Investment and trade in the Asia-Pacific region – Non-Chinese Asia
All too often, contrary to all evidence, ‘Asia’ is primarily equated with China. The non-Chinese Asia-Pacific region is larger and more important than China in all respects. India, an obvious regional superpower, is so complex that we leave it aside in this overview. But even without South Asia, the non-Chinese part of the region surpasses China in terms of economic power and potential and is approaching it in terms of total population.
However, it is equally obvious that very different countries come together in non-Chinese Asia. Accordingly, we parcel up our description first into Japan and Korea, then Southeast Asia, i.e. the ASEAN and finally the Pacific region, primarily Australia. All of these countries have one main problem in common: the balancing of security interests on the one hand, which in the greater region is still guaranteed by the ongoing ‘Pax Americana’, and economic interests on the other, which require at least a working relationship with China.
Japan and Korea
Japan is undoubtedly one of the few major powers in the region. The aforementioned balancing act between the USA and China is particularly pronounced here. After around 30 years of stagnation, the Japanese economy is flourishing again. This is due to the government’s economic stimulus measures – interest rates have finally slipped back into positive territory – and the increasingly strong ‘away from China’ slogan for global companies and investors. However, China remains an important factor for the Japanese economy, both in terms of manufacturing and investment. As a result, business representatives in Nippon do not want to know anything about ‘de-risking’ their relations with China. The economic potential within the country itself is limited economically by the weak currency and structurally by an aging population and restrictive immigration policy.
The situation in Japan’s security policy environment is clear. For some time now, China has primarily been perceived as a threat. Tokyo is currently undergoing a massive arms build-up. Accordingly, Japan is a founding member of the anti-China structure Quadrilateral Security Dialogue (together with the USA, Australia and India). Even more important in terms of security policy is Japan’s rapprochement with the AUKUS (Australia, UK, USA) with a direct military focus against China. Both structures are defensive measures to prevent China from taking dangerous action with regard to Taiwan and discourage it from supporting North Korean aggression. These two potential trouble spots when exploding would have particularly devastating consequences for Japan; e.g. a blocked Taiwan Strait would severely affect Japanese foreign trade. Tokyo is also placing bilateral stumbling blocks in the path of Chinese expansion in the region. For example, Japanese troops are to be stationed in the Philippines to resist Beijing’s brazen militarization of the South China Sea.
In terms of security policy, Japan’s alignment with the USA is obvious. However, this does not prevent occasional irritations here too. The most recent example is the de facto njet from the White House against the takeover of the ailing US Steel – one of the basic suppliers to the American defense industry – by Nippon Steel. This is due to the US election campaign, because Biden needs the steel workers from Pennsylvania, and is supported in Congress on a bipartisan basis because there are doubts as to whether the sensitive data exchanged within the AUKUS would be secure in Japan. Overall, however, Japan can be counted among the USA’s close allies in the greater region. In Tokyo, the fear of losing a reliable friend in Washington is therefore acute should the unpredictable and irrational Trump move into the White House.
Korea overtook Japan in terms of per capita income a few years ago and continues to be regarded as a flourishing economic miracle with a resilient democracy. However, in addition to the increasingly unfavorable age structure of the population, as in Japan, there are two main factors that could hinder further political and economic growth at the current pace.
In terms of domestic politics, the hawks – currently in government, but with a defeat in the last local elections – and the doves, who continue to see a peaceful agreement with North Korea as their primary goal, are increasingly at odds with regard to the tyrannical and recently openly hostile ‘brother state’ in the North. Here too, the election of Trump and his well-known mania for absurd geopolitical deals could completely reshuffle the cards.
In terms of economic policy, Korea is in transition from an economy dominated by large companies (Chaebols) which, since the beginning of the economic miracle in the 1970s, have taken over manufacturing and technology better and cheaper than the international competition to an economy that develops and produces its own technology (Chips, AI) in necessarily smaller units.This will not be achieved without difficulty, as Asian competitors – in Japan, Taiwan, China and to some extent also in Asean, such as Malaysia – are fully committed to high technology and are already more advanced in this development than Korea. One example is electric cars, where China is flooding the world with highly subsidized quality exports and is thus hurting the Korean car miracle (Hyundai, Kia, Daewoo, SsangYong) of recent decades. However, the Koreans have already proven their versatility on several occasions in conquering and even dominating markets, at least in Asia, also in completely different sectors of the economy, such as the leisure and entertainment industry.
The ASEAN
Despite the diversity of its members, what holds ASEAN together is the conviction that it represents the true Asia as well as the realization that it only has a chance of developing independently against the elephants in the room – the USA, China and India – when making common cause. Here too, the balancing act between the US security policy anchor and the need for economic relations with its large neighbor China looms large. ASEAN will neither become an Asian EU – it is too diverse in every respect for that – nor will it join an Asian NATO which would mean open hostility towards Beijing. In terms of security policy, the focus is on bilateral ties, be it with the USA, Japan or Australia and, to balance things out, sometimes also with China, as the case of the Thai generals.
What various ASEAN countries are working on successfully is increasing their attractiveness as ‘non-Chinese Asia’ in terms of manufacturing and global exports by foreign companies, as witnessed in Indonesia, Vietnam, partly Malaysia and of course in Singapore.They are also relatively stable democracies, with the major exception of Vietnam and increasingly Thailand meaning a certain degree of assurance in the rule of law for foreigners – at least more so than in China.
Indonesia is the anchor state of ASEAN. A smooth change of government has taken place this year, thereby assuring that the previous, relatively open economic policy will be continued. That said, a son of former President Widodo has become vice-president to the aging new President Subianto, once a fierce political opponent of Widodo, which could mean the start of a new political dynasty with all the corresponding danger of a power cartel. In terms of economic policy, Jakarta is wavering between a new, ‘greener’ direction – the Indonesian sovereign wealth fund is to finance the transition to a sustainable economy – and the traditional economic base of raw material extraction. The construction and development of the new Indonesian capital Nunsantara in Eastern Borneo, which is to become not only the administrative center but also Indonesia’s second economic hub alongside Jakarta, will show how seriously Indonesia’s intention is to be taken to become the “green” center of Asia.
Vietnam continues to be ruled and dominated by the Communist Party, which, unlike China, has so far granted relatively free rein to private initiative. Now, in less than two years, two state presidents – the second highest office in the state after the CP General Secretary – have resigned following convictions for corruption of direct subordinates and one of Vietnam’s richest people, businesswoman Truong My Lan, has been sentenced to death for corruption. Foreign investors wonder whether this constitutes a genuine fight against notoriously rampant corruption or whether it is a Chinese-style internal power struggle within the elite.
Thailand has become the economic basket case of the former ‘tiger states’ with a 10-year decline in GDP and an increase in inequality rates to the detriment of the rural population. The relatively young king, unlike his universally revered father, has become even more unpopular after incorporating state property – formally assigned to the crown – into his personal fortune. At this time the military and the king are holding on to power; both an overthrow spearheaded by young Thais as well as a return of the Sinawatra family – father and daughter are past prime ministers – appear possible.
What is particularly striking about Malaysia is the country’s increasing Islamization. In contrast to Indonesia, which, with the exception of the Hindu island of Bali, is a self-contained Islamic state that strives for a modern, moderate Islam, Malaysian Muslims follow a conservative Wahhabi-style Islam. This exacerbates the religious divide in the country in view of the large minority of Malaysians of Chinese origin and the smaller but active Indian minority. In contrast, Singapore has traditionally nipped religious tensions among its multi-ethnic population in the bud thanks to rigorous state intervention, more feasible given the small size of the city-state. An interesting fact about this ‘Switzerland of Asia’, which offers its inhabitants a standard of living close to that of the Swiss: At 170% GDP, Singapore’s national debt is more than 4 times greater than that of Switzerland, as there is no Swiss-style debt brake.
The Pacific
From Europe, Australia and New Zealand, let alone the Pacific Islands, are ‘far away’, exotic and primarily known as a vacation destination. The robust self-image of the Ozzies (Australians) in particular sees things quite differently. They rightly note that their continent covers a good part of the western edge of Asia and, at least geographically, dominates access to the Indian Ocean together with India. A strategic position in the middle of the Indo-Pacific thus, a region acknowledged to be the focal point of the century.
As a country that continues to be shaped by the West, Australia is very concerned about China’s totalitarian encroachment on the region. Thus, Canberra has been trying for some time to find a common response together with other Asian democracies to Beijing’s aggression. The first pillar of the AUKUS (Australia, UK, US) alliance is the agreement to reinforce the new East (China)-West (US) frontline in the Pacific Ocean with nuclear-powered but conventionally armed submarines operated by Australia.
Economically, Australia is trying to make greater internal use of its huge reserves of natural resources and land mass in order to move away from the previous model of exporting untreated raw materials. As this author himself has experienced, this transformation process offers opportunities for Western quality products, especially those of Swiss origin.
New Zealand is primarily an agricultural exporter and has long been rather soft on China due to its respective economic interests. Under a new conservative government, this seems to be slowly changing, bringing the Kiwis (New Zealanders) closer to their traditional big brother Australia in terms of security policy.
With the exception of the large island of New Guinea – the western part of which belongs to Indonesia, while the Republic of Papua-Niugini comprises the eastern half – the Pacific islands states may make for a small land mass but due to their often hundreds of individual islands and islets boast of enormous water territories in the Pacific making them the focus of interest for underwater mining rights. Geopolitically, a tug-of-war is taking place between China on the one hand and the USA/Australia on the other in order to be able to have bases on the East-West frontline in the Pacific.
Recently, the Pacific islands have appeared in the international media primarily as victims of climate change with coral atolls being swallowed up by the sea or when a French president visits his two territories there, Tahiti and New Caledonia. The latter is presently raked by riots due to the aspiration of independence by original natives. Both are a remnant from the age of the great discoveries and colonies; their full independence might be a question of years only.
Conclusion
With the increasing aggressiveness and ideological hardening of China under Xi Jinping both internally and externally, there are three geopolitical drivers that tend to favor a shift of economic activity to non-Chinese Asia:
Whether with Biden or Trump in the White House, the US will intensify its trade policy measures against China in the future, which will affect the economic activity of third countries both directly (trade with the US) and indirectly (international payment transactions in US dollars). The most recent example is the investigation by the US Congress into components manufactured in China using Uyghur forced labor that were installed in European cars (Volkswagen, BMW, Stellantis).
With cooperation between Moscow and Beijing obviously becoming ever closer, especially in the field of armaments, European economic activity in China is now also contributing to the maintenance of Putin’s totalitarian system and thus to Russian aggression against Ukraine. Xi is openly working towards replacing the globally dominant Western model of society with an illiberal system based on autocratic rule and a state based or at least controlled economy.
Photo by Louie Martinez on Unsplash