Politics plays out in regional economic relations, as Beijing’s ties strained with Manila and Hanoi

China is making massive economic inroads into Southeast Asia’s markets, but political tensions with Vietnam and the Philippines will hurt ties with Asean countries, some observers warn.

One case of China’s enormous clout in the region is Cao Yunde, a mainland Chinese man who became a Cambodian citizen. Cao holds ministerial rank in the Cambodian government and is a senior adviser to Chea Sim, the head of the ruling Cambodian People’s Party. He is also chairman of Khmer Resources Investment, whose shareholders include Chinese state-owned enterprises, Chinese private firms, and Australian companies.

Khmer Resources holds extensive exploration rights in Cambodia to minerals such as copper, gold and bauxite.

“Asean countries have become the biggest market for foreign investment from Chinese enterprises, commanding a total investment of US$12.43 billion over the past three years,” Cao said. The number of Chinese tourists visiting Cambodia was growing at 20 to 40 per cent annually, he added. China was the biggest investor in Cambodia, said Lim Hour, assistant to Chea Sim.

The Association of Southeast Asian Nations is China’s third-largest trading partner, and the region’s trade with China rose 10.2 per cent to US$400 billion last year, according to official Chinese data. China was also Asean’s fastest growing trade partner, with Sino-Asean trade expanding more than 10-fold since 1998, said Vachara Phanchet, former chairman of the Pacific Basin Economic Council.

The value of Sino-Asean trade could rise to US$500 billion by 2015, said Meidyatama Suryodiningrat, Jakarta Post chief editor at the Asian Financial Forum in Hong Kong last week.

“But in the short to medium term, politics will affect China-Asean economic relations. China-Asean ties are economically very hot, but politically cool, sometimes cold.” Beijing has discouraged Chinese tourists from visiting the Philippines and halted imports of bananas from there, due to souring relations between the two countries.

The Philippines and Vietnam were not represented at the forum’s China-Asean business partnership, said Lee Kim Yew, founder of Malaysian property group Country Heights. “That speaks for itself. The political relations are very important.”

China was the biggest foreign investor in Myanmar, followed by Thailand, with Hong Kong third, said Kyaw Hlaing, president of Myanmar Survey Research. China and Hong Kong account for half the foreign direct investment in the country. — Toh Han Shih, hanshih.toh@scmp.com