Asia Needs Pence’s Reassurance


November 16, 2018

Asia Needs Pence’s Reassurance

By Patrick M. Cronin

He should confront Trump’s mistakes and put forward a positive agenda.

U.S. Vice President Mike Pence at the ASEAN summit in Singapore on Nov. 15. (Roslan Rahman/AFP/Getty Images)

In Asia, anxieties about the United States’ role in an increasingly China-centered world are palpable. While some fear that the United States is retreating from its international obligations, other worry that it is bent on instigating conflict.

.As U.S. Vice President Mike Pence visits Southeast Asia and the South Pacific this week to attend the Association of Southeast Asian Nations (ASEAN) and Asia-Pacific Economic Cooperation leaders’ meetings, he should make clear that the United States remains a stalwart partner for the region with a vision for peaceful cooperation and development.

No U.S. retreat

The United States is not withdrawing into fortress America. It remains actively engaged in global affairs and is focused on strengthening the economic and military foundations of its power. The country’s central aim is to stay competitive in a world driven by a dynamic Indo-Asia-Pacific region. That goal, of course, derives from a real concern that China is challenging the postwar order and an understanding that the United States needs to find new ways to renew its diplomatic, economic, and military competitiveness.

The United States is not withdrawing into fortress America. It remains actively engaged in global affairs and is focused on strengthening the economic and military foundations of its power. The country’s central aim is to stay competitive in a world driven by a dynamic Indo-Asia-Pacific region. That goal, of course, derives from a real concern that China is challenging the postwar order and an understanding that the United States needs to find new ways to renew its diplomatic, economic, and military competitiveness.

But as U.S. President Donald Trump said last November in Da Nang, Vietnam, the United States has been “an active partner in this region since we first won independence ourselves,” and “we will be friends, partners, and allies for a long time to come.” U.S. Secretary of State Mike Pompeo has likewise been a forceful advocate for diplomacy in the region. Meanwhile, Congress is on the cusp of passing a bipartisan bill designed to bolster U.S. engagement there. The Asia Reassurance Initiative Act would authorize $1.5 billion in new funding over the next five years for regional diplomacy, development, and defense programs. In short, rumors of America’s disengagement miss the mark.

No Cold War with China

Pence also needs to reassure the region that when it comes to China, the United States is not seeking a war—trade, cold, or hot.

Pence also needs to reassure the region that when it comes to China, the United States is not seeking a war—trade, cold, or hot.

Instead, the U.S. administration wants a fair, open, and cooperative relationship. That doesn’t mean ignoring China’s attempts to compete with the United States, including through grey-zone operations like muscling the Philippines out of Scarborough Shoal and militarizing artificial islands despite pledging not to do so. And America will not shy away from meeting challenges directly. But on a fundamental level, the Trump administration would like to channel competition toward cooperation where possible.

In fact, the Trump administration rejects the idea of Thucydides’s Trap: that conflict between a rising power and a status quo power is inevitable. Leaders have agency, and it is up to them to determine the future course of relations. And for its part, the United States seeks to remain a force for good, not to contain or curb the China’s peaceful rise.

Of course, it would be useful for Pence to clarify that Washington will not tolerate coercion or the use of force against allies and partners in the region. But the vice president should also reiterate what he said last month at the Hudson Institute: “America is reaching out our hand to China. We hope that Beijing will soon reach back with deeds, not words.” That sentiment is broadly shared, even among Democrats, who do not agree with some of the administration’s tactics. (As Joaquin Castro, a Democratic representative from Texas, said last month, China should “compete, not cheat.”)

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US Vice President Mike Pence has confronted Myanmar’s de facto leader Aung San Suu Kyi at the ASEAN summit about what is being done to hold those responsible for the persecution of the Rohingya ethnic minority in her country to to account.

This will be a difficult balance to strike. And here, China’s approach to the South China Sea is instructive. It alone pursues claims there based in part on historical rights rather than contemporary international law. It showers the region with promises of infrastructure investment, but it fails to deliver transparent, equitably financed, high-quality development. It promises to follow an ASEAN Code of Conduct for the region but seeks a veto on the right of ASEAN members to extract natural resources from the South China Sea or hold military exercises there with Australia, Japan, the United States, and other non-ASEAN states.

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But the fear that a major confrontation, or even war, will play out in Southeast Asia is greatly exaggerated. China seeks to advance its goals by means short of war, and the United States aims to cooperate where it can but compete where it must. The resumption of the Diplomatic and Security Dialogue—a U.S.-China working group involving top defense and diplomacy officials—is thus a good sign.

 

Yes to an affirmative agenda for Asia

Beyond dispelling myths about U.S. retrenchment and bellicosity, Pence should also put forward a positive agenda for Asia. Here, he will have to confront some of Trump administration’s mistakes.

Many in the region question the United States’ predictability, because Trump has reversed major U.S. initiatives, from the Trans-Pacific Partnership to the Paris Agreement on climate change. Meanwhile, he has escalated tariff wars without articulating a coherent strategy for achieving results, and his uneven application of penalties has rankled allies and competitors alike. Nor has the administration deployed soft power well, often ignoring U.S. values like democracy and human rights, turning the country’s back on refugees, using unbefitting language, papering over conflicts of interest rather than cracking down hard on corruption, and being far too comfortable with authoritarians.

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Despite these missteps, Pence can use the trip to Asia to burnish four cornerstones that should be the foundation of the administration’s free and open Indo-Asia-Pacific strategy, especially in Southeast Asia and the Pacific Islands. Those four elements are a rules-based order, sustainable economic development, inclusive diplomacy, and effective security cooperation.

First, upholding and peacefully adapting the set of rules chosen freely by strong and independent sovereign states will be the foundation for U.S. engagement with the region. The United States has enduring interests in the South China Sea: stability, freedom of navigation, and resolving disputes peacefully and without coercion.

Although ensuring the rule of law will require far more than freedom of navigation operations, the United States will continue to help maintain the openness of the seas by sailing, flying, and operating anywhere international law permits. Importantly, seafaring nations from Asia and Europe are also demonstrating their commitment to the same cause by conducting similar operations.

Second, for growth to be sustainable, it has to be fair and reciprocal. It should be pursued in a manner that is transparent, non coercive, and environmentally sustainable, especially when it comes to the global maritime commons. There is nothing wrong with China’s Belt and Road Initiative that sunshine and high standards of accountability cannot fix.

Meanwhile, the United States should go even further to mobilize public and private support for trade, investment, and development. Eventually, the country can create a whole constellation of allies and partners that can invest in energy infrastructure, digital connectivity, transportation, and more. For instance, the United States is in active discussions to leverage the BUILD Act to expand joint efforts with allies and partners in the Philippines, Thailand, Cambodia, Indonesia, Malaysia, Vietnam, and elsewhere. In doing so, it can set a gold standard for development in the region.

Take Indonesia for example. China aside, a prosperous, democratic, and stable Indonesia is in the vital interest of the United States. Yet few in Washington are aware of the opportunities that await in Southeast Asia’s most populous country. The U.S. government’s Millennium Challenge Corporation has just completed a successful economic investment in Indonesia. Pence should ensure Washington starts negotiating a follow-on compact while simultaneously using BUILD Act funds to facilitate new U.S. private sector entry into Indonesia.

A third tenet of U.S. policy in Southeast Asia is inclusive diplomacy, including trust-building with competitors and partners alike.

ASEAN deserves broad support for its unique convening authority. Certainly, that is a major reason why the United States embraces the body having a loud unified voice in Indo-Pacific engagement. It also is in favor a strong, binding Code of Conduct—not one that unfairly limits the freedom of action of Southeast Asian states.

Inclusive confidence-building measures, such as plans to extend the voluntary Code for Unplanned Encounters at Sea to include coast guard vessels and efforts to protect rapidly depleted fishery stocks, deserve action. The United States should signal its support for promoting a new framework of “Resilience, Response, Recovery,” which is one of several useful concepts being put forward by ASEAN under Singapore’s chairmanship. At the same time, ASEAN members are pragmatic. The United States will often have to cooperate with them on a bilateral or trilateral basis to find effective responses to real challenges.

In terms of diplomacy with China, it might be worth creating a new crisis avoidance mechanism—perhaps mirroring the 1972 Incidents at Sea agreement. The bilateral pact did not prevent all U.S.-Soviet mishaps, but it helped avert major disasters, something that is even more important in a region where intermediate-range cruise missiles, hypersonic weapons, and the military use of cyberspace and outer space are unrestricted.

Finally, the United States will continue to support effective security cooperation centered on information sharing, capacity building, and interoperability. The United States should buttress such efforts by firming up its commitment to respond appropriately to threats of coercion and the use of force.

Boosting the ability of allies and partners to see better what is happening in their maritime backyards will help them become more resilient. And assistance with capacity building, especially for coast guards and other law enforcement agencies, will give nations a better ability to protect their sovereignty. Bilateral, “minilateral,” and larger multilateral exercises can also help create a readiness for dealing with future contingencies.

In sum, a confident but not boastful United States is neither stepping away from Asia nor trying to provoke wars there. Rather, it aims to ensure stability in the region so that all countries there can advance both sovereign interests and regional cooperation.

Patrick M. Cronin is senior director of the Asia-Pacific Security Program at the Center for a New American Security in Washington. @PMCroninCNAS
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ASEAN — finding middle path in the US-China conflict


 

November 9, 2018

Opinion

ASEAN — finding middle path in the US-China conflict

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Despite local uncertainties, the region must be bold in shaping its own future

For almost a decade, the basic strategic issue for Southeast Asia has been how to respond to the changing dynamics of the Sino-American relationship as it enters a new phase of heightened long-term competition.

The U.S. and China will not quickly or easily reach a new modus vivendi. Southeast Asia will have to navigate a prolonged period of unusual uncertainty.

U.S.-China rivalry in the South China Sea has emerged as something of a proxy for their competition. Strategically, the situation is a stalemate. China will not give up its territorial claims and the deployment of military assets. But neither can China stop the U.S. and its allies operating in the area without risking a war it does not want because it cannot win.

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The Trump administration has given the 7th Fleet more latitude to conduct Freedom of Navigation Operations in the South China Sea. Japan and other U.S. allies are beginning to push back against China’s claims. The U.S. has signaled its intention to conduct even larger shows of force. This raises the risk of accidental clashes. Still, that risk does not at present seem unacceptably high.

A premeditated war is improbable. China will feel it must fight only if the U.S. supports Taiwan independence. This is unlikely. If an accidental clash should occur in the South China Sea or elsewhere, both sides will probably try to contain it. The Association of Southeast Nations ought to be able to cope with situations short of a U.S.-China war. ASEAN has previously managed far more dangerous circumstances. But this will require greater agility, unity and resolve than ASEAN has shown recently.

 

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The most obvious manifestation of increased Sino-American competition is U.S. President Donald Trump’s “trade war.” Trade is the means; the objective is strategic competition. China accuses the U.S. of using trade to hamper its development. China is not wrong.

Although attention has focused on the tit-for-tat tariffs, the more significant aspect is new U.S. legislation to limit technology transfers to China, which sets new rules that future administrations will find hard to change.

Trump’s attitude toward China is no aberration, but reflects a bipartisan view — widely shared in business as well as politics — that the U.S. has been too accommodating to Beijing. Whoever succeeds Trump will likely stay tough on China.

The Trump administration has often been described as isolationist, but this is a distortion. Rather, it believes that this is an era of great power competition and is determined to compete robustly, with a preference for bilateralism over multilateralism, and a return to “peace through strength.”

China has misread the implications of the global financial crisis of 2008-2009 by believing its own propaganda about the U.S. being in irrevocable decline. It missed the souring mood of U.S. business toward China, mainly over intellectual property theft and forced technology transfers. These concerns are shared by businesses in other developed economies, which support Trump’s goals although they may disagree about his methods.

President Xi Jinping’s 19th Party Congress speech a year ago abandoned Deng Xiaoping’s approach of “hiding light and biding time.” But his main focus was domestic. Xi said China’s new “principal contradiction” was between “unbalanced and inadequate development and the people’s ever-growing needs for a better life.” This poses a fundamental challenge. Unless those needs are met — which will require immense resources — Communist Party rule could be at risk.

To find a new growth model, the party must balance control and market efficiency. An enhanced role for markets implies a loosening of control.

It remains to be seen what Xi will do. So far he seems to have opted for stronger control, and may have sharpened the problems he faces.

The Belt and Road Initiative is as much about this domestic challenge as China’s global ambition. The BRI exports the old growth model based on state-led infrastructure investment. The BRI buys time to find a new balance between the market and the party.

But the BRI rests on the foundation of U.S.-led globalization. Can it succeed if the world turns protectionist? China may well be the main loser if that global order frays. China cannot replace U.S. leadership. An open international order cannot be based on a largely closed Chinese model. BRI partner countries are pushing back, including in Southeast Asia, and implementation will be problematic.

China is not happy with every aspect of the post-Cold War order based on U.S.-led globalization. China wants its new status acknowledged. But Xi has championed and profited from globalization. The trade war is now hurting China and slowing growth. China may seek to become more self-sufficient technologically, but this will take time while the pressures are immediate.

Some have speculated that there may be opportunities for ASEAN if foreign companies shift production from China. This is possible. But doing so is easier said than done and no one will forgo the Chinese market. ASEAN members must also resist temptations to act as a backdoor into the U.S. for Chinese companies.

A prolonged trade war and concerns that China may have compromised the security of supply chains, are likely to upend existing supply links. This could seriously complicate ASEAN members’ efforts to move up the value chain, for example if U.S. groups relocate business back to America. In response, ASEAN must attract higher grade investments by improving infrastructure and skills, and assuring investors their technology is secure.

Low labor costs and a potential market of 700 million consumers are no longer sufficient to make Southeast Asia an attractive investment destination. The attitude of ASEAN members toward China and the extent to which they are beholden to it are likely to become important considerations in investment decisions.

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BALI, Oct 12 — Tun Dr Mahathir Mohamad has lamented ASEAN for not fully tapping its potential as an economic powerhouse, despite having abundant resources and a consumer market of nearly 700 million people.

ASEAN needs to move decisively to hedge against long-term uncertainties, while taking advantage of available opportunities.

Reforms such as the removal of non-tariff barriers and harmonization of ASEAN’s approach toward services and labor mobility could help make Southeast Asia a common production platform. Member states meanwhile should implement plans to upgrade skills and infrastructure. But internal political changes in some member countries could undermine the goal of closer economic integration. Unfortunately, ASEAN has, in recent years, become too timid for its own good.

 

 

Ambassador A Large Bilahari Kausikan, a former Permanent Secretary at Singapore Ministry of Foreign Affairs, is Chairman of the Middle East Institute at the National University of Singapore.

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Political financing reforms should top PH Government’ s political agenda – Jomo


Political financing reforms should top PH Government’ s political agenda – Jomo

Koh Jun Lin  |  Published: September 27, 2018@ http://www.malaysiakini.com





Reforming how political activities are financed in Malaysia should be on top of the government’s political agenda, said the former Council of Eminent Persons member Jomo Kwame Sundaram.

He said Malaysia has a “very decadent” political system that had been abused, giving examples such as the 1MDB scandal and the inflated costs of the East Coast Rail Link (ECRL) project and two gas pipeline projects that have since been cancelled.

“It is important to recognise that we have a system of political financing which has been so abused that we cannot get ourselves out of this, unless we develop a legitimate, accountable, system of political financing. “So, I would put the whole system of political financing at the top of the list of political priorities that needs to be addressed by the current government,” he said.

He was speaking as a panellist at a talk titled “The Way Forward for Malaysia” last night together with Rembau MP Khairy Jamaluddin Abu Bakar in Kuala Lumpur last night. The event was organised by the Oxford and Cambridge Society of Malaysia and was attended by approximately 170 people.

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Former Prime Minister Najib Abdul Razak has been accused of siphoning money from 1MDB and SRC International and using part of the money to fund political activities through his personal bank account. Najib had maintained that the money had come from foreign donors.

Malaysiakini set up a microsite in July detailing some of the outflows from one of his bank accounts to political entities.

After Najib was implicated in the 1MDB scandal in 2015, he set up the National Consultative Council on Political Financing (JKNMPP) that went on to produce 32 recommendations to reform political financing in Malaysia.

However, the reforms were not in place in time for the 14th General Election.

ECRL ‘a hoax’
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As for the ECRL project, Jomo described it as a hoax that is not part of China’s Belt and Road Initiative projects, and would not be able to pay for itself even if its development expenses are written off.

The government has claimed the cost of the project is RM81 billion – compared to the previous administration’s estimate for RM55 billion – adding it is worth no more than RM30 billion.

China Communications Construction Company Limited (CCCC) Vice-President Sun Ziyu has defended the cost of the project.

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Meanwhile, Jomo said there needs to be consensus involving all political parties in Malaysia on what needs to be done to tacklecorruption, where political financing is only a part of the problem.

Otherwise, he said there won’t be much progress in the area.

“I have a great deal of concern with addressing other sources of corruption, and this of course is very, very important and necessary to address. But we have a very decadent and corrupt economic system as well as a political system. In other words, we have been thoroughly compromised,” he said.

Read More: How political financing is done in other countries https://www.malaysiakini.com/news/444827

The Perils of China’s “Debt-Trap Diplomacy”


September 10, 2018

Banyan

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Malaysia-China Relations:The Perils of China’s “Debt-Trap Diplomacy”

Malaysia’s rethink of Chinese belt-and-road projects has lessons for other countries

 Print edition | Asia

IN AUGUST, three months after his opposition coalition trounced the Malaysian party that had ruled since independence, Mahathir Mohamad, the country’s 93-year-old new Prime Minister, travelled to Beijing. His aim was to tell President Xi Jinping that his country was now the Malaysia that can say no.

Dr Mahathir’s predecessor, Najib Razak, had hewed close to China. His loss at the polls resulted more than anything from the stench of corruption within his ruling United Malays National Organisation (UMNO). But his chumminess with China was also a factor. The two issues were entwined.

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Najib Razak–Malaysia’s Voleur

During Mr Najib’s rule, huge holes appeared in the finances of a state investment vehicle, 1MDB, which Mr Najib chaired. America’s Justice Department estimates that $4.5bn was stolen from the fund by insiders. (Around the same time, nearly $700m turned up in Mr Najib’s own bank accounts.) As 1MDB teetered, Chinese state entities stepped in, taking stakes in 1MDB ventures.

The relationship with China grew ever cosier. Chinese-funded projects in Malaysia were packaged as part of China’s Belt and Road Initiative, a global infrastructure-building scheme close to Mr Xi’s heart. Jack Ma of Alibaba, a Chinese tech giant, won the right to turn a site near Kuala Lumpur’s main airport into a Digital Free Trade Zone. Malaysia’s government tried to silence criticism of its state-to-state dealings. And China showed its gratitude. In the run-up to Malaysia’s general election in May, the Chinese ambassador appeared to lend open support to the ruling coalition. Many people were surprised that Dr Mahathir managed to win, despite UMNO’s gerrymandering. Mr Xi had reason to be aghast.

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China is not used to recipients of its largesse challenging the terms on which it is offered. Yet growing numbers of them are struggling with debts to Chinese entities taken on to fund Chinese-staffed projects. The Centre for Global Development in Washington reckons that eight belt-and-road countries are at “particular risk of debt distress”, among them ones that border on China: Laos, Mongolia and Pakistan. That is why Dr Mahathir’s progress in disentangling his country from Chinese-funded ventures is being closely watched.

 

In Beijing Dr Mahathir was plain-speaking and deft. He said that Malaysia was cancelling the $20bn East Coast Rail Link, a massive belt-and-road project, as well as two oil pipelines in Sabah province. His message, in essence, was: very sorry—lovely projects, but since coming to office we’ve discovered we can’t afford them. Implicit was another point: we can’t afford them because we now know how inflated the costs are, and how skewed the deals are in China’s favour—or plain fishy. It appears the Najib government paid nearly 90% of the $2bn price of the Sabah pipelines, although they were only 15% complete. Part of a Chinese loan for them appears to have plugged financing gaps at 1MDB.

Since Dr Mahathir’s return, he has gone further, taking aim at a large, Chinese-led housing scheme in Johor state intended for wealthy investors in China. This week the Prime Minister declared that foreigners would not be given visas to live there. Most Malaysians, he complained, could not afford to live in the new development. (The government in Johor makes more reassuring noises to foreigners who might be interested.)

China has a tendency to launch into tirades against countries that confront it. In this case the response from Beijing has been muted. That may be partly because of Dr Mahathir’s careful choice of words. But Malaysia is an influential country in South-East Asia, a region that China wants to draw closer into its orbit. And China does not want to make enemies among belt-and-road countries. One of the main points of the project is to boost China’s influence over them. For other countries badly needing to renegotiate their deals with China, that is a lesson worth learning.

Of these, Pakistan, which also has a new Prime Minister, Imran Khan, is by far the biggest debtor to China. The China-Pakistan Economic Corridor, a collection of energy and infrastructure projects supposedly worth $60bn, is the biggest plank of China’s belt-and-road strategy. Not for the first time, Pakistan faces a balance-of-payments crisis. It wants out of its debt.

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Mr Khan ought to do a Mahathir. And he is in an even better position. Far more than with Malaysia, there is a strategic dimension to China’s relations with Pakistan, says Husain Haqqani, a former Pakistani diplomat who is now at the Hudson Institute, an American think-tank. Officials in Beijing see Pakistan as a counterweight to India, China’s geostrategic rival. China needs Pakistan’s help in keeping Islamist extremism at bay. And it regards its neighbour as a vital route to the Arabian Sea. Unlike Dr Mahathir, Mr Khan himself seems not to grasp the problems of China’s debt embrace. But at least critics in Pakistan of the economic corridor are beginning to find their voice.

Debt divisions

China has more than its political ties with belt-and-road countries to consider. Chinese banks are getting worried about the safety of their lending. Commercial banks have sharply cut new belt-and-road financing since 2015. (So-called policy banks continue to lend.) And now the Belt and Road Initiative faces strong popular criticism at home. In part, the initiative is a victim of the Communist Party’s own propaganda: what debtors see as hard-to-service loans, state media paint as beneficent “aid”. That is a touchy word. At a summit in Beijing this week with African leaders, Mr Xi promised $60bn for the continent. Why, Chinese people asked on social media, is an indebted China spending so much abroad when it has pressing requirements at home? Censors rapidly shut down their criticisms of Mr Xi’s gesture.

China is right that many countries need more roads, railways and other infrastructure. But it is evident that the scheme it touts as a defining one of Mr Xi’s rule is losing its shine. Dr Mahathir’s trip may have taught some valuable lessons.

This article appeared in the Asia section of the print edition under the headline “Can’t pay”

 

China is Losing the New Cold War


September 9, 2018

China is Losing the New Cold War

https://www.project-syndicate.org

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In contrast to the Soviet Union, China’s leaders recognize that strong economic performance is essential to political legitimacy. Like the Soviet Union, however, they are paying through the nose for a few friends, gaining only limited benefits while becoming increasingly entrenched in an unsustainable arms race with the US.

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HONG KONG – When the Soviet Union imploded in 1991, the Communist Party of China (CPC) became obsessed with understanding why. The government think tanks entrusted with this task heaped plenty of blame on Mikhail Gorbachev, the reformist leader who was simply not ruthless enough to hold the Soviet Union together. But Chinese leaders also highlighted other important factors, not all of which China’s leaders seem to be heeding today.

To be sure, the CPC has undoubtedly taken to heart the first key lesson: strong economic performance is essential to political legitimacy. And the CPC’s single-minded focus on spurring GDP growth over the last few decades has delivered an “economic miracle,” with nominal per capita income skyrocketing from $333 in 1991 to $7,329 last year. This is the single most important reason why the CPC has retained power.

But overseeing a faltering economy was hardly the only mistake Soviet leaders made. They were also drawn into a costly and unwinnable arms race with the United States, and fell victim to imperial overreach, throwing money and resources at regimes with little strategic value and long track records of chronic economic mismanagement. As China enters a new “cold war” with the US, the CPC seems to be at risk of repeating the same catastrophic blunders.

At first glance, it may not seem that China is really engaged in an arms race with the US. After all, China’s official defense budget for this year – at roughly $175 billion – amounts to just one-quarter of the $700 billion budget approved by the US Congress. But China’s actual military spending is estimated to be much higher than the official budget: according to the Stockholm International Peace Research Institute, China spent some $228 billion on its military last year, roughly 150% of the official figure of $151 billion.

In any case, the issue is not the amount of money China spends on guns per se, but rather the consistent rise in military expenditure, which implies that the country is prepared to engage in a long-term war of attrition with the US. Yet China’s economy is not equipped to generate sufficient resources to support the level of spending that victory on this front would require.

If China had a sustainable growth model underpinning a highly efficient economy, it might be able to afford a moderate arms race with the US. But it has neither.

On the macro level, China’s growth is likely to continue to decelerate, owing to rapid population aging, high debt levels, maturity mismatches, and the escalating trade war that the US has initiated. All of this will drain the CPC’s limited resources. For example, as the old-age dependency ratio rises, so will health-care and pension costs.

Moreover, while the Chinese economy may be far more efficient than the Soviet economy was, it is nowhere near as efficient as that of the US. The main reason for this is the enduring clout of China’s state-owned enterprises (SOEs), which consume half of the country’s total bank credit, but contribute only 20% of value-added and employment.

The problem for the CPC is that SOEs play a vital role in sustaining one-party rule, as they are used both to reward loyalists and to facilitate government intervention on behalf of official macroeconomic targets. Dismantling these bloated and inefficient firms would thus amount to political suicide. Yet protecting them may merely delay the inevitable, because the longer they are allowed to suck scarce resources out of the economy, the more unaffordable an arms race with the US will become – and the greater the challenge to the CPC’s authority will become.

The second lesson that China’s leaders have failed to appreciate adequately is the need to avoid imperial overreach. About a decade ago, with massive trade surpluses bringing in a surfeit of hard currency, the Chinese government began to take on costly overseas commitments and subsidize deadbeat “allies.”

Exhibit A is the much-touted Belt and Road Initiative (BRI), a $1 trillion program focused on the debt-financed construction of infrastructure in developing countries. Despite early signs of trouble – which, together with the Soviet Union’s experience, should give the CPC pause – China seems to be determined to push ahead with the BRI, which the country’s leaders have established as a pillar of their new “grand strategy.”

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An even more egregious example of imperial overreach is China’s generous aid to countries – from Cambodia to Venezuela to Russia – that offer little in return. According to AidData at the College of William and Mary, from 2000 to 2014, Cambodia, Cameroon, Côte d’Ivoire, Cuba, Ethiopia, and Zimbabwe together received $24.4 billion in Chinese grants or heavily subsidized loans. Over the same period, Angola, Laos, Pakistan, Russia, Turkmenistan, and Venezuela received $98.2 billion.

Now, China has pledged to provide $62 billion in loans for the “China-Pakistan Economic Corridor.” That program will help Pakistan confront its looming balance-of-payments crisis; but it will also drain the Chinese government’s coffers at a time when trade protectionism threatens their replenishment.

Like the Soviet Union, China is paying through the nose for a few friends, gaining only limited benefits while becoming increasingly entrenched in an unsustainable arms race. The Sino-American Cold War has barely started, yet China is already on track to lose.

Minxin Pei is a professor of government at Claremont McKenna College and the author of China’s Crony Capitalism.

Southeast Asia: Changing Geo-Political Dynamics in the Trump Era


August 30, 2018

Southeast Asia: Changing Geo-Political Dynamics in the Trump Era

Widespread reports of China’s hegemony over the neighboring region miss the nuance of fast-shifting political and strategic dynamics

Phnom Penh 
A historical map depicting China's flag over Southeast Asia. Photo: iStock

Is China truly establishing dominance over neighboring Southeast Asia, or is it a prevailing perception among academics and journalists who have uncritically adopted a pervasive pro-China narrative built on Beijing’s rising investment and influence in the region?

Two recent Southeast Asian elections denote a shifting spectrum. Last month’s general election in Cambodia, by far China’s most loyal ally in the region, was taken by some as indication of how far the country has moved away from its past Western backers and closer to Beijing.

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As Cambodia abandons multi-party democracy for one-party authoritarianism, similar to the dominance of the Communist Party in China, some see Cambodia as the first domino to fall in China’s grand regional ambition for political and economic control over the nearby region.

Indeed, some in Cambodia’s exiled opposition have claimed that the country has become a de facto “Chinese colony” under Prime Minister Hun Sen’s ruling Cambodian People’s Party (CPP).

The Harapan coalition’s win at Malaysia’s May 9 general election, however, pointed in the opposite direction. The long-ruling United Malays National Organization (UMNO) was ousted by an alliance whose campaign narrative was built in part on opposing Chinese investment, which boomed under the previous government.

Now as prime minister, Mahathir Mohamad has cancelled US$22 billion worth of Chinese-backed infrastructure projects, including a Belt and Road Initiative-inspired high-speed rail line, for reasons of fiscal prudence.

While Mahathir warned of the risk of new forms of “colonialism” during a recently concluded tour of China, he also made the diplomatic point that his government isn’t anti-China.

Indeed, some in Cambodia’s exiled opposition have claimed that the country has become a de facto “Chinese colony” under Prime Minister Hun Sen’s ruling Cambodian People’s Party (CPP).

The Harapan coalition’s win at Malaysia’s May 9 general election, however, pointed in the opposite direction. The long-ruling United Malays National Organization (UMNO) was ousted by an alliance whose campaign narrative was built in part on opposing Chinese investment, which boomed under the previous government.

Now as Prime Minister, Mahathir Mohamad has cancelled US$22 billion worth of Chinese-backed infrastructure projects, including a Belt and Road Initiative-inspired high-speed rail line, for reasons of fiscal prudence.

While Mahathir warned of the risk of new forms of “colonialism” during a recently concluded tour of China, he also made the diplomatic point that his government isn’t anti-China.

Malaysia's Prime Minister Mahathir Mohamad (L) and China's Premier Li Keqiang talk during a signing ceremony at the Great Hall of the People in Beijing on August 20, 2018.Mahathir is on a visit to China from August 17 to 21. / AFP PHOTO / POOL / HOW HWEE YOUNG

“We should always remember that the level of development of countries are not all the same,” Mahathir said this week at a joint press conference with Chinese premier Li Keqiang. “We do not want a situation where there is a new version of colonialism happening because poor countries are unable to compete with rich countries, therefore we need fair trade.”

It is undeniable that China now plays a major and growing role in Southeast Asian affairs, even if judged by only its economic heft.

A recent New York Times report noted that every Asian country now trades more with China than the United States, often by a factor of two to one, an imbalance that is only growing as China’s economic growth outpaces that of America’s.

With China’s economic ascendency projected to continue – the International Monetary Fund (IMF) predicts China could become the world’s largest economy by 2030 – some believe that Beijing aims to replace the US-backed liberal international order in place since the 1950’s with a new less liberal and less orderly model.

Cambodia’s case, however, tests the limits of that forward-looking analysis. The US and European Union (EU) refused to send electoral monitors to Cambodia’s general election last month on the grounds the process was “illegitimate” due to the court-ordered dissolution of the country’s largest opposition party.

Washington has since imposed targeted sanctions on Cambodian officials seen as leading the anti-democratic crackdown, while new legislation now before the US Senate could significantly ramp up the punitive measures.

Hun Sen aired a combative response to threats of sanctions, saying with bravado that he “welcomes” the measures. Some commentators read this as an indication that Phnom Penh no longer cares about the actions and perceptions of democratic nations because it has China’s strong and lucrative backing.

Yet the CPP still made painstaking efforts to present a veneer of democratic legitimacy on to its rigged elections, something it would not have done if it only cared about Beijing’s opinions. Hun Sen now says he will soon defend the election’s legitimacy at the United Nations General Assembly, yet another indication that he still cares what the West thinks.

China’s rise in Southeast Asia is viewed primarily in relation to the US’ long-standing strong position, both economically and strategically. Many see this competition as a zero-sum game where China’s gain is America’s loss.

Along those lines, some analysts saw US Secretary of State Mike Pompeo’s recent whirlwind trip to Southeast Asia as “parachute diplomacy” that only underscored certain entrenched regional perceptions of the US as an episodic actor that has no real strategy for Southeast Asia.

The Donald Trump administration certainly lacks an overarching policy comparable to his predecessor Barack Obama’s “pivot to Asia,” a much-vaunted scheme with strategic and economic components that made Southeast Asia key to America’s policy of counterbalancing China.

Despite no new policy moniker, Trump’s administration has in many ways continued Obama’s scheme: Vietnam remains a key ally, support for other South China Sea claimants is unbending, military sales remain high, and containing Chinese expansion is still the raison d’etre.

It’s also been seen in the number of visits to Southeast Asia by senior White House officials, including high profile tours by Pompeo and his predecessor Rex Tillerson, Defense Secretary Jim Mattis, and Trump himself to Vietnam in November 2017 and Singapore in June.

A little noticed December 2017 National Security Strategy document, produced by Trump’s White House, explicitly notes that “China seeks to displace the United States in the Indo-Pacific region, expand the reaches of its state-driven economic model, and reorder the region in its favor.”

Yet perceptions of new Cold War-like competition in Southeast Asia often fail to note the imbalance between America and China’s spheres of influence in the region.

 

US President Donald Trump (L) and Vietnam's President Tran Dai Quang (R) attend a welcoming ceremony at the Presidential Palace in Hanoi in Hanoi on November 12, 2017.Trump told his Vietnamese counterpart on November 12 he is ready to help resolve the dispute in the resource-rich South China Sea, which Beijing claims most of. / AFP PHOTO / POOL / KHAM

Absent President Donald Trump’s Asia Policy, China emerges as the dominant  player in Southeast Asia

China’s two most loyal regional allies are arguably Cambodia and Laos, countries of less economic and strategic importance than America’s main partners Indonesia, Thailand, Singapore and Vietnam.

The historically pro-US Philippines has gravitated somewhat into China’s orbit under President Rodrigo Duterte, though at most there has been an equalization of its relations between the two powers rather than outright domination by China.

Strategic analyst Richard Javad Heydarian recently noted that Duterte likes to think of himself as a “reincarnation of mid-20th century titans of the so-called Non-Aligned Movement,” though Heydarian suggested that this could prompt a backlash from the Philippine public that remains resolutely pro-America.

Malaysia, another country that was thought to have been moving closer to China, has ricocheted strongly in the other direction after the change in leadership from pro-China Najib Razak to China-skeptic Mahathir Mohamad.

Thailand has boosted military ties with Beijing since the country’s military coup in 2014, which caused some panic in Washington, but a recent incident has shown just how fragile their bilateral relations remain.

After two boats sank near the resort island of Phuket in early July, killing dozens of Chinese tourists, Deputy Prime Minister Prawit Wongsuwan blamed the Chinese tour operators, commenting the accident was “entirely Chinese harming Chinese.”

His claim led to calls in China for tourists to boycott Thailand, which could cost the country roughly US$1.5 billion in cancellations, according to some estimates. Thailand’s tourism sector is now facing a major public relations problem after China’s jingoist state-owned media lambasted Prawit’s tactless response.

More explosively, rare nationwide protests in Vietnam in June were sparked by nationalistic concerns that a new law allowing 99-year land leases in special economic zones would effectively sell sovereign territory to China.

There are strong perceptions, aired widely over social media, that Vietnam’s ruling Communist Party is too close to Beijing, a cause of resentment that some analysts suggest is the country’s biggest potential source of instability.

Even in perceived pro-China nations like Cambodia and Laos, anti-China sentiment is rising in certain sections of the public. Arguments that Chinese investment actually harms the livelihoods of many Cambodians, especially in places like coastal Sihanoukville and Koh Kong, is on the ascendency.

Social media criticism has centered on a concession deal the Cambodian government entered with a Chinese company that effectively gives it land rights to an estimated 20% of Cambodia’s coastline.

The same goes for Laos’ ruling communist party, which has taken steps to curb the growth of certain sectors dominated by Chinese investment, such as banana plantations and mining, over public complaints about their adverse health and environmental impacts.

The IMF and others, meanwhile, have expressed concerns that Laos risks falling into a Chinese “debt trap”via its Beijing-backed US$6 billion high-speed rail project, a claim that Prime Minister Thongloun Sisoulith felt the need to publicly rebuff in June.

Still, there is a certain misapprehension that China’s rising economic importance to the region, both as a provider of aid and investment and market for exports, necessarily equates to strong political and strategic influence.

It doesn’t always add up that way. In January, China fractionally overtook America as the largest importer of Vietnamese goods, according to the General Department of Vietnam Customs. Nonetheless, Hanoi remains decidedly pro-US in regional affairs and that position isn’t expected to change, even if its exports to China continue to outpace those to America.

More fundamentally, China’s rising economic presence in the region is in many instances destabilizing relations. Rapid growth in Chinese investment to Malaysia in recent years prompted a public backlash, a phenomena seized on by the victorious Harapan coalition. There are incipient signs the same type of backlash is now percolating in Cambodia and Laos.

Chinese investment is likely to play a role in Indonesia’s presidential and legislative elections next year, perhaps negatively for incumbent President Joko Widodo, under whose tenure China has become the country’s third largest investor.

“The relationship with China could turn toxic for [Widodo],” Keith Loveard, senior analyst with Jakarta-based business risk firm Concord Consulting, recently told the South China Morning Post.

To be sure, China has translated some of its economic largesse to strategic advantage. Philippine President Durterte, for example, said in October 2016 that his country’s one-way security ties with the US would come to an end, though America’s provision of “technical assistance” during the Marawi City siege last year cast the extent of that into doubt.

China has also developed closer ties to the militaries of Thailand and Cambodia, so much so that the latter cancelled joint military exercises with the US last year. It has also resumed its past position of shielding Myanmar’s generals from Western condemnation during the recent Rohingya refugee crisis.

But America still remains the predominant security ally of most Southeast Asian nations, something that will only become more important as concerns about the spread of Islamic terrorism heighten. This month, Washington provided an additional US$300m in security funding to the region.

Only Laos, Cambodia and Myanmar buy more arms from China than America, according to the Stockholm International Peace Research Institute. The rest of Southeast Asia’s military procurements, sometimes exclusively, come from the US.

Still, some of China’s recent regional successes have been the result of America’s missteps. China has been greatly helped by Trump’s withdrawal of America from its long-standing leadership role in certain multilateral institutions, as well as his ad hoc policy towards Southeast Asia that favors more bilateralism.

Had Trump not withdrawn the US from the Trans-Pacific Partnership, a multilateral trade deal championed by Obama that excludes China, regional trade flows would be geared more towards America, providing an important counterbalance to many regional countries’ rising dependence on Chinese markets.

By doing so, Trump allowed Beijing’s multilateral economic institutions, like the Asian Infrastructure Investment Bank and the New Development Bank, to gain an upper hand.

Yet most reporting on China’s influence in Southeast Asia rests on the assumption that the trends of the past decade will continue into the future. But it’s not clear that Chinese investment will keep growing at the same rate – or even faster – while America continues to fumble over how best to engage with Southeast Asia.

US Secretary of State Mike Pompeo (C) poses with Thailand's Foreign Minister Don Pramudwinai (L), Vietnam's Deputy Prime Minister and Foreign Minister Pham Binh Minh (2nd L), Malaysia's Foreign Minister Saifuddin Abdullah (2nd R) and Laos Foreign Minister Saleumxay Kommasith (R) for a group photo at the 51st Association of Southeast Asian Nations (ASEAN) - US Ministerial Meeting in Singapore on August 3, 2018. Photo: AFP/Roslan Rahman

China cannot rule out that in 2021 America could have a new president able to articulate and implement a more coherent policy towards Southeast Asia, nor that upcoming elections in Indonesia and possibly even Myanmar see the rise of anti-China candidates.

Neither can Beijing rule out that India won’t become a major player in the region, despite it so far failing to live up to expectations. A recent report by the Council on Foreign Relations, a US-based think tank, asserted that it can be “a more forceful counterweight to China and hedge against a declining United States.”

Moreover, there is great uncertainty over whether the South China Sea disputes pitting China versus the Philippines, Malaysia and Vietnam, among others, might at some point turn hot, which would significantly alter the region’s security approach in place since the 1990s.

China’s growing trade war with the US could also impact on its relations with the region. Some believe China could soon devalue its currency in response to the US-China trade war, though Beijing says it won’t.

Not only would a devalued renminbi make Chinese-made products cheaper, negatively affecting competing Southeast Asian exporters, it would also affect the region’s supply chains as Chinese buyers would be expected to demand cheaper prices. Few, if any, in the region would win from rounds of competitive currency devaluations.

But viewing China’s power in the region vis-a-vis America’s is only part of the picture. Japan, and to a lesser extent South Korea, are also major players and potential counterweights to China.

Since the 2000s, Japan’s infrastructure investment in the region has been worth US$230 billion, while China’s was about US$155 billion, according to recent BMI Research, an economic research outfit. The balance might tip in China’s favor with the US$1 trillion Belt and Road Initiative, but probably not for another decade or so, BMI projects.

Tokyo rarely boasts of its own soft power in Southeast Asia. Indeed, while Philippine leader Duterte’s overtures to China are among his major talking points, quietly it has been Japan, not China, that is funding his government’s ballyhooed major infrastructure programs.

Japan's Prime Minister Shinzo Abe (R) and Malaysia's Prime Minister Mahathir Mohamad shake hands during joint press remarks at Abe's official residence in Tokyo on June 12, 2018. / AFP PHOTO / POOL / Toshifumi KITAMURA

Japanese diplomacy towards the region falls somewhere between China and America’s. While Washington’s, at least past, insistence on human rights and democracy-building puts off to many regional countries, Beijing’s diplomacy is more laissez faire, as long as Chinese interests are protected by sitting governments.

Tokyo, by contrast, tends to practice quiet sustained diplomacy, decidedly in support of rule of law but without the threat of punitive measures if a partner government strays. That is likely one reason why there is little anti-Japan sentiment in the region and why its relations receive much less public attention.

Malaysia’s Mahathir, whose first trip abroad after May’s election win was to Tokyo, not Beijing or Washington, has recently spoken of Japan’s importance in regional affairs.

Mahathir shaped Southeast Asia’s approach to great powers during his previous tenure as Prime Minister from 1981-2003, and his belief that Japan can play an even larger role in regional affairs could soon be taken up by other regional governments.

“Specific Southeast Asian states are now seeking to diversify their strategic partnerships, beyond a binary choice between Beijing and Washington,” reads a recent report by the Council on Foreign Relations.

Mahathir’s apparent desire is for a more diversified regional network, similar to the hedging policies he promoted in the 1990s. Mahathir is certainly not pro-China, but neither is he pro-US.

What most Southeast Asian nations desire is not unipolarity but competition among many foreign partners that allows them to maximize benefits and negotiating leverage. When America and China, or Japan and India, compete to gain an economic and political footing, regional nations often win through the bidding.