JULIAN ABRAM WAINRIGHT FOR TIME

COMING TOGETHER: Vietnamese factory workers produce zippers for a Chinese-owned company

Deals and Diplomacy
	China's influence in Southeast Asia is growing as its trade and investments boom
	By Hannah Beech

Posted Monday, May 23, 2005; 20:00 HKT
Jimmy Gao glides down the broad staircase of a French colonial mansion in Cambodia's steamy capital, Phnom Penh, and lets a self-satisfied grin spread across his face. The Chinese businessman has e very right to feel good. This grand edifice was once the city hall when Paris ruled Indochina. Now, it's the headquarters of the Chinese Chamber of Commerce, and Gao is the chamber's president. Last year, China ranked as Cambodia's No. 1 foreign investor for the first time, and bilateral trade volume rose 50% from the year before. Chinese interests permeate practically every sector of the Southeast Asian nation's economy, with 30,000 mainland Chinese living in the kingdom. Mandarin-language schools compete with English ones for the best Khmer students. "You can't go a block in Phnom Penh without running into a Chinese business," boasts Gao. "Our influence is everywhere." Perhaps the most fitting testament to China's shadow over Cambodia may loom over the capital by next year: a Chinese developer is drawing up blueprints for what it hopes will be the country's tallest building, a high-rise on Mao Tse Toung Boulevard that will dwarf the structure that used to set the height limit in Phnom Penh, the diminutive Royal Palace.

Playing big brother to Cambodia might have been unthinkable for China just recently, given Beijing's support for the murderous Khmer Rouge, which ravaged Cambodian society a quarter of a century ago. But countries across Southeast Asia are hoping to cash in on China's economic boom—and this nation of 13 million is no exception. The relationship is symbiotic: China is reaping political benefit from its growing trade ties in the region. Beijing hopes that tens of millions of dollars in military aid and loans will result in a docking facility on the Cambodian coast for China's navy, giving Beijing better access to the Straits of Malacca, the region's crucial shipping route through which 80% of China's imported oil passes. Gao has played a role in wielding Beijing's new influence. In 1997 the Shanghai native and other Chinese businessmen helped persuade the Cambodian government to shut Taiwan's de facto embassy in Cambodia, as part of efforts to isolate Taipei internationally. Cambodian King Norodom Sihamoni's first foreign excursion after ascending to the throne last October was to Beijing to meet with Chinese President Hu Jintao. "From my heart, I believe it is my responsibility to convince other countries to recognize one China," says Gao. "I want to make money in Cambodia, as do my colleagues, but we also have a political mission to accomplish."

China likes to call its growing global influence a "peaceful rise," and Beijing hopes its prodigious trade and aid will convince Southeast Asian nations of the virtues of tying their futures to China. Just a few years ago, Southeast Asia's export-led economies were terrified that a resurgent China would crush the region's manufacturing sector and leave millions jobless. That fear proved unfounded. From 1994 to 2004, Southeast Asia's manufacturing output actually increased from 25.2% of its GDP to 29.6%. Now, as the region seeks to lure back foreign investment scared away by the 1997 Asian financial crisis, China looks less like a menace than a benefactor. Last year, trade between China and Southeast Asia reached $105.8 billion, and if current growth rates continue, China could eclipse the U.S. as the Association of Southeast Asian Nations' (ASEAN's) biggest trading partner by the end of this year. China's expanding economic and political clout is raising alarm in Washington, which is locked in an increasingly acrimonious trade battle with China over its surging exports to the West (see box, next page).

Southeast Asia's biggest beneficiaries are resource-rich nations that can help sate China's seemingly inexhaustible appetite for raw materials. Already, China is one of the top consumers of Malaysian palm oil, Thai rubber, Burmese teak, Philippine copper, and Indonesian pulp and paper. Just last month, President Hu went on a spending spree in Indonesia, where he pledged to boost trade by $6 billion over the next three years, and in the Philippines, where he promised $1.6 billion of new contracts and loans. "We do not see the rising role of China as a problem but more as an opportunity for gains in areas like trade," says Indonesia's Foreign Ministry spokesman Marty Natalegawa.

Continued...

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