with ASEAN plus India, the Regional Comprehensive Economic Partnership, and the bigger Free Trade Area of the Asia-Pacific. (That is TPP vs RCEP and FTAAP for acronym collectors.)

With the U.S. and China jockeying for position in the region via these new economic institutions, one indication of Washington’s desire to emasculate the AIIB from the outset was the unusually sharp and public criticism that it heaped on Britain for applying to be a founding member. It is now the U.S. rather than the U.K. that looks the outcast.

There is still much to be decided about the AIIB. The deadline for signing up for founding membership is the end of this month, but the target date for articles of association is not until the end of this year. The working assumption has been that capital participation and thus voting power, will be proportionate to members’ GDP.

Absent the U.S., that was always going to mean that China would have the most votes among the now 27 countries Beijing says have signed on. The involvement of four big European economies would deny it a majority. Matters like veto rights over projects, required voting majorities and even the basis on which GDP is calculated now become matters to watch carefully in the drafting of the AIIB’s charter as the new bank’s governance standards become another front in the China-U.S. rivalry in their own right.

China’s Unwanted Kokang Conundrum

THE ESCALATION OF the fighting just over Yunnan’s border in the Kokang region of Myanmar’s Shan state leaves Beijing with an unwanted humanitarian, security and strategic headache. China is providing food and shelter for some 30,000 refugees that have fled across the border into Yunnan, state media say. Most of the refugees can be assumed to be Kokang, who are ethnically Chinese, and Chinese migrant workers.

China first set up refugee camps following the outbreak of hostilities between the separatist Kokang National Democratic Alliance Army (MNDAA) and Myanmar government forces on February 9. The clashes have since intensified leaving 70 dead, including at least one Red Cross worker after an attack on a Red Cross convoy. The government in Naypyidaw has declared a state of emergency and martial law in the region.

China does not like such instability along its borders at the best of times and has sent troops to reinforce its side of this particular one. Beijing will initially be hospitable to those fleeing the fighting, firstly because they are Chinese, and secondly because the MNDAA was once part of the Chinese-backed Communist Party of Burma.

The MNDAA’s former leader Peng Jiasheng has been in exile in China, if not very publicly, since being driven out of power in 2009 — an event that triggered a similar influx of refugees fleeing the fighting, and which China was less prepared to deal with then than this time. It is Peng’s return now that has caused the renewed flare-up of fighting, ending the ceasefire than has existed since he was driven out.

Peng’s return, this Bystander would hazard, is neither sanctioned nor wanted by Beijing. It has been trying to broker peace deals between the Myanmar government and a score of ethnic groups in the northeast of Myanmar who want varying degrees of autonomy. Naypyidaw wants to strike a comprehensive peace deal ahead of national legislative elections due to be held later this year.

Beyond ensuring peace and stability along its borders, China’s bigger strategic imperatives in Myanmar have changed. The country has natural resources such as jade and desirable crops such as sugar. But more importantly, Naypyidaw’s growing rapprochement with the United States has undermined Beijing’s position as Myanmar’s principal political ally. It is not going to damage that relationship any further by backing separatist groups.

Myanmar is also an important link in President Xi Jinxing’s ‘One Belt One Road’ strategy. This is the development of the ‘Silk Road Economic Belt’ and the ’21st Century Maritime Silk Road’ — or China’s overland and maritime shipping routes to the Middle East and Europe through which political ties and strategic influence are intended to flow as voluminously as energy, natural resources and manufactures. Myanmar is a particular way station in this endeavour between China and Southeast Asia and the Indian Ocean as well as being a prime candidate for Xi’s ‘periphery diplomacy’.

To that end, Beijing wants a stable Myanmar. Its preference is for Naypyidaw to reach a peace settlement with its ethnic rebels to put and to conflicts such as that with the Kokang and with the Kachins, which flared up in 2012 and 2013. It has called for just that course of action.

If, against the odds, Peng does regain control of Kokang, China will be at least passively accommodative towards him. It has done the same in Pakistan or Afghanistan, where it has proven deft at working with local warlords and the central governments. However, that is not a situation Beijing wants to see as it will furnish it with neither border stability nor strategic leverage.