Commentary: Stony silence over Qin Gang saga does China’s reputation no favours

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On Jul 17, when asked to confirm whether Qin was still the foreign minister, Mao told the reporter to check the ministry’s website which listed Qin as the foreign minister and said she did not have any new information. So, a foreign ministry spokesperson could not directly confirm the foreign minister was still the foreign minister, and a reporter had to check the ministry’s website to confirm he was?

Mao has my sympathy, though. She knew the Qin-related questions would pop up every day she walked into the briefing room, but apparently, she was not authorised to say anything on that matter, not even to confirm that Qin was still foreign minister even though on paper he was.

Also, Mao’s exchanges with foreign reporters over Qin were all excluded from the readouts in the ministry’s website, keeping up the charade that “China’s diplomatic activities are moving forward normally”.

OLD HABITS DIE HARD

The shoe finally dropped on Tuesday (Jul 25) when the National People’s Congress Standing Committee replaced Qin with Wang Yi, his predecessor. At the briefing next day, Mao continued her stonewalling strategy by referring reporters to Xinhua reports as to why her former boss was removed – but Xinhua reports did not give any reason.

Meanwhile, the ministry was busy scrubbing Qin’s name and speeches from the official website, as if his seven-month tenure had not happened at all. One section which listed China’s foreign ministers since the People’s Republic was founded in 1949 no longer includes Qin. He was only listed as China’s ambassador to the United States from 2021 to 2023.

On Friday, the ministry quietly began to reinstate references to Qin which were erased on Tuesday, apparently because of intense media scrutiny. But the damage was done.

Old habits die hard. The ministry’s actions remind me of the antics popular in the heyday of Mao Zedong after leaders were purged. Such moves are counterproductive and ridiculous.

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Marcos’s military pension, US cooperation dilemma

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Historically, the Philippine military played a crucial role in the toppling of two powerful presidents. And that helps to explain the sensitivity of pension reform moves currently afoot.

In his secondsState of the nation address, Philippine President Ferdinand Marcos Jr hailed the country’s “sound” economic fundamentals despite an uptick in inflation over the past year.

Eager to press ahead with a massive infrastructure initiative, however, he has called on lawmakers to institute new tax measures under the “medium-term fiscal framework,” including value-added tax on the booming digital-economy sector, expanded motor-vehicle user’s charges, and new taxes on the mining sector. 

The government expects to raise between 12.4 billion and 15.8 billion pesos (US$$220 million to $300 million) in additional resources under the first year of the framework’s implementation.

The prospect of new taxes amid historic inflation rates didn’t go down well among the Filipino populace, who are still reeling from one of the highest living costs in Southeast Asia. 

But the president faces an even more sensitive and highly consequential fiscal reform challenge, namely the proposed reform of the Philippine military and uniformed personnel pension, which is has raised fears of a backlash on the part of elements of the country’s powerful security forces.

Confronting the prospect of a fiscal crisis in coming years, the Marcos administration is pushing for “self-regenerating” pension plans for both the Armed Forces of the Philippines and the Philippine National Police. 

Marcos’s top technocrats have warned that the status quo is unsustainable, since the pension’s annual payouts could reach the 1-trillion-peso mark by 2035 from 213 billion pesos this year.

In his address, Marcos played down the challenge, promising a soft landing on the issue. Given the Philippines’ long history of coups, however, Marcos needs to keep the military on his side.

And this only raises the stakes for his military pivot to the US, a key source of training and equipment for the armed forces. Reforming the pension is inextricably linked to ongoing plans to expand Philippine-US cooperation under the Enhanced Defense Cooperation Agreement. 

Duterte’s dilemma 

History offers clear warnings to proceed carefully. To start with, the Ferdinand Marcos Sr regime collapsed in 1986 after a popular coup by his top henchmen, former defense minister Juan Ponce Enrile and military chief Fidel Ramos.

Although mainstream narratives emphasize the “People Power” protests led by the late president Corazon “Cory” Aquino, historians often speak of a “civilian-backed coup” to describe the chain of events that culminated in the overthrow of the Marcos dictatorship. 

In 2001, populist president Joseph Estrada, a Marcos loyalist, was similarly toppled by another round of People Power protests. But the crucial factor was the armed forces’ top brass’s withdrawal of support for the embattled president amid escalating popular opposition.

Over the succeeding years, president Gloria Macapagal Arroyo also faced multiple coup attempts amid chronic corruption and election anomalies, underscoring the influence of the powerful military in shaping Philippine politics. 

A self-described “socialist,” with an avowedly pro-China foreign-policy orientation, president Rodrigo Duterte wasted no time to win over the country’s armed forces. In his first few months in office, he personally visited as many 14 military camps, lavishing praise and promising expanded benefits to soldiers and generals.

Soon, he appointed as many as 60 senior generals and senior officers from the military and security services to cabinet and sub-cabinet positions, making his administration the most militarized in recent memory. 

On multiple occasions, he also revisited his peace negotiations with communist rebels in deference to his generals. He also rescinded his earlier threat to boot out American troops from the Philippines.

As the former president put it in a public address, “the military would oust me” if he fully ignored their concerns. By 2018, Duterte tried to soften the blow of his China-leaning foreign policy by doubling entry-level police and military personnel’s salary, while boosting all ranking officers’ wages by 72%. 

Meanwhile, Duterte also promoted a whole host of friendly generals, while appointing a succession of newly-retired military chiefs to prized civilian positions. The military also benefited from the acquisition of modern weapons amid a billion-dollar modernization program. 

What the military wants 

In fairness, the armed forces remained broadly professional, maintaining their commitment to defending the country’s sovereign waters amid growing Chinese encroachments throughout Duterte’s presidency.

But Duterte’s charm offensive also largely explains the absence of any serious coup attempts throughout his extremely controversial term in office. 

The upshot of the populist president’s policies, however, was a fiscal time bomb, as the government lavished benefits on security personnel in an unsustainable fashion.

Just as the Duterte administration increased wages and benefits, it kept the military’s pension system highly liberal, whereby uniformed personnel are not required to make contributions and retired personnel would receive pension increases whenever active servicemen enjoyed expanded benefits. 

Earlier this year, Philippine Finance Secretary Benjamin Diokno warned that the military pension system was not “not sustainable,” warning that “if this goes on, there will be a fiscal collapse.” In response, former acting defense chief Carlito Galvez warned that any reform of the pension system could force the premature retirement of 70-to-80% of enlisted personnel.

A few months later, Marcos appointed Harvard-trained lawyer and longtime businessman Gilberto “Gibo” Teodoro as the new defense secretary.

His first marching orders to the new defense chief, who also served in the same capacity during the Arroyo administration, was to oversee the rationalization of the military’s pension system by reducing monthly pension for retirees, raising retirement age and/or instituting mandatory contributions from soldiers. 

Recognizing the sensitivity of the issue, Teodoro promised “minimal” financial burden on the uniformed services. 

“We want a self-sustained pension system,” he said, “but it needs a couple of years to load it up in order for it to be self-sustaining.” When asked about the impact on morale of the armed forces, Teodoro emphasized the need to “appeal to their patriotism.” 

As the Marcos administration proceeds to rationalize its historically generous pension system for the military, it will inevitably have to consider the armed forces’ strategic preferences. In particular, the Philippine military supports expanded defense ties with the Pentagon, a key source of training, equipment and aid over the past half-century.

Eager to avoid confrontation with China and its proxies, Marcos has repeatedly equivocated on the exact nature of the agreement with the US. For the military, however, the defense pact is a great boon, thus their preference for a maximalist version of the agreement which expedites modernization of Philippine military and joint preparations with the Pentagon for any potential contingencies in either Taiwan or the South China Sea. 

“If we are to protect our sovereignty and territorial integrity, including the protection of maritime resources that should be enjoyed by our people, we need a 360-degree protection capability,” Colonel Medel Aguilar, armed forces spokesman, told the media this year.

“Aside from equipment, modernization also means getting facilities – such as runways, barracks for our soldiers, and where to store equipment during times of emergency,” the armed forces’ spokesman added. 

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Commentary: Thailand moves forward in social media election

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SYDNEY: In Thailand’s general election in May, the Move Forward Party (MFP) emerged as the big winner with 151 seats thanks in large part to social media.

While all major political parties were actively campaigning online, the MFP’s influence far outstripped their opponents. The key to the MFP’s online success was its fan base, who came together, largely organically, to promote and support the party.

As one of the world’s most social media active countries, social media platforms were key battlegrounds for Thailand’s May 14 general election. With more than 80 per cent of the population now on social media, online campaigning was no longer optional.

The most popular hashtag used in the lead up to the election day, across Facebook, Twitter and TikTok was #election23, and the MFP dominated online conversations relating to the election and its content was engaged with the most.

Compared to other parties, Thai people talked, shared and interacted with the MFP online the most. This made MFP content most visible to social media users as platform algorithms prioritise the most popular content.

On Facebook, 56 per cent of the most popular posts using the hashtag #election23 were about the MFP. These posts garnered more than 10 million interactions (such as liking and sharing) with more than 80 per cent eliciting positive sentiment.

Pheu Thai came second with 15 per cent of the posts using #election23 being about the party. Pheu Thai posts produced 1.6 million interactions – more than six times fewer than the MFP.

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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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China suspected of building aircraft carrier base in Cambodia

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China may have built its second overseas military facility, this one in Cambodia, centered on a pier that can host one of its aircraft carriers, enabling power projection and helping to resolve its “Malacca Dilemma.”  

This month, Nikkei reported that China had made significant progress on building a naval base in Cambodia and was close to completing a pier that could berth an aircraft carrier. That report said that satellite images taken by BlackSky, a US commercial imagery company monitoring the construction at Cambodia’s Ream Naval Base, shows a nearly complete pier that closely resembles China’s pier at its only acknowledged overseas base in Djibouti.

In April, Asia Times reported China’s construction of an air defense center and expanded radar system near Ream Naval Base. Cambodian Prime Minister Hun Sen allocated 157 hectares for the project in September 2022, and an additional 30 hectares were earmarked for a naval radar system. 

A Cambodian Defense Ministry official said there would be no Chinese funding, support, or presence in those facilities amid persistent allegations that Ream Naval Base is being secretly developed as China’s surveillance hub for the South China Sea and its first foreign military base in the Indo-Pacific region.

Previously, Asia Times reported in January 2022 on China’s dredging projects at Ream Naval Base to enable the docking of larger vessels, with Cambodian officials confirming that China had funded the project and other infrastructure construction at the facility. China’s dredging project represents a significant upgrade as, at the time, the base’s shallow waters only allowed it to host smaller patrol vessels and not substantial warships. 

Nikkei’s new report says the first signs of the Ream pier construction were reported in July 2022, with China making rapid progress. The source says that the piers at Ream and Djibouti both have a 335-meter section could be used to berth an aircraft carrier.

Nikkei notes that in a confrontation, the US could bomb Chinese military facilities in the South China Sea, but attacking Ream would mean bombing Cambodia. Despite that, the source cites a Chinese Embassy official in the US that Cambodia’s constitution bans foreign military bases on its territory and that construction at Ream strengthens Cambodia’s capacity. 

Myanmar activity

China may have been behind similar projects in Myanmar, enabling it to secure a foothold in the Andaman Sea to bypass its long-running strategic conundrum wherein its over-dependence on the Malacca Strait makes it vulnerable to a naval blockade by the US and its allies.

In April, Asia Times reported on renewed construction activities on Myanmar’s Great Coco Island, with satellite imagery showing a freshly lengthened 2,300-meter runway and signs of increased activity in recent months, such as the construction of hangars and a radio station. 

Since 2014, there have been reports of Chinese signal intelligence (SIGINT) facilities in the Andaman Sea, including at Manaung, Hainggyi, Zadetkyi, and the Coco Islands, while Chinese technicians have worked on radar stations and naval bases near Yangon, Moulmein and Mergui.

From Ream, China could counter US naval presence in the Malacca Strait chokepoint, secure its emerging interests in the Gulf of Thailand, and establish a southern flank in the South China Sea.

Conversely, Cambodia depends on China as an economic lifeline and a possible security insurance against its larger and militarily stronger neighbors, Thailand and Vietnam.

Also, China’s SIGINT facility on Myanmar’s Great Coco Island may serve as a forward defensive position for Kyaukpyu Port, the maritime terminus of the China-Myanmar Economic Corridor (CMEC), which ends south of China’s Yunnan province.

It may also give China an advantage against the Indian Navy, as Myanmar can conduct surveillance flights from Great Coco Island to monitor Indian operations from the Andaman and Nicobar Islands. 

China could then bargain with Myanmar to share intelligence from those flights in exchange for economic and political support, which the latter badly needs, embroiled in an ongoing civil war and dealing with Western sanctions. 

However, China’s moves to establish a foothold near the Malacca Strait, South China Sea, and Indian Ocean are far from a done deal, as unreliable relationships, unstable host countries, and limited near-term naval power in the Indian Ocean have prevented China from establishing a dependable network of naval bases to secure its sea lanes of communication in the event of a military conflict. 

Changes in Cambodian policy

Further, Cambodia may not be China’s “yes man,” contrary to its previous behavior and expectations.

In a March article in Fulcrum, Melinda Martinus and Chhay Lim report that Hun Sen’s January 2022 visit to Myanmar was viewed as Cambodia acting on the behest of China, with the July 2022 execution of pro-democracy activists by Myanmar’s junta marking a turning point for Cambodia, leading it to re-engage with ASEAN counterparts and disinvite the junta from ASEAN meetings during its chairmanship. 

Martinus and Lim also note that Cambodia has condemned Russia’s February 2022 Invasion of Ukraine and provided humanitarian assistance to the latter. They note that Cambodia’s moves were a surprise, as it was expected to follow China’s position of refusing to condemn Russia for its actions and considering its cordial relations with the latter.

Martinus and Lim also say that during its chairmanship of the Association of Southeast Asian Nations, Cambodia made notable efforts to steer itself away from China’s direct influence, especially when doing so is perceived to be relatively cost-free. 

The writers say Cambodia is diversifying its relationships to lessen its dependence on China. They report that Western approval of its condemnation of Russia’s invasion of Ukraine was seen as a preparatory move for the incoming Hun Manet cabinet, which may reset ties with the West.

In addition, they noted that Cambodia signed a free-trade agreement with South Korea last year, which could lessen economic over-dependence on China. 

In the case of Myanmar, Sudha Ramachandran wrote last month in an article for the Jamestown Foundation that China’s decision to back the Myanmar junta is fraught with risk, as resistance groups target Chinese nationals and projects.

Ramachandran cites that of the 7,800 recorded nationwide clashes since the February 2021 coup, 300 occurred in areas where major Chinese projects are located, with 100 happening in 19 townships where China’s oil and natural-gas pipelines run.

He also says that Myanmar’s military may not be the formidable fighting force it is believed to be, as it is much smaller than previously thought. He notes that Beijing’s pumping the junta with weapons can only serve to deepen anti-China animosity by resistance groups, putting Chinese projects and nationals in Myanmar at greater risk.

Ramachandran also states that while Myanmar’s civil war is at a stalemate and the junta has a tenuous grip on power, the military’s hold on the territory is expected to decline. 

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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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5 agencies team up to fight scams

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In: South-East Asia

PUBLISHED : 27 Jul 2023 at 05:17

Five state agencies are joining forces to suppress illegal financial transactions and money laundering along the nation’s borders, deputy government spokeswoman Traisuree Taisaranakul said on Wednesday.

The five agencies are the Royal Thai Police (RTP), the Revenue Department, the Securities and Exchange Commission (SEC), the Anti-Money Laundering Office (Amlo) and the Bank of Thailand (BoT).

Ms Traisuree said the RTP reported on progress made in cooperation with the other agencies in carrying out the task under the policy of Prime Minister Prayut Chan-o-cha to suppress and prevent all forms of scams, including those made by call centre gangs and suppress transaction routes operating from border areas.

The agencies agreed the criminals are using illegal digital asset platforms to make peer-to-peer transactions while doing business and exchanging currencies along the nation’s borders. This channel can be used for money laundering and transferring money earned from illegal activities to foreign countries.

The RTP has been working with the agencies to set guidelines to suppress the illegal digital asset trade along the border and assigned tasks to each agency to combat such illegal activities.

Ms Traisuree said the RTP has created a database of digital asset business operators and currency exchange operators in the border areas. The database has proven useful in expanding the investigation and is accessible by Amlo as it moves to prosecute offenders under the Anti-Corruption Act, she said.

Amlo has checked suspicious transaction routes assigned by the RTP to find related bank accounts and digital assets to suppress or freeze money trails. It is also considering reviewing some laws so they can be more effectively enforced, she said.

Meanwhile, the Revenue Department has been checking tax payments made by business operators to see if they were using illegal digital asset platforms, for which the RTP database has proven useful. The BoT has okayed commercial banks to investigate and monitor any financial transactions to foreign countries originating from areas where illegal transactions are often detected.

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As global economy slows, SEA growth fights on

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In: South-East Asia, Technology

James Villafuerte remembers a few months ago when onions became a luxury in the Philippines. 

Rising inflation, the reopened economy and heavy storms combined to spike in demand and short-circuited supply, sending the price of the pungent vegetable soaring to a 14-year high of $12.8 (700 PHP) per kilogram. 

“[It got] to the extent that flight attendants were caught smuggling onions from other countries to bring into the Philippines because of the high price,” said the regional lead economist at the Asian Development Bank (ADB).

Such anecdotes have become symbols of a global economy wracked with uncertainty, as the continuing war in Ukraine and increasingly urgent climate crisis fuel concerns over inflation and rising living costs. But a new report from ADB released this month and regional analysts are giving reasons for Southeast Asian optimism in the face of wider global challenges such as flagging growth numbers and rising inflation.

Workers push a trolley loaded with imported onions for delivery to stores in the Divisoria district of Manila on 26 January, 2023. Photo: Ted Aljibe/AFP

Released Wednesday, the Asian Development Outlook reported a “marginal” downgrade for Southeast Asia’s growth prospects – from 4.7% to 4.6% for 2023 and from 5.0% to 4.9% in 2024 – reflecting weaker global demand for manufactured exports. The latest edition of ADB’s flagship publication focuses on analyses and insights for individual and regional economies across Asia. 

Despite the foreboding outlook, experts still believe the region’s interconnectivity, resilient internal markets and the return of international travel will bolster Southeast Asia’s economies against the wider global challenges. Villafuerte noted that while growth projections have slowed, they still exceed those in other subregions and the global average. 

James Villafuerte, regional lead economist at the Asian Development Bank. Photo: supplied

“This is a region of 600  plus million people,” said Villafuerte. “Domestic demand remains intact and ‘revenge travel’ has really seen a huge leap in tourism, arrival and tourism related activities.” 

Villafuerte acknowledged that global headwinds from elevated prices had contributed to global inflation. On Tuesday, the Philippines central bank announced that policymakers were prepared to tighten monetary policy in view of continually rising inflation. 

His remarks came shortly after Kristalina Georgieva, managing director of the International Monetary Fund (IMF), the UN’s major financial agency, voiced similar concerns at last week’s G20 summit. The IMF’s own growth downgrades were predicted at 3.4% in 2022 to 2.8% in 2023, before settling at 3% in 2024.

Georgieva cautioned that economic activity is slowing, “especially in the manufacturing sector”, and called for a stronger “global financial safety net” to help support less-developed countries. But for now anyway, she said the broader economic system is withstanding the pressure. 

“The global economy has shown some resilience,” Georgieva stated. “Despite successive shocks in recent years and the rapid rise in interest rates, global growth – although anaemic by historical standards – remains firmly in positive territory, supported by strong labour markets and robust demand for services.” 

A history of interconnected trade 

Indonesia’s President Joko Widodo (centre) and Minister of Trade Zulkifli Hasan (centre left) visit a trade exhibition in Tangerang. Photo: Adek Berry/AFP

While international trade networks remain important, countries are also looking inwards to their own domestic economies. 

According to the ADB report, while global demand for manufactured goods slowed, domestic demand amongst Southeast Asian countries remained intact. Indonesia’s GDP expanded by 5.03% in the first quarter of this year, and economic growth remained steady, despite a slowing in exports. 

Strong national economies can help build on a history of intra-regional connectivity, according to Amanda Murphy, head of commercial banking at HSBC.  

Amanda Murphy, head of commercial banking at HSBC. Photo: supplied

“Southeast Asia has long been a bastion of free trade and sits at the crossroads of two of the world’s largest free trade agreements: the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP),” she told the Globe. 

These agreements, formed in 2018 and 2020 respectively, have strengthened bilateral relations within the Asia Pacific area, creating a network of trade avenues with the advantage of geographical proximity. There are signs this is already paying some dividends.

According to a recent HSBC survey, Murphy explained, over the next two years, Asia-Pacific corporations will place 24.4% of their supply chains in Southeast Asia, up from 21.4% in 2020.

“In particular, RCEP, with its tariff reductions and business-friendly rules of origin, is increasing the appeal of Southeast Asia as a manufacturing base, something more corporates are recognising,” she said.

China 

People look at models of the Intelligent Net-Zero container terminal at the Meijiang Convention and Exhibition Center during the World Economic Forum Annual Meeting of the New Champions in Tianjin. Photo: Wang Zhao/AFP

Within the Asia-Pacific region, Southeast Asian countries are planning their next steps with one eye on Beijing. Concerns over China’s slowing economy have caused ripples throughout international markets. 

“Weaker growth in the People’s Republic of China has actually weakened the demand for manufactured goods in the region,” said Villafuerte. However some Southeast Asian countries are benefiting from a “China+1” strategy, where global manufacturers look to move production out of China to diversify supply chains and mitigate their risk. 

“As businesses seek geographic diversification and adopt the ‘China+1’ strategy, Southeast Asia will continue to gain market share,” said Murphy. “Southeast Asia currently accounts for about 8% of global exports – there is every reason the share can increase.”

China’s exports in June fell to their lowest levels in three years, with a worse-than-expected 12.4% slump from the year before. On the other side of the world, the U.S. also saw a 2.7% export drop at the beginning of the year. 

But for Southeast Asia, as trade between superpowers slows, there may be an opportunity to enter new markets and build new relations. As the U.S. and the E.U. have faded as top destinations for Chinese export markets, the East Asian giant has diverged towards other destinations, including Southeast Asia. Chinese exports to ASEAN – the country’s largest trading partner by region – spiked by 20% in October. 

For ASEAN’s own export markets, building on critical sectors such as garment manufacturing will help strengthen the bloc’s overall economic outlook despite the global slow-down.

“Excepting [Myanmar], governments in the region are strongly committed to growth, which is fundamental. And this is export-led growth which is even better,” said Gregg Huff, professor of economic development and economic history in Southeast Asia at Oxford University. “Productivity increase is what enables real wages to increase. And if these increase it contributes to political stability.”

Domestic markets 

People walk in front of the DBS tower building in Singapore. Photo: Roslan Rahman/AFP

Private consumption was the main driver for economic growth, due to improved labour conditions and income across the region. Some demographics saw an increase in  disposable income, according to Singapore’s DBS Bank. 

But Elizabeth Huijin Pang, a DBS equity research analyst, was quick to stress at a press briefing that some sectors felt the hit of rising inflation and prices more than others. 

“There are still vulnerable groups who have seen the opposite [to our median customers],” she said. “Boomers saw expenses grow faster than income.”

Gig workers were another demographic spotlighted by the bank. DBS data revealed these informal workers to be Singapore’s most financially vulnerable group, with an expense-to-income ratio of 112%, almost double that of a DBS median customer. 

“[Gig workers should not be] lagging behind the rest of the population in terms of their longer-term needs,” said Koh Poh Koon, Singapore’s senior minister of state for manpower,  at a press conference last week. The remarks come shortly after the government’s agreement to accept recommendations from a workgroup for better representation for gig workers’ needs. 

New sectors and opportunities 

People walk past electric tricycles (e-trike) as the local government unit offers free ride in Manila on 6 March, 2023. Photo: Jam Sta Rosa/AFP

As well as focusing on vulnerable communities, shifts into new sectors are also a key part of Southeast Asia’s economic recovery. The region is one of the most vulnerable to climate change, and despite a recent decrease in green investments, a shift towards more sustainable business structures will likely be a key part of the region’s growth in its next economic era.

ADB has recently pledged $1 billion (54.4 billion PHP) towards the implementation of electric buses in Davao City, the Philippines’ largest road-based public transportation project.

“I think transforming our growth model into a more environmentally sensitive and green model of growth is important,” said Villafuerte. “When we analyse actually some of these green industries, we realise they also generate a substantial amount of jobs. … These will again be investment opportunities and also opportunities for employment.”

For Murphy, the rise of the regional digital economy is another key focus area for growth.

“Given that more than 75% of its population is online it’s not surprising that businesses are transforming their business models to cater to changing customer behaviour,” she said. 

The rise of real-time payments and recent initiatives to facilitate cross-border transactions, such as QR code payment agreements between Singapore, Malaysia, Thailand, Indonesia and the Philippines, are helping to boost the region’s economic connectivity. 

“When intra-Southeast Asia real-time payments become a reality, we can expect a jump in the velocity of transactions, whether they are business-to-business or business-to-consumer, which in turn will lead to greater economic activity in the region,” said Murphy. 

Transitioning through growing pains

As global crises continue, it is up to Southeast Asia’s private and public sectors to proactively plan their own paths forward. 

“Three long-term trends that businesses cannot overlook if they want to capture the opportunities in Southeast Asia are what I would call the 3Ts: trade, transition to net zero, and digital transformation,” said Murphy. 

Looking ahead to the future, Southeast Asian nations will have to take a proactive approach to adapt to these growing sectors. Moves are already being made at government level. Both Singapore and the Philippines both recently announced their first sovereign ESG (environmental, social and governance) bond and in April, Singaporean finance minister and Deputy Prime Minister Lawrence Wong revealed the Monetary Authority of Singapore’s finance plan for Net-Zero. 

For Vilafuerte, looking forward involves looking back. Governments and market response to the Philippines’ onion inflation earlier this year was almost immediate and prices and supply regulated. 

“These are temporary shocks and there are natural stabilisers,” he said. “Higher prices and inflation are a sign of a strong recovery. So I think this is just an adjustment period.”

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