Tokyo needs to focus on its role as a middle power

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In 2018, we convened the Asia’s Future Research Group because of concern about the intensification of US-China geopolitical rivalry and the increasing risk of military clash in the Asia-Pacific region. The lack of balance in Japanese public discourse about how Japan should address this evolving strategic environment in Asia deeply troubled us.

We saw that not only Asia’s future but also Japan’s future was at a strategic crossroads. We therefore invited scholars and experts on Japanese foreign policy and international relations to join a multiyear project in order to develop a realistic and moderate Japanese strategy for Asia.

In December 2022, the Japanese government adopted a new “National Security Strategy” for the first time in a decade. Although it does not ignore the need for diplomatic dialogue and cooperation, what stands out is the strong emphasis on power politics (including military capabilities) and geopolitics as well as economic security.

The new strategy stresses the centrality of Japan’s self-defense capabilities and the US-Japan alliance. However, there exists a significant disparity between the paradigm presented in the new strategy document and Japan’s own capabilities.

Prime Minister Fumio Kishida reviews Self-Defense Forces troops on the anniversary of their establishment, November 27, 2021. Photo: Prime Minister’s Office of Japan)

Consequently, the US-Japan alliance is deemed essential to fill this gap; and in that sense, there is an element of logical consistency in the new strategy. Accordingly, strengthening the US-Japan alliance ends up being the strategy’s a priori premise and its absolutely indispensable prescription.

Our serious concern that the new paradigm will leave Asia entangled and divided in the future.

Japan’s long-held emphasis on a multifaceted and multilayered approach to Asia policy continues to be a constructive way to address the new regional and international challenges that have emerged. The transnational challenges that have become particularly prominent in recent years have acutely demonstrated the need for an unprecedented level of international cooperation. Nevertheless, recent foreign policy discourse around the world has tended to focus more on great power competition than on interstate cooperation.

In this context, Japan should maintain and promote security cooperation with the United States – but at the same time, it should also exercise leadership to help mitigate the competition between the US and China in Asia through constructive diplomacy, thereby reducing the danger of great power war in the region. Without this, there can be no solution to transnational problems and no progress toward a world free of nuclear weapons.

Such efforts and practices are consistent with the concept of “middle power diplomacy,” which aims toward a more autonomous foreign policy – one that is close to, but not solely
dependent on, the United States.

Approach toward Asia and the promotion of middle power diplomacy

One of the most important goals of Japan’s policy toward Asia is to promote further prosperity in the region through international trade, investment, and technological advances while making economic activities more environmentally sustainable and ensuring that the benefits of economic development are distributed more equitably.

To achieve this future vision, cooperation with countries that share values and similar political and economic institutions is crucial. Relations with the United States remain an important pillar of Japan’s foreign policy. However, using the rationale of strengthening the US-Japan alliance, Japan should not neglect countries that are not allies or partners of the United States.

To mitigate great power competition and prevent it from escalating into great power wars, Japan should deepen cooperative relationships with middle powers in the Asian region, such as South Korea, Australia, New Zealand, India and the Association of Southeast Asian Nations (ASEAN) and become a driving force of middle power cooperation.

While defending fundamental human rights and democratic principles, Japan should recognize the diversity of political systems in Asia and be sensitive to the different historical trajectories and sociocultural traditions in each country. Japan should resist moves to divide Asia into a struggle between democracies and autocracies and avoid an overly ideological approach to foreign policy.

Japan should also be cautious about defining the Asian region solely in terms of the “Indo-Pacific,” a concept that has recently been used frequently in international political
discourse.

Japanese Prime Minister Fumio Kishida meets with US President Joe Biden and Indian Prime Minister Narendra Modi. Photo: Wikipedia

While the concept of the Indo-Pacific has the advantage of emphasizing the importance of freedom of navigation and the security of long sea lanes vital to international trade, it has the drawback of viewing the Asian region primarily in maritime terms. The Indo-Pacific concept diminishes the importance of continental Asia and suggests an intention to counter or contain China.

Rather than concentrating on a single geographical concept, Japan’s diplomacy should reflect a multifaceted view that also incorporates the perspectives of “AsiaPacific,” “East Asia” and “Eurasia.”

Japan should reinvigorate its middle power diplomacy to build a more stable, peaceful and prosperous future for Asia. South Korea, which shares basic strategic interests and political values, is Japan’s most important partner in middle power diplomacy.

President Yoon Suk Yeol of South Korea listens to Prime Minister Fumio Kishida of Japan speak during their bilateral summit on March 16 in Tokyo. Photo: Yonhap

Japan can also build on the meetings involving Japan, Australia, India, and the United States – the Quad meetings – and take the lead in promoting a “middle power coalition” of Japan, Australia, and India. Inviting other Asian middle powers, such as South Korea and the ASEAN nations, to the mix would lead to the formation of a region-wide middle power alignment.

Japan should energetically engage China on the basis of partnerships with middle power countries in Asia and Europe to achieve stability in bilateral relations between Japan and China and cooperation on urgent transnational issues.

Regional economics

The Asian region has achieved remarkable economic development since World War II. At the same time, economic liberalization and rapid globalization that have driven this development have brought to the surface problems such as widening economic disparities and environmental degradation.

To mitigate such side effects and socio-political costs, Japan must place greater emphasis on sustainable development goals, which focus more on social and environmental protection.

In addition, the negative impact of the Covid-19 global pandemic and the disruption of international supply chains due to the Russia-Ukraine war, as well as China’s “weaponization of trade” and economic coercion have become prominent as new challenges of economic security.

Devising an effective response to these challenges is now an urgent priority for Japan and many Asian countries. Therefore, Japan’s regional economic diplomacy requires policies from three separate perspectives: economic liberalization, sustainable development and economic security.

Japan has played an important role in the Asian region in areas such as financial governance, trade promotion and development assistance cooperation, including infrastructure development. Building on this past success, Japan should continue to play a leadership role in rule making and cooperation in each of these areas as a leading economic power in Asia and a global middle power.

For example, Japan can make a meaningful contribution to implementing and expanding the Comprehensive and Progressive Agreement on Trans-Pacific Partnership (CPTPP), which is widely regarded as a high-standard free trade agreement in terms of trade liberalization and order building.

It can also help to devise an effective international debt restructuring program for Sri Lanka, which defaulted last year.

Anti-government protest in Sri Lanka on April 13, 2022, in front of the Presidential Secretariat. Photo: Wikimedia Commons

In the area of infrastructure development, Japan should continue to promote and realize its proposal to standardize the international principles of “quality infrastructure investment.” Encouraging China to follow these principles would help steer China’s investment
and support for infrastructure development toward sustainable economic development in the developing countries in Asia.

In addition, while various frameworks for regional economic cooperation exist in Asia, Japan’s basic position should be “open regionalism” and the prevention of a fragmented Asia.

From this perspective, Japan should promote cooperation under the US-led Indo-Pacific Economic Framework (IPEF), as a founding member. But Japan should also consider joining the Digital Economy Partnership Agreement (DEPA), which was launched by small and medium-sized Asia-Pacific countries (Singapore, Chile, and New Zealand) and is expected to expand its membership in the future, as well as the China-led Asian Infrastructure Investment Bank (AIIB).

Regional security

In order to maintain peace in Asia and to uphold Japan’s security, a certain level of deterrence is essential, but this raises the potential of a security dilemma. For deterrence to be effective, it is necessary not only to properly develop defense capabilities but also to provide some assurance to potential adversaries that their core interests will not be threatened.

Also, in pursuing defense cooperation between Japan and the United States, Japan should not hesitate to actively and openly express its views on security issues to the United States. A healthy alliance is not one in which Japan simply submits to US policies and intentions, but rather one in which Japan confidently engages in strategic dialogue with the United States on a more equal footing.

Regarding various Asian security issues, Japan should skillfully balance deterrence and diplomacy and pursue policies that contribute to reducing tensions and preventing crises.

With regard to North Korea, Japan should seek a realistic, gradual, reciprocal and step-by-step approach toward the ultimate goal of denuclearization of North Korea by making concrete progress on the resolution of the abduction issue.

With regard to the Taiwan issue, it is necessary to avoid a military crisis by maintaining conditions under which the status quo is preserved until the day comes when China and Taiwan can find a peaceful solution to the unification issue. To this end, it is important that both Japan and the United States convey to China in a credible manner that they clearly oppose any unilateral use of military force by China and at the same time have no intention of supporting Taiwan’s permanent separation or independence from China.

Meanwhile, the Senkaku Islands issue is one of the major factors undermining stability and cooperation in Sino-Japanese relations, and Japan should be creative in discussing with China various ideas for reducing tensions over those islands. Japan should politically revive and try to implement the Japan-China joint press release of June 2008 and the understanding on joint development in order to make the East China Sea a “sea of peace, cooperation, and friendship.”

The first pillar of Prime Minister Kishida’s “Hiroshima Action Plan” is the continued non-use of nuclear weapons. To strengthen this pillar, the Japanese government should publicly urge the nuclear weapon states to adopt a doctrine of “no first use” of nuclear weapons. By doing so, it will help institutionalize a global norm against the use of nuclear weapons.

By participating as an observer in the UN Treaty on the Prohibition of Nuclear Weapons, Japan can demonstrate international leadership toward nuclear disarmament as a long-term goal. Japan’s participation as an observer would not undermine US nuclear deterrence but rather serve as a bridge between the nuclear weapon states and non-nuclear weapon states.

Transnational challenges

Japan has heretofore made considerable contributions through international organizations and bilateral aid to address transnational issues such as global warming, pandemics of infectious diseases, and refugees from conflict in unstable regions. Based on this track record, Japan should continue to demonstrate its leadership in this area as a responsible major Asian country and a leading global middle power.

In addition, as an economically developed liberal democracy, Japan has an international responsibility to defend and promote universal human rights. In this regard, the concept of “human security,” which Japan has long advocated, is effective in dealing with these transnational challenges in Asia, where many countries tend to emphasize national sovereignty and a variety of political systems exist.

Therefore, Japan needs to promote more inclusive and effective regional and international cooperation, while keeping this concept as a basic principle and acting as a bridge across the geopolitical and ideological divides that have become more pronounced in recent years.

Specifically, Japan should work with other Asian countries to ensure that public health cooperation, such as Covid-19 vaccine provision, is not unnecessarily drawn into the intensifying Sino-American strategic competition.

Solar farm in Japan. Photo: Made in China

On climate change, given that both Japan and China are major carbon emitters in Asia, Japan should directly cooperate with China in the development and promotion of environmental technologies. This would not only enhance their ability to meet their own emission reduction targets, but also contribute to helping other Asian countries reduce their greenhouse gas emissions.

In the area of human rights and humanitarianism, Japan should first and foremost improve its own human rights and human security situation and lead by example. While refraining from bringing up human rights and democracy as ideological tools in the geopolitical competition with China, Japan should adopt practical humanitarian approaches that are in line with local realities.

For example, through existing frameworks such as the ASEAN Intergovernmental Commission on Human Rights, Japan can share best practices with other countries on improving government transparency and reforming legal and judicial systems and foster and support civil society actors involved in providing humanitarian assistance to victims of human rights abuses.

Major recommendations

Based on the above ideas, here are our specific recommendations for Japanese policy toward Asia:

  • In order to develop middle power diplomacy, lead the promotion of a “middle power coalition” of Japan, Australia, and India, which could drive the agenda-setting of the Quad (Japan, Australia, India, and the United States), and further strengthen functional cooperation with the Republic of Korea, ASEAN, and other middle power countries.
  • In response to the South Korean government’s decision regarding the “conscripted labor issue,” make continuous efforts to improve relations with South Korea.
  • Regarding debt restructuring measures for Sri Lanka, encourage China to participate continuously in the newly established “Creditor Committee for Sri Lanka” and cooperate by disclosing necessary information.
  • Encourage the return of the United States to the Comprehensive and Progressive Agreement on Trans-Pacific Partnership (CPTPP) and make diplomatic efforts toward the goal of simultaneous accession of China and Taiwan, which have formally applied for membership.
  • Explore the appropriate timing with a view to joining the Asian Infrastructure Investment Bank (AIIB).
  • With regard to rulemaking in the digital sector, consider applying for membership in the Digital Economy Partnership Agreement (DEPA), while promoting cooperation in the Indo-Pacific Economic Framework (IPEF).
  • Strengthen and deepen the doctrine of strictly defensive defense in the direction of enhancing deterrence by denial rather than focusing on counterstrike capabilities, which are less effective and have greater side effects.
  • Encourage North Korea to conduct another investigation into the abduction victims and establish a liaison office in North Korea to carry out such an investigation, with the aim of resuming negotiations for the normalization of diplomatic relations with North Korea.
  • Since a gradual, realistic, incremental, and reciprocal approach is needed to achieve the ultimate goal of denuclearization of North Korea, seek as a first step a freeze of North Korea’s nuclear weapons and missile development programs.
  • Based on paragraph 3 of the 1972 Japan-China Joint Statement, while opposing unilateral changes in the status quo from either side of the Taiwan Strait, clearly state that Japan does not support Taiwan’s independence.
  • Acknowledge the reality of the existence of an issue between Japan and China regarding the Senkaku Islands and discuss with China ways to ease and resolve tensions over the islands.
  • Urge the nuclear-weapon states to adopt a doctrine of “No First Use” of nuclear weapons and participate as an observer in the UN Treaty on the Prohibition of Nuclear Weapons.
  • Encourage inclusive transnational cooperation in the public health sector and work to reduce the negative impact of geopolitical tensions, ideological differences, and sovereignty conflicts on such cooperation.
  • Cooperate with China to promote environmental technologies and develop low-carbon infrastructure in third-country markets to address the climate change crisis in Asia.
  • Regarding human rights and human security, focus on improving the human rights situation at home while promoting a non-ideological, humanitarian approach that is practical in line with local realities in order to broaden support and cooperation among Asian countries

This article is excerpted with permission from the report “Asia’s Future at a Crossroads: A Japanese Strategy for Peace and Sustainable Prosperity,” published this week by the “Asia’s Future” Research Group. The group’s convenors are Yoshihide Soeya, professor emeritus of political science and international relations at at the College of Law of Keio University, and Mike Mochizuki, who holds the Japan-U.S. relations Chair in Memory of Gaston Sigur at the Elliott School of International Affairs of George Washington University and is also a non-resident fellow at the Quincy Institute for Responsible Statecraft.

Other authors and editors are Kuniko Ashizawa, who teaches international relations at the School of International Service, AmericanUniversity, and at the Elliott School of International Affairs, George Washington University; Miwa Hirono, a professor at the College of Global Liberal Arts at Ritsumeikan University; Saori Katada, a professor of international relations and the director of the Center for International
Studies at the University of Southern California; Kei Koga, an associate professor at the Public Policy and Global Affairs Program, School of Social Sciences, Nanyang Technological University, and concurrently a nonresident fellow at the US National Bureau of Asia Research and a member of the Research Committee at Japan’s Research Institute for Peace and Security; Jong Won Lee, a professor at the Graduate School of Asia-Pacific Studies, Waseda University; Kiyoshi Sugawa, a senior research fellow at the East Asian Community Institute; Takashi Terada, a professor of international relations at Doshisha University; Ambassador Kazuhiko Togo, a visiting professor at the Global Center for Asian and Regional Research, University of Shizuoka; and Hirotaka Watanabe, a professor at the Department of Political Science, Teikyo University.

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As Fed wraps up tightening, Chinese yuan breathes easier

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No government is probably happier that the US Federal Reserve is completing the most aggressive tightening cycle in decades than Xi Jinping’s.

Amid intensifying headwinds zooming China’s way, the idea of less monetary austerity in Washington – and fewer shocks in global capital markets – couldn’t arrive sooner. And odds are that Wednesday’s Fed interest-rate increase, the 11th in 17 months, is the last in the current campaign.

Yet there’s another reason the Fed taking a breather is comforting news for Xi: It relieves pressure on the yuan exchange rate.

As investors ratcheted down their expectations for China hitting 5% growth in recent weeks, the central bank found itself in a tug of war with currency speculators. Local media detailed how China’s major state-owned banks were dumping dollars for yuan in onshore and offshore markets to halt the renminbi’s slide.

This week, the plot thickened as top Community Party leaders meeting in Beijing pledged to keep a floor under the yuan exchange rate as part of vows to invigorate the capital market and buttress confidence.

“It’s interesting that the Politburo mentioned FX stability in the statement, for the first time in recent years,” analysts at HSBC observe in a note to clients. “This means that smoothing yuan depreciation pressure may become more of a policy priority from now on. This is in line with the People’s Bank of China’s further tightening of FX policy recently.”

On the dollar’s recent strength, strategists at RBC Capital Markets note that “the current rise has not been accompanied by as sharp a spike in volatility.” Thanks to nimble policymaking, they add, the yuan’s recent softness hasn’t turned “into an acute crisis situation.”

Beijing limiting the yuan’s downside is good news for four reasons.

One, it reduces default risks in the property market.

It’s not a given that Fed chairman Jerome Powell is done raising rates. As economist Seema Shah at Principal Asset Management puts it: “Data dependence remains the buzzword and, given the confusing signals of waning inflation but a tight labor market, keeping all options on the table seems to be a sensible approach” for the Fed.

Powell, after all, is keeping his options open after Wednesday’s move to raise the Fed’s benchmark rate to roughly 5.3% from 5.1%, the highest level since 2001. As Powell said on Wednesday, “it’s certainly possible that we will raise rates again at the September meeting. And I would also say it’s possible that we would choose to hold steady at that meeting.”

Longtime Fed watcher Diane Swonk at KPMG speaks for many economists when she says Powell’s directive was “about as clear as mud.”

What is clear, though, is that the steady decline in US inflation over the past year – to 3% from 9% – means the Powell Fed will soon take a back seat on US economic policymaking.

As the Fed throttles back on austerity, monetary-policy currents among top economies will remain uniquely divergent for the rest of 2023. It means that the conditions that propelled the dollar to the highest in decades are being reversed just as China is struggling to support the yuan.

As downward pressure on the yuan recedes, so will concerns that “China Evergrande” will be trending on global search engines. The weaker the yuan gets, the greater the risk property-development giants might default on dollar-denominated debt.

Quieter conditions in Chinese credit markets will make it easier for Xi’s reform team to end boom/bust cycles in the real-estate sector.

Two, it reduces the risk of an Asia-wide race to the bottom on exchange rates.

In recent months, many Asian policymakers worried the yen’s 7% drop this year would prod Beijing to follow suit. Nothing, after all, might ensure China reaches this year’s 5% GDP growth target faster than a sharp drop on the yuan.

That would set the stage for a region-wise response. Given still-lingering trauma from the late 1990s, fears that Tokyo’s beggar-thy-neighbor strategy might provoke responses from China to South Korea to Southeast Asia has been a major fear of US Treasury officials.

Back in the ’90s, the Fed’s aggressive rate increases boosted the dollar to levels that forced officials in Bangkok, Jakarta and Seoul to abandon currency pegs. Those competitive devaluations set in motion the 1997-98 Asian financial crisis.

In the decades since, governments strengthened banking systems, increased transparency, created bigger and more vibrant private sectors and amassed sizable foreign-exchange reserves to shield economies from global shocks.

The Covid-19 crisis, though, demonstrated that Asia is still too reliant on exports for growth. Even so, Asian governments over the past year have been more inclined to prop up exchange rates to limit the risks of imported inflation.

As Xi and Premier Li Qiang resist the urge to engineer a weaker yuan, the global financial system has breathed something of a sigh of relief.

Three, a stable yuan could help reduce trade tensions. Surely, it has dawned on US Treasury Secretary Janet Yellen that Beijing is displaying restraint in currency levels as Tokyo does the opposite. That might have been the reason Yellen’s team left China off Washington’s latest “currency manipulator” lists.

Even if Prime Minister Fumio Kishida’s Japan is pushing the weak-yen envelope, Beijing needs to tread carefully. As President Joe Biden runs for re-election, Republican challengers – many itching to investigate China over Covid-19 and suspicious of Asia in general – are sure to accuse Beijing of unfair currency manipulation.

Sanctioning China is, after all, perhaps the only thing on which Biden’s Democrats and Republicans agree. Xi’s team surely realized that while Donald Trump’s trade war and unhinged rhetoric were a drag, Biden’s more targeted and consistent curbs on China Inc since January 2021 have landed some notable blows.

All the more reason to avoid new tensions just as Premier Li’s team pivots toward creating greater economic space for China’s private sector to thrive. Part of the problem is China’s own success in de-emphasizing the public sector over the last 20-plus years.

Sure, Xi’s regulatory clampdown on Big Tech since late 2020 stymied progress on increasing the role of – and innovation in – the private sector. But Beijing is being reminded the hard way that the public sector’s share of urban employment – roughly 20% – no longer packs the punch it once did. It means that, this time, Xi and Li need a more vibrant private sector to boost income and confidence on the way to faster GDP growth.

Here, the policy shifts on display in Beijing this month, coupled with a less draconian Fed, are a plus for private-sector development in Asia’s biggest economy.

“This latest rhetoric from the top man of China’s State Council is likely to boost positive animal spirits in the short term at least,” says analyst Kelvin Wong at Oanda.

“From a medium-term perspective, the external environment also needs to be taken into consideration when global interest rates are likely to stay at a higher level for at least till the second half of 2024 given the latest hawkish monetary policy guidance from major developed countries’ central banks,” including the Fed.

Four, it suggests the shift to more productive growth is real. The latest signals coming out of Beijing are that Team Xi is more focused on long-term economic confidence than short-term-stimulus sugar highs.

The strategy “talks about boosting consumption but only indirectly, via supporting household incomes,” says Julian Evans-Pritchard, head of China economics at Capital Economics. “Those hoping for a new approach to stimulus involving greater transfers to households are likely to be disappointed.”

Economists at Barclays add that “while it signaled more support for the economy, the Politburo meeting generally fell short of offering large-scale stimulus. We view this as a signal that the government would stabilize growth around its target but refrain from an outsized policy response, given the top leaders’ intended shift in focus to quality.”

With a weak-yen obsession these last 25 years, Japan has amply proved that a weaker exchange rate may boost GDP, but does nothing to increase innovation, productivity or overall competitiveness.

If you are the CEO of a large or midsize company, why bother doing heavy lifting on restructuring, recalibrating, reimagining or reanimating innovative spirits when a weak exchange rate is bailing you out?

At the same time, internationalizing the yuan has arguably been Xi’s biggest reform victory these last 10 years.

In 2016, Xi’s government set the stage for yuan’s fast-increasing use in trade and finance when then-PBOC governor Zhou Xiaochuan secured a place for the yuan in the International Monetary Fund’s Special Drawing Rights program. It marked the yuan’s inclusion in the IMF’s club of reserve currencies, joining the dollar, euro, yen and pound.

Xi’s team has steadily increased and broadened the channels for foreign investors to access mainland China’s stock and bond markets. Chinese shares were added to the MSCI index, while government bonds were included in the FTSE Russell benchmark. That, and moves to increase financial transparency, increased global demand for the yuan.

Odds are good, says analyst Ming Ming at Citic Securities, that Xi’s government will continue to improve China’s capital-markets infrastructure to attract more long-term investment and boost direct financing.

Part of the process of building trust in the yuan is letting markets decide its value. The lack of full convertibility remains a big speed bump, of course. But so would the perception that Xi’s team and the PBOC are actively manipulating the yuan lower – provoking the Biden White House or the wider Group of Seven.

Beijing is focused on maintaining progress to date in internationalizing the yuan, and for good reason. That will get a bit earlier as the Fed ends a tightening cycle that Xi’s Communist Party will not miss.

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Time for Albanese to meet with Xi Jinping

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Australian Prime Minister Anthony Albanese’s government has overseen a turnaround in Canberra’s relations with Beijing that hints at a larger scope for other countries to balance business and security in their dealings with China.

Albanese’s strategy is also enabling Australia to benefit from the diplomatic opportunities presented by China’s economic difficulties.

When Albanese took office in May 2022, Australia-China relations were in bad shape. After former prime minister Scott Morrison’s call in 2020 for an inquiry into the spread of Covid-19 from China, Beijing imposed trade sanctions on A$25 billion (US$17 billion) worth of Australian exports.

The Chinese Embassy shared an abrasive list of 14 grievances against Australia, while the former Australian defense minister Peter Dutton (now leader of the Opposition) made historical comparisons between China today and Nazi Germany and counseled to “prepare for war.”

Canberra’s poor reputation in the Pacific arguably helped Beijing to seal a security pact with Solomon Islands.

There were no ministerial meetings for more than two years and there had been no formal leader-level talks since November 2016.

What a difference a year can make. Albanese met Chinese President Xi Jinping on the sidelines of the Group of Twenty summit in November 2022 and communication between Australian and Chinese ministers is increasingly routine. Beijing has eased its bans on most Australian exports, though restrictions persist on barley, seafood and wine.

Foreign Minister Penny Wong has reinvigorated Australian diplomacy not only in the Pacific but also in Asia and the wider Indo-Pacific region. Australia’s steady pattern of dialogue with China now aligns with that of its main ally, the United States.

Most notable about the improvement in bilateral ties is that Albanese has not weakened Australia’s position on any of China’s stated grievances. Canberra is enhancing its support for the US-led security architecture, through avenues like the AUKUS partnership with the United States and the United Kingdom and the Quadrilateral Security Dialogue with the US, Japan and India.

Albanese has condemned Beijing’s alleged human-rights violations, endorsed the “de-risking” of economic engagement with China, and refused to extradite Australia-based democracy activists to Hong Kong.

To be sure, he has made tactical concessions, particularly by not unilaterally sanctioning Chinese officials implicated in abuses in Xinjiang, mainly because such moves are unlikely to change Beijing’s conduct.

A part of this shift in fortunes is Beijing’s situation. China’s economy is troubled. Growth has barely recovered after the lifting of its zero-Covid policy and is constrained by Beijing’s limited headway in resolving structural problems such as high debt, low productivity, declining demographics, international trade pushback, and an over-reliance on the property sector.

In this context, economic coercion – which has usually been expensive and ineffectual for Beijing – is less attractive, especially after Russia’s invasion of Ukraine elevated the importance of Australia’s commodity supplies.

But the Albanese government deserves substantial credit for taking advantage of this opportunity through sensible diplomacy, including level-headed statements, constructive interactions and strength-building through collective action with like-minded partners.

Australia-China relations would not have stabilized if Albanese had maintained the combative attitude of the previous government.

PM should go to Beijing

A next step for Albanese should be to visit China. This trip would preserve productive momentum in bilateral ties without diluting Australia’s dedication to a “rules-based international order.”

It would raise the chances of Beijing lifting residual trade controls. It would show regional countries that Canberra recognizes their and its own need to co-exist with China. It would reinforce the message of US cabinet members who have recently traveled to China, that strategic competition should not veer into conflict or preclude cooperation on global challenges.

It would also boost the probability that Australian detainees in China such as Cheng Lei and Yang Hengjun can return home.

Calls for Albanese to condition his travel on the prior removal of all trade impediments or the prior release of detainees are understandable, but doing so would unfortunately make these outcomes less likely. China has its own domestic politics and Albanese’s visit would be a diplomatic gesture that makes it easier for Xi to justify the ongoing climbdown from China’s failed coercive diplomacy.

Albanese should use Beijing’s moderating economic policies to press Australian goals.

Wong’s comment that a visit requires “continued progress” on trade disputes, Trade Minister Don Farrell’s warning that Canberra could resume a World Trade Organization case against Chinese tariffs on Australian barley, and Treasurer Jim Chalmers’ reinforcement of these messages to his counterpart are fitting ways to set expectations of normalized relations with Beijing.

Albanese has not restored the golden era of Australia-China relations – that is neither possible nor the right ambition; he has simply brought some calm.

This is probably as good as it gets for Australia-China relations in the readily foreseeable future, meaning regular meetings, firm yet non-belligerent political discourse, open economic exchanges in the vast majority of non-sensitive areas, and Canberra working with partners to advance its own priorities and encouraging China similarly to embrace multilateralism.

A stretch goal could be closer collaboration on transnational concerns like climate change and debt relief, if it is free of preconditions.

However, the Albanese detente is vulnerable to a US-China crisis or a resurgence in Beijing’s assertive diplomacy. Greater volatility is likely and Australia will choose to back itself and the United States in that event, yet measured rhetoric and coordinated responses would still reduce bilateral fallout.

The message for other countries is that strained Chinese economic circumstances present additional space to pursue independent foreign policies while continuing to do business with China. But capitalizing on this demands a strategy that is strong in its commitment to self-determination but also to dialogue, diplomacy and multilateralism.

This article was first published by East Asia Forum, which is based out of the Crawford School of Public Policy within the College of Asia and the Pacific at the Australian National University.

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Leicester City: Relegated EPL team delight fans on Asia tour

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Indonesian Leicester City fans Bagas Wira Paksi and his wife.Bagas Wira Paksi
By Adam Hancock
BBC News, Singapore

For almost a quarter of a century Indonesian football fan Bagas Wira Paksi has watched the fortunes of his favourite club wax and wane from thousands of kilometres away.

But this weekend, he hopes to finally cheer his team on in person when Leicester City play Liverpool in Singapore.

“I’ve supported Leicester from 1999 during the Martin O’Neill era,” Mr Bagas tells the BBC.

“When we won [the Premier League] in 2016 there was quite a big, growing fanbase. So many started to support them but right now it’s not so big,” he adds.

Tours of the region are a standard off-season feature for top-flight teams.

Along with Leicester and Liverpool, the Singapore Festival of Football will host Tottenham Hotspur and Germany’s Bayern Munich.

However Leicester’s first game, due to take place last Saturday in Bangkok, was cancelled due to heavy rain.

This somewhat inauspicious start to the trip comes at a challenging time for the East Midlands club.

In mid-May, when they announced plans to visit the region, they still had a seat at the top table of English football, and the income that comes with it.

But less than a fortnight later they had dramatically dropped out of the English Premier League (EPL) and into the Championship.

Next season, the club will be heading to the likes of Birmingham City and West Bromwich Albion as they face up to life in English football’s second tier.

It is a painful transition for the club’s fans and its balance sheet, with lucrative TV revenue gone and only the so-called parachute payments to soften the blow.

Parachute payments are a series of payments the Premier League makes to relegated clubs, for up to three years, to help them adapt to reduced revenues in the Championship – not to mention significantly less TV revenue.

“You’re effectively looking at a £60m ($77m) reduction in revenue overnight”, explains Dan Plumley, a senior lecturer in sport finance at Sheffield Hallam University.

The club’s relegation comes after a remarkable 13-year period under the ownership of Thai duty free giant King Power.

Leicester made history in 2016 when they pulled off one of the greatest shocks in football history by winning the EPL.

But they suffered tragedy just two years later when club chairman Vichai Srivaddhanaprabha was killed in a helicopter crash.

“We are so thankful for what the Thai owners did because of the position we were in when they took over – we were still in the Championship,” Mr Bagas says.

“They came in with low expectations from us, but it turned out to be the best years for us fans.”

James Maddison of Leicester City looks dejected during the Premier League match between Leicester City and West Ham United at The King Power Stadium on 28 May, 2023.

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Leicester came under Thai ownership in 2010, when it was bought by King Power for £39m from American businessman Milan Mandarić.

“If you look at Leicester’s position at that time you can see they were well positioned for some investment”, Mr Plumley says.

“Milan Mandarić had got a reputation for building up football clubs and running them very sustainably, not throwing lots of money at them and making them a good opportunity for a takeover,” he adds.

The rise of the team under the late Vichai Srivaddhanaprabha began with significant investment.

The new owners cleared the club of £103m of debt in 2013 and also upgraded its ground, renaming it King Power Stadium.

A series of shrewd transfers helped Leicester, ranked 5000-1 outsiders, to stun the world of football by winning the Premier League.

That title secured entry to the Champions League, and with it €49.1m (£42m; $54m) in TV rights alone for their European campaign. The club earnt a total of €81.7m once prize money and bonuses were included.

European football helped Leicester to post pre-tax profits of £92.5m for the financial year up to the end of May 2017.

But in 2018, the death of Srivaddhanaprabha devastated the club. His son Aiyawatt, formerly the club’s vice-chairman, took control of Leicester.

“You will naturally see a change in the way the club operates. Because even in a family situation, no two people in the family are the same and operate in the same way.

“I think that was always going to have an impact, but it’s unfair to suggest that’s the overall problem here”, Mr Plumley says.

In 2020, football, along with much of the world, came to a standstill as the coronavirus pandemic struck.

“Covid hit the owners hard. Their duty free business was brought to a halt, so the purse strings at the club had to be tightened,” explains BBC Sport football reporter Shamoon Hafez.

Leicester reported a pre-tax loss of £67.3m for the financial year up to the end of May 2020, as the impact of Covid began to bite.

“Leicester’s wages to turnover ratio has been averaging 85 to 90 percent over the last couple of seasons and that’s a warning sign straight away, because that’s pretty much all of your income going on wages,” Mr Plumley says.

Despite the challenges of the pandemic, success continued for Leicester as they claimed the FA Cup for the first time ever in 2021.

But the club’s previously successful transfer activity began to unravel the following summer.

“They splurged on new signings including Patson Daka, Boubakary Soumare and Jannik Vestergaard, with all three struggling for a regular place in the first team,” says Mr Hafez.

On the pitch, Leicester continued to find form, with an eighth place finish in the Premier League and a run to the semi-finals of the Europa Conference League in 2022. But just twelve months later, they were relegated.

“Problems were brewing in pre-season when manager Brendan Rodgers was not given the funds to sign new players,” Mr Hafez says.

Leicester City's King Power Stadium.

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Leicester fans have also questioned the commitment of their players last season, many of whom were in the final year of their contract.

“Last year we felt the players lost some motivation. They’ve already won everything except a European cup”, says Mr Bagas.

King Power declined comment when approached by the BBC.

Following Leicester’s relegation, its chairman released a statement pledging that the club “will come together and fight to return to the Premier League”.

In February this year, he also cleared another £194m of Leicester’s debt.

However, as fans of many relegated teams know, securing promotion back into the Premier League is no easy task.

Mr Bagas though remains upbeat about Leicester’s future and believes that the club’s Thai owners can steer them back to the top tier of English football.

“We are still confident that we can bounce back to the Premier league this season.

“The interest from the owner is still there, how they talk, how they cope with the pressure and how they cope with the fans. It’s just a blip”.

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Saksayam ‘misled’ over assets

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PUBLISHED : 26 Jul 2023 at 06:20

Saksayam 'misled' over assets
Saksayam: Claims he sold shares

The Move Forward Party (MFP) on Tuesday provided new evidence which it claims substantiates allegations that Transport Minister and Bhumjaithai Party secretary-general Saksayam Chidchob concealed assets belonging to his family’s company.

Pakornwut Udompipatskul, an MFP MP, said an annual financial report issued by Burijarearn Construction Limited Partnership showed Mr Saksayam had an outstanding liability with the company that he had concealed before he became an MP and assumed the post of transport minister and then failed to submit the asset to the National-Anti Corruption Commission (NACC).

Mr Pakornwut was one of 54 politicians who signed a petition against Mr Saksayam, accusing him of concealing his assets and using a nominee to hide ownership of a company which has won many government construction projects.

The case was admitted by the Constitutional Court on March 3. Mr Saksayam was immediately suspended from his ministerial post pending the court’s ruling.

Mr Pakornwut said a company report stated that Mr Saksayam borrowed a total of 108 million baht from the company in four transactions during 2015-2016. He reportedly paid off the debt on April 22, 2019, 33 days before he took up his ministerial post.

However, the financial report of the company in December 2019 showed an outstanding debt.

“The report showed that Mr Saksayam held a 38-million-baht loan from Burijarearn Construction in 2019 that he did not declare to the NACC,” he said.

In addition, a clarification letter from Burijarean Construction stated that Mr Saksayam borrowed 108 million baht from the company, but there were records of only 69 million baht in loans, Mr Pakornwut said.

Furthermore, he said if the company received all the payments from Mr Saksayam before he became an MP, why did bank records not show the transactions?

Meanwhile, Mr Saksayam on Tuesday denied the accusation, saying he did not own any shares in the company and that his legal team would issue a statement today.

“I insist I have had nothing to do with the Burijarearn Construction since 2019,” he said.

In his declaration of assets to the NACC in 2019, Mr Saksayam declared his assets worth 115.7 million baht without any debts.

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China’s anti-Mario Draghi moment surprises markets

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For weeks now, global markets have ricocheted between excitement over a Chinese stimulus boom and disappointment that Beijing was taking its sweet time to jolt a slowing economy.

It’s now clear that Xi Jinping’s team has settled on a strategy somewhere in between. And for the global economy, the signals from this week’s meeting of the Politburo, the Communist Party’s top decision-making body, seem short-term negative for world markets – but long-term positive.

As Bill Bishop, long-time China-watcher and author of the Sinocism newsletter, sees it, the policy direction being telegraphed seems “fairly dovish,” but “doesn’t seem to signal much more significant stimulus incoming near-term.”

That’s bad news for bulls betting on a new Chinese stimulus bonanza that lifts markets from New York to Tokyo. Under the surface, though, there are myriad hints that the arrival of Premier Li Qiang in March is putting reforms on the front-burner once again. In other words, Beijing cares more about avoiding boom/bust cycles going forward than just mindlessly fueling a 2023 boom.

As “no fiscal expansion plans have been revealed so far, the impact will only be felt very progressively,” says economist Carlos Casanova at Union Bancaire Privée.

Economist Wei He at Gavekal Dragonomics added that “the Politburo’s meeting on the economy shows that officials recognize weak demand is an issue. But the meeting mainly called for ‘precise’ policy adjustments.” As such, it “remains far from certain whether those can deliver a near-term turnaround in growth. The conservative stance points to, at best, a stabilization or weak recovery” in the second half.

Instead of aggressive plans for massive monetary easing and fiscal pump priming — as markets had assumed — the chatter is about prudent policymaking with an emphasis on lower taxes and fees and incentivizing increased investment.

Rather than sharp drops in the yuan to boost exports, Li’s reform squad is focused on catalyzing greater scientific and technological innovation and giving the private sector more space to thrive and create new good-paying jobs.

In lieu of scores of top-down decrees or public jobs-creation schemes, the zeitgeist is that developing a thriving micro, small and medium-sized enterprises (MSME) sector is a more forceful way to address record youth unemployment than large-scale stimulus.

What Xi and Li are telegraphing might be best called the “anti-Mario Draghi” approach to enlivening Asia’s biggest economy.

Theno-ECB President Mario Draghi holds a news conference at the ECB headquarters in Frankfurt in 2018. Photo: Asia Times Files / Reuters / Ralph Orlowski
Italian Prime Minister Mario Draghi, shown here during his tenure as European Central Bank president in 2018, has resigned. Photo: Reuters / Ralph Orlowski

The reference here is to the former European Central Bank president’s infamous pledge “to do whatever it takes” to stabilize the financial system via powerful monetary easing.

A year later, Draghi’s liquidity onslaught inspired then Bank of Japan Governor Haruhiko Kuroda to follow suit.

Haruhiko Kuroda. Photo> Asia Times Files / JIJI Press

On Draghi’s watch, the ECB unleashed stimulus on a level that would’ve been unfathomable to Bundesbank officials of old. In Tokyo, between 2013 and 2018, the Kuroda BOJ’s balance sheet swelled to the point where it topped the size of Japan’s $5 trillion economy.

Neither monetary boom did much, if anything, to make the broader European or Japanese economies more competitive, productive or, broadly speaking, more prosperous. Instead, executive monetary support generated a bubble in complacency.

Draghinomics — and Kurodanomics — took the onus off government officials from Madrid to Seoul to loosen labor markets, reduce bureaucracy, incentivize innovation, tighten corporate governance or invest big in strengthening human capital.

China, it seems, is determined to go the other way. In the months since Xi started his third term — and Li arrived on the scene as his number two — Beijing has confounded the conventional wisdom on Chinese stimulus.

The start of this week’s Politburo is no exception. Markets were betting on major stimulus moves. Instead, China unveiled a 17-point plan to attract more private capital its way.

In a note to clients, analysts at Capital Economics said that “the absence of any major announcements of policy specifics does suggest a lack of urgency or that policymakers are struggling to come up with suitable measures to shore up growth.”

One possible interpretation was that Xi’s inner circle wants to put some actions on the scoreboard before next month’s annual huddle in the resort of Beidaihe to discuss long-term policy direction. Yet the tenor of steps seems more about supply-side reforms than fiscal and monetary pump-priming that might squander progress in reducing financial leverage.

Instead of talking about reaching this year’s 5% growth target, the government said the priority now is that “good foundation is laid for achieving the annual economic and social development targets.” Officials admitted, too, that “economic recovery will show a wavy pattern and there will be bumps during progress.”

In other words, the instant gross domestic product gratification that investors came to expect in Xi’s first two terms has been replaced with a more pragmatic approach. While there will be “prudent monetary policy” and at times an “active fiscal policy,” the bigger objective is to “extend, optimize, improve and enforce tax cuts and fee reductions.”

Stimulus will indeed emerge when, and where, needed. The Politburo said, for example, that it would “accelerate the issuance and use of local government special bonds.” 

This means it’s entirely possible that local governments may be allowed to “dig into” remaining special bond quotas, including from previous years, says economist Yu Xiangrong at Citigroup, who estimates the quota to be about 1.1 trillion yuan (US$154 billion).

But there was far more discussion of ways to “adapt to the major change in supply-demand relations in the property market,” and, in timely fashion, to “adjust and optimize real estate policies.” That, Beijing says, means steps to “increase construction and supply of low-income housing,” and “revitalize all types of idling properties.”

To economist Zhiwei Zhang at Pinpoint Asset Management, “this is an interesting signal as the property sector downturn is arguably the key challenge the economy faces now.” As such, “it seems the government has recognised the importance of policy change in this sector to stabilize the economy.”

Just as important, arguably, is the government saying it’s committed to “effectively prevent and resolve local debt risks, make a package of plans to resolve the debt.” The same goes for commitments to “concretely optimize private firms’ development environment” and “build and improve the routinized communication mechanism with companies.”

Furthermore, the party’s latest phraseology includes pledges to “firmly crack down on excess fee and fine charging, resolve the receivables governments owe to companies” and “accelerate the fostering and growing of strategic emerging industries.” The plan, the party notes, is to “strengthen financial regulation, steadily push for the reform and risk resolution at small and medium-sized financial institutions of high risks” as a means to “stabilize the basic market of foreign trade and investment.”

Such language is more the stuff of Adam Smith and Milton Friedman than Mao Zedong. More Hans Tietmeyer of Bundesbank fame than Draghi or Kuroda. One possible area of optimism is that Xi’s government is finally serious about fixing the underlying troubles in the property sector – not just treating the symptoms.

Casanova points to the Politburo’s statement that authorities would recalibrate property policies based on the “local property market situation” and consider developments related to “demand and supply imbalances.” To him, “that last point is new, suggesting a change in the macroprudential regime, as the government now sees a structural shift, requiring bottom-up measures to better reflect local conditions.”

That’s not to say Xi and Li won’t support demand where needed.

Chinese Premier Li Qiang and President Xi Jinping in March 2023. Photo: Xinhua

“We expect the government to roll out modest fiscal support in the second half of 2023, but no aggressive fiscal stimulus,” says economist Ning Zhang at UBS AG. Even so, Zhang says, “some policy room may be kept to support economic growth in 2024.”

Additional stimulus measures that Zhang expects Beijing to prioritize: an acceleration of special local government bond sales; a resumption of policy banks’ special infrastructure investment funds; Beijing providing credit to clear up local governments’ arrears to corporate suppliers; modest property policy easing and credit support for stalled property projects; a modest credit growth rebound; and perhaps a small official rate cut.

There also could be “some small-scale and targeted support” for selected consumption categories as well, Zhang says.

Mostly, though, the signals coming from Beijing this week suggest a greater emphasis in increasing confidence via reform and more vibrant safety nets than runaway stimulus. Bottom line, China’s Draghi days seem over – and that’s a good thing.

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Safety first in China under new central bank governor

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Pan, 60, was elevated to the central bank’s top political post this month. On Tuesday, he was confirmed as the replacement for respected governor Yi Gang, becoming the first person to take over both posts since Yi’s predecessor Zhou Xiaochuan. Pan played a key role in the restructuring and listingContinue Reading

Will Hun Manet reset ties with the West?

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Phnom Penh might finally mend relations with the West as it undergoes a once-in-a-generation leadership succession that could see Prime Minister Hun Sen hand down power to his eldest son next month.

The prospect of a new prime minister in Cambodia and a reshaped, youthful cabinet – some of whom were educated in American universities – could lead to a thaw in Phnom Penh’s historic distrust of the West, as well as a reset on how Western governments deal with Cambodia’s authoritarian system.  

In style, if not in substance, an inchoate administration led by Hun Manet, son and heir apparent of the long-ruling PM, will want to be on better terms with Western democracies, which are also interested in improving ties even if that means paying less attention to human-rights abuses and democratic deterioration inside Cambodia, analysts tell Asia Times. 

The long-ruling Cambodian People’s Party (CPP) won yet another evidently rigged general election on Sunday, taking all but five seats in parliament in a contest where the only viable opposition party was barred from competing, according to unofficial results. 

With victory all but assured, the real intrigue centered on when Hun Sen, who has been in power since 1985, would step down to make way for Hun Manet to inherit the premiership.

New cabinet

Comments made by Hun Sen in the days leading up to the ballot appeared to suggest that the handover will take place next month when a new cabinet is formed, which is set to see a far-reaching generational shift as the party’s aging grandees make way for youthful faces, many their own children or relatives. 

The prospect of a new prime minister in Cambodia and a youth-focused cabinet – some of whom, like Manet, were educated in the West – has led some commentators to surmise that the country could also undergo a foreign-policy reset.

Manet, 45, was educated in the US and Britain, speaks fluent English and often cuts a more cosmopolitan image than his father, who came of age amid US intervention in Cambodia during the 1970s. 

Cambodia’s relations with Western states, its main export partners, have decayed considerably since 2017 when the ruling CPP forcibly dissolved the largest opposition party, the Cambodia National Rescue Party (CNRP), and civil-society groups on spurious claims that it was engaged in a US-backed conspiracy to take power. 

Phnom Penh unilaterally canceled military drills with the US and began exercises with China that same year. Hun Sen subsequently shifted his country’s strategic alignment fully behind Beijing, its largest trading partner since 2012 and its primary source of investment.

China has since pumped billions of dollars into vital infrastructure developments, such as the construction of Cambodia’s newest expressways and ports.  

Relations with the United States, meanwhile, remain particularly tense as Washington alleges that Phnom Penh might allow Chinese troops to be stationed at a naval base in the south of the country, which is undergoing heavy reconstruction by Chinese firms.

“The United States is troubled that the July 23 Cambodian national elections were neither free nor fair,” US State Department spokesman Matthew Miller said on Monday, while also announcing new visa restrictions on Cambodian officials and a pause of some foreign-assistance programs. 

“As the ruling Cambodian People’s Party forms a new government,” the State Department spokesman said, “authorities have an opportunity to improve the country’s international standing, including by restoring genuine multiparty democracy, ending politically motivated trials, reversing convictions of government critics, and allowing independent media outlets to reopen and function without interference.”

Virak Ou, founder and president of the Future Forum think-tank, reckons there will be a short-term shift in tone from Phnom Penh once the leadership succession takes place next month. 

“The old guard carries lots of old scars from the cold days,” Ou said, referring to Cold War tensions when most Western countries tacitly supported the Khmer Rouge during the 1980s after it was overthrown by defectors like Hun Sen, who were backed by Soviet-aligned Vietnam.

“Hun Sen does not trust the West, and it’s also difficult for the West to view Hun Sen and the old guard as a legitimate and positive force for democracy. The level of mistrust runs deep,” Ou said. 

China’s interests

At the same time, he added, Western democracies are also ready to change tack. They are willing to put aside “some of the ideals of human rights and democracy” toward a more pragmatic stance because of a rising China that has sought to bring Phnom Penh into its security fold. 

Satellite imagery of ongoing construction taken last month at the Ream Naval Base appears to show a jetty large enough to accommodate a naval destroyer, according to Planet Labs, an imaging-data company. 

The Pentagon’s latest defense paper on China explicitly states that the Cambodian naval base “will be the first [People’s Republic of China] overseas base in the Indo-Pacific.”

It is notable that as Phnom Penh undergoes a generational change, the embassies of most Western countries are being reshuffled. 

W Patrick Murphy, the current US ambassador, is expected to depart as soon as his nominated replacement is confirmed by the Senate, which could be before the end of the year.  

The European Union’s ambassador to Phnom Penh, Carmen Moreno, is also on her way out, set to be replaced in early September by Igor Driesmans, the current EU ambassador to the Association of Southeast Asian Nations (ASEAN). The ambassadors of Japan, Britain and Australia are relatively new to the country.

The US has imposed targeted sanctions on several Cambodian officials, including the head of Hun Sen’s personal bodyguard unit. It let its preferential trade scheme with Cambodia expire in 2021. 

The EU partially revoked some of Cambodia’s trade privileges in 2020 because of the alleged democratic deterioration in the country. 

Phnom Penh has claimed that it seeks rapprochement with the West, despite showing little sign of it. Even amid sanctions, most Western countries remain key importers of Cambodian goods. 

American trade with Cambodia rose from US$3.4 billion in 2017 to $12.6 billion last year, according to US trade data.

Although the Foreign Ministry reportedly wanted to remain neutral, Hun Sen became a vocal critic of Russia’s invasion of Ukraine last year, and Cambodia supplied demining teams to help train their Ukrainian counterparts. 

US President Joe Biden thanked Hun Sen for his stance on the Russian war during an amicable visit to Phnom Penh last November for the annual ASEAN Summit, which Cambodia hosted as chair of the regional bloc in 2022. 

Since its tenure came to an end at the beginning of this year, Phnom Penh has become ever more repressive. 

It threatened to dissolve the opposition Candlelight Party, shut down the Western-funded Voice of Democracy, one of the last remaining independent news outlets, and convicted former CNRP leader Kem Sokha to 27 years of house arrest on trumped-up treason charges, which stem from the government’s accusation that the now-banned party was plotting a US-backed coup. 

Hun Sen has also alleged in recent months that the US Central Intelligence Agency sent spies to Phnom Penh in March and seemingly blamed the US when a number of drones were spotted flying into Cambodia from neighboring Vietnam.

Hun Sen, with his eldest son in tow, visited Chinese President Xi Jinping in Beijing in February, their second visit to the Chinese capital.

The Western-educated dauphin

However, some reckon that once in power, Hun Manet and his youthful new administration will alter Cambodia’s foreign policy, at least in tone. 

Manet attended the elite US Military Academy in West Point, New York, and later studied at New York University and the University of Bristol in the UK. He participated in several Western-led exercises during his time as army chief.

Several other younger officials who are expected to be named ministers next month, when the new cabinet is formed, were also educated in the West. Chhay Rithysen, who is likely to become the next minister of rural planning, studied at America’s elite Massachusetts Institute of Technology (MIT).  

There are economic incentives for rapprochement. Tourism is slow to recover from the Covid-19 pandemic and Chinese investment has been more limited than expected. Many officials in Phnom Penh now recognize that Cambodia has to diversify its trade and investment links and cannot be as reliant on Beijing as it was pre-pandemic.

According to a leaked list of the likely new ministers, which Asia Times reported on last week, Sok Chenda Sophea, currently head of the Council for the Development of Cambodia, a government body that oversees foreign investments, will become the new foreign minister next month.

An analyst who asked not to be named said Chenda Sophea would refocus the Foreign Ministry toward boosting economic development.

There was a realization that the ministry had become too bogged down with geopolitical issues, such as the US-China rivalry, and now needs to see its primary objective as attracting inward investment, the analyst said.  

Such a shift could appeal to Western governments that are now interested in supplying more investment to Cambodia. The European Investment Bank, the EU’s lending arm, has stepped up spending in the country since 2021. 

But few commentators expect a major foreign-policy realignment from Phnom Penh. 

Ou, of the Future Forum think-tank, reckons rapprochement will be more style than substance, “and it could be short-lived.”

He added: “The reality is China is Cambodia’s most important backer and there will be little incentive for Cambodia to shift away from China.”   

Commentators stress that a Western education such as Manet’s has little bearing on a leader’s future policies. After all, many of the world’s dictators studied at European or American universities. 

North Korean dictator Kim Jong Un studied in Switzerland. Much of the leadership of Cambodia’s genocidal Khmer Rouge regime was educated in Paris.

Moreover, there are doubts about how much independence Manet will wield once he becomes prime minister. Even after Hun Sen resigns from the premiership, he will remain as president of the ruling party and may create a new cabinet position for himself.

Domestically, Hun Sen will still rule from behind the scenes, aware that his inexperienced son and the new cabinet, composed of equally youthful figures, will need hand-holding in the first years. Hun Sen will likely also continue to accompany his son on visits to Beijing. 

Despite his genteel image, Manet has often parroted his father’s anti-Western tirades. Like his father, Manet says that only the ruling party can defend Cambodian sovereignty from Western-backed “terrorists,” a reference to the banned CNRP.

“If you look at Manet’s speeches, they emulate his dad’s, down to the voice and mannerisms,” said Sophal Ear, associate professor at Arizona State University’s Thunderbird School of Global Management.

Although the Hun family is consolidating its personalist rule over Cambodia, other political families that have their own networks with Chinese companies will maintain their influence. 

The family of Defense Minister Tea Banh in particular is believed to have a close network with defense officials in Beijing, and there are unconfirmed allegations that it is deeply connected to Chinese organized crime in Sihanoukville province, a regional fiefdom for the family.

Tea Seiha, the governor of Siem Reap province, is expected to succeed his father Tea Banh as the country’s next defense minister. 

Tea Banh’s brother Tea Vinh is the navy chief and therefore deeply connected to allegations that Chinese troops will be allowed access to the Ream Naval Base. Vinh was sanctioned by the US in 2021 ostensibly over corruption allegations tied to the development of the base.

Tea Banh and his children, including his likely successor Seiha, were the first Cambodians to receive Chinese-made vaccinations during the Covid-19 pandemic, something that Hun Sen seemingly wasn’t aware of when he claimed he would be the first to take the jab. 

The Chinese government and business community also have networks with other powerful political families in Cambodia, including the clan of Interior Minister Sar Kheng, whose son Sar Sokha is tipped to inherit his position.

Because Chinese influence networks within Cambodia do not run solely through the Hun family, any attempt to realign the country’s relations with the West may impact those networks, risking intra-party tensions over the spoils of power, analysts say.  

At the same time, the Cambodian economy has become wedded to China. Although Western governments, especially the EU, have increased investments, Chinese money is integral in Cambodia in areas where the West will not want to compete. 

Western governments are unwilling to fund the construction of highways or ports in Cambodia. At the same time, private Western investors have a minuscule stake in Cambodia’s now failing housing market, which now appears to be imploding after almost a decade of rampant growth. 

A report from Radio Free Asia last week highlighted the chronic levels of debt and foreclosures in Cambodia’s housing market, which ballooned in recent years as ordinary Chinese investors pumped money into what seemed a steady, long-term investment. 

But non-performing loans and evictions are on the rise, while many construction sites lie empty as Chinese and local investment has dried up. 

A young Manet administration will not want a major housing crisis early on, and support from Beijing may be the only way to avert that.

Follow David Hutt on Twitter at @davidhuttjourno.

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DSI gives update on 5 cases

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PUBLISHED : 25 Jul 2023 at 04:00

The Department of Special Investigation (DSI) yesterday issued updates on five cases of alleged stock corruption involving three suspended capital shares.

The probes followed complaints from the Securities and Exchange Commission (SEC) regarding Polaris Capital (Polar), Energy Earth (Earth), and Inter-Fareast Energy Cooperation (IFEC).

All three were delisted by the SEC in 2018 after failures to submit their financial statements, which left many investors damaged as all of them were popular shares.

In the first case, accepted by the DSI on Dec 17, 2018, Polaris Capital executives were accused of creating an artificial debt of 3.6 billion baht to enter the company into a rehab plan.

A report was sent to the Prosecutor’s Office of Special Cases on Feb 7.

The latter three cases in the statement focused on accusations against Energy Earth in 2017, 2019, and 2020, respectively.

In 2017, the company was sued for using counterfeit documents to secure import financing from Krung Thai Bank, which left the bank financially damaged.

Energy Earth’s use of a fabricated coal import document to seek a 12-billion-baht loan from the bank, which is the company’s largest creditor, led the bank to file a complaint with the DSI.

The company was also accused of cheating creditors in 2019 and concealing information about its coal mine from the SEC in 2020.

The reports were now with the secretary-general of the National Anti-Corruption Commission for consideration.

Inter-Fareast Energy Cooperation executives, meanwhile, were accused of causing one billion baht of damages.

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