ASEAN still the critical catalyst for China’s future


December 4, 2016

ASEAN still the critical catalyst for China’s future

by Kishore Mahbubani, Dean, Lee Kuan Yew School@NUS

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China is making some serious strategic mistakes in its dealings with ASEAN. It is sacrificing its long-term interests in favour of short-term objectives and its global interests in favour of regional concerns. And in the process, it is undermining a critical catalyst to its peaceful rise.

China’s peaceful emergence as the number two power in the world is a modern geopolitical miracle. In 1980 its share of global GDP in purchasing power parity terms, was 2 per cent—far less than the 22 per cent the US accounted for. By 2014, China’s share had overtaken the United States. Normally such great-power transitions are accompanied by competition and conflict. Instead, China emerged peacefully. Why?

 

Many factors were responsible. Deng Xiaoping’s wise geopolitical advice to ‘hide and bide’ China’s strength was a key factor. He also called on the Chinese ‘to swallow bitter humiliation’. This they did. But it is impossible to swallow bitter humiliation forever. It was inevitable that China would eventually lose its patience and lash out against perceived maritime provocations by Japan and ASEAN. We can only hope that these recent outbursts have had a cathartic and calming effect on the national psyche.

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Yet China’s actions with ASEAN show that the anger has not abated. It is commonly believed that Chinese pressure led Cambodia to veto the ASEAN joint communique on the South China Sea in 2012. Similarly, China likely persuaded Cambodia, Laos and Thailand to walk away from the agreed ASEAN statement, later indiscreetly leaked by Malaysia.

China is one of the more rational geopolitical actors today. Unlike the United States and Russia, China’s geopolitical actions are not commonly driven by emotional paroxysms. Yet China’s atypical emotional defence of the infamous ‘nine-dash line’ in the South China Sea goes against its larger global interests.

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China is now the world’s number one trading power and has been since 2014. It is also the world’s biggest exporter of manufactured goods. Chinese toothbrushes and detergents arrive safely on African and Latin American shores because the world’s oceans are open to freedom of navigation and safe for commercial shipping. The US Navy is inadvertently doing the Chinese economy a big favour by keeping international sea lanes open. This has facilitated the near quadrupling of China’s global trade from US$600 billion in 2004 to US$2.2 trillion in 2015.

Yet in the same decade, when its reliance on freedom of navigation in the world’s oceans increased, China prioritised regional interests ahead of its global interests. The nine-dash line, which had remained dormant for decades, suddenly surfaced in the Chinese public consciousness and the Chinese media began to defend it passionately.

It is against Chinese interests to convert any international waterway into an internal lake. This is why Wei Zongyou of Fudan University has wisely advised that: ‘[t]o avoid a possible maritime trap that will not only be detrimental to China’s true national interests, but also negatively affect many other countries, China, as a major claimant, should think longer term and take steps to de-escalate the tension’.

The Chinese government has not decided to break up ASEAN. Indeed, it wants to strengthen ASEAN. Yet its actions have weakened ASEAN, a dangerous thing to do to an organisation that is inherently fragile—perhaps as fragile as a Ming vase.

More dangerously, China began to undermine ASEAN’s unity. In theory, China can afford to alienate the ten relatively weak ASEAN member states. In practice, China is shooting itself in the foot, since ASEAN’s exceptional success as a regional organisation has also facilitated China’s peaceful rise.

In the 1980s the strategic alignment of interests between ASEAN, China and the United States to reverse Vietnam’s occupation of Cambodia enabled China to open up to the world. In the 1990s, after the West isolated China following the Tiananmen Square protests in 1989, ASEAN kept engaging with China. In the 2000s, ASEAN reacted enthusiastically to China’s proposal for enhanced economic cooperation, which also coincided with China’s entry into the WTO.

China has also been exceptionally generous towards ASEAN. It stunned the world by being the first major economic power to propose a free trade agreement with ASEAN, motivating other powers to follow suit. China has been equally generous in its aid programs and was the first economic power to commit to enhancing ASEAN’s infrastructure. As a result, there were, until recently, massive reservoirs of goodwill towards China in ASEAN. It’s a tragedy that these reservoirs are now drying up.

ASEAN had responded positively to China’s generosity. It facilitated China’s rise in other salient ways. By converting the Balkans of Asia into one of the most peaceful regions in the world, ASEAN helped to change the chemistry of the larger East Asia region. China should look carefully at how Russia has been troubled by challenges in Ukraine and Syria. If Southeast Asia had emerged, like the Middle East, as a more troubled region, China would inevitably have been distracted.

Instead, ASEAN created a geopolitical oasis which helped maintain peace in East and South Asia. The annual ASEAN meetings provided the only safe and stable geopolitical platform for regional and great powers to talk to each other regularly. Whenever relations between China and Japan broke down, their leaders turned to the ASEAN meetings to restore matters.

ASEAN has therefore been a critical catalyst for the decades of peace that we have seen in the region. This is why the time has come for China to radically recalculate its interests in regards to ASEAN. Is the defence of the nine-dash line the ‘core interest’ of China in Southeast Asia? Or is it the continued success of ASEAN as a regional organisation promoting the culture of peace and prosperity in the broader region?

The answer almost seems obvious. This is what makes China’s recent actions towards ASEAN truly puzzling. China is jeopardising its own interests in undermining ASEAN unity.

More importantly, as China’s leaders frequently emphasise, China has not arrived as a modern developed power. Its per capita income is still only 25 per cent of the United States’. China still needs a few more peaceful decades to complete the job.

Ultimately, Deng Xiaoping was right when he called on the Chinese people to be patient. He was right in saying that the problem of territorial disputes should be passed to future generations. The problem of the South China Sea should be put on the back-burner. China’s larger interests in peaceful regional chemistry should push it towards preserving and strengthening the critical catalyst that has facilitated China’s rise so far.

Kishore Mahbubani is Dean of the Lee Kuan Yew School of Public Policy, National University of Singapore.

This article appeared in the most recent edition of the East Asia Forum Quarterly, ‘Managing China’.

http://www.eastasiaforum.org/2016/11/29/asean-still-the-critical-catalyst-for-chinas-future/

Malaysia-China Relations: A New Turn? – Analysis


November 25, 2016

 

Malaysia-China Relations: A New Turn? – Analysis

Malaysia’s Najib Razak. Photo by Malaysian government, Wikipedia Commons.

Malaysia’s perceptible tilt towards China especially in economic relations reflects Malaysia’s foreign policy of hedging major power influence in the region and globally. While it seeks closer ties with China, it does not imply that Malaysia is shifting away from the US.

By Johan Saravanamuttu and David Han Guo Xiong*

Since Najib Razak assumed the premiership of Malaysia in 2009 China has featured significantly in his foreign policy. It was Najib’s father Tun Abdul Razak, Malaysia’s second prime minister, who was the first leader in Southeast Asia to establish diplomatic relations with the People’s Republic in 1974.

That said, Malaysia’s foreign policy has been one of hedging against major powers in the region and globally. While Malaysia has shown great awareness of China’s rise and importance in the Asia Pacific region, it remains highly cognisant of the political and economic role of the United States in the region.

Malaysia’s Perceptible Tilt Towards China

Thus, Malaysia is among the 12 countries that have signed the US-sponsored Trans-Pacific Partnership (TPP) Agreement in Auckland, New Zealand, on 5 February 2016. The TPP is interpreted by some observers to be a crucial pillar of US rebalancing in the Asia Pacific to check China’s rising political and economic influence.

However, it is uncertain whether the US would commit to the TPP after the Obama administration. Thus, seemingly as a hedge to the signing of the TPP, the Malaysian parliament approved on 20 October participation in the Asian Infrastructure Investment Bank (AIIB) — thought to be China’s brainchild — just prior to the Malaysian premier’s seventh state visit to China this week.

Recent developments in Malaysia demonstrate a perceptible tilt towards China, particularly in economic relations. When President Xi Jinping unveiled China’s 21st Century Maritime Silk Road or “One Belt One Road” (OBOR) strategy some three years ago, Malaysia welcomed the initiative and has remained very enthusiastic about it.

On 3 September 2016, the Malaysian Minister of Transport, Liow Tiong Lai (concurrently President of the political party Malaysian Chinese Association, MCA) extolled the virtues of OBOR in a Malaysia-China Business Dialogue event in Kuala Lumpur. Liow suggested that Malaysia could be “China’s gateway to ASEAN” and a crucial link to the 65 OBOR countries across Asia, Europe and Africa.

Impact of New Posture

This new Malaysian posture has come together with concrete developments in Malaysia-China relations. Malaysia is currently China’s largest trading partner in ASEAN with total trade of some US$100 billion expecting to reach $160 billion by 2017. China has also recently become the largest direct foreign investor in Malaysia, overtaking Singapore, Japan, Netherlands and the US, through buying assets in Malaysia’s troubled 1MDB.

These multi-billion assets bought from the Malaysian national fund include Edra Global Energy sold to China General Nuclear Power Corp for $2.3billion and a 60 percent stake in Bandar Malaysia, 1MDB’s flagship 197-hectare property site in Kuala Lumpur, at a price tag of $1.7 billion to China Railway Construction Corp. The China railway corporation is also thought to be in pole position to undertake the Kuala Lumpur-Singapore high-speed railway worth some $16.6 billion.

More interestingly, in keeping with its OBOR policy, China has been deeply involved in the rebuilding and refurbishing of sea ports in Malaysia. According to Transport Minister Liow, Malaysia’s has signed a “port alliance” with China linking six of Malaysia’s ports to 11 of China’s. Currently, China is helping Malaysia to rebuild and expand port services at Klang, Malacca and Carey Island in the Straits of Malacca and Kuantan on the South China Sea. Some 70 to 80 percent of the ships passing through the Straits of Malacca are said to originate from China.

Kuantan on the east coast of the Malay Peninsula would be of great importance to Chinese maritime trade as well. Liow said his ministry is therefore encouraging China to participate in port construction across 120 kilometers of the Malacca Straits. According to Liow, the port alliance with China would help develop shipping, logistics and other related industries to augment the $1 trillion worth of OBOR trade.

Ramifications for Malaysia

There are three ramifications of Malaysia’s embrace of OBOR. Firstly, OBOR, which is partly funded by the AIIB, would help China to further expand its prominence in Southeast Asia. It is expected that through the OBOR, Malaysia would be a key node for China to access the ASEAN market. China’s increased economic prominence through OBOR and the AIIB could improve China’s image among ASEAN countries as a major player in boosting the economies of Southeast Asia.

The strengthening of economic ties between ASEAN and China would obviate potential conflict, and enhance the benefit for ASEAN and China to work closely together economically.

Secondly, Malaysia’s perceptible tilt towards China in the OBOR venture could be a nudge to the US to maintain its current commitment to Southeast Asia. If the US, under its new President, reneges on its commitment to TPP, this would be a setback for Malaysia as the TPP has the potential to enhance Malaysia-US economic ties.

Thus, Malaysia’s favourable tilt towards China and OBOR could help to cushion some of the negative fallout of such a scenario. It could also be a signal to the next US President that America risks losing the support of its friends to China if the US does not continue its economic rebalancing role in Asia.

Thirdly, domestically, strengthening economic growth would be advantageous to Najib’s administration. Due to domestic political challenges having a strong economic performance would enhance the legitimacy of Najib’s government. The economic benefits of OBOR would play a vital role in buttressing Najib’s regime.

Najib’s recent visit to China  will improve bilateral ties significantly with OBOR featuring prominently in this development. This does not however imply that Malaysia is coming under China’s sway while shifting away from the US.

Drawing closer towards China economically is a pragmatic move by the Malaysian government to expand its economic space and boost economic growth. Provided the US continues its commitments to Southeast Asia Malaysia will also seek to build up ties with the US for regional peace and development.

*Johan Saravanamuttu, Adjunct Senior Fellow at the S. Rajaratnam School of International Studies (RSIS), Nanyang Technological University, Singapore, was previously professor of political science at Science University of Malaysia (USM). David Han is a Research Analyst with the Malaysia Programme at RSIS.

Southeast Asia get trumped


November 21. 2016

Southeast Asia get trumped

by Le Hong Hiep

http://www.khmertimes.com

Le Hong Hiep is a Fellow at ISEAS-Yusof Ishak Institute in Singapore and author of the forthcoming book “Living Next to the Giant: The Political Economy of Vietnam’s Relations With China Under Doi Moi.

President Obama has a cool drink outside an ASEAN meeting in Laos in September. The US may not be as connected to the region now. Reuters

With his shocking victory in the US presidential election, President-Elect Donald Trump has made history – and made a lot of people very afraid. In fact, his rise threatens to incite a revolution that shakes the foundations not only of American politics, but also of global peace and prosperity.

One region that is likely to start feeling tremors soon is Southeast Asia.Throughout his campaign, Mr. Trump espoused an “America first” worldview, emphasizing that he would follow through on US international commitments only when it suits him. This has rattled many a US ally and partner, including the countries of Southeast Asia, which fear that they will be all but ignored by a key guarantor of stability in their neighborhood.

This would represent a notable reversal from the last eight years, during which President Barack Obama made a concerted effort to deepen America’s ties with Southeast Asia. Under Mr. Obama’s stewardship, the US acceded to the Treaty of Amity and Cooperation in Southeast Asia and joined the East Asia Summit.

In 2013, the US became the first ASEAN dialogue partner to establish a permanent mission to the organization. Last year, the country forged a strategic partnership with ASEAN. And, earlier this year, Mr. Obama hosted the first US-ASEAN summit on American soil.

Mr. Obama also brought four ASEAN members into the Trans-Pacific Partnership (TPP), a mega-regional trade deal that would promote US economic exchange with the region.

Mr. Obama also helped to cement bilateral ties with most countries in the region, visiting nine out of 10 during his two terms in office. Had a US government shutdown not forced him to cancel a trip to Brunei in 2013, he would have had a perfect record.

To be sure, America’s ties with Thailand and the Philippines have deteriorated somewhat during Mr. Obama’s second term, owing to the US President’s criticism of violations of democratic norms and human rights in both countries. But that regression has been more than offset by progress in America’s relationships with Indonesia, Malaysia, Laos, Myanmar, Singapore and especially Vietnam.

Mr. Obama’s efforts in Southeast Asia were all part of his broader strategic “pivot” to Asia, announced in 2011. Aimed at helping the US to maintain its strategic primacy in the Asia-Pacific region, the policy has been quietly welcomed by most regional actors, as it dovetails with their desire to check China’s hegemonic ambitions in the region.

All of this may be about to change. Mr. Trump is likely to focus overwhelmingly on domestic issues, at the expense of America’s strategic interests abroad. Indeed, he may well back away from strategic engagement with ASEAN and its members, causing their relationships with the US to deteriorate.

If he fails to show up at important regional meetings like the East Asian Summits, that deterioration will become even more pronounced.

Mr. Trump’s indifferent attitude will also hurt bilateral relations. To be sure, Malaysia, Thailand and the Philippines may prefer a US President who does not trouble himself to criticize their governments’ human-rights abuses, corruption or constitutional shenanigans. But US relations with other countries in the region may stall, if not deteriorate, as confidence in Mr. Trump’s willingness to follow through on US commitments collapses.

Economic ties are also likely to suffer. Under Mr. Trump, who has revealed strong protectionist tendencies, the TPP will stay moribund, at best. The US-ASEAN Connect initiative, which Mr. Obama proposed at the summit earlier this year and which aims to boost America’s economic engagement with the regional grouping, may also go nowhere.

It is not only Southeast Asia that will suffer from Mr. Trump’s indifference. Australia, India and Japan – key US allies and security partners in the Asia-Pacific region – may also find it difficult to connect with Mr. Trump, further undermining faith in the US-led regional security architecture.

The strategic rebalancing toward Asia that Mr. Obama worked so hard to advance may be thrown into reverse, dealing a heavy blow to Asia and the US alike.

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One Asian country that may welcome the election’s outcome is China. Although Mr. Trump has criticized China extensively for supposedly stealing American jobs – and even blamed it for creating the “hoax” of climate change – he may take a softer stance on Chinese strategic expansionism in the region, especially in the South China Sea, than Mr. Obama did.

In a far-fetched but not implausible scenario, Mr. Trump may even strike a deal with China over its territorial claims, disregarding the interests of US allies, from Japan to the Philippines. Such a move would be particularly devastating to perceptions of Mr. Trump’s America in Southeast Asia.

The good news is that this outcome is not guaranteed. Campaign rhetoric is one thing; governing is quite another. Once in the White House, a heavily advised Mr. Trump may realize that maintaining some continuity in America’s foreign policy, particularly in the Asia-Pacific, is more in line with US interests than the alternative. If nothing else, Mr. Trump may resist the idea of China gaining strategic primacy in the region.

For Mr. Trump, who made his career in real estate, perhaps the best way to look at it is in business terms. The US would be remiss to squander all the significant investment that his predecessor has made in Southeast Asia. Copyright: Project Syndicate

APEC PERU 2016 Barack Obama’s Last Hurrah


November 20, 2016

APEC is a Talk Shop–PERU 2016 Barack Obama’s Last Hurrah

by Gary Hawke

When assessing the impact of APEC, too much attention is paid to the annual Economic Leaders’ Meeting (ELM). Leaders will just talk about whatever interests them, but the main purpose of the ELM is to establish deadlines for the work program that APEC will engage in through multiple fora over the year.

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The 2016 ELM in Peru will generate some entertainment. President Obama will be interrogated about the likely impact of his successor and will try to provide reassurance without commitment. The result of the election is clear, even if extraordinary. There was never any chance of a repeat of then US President Bill Clinton’s ‘Triple Whammy’ — the Uruguay Round, North America Free Trade Agreement and inauguration of the APEC ELM — but few considered the likelihood of a complete reversal.

The immediate question is where US policy is likely to engage, considering there is widespread scepticism of the value of economic integration. Will US policy endorse and promote that scepticism? Will ‘American Jobs First’ be the new form of ‘America First’? Such questions will not be answered in Lima.

The nearest the official agenda will come to such questions is discussions over the future of the Free Trade Area of the Asia-Pacific (FTAAP) initiative. The working party — jointly chaired by the United States and China — will present the report, which has evolved over the course of this year but certainly does not contain a proposal for a clear way forward.

China will favour renewed commitment and promotion of negotiation while respecting the role of APEC as an incubator rather than a venue for negotiations. The US delegation will procrastinate, conscious that the incoming administration is unlikely to acknowledge any commitment and that Congress is unlikely to give a mandate for any negotiations with China. Statements will likely turn formulaic, probably deferring to further study.

In recent years, APEC has identified several ‘paths’ to the FTAAP — notably the Trans-Pacific Partnership (TPP), the Regional Comprehensive Economic Partnership (RCEP) and the Pacific Alliance. TPP members are unlikely to bother much with any formal meeting on the sidelines of the ELM. Other economies that are interested in the TPP will simply monitor the informal discussions, which should give them a good idea of whether the TPP is ‘on ice’ or dead. Chinese leadership will presumably focus on RCEP, creating linkages between the Asia and the Pacific Alliance, and the China–US economic relationship as the key component of a Trans-Pacific understanding.

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All of this will occur on the sidelines of the ELM itself. The formal proceedings will include the receipt and endorsement of useful work from the APEC fora, including recommendations on trade in services from the Economic Committee. APEC economies have fallen behind OECD averages in growth of services trade and in achieving reductions in the trade restrictiveness index.

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The Economic Committee has responded to analysis which shows that increased services trade is related to increased productivity and living standards. Its work is focused on the competitiveness of service sectors rather than on increasing the exports of selected sectors. This has enhanced its appeal to developing economies and increases its likely impact — mainly due to its connections with innovation, absorption of new technology and inclusive growth.

The Economic Committee has also exploited synergies with work on good regulatory practice. ELM will surely endorse its proposals for further work in the area. Interestingly, it has attracted the Committee on Trade and Investment as a collaborative partner, having long seen itself as the premier arm of APEC.

Demand for ‘inclusive’ growth has been part of the Asian prescription of APEC goals since the Yokohama ELM. The conventional trade and investment facilitation and liberalisation agenda has responded mostly through adding ‘micro’ to ‘small and medium enterprises’ in trade agreements and facilitation processes. A focus on ‘inclusion’ might generate more interest in production networks and innovation. The result could be an effective response to dwindling public support for the integration process as a whole.

The headlines from ELM will provide entertainment. But the significant contribution of APEC will only be heard in the background.

Gary Hawke is an Associate Senior Fellow at the New Zealand Institute of Economic Research, and a member of the Academic Advisory Council of the Economic Research Institute for ASEAN and East Asia.

Leaders aren’t APEC’s heroes

Donald Trump and ASEAN’s Pivot to China


November 19, 2016

Donald Trump and ASEAN’s Pivot to China

http://www.khmertimeskh.com/news/32104/donald-trump-and-asean/

by Mayuri Mei Lin

Businessman and reality TV star Donald Trump pulled off a victory that shocked the entire world last week when he won the US presidential election after a contentious and divisive campaign against Hillary Clinton.

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He defied all the major polls, which almost unanimously predicted another Clinton back in the White House, and he showed that his racially-tinged rhetoric represented the views of the American majority, via the electoral college at least, and he also caused the global economy to go into a momentary tailspin after his win.

The Mexican peso plummeted to record lows and the Japanese yen, often seen as a safe haven, also tumbled against the dollar.

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He is  the POTUS for the next 4 years: Get to know him

While Mr. Trump has made drastic statements about how he plans to map out US foreign policy, key among which was his protectionist pledge to protect American jobs from free trade agreements, analysts have said that ASEAN economies will likely see little impact, in the short-term at least.

Part of his vow to “Make America Great Again” were inward-looking policies to boost the local economy, which is an indicator that he will spend his first year in the White House focusing on domestic policies first rather than policies affecting ASEAN, they added.

“It would appear that Trump would focus more inward, in developing the American economy, and hence spend less energy in international affairs in general and Asia-Pacific matters specifically,” Singapore’s Nanyang Technological University S. Rajaratnam School of International Studies’ Senior fellow Dr. Oh Ei Sun told Khmer Times.

“I think [his] volatility was mostly to woo the disgruntled voters during the campaign period. I think Trump will mellow down gradually as he settles into his presidency. He is also a businessman, so you will actually see him being more willing to cut deals,” Dr. Oh added.

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Dr. Lim Teck Ghee (pic above), a former World Bank senior social scientist and the current CEO of Malaysia’s Centre for Policy Initiatives, added that while it was far too early to tell how a Trump presidency would affect Southeast Asian nations, it was possible that any changes would not happen in the short-term.

ASEAN – despite it being the seventh largest economy, according to global consulting firm McKinsey’s 2013 numbers, with a GDP of $2.4 trillion – still ranks low on the US’ list of priorities when lined up alongside other powerhouses like China, India and Europe.

“[It’s] too soon to tell. Trump has made all sorts of election promises which will now need to be prioritized and implemented by his new team,” said Dr. Lim.” I expect ASEAN to be low down his agenda of change.

“Election talk for most leaders generally remains election talk. Expect him to move more slowly on international policy than what his electoral speeches may have promised.”

One certainty to come out from Mr. Trump’s presidency, however, is scrapping the Trans-Pacific Partnership (TPP) agreement after the businessman made anti-global trade policies a key pillar throughout his campaign.

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Mr. Trump has repeatedly criticized the TPPA, even calling it a “continuing rape” of the US due to the outflow of manufacturing jobs. However, analysts argue that this too will have a minimal impact as none of the 11 signatories have ratified the trade deal.

“Many analysts expect that TPP will now be scrapped, but that will not mean much since the current status quo in international trade and investment will continue,” Dr. Lim told Khmer Times. “What comes after is a more protective US trade policy, but its actual form and details will need time to hammer out.

“I do not expect Trump to trigger a trade war so quickly or even in the near future. He will look for greater advantage for US industry and exports as well as try to cut back on imports that affect American labor.”

Media reports also quoted the Obama administration as saying last Friday that it would be suspending efforts to pass the free trade deal until Mr. Trump assumes office in January. The Guardian quoted congressional leaders from both sides of the political divide conceding the trade deal’s imminent death, saying it would not pass Congress.

Now with the TPPA, which excluded China and was seen as the US’ bid to best the Asian powerhouse economically, no longer being feasible, ASEAN nations would likely focus more on realizing the Regional Comprehensive Economic Partnership (RCEP), a Beijing-backed trade deal.

“The TPP is of concern to Vietnam and Malaysia mainly, but if it does not become reality, then the existing option of RCEP will be given more consideration. No big and sudden changes are to be expected,” Dr. Ooi Kee Beng, Deputy Director of Singapore’s ISEAS-Yusof Ishak Institute, told Khmer Times.

The RCEP, initiated in 2012, is a proposed trade deal between the 10 ASEAN member nations as well as the six nations with which they have existing free trade agreements – Australia, Japan, China, India, South Korea and New Zealand.

According to Singapore news outlet Today, the RCEP would cover 3.4 billion people in the Asia-Pacific region and total a combined GDP of approximately $17.2 trillion, which amounts to one third of the world’s current annual GDP.

Comparatively, the finalized TPP proposal was signed by the 12 member states – Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States and Vietnam – in February. Covering 800 million people in the Pacific Rim and pooling a GDP of about $30 trillion, or 40 percent of the global GDP, the trade deal was expected to reduce trade barriers among member states as well as to lower tariffs on select goods.

Japanese Prime Minister Shinzo Abe also said that with the TPP unlikely to materialize, Japan would now turn its attention to the RCEP.

“There’s no doubt that there will be a pivot to the RCEP if the TPP doesn’t go forward,” Singapore’s Straits Times quoted him as saying. The renewed interest in the RCEP, coupled with recent visits to Beijing by Philippine President Rodrigo Duterte and Malaysian Prime Minister Najib Razak indicated that ASEAN’s pivot to China will keep growing.

China already is Asia’s largest trading partner and with the US potentially shutting its doors to global trade, this could result in the Asian powerhouse gaining further ground in the Asia-Pacific region.

“So given [Trump’s inward-looking policies] and China’s willingness to invest heavily overseas, it is conceivable that Southeast Asian countries would be even more closely linked to China,” Dr. Oh said.

“No one is sure what Trump’s foreign policy is going to look like. What is more definite in the short-term is that ASEAN countries will be rethinking their options, while they apprehensively wait for clear signals on where the US is planning to go, where it’s East Asia presence and commitments are concerned.”

Mr. Trump has repeatedly blamed global free trade deals for stealing American jobs, especially while campaigning in rust belt states like Pennsylvania, Wisconsin and Michigan. He singled out China, calling it a “currency manipulator,” and Mexico, accusing both countries of luring manufacturing jobs away from the American people and distorting trade.

He has also vowed to build a wall along the Mexico-US border, which he will make the Mexicans pay for, and also said during his campaign that he plans to ban Muslims from entering the US due to what he claimed was growing anti-Islam sentiments after the attacks on Paris and San Bernadino, California.

In an interview with CBS after his election, Mr. Trump reiterated his stance on building the wall and also vowed to deport up to three million immigrants with criminal records.

Australia’s China choice is not between security and prosperity


November 15, 2016

Australia’s China choice is not between security and prosperity–Why not both?

by Paul Hubbard, Australian National University @Canberra

http://www.eastasiaforum.org
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If strategic rivalry between China and the United States escalates, Australia will face uncomfortable choices that could leave one or both partners unsatisfied. But it is wrong to frame this as a trade-off between national security and economic prosperity, as if strategic strength were born from economic pain. National security and economic prosperity are both vital national interests and deeply symbiotic. A stable international order underwrites economic prosperity; international economic engagement supports a stable order.

Foreign Affairs Minister Julie Bishop in her office at Parliament House.

Australia’s Foreign Affairs Minister Julie Bishop in her office at Parliament House. Photo: Alex Ellinghausen

Unfortunately, economists and strategists have trouble talking on the same terms. The starting point for economists is usually an abstract model that assumes the security infrastructure and norms needed for markets to thrive. If economists think about armed conflict it is usually as a ‘tail risk’ — potentially catastrophic, but highly unlikely. But take away a stable national, regional or global order and the business and commerce that generate material prosperity will evaporate.

Security thinkers don’t sit around and assume thriving societies. Instead they are paid to detect threats and contemplate worst-case scenarios. Mitigating these requires clear thinking, well-resourced diplomacy and defence capability. This, in turn, depends on a prosperous economy.

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Chairman Mao Zedong meeting with the Hon. Gough Whitlam QC, Prime Minister of Australia during the historic Prime Ministerial visit to the People’s Republic of China, 31 October – 4 November 1973. Photo courtesy the Hon Tom Burns AO, Chair of the Queensland China Council, personal collection.

Australia can afford multi-billion dollar submarines and joint strike fighters because it has a US$1.2 trillion economy. The Defence White Paper’s US$32 billion funding target for 2020–2021 assumes that the Australian economy will continue growing faster than the United States, the Euro Area or Japan. Achieving this requires deeper economic engagement with a fast growing Asia.

The complementarity of security and prosperity is not a new discovery. Former US president Lyndon Johnson’s 1965 Peace Without Conquest speech recognised that popular support for communism in Southeast Asia came not from the peasant’s fascination with Marxism, but rather from a desire for basic life necessities and an ‘end to material misery’. He proposed the creation of the Asian Development Bank to show that these needs could be met through markets and capitalism, without resorting to radical communism and violent conquest.

While the United States lost the battle against communism in Vietnam, it won the war for open markets and prosperity in Asia. The examples of Japan, Hong Kong, Taiwan, South Korea and Singapore convinced China’s leaders in 1978 to put aside the horrors of Maoism and adopt not just ‘reform’ but crucially, ‘opening up’.

Unbridled ideology was exchanged for market pragmatism. The result was the largest and most rapid movement of humanity from poverty in history. China stopped exporting international revolution and instead now exports 18 per cent of the world’s manufactured goods, in accordance with the rules-based order of the World Trade Organization. Foreign investment in and out of China puts assets at risk on both sides, giving owners a strong material interest in preserving peace.

Of course national interests go beyond the economy. Providing for the material welfare of citizens is only one of the legs of political legitimacy. States sometimes adopt goals that cut across the material welfare of their citizens. The first era of globalisation did not stop the imperial follies of the First World War. The following wave of fascism and totalitarianism subordinated individual welfare to the strategic interests of the state.

China’s policies after 1978 were calibrated to reassure the international community that its re-emergence would not follow this menacing route. Deng Xiaoping’s foreign policy mantra was to hide China’s strength and bide its time. Hu Jintao promoted China’s ‘peaceful rise’. Which is why strategists have reacted with alarm to a more assertive foreign policy under Xi Jinping.

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What should economists make of this? Is China’s increasing assertiveness ‘a reality that seems to have bypassed many of Australia’s economic commentators’ as one strategic commentator suggests?

The new direction is worrying. Perhaps the risk of conflict is slightly less remote. But there’s not enough to overthrow the central scenario under which China continues to prioritise domestic and international stability. Just as regional stability serve Australian prosperity, so too does it serve China’s own vital economic interests.

The economist would also distinguish threats to international stability from more common but less catastrophic risks that hide among the cross-border movements of people, goods and capital. As Deng Xiaoping famously observed, opening the window invariably involves letting in a few flies.

The best line of defence against economic harm is competition in a well-regulated domestic market. Unlike Mao’s China, which hoped that correct behaviour would flow from correct ideology, the market system does not depend on the goodwill or benevolence of market participants. Where threats appear to specific security interests, the solution is not to shut the window on prosperity, but rather to use some of the proceeds to buy more and better fly-swats.

This approach allows Australia to choose both security and prosperity, putting the country in a more comfortable position to deal with both the United States and China.

Paul Hubbard is a doctoral candidate at the Crawford School of Public Policy, The Australian National University. He is currently on leave from the Australian Treasury as a Sir Roland Wilson Scholar, and is a former Fulbright Scholar in international relations. The views in this paper do not reflect those of the Australian Treasury.

The economics of Australia’s security in Asia