Forecast 2016: Opportunities and Challenges for Southeast Asia

18 Mar, 2016    ·   5001

Amb (Retd) Preet Malik examines the shape that the regional economic and political landscape could take in the new year

Southeast Asia has always been of considerable geo-strategic importance with its sea frontiers straddling important sea-lanes connecting the oil rich Indian Ocean region to the strategically important Asia Pacific region. Of considerable significance in this context are the Malacca and the Sunda Straits. The region is of increasing importance in today’s globalised world both on account of the significant position that it occupies in international trade and in terms of climate change and biodiversity. Its openness to trade and investment has made it a major contributor to the growth trends of the world economy. Its economy averaging over 5 per cent in GDP per annum has resulted in a rapidly expanding middle class with a rising consumption pattern of interest to the global manufacturers and exporters of consumption goods and services.

The important aspect is Southeast Asia being seen as China’s backyard - a definition that has gained greater significance in the post-Cold War world. This is largely due to the fact that China has come to dominate the region both in political and economic terms, creating in the process an environment of competing interests that involve not only the US but also Japan and increasingly India. 

The US that during the Cold War period was seen as the main source of political and security comfort remains the strategic alternative to the expanding regional influence of China but creditability issues have from time to time created doubts over the sustainability of American commitment. The Asia Pacific ‘re-balancing’ policy of the US has not removed these doubts even though this policy emphasis has provided some relief to the ASEAN nations.

It would be worth recalling the historical and civilisational influence that India wielded in the region in contrast to its current presence in Southeast Asia that saw India as a peripheral player, which only recently has started gaining some importance and traction in the affairs of the region. Trade built on the maritime prowess of the Indian states of that time was the main driving force that ensured the expansion of Indian influence in the region. It remains to be seen if in today’s context India can regain its historical influence on the region.

ASEAN-China: Dependent Economic Relations and the Indian Alternative
With the ending of the Cold War there was a realisation that China was the country that would come to wield influence, particularly as its economy was increasingly developing the potential of becoming a major driver for the growth of the international economy. Hitherto the economic power that had made a contribution to the strengthening of the Southeast Asia’s Tiger economies was Japan, but China was becoming of greater interest as it could provide a larger market for the goods and services that the ASEAN region as a whole had on offer. However, unlike Japan, China also posed a potential security threat as it was expending large resources on the build-up of its military prowess, and there was the impact of the territorial disputes over island territories in the South and East China Seas.

In the eighties, ASEAN leaders like Mahathir Mohammed, the Prime Minister of Malaysia, coined the term ‘constructive engagement’ as the platform for engaging China and granting it a stake in the economic growth of the economies of the expanded ASEAN region that would make China a partner whose involvement would ensure that a stable Southeast Asia was of strategic importance to it.

This policy, till recently, has paid off as it ensured that China’s economic growth would involve the ASEAN region becoming an extremely important vendor, supplying key elements to the manufacturing hubs of China, and enabling it to increase its competitive outreach to global markets. The fact that a very large presence of the Chinese diaspora in these countries that held positions controlling large segments of the national economies contributed to the expansion of China’s economic presence, involving trade and investment,  which played a role in the growth of the economies of these countries.

However, the recessionary trends that have impacted global growth prospects and the negative impact these have had on the Chinese economy has created severe problems for the main ASEAN economies. According to many independent sources China’s economy has slowed down, with its GDP expanding only around 5 to 5.5 per cent in 2015. The slow-down has contributed to a dramatic reduction in commodity prices with countries like Indonesia and Malaysia being the ones in the region that have been seriously impacted. Interestingly, Myanmar is one of the ASEAN countries that may be benefitting the most from the changes that are taking place in the Chinese economy, with its low wages attracting labour-intensive manufacturing units that are being discarded by China and taken up in Myanmar, resulting in its GDP growing far above that of most other ASEAN countries.

Given the increasing fears over the Chinese economy suffering a ‘hard landing’ and that the global economy would continue to grow at a less than optimal rate of growth - where the Chinese economy accounts for approximately 15 per cent of global economic output - there are concerns over the economic growth prospects of the region unless it is able to find an alternative economy or economies to latch on to. For the region as a whole, the Indian economy therefore becomes an attractive alternative where both investments in infrastructure, manufacturing and trade-in-goods in the role of vendors to the 'make in India' programmes could become a major source for continuing rates of reasonable economic growth. They could also ride on the coattails of the investments that are being made by Japan and now by China in the Indian economy. In addition, Malaysia and Indonesia could see a greater rise in commodity imports by India as its economy grows at rates close to 8 per cent to 8.5 per cent per annum, which could help sustain these economies. 

India too shall have to improve its capacity to absorb greater investment flows and to ensure that the actions it has taken to expand its relations with the ASEAN region with key nodes being offered in that context by countries like Myanmar, Thailand, Vietnam and Singapore are fully exploited to mutual benefit. This should be in keeping with the target-setting in that regard that should form a principal part of the Act East policy of the Narendra Modi dispensation. The examples so far of the contributions and participation by India have failed to meet either time lines or targets; these failures would have to be acted upon based on a more secure implementational basis.

Political Issues
This area has both external and domestic dimensions. The internal dimension in the ASEAN region comprises of democratic forms of governance, a monarchy, and communist regimes in Laos and Vietnam, with military rule existing in one form or the other in Myanmar and Thailand. Even the democratic structures have limitations imposed on them. For these countries, democracy of the open type prevailing in India is described as too much democracy that tends to put limitations on governance. ASEAN however does reflect unity in diversity and till recently it could be said that the entente built on constructive engagement had held. This has since come under pressure with the rise of China and the aggressive stance that it has adopted on not only territorial claims but also on the imposition that it is trying to place on freedom of navigation and on over-flights. The rise of China and the security threat that this is seen to pose to regional interests and the Asia Pacific region as a whole has brought about a greater involvement of the US in the region, resulting in a shifting of the balance that had held to some degree since the end of the Vietnam War. 

The main issues that confront the ASEAN countries are worth recalling as they define the region and the challenges that it faces. The ambition of developing as a single market as the ASEAN Economic Community (AEC) that would permit a boost to the flow of goods, services and investments as also serve to attract greater external investments has yet to really take off. This is mainly because of non-tariff barriers to protect domestic industries. The protectionist barriers put up by Indonesia, the largest regional economy, being a case in point. Non-compliance rather than compliance remains the main stumbling block to achieving the single market as defined under the AEC. 

Another dominant factor pertains to the maritime domain. South China Sea and the territorial disputes are a major problem where China’s attitude and aggressive postures present a significant threat to a peaceful and fair resolution, with the added complications pertaining to freedom of navigation and freedom of the airways. ASEAN has had a problems in condemning China’s aggressive stance and has only been able to express "serious concerns over the on-going developments in the South China Sea, which has increased tensions in the area." They have been pushing for the "early conclusion of the Code of Conduct." The major development has been the endorsement of the Permanent Court of Arbitration of the right of the Philippines to file a case under the United Nations Convention on the Law of the Sea (UNCLOS), "challenging the legality of the China claims in the South China Sea." However, China continues to refuse the jurisdiction of the Court. The stalemate in this case continues and a peaceful resolution seems to be out of reach. The challenge that the US poses to China’s claims appears to be the only factor that places some restraint on China and continues to throw up the element of vulnerability that Southeast Asia faces at it hands, where China is willing to pressurise its way to gaining its ends.

Finally, another factor that stands out is that the ASEAN Way is unlikely to find a path out of the impasse that the military poses to real democratic functioning in Myanmar, where even though the people have overwhelmingly voted in favour of Suu Kyi, the armed forces are staunchly standing in the way of her becoming the Chief Executive. The army is also unwilling to move away from controlling the real sinews of power as reflected in its constitutionally-backed control over Home, Defence and Border Security affairs. Again, whatever change does come about in the future by amending the military-imposed 2008 Constitution could only happen because of Western pressures and the degree to which the military would like to continue to balance Myanmar’s dependence on China. 

All these factors only go to show that Southeast Asia has problems that would continue to leave it vulnerable to China and the countries of the region have to remain dependent on the US for solutions. India, Japan and Australia have a role to play but to a very large extent this would be in tandem with the positions and strategies adopted by the American administration.