Production Capacity Cooperation Among Lancang-Mekong Countries

By Wang Xiang

The theme “Shared River,Shared Future” of the first Lancang-Mekong Cooperation(LMC) leaders’ meeting held in Sanya, Hainan Province in 2016 elaborated on the intertwined relationship between Cambodia,Vietnam, Laos, Myanmar,Thailand and China in the Greater Mekong Subregion.

When Chinese Premier Li Keqiang attended the 20th ASEAN Plus China, Japan and ROK Summit in Manila in

November 2017, he proposed that the meeting build consensus and sent a positive message of a firm commitment to regional integration and construction of the East Asia Economic Community. Six fields such as production capacity cooperation represented by the energy industry will be key sectors for future cooperative development of countries in East Asia.

Propelled by the Belt and Road Initiative, energy cooperation in East Asia will inevitably be a highlight of near-future regional cooperation.

1.7million kilowatts

8cross-border electric power transmission projects

16grid interconnection projects

By early 2017,the newly-added electric power interconnection capacity of grids in ASEAN reached more than 1.7 million kilowatts. About 8 cross-border electric power transmission projects have been completed out of 16 grid interconnection projects in ASEAN planned by the APAEC.

Possibilities of Cooperation

Why will production capacity cooperation be a key field? Xu Liping, research fellow at the National Institute of International Strategy of Chinese Academy of Social Sciences (NIIS CASS), explained that Mekong countries in this region badly need production capacity. “Considering that production capacity cooperation is among their most pressing needs in order to become industrialized, they each need to build a modernized industrial system,” he said. “China can be complementary with them in this regard, which will be a highlight of future cooperation.”

The Mekong River basin has favorable conditions for China to build on its harmonious relationships with neighboring countries and foster a community with a shared future.For Cambodia, Laos, Myanmar,Thailand and Vietnam,developing economy is the goal of the people, the priority of governments and the central concern of the entire region.

At the moment, the world economy is still struggling to recover and global trade has remained sluggish. “Antiglobalization” sentiment represented by isolationism and protectionism has risen. Mekong countries expect to strengthen economic and trade cooperation with China, take advantage of China’s high-quality production capacity and improve levels of industrialization and urbanization. International production capacity cooperation promoted by Mekong countries is conducive to forging a model for developing countries to propel globalization and regional integration, with significant influence and demonstration effect.

Cooperation between these two sides already has a foundation. NIIS CASS research fellow Liu Junsheng noted that production capacity cooperation is important to the LMC mechanism at the present stage. Infrastructure investment is low in the Mekong countries, which rely heavily on foreign investment and trade.Through production capacity cooperation, these countries can improve and upgrade their infrastructure and services in fields of transportation,telecommunications and energy,which will help break through the bottleneck restraining sustainable economic development in the region.Secondly, compared to the Mekong countries, China holds a relatively leading position in the process of industrialization.Industries such as high-speed railways, architecture and mechanical engineering in China have reached globally advanced levels. So production capacity cooperation between China and the Mekong countries is complementary and both sides' comparative advantages can be capitalized on.

Construction site of Friendship Tunnel, a 9.68-kilometer cross-border tunnel of the China-Laos railway. Construction of the tunnel in Kunming, capital of southwestern China’s Yunnan Province, began on June 22, 2016.

23percent

APAEC also pledged to“increase renewable energy consumption ratio to 23 percent by 2025.”

The total installed power capacity in ASEAN was 217 million kilowatts by 2016, of which gas power generation accounted for 36 percent, coal-fired power generation 32 percent, fuel 7 percent and renewable energy power generation occupied 25 percent.

“Currently, the electricity penetration rate is just 78.8 percent in ASEAN,” reveals Zhang Kun, a research fellow with the Department for International and Strategic Studies at China Institute of International Studies. “Internally, the situation of unbalanced development and unmatched supply and demand in energy has long persisted. Due to under-developed technologies and energy equipment manufacturing, ASEAN countries have been unable to transform their abundant solar,wind and biomass resources into substantial energy advantages.”In October 2015, the ASEAN Ministers on Energy Meeting in Kuala Lumpur, Malaysia adopted the ASEAN Plan of Action for Energy Cooperation (APAEC) 2016-2025, which explicitly called for acceleration of work to provide connectivity of power grids in ASEAN and proposed launching multilateral power trading by the end of 2018.

APAEC also pledged to“increase renewable energy consumption ratio to 23 percent by 2025.” The total installed power capacity in ASEAN was 217 million kilowatts by 2016, of which gas power generation accounted for 36 percent, coal-fired power generation 32 percent, fuel 7 percent and renewable energy power generation occupied 25 percent. Although in recent years, the average annual growth rate of renewable energy generation mainly propelled by water utilization has reached 9.8 percent in ASEAN, and generation from wind, solar and biomass energy has developed rapidly, to lift renewable energy in ASEAN to 23 percent of primary energy utilization by 2025, it still needs to accelerate the process of renewable energy development and utilization.

China’s clean energy technologies have seized a world-leading position in terms of high voltage,smart power grids, water

wheel unit manufacturing,hydroelectric engineering technology, nuclear power,

wind power and photovoltaic power generation equipment manufacturing. China has accumulated rich technological and practical experience, which is effectively complementary to ASEAN countries in regard to technological demands. In the future, countries in East Asia should strengthen cooperation in energy technologies and share in the benefits of energy technology developments in the region.

LMC Mechanism Accelerates Cooperation

The Economic and Technological Exhibition for Lancang-Mekong Cooperation was held in Phnom Penh,Cambodia on July 13, 2017. China Railway Corporation (CRC)showcased the achievements of China’s railway development and progress in railway construction cooperation between China and countries in Southeast Asia. An exhibition created by CRC displayed a model of the “Fuxing,” a 22-meter-long bullet train built with Chinese standards, as well as a highly realistic simulation of riding in a bullet train cabin. Cambodian Commerce Ministry Secretary of State Chhuon Dara boarded the simulation to experience a ride on a bullet train. On the screen the simulated train set off from Kunming, the capital of Yunnan Province in southwest China,and arrived in Phnom Penh by way of Vientiane. Chhuon Dara took the drivers seat and remarked, “I hope the railway linking China and Cambodia is completed as quickly as possible,and the speed of the train can be as quick as possible as well.”

The first LMC leaders’meeting in Sanya in March 2016 produced a Joint Statement on Production Capacity Cooperation Among Lancang-Mekong Countries, which has already yielded abundant fruits in production capacity cooperation among Lancang-Mekong countries. On December 16, 2017,Deputy Director-General of the Department of Asian Affairs of the Ministry of Commerce Peng Gang said at a media briefing for the 3rd LMC Foreign Ministers’Meeting that Chinese companies have made great contributions to production capacity of the five Mekong countries. By October 2017, Chinese enterprises and the five countries had signed contracts for infrastructure projects with a combined worth of US$137.99 billion,up 9.2 percent from 2016, and completed turnover of US$96.47 billion, an increase of 10.8 percent over 2016.

Beni Suryadi, research fellow with the ASEAN Center for Energy, said that by early 2017,the newly-added electric power interconnection capacity of grids in ASEAN reached more than 1.7 million kilowatts. About 8 cross-border electric power transmission projects have been completed out of 16 grid interconnection projects in ASEAN planned by the APAEC.

Currently, except for direct power exchange between China and ASEAN countries,cooperation between other countries and ASEAN is mainly in the form of investment in electric power, and the enthusiasm of all parties has continued to increase. Direct foreign investment projects in ASEAN primarily involve resources such as power, gas,steam and cool air.