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Dealing with Asian tensions, seeking shared opportunities

Asians are now awake to the fear of armed conflict. A recent Pew Survey of 11 Asian countries reports that more than half those surveyed expressed such concerns that tensions over rocks and islets claimed by China could spill over. In countries with conflicting claims against China - Japan, the Philippines and Vietnam - 80 or even 90 per cent share such fears.

Steps much be taken to de-escalate tensions or else the stability and growth of the region will be impacted. The high-level strategic discussion between the United States and China, hosted in Beijing, was one notable effort. Another recent and positive step was taken by China, to move the oil rig that it had earlier controversially placed in seas where its claims are challenged by Vietnam.

Other measures could come from emphasising the economic interdependence between Asean, Japan and China. One key area would be in the creation of an Asean Economic Community by 2015.

Estimates are that about 80 per cent of the planned steps have been achieved as of August 2013, but what is unsaid is that the remaining tasks are probably the most difficult to accomplish.

Economic integration is neither going to be complete nor on time. Privately, Asean officials are now talking about 2015 being a milestone and not a deadline, and have begun to identify an agenda beyond that date. What is even clearer is that integration efforts depend not only on the 10 member states and the relatively small Asean Secretariat, but also on China and Japan.

The two largest Asian economies are stepping up their efforts to economically engage Asean. This can be helpful. But given the tensions between China and Japan, and also between China and some Asean member states, it can also be tricky.

China's new roles

Infrastructure to link Asean members is a clear need. Yet Asean's own infrastructure fund has targeted a relatively modest US$13 billion, with an initial capital of $485.2 million. China shows considerably more ambition with a pledge of US$100 billion to kick start an infrastructure investment bank to finance projects in Asean.

One pending infrastructure project that can gain is for a railway link, stretching from Kunming in China's west down to Singapore. Currently, some 90 per cent of the necessary rail connections remain unfinished and the need is to finance and speed up work.

Another area is investment. While China is Asean's largest trading partner, Chinese investments into the region remain small, at only about 7 per cent of what Beijing sends overseas. These, however, look set to rise, given China's reform of its state-owned enterprises, rising labour costs, increasingly more liberal approaches to cross-border trade and investment, and gradual internationalisation of the Abenomics and Cooperative Security

Even as China ramps up engagement, Japan too has shown resurgent interest in Asean. From 2012 to 2013, Japanese corporate investments in Southeast Asia doubled to reach $22.8 billion. This amount is three times their China-bound investments.

More than size alone, Japanese investments potentially help Asean firms move up the value chain, innovate and boost technology and human capital. This provides something that government-led initiatives cannot. Such partnerships not only help integrate the region but also improve competitiveness.

Japanese Prime Minister Shinzo Abe is increasingly active beyond economics. Japan is proposing enhancements to the East Asia Summit, an Asean-led multilateral gathering, so that it can become a "premier forum" for regional security. The Abe administration has also controversially pushed for the reinterpretation of the country's pacifist constitution, and could ultimately seek a more assertive role.

Some welcome this. Most notably, the Philippines accepted a Japanese gift of 10 coastal guard vessels and upgraded military ties. But herein lies the complexity that arises from the regional tensions.

Asean does gain from engagements with China and Japan. But Sino-Japanese rivalry could grow such that each uses special concessions in aid, trade and investment to grow influence among the different Asean members. If so, what seems to be attractive economic assistance and investments proffered by China and Japan may pressure different Asean member states to take one or the other.

While regional integration needs Chinese and Japanese involvement, Asean must remain cohesive. The group moreover must begin to define a common voice on key global and regional issues. Asean must be active and united to help manage the region, rather than being the passive subject of Sino-Japanese tensions. Otherwise, they will regret too late that old adage that "when the elephants fight, the grass dies".

Simon Tay and Gina Guo are respectively chairman and policy research senior executive at the Singapore Institute of International Affairs.


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