Asia's unstable rise

Many commentators are heralding Asia's rise in the wake of the global financial crisis. Compared to the US and Europe, prospects in the region do look good. Events both recent and over the year, however, warn us not to assume the phenomenon is irresistible. While rising, the region is exposed to continuing sources of instability.

The current turmoil on the Korean peninsula demonstrates this vividly. An unresolved relic of the Cold War, Pyongyang's nuclear ambitions have been difficult to deal with despite the diplomatic efforts of the six-party talks.

But it isn't nuclear warheads that have created the current turmoil. A torpedo sank the South Korean Navy vessel Cheonan in March, and on November 20 artillery shells pummelled South Korean military and civilian installations on the disputed island of Yeongpyeong. Standard weapons are more than enough to create a new sense of uncertainty. Nothing done since March has rebuilt stability.

Never mind that South Korea is a major economy and hosted the recent G-20 summit, the first in Asia. Economic growth in the country, as in much of Asia, is built on a tenuous foundation of peace. Unable to manage the situation, Seoul has reinvigorated its old alliance with the US.

Ties with China are inevitably affected. Like most Asians, South Koreans look to the Chinese economy to drive growth. It is indeed one of the few countries in Asia to enjoy a trade surplus with China. There was earlier talk about a free trade agreement with China, either bilaterally or including Japan as a third partner. Such economic diplomacy now looks less likely.

China is the only country believed to be able to influence Pyongyang. But what Beijing has done since March is judged by many in South Korea as being less than helpful.

This highlights a second question about the rise of Asia: the role and attitude of China. There is no single Asia. Much depends - perhaps too much - on this giant that is changing as it rises.

Economically, China is the hub for the region's future growth. Inter-dependence in trade and investment between South Korea, Japan, Asean and even Taiwan - especially after their Chinese free trade agreement - is real and growing. The picture in South Asia too is similar, with China now India's number one trade partner.

Politically, however, Beijing has been much less attractive in 2010. The Korean issue comes on top of controversies with Asean members in the South China Sea, as well as the dispute with Japan over the Senkaku islands. These steps were surprising as China has for over a decade sought to befriend and charm Asean neighbours. The current leaders in Tokyo also want better ties with Beijing.

Visiting India in December, for the first time in five years, Chinese Premier Wen signed off on business deals worth US$16 billion. But the underlying competition between the two Asian giants continues to simmer. There is strategic competition over sea power as well as distant points in the Himalayas and political influence as India vies for a seat on the UN Security Council, where China is the only current Asian permanent representative.

That the Chinese leader went on to visit Pakistan also did not escape notice. Many in New Delhi believe Beijing continues to support their old rival in order to preoccupy India. Even in economic relations, trade tensions underscore the increase in flows, and India has slapped tariffs on a range of Chinese imports, including in the telecoms sector.

The nature of China and its diplomacy is being tested, and how Beijing has acted and will act in the coming months will be judged as showing its character as it grows. Some already ascribe ambition and arrogance to China while others will wait and see. Perceptions will shape how other Asians react. How the Chinese leadership approaches the US-China Summit to be held in January will be looked at carefully, not only by Americans but by other Asians.

It is to Asia's credit that through the financial crisis and 2010, the region has continued to rise. But challenges in 2011 may be even tougher, not only in economics but the underlying politics. Growth will be tested, but even fundamental peace and stability will come under stress. Compared to the developed world, Asia may be the only region expected to show strong growth, but that does not mean Asia is ready to be alone.

By Simon Tay chairman of the Singapore Institute of International Affairs and author of "Asia Alone: The Dangerous Post-Crisis Divide From America."