Foreign policy observers often attribute China's growing influence in Southeast Asia, and other parts of the world, to its use of "soft power"—diplomacy, foreign assistance, trade, and investment, and the view of China as a vast, potential market. The United States also remains influential as a large market for Southeast Asian exports. China may be gaining on the United States in the areas of cultural and political soft power as well, at least in some countries in the region. China's Foreign Aid to Southeast Asia

China's foreign aid has had a growing, tangible impact in many countries in Southeast Asia, although it is difficult to quantify, due to a lack of data and to the unique characteristics of Chinese assistance. China's Aid to the Least Developed Countries in the Region

Many reports of PRC aid in the region focus on Burma, Cambodia, and Laos, the poorest countries in Southeast Asia and ones that have had relatively unfriendly relations with the United States. China is considered the "primary economic patron" of these countries and provides an "implicit security guarantee." China's Aid to the More Developed Southeast Asian Countries

China also has provided considerable aid to the large and more developed countries in the region, such as Thailand, Indonesia, and the Philippines. A Comparison of U.S. and Chinese Economic Relations With ASEAN

Over the past decade, China's trade with the 10 countries that comprise the Association of Southeast Asian Nations (ASEAN) has expanded sharply in terms of trade volume, percentage increase, and size relative to U.S. trade levels. China's soft power in the region is expected to grow as Southeast Asian economies become more dependant upon or integrated with the PRC. Total U.S. trade (exports plus imports) with ASEAN in 2006 was slighter larger than that of China's ($168.5 billion versus $160.9 billion). Based on China's rapid trade growth over the past few years, it is likely that its trade with ASEAN will exceed that of the United States in 2007 and beyond. While China had a $178 billion trade surplus with the world in 2006, it had a $18.2 billion trade deficit with ASEAN; the U.S. trade deficit with ASEAN totaled $53.9 billion. Foreign Direct Investment

Although the importance of the United States to ASEAN trade has declined somewhat relative to China, it is still a major source of ASEAN's foreign direct investment (FDI). The perception of U.S. inattentiveness to the region has continued to be reinforced. According to one view, China is pursuing a zero sum game where expansion of its influence is, or will be, at the expense of the United States. By contrast, some analysts argue that, on balance, China's growing economic influence of the past decade has been beneficial to the region and not detrimental to U.S. interests. Concern over China's rising influence in Southeast Asia, and beyond is leading some in the United States to be increasingly wary of China and its motives out of a fear that if China's power and influence continue to increase, Beijing will eventually seek to constrain and/or undermine America's ability to promote and protect its interests in the region.
China's growing use of "soft power" in Southeast Asia—non-military inducements including culture, diplomacy, foreign aid, trade, and investment—has presented new challenges to U.S. foreign policy. By downplaying many conflicting interests and working collaboratively with countries and regional organizations on such issues as territorial disputes and trade, Beijing has largely allayed Southeast Asian concerns that China poses a military or economic threat. China's diplomatic engagement, compared to the perceived waning or limited attention by the United States, has earned the country greater respect in the region. Its rise as a major foreign aid provider and market for Southeast Asian goods has also enhanced its relations with Southeast Asian states. Many analysts contend that China's growing influence may come at the expense of U.S. power and influence in the region.
This report provides evidence and analysis of China's soft power in Southeast Asia. It does not discuss the considerable U.S. military presence in the region. The report describes China's evolving diplomacy and more active role in regional organizations such as the Association of Southeast Asian Nations (ASEAN). Although China's foreign aid to Southeast Asia, as in other regions, is difficult to quantify and includes a broader range of economic assistance than official development assistance (ODA) offered by major industrialized nations, it is believed to be relatively large. China is considered to be the "primary economic patron" of the small but strategically important nations of Burma, Cambodia, and Laos, and also provides considerable economic aid to Indonesia and the Philippines.
China's trade with ASEAN countries is less than U.S. trade with the region ($160.9 billion compared to $168.5 billion in 2006), but is expected to exceed that of the United States in 2007 and beyond. Furthermore, although China runs a trade surplus with the world, it runs a trade deficit with ASEAN countries ($18.2 billion compared to the U.S.-ASEAN trade deficit of $53.9 billion). China appears to have moved more quickly than the United States in promoting trade with the region through establishing free trade agreements (FTAs). However, although the importance of the United States to ASEAN trade has declined somewhat relative to that of China, the United States is still a major source of the region's foreign direct investment (FDI), ranking 4th from 2002 through 2006 compared to China (ranking 10th).
Analysts differ over China's longer-term intentions in Southeast Asia and their implications for the United States. Some observers argue that the consequences of China's growing soft power, and Beijing's aim, is the decline of U.S. influence in the region. Others contend that the implications of China's rise are not zero sum, and that, at least in the next 15-25 years, Beijing's priority will be economic development and that China's leaders, as well as the leaders of other Southeast Asian countries, view the United States' continuing leadership role in the region as beneficial. Competing U.S. policy approaches include continuing the current level of U.S. political and economic engagement in the region, containing China's rise, or bolstering the U.S. diplomatic, foreign aid, and economic presence in tandem with China's rise. This report will be updated as events warrant.