The New York Times > International > Asia Pacific > Across Asia, Beijing's Star Is in Ascendance

The New York Times > International > Asia Pacific > Across Asia, Beijing's Star Is in Ascendance: "August 28, 2004
Across Asia, Beijing's Star Is in Ascendance
By JANE PERLEZ

NEWMAN, Australia - Chris Dunbar watched as a front-end loader carved into a 60-foot wall of iron ore glinting in the red dirt of a vast open mine in the big sky country of northwestern Australia. 'This is as good as it gets,' said a satisfied Mr. Dunbar, 47, a manager with more than 20 years of experience.
He was boasting about the richness of the blue-black ore at the Mount Whaleback mine, but he might as well have been bragging about the boom that has propelled economies across the Asia-Pacific region. These days, Australian engineers - like executives, merchants and manufacturers elsewhere in the region - cannot seem to work fast enough to satisfy the hunger of their biggest new customer: China.
Not long ago Australia and China regarded each other with suspicion. But through newfound diplomatic finesse and the seemingly irresistible lure of its long economic expansion, Beijing has skillfully turned around relations with Australia, America's staunchest ally in the region.
The turnabout is just one sign of the broad new influence Beijing has accumulated across the Asian Pacific with American friends and foes alike. From the mines of Newman - an outpost of 3,000 in a corner of the outback - to theforests of Myanmar, the former Burma, China's rapid growth is sucking up resources and pulling the region's varied economies in its wake. The effect is unlike anything since the rise of Japanese economic power after World War II.
For now, China's presence mostly translates into money, and the doors it opens. But more and more, China is leveraging its economic clout to support its political preferences.

Beijing is pushing for regional political and economic groupings it can dominate, like a proposed East Asia Community that would cut out the United States and create a global bloc to rival the European Union. It is dispersing aid and, in ways not seen before, pressing countries to fall in line on its top foreign policy priority: its claim over Taiwan.

China's higher profile is all the more striking, analysts, executives and diplomats say, as Washington's preoccupation with Iraq and terrorism has left it seemingly disengaged from the region, which in turn has found the United States more off-putting and harder to penetrate after Sept. 11.

American military supremacy remains unquestioned, regional officials say. But the United States appears to be on the losing side of trade patterns. China is now South Korea's biggest trade partner, and two years ago Japan's imports from China surpassed those from the United States. Current trends show China is likely to top American trade with Southeast Asia in just a few years.

China's prime minister, Wen Jiabao, as much as threw down the gauntlet last year, saying he believed that China's trade with Southeast Asia would reach $100 billion by 2005, just shy of the $120 billion in trade the United States does with the region.

Mr. Wen's claim was no idle boast. Almost no country has escaped the pull of China's enormous craving for trade and, above all, energy and other natural resources to fuel its still galloping expansion and growing consumer demand. Though the Chinese government's growth target for 2004 is 7 percent, compared with 9.1 percent for 2003, few are worried about a slowdown soon.

In Thailand, where the United States maintains its second largest embassy, Prime Minister Thaksin Shinawatra, who is of ethnic Chinese descent, is considering building a pipeline across the southern Isthmus of Kra that would give China quicker access to Middle East oil.

In Malaysia, where exports of gas, palm oil and midrange electronics to China have soared, the new prime minister, Abdullah Badawi, chose to make China his first major overseas visit. He was accompanied by 800 business executives.

Chinese executives and diplomats, sensing the advantage that comes with one of the world's fastest-growing economies, have extended their reach to the point that China is increasingly seen as the go-to neighbor, diplomats and other analysts say.

Many here already contend the future belongs to China. A new generation of political and business leaders is placing its bets now on what is nearly universally seen as China's rise - and hedging against a possible waning of American influence.

Even as America's position erodes, its policies - on Iraq, North Korea, weapons proliferation - have tended to push China and its neighbors together. Not least among the shared interests is a "mutual concern about the unilateralism" of current American policy, said Muhammad Noordin Sopiee, chairman of Malaysia's Institute of Strategic and International Studies.

"They need regional friendship, we need regional friendship," he said of the Chinese. "They need time to develop their economy, so do we. They need protection from the United States and so do we.''

"Sometimes you see the glint of steel," he added of the Chinese approach, "But they hide it. They want to be friends."

An Embrace for Myanmar

China's rapid gain in influence in the Asia Pacific region ranges so broadly that it can be measured at the extremes, in countries as divergent as rich and distant Australia and impoverished but strategically important Myanmar.

The military government of Myanmar is no favorite of Washington. The Bush administration has tried since last year to use trade sanctions to coerce Myanmar's generals to share power and release the opposition leader, Aung San Suu Kyi, from house arrest. But the logic of the sanctions did not impress even a local Burmese restaurant owner on the road from Mandalay to China.

With ceiling fans powered by scarce electricity whirring gently, he drew a rough map of Myanmar on a bare wood table top for a recent visitor. India, Thailand, Laos, China, he said pointing to the neighbors.

"As long as China remains friendly nothing will change," said the man, who did not want to be named for fear of Myanmar's ruthless military intelligence service. "China can provide everything the country needs from a needle to a nuclear bomb."

China has in fact capsized Washington's policy with its own trade deals, which far outweigh the value of the American penalties. The State Department estimates that Myanmar lost about $200 million in the first year of the ban on imports to the United States. At the same time, it said, trade between China and Myanmar amounted to about $1 billion in 2003.

Here is where economic leverage translates into political preference. For China, Myanmar provides is too important as a gateway to energy and other natural resources to be thrown overboard. Not only has China offset the American sanctions and kept Myanmar afloat with easy credit and trade, but it has taken Myanmar's military leaders under its wing.

On a visit this spring to Myanmar's capital, Yangon, formerly Rangoon, China's deputy prime minister, Wu Yi, pledged to expand trade to $1.5 billion in 2005. In July, Myanmar's new prime minister, Khin Nyunt, paid an eight-day visit to China, where he was treated like an old friend.

He returned with a raft of accords on railways, a fertilizer factory and mine exploration, as well as $150 million loan for telecommunications and a $94 million rescheduling of debts - relatively small amounts that show how easy it has become for China to serve as Myanmar's patron.

Chinese officials have also been willing to finance vital hydroelectric dam projects in the absence of lenders from anywhere else. And they recently proposed that a pipeline be built from Myanmar's west coast port of Sittwe to Kunming, the capital of China's southwestern Yunnan Province, allowing China more direct access to Middle East oil.

Closer to the border, the trade is in smuggled teak, a wood prized for its beauty and durability by China's surging furniture manufacturers. The teak trade is as illustrative as any of the symbiotic relationship between the Chinese and Burmese authorities.

"China needs Burma's natural resources to fuel development on the border and in Yunnan Province as a whole," Simon Phillips, the author of a report on the trade published last year for Global Witness, a British nongovernmental organization, said in an interview.

After China banned logging on its side of the border in 1998, Chinese companies moved their workers - tens of thousands of them - into Myanmar, he said. With the backing of political patrons in the Myanmar military, and in separatist militias, the loggers carried on their work with impunity.

The benefits flow both ways. The provincial government in Kunming depends on the companies for revenue. On Myanmar's side, aside from the money lavished on local Burmese political patrons, there was the added advantage that the Chinese built roads.

One of the most important highways that China has helped improve is the main artery from the border to Mandalay, the old royal capital. These days, the traffic is varied. Huge trucks, many of them 40-year-old hulks with exposed engines, still haul outsized teak logs to China. Smaller vans, piled with crates of live crabs from Myanmar's Indian Ocean ports, ply a profitable 48-hour journey delivering delicacies for Chinese epicures.

From China, a vast assortment of cheap consumer goods for local markets comes down the road, particularly to Lashio. On a recent day, the city market was packed with Chinese electronics, clothes and food.

But local people, like the restaurant owner, who have watched the traffic flows, say they mostly go one way - into China.

"Myanmar is the resource pit of China," the restaurant owner lamented. "We send our best wood to them, our best gems, our best fruit. What do we get? Their worst fruit and their cheapest products."

A Good Year for Australia

For executives at BHP Billiton, the Australian giant that is the world's largest mining company and the operator of the Mount Whaleback mine, it has been a very good year. They will be the first to say that China has made all the difference.

Profits were up nearly 80 percent, the company reported in August, much of the growth riding on new orders from the Chinese steel mills casting girders for the skyscrapers that dot China's urban expansion.

Chinese diplomats talk of the natural fit between the two countries: last year China became the biggest importer of iron ore in the world, and Australia is its second biggest producer.

With orders from China surging, BHP Billiton executives say they are opening mines and expanding their overburdened rail and shipping facilities at Port Hedland, on the northwest coast. On a recent day, no fewer than 13 ships waited to berth and load with ore for the 10-day journey to China.

Doug Trotter, a project geologist who works at a new BHP Billiton mine called Area C, 100 miles east of Mount Whaleback, called that kind of demand "job security."

"They originally planned that this plant would produce four million tons of ore next year," he said. "Instead, we expect to produce 20 million in 2005."

Even more of a bonanza is China's demand for natural gas, which Beijing says it will use to start replacing coal.

At Karratha, another port south of Hedland, gas from 100 miles out at sea arrives through underwater pipes to be liquefied in a huge processing plant. Then, for the moment, it is pumped into a fleet of mammoth domed vessels for shipment to buyers like Japan and South Korea. China is the newest customer.

In the richest trade deal in Australian history, sealed after Prime Minister John Howard personally lobbied officials in Beijing, the Chinese agreed to buy a 25-year supply of liquid natural gas from the Australian company Woodside Energy for $25 billion.

The Australians beat Qatar and Indonesia in the bidding, even though their price was higher, because they could better guarantee a secure supply, said Lucio Della Martina, general manager for marketing at Woodside.

Huge as the deal was, negotiations are already under way for a still bigger deal - valued at $30 billion - for gas at a deposit called Gorgon, also off Western Australia.

Whether natural gas or iron ore, Australian sensitivities about foreign ownership of natural resources have been outweighed by the sheer size of the Chinese contracts. Just as compelling is the eagerness among Chinese and Australian diplomats and executives to lock in a mutually beneficial relationship for the distant future.

At BHP Billiton's headquarters in downtown Perth, where recent gifts from Chinese delegations are displayed along side older bearings from Japan and South Korea, Graeme Hunt, president of BHP Billiton's iron ore division, said the company had even invited Chinese mills to take a 40 percent stake in another iron ore mine, at Jimblebar, 30 miles east of Mount Whaleback.

The Chinese mills, he said, want a secure long-term supply and signed on for 25 years for an estimated $9 billion of ore. A slowdown in the Chinese economy was not a worry, Mr. Hunt said.

"We're still very confident," he said. "China is the fourth largest car producer in the world but most people still don't have a car. There's still a long way to go before the average Chinese person has all the material things of life."

U.S. Friends Uneasy

Just how American allies weigh their strategic relationship with America against the economic opportunities offered by China is fast becoming a front-burner issue. America's friends see a difficult balancing act ahead.

Among the most nervous is Singapore. China publicly scolded the new prime minister of Singapore, Lee Hsien Loong, before his inauguration in August, for visiting Taiwan, where Singapore trains its soldiers, even though his father, Lee Kwan Yew, had visited Taiwan many times. China said it would delay trade talks as a punishment.

The gravity of the threat was not lost on Mr. Lee. In his first major speech in August, the new prime minister hastily reaffirmed Singapore's support for a "one China" policy on Taiwan, which Beijing considers a renegade province.

For his part, Mr. Howard, the conservative Australian prime minister, boasted in August that one of his "great successes" was building a "very close relationship" with China while strengthening ties with Washington. He was proud, he said, that he had given symbolic parity to President Bush and the Chinese president, Hu Jintao, by arranging for them to speak on consecutive days before Parliament last fall, where Mr. Hu was given a warmer reception.

But there is also an underlying apprehension, which surfaced publicly for the first time in August. The Australian foreign minister, Alexander Downer, said Australia, which has been a stalwart American ally on Iraq, would have great reservations about joining the United States if a conflict broke out over Taiwan. Mr. Howard had to move quickly to set the record straight, dressing down his foreign minister by saying the remarks were "completely hypothetical."

Some in the Howard government are beginning to worry that Australia may not long be able to have its cake and eat it too when it comes to China and Taiwan.

Most countries in the region, like Thailand, are already on board with China's claim to sovereignty over Taiwan, and some in Australia worry that China is quickly chipping away at the last holdouts.

In his speech to the Australian Parliament, the Chinese president urged Australia to help seek a solution to the Taiwan question - a point interpreted here as pressing the country to choose between China and the United States on the issue.

Such crossroads loom even as the Chinese and Australian economies become increasingly intertwined.

Some high-level American officials warn that the United States is losing its once invulnerable position in Asia. James A. Kelly, the assistant secretary of state for East Asia and the Pacific, in unusually blunt testimony before Congress in June, listed Beijing's aggressive diplomatic moves and said they were being used to strengthen China's economic gains.

Even if American officials have trained most of their energies and attention elsewhere after 9/11, China's new generation of diplomats, like its ambassador to Australia, Fu Ying, are keenly attuned to the potential tug of competing allegiances, and seem prepared to plug any gaps.

Mrs. Fu was sent to Canberra to lock in Australia's energy resources. She is succeeding, and noted that even while the economic relationship brings the two countries closer, differences remain.

"When you had this kind of relationship with Japan you were from the same side of the fence," she said in an interview in an influential Australian newspaper, The Sydney Morning Herald. "No ideological barriers whatsoever. With China it is different."

"Do you understand China that well?" she asked. "And does China understand Australia that well?"

Those questions remain to be answered.