Monday, February 13, 2017

Think Asia Will Dominate the 21st Century? Think Again

Think Asia Will Dominate the 21st Century? Think Again

 For far too long, but especially during the Obama years, policymakers chose to focus on Asia’s remarkable economic growth, coupled with an era of relative peace. Too often they overlooked economic, demographic, social, political and military tensions that did not lurk all that far below Asia’s shiny surface.

Barack Obama, who spent part of his formative years in Indonesia, was a leading cheerleader for the concept of the Asian century. He seemed to care little about Europe and preferred to avoid the troubles of the Middle East as much as possible. He embraced the notion of a rising Asia that soon would constitute America’s most vital interests. It was in that spirit, too, that Hillary Clinton announced the “pivot to Asia,” which was meant to refocus American military power and political and economic priorities away from Europe and the Middle East and instead underscore Asia’s importance to the United States.

Of course, much of the Middle East is in Asia; so too are five former Soviet republics; so too is Afghanistan. But when Obama and Hillary Clinton referred to Asia, they generally meant East Asia, though at times they expanded their definition to include South Asia, employing the term “Indo-Pacific.” But their focus was primarily on East and Southeast Asia, and particularly on China, Japan, Korea and five of the eight ASEAN states—Indonesia, Malaysia, Singapore, Vietnam and Thailand. It is these countries, plus India, that constitute Asia’s economic powerhouses (Brunei is an oil-rich country having more in common economically with the states of the Arabian Gulf than with its ASEAN partners). Laos, Cambodia and Myanmar lag far behind in political and economic development. Auslin likewise pays them far less attention than he does to their more advanced ASEAN partners, though the Obama administration, consistent with its policy of outreach to enemies and other subjects of long-time American sanctions, moved quickly to improve relations with Myanmar when the “Burmese Spring” blossomed in 2010.

Auslin asks what he terms “inconvenient questions,” such as: “How resilient are Asian countries to economic shocks? How adaptable are leading economic sectors and government policies?” Of course, the answers depend on the country in question. But Auslin rightly recognizes that these issues are not unique to any one state in the region and are common to virtually all of them. As he points out,

Asian countries, developed and developing alike, face significant challenges. . . . Demand from Western countries will possibly level off as those societies age and as incomes remain stagnant. . . . Corruption, malinvestment, and waste eat away at economic efficiency.


AS AUSLIN demonstrates, China is the prime exemplar of these developments. Chinese economic statistics, never fully reliable, continue to be adjusted downward. Wages have risen sharply over the past decade; indeed, for several years, the minimum wage was growing at double digits—as high as 18 percent. The Chinese banking system remains opaque, and bank balance sheets are unreliable, as they continue to overstate the value of their assets, notably state-owned enterprises (SOEs). Moreover, obtaining financing in China often requires connections in Beijing, further undermining the efficiency of the banking system. Finally, local and provincial regulations often impede business growth, while corruption, particularly at those levels, remains rampant, despite President Xi Jinping’s ongoing efforts to clean house. Lastly, Auslin rightly identifies yet another scourge that China—and other Asian economies—suffer from: Mafia-like intimidation, or worse, of foreign investors. Not surprisingly, companies that are contemplating investment in East Asia are looking more and more at Vietnam, Malaysia or Indonesia, or even the Philippines, rather than risk shrinking margins in China.

The SOEs are an albatross around China’s economic neck, yet even the increasingly powerful Xi, recently crowned China’s “core leader,” has been unable to shut most of them down. The management, ownership and finances of many private businesses also are opaque. Often, businesses that are nominally private are actually owned by the government through a complex chain of holding companies. This is particularly the case with respect to firms in the high-tech and aerospace sectors.

The era of untrammeled Chinese economic growth appears to be over—and that development naturally does not account for whatever actions a new Trump administration will take to even the playing field of Chinese-American trade. Should the administration initiate steps that would lead to a trade war with Beijing, it would seriously affect the American economy, but devastate China’s. U.S. economic fundamentals are strong, and may even be getting stronger, while China, as Auslin notes, has not yet achieved sustainable development. China’s economic vicissitudes are far from over.

It is not clear to what extent the Trump administration will also identify a playing field with Japan that it will seek to “level” with respect to trade. Prime Minister Shinzo Abe made a point out of being the first foreign leader to visit the president-elect, and emerged from their meeting satisfied that Donald Trump had acquired a much better understanding of Japan’s importance as an American ally. Abe has pushed the Japanese political, military and economic envelope well beyond previous limits. But his efforts to stimulate an economy that has sagged for more than two decades have yielded significantly fewer results than he and his voters anticipated. Japan, once the world’s leader in a myriad of industries ranging from shipbuilding to electronics to semiconductors, leads only in automobiles today—and even then, the emergence of driverless automobiles may rob Japan of its leadership in that field as well.

While Abe has opened its economy to some extent, it remains committed to export-driven growth. It continues to protect its telecommunications and pharmaceutical industries, and has few foreign workers, fewer foreign business executives and, more generally, a cultural fear of foreign competition that Abe has only marginally succeeded in allaying. The 2008 financial crisis hit Japan particularly hard, and the 2011 Fukushima disaster, even harder. The country is still struggling to recover from both.

Japan had been a reluctant signatory of the Trans-Pacific Partnership (TPP). That Trump was determined to do away with that deal, or at least renegotiate it on terms he assures Americans will be “better,” is no favor to Japan. That the final four presidential candidates—Socialist-cum-Democrat Bernie Sanders and Republican Ted Cruz, who did not win their party’s respective nominations, and Hillary Clinton and Trump, who did—all opposed signing the TPP, sent a strong signal to America’s Asian trading partners that they faced even rougher economic times ahead. For Japan, the largest American trading partner within the proposed, now seemingly defunct, TPP, this was not good news at all.

Auslin is reluctant to write Japan off, as some analysts have already done: “Japan is all too easily caricatured as a has-been nation.” But he recognizes that even Abe’s reforms have hardly dented the country’s economic culture and long-standing protectionist practices. While he voices the pious hope that Japanese companies will begin to accept the levels of risk and entrepreneurship that are the essence of the disruptive technologies that drive dynamic economies, he sensibly is not sure when, and if, that ever will happen.

Auslin correctly identifies the stultifying impact of the chaebol network of business conglomerates on the Korean economy. While Seoul’s manufacturing sector has propelled it to world leadership in shipbuilding (where it has overtaken Japan), flat-screen televisions, and other products, size and government protection afforded to the chaebol block smaller firms from entering Korea’s market in any meaningful way. Moreover, the chaebol have frequently been accused of bribery and buying political influence. As he puts it, “Another risk factor in South Korea’s system . . . is that the larger and more important giants like Samsung become to the economy, the more important it is that they not make bad bets.”

Auslin could not have anticipated just how right he was, because Samsung made a terrible bet. Even as his volume was hitting the shelves of bookstores, South Korea was becoming engulfed in the biggest scandal of its history, with Samsung at its center. The impeachment of President Park Geun-hye, and the warrant for the arrest of Samsung Vice Chairman Lee Jae-yong on charges of bribing her (Lee, who was subsequently released for lack of evidence, is the son of chairman Lee Kun-hee, himself twice convicted of bribery) highlight the poisonous impact of the chaebol and the unbalanced and flawed nature of the South Korean economy. As if that were not enough, Samsung’s Galaxy S7 smartphone has proved a literal fire hazard; airlines forbid passengers from taking it onboard. Samsung is already releasing a Galaxy S8; whether Samsung, and the chaebol system, will emerge unscathed from the bribery scandal, as has been the case in the past, is entirely another matter.


AUSLIN IS just somewhat more optimistic about the economies of the smaller, yet growing, Southeast Asian economies. Recalling his rides through Hanoi on a motor scooter—the book has numerous personal vignettes that enliven its hard analysis—he hails Vietnam’s dynamism, a sure contrast to stagnant Japan. Unlike Japan, Vietnam has a young population; its long coastline offers the potential of becoming a regional logistics hub; cars continue to replace bicycles, a sure sign of rising economic growth and concomitant living standards. Foreign direct investment continues to grow, in part, due to China’s declining attractiveness to investors.

But Vietnam has inbuilt structural problems that are not likely to disappear any time soon. The Communist Party’s control, as in China, is a vehicle for serious diseconomies. Like China, Vietnam has its own baggage of SOEs; it too lacks transparency and its statistics are suspect. Its export-driven economic strategy renders it vulnerable to disruptions in trade—it will also be hurt by the disappearance of TPP. Moreover, its population is undereducated, meaning that while it can provide workers for the shop floor, it has yet to develop a sufficiently large, technology-savvy cohort that is the key to consistent long-term growth in the twenty-first century.

Yet Vietnam is probably better off than many of its ASEAN partners in terms of its future economic prospects. Indonesia’s geography and ethnic diversity, its heavy reliance on commodities and agriculture, and its protectionism and dithering government policies have undermined its economic promise. Malaysia has been moving away from being solely a commodity producer, but it still has some distance to travel in that regard. In addition, long-standing tensions between its wealthier Chinese minority and the Malay majority are never far below the surface, given the government’s affirmative-action programs for Malays.

Auslin has little to say about Malaysia’s economic circumstances, and even less about some of the other ASEAN states. The economic success of Singapore, the most dynamic of the group, barely receives mention. As a multiethnic city-state, it could easily have remained the economic backwater that it was in the aftermath of World War II. How Lee Kuan Yew’s legacy continues to fuel Singapore’s economic miracle certainly deserved more of Auslin’s attention, if only to explain why its model is not really applicable to its ASEAN partners.

No discussion of Asia’s future, particularly in the economic realm, can omit India, whose economic growth exceeds China’s and whose population will soon do the same. India’s key economic hubs are world class. Bangalore is the center of a dynamic aerospace industry. Chennai is, in Auslin’s words, India’s “Detroit.” And he does not even mention Bollywood, the Hindi-language film industry based in Mumbai. The films produced there are distributed worldwide, and are growing in sophistication, though they still often have the song-and-dance routines that Americans will identify with the movie Slumdog Millionaire. India produces and exports non-Hindi language films as well, and its film industry rivals Hollywood in terms of the number of people employed and the number of films produced.

Nevertheless, despite its huge and well-educated middle class, India remains hobbled by everything from an infuriating bureaucracy, which certainly rivals all others for its ability to strangle anything in red tape, to an infrastructure so poor that it often makes more sense to fly even short distances than risk endless traffic jams resulting from U-turns by camel carts or cows blocking the road. Moreover, a huge, young and undereducated lower class, which often still suffers from caste-based discrimination, has never truly disappeared from the nation’s social structure.

The economic challenges that Asian states confront today, or likely will tomorrow, constitute only one of the four interlocking risk areas that Auslin maps for his readers. Demographics are working against the Asian states as well. For some, like Japan, it is an aging population, aggravated by women marrying later in life, or not marrying at all. Auslin recalls chatting with a forty-year-old woman at a Tokyo lunch counter who told him that her greatest fear was neither terrorism nor the economy, but growing old alone. Yet while the lady may worry less about the economy, it is the economy that is paying the price of a majority-elderly population, in terms of pensions and social assistance. Such entitlements drain government budgets—as they are increasingly doing in the United States—and limit government spending in other much-needed areas.

Auslin points to other, less obvious social challenges to the country’s future. He notes the increase in the number of stay-at-home young Japanese who opt out of the labor market, and the decline in Japanese students studying abroad. His visit to a Toyota plant gave him “a dystopian vision of Japan’s future.” Robotics is not only an area in which Japan hopes to maintain its position as a world leader; it is also a vehicle for “simply ensuring that production can continue” at all. There can be little doubt that all these developments pose serious challenges for Japan’s economic future. Prime Minister Abe is attempting to initiate small steps to bring foreign workers into the country—though, significantly, not to let them permanently immigrate. Old prejudices die hard.

Japan is not alone in confronting the economic and social implications of unfavorable demographics. Some studies project that South Korea’s population will drop by 80 percent over the course of the century. Hong Kong, Singapore and Taiwan also face declining populations due to low fertility rates, and Taiwan, like South Korea and Japan, is hampered by its general unwillingness to accept immigrants.

For India and the ASEAN states, apart from Singapore—the exception in so many ways—it is a youthful population that constitutes a major challenge and risk. Poorly educated young people can support these countries’ low-value-added activities, such as low-tech agriculture or processing natural resources, but they cannot provide the ballast for breaking into more sophisticated industries. Yet India and most of the ASEAN states simply do not have, and are having trouble establishing, an education system that will prepare young people for employment in leading manufacturing fields, much less those of high technology. Auslin recounts his visits to universities around the region (Singapore excepted, yet again). He found them woefully short of resources, though packed with students. He also devotes special attention to India’s horrendous treatment of women, with its all-too-frequent mob outbursts and rapes that garner worldwide attention. “There is no real movement for female emancipation in India,” he laments.

THEN THERE is China, with respect to demographics, as in all other areas, an entity unto itself. Its long-standing one-child policy, coupled with the desire of many families to ensure that the child was male (and thereby aborting female fetuses) has rendered the country not only facing a demographic decline but also one where males will far outnumber females. In addition, the flow of rural Chinese to the country’s megacities continues apace, with many workers calling factory dormitories their home. Respiratory disease, resulting from China’s refusal (until recently) to face up to the consequences of air pollution, has become one of the country’s leading causes of death. The lack of other environmental controls, such as those controlling the dumping of chemical waste, has been the cause of disease and death as well.

China’s huge aging population will require a national safety net that barely exists today, because the parents of one-child families will not have a network of children to support them. That in turn will create new strains on the budgets of both the central and provincial governments, at a time when the general demand for improved social programs will continue to grow. These developments, and their impact on social stability, will continue to be cause for concern for the Communist Party, whose primary objective is, as it has always been, to remain in power.

When Auslin turns to questions of political stability, he identifies risks that are equal to, if not more serious than, those of economics and demographics, in part because they are all linked. Whatever else it might be, the Chinese Communist Party (CCP) has been the country’s great unifying force. Yet, as Auslin notes, “the lack of trust between citizen and state is probably the single greatest risk to the CCP’s continued rule.” The lack of even moderate political reform raises the risk of unleashing widespread disorder; in that regard Auslin points to the Revolution of 1911. He could also have cited the nineteenth-century Taiping rebellion against the Qing Dynasty that left up to seventy million dead. The CCP’s dilemma is that its refusal to commit to any serious political reforms—and its harsh response to protests such as those of Tiananmen Square in 1989—increases the likelihood of regional- or warlord-based rebellion and unrest that has marked the country’s history and is its greatest nightmare.

Auslin observes that Japanese are both pessimistic about the future and cynical about politics. In this they are not alone. The populations of the EU are not much different, and have expressed themselves by veering toward leaders whose commitment to liberal democracy is hazy at best. Japan’s leaders, Auslin asserts, “have failed to give its citizens a compelling vision of their future in which economic health is restored and Japan plays an important role in the world.” The same could be said about the malaise that is gripping Europe. Similarly, it is arguable that Korea’s population may well be tending in the same pessimistic direction: certainly the latest scandal gives them good cause to do so. That North Korea could try, as it has often done, to precipitate a political crisis creates a unique danger for the South that only aggravates its tense political environment.

The ASEAN states that are the subject of Auslin’s primary focus offer little about which to be hopeful—again, with the possible exception of Singapore. Though he rightly notes that Singapore’s restrictions on free speech and related restraints on the media could lead to popular unrest, he concedes that this is not the case today. Indeed, it is arguable that Singapore’s strong economy and social safety nets, as well as its careful cultivation of Malay, Indian and other minorities, all militate in favor of stability for the foreseeable future.

Other ASEAN states may not be so fortunate. Indonesia currently is relatively quiet, but it has faced insurrection in the past, notably in Aceh, as well as religious tensions and violence, particularly in South Sulawesi (surprisingly, Auslin does not mention either place). And, as a moderate Muslim country, it continually faces the threat of religious extremism. Malaysia is even more stable than Indonesia, in part because the government has protected its Chinese population. Chinese have been the subject of past pogroms in both Indonesia and Malaysia, however, and such eruptions could happen again. Moreover, Malaysia is plagued by corruption and political infighting. Myanmar has yet to come to terms with its Rohingya population, which it continues to persecute (even the otherwise heroic Aung San Suu Kyi has been virtually silent about their plight), while Vietnam, Laos and Cambodia all remain under the thumb of authoritarian regimes. And then there is Thailand, racked by violence in the south and political instability in its capital, and now without the unifying presence of its long-time ruler King Bhumibol Adulyadej. His son and successor, Vajiralongkorn, is an eccentric figure who had his dog promoted to three-star general; he is unlikely to command the respect that his father did.

TURNING TO the region’s lack of political community, Auslin first addresses the region’s lack of unifying organizations, such as NATO or the EU, and the absence of any leader other than China, which its neighbors fear rather than follow. Auslin fails to mention that there was once a regional alliance, SEATO—the Southeast Asia Treaty Organization, consisting of the United States, Australia, France, New Zealand, Pakistan (including East Pakistan, now Bangladesh), the Philippines, Thailand and the United Kingdom. It was founded thanks to an initiative by the American cold warrior and secretary of state, John Foster Dulles, and more of its members were from outside Southeast Asia than within it. As a military organization it never amounted to very much; its member states contributed insufficient military or other resources to give it much credibility. France and Britain refused to allow SEATO to support America’s intervention in Laos in 1962, and prevented it from providing political cover for the war in Vietnam. Pakistan withdrew from SEATO in 1972, after it lost East Pakistan in its 1971 conflict with India. France stopped providing funding in 1975, and the organization was dead not long thereafter.

Although few analysts and virtually no politicians mention the SEATO experience today, it is arguable that its collapse was one reason why the East Asian states shied away from a successor organization. America’s defeat in Vietnam may have provided another reason for dealing cautiously with the West. And the rise of China has led many of its neighbors to balance accommodation with Beijing and an increasingly close—but not tight—relationship with the United States without entering into formal treaties with Washington. Indeed, formal alliances have not prevented both Thailand and especially the Philippines from standing aloof from the United States; the 1951 U.S.-Philippines Treaty did not prevent Manila from closing down the American naval base at Subic Bay and Clark Air Force Base exactly four decades later.

Ten Southeast Asian nations comprise the Association of Southeast Asian Nations, or ASEAN, but the organization operates by consensus, and its membership is so diverse that it often has difficulty taking a stand on an issue involving one or more of its member states. In recent years, the ASEAN Regional Forum, which includes China, India, Australia, Canada, Russia and the United States as well as numerous others, has taken on some importance as a venue for discussing security issues. Recent summit-level discussions at ASEAN+3 fora—Japan, China and South Korea—have afforded a vehicle for most leading East Asian states (not all of them, as Auslin, asserts, since Papua New Guinea and East Timor are not yet ASEAN members), to discuss issues of mutual concern. The East Asian Summit, which includes ASEAN+3, plus India, Australia, New Zealand, the United States and Russia, likewise has offered a vehicle for discussion. The verb that characterizes all these meetings is “discuss”; in practice, they are all little more than talking shops.

Auslin closes his analysis with an overview of the tensions that could bring war to East Asia. He reviews the well-chronicled disputed claims to sovereignty over the South China Sea’s Spratly and Paracel Islands, China’s dubious nine-dash-line claim over virtually the entire sea, its ongoing military buildup on the sea’s real or artificial rocks and its virtual seizure of Scarborough Shoal from the Philippines. He also describes the tensions in the East China Sea over the Japanese-administered Senkaku Islands (which China calls Diaoyu); the Kuril Island dispute between Japan and Russia that dates back to the waning days of World War II; and the Japanese dispute with Korea over what the former call the Takeshima Islands, and the latter, Dokdo Islands

Though Japan is involved in three of the aforementioned disputes, no one anticipates it going to war to resolve any of them. But China is another matter. Auslin documents China’s growing military power—strategic nuclear, naval, air and cyber. Beijing is not reluctant to flex its increasingly powerful muscles. In response to Trump’s apparent flirtation with Taiwan, China sent its one aircraft carrier, the Liaoning, through the Taiwan Strait, forcing Taipei to scramble aircraft in response. Auslin correctly posits that China does not want war, but, he adds, “Beijing is acting like a classic rising challenger to the status quo.” The voyage of the Liaoning underscores his point. Two decades ago, two U.S. carriers entered the Taiwan Strait in response to Beijing’s firing missiles near the Taiwanese ports of Keelung and Kaohsiung, and to demonstrate that China could not prevent the United States from coming to Taiwan’s aid. Now it was China demonstrating that it too could deploy a carrier to the Strait, and that it was capable of denying access to American forces. Though he notes the ongoing threat of North Korean aggression, especially as it seeks to wed its nuclear weapons with long-range missiles, Auslin sees the “large and growing gulf between China and its neighbors” as the region’s primary destabilizing factor. Whether or not he is right about the relative gravity of threats from Pyongyang and Beijing, he certainly is correct in noting the fundamental change to the regional balance resulting from China’s military rise.

Auslin concludes his study by arguing that the greatest near-term danger to Asian stability rests in the realm of security: “What should most worry us is that nearly all . . . security risks . . . involve one or more of the region’s great powers, including the United States. That creates the potential for a larger confrontation.” Given the region’s inability to organize itself for security in any meaningful way, Auslin looks to the United States to be the anchor of regional stability, as it has been since World War II. To be effective in the twenty-first century, Auslin calls for the United States to foster a set of “concentric triangles,” an outer one consisting of Japan, South Korea, India and Australia, and an inner one connecting India, Malaysia, the Philippines and Singapore, with participation by Thailand and outreach to Vietnam. Washington would be the catalyst, encouraging not only military cooperation, but the creation of “a more liberal Indo-Pacific that provides stability and opportunity for growth.” It is a worthy dream that is unlikely to be realized any time soon.

Donald Trump’s election to the White House has cast a shadow over all America’s alliances. At the same time, the smaller Asian states continue, with great wariness, to balance their relationships with Beijing and Washington, and are likely to be even more even-handed should Trump make good on some of his promises, which he has already begun to do by ditching the TPP. In any event, it is hard to see America playing a newly energized, activist role in Asia, other than in the military sphere: Trump has promised a buildup that, if carried out, would result in a more potent American military presence in Asia. Certainly, Auslin’s hopes for Washington to work with other liberal democracies to spread democratic and liberal values in Asia need to be put on hold for at least several years: Trump has made it clear that he has no interest in democracy promotion.

The End of the Asian Century has its flaws: a rather sparse review of the challenges faced by several of the poorer ASEAN states; little glitches, such as reference to Singapore’s Sir Stamford Raffles (not Stanford); the statement that all of NATO’s members were democracies (Spain and Portugal were dictatorships until the mid-1970s); mention of the Gandhi dynasty (it was Jawarhalal Nehru’s dynasty; and citing Argentina as the country of the future (actually, “Brazil is the country of the future, and always will be”). But these errors, and a few others like them, do not detract from what is surely an important study. For what Auslin is telling us is that peace, stability and prosperity in Asia cannot be taken for granted. That should be a warning—and a watchword—for the Trump administration.

Dov S. Zakheim is vice chairman of the Center for the National Interest. He was under secretary of defense (comptroller) from 2001 to 2004 and deputy under secretary of defense (planning and resources) from 1985 to 1987.



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