A new phase for production capacity cooperation among Lancang-Mekong countries
Production capacity cooperation is the heart of Lancang-Mekong Cooperation (LMC) in pursuit of common regional prosperity and synergized development. Such goals were enshrined in the Joint Statement on Production Capacity Cooperation among Lancang- Mekong Countries in 2016. A new initiative called “Multi- Nation, Multi-Park,” based on the experience of the China- Malaysia “Two Countries, Twin Parks” model, was launched at the 3rd LMC Leaders’ Meeting in August 2020. The leaders involved in designing the plan hold high expectations for its power to promote investment, create jobs, build capacity, reduce poverty, and foster technical and innovation cooperation.
In the present context of the COVID-19 pandemic and the resulting aggregation of capital and production capacity in East Asia, the new agreement marks an elevation of LMC production capacity cooperation which is expected to accelerate LMC members’ industrial transformation and lift their standing in the regional and global value chains while optimizing regional industrial chains.
China’s Economic Miracle Featured by Industrial Parks
Rapid post-war economic development kindled the need for special economic zones as early as the 1950s, when they first appeared in industrialized European countries. Normally designated by states, these zones are granted unique economic regulations different from other regions in the same country. Favorable policies like lower tariffs, tax waivers, and a more friendly business environment make these zones particularly attractive to profit-pursuing foreign direct investment (FDI). Although it originated in Europe, the practice has most heavily benefited developing countries in Latin America and developmental states in East Asia pursuing rapid industrialization in the wake of national independence waves in the 1960s. By leveraging comparative advantages in labor, land, and looser regulations, developing countries were able to accumulate capital by hosting labor-intensive light industries relocated from industrialized economies, but low-value added industries gradually lost their comparative advantages due to increasing costs of various input production factors.
Among the many developing countries that proactively adopted the practice was China, today’s second largest economy, thanks to the influence of successful pioneering East Asian tiger economies. China’s rapid economic leapfrog over the past four decades since the start of reform and opening-up in the late 1970s has been largely attributed to the introduction of special economic zones. In 1979, Chinese leader Deng Xiaoping unveiled the reform and opening-up plan and started rolling out export-oriented zones, first along the coast and later across the whole country. Since then, “zone fever” has infected all jurisdictions in China ranging from provinces to townships. Considering economic zones synonymous with economic growth, governments at different levels competed fiercely against each other to establish as many zones as they could to accommodate foreign investment regardless of costs. Buttressed by these zones, China embraced an unprecedented two-digit growth rate for almost three consecutive decades. In the first decade alone from 1979 to 1989, China’s foreign trade value jumped from 45.46 billion yuan to 415.5 billion yuan, a tenfold increase.
The new wave of opening-up jump, triggered by Deng Xiaoping’s 1992 Southern Trip, took the concept even further by allowing international economic zones to be established within China’s territory in which foreign countries could be not merely investors but also planners, designers, and managers who acted in building the zones. The first successful model was China-Singapore Suzhou Industrial Park (SIP) through which Singapore transferred its successful Jurong economic zone model and played a significant role throughout the process in selecting the site, planning the layout, managing development, attracting foreign investment, transferring software, and other realms.
Pioneering Example: Two Countries, Twin Parks
With the development dividends yielded by industrial parks, private Chinese enterprises started imitating the practice in neighboring countries in the 1990s under pressure from increasing costs of production factors and upgraded industrial chains. The first group of partnering countries was precisely along the Mekong River on the Indo-China Peninsula: Vietnam and Laos. Chinese governmental regulatory and financial support followed in the early 2000s, and establishment of overseas industrial parks seeking to promote international production capacity cooperation boomed. The benchmark for mature development and successful cooperation was the China-Malaysia “Two Countries, Twin Parks” project that designated Guangxi’s Qinzhou and Malaysia’s Kuantan to host twin collaborative international industrial parks. The practice of sister-industrial parks was pioneering not only for the two countries, but worldwide.
The China-Malaysia “Two Countries, Twin Parks” project was launched by both countries in 2012 as a bilateral attempt to deepen practical cooperation and consolidate the existing strategic partnership. The Chinese side attached even greater importance to making the project a flagship of bilateral cooperation and model for China-ASEAN cooperation at large. The project was designed to tap on the comparative advantages of the two countries’ endowment factors. The Qinzhou Park focuses on industries in palm oil, edible bird’s nests, halal food, biomedicine, advanced electronics, and new energy, and the Kuantan Park involves efforts in sectors of steel, tires, glass, and aluminum profiles. While celebrating the 45th anniversary of China-Malaysia diplomatic ties in 2019, both countries’ leaders commented on the twin parks’ preliminary success. At a side meeting during the 2nd Belt and Road Forum for International Cooperation, Chinese President Xi Jinping suggested the project could serve as an important nexus of the International Land- Sea Trade Corridor (ILSTC) as it enhanced the connectivity and development of the two countries and even the two regions at large. The Malaysian Prime Minister responded warmly to the suggestion. Such great expectations soon translated into action plans at the ensuing 4th Two Country, Twin Park project joint council meeting aiming to move to a 2.0 phase marked by extensive cooperation known as “Two Parks Plus Two Ports.”
Driven by classical Chinese economic development theory, local governments at different levels began vigorously competing for personnel promotions and fiscal rewards from the central government. The noticeable socio-economic success of the novel China-Malaysia “Two Countries, Twin Parks” project soon attracted attention from neighboring areas with similar endowment factors. Fuqing City in south China’s Fujian Province is now considering a version of “Two Countries, Twin Parks” with another pivotal Southeast Asian country: Indonesia.
A New Phase: Multi-Nation, Multi-Park
Since 2015, the LMC mechanism has nurtured significant bonds between the six countries along the international Lancang-Mekong River. After five years of joint efforts, the six countries reached a series of consensus on building a regional community of shared future. The year 2020 marked the 5th anniversary of the LMC mechanism and brought a new direction for cooperation. Drawing on the successful experience of “Two Countries, Twin Parks,” the “Multi-Nation, Multi-Park” project was launched to innovatively break through single and isolated park development and business attraction and enable parks to be connected first bilaterally between the two participating countries, and furthermore among other LMC member states. The project is particularly timely, considering regional economies are still suffering from the effects of the COVID-19 pandemic and urgently seeking new growth points for economic recovery and revitalization. The new dynamics in play are unexpected re-aggregation of international capital and production capacity in the East Asia region due to better pandemic control and prevention performance of regional countries. Such inflow has injected further impetus into the development and optimization of regional value chains and industrial product distribution.
China seeks to leverage its 300 million-plus emerging middle class to serve as a consumption end-destination alternative to the previous US and European markets, which aligns with its new economic development pattern of “dual circulation.” Essentially, the “Two Countries, Twin Parks” project and upcoming park network will accelerate formation of an East Asia regional economic circulation pattern in which regional production and consumption can enjoy more intraregional connectivity. A new strategic dimension of China and other regional countries becoming alternative end destinations is fewer constraints from the extra-regional trade regimes and regulatory authorities.
Chinese enterprises and governments have already established various international industrial parks with Mekong countries. All existing parks can serve as a good foundation for the “Multi-Nation, Multi-Park” program. In Cambodia, the key project is the special economic zone at Sihanoukville Port. The zone is recognized to be among the first group of overseas cooperation zones certified by China’s Ministry of Commerce and remains the only national level economic cooperation zone between the two countries. Even more impressive, it was purely an endeavor of Chinese private enterprises. The Chinese economic presence in Laos is also characterized by industrial parks such as the Mohan-Boten Economic Cooperation Zone and the Saysettha Development Zone covering energy, chemicals, engineering, agricultural products, and logistics. The former became the first cross-border economic cooperation zone along China’s southwestern borders. The Kyaukpyu Special Economic Zone and Baoshan-Mandalay Economic and Trade Cooperation Zone are results of joint efforts between China and Myanmar. The relatively greater development of Thailand and Vietnam has facilitated deeper cooperation with China. Typical projects include Rayong Industrial Zone on the east coast of the Gulf of Thailand and Long Jiang Industrial Park situated near Ho Chi Minh City in Vietnam. The former has employed over 30,000 local Thai staffers, and the latter has helped Chinese motor industries go overseas.
Built on the past five years of production capacity cooperation among Lancang-Mekong countries, the “Multi-Nation, Multi-Park” project is a timely and innovative initiative to elevate cooperation in pursuit of common regional prosperity and synergized development. However, the high level consensus still faces technical difficulties before it can be realized. Difficulties involving personnel, capital, and technology require intensive joint efforts to overcome. More convenient and flexible international personnel exchange could be facilitated through new visa policies that avoid the side effects of smuggling and trafficking. Official banking system support for the international flow of capital and transactions in different currencies would need caucuses between different central banks. Regarding technology, one hot issue in discussion is data flow and localization in light of disparities in digital capacity among LMC members. Whether bilateral or multilateral arrangements better serve national interests and regional pursuits is another issue anticipated to have long-term discussions. Such difficulties are not only challenges, but opportunities. As LMC members jointly overcome these difficulties, the ratification and roll-out of the Regional Comprehensive Economic Partnership (RCEP) will enable the region to enjoy robust dividends in the years to come.
By Hao Nan
About the author Hao Nan is an Assistant Research Fellow at the Charhar Institute. He received a Master degree in Public Policy from Lee Kuan Yew School of Public Policy at the National University of Singapore.