mainland corridors v.s maritime corridors in asean-china...

Working Paper in Economics and BusinessVolume V No32015

Mainland Corridors vs Maritime Corridors in ASEAN-China EconomicRelation

Maddaremmeng A Panennungi

July 2015

Department of Economics Faculty of Economics and BusinessUniversity of Indonesia

Working Paper in Economics and BusinessChief Editor Hera SusantiEditors Muhammad Halley Yudhistira Rusrsquoan NasrudinSetting Rini Budiastuti Moslem Afrizal

Copyright ccopy2015 Department of EconomicsDepartment of Economics Building 2nd FloorDepokWest Java Indonesia 16424Telp 021-78886252Email mhyudhistiragmailcomWeb httpeconfebuiacidkatagoriworking-paper

Contents

Contents 3

List of Tables 4

List of Figures 4

1 Introduction 1

2 Methodology 3

3 Development of GMS and Malacca Straits since 1990s 3

4 Comparison Economic Corridor of GMS and Malacca Straits in Relation withChina 3

5 Conclusion and Recommendation 751 Conclusion 752 Recommendation 7

6 References 7

List of Tables

1 Dynamic Economic Relation of China with GMS and Malacca Straits Economy 52 Comparison of Liberalization Simulation of China with GMS and Malacca Straits 6

List of Figures

1 Master Plan on ASEAN Connectivity 22 Corridor of GMS and Malacca Straits 23 China Export to the Selected Maritime and Mainland Corridors (Average Growth) 44 China Import from Selected Maritime and Mainland Corridors (Average Growth) 5


Maddaremmeng A Panennungi1lowast

Abstract

Based on the geography analysis It is found that the closer relation of China with GMS countries(Mainland Corridors) compared to Malacca Straits countries (Maritime Corridors) during severalpast decades has potential to marginalize Indonesia Malaysia and Singapore in ASEAN (Fau etal 2014) This paper is aimed at deepening the analysis of the development in both corridors byemphasizing economic analysis There are several methods used in this paper simple statisticsGTAP (Global Trade Analysis Project) and qualitative analysis This study find out (1) Chinaeconomic relation with GMS countries tends to have better progress than with the MalaccaStraits Countries (2) The potential gains from economic integration of China-GMS is higherthan China-Malacca Straits Countries (3) The competition of Malacca Straits countries with thedevelopment of alternative trade routes and coupled with the undermining Malacca Straits role inASEAN under ASEAN-China FTA have potential to isolate Malacca Straits countries in the future

JEL Classifications F15 F68

Keywords Malacca Straits Greater Mekong Sub Region (GMS) ASEAN China

1 Introduction

Economic integration in ASEAN hasachieved several progresses during the lasttwo decades Firstly ASEAN has changed itsnature from rdquoregional forumrdquo into action ineconomic relation with AFTA (ASEAN FreeTrade Area) Secondly ASEAN has movedinto broader integration by developing AEC(ASEAN Economic Community) and RCEP(Regional Comprehensive Economic Partner-ship) Thirdly ASEAN has involved broader

lowastDirector APEC Study Centre University of Indone-sia (ASC UI) dan Lecturer at Department of Eco-nomics Faculty of Economics University of IndonesiaThis paper was presented at China-ASEAN Develop-ment Forum 2014 14-16 July Nanning China Thisview is only reflects authorsrsquos opinion You can contactthe author at maddaremmenggmailcom

than economic integration by developingASEAN Community that include not onlyeconomy but also social and security

To support ASEAN economic integrationMaster Plan on ASEAN Connectivity concepthas been developed that consist of physical con-nectivity institutional connectivity and peopleto people connectivity as shown in the Figure1 below

Physical connectivity put attention on trans-port ICT and energy cooperation Institu-tional connectivity includes cooperation tradein goods (ATIGA) trade in services (AFAS)investment (ACIA) and transport facilitationagreement People to people connectivity con-sist of ASEAN tourism strategic plan ASEANEducation work plan and Mutual Regional Ar-rangements

1

Panennungi MAASEAN-China Economic Relations 2

Source ASEAN Secretariat (2013)

Figure 1 Master Plan on ASEAN Connectivity

In general connectivity in ASEAN is partof Asian connectivity that has been startedsince 1959 UNESCAP (United Nations Eco-nomic and Social Commission of Asia and thePacific) have defined what linkages should re-ceive priority under the Asian Highway andAsian Railway Standardized Asian Highway(AH) involves 32 Asian countries including In-donesia and Asian Railway including 28 Asiancountries Indonesia including AH 2 (Java andBali Island Network) and AH 25 (Sumatra Net-work)

Two important economic corridors inASEAN are Greater Mekong Subregion asmainland corridor and Malacca Straits asmaritime corridor GMS cooperation has beenpromoted by Asian Development Bank (ADB) since 1992 that involve two provinces ofChina Thailand Vietnam Lao PDR Cam-bodia and Myanmar while Malacca Straitshas been started by cooperation sub-region ofgovernment along Malacca Straits especiallyIndonesia Malaysia Singapore and Thailandunder IMS GT and IMT GT Even thoughThailand could be included in both GMS andMalacca Strait in this article is just included

Source Fau Nathalie et al (2014)

Figure 2 Corridor of GMS and Malacca Straits


in GMS because Thailand involvement inGMS is more significant than in MalaccaStraits Fau et al (2014) shows that recentdevelopment of GMS corridor is more dynamiccompared to the corridor of Malacca Straitsand this could marginalize Malacca Straitscorridors in ASEAN in the future by showingthe evidence that there are nodes developmentalong the corridors both as pair city and twincity Both of the corridors are seen below

This article is intended to compare theeconomic development of GMS and MalaccaStraits in terms of development of trade costexport import and simulation of potential eco-nomic impact of the cooperation between thetwo corridors

2 Methodology

This article uses several methods simple sta-tistical analysis simulation of trade liberal-ization using GTAP (Global Trade AnalysisProject) and qualitative explanation

3 Development of GMS and MalaccaStraits since 1990s

In GMS or Mainland Corridors is thecorridor development could be divided intothree decades (Taillard 2014) first decade(1992-2002) was focused on the Mekong andChao Phraya especially the North-South Cor-ridor (Kunming-Bangkok) East West Corri-dor (Khon Khen-Danang and Ubon-Pakse-Danang) Southern Corridor (Bangkok-Ho ChiMinh City-Vung Tau) second decade (2002-2012) was mostly affected by the inclusion ofGuangxi (China Province) in 2004 that af-fect the development of Northeastern Corri-dor especially the extension development of theKunming as the first wave [with MyanmarThailand Vietnam (and India) that connectthe GMS with major cities in China (BeijingShanghai and Guangzou-Hongkong)] into sec-ond wave in Nanning [especially with Qinzhou

Fancheng and Beihai] and third decade (2012-2022) has been more advanced orientation suchas rail network of coastlines or higher speedrailway

Maritime Corridor is mainly based on sub-regional cooperation Indonesia Malaysia andSingapore under IMS GT (Indonesia Malaysiaand Singapore Growth Triangle-previously un-der SIJORI) In addition IMT GT (Indone-sia Malaysia Thailand Growth Triangle) issub regional cooperation that consist Suma-tra Island (Indonesia) Malaysian Peninsu-lar and Southern Thailand There are fiveeconomic corridors are identified under flag-ship of IMT-GT to be extended (Banomyong2014) Songkhla-Penang-Medan the Straits ofMalacca Economic Corridor the Banda Aceh-Medan-Pekanbaru-Palembang Economic Cor-ridor the Melaka-Dumai Economic Corridorand the Ranong-Phuket-Banda Aceh EconomicCorridor Trade among sub region in threecountries shows that Peninsular of Malaysiahave better trade relation both with South-ern Thailand and Sumatra Island (Indonesia)however trade between Thailand and Indone-sia (Sumatra) is less significant These condi-tions put Malaysia as the main player in IMT-GT trade and compete with Singapore

Thailand is a special case because it couldbe art of mainland corridors or maritime cor-ridors However this article put Thailand asonly part of GMS due to Thailand economyis mostly connected with GMS countries thanMalacca Straits

4 Comparison Economic Corridor ofGMS and Malacca Straits in Relationwith China

China and India have been economic superpower for ASEAN both in the past and in thepresent condition However in the current con-dition China economic progress has shown bet-ter performance than India Another feature ofthe ASEAN economic development is not only


Source APEC Statistics based on UNCOMTRADE 2014 processed

Figure 3 China Export to the Selected Maritime and Mainland Corridors (Average Growth)

influenced by China but Japan and Korea pres-ence in this region have shown deeper relationHowever to assess the dynamic of GMS andMalacca Straits economic corridors this arti-cle is only emphasize the relation with Chinabecause for ASEAN ACFTA (ASEAN ChinaFree Trade Area) is the first economic cooper-ation under ASEAN with certain country

To show the dynamic relation with Chinathis article divide into two steps first show-ing the gradual relation of China with GMSand Maritime Corridors in some important in-dicators China bilateral trade cost with bothof the economic corridors export and importgrowth and some selected economic and socialindicators Second is showing the potential eco-nomic impact of the economic liberalization ofChina-GMS vs China-Malacca Straits

Gradual economic relation of China withGMS and Malacca Straits is shown in Table1 All indicators have revealed that gradualprogress of China relation with GMS (main-land corridors) is better than that of MalaccaStraits (maritime corridors)

Firstly bilateral trade cost reduction ofChina with mainland corridors is faster thanthe maritime corridor And there is a specialcase the fastest in trade cost reduction withChina is Lao PDR Secondly bilateral trade

performance of China with mainland corridoris better than maritime corridors

Additional indicators that affect the dy-namic economic relation of China-GMS andChina-Malacca Straits from selected of eco-nomic indicators Vietnam has the highest eco-nomic growth during period 1992-2012 but itsMFN tariff are highest around 95 This is oneof the explanations why China-Vietnam rela-tion and its potential has better performancecompared to others In contrast some indi-cators that explain why Vietnam has bettereconomic relation compared to Indonesia eventhough has the same comparative advantagein the labor intensive industry HDI (HumanDevelopment Index) of Indonesia is low andhas the same with Vietnam around 06 AndIndonesia has lowest Ease Of Doing Business(129) compared to Vietnam (98)

Table 2 shows the comparison of liber-alization simulation of China with coun-trieseconomies under the GMS and theMalacca straits based on standard model ofGTAP (Global Trade Analysis Project) It isexposed that potential economic advantagesof China-GMS relation is higher than China-Malacca Straits

For China Liberalization with GMS has abetter result in terms of welfare and economic


Table 1 Dynamic Economic Relation of China with GMS and Malacca Straits Economy

Indicators Mainland Corridors (GMS 2 Chinaprovinces Thailand Vietnam LaoPDR Cambodia and Myanmar)

Maritime Corridor (IndonesiaMalaysia Singapore)

Bilateral TradeCost1) of Chinawith

Progress of reduction of bilateraltrade cost of China with VietnamThailand and Lao are consistent andit is more than maritime corridor costreduction And Lao PDR has shownfaster progress during the period

Overall reduction in bilateral tradecost of China with maritime corri-dor (Indonesia Malaysia and Sin-gapore) has lower progress in com-pared to GMS

Average ofChina Export2)

to

Even though Export growth from China to Vietnam has decreased it hashighest growth both in 1992-2002 and 2003-2012 And Thailand experi-enced higher growth in the period 2003-2012 compared to 1992-2002China export growth to Indonesia and Singapore increased but export toMalaysia decrease from period 1992-2002 to 2003-2012


from

Average growth of import from China in Vietnam and Thailand decreasefrom 1992-2002 to 2003-2012 but higher than the other country in themaritime corridorsIndonesia import increased from period 1992-2002 to 2003-2012 butMalaysia and Singapore decreased in the same period

Notes 1)World Bank databankworldbankorgdataviewsvariableselectionselectvariablesaspx

source=escap-world-bank-international-trade-costs 2)APEC Statistics based on UNCOMTRADEprocessed 2)data are not available


Figure 4 China Import from Selected Maritime and Mainland Corridors (Average Growth)


Table 2 Comparison of Liberalization Simulation of China with GMS and Malacca Straits

Indicators Liberalization of China-MainlandCorridorsGMS (Thailand Viet-nam Lao PDR Cambodia andMyanmar)

Liberalization of China-MaritimeCorridor (Indonesia Malaysia Sin-gapore))

Welfare Changes(USD M)

China has higher welfare (USD155617 M) compared to otherGMS corridor (USD 131252 M)

Malacca Straits corridor welfare(USD 151141 M) is higher thanChina (USD 36701 M)

Growth () GMS corridor growth (019) ishigher than China (002)

Malacca Straits corridor (003) ishigher than China (001)

Inflation () GMS corridor inflation (051) ishigher than China (013)

Malacca Straits corridor inflation(045) is higher than China(002)

Export () GMS corridor export (158) ishigher than China (035)


Notes lowast)data are not available

Source GTAP Simulation based on GTAP Data Base 7

growth compared to liberalization with Mar-itime Corridor even though inflation and ex-port growth are slightly better with MaritimeCorridor For GMS countries impact on itswelfare growth and export are higher thanMaritime Corridor countries even though itsinflation is slightly higher than Maritime Cor-ridor It is clearly shown that the potential im-pact of the integration will benefit more onGMS countries followed by Malacca StraitsCountries and China

Both of the dynamic economic relation andeconomic impact of China integration withGMS and Malacca Straits economies haveshown that there is a potential of unequalbenefit of economic integration of China withASEAN countries under ASEAN-China FTA(ACFTA) There is a potential divergence be-tween GMSMainland Corridor countries ver-sus Malacca StraitsMaritime Corridor coun-tries And it is clearly seen that GMS coun-tries tend to be more integrated with Chinawhile Malacca Straits countries could be leftbehind This findings have strengthen geogra-

phy analysis of the corridors in Fau et al (2014)It is an early warning for Malacca Straits coun-tries especially Indonesia Malaysia and Sin-gapore Another important factor that couldaffect this corridors is the development othermaritime route the Northern Sea Route devel-opment due to the ice melting that help theroute to be more convenience for trade trans-port One of the example of the informationthat could support the challenge for MalaccaStraits from Northern Sea Route InformationOffice (2014)

rdquoA Chinese shipping company is planningthe statersquos first commercial voyage through theNorthern Sea Route to the United States andEurope in 2013 By 2020 China could transferup to 15 of the countryrsquos international tradethrough the Arctic With thawing sea ice coun-tries are rushing to the Arctic hungry for itsoil gas and mineral deposits China is mostlyinterested in using the Northern Sea Route fora more direct shipping link between east andwestrdquo

Combination of the marginalized Malacca


Straits in relation with China and the devel-opment of other sea route competitor will af-fect the future of the countries along MalaccaStraits especially Indonesia Malaysia and Sin-gapore

The possibility of the decreasing trade vol-ume that link Malacca Straits corridors will af-fect the existence of the countriescities alongthe Malacca Straits in the future This couldrepeat the history of the rise and fall of thecitiescountries along the silk route in thepast Among 25 of cities in the past con-nected by silk road in the past are AgraAleppo Baghdad Basra Beijing BukharaChangrsquoan Constantinople Damascus DelhiDunhuang Guangzhou Isfahan JerusalemKabul Karakorum Kashgar Kesh KhotanMarv Ormuz Samarkand Tabriz Taxila Ur-gench All of them are in 20 modern countrynow Since the sea trade route link has dom-inated the trade among countries those SilkRoad citiescountries were left behind and iso-lated unless they have been linked to the tradesea route

5 Conclusion and Recommendation

51 Conclusion

China economic relation with GMS coun-tries tends to have better progress than withthe Malacca Straits Countries In additionthe potential gains from economic integrationof China-GMS is higher than China-MalaccaStraits Countries

The competition of Malacca Straits coun-tries with the development of alternative traderoutes and coupled with the underminingMalacca Straits role in ASEAN under ASEAN-China FTA have potential to isolate MalaccaStraits countries in the future And the rise andthe fall of the citiescountries along the formersilk route in the past should be lesson learnedof Malacca Straits countries to survive in thefuture

52 Recommendation

Indonesia Malaysia and Singapore shouldanticipate the challenge of the future develop-ment of the Malacca Straits And how to im-prove their economic link with China and therest of the world is the key

6 References

[1] APEC Secretariate (2014) APEC Statistics Re-trieved form httpstatisticsapecorg

[2] Arvis etal (2013) Trade Cost in the DevelopingWorld 1995-2010 Policy research Working PaperWSP 6309 Public The World Bank

[3] ASEAN Secretariat (2013) Master Plan onASEAN Connectivity

[4] Banomyong Ruth (2014) Comparing CorridorDevelopment in the Greater Mekong Subregionand the Indonesia-Malaysia-Thailand Growth Tri-angle in Fau N et al (Eds) (2014) Transna-tional Dynamics in Southeast Asia the GreaterMekong subregion and Malacca Straits economiccorridors Singapore Institute of Southeast AsianStudies (ISEAS)

[5] Fau N et al (Eds) (2014) Transnational Dy-namics in Southeast Asia the Greater Mekongsubregion and Malacca Straits economic corridorsSingapore Institute of Southeast Asian Studies(ISEAS)

[6] North Sea Route (2014) North Sea Route Infor-mation Retrieved from httpwwwarctic-lio

comNSR

[7] Taillard Chritian (2014) The Continental Grid ofEconomic Corridors in the Greater Mekong Sub-region Towards Transnational Integration in FauN et al (Eds) (2014) Transnational Dynamics inSoutheast Asia the Greater Mekong subregion andMalacca Straits economic corridors Singapore In-stitute of Southeast Asian Studies (ISEAS)

[8] UNESCAP (2013) Asian Highway andTrans-Railway Haighway Retrieved fromhttpwwwunescaporgttdwcommonTIS

AHmapsah_map_latestjpg

[9] University of Washington (2014) SilkRoad Information Retrieved from http

deptswashingtonedusilkroadmaps

mapquizcitieshtml

[10] World Bank (2014) International Trade Cost Re-trieved from httpwwwdatabankworldbank

orgdataviewsvariableselection

selectvariablesaspxsource=

escap-world-bank-international-trade-costs

Contents

List of Tables

List of Figures

Introduction

Methodology

Development of GMS and Malacca Straits since 1990s

Comparison Economic Corridor of GMS and Malacca Straits in Relation with China

Conclusion and Recommendation

Conclusion

Recommendation

References

Working Paper in Economics and BusinessChief Editor Hera SusantiEditors Muhammad Halley Yudhistira Rusrsquoan NasrudinSetting Rini Budiastuti Moslem Afrizal

Copyright ccopy2015 Department of EconomicsDepartment of Economics Building 2nd FloorDepokWest Java Indonesia 16424Telp 021-78886252Email mhyudhistiragmailcomWeb httpeconfebuiacidkatagoriworking-paper

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Contents 3

List of Tables 4

List of Figures 4

1 Introduction 1

2 Methodology 3




6 References 7

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List of Figures




Abstract




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Conclusion

Recommendation

References

mainland corridors v.s maritime corridors in asean-china...

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