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The Mittal/Arcelor case in the interpretation of the School of Economic Warfare

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Among the examples of economic warfare provided by the School of Economic Warfare in Paris, it is worth mentioning the case of Mittal’s takeover of Arcelor and the situation of European iron and steel industry vis-à-vis financial globalization.

Over the years, the increasing number of takeovers, unions and joint ventures became an for market competitiveness. In this context, some of the takeovers stand out as hostile financial actions aimed neutralizing the opponent. Such strategic maneuvers are a significant source of concern for economic operators, as they observe the reaction of both private and public sector, which is likely to intervene in order to protect the sectors of national interests.

The acquisition of Arcelor operated by Mittal is a case in point because it involves steel, which is both one of the symbols of the European industry and the main material for other productive and strategic sectors. Both Mittal and Arcelor were two titans of the steel sector: while Mittal’s primacy consisted in the largest number of employees and produced materials, Arcelor could count on the most robust trade volume. In fact, when Mittal took it over, Arcelor was a very healthy company that had just incorporated the Canadian company Dofasco. Through this surprising trial of strength that no political or economic operator could have foreseen, Mittal secured a significant advantage on its competitors. In order to understand the strategic interests of this acquisition, it is necessary to examine Mittal’s communication campaign and the lobbying role of all the players, from the steel market to public opinion.

Looking at the steel market trends between 1980 and 2005, it is possible to notice that since the minerals coming from the Soviet Union entered the global market in 1992, both prices and demand of iron ore and steel increased significantly. If it is true that over a hundred countries produce steel, there is only a small group of states that influence its market trend:  Brazil and Australia, for example, control 42% of the steel market.

Due to the impressive growth of recent years, China alone accounts for 40% of global steel production (349 million tons in 2005), of which only 3% is exported. One of the first crisis occurred when China decided to limit the export of carbon coke – the main fuel for blast furnaces. This resulted in a spike in prices of 600% and showed how a given economic choice (driven by the desire of full independence) had remarkable strategic repercussions.

In order to discuss the conflict emerged with the Mittal/Arcelor case, the School of Economic Warfare provides a deep analysis of the actors involved.

Mittal

The Mittal family was the majority shareholder of this company and its funds were located in tax havens. If on the one hand the choice of acquiring Arcelor was motivated by economic and fiscal reasons, on the other hand it also hides some interests that the economic warfare should explore. The Mittal family remained the majority shareholder (51%), whereas the remaining part was divided between investment funds and institutions. In designing such a stake distribution, Mittal showed its strategic intelligence: with such a property assets arrangement, it was impossible for Arcelor to regain its business through another takeover.

Arcelor

Since it is more difficult to convince more shareholders to sell their quotas rather than a single one, it is more difficult to take over a business when there are multiple owners. Therefore, from the strategic point of view, Arcelor’s large pool of stakeholders discouraged competitors from acquiring it. Besides, Arcelor benefited from a strong political support on the international level thanks to its strong ties with governments and to its strategic appeal, since it was the symbol of a united Europe. The main shareholders of Arcelor –involved in the evolution of the company – were:

–              The Luxemburg government: traditional stakeholder, represented at that time by Prime Minister Jean-Claude Junker, who had been very active on the European level and who initially opposed the acquisition of Arcelor by Mittal.

–              The Belgian government, namely the Wallonia region, which also opposed Mittal acquisition after consulting Banque Lazard.

–              Colette Neuville, who held 2.5% of the stocks and represented the small shareholders, abstained from voting on Mittal acquisition. Even though she had such a small quota, Neuville could have played an important role due to the fragmentation of Arcelor ownership.

–              Romani Zaleski, French-Polish major shareholder and key man of Arcelor.

In order to secure its interests Mittal influenced decision makers and public opinion thanks to a network of associates:

–              John Ashcroft, representative of the U.S. Republican right-wing party, Attorney General between 2001 and 2005. At the end of his political career he founded a lobbying agency and was hired by Mittal because of his moral integrity and relations with several members of European governments.

–              Anne Méaux, press officer of Giscard d’Estaing, director of communication for Alain Madelin, who had entertained long term relations with prominent members of the French right-wing party.

–              Partner banks of Mittal Steels. There were five banks which acted simultaneously to support Mittal’s takeover of Arcelor: Goldman-Sachs, Crédit Suisse, HSBC, Citigroup and Société Générale. Goldman-Sachs, which had been previously involved together with Citigroup in Arcelor’s acquisition of Dofasco, played a prominent role in Mittal’s takeover of Arcelor; Société Générale opened up an eight-million-euro credit line for Mittal.

Arcelor’s network was quite complex. It mainly consisted in both personal and business relationships: the actors would pursue their own interests while immerged in a broader network of bigger interests that would tower over those of the single actors:

–              BNP Paribas and Calyon, Arcelor partner banks that had traditionally offered financial support.  Merrill Lynch and UBS drafted the strategy while other institutions were also involved: Michael Zaoui from Morgan Stanley (brother of Yoel Zaoui, main strategist of Mittal) was appointed by Arcelor Management Board to consider Mittal’s offer.

–                  DMG – Michel Calzaroni, international communication agency, embraced market battles on behalf of food titans and French energy companies.

–       Public Opinion. In order to influence public opinion, Arcelor chose Publicis Group, second best rated consultancy and media acquisition company.

–       Skadden Arps, international law firm whose team was made of twelve professionals from France, Belgium and United Kingdom.

Mittal’s acquisition of Arcelor was supported by a well-designed communication campaign. Communication capacities are an essential asset for big firms, especially for those with a large number of shareholders like in the case of Arcelor, where small investors represented 85% of shareholders. In fact, this was the main problem Mittal faced when acquiring Arcelor, even more than the legal and economic aspect or the anti-trust regulations. While competition authorities of the United States, Canada and European Union were in the process of approving this operation, Mittal was allocated huge economic resources in convincing thousands of investors to support its project.

Between the above mentioned personalities, Anne Méaux played a very special role in the deal: she chose a strategy using multiple communication tools (such as press conferences, advertising on business magazines, conference calls and travels to Mittal headquarters) in order to convince the investors of the opportunities of the project; in a context of economic warfare, these communication strategies are able to address competitors with hostile messages. Mittal’s strategy was very detailed and engaged trade unions as well. Since February 2006, Mittal Steel had committed to communicate to Arcelor’s trade unions representatives its intentions about the industrial plan supporting the acquisition. The main points were occupational advantages and better work conditions, together with promise of keeping in place the agreements they had previously made with Arcelor.

Mittal also conceived a special communication strategy targeting shareholders mainly using specialized press and popular weekly magazines. Communication agencies focused on conveying a very positive image of the leader Lakshimi Mittal, through describing him as a successful self-made-man able to gather consensus both between businessmen and public opinion. Their goal was portraying Mittal as a successful entrepreneur interested in the development of his country; this made him much different from foreign investors that delocalized investments and performed a “reverse colonization” both on the economic and cultural side.

Arcelor counter-campaign, instead, presented Mittal as an inferior competitor presenting an “Indian” offer, derogatorily referring to India as a poor country (quite inappropriate considering India’s fast paced economic development).  Supported by the belief to be able to rely on state aid, Arcelor tried every possible way to contrast Mittal’s attack and offered its small investors twice as much the dividends of 2005, hoping that they would have rejected Mittal’s offer. Since Arcelor’s strength consisted in the division of the ownership between small investors, in April 2006 this company offered another increase in the dividends. A month later, Arcelor announced to have received a very interesting takeover offer from a Russian company named Severstal: Mordachov, Severstal’s tycoon, would have acquired 32% of the company and the investors would have benefited from even more advantageous distributions of the dividends. Due to the initial lack of enthusiasm of Arcelor’s investors, Severstal decided to reduce its participation to 25% (that secured its position as majority shareholder), while discouraging Mittal from acquiring Arcelor and reassuring small investors on their pretty substantial profits.

Mittal’s decision to approach directly the group of Arcelor’s investors resulted in a winning move: almost the entire management board of Mittal – included Lakshimi Mittal – met with 70% of Arcelors investors and established open communication. This helped convincing their counterpart of the advantages of their acquisition offer.

This way, Mittal Steel managed to buy 34% of the Arcelor’s stake in May 2006. As the takeover took place, Mittal created the new management board in order to meet reassure the investors’ concerns about Lakshimi Mittal’s management, such as transparency of decision-making and compliance to share ownership arrangements. At the end of May, another key step was taken: in relation to a speculative investment fund, Goldman Sachs together with almost 30% shareholders requested to modify the approval procedure of Severstal proposal. At this point, the intervention of Zaleski – Arcelor’s majority shareholder – helped reaching a final solution. Thanks to the alteration of the procedures that Goldman Sachs had requested, Zaleski managed to buy more than 7.8% stocks so that by June 25th, Arcelor was fused with Mittal Steel with a final agreement granting shareholders 10% profits.

This case study highlights the importance of economic warfare that aims at protecting strategic sectors of a given field, preserving the resources and ensuring the employment development of related fields and more specifically of the industrial sector.

Besides the economic aspect of this kind of warfare, the School of Economic Warfare in Paris insists on its geopolitical aspects. In this perspective, the case discussed above has a number of hidden implications. For example, Mittal’s takeover of Arcelor can be interestingly considered as an operation aimed at containing Chinese expansionism.

Looking at the role of the United States, it is possible to argue that since the end of the Cold War, this country has adopted quite a unilateral approach in foreign policy that supported its role of world’s first economic power. Whoever challenges the American power, automatically becomes a rival, especially on the economic level. In this regard, China is a dangerous competitor that is able to successfully join forces with some African countries: through investing in education without linking any conditionality of human rights respect or fight against crime, Beijing creates alliances in another continent and gains profits from its own investments.

Besides, the Chinese government even reached a number of agreements with South American countries that are not limited to the economic sphere but also involve cultural aspect like the spread of Chinese language and culture. In Asia, China and India sealed an important deal aimed at going beyond containing the historical rivalry between the two countries: promoting in the Asian continent an environment of cooperation that is able to challenge the dominance of the United States.

Since India is the only regional actor able to contain China, the USA repeatedly tried to engage India as a trade partner, as mentioned in the deal between the two countries sealed in 2000.

In order to ensure its own economic growth and independence from other actors, China and India increased significantly their steel production and manufacturing.

In 2005, China’s consumption of steel accounted for one third of the world steel market and the very same year, Beijing became a prodigious exporter of steel. In the same timeframe, India’s steel production exceeded the needs of the country and this compromised supply-demand balance. In such a delicate phase for the steel sector, the political world did not welcome Mittal’s acquisition of Arcelor because of its impact on the strategic balance of power. From the United States perspective, Mittal was quite interesting and profitable:

–              according to the authorities of the country, Mittal Steel group was not Indian;

–              the reason for Mittal’s economic expansion was China. In fact, in 2004 Mittal was the first foreign company that managed to acquire 37.17% of a Chinese steel company.

The US financial community welcomed the fusion between Arcelor and Mittal, but the Department of Justice opened an investigation in order to make sure that the US could continue import large amount of steel from Arcelor. Besides, even on the financial level, Mittal’s acquisition of Arcelor confirmed the general world trend of the strategic formation of a few stable economic hubs.

As a final consideration on this topic, the European Union’s behavior vis-à-vis Mittal’s operation was quite surprising. Even though the EU originated from European Coal and Steel Community, (the organization promoting free trade for coal and steel), it did not adopt any measure to protect such a strategic sector whose value was both economic and symbolic.

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China’s economic slowdown and its implications for the rest of Asia

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China’s economy has slowed down considerably since the past year. The key reasons for China’s slow growth are its stringent lockdowns, to achieve its objective of a zero covid policy. Here it would also be pertinent to point out, that many of Chinese President Xi Jinping’s policies especially tightening of credit for the real estate sector had an adverse impact on the real estate sector and the economy as a whole (according to estimates, real estate counts for 29% of the country’s Gross Domestic Product (GDP). A number of Chinese real estate developers have been downgraded by Moody’s. A number of companies, including Evergrande are part of the B3 category, which denotes “speculative and are subject to high credit risk’.

  In August 2022, Chinese Premier Li Keqiang while commenting on the slowdown said:

‘A sense of urgency must be strengthened to consolidate the foundation for economic recovery’

There is a growing realisation that a further slowdown could lead to serious social problems, the stringent lockdowns have resulted in growing unemployment.

A number of steps have been taken to prevent the slowdown, such as Real Estate Sector and steps for Small Medium Enterprises. In August 2022, the Chinese government offered support to the tune of US $29 billion to Chinese real estate developers so that they can complete stalled projects and deliver them to home buyers. Earlier this year, China’s government announced that it would provide fiscal concessions and tax exemptions to MSME’s to small businesses in China. One of the key factors behind this course correction by Xi Jinping  was the 20th national congress of the Communist Party will be held from October 16, 2022 (Xi Jinping is likely to secure a third-term and also consolidate his hold over the party and consolidate his position as the most powerful leader after Mao Zedong)

Challenges still persist for China’s economy

Reports of multilateral agencies clearly point to China’s growth in 2022 being well below earlier estimates and targets. According to a World Bank Report, growth in 2022 for the Asia-Pacific region is likely to be a little over 3% (3.2%), while China’s growth is likely to be 2.8%. China had targeted a growth of 5%, and even multilateral agencies had estimated that the country would grow at over 5%

An Asian Development Bank (ADB) report which estimated that China’s growth will be a little over 3% states that ‘developing’ Asia  (which includes Cambodia, Bangladesh, Nepal, Myanmar, Sri Lanka etc) will grow at over 5% and highlights a significant point, that the last time China grew slower than the rest of Asia was in 1990, when China grew at below 4% (3.9%) and the rest of the region grew at 6.9%. Emerging Asian economies which include China, India, Indonesia, Thailand, the Philippines and Vietnam are likely to grow at 4.3% in 2022 and 4.9% in 2023 again a drop from earlier estimates.

It would be pertinent to point out, that a number of foreign investors in China have also complained about the lockdowns and restrictions. While in the short run, it is unlikely that they will shift their operations in a big way, they are likely to look for alternatives.

In contrast to China, the rest of the region has benefited from easing out covid19 restrictions. Says the ADB report:

‘Easing pandemic restrictions, increasing immunization, falling Covid-19 mortality rates, and the less severe health impact of the Omicron variant are underpinning improved mobility in much of the region’

Can ASEAN and South Asia benefit from China’s slowdown?

    The case of Association of South East Asian Nations  (ASEAN) countries is especially important, because their policies with regard to covid have been fundamentally different from that of China. Opening up of borders has given a boost to the tourism sector in the region — especially Malaysia and Thailand.  This is important, because tourism accounts for a significant percentage of the GDP of these economies. Here it would also be pertinent to point out, that a number of companies have moved out of China, in the aftermath of covid 19, with Vietnam being a favoured destination due to its geographical location and other economic advantages (some companies have also moved to other ASEAN nations as well as India).

Even the stock markets of these countries have been doing reasonably well. In April 2022, analysts from JP Morgan and Goldman Sachs had picked Indonesia, Vietnam and Singapore as their favourite markets, while last month Credit Suisse said its favourite market in the region was Thailand.

In conclusion, while there is no doubt that China has been driving economic growth not just in Asia, but globally, it is unlikely that its economic challenges are likely to reduce in the short run. It is not just covid, but Xi Jinping’s economic policies which have been responsible for the slowdown. The biggest beneficiaries of China’s covid19 policies as well, as it’s slowdown in the longer run, would be the ASEAN region — especially countries like Vietnam and Indonesia —  along with South Asian nations – especially India and Bangladesh who with investor friendly policies could attract more companies seeking to relocate from China.

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Russia Struggling to Explore Africa’s Market

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Building on post-Soviet relations with Africa, Russia has been struggling for strategies on how to establish economic footprints, promote investment and deepen cooperation in Africa. Despite the road map adopted at the end of the first Russia-Africa summit held in October 2019, little has been achieved since then.

Late September, the Regional Chamber of Commerce and Industry welcomed the participants to another round of conference under theme: “Russia-Africa: Prospects for Cooperation” held in St. Petersburg. That gathering featuring a few interested Russian enterprises was part of a series of steps brainstorm and discuss opportunities, developments and challenges with regards to the preparation of the forthcoming Russia-Africa summit planned for July 2023.

Additionally, the goal of this St Petersburg conference event was in line with the priorities on how to engage with credible investors who can partner with the government and private sector to exploit the market. It discussed the possibilities of strengthening partnership between Russia and Africa, as well as issues related to export/import, logistics and peculiarities of working with African partners.

Vice President of the Chamber of Commerce and Industry of the Russian Federation Vladimir Padalko welcomed the participants via video link from Moscow. In the video, Padalko emphatically reminded that “preparations for the second Russia-Africa summit, scheduled for July 2023 in St. Petersburg, are in full swing and we should come to it with concrete results in the form of agreements ready for signing.”

According to him, the Coordinating Committee for Economic Cooperation with African Countries should focus on conducting business missions that would identify specific areas for conducting business cooperation with African countries. It is necessary to help Russians to learn what the African market is, so that they are not afraid of taking investment risks in Africa. 

Padalko said that the prejudices that Russians have regarding Africa should be overcome. He referred to his own experience, emphasizing that the first trip to the African continent made him change his mind significantly about the opportunities offered by cooperation with Africa. Russia is trying hard to improve its commercial relations with its African partners. In 2009, it established the Coordinating Committee for Economic Cooperation with sub-Saharan Africa to assist in promoting Russian business interests in Africa.

Senator Igor Morozov, Chairman of the Coordinating Committee for Economic Cooperation with African Countries, called for increasing the pace and level of cooperation with African countries through, as he put it, “bringing small and medium-sized businesses to Africa.” 

According to him, Russia is far behind in its activity on the African continent from such countries as the United States, Britain, China, France and even India and Turkey. These countries are developing a network of technology parks, working in the continental free trade zone, participating in the development of the infrastructure of African countries, the construction of roads, bridges and railways.

Senator Morozov noted that “Russian business does not have the tools to enter Africa ​​and, above all, in the field of the banking system. No other banks give guarantees to Russian business. According to him, African countries are interested in the supply of agricultural machinery, and in this sense, the Kirov Plant in St. Petersburg may have good opportunities. And in this sense, we should take an example from our Belarusian friends.” 

That was not the first time analyzing the development of business and trade elations with Africa. The African market is competitive and complex, therefore Russian business needs to work thoroughly and systematically in it in order to achieve success.  It is necessary to help interested businesses willing to navigate African realities, find a niche for their work, learn about the conditions for entering certain markets.

According to Morozov, there is really the need for a specialized investment fund to support entrepreneurs. In general, with the prospect of working with African partners for many years, more serious state support is needed, and finally suggested that it is necessary to return to barter trade and concessions, which will make it possible to obtain minerals from Africa.

“We need to develop our international payment instruments – sanctions are already being imposed against the Mir system,” he said. A great deal of hope is being placed on the working group for developing new mechanisms in currency regulation and international settlements led by Kremlin aide Maxim Oreshkin, “which is supposed to work out these mechanisms soon,” Morozov said.

“We need to see how we will work within the framework of national currencies” and use them for settlements with African countries, he said. “We need to work in this direction, understanding that SWIFT will never again be [the main system for interbank payments] for us,” Morozov, who also serves on the Federation Council’s Economic Policy Committee, said.

Talks on options for settlements between Russia and African countries in the current economic circumstances are already being held, but “we shouldn’t get ahead of events. African central banks are already beginning to come [to Russia]. Everyone understands that we are leaders in grain exports, leaders in sunflower oil, mineral fertilizers, and it is necessary to settle up,” Morozov.

Other options for settlements could be barter and concessions. The outlook for cooperation and possible Russian projects in Africa, Morozov said Russia can offer its competencies in hydropower, electric passenger transport, automobile manufacturing, farm machinery and pharmaceuticals. Afrocom operates with the support of the Russian Chamber of Commerce and Industry, the Federation Council and government institutions, according to the committee’s website.

Associate Professor Ksenia Tabarintseva-Romanova, Ural Federal University, Department of International Relations, acknowledges huge existing challenges and perhaps difficult conditions in the current economic cooperation between Africa and Russia. Creating African Continental Free Trade Area (AfCFTA) is the most important modern tool for the economic development of Africa, and this is unique for exploring the market and to get acquainted with the opportunities that it offers for business cooperation.

She, however, maintains that successful implementation requires a sufficiently high level of economic development of the participating countries, logistical accessibility, developed industry with the prospect of introducing new technologies. This means that in order for African Continental Free Trade Area to effectively fulfill its tasks, it is necessary to enlist the provision of sustainable investment flows from outside. These investments should be directed towards the construction of industrial plants and transport corridors.

Speaking earlier in an interview discussion, Tabarintseva-Romanova pointed to the fact that Russia already has vast experience with the African continent, which now makes it possible to make investments as efficiently as possible, both for the Russian Federation and for African countries. In addition, potential African investors and exporters could also explore business collaboration and partnerships in Russia.

Local Russian media, Rossiyskaya Gazeta also published an interview with Professor Irina Abramova, Director of the Institute of African Studies under the Russian Academy of Sciences, focusing on the economic cooperation with Africa. In this interview, Abramova reiterated explicitly that Russians have to do away with negative perceptions and attitudes toward Africa. The change in attitudes has to reflect in all aspects of the relationship with Africa and Africans.

“In Russians’ minds, Africa is synonymous with backwardness, poverty and hunger, which is not true at all. It is currently one of the most promising regions for foreign investment. In fact, it is a tiger ready to pounce. Africa today is in the same situation that China was in the 1990s. Today, China is the world’s number-one economy in purchasing capacity, a strong power which largely determines global development,” she explained.

“Africa is the zone where all big players overlap since its geographic location between the east and the west puts it at the peak of controversy and big game between all players, meaning between Europe and America, on the one hand, and China, India and other countries, on the other. And if Russia poses as a superpower it will lose its global influence without indicating its position in Africa as well,” she said.

According to her, seven African countries specifically Egypt, Algeria, Morocco, South Africa, Tunisia, Nigeria and Sudan, account for nearly 90% of Russia’s trade. “At the same time, China is present in almost all African countries. Millions of Chinese work in Africa today. It is a good moment for Russia now, because Western partners are trying to impose their values on the Africans, while China is dealing with its challenges at the expense of Africa,” the expert stressed.

The middle class is expanding very fast there, already amounting to 250-300 million people and this constitute a huge consumer market for products and services, according to her estimation.

Professor Abramova noted that it is a very good market for Russian products. The Chinese understood that long ago and are tapping the African market, having flooded it with their products, though Russia also has opportunities as it is fairly competitive in the energy, infrastructure and agriculture sectors, and exporting products such as fertilizers, trucks and aircraft supplies.

The fact that many prominent politicians and businessmen of the African continent graduated from Russian universities and speak Russian well contributes to strengthening of Russian-African relationship, the expert said, adding though that a new generation is about to take over in Africa, which is also reason why Moscow should maintain the existing solid social and cultural ties.

Senator Igor Morozov and Professor Irina Abramova are both members of the Kremlin’s Committee assigned the responsibility for coordinating and preparations for the next Russia-Africa summit in July 2023. Both Russia and Africa had problems finding a suitable African venue for the summit. The joint declaration adopted in Sochi says the summit be held every three years and the venue alternated between Russia and Africa.

Sampson Uwem-Edimo, President of the Nigerian Business Council and General Director of Trailtrans Logistic LLC, delivered a report “Nigeria as a Window to Africa” and further stressed that Russia does not have a common strategy on how to enter African markets, which exists, say, in China or France.

By removing barriers to trade in the region will create new entrepreneurial activities and spur innovations in technology. Now the African Continental Free Trade Area (AfCFTA) seeks to create better conditions for investment. On the other hand, Russian corporate directors most often have problems with their business in Africa. The key obstacles ranging from their inconsistencies in approach, poor knowledge of the local political and business environment. Russians must also invest more in R&D collaborations with their African partners.

According to him, while Russians hope for brisk business, many African business leaders today are still Western mind-oriented, have various support from the United States and Europe. But the practical reality, Russia could still steadily transfer technologies for local processing of raw materials as a catalyst for Africa’s development.

Uwem-Edimo noted that such former colonial powers as France and Great Britain, although they left their colonies, keep control panels in their capitals. The Nigerian businessman, who spoke in Russian, introduced the conference participants to the opportunities and vast potential of the African continent, focusing on Nigeria, which makes up 18 percent of the continent’s population – 240 million people.

President of the St. Petersburg Chamber of Commerce and Industry, Vladimir Katenev, also addressed the conference participants with a greeting. The moderator was Ekaterina Lebedeva, Vice-President of the St. Petersburg Chamber of Commerce and Industry Union, who called on representatives of the business community, in spite of the emerging challenges, to consistently work towards prioritizing Africa.

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China-ASEAN Comprehensive Strategic Partnership: A Shared Future for Pursuing Regional Economy Integration

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For ASEAN, China is a neighboring country as well as a strategic partner in various fields, especially in the economic field. China has become the largest ASEAN trading partner for 13 consecutive years since 2009 (Global Times, 2022).

A survey conducted by the ISEAS-Yusof Ishak Institute to more than 1,600 ASEAN citizens said that 76.7% of them chose China as the most influential economic power in ASEAN (Heijmans, 2022). China has also grown to become an economic giant in the Asian region and is predicted to surpass the US as the world’s strongest economy by 2030 (Jennings, 2022).

This mutual relationship between China and ASEAN is getting stronger after the agreement of the Comprehensive Strategic Partnership (CSP). In the economic aspect, the implementation of the CSP is carried out in line with the Belt Road Initiative (BRI) and the Regional Comprehensive Economic Partnership (RCEP) project. Both projects are grand plans that have been prepared for economic integration and encouraging a more inclusive trade between two parties.

On the other hand, ASEAN also has a similar agenda in the region, which is to build an economic community that regulates trade as well as delivers economic benefit to its members. The common vision between China and ASEAN certainly smoothes the process of this cooperation. Then, how can China and ASEAN achieve their common goals? Are there any obstacles and challenges that they will face in implementing this CSP?

China-ASEAN: Sharing The Same Economic Vision

In pushing its foreign policy agenda, China has made visits to various neighboring countries in recent years. Rather than building an image as an economic great power, China focuses more on a friendly approach by promoting “a community with a shared future” to its neighbors (Wei, 2022). As a close neighbor and strategic partner, ASEAN become the one whom China wants to share the future with.

For ASEAN, BRI and RCEP itself have an aligned purpose with the establishment of the ASEAN Economic Community (AEC). AEC aims to promote a single market and product base, a highly competitive region, with equitable economic development (ASEAN, 2020a). Through AEC, ASEAN also commits to a freer flow of goods and services, and eases the distribution of skilled labor and the flow of capital in the region (Asian Development Bank Institute, 2015).

ASEAN’s ambition to build an integrated regional economy sounds promising. However, building an integrated economy ecosystem doesn’t only require geographical proximity, but also an adequate infrastructure (Donghyun et al., 2008).

Even though Southeast Asia is rich in resources and manufacturing, some areas still suffer from infrastructure lack and slow industrial development. Several ASEAN countries still have poor transportation infrastructures. In fact, transportation is a key factor in fastening economic distribution.

At this point, China came up with a BRI project plan which mainly prioritized large investments in transportation infrastructure (Donghyun et al., 2008). This long-term project has ample potential to provide infrastructure and other development facilities, hence promoting the growth in the region (Iqbal et al., 2019).

The CSP also regulates the Regional Comprehensive Economic Partnership (RCEP) agreement that aims to broaden and deepen free trade activity between ASEAN-China, Japan, Korea, New Zealand, and Australia (“RCEP: Overview and Economic Impact,” 2020). The RCEP later marks the birth of the world’s largest FTA which surely opens up wider trade and market access for ASEAN.

The RCEP will also help both China and ASEAN forge mutually beneficial industrial chain and supply chain partnerships, also to shape more inclusive trade cooperation in the future (Bo & Jing, n.d.). This opportunity is expected to be an open door for ASEAN integration with global trade, which is also the initial mission of AEC. Also can attract other countries to plant their foreign investment in ASEAN countries (ASEAN, 2020b).

For China, BRI and RCEP are essential to strengthen China’s position in the region. China is contriving to build “literal and metaphorical” bridges as a connector and a highway to greater influence in global politics and economy (Lockhart, 2020).

Overcoming Challenge

Both China and ASEAN share great economic interests in the CSP agreement. This makes both parties find a smooth path in the negotiation and agreement process. However, in the implementation process, ASEAN and China need to be more serious and committed.

ASEAN is currently in the process of compiling the ASEAN Economic Community (AEC) Blueprint 2025. The mid-term review criticized the uneven implementation of the AEC blueprint, with “easier” initiatives prioritized over challenging commitments. Both policy-making processes at national levels and practice need to be in line in order to reach common goals (Chen & Jye, 2022).

The Covid-19 pandemic becomes another obstacle to realizing economic integration in the region. The pandemic hits ASEAN quite heavily, where currently the members are still concerned about restoring the stability of the domestic economy. The cooperation with China is used well by ASEAN countries at the national level, such as the proposal submission for building several economic infrastructures by Indonesia, encouraging digital development in Thailand, signing economic bilateral relations with Vietnam, etc. Yet for the regional purpose, it still needs to be maximized.

The CSP begins a higher level of relationship, as reflected in the deeper cooperation, shared normative frameworks and institutionalized cooperative mechanisms, and high-level political commitment and priority from China and ASEAN (Ha, 2022). It will be less than optimal if ASEAN only sees CSP as a bridge to strengthen bilateral relations with China. ASEAN needs to view CSP as a strategic relationship for an ideal future of regional economic integration.

For optimizing the common goals for both, mutual political trust is the basis and safeguard (Bu, 2015). CSP does not happen overnight, building connectivity and an integrated ecosystem is a large-scale and long-term project. In order to reap the rewards of this investment and agreement, active dialogue, healthy relations, and stable growth of the upbringing of China-ASEAN relations must be strived by both parties.

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Mozambique Readies For Developing Mphanda Nkuwa Hydroelectric Project

Mozambique is ramping up efforts toward establishing a sustainable energy supply to drive its economy especially the industrialization programme. As...

Defense7 hours ago

A Matter of Ethics: Should Artificial Intelligence be Deployed in Warfare?

The thriving technological advancements have driven the Fourth Industrial Revolution nowadays. Indeed, the rapid growth of big data, quantum computing,...

Health & Wellness8 hours ago

HL7 FHIR, the Future of Health Information Exchange?

Health Level 7 International is an association that calls itself a non profit organization, ANSI-accredited standards developing organization devoted to...

New Social Compact9 hours ago

Women’s Plight During Natural Calamities: A Case Study of Recent Floods in Pakistan

Recently, at the United Nations general assembly, the Prime minister of Pakistan’s speech started with the challenge of climate change,...

Defense11 hours ago

Between the Greater Russia and the MAD

With ‘The Greater Historical Russia’, the impossible that the dream appears to be, and the Russian defeat at Liman and...

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