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The Future of Asia 2019

Cambodia's Hun Sen quashes Chinese 'debt trap' fears

Political and business luminaries discuss Asia's future at Nikkei forum

From left: Malaysia's Mahathir Mohamad, Bangladesh's Sheikh Hasina and Cambodia's Hun Sen speak at Nikkei's Future of Asia conference on May 30.

TOKYO -- Cambodian Prime Minister Hun Sen on Thursday dismissed fears that his country is at risk of falling into a Chinese "debt trap" and said massive financial support from Beijing is not compromising Phnom Penh's independence.

Hun Sen was speaking at the annual Future of Asia conference hosted by Nikkei in Tokyo. Malaysian Prime Minister Mahathir Mohamad was also among the dignitaries who spoke on the first day of the two-day event, where China's role in regional development and its tensions with the U.S. were overriding themes.

"For Cambodia, we can maintain our sovereignty [while borrowing] the loans in accordance with the projects that we need," Hun Sen said after delivering a speech.

"China respects our decisions on how we use the loans," he added. "China does not force Cambodia to do this and that."

Cambodia is a key ally for China in Southeast Asia and also a major beneficiary of Beijing's Belt and Road Initiative. The country has received billions of dollars in Chinese financial aid and cheap loans to build infrastructure such as railways, dams and roads.

"We borrow the concession loans with low interest rates and a long grace period [for repayment]," Hun Sen said.

The prime minister added that his country does not rely on China alone, and called for combining Chinese initiatives with U.S.-led efforts to promote an "open and free Indo-Pacific" region -- widely seen as a counterweight to the Belt and Road. These endeavors should be "synchronized" to create a "win-win package," he said.

Yet the initiatives are part of a deepening rivalry between the U.S. -- the traditional dominant power in Asia -- and China, an emerging force. Their competition for regional supremacy is fueling unease.

"We are deeply concerned about global peace, stability and security toward the evolution of a multipolar world," Hun Sen said in his address to the forum. He also expressed fears that the escalating U.S.-China trade war could undermine smaller countries like Cambodia, a $22 billion economy whose growth over the last two decades has been underpinned by free trade and multilateralism.

Malaysian Prime Minister Mahathir Mohamad

Earlier, Malaysian Prime Minister Mahathir Mohamad urged the U.S. and China to make concessions in their disputes, warning that a failure to negotiate could lead to military conflict.

Specifically, Mahathir questioned Washington's uncompromising stance against Chinese telecommunications giant Huawei Technologies. Huawei has achieved a "tremendous advance over American technology," he said. While the U.S. has long had a strong research and development capability, "they must accept that this capability can [now] also be found in the East."

"'If I am not ahead, I will ban you, I will send warships' -- that is not competition," Mahathir stressed. "That is threatening."

Malaysian Prime Minister Mahathir Mohamad stresses the importance of diplomacy and compromise at the Future of Asia conference in Tokyo on May 30. (Photo by Yuki Nakao)

The U.S. recently put Huawei on its Entity List, essentially a blacklist for foreign companies deemed national security threats. This requires U.S. companies to obtain government approval to export products to Huawei. The implications have spread far beyond American borders, affecting foreign Huawei suppliers that use U.S. products or software.

While countries including Japan and Australia have already taken measures to avoid using Huawei equipment as they introduce new 5G mobile networks, Mahathir signaled that Malaysia has no intention of shunning the company.

"Huawei's research is far bigger than Malaysia's capability. We try to make use of their technology as much as possible," he said, adding that he is not concerned over allegations of espionage activity because "we are an open book."

The 93-year-old returned to the prime minister's post in last year's stunning election, which marked the first opposition victory since Malaysia gained independence from Britain in 1957.

Mahathir has been credited for his efforts to fight corruption and improve the government's finances, including negotiating a less costly deal for a rail project with China. The U.S.-China trade war, however, has cast a shadow over his economy. Gross domestic product slowed in the first quarter of 2019, as the tensions took a toll on Malaysian exports.

Mahathir has sought to maintain economic ties with China, a key trading partner. Nevertheless, he spoke out against Beijing's military advances in the South China Sea.

"No warships should be stationed in the South China Sea," he said, warning that "a slight incident will lead to war." He cited Southeast Asian countries' ability to settle disputes through international courts as an example of how negotiations lead to peace and economic growth.

"When two giants are fighting each other, we see that it is the grass that gets trampled."

As for what East Asian nations can do to promote regional stability, he suggested the adoption of a common currency that would not be used within countries but only "for the purpose of settlement of trade."

"If you try to promote your own currency," he said, "we will have conflicts."

Bangladesh Prime Minister Sheikh Hasina

Bangladesh's economy is expanding beyond apparel production to sectors such as information technology as the country's rapid economic growth stimulates investment, Prime Minister Sheikh Hasina told Nikkei's Future of Asia.

Hasina has been in office since 2009 as head of the ruling Awami League party. In that period, Bangladesh has experienced high economic growth through the success of its ready-made garment sector. The economy grew 7.86% in the fiscal year ended last June, making it one of the fastest growing economies in Asia. This year's growth will reach 8.13%, Hasina said.

"This [growth] encouraged entrepreneurs to plan and start new ventures to support expansion of the industrial base of the country," Hasina said.

Bangladeshi Prime Minister Sheikh Hasina speaks at the Future of Asia conference on May 30. (Photo by Yuki Nakao)

One of the rising industries is digital services. "The rapid expansion of ICT [Information and communications technology] services has contributed to reducing income inequality, decreasing rural-urban disparity, and most notably gender gap in employment and access to opportunities," she said.

According to Hasina, Bangladesh has established 5,286 "digital centers" across the country where people in remote areas can access internet services.

Another emerging sector is medicine, she said, noting that Bangladesh now exports pharmaceuticals to more than 100 countries.

Some economists say Bangladesh is benefiting from the ongoing U.S.-China trade tensions as apparel exports from China fall.

But Hasina warned that a rise in tariffs will cause a decline in growth and called for an open trade system. "Infrastructure, free trade and liberal investment give foundation to Asian development," she said. "We need to pledge to strengthen the world with greater openness, jointly address global challenges, safeguard fairness and justice and inject new impetus to cooperate using innovative ideas and measures"

"The future of the world lies in the convergence of interests common to humanity," she said.

Singapore Deputy Prime Minister Heng Swee Keat

The U.S. and China should accept "new realities" and find ways to cooperate, Singapore's deputy prime minister said on Thursday, as prolonged tensions between the world's two largest economies threaten smaller, trade-reliant countries like his city-state.

"Fundamentally, the U.S. has to accept that it has no better option but to work with China, because trying to contain it will result in worse outcomes," Heng Swee Keat told Nikkei's Future of Asia conference.

On China's end, Heng said the country needs to recognize that "its increased strategic and economic weight comes with greater international responsibility."

Heng, who recently visited both countries, noted that Americans suspect Chinese initiatives such as the Belt and Road infrastructure drive are designed to supplant Washington's leadership. On the other hand, in China, he observed that American moves are coinciding with rising nationalistic fervor as the country commemorates the May Fourth Movement -- a demonstration against Western powers' unfair treatment of the Chinese a century ago.

Singapore's Deputy Prime Minister Heng Swee Keat discusses the implications of U.S.-China trade tensions at the Future of Asia conference on May 30. (Photo by Yuki Nakao)

Given Singapore's position as a trade hub, the escalating tensions have particularly serious implications. The city-state's economic growth rate slowed to 1.2% in the January-March period, the weakest result in 10 years.

Meanwhile, Heng argued, Singapore and the rest of Asia must also shoulder greater responsibility in shaping the global order. Referring to the region's huge growth potential, he said, "This is an opportunity for Asia to shape an international order in a way that will support the development and stability of Asia and the world."

Indonesia Industry Minister Airlangga Hartarto

Indonesia will put in place new incentives to attract foreign investment in a bid to turn the country into ASEAN's manufacturing hub, industry minister Airlangga Hartarto said at Nikkei's Future of Asia conference on Thursday.

During President Joko Widodo's recently won second term, "I guarantee you that... [Widodo] will take strong and speedy measures to implement pro-investment as well as pro-business policies," Airlangga said.

Indonesia already grants a tax holiday to companies investing in the country and allows 200% deductions on expenses related to research and development on electric vehicles. Airlangga said additional incentives are planned. In particular, the country is developing a roadmap for building a strong base of low-emission vehicle manufacturers, he said.

Indonesia's industry minister Airlangga told Nikkei's Future of Asia on May 30 that the country was discussing the creation of a "ASEAN 4.0" with Thailand and Singapore. (Photo by Yuki Nakao)

Referring to global trade challenges, especially U.S.-China trade tensions, "we need to have more collaborations among countries," Airlangga said. He called for the Association of Southeast Asian Nations to "create a manufacturing value chain," that produces products that are accepted by the global market.

Airlangga cited the importance of developing an industry 4.0 that is supported by such technologies as artificial intelligence and  the internet of things. These "4.0 technologies will strengthen our inclusive economy policy," he said, because it relies on the collaboration between smaller enterprises with large companies.

The minister said Indonesia is discussing an "ASEAN 4.0" with Thailand and Singapore -- including an arrangement that would enable certain goods to be traded custom-free over e-commerce platforms. He said Indonesia can help ASEAN to become "one of the most stable regional economies."

Mongolia Chairman of the State Great Hural Gombojav Zandanshatar

Mongolia expects to win big from China's Belt and Road Initiative, but it remains on guard over the dangers of too much borrowing, a high-ranking government official said at Nikkei's Future of Asia conference on Thursday.

Mongolia's geographic location, sandwiched between the large economies of China and Russia, presents an opportunity, said Gombojav Zandanshatar, chairman of the State Great Hural of Mongolia, the country's parliament.

"The top priority is to connect Russia and China, and also there is a discussion if it's possible to construct gas and oil pipelines through Mongolia -- exporting Russian resources to China," he said after delivering a speech.

"Actually, the Belt and Road Initiative will positively impact the Mongolian economy if implemented successfully, because Mongolia's role and participation is especially important."

Gombojav Zandanshatar, chairman of the State Great Hural of Mongolia, discusses the country's geographic advantages at the Future of Asia forum on May 30. (Photo by Yuki Nakao)

Mongolia is organizing a trilateral meeting with Russia and China to accelerate the development of an economic corridor, which includes dozens of projects, such as modernizing Mongolian railroads and highways connecting the three neighbors.

Mongolian President Battulga Khaltmaa is scheduled to meet Russian and Chinese officials in Kyrgyzstan next month, he said.

But while Ulaanbaatar is eager to tap the Belt and Road for economic growth, it is wary of taking on a heavy debt load.

Mongolia received an International Monetary Fund-led bailout in 2017 after plummeting commodity prices hurt its finances. But the ratio of government debt relative to gross domestic product has been reduced, while loans from China make up less than 10% of the total, according to the chairman.

"We don't see any high risk of debt [default] in Mongolia," he said, adding the key is to use international credit "precisely and efficiently" to avoid risk and drive the economy.

Vietnam Foreign Minister Pham Binh Minh

Vietnam will "not be able to avoid the impacts of trade protectionism" due to the open nature of its economy, Foreign Minister Pham Binh Minh told Nikkei's Future of Asia conference in Tokyo on Thursday.

Speaking on U.S.-China trade frictions, Pham, who also serves as deputy prime minister, noted that Vietnam's exports are 200% of gross domestic product, making it sensitive to even small changes in the global economy and trade flows.

China and the U.S. are the two largest trade partners for Vietnam in terms of both technology and trade value. "We are watching the situation carefully and will implement any necessary counter measures," the country's top diplomat said.

To counter protectionism, Pham touted the Regional Comprehensive Economic Partnership -- a proposed trade agreement that would include China, Japan, India, South Korea, Australia and New Zealand with the 10 members of the Association of Southeast Asian Nations. It would encompass nearly 50% of the world's population and about 30% of global GDP.

Deputy Prime Minister and Minister of Foreign Affairs of the Socialist Republic of Vietnam, Phạm Bình Minh speaks during 25 th international conference on The Future of Asia on May 30, in Tokyo. (Photo by Yuki Nakao)

"Some point to Vietnam as a beneficiary of the trade war. To some extent that is true. However, protectionism will have a long lasting impact on the global economy including Vietnam," he noted.

A southern China-based American trade group found in October that 22% of the companies surveyed in the region said they had lost market share to competitors in Vietnam, followed by 14% in Germany and 11% in Japan.

Although the resulting increase in exports may have a positive impact, "this is only for the short-term," Pham told Nikkei Asian Review in an interview after the speech. "The prolongation of the U.S.-China trade friction will hit our production," he said, noting that the country's access to imported components and raw materials might be curtailed in addition to the hit taken from the overall reduction in global demand.

Some also expect Vietnam will attract more global investment due to U.S.-China trade frictions, but Pham said the country will be selective about this. "High technology is the priority for investment to Vietnam," he continued, "and we need to be careful about investment without sufficient quality." He also said the country will be on guard against transactions that merely funnel goods through Vietnam in order to bypass trade barriers between the two economic powers.

Brunei Second Finance and Economy Minister Amin Liew Abdullah

Two sweeping multilateral partnership agreements offer hope for furthering Asian economic integration and promoting cooperation amid the trade tensions and inward-looking policies gripping some governments, Brunei's Second Finance and Economy Minister Amin Liew Abdullah said on Thursday.

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the proposed Regional Comprehensive Economic Partnership (RCEP) complement each other, Amin told Nikkei's Future of Asia conference. Both, he said, emphasize trade rules and facilitate progressive reforms that reflect the changing needs and nature of businesses and investors.

"Together, the CPTPP and RCEP stand to promote trade liberalization in the Asia-Pacific, further entrenching the region's importance to economic growth and global trade," he said.

Amin noted that despite the economic benefits and opportunities free trade offers, it still stirs negative sentiments, particularly over job losses in less efficient, competitive industries.

Minister at The Prime Minister's Office and Minister of Finance and Economy II in Brunei Darusslam, Amin Liew Abdullah speaks during 25 th international conference on The Future of Asia on May 30, in Tokyo. (Photo by Yuki Nakao)

"We should not let this make us lose sight of the many benefits that free trade brings," he stressed. "Instead, we should tackle head-on the root cause of the problems, namely complacency and structural barriers hindering innovation and enhanced competitiveness.

"We should also appreciate that regional integration efforts have other positive impacts beyond the economic angle, such as enhanced people-to-people engagements, and deepened appreciation of each other's traditions and cultures."

If enforced, the RCEP would become the world's largest trading bloc, accounting for 3.4 billion people with a total gross domestic product of $49.5 trillion.

The proposed megadeal is built upon existing agreements involving the Association of Southeast Asian Nations and six dialogue partners -- Australia, China, India, Japan, South Korea and New Zealand.

Nikkei staff writers P Prem Kumar, Kentaro Iwamoto, Akane Okutsu, Rurika Imahashi, Jada Nagumo, Coco Liu, Eri Sugiura, Hikariko Yazaki, Daishi Chiba and Kenya Akama contributed to this story.

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