The new "cold war" between the United States and China is intensifying. Their confrontation covers wide areas including trade, science and technology regulation, infrastructure development, national security and the fifth generation (5G) communications standard. What are the regional and global implications of these conflicts? Here are my thoughts on their impact on Southeast Asia.
Let's examine the effects of the trade war. Firstly, the world and Chinese economies are slowing down. According to recent announcements from the Chinese government, the growth rate of China's industrial production has reached lows last seen right after the Lehman shock. Similarly, growth of retail sales and investment has also contracted. Global trade has gone down, but its impact on countries varies. Singapore, whose total trade is twice its gross domestic product (GDP), has seen a major decline in its economic expansion. In contrast, countries such as the Philippines and Indonesia, where trade volume makes up some 50% and 30% of GDP, respectively, are experiencing growth rates of more than 5%.
As countries in the region are generally worried about the slowdown of their economies, they have set their eyes on the reorganization of supply chains and started taking measures to attract Japanese, American, Taiwanese and other firms with production bases in China. Nonetheless, the approach has varied across the region. Vietnam has been successful in getting Chinese corporations to relocate their production lines. In the Philippines, an industrial policy group has been formed under the economic policy team to formulate policies in response to ongoing regional changes in the supply chains of automotive, electronics and electric industries. Indonesia, on the other hand, has not made advances in this regard as the current administration begins its second term in October following presidential and parliamentary elections in April this year.
Countries in Southeast Asia and other parts of the world have become more vocal in demanding the renegotiation of major infrastructure projects China promoted under the Belt and Road Initiative (BRI) ever since U.S. Vice President Mike Pence called out the country for its "debt-trap diplomacy" in October last year. Malaysia has renegotiated some of the big BRI projects since the establishment of the Mahathir administration last year. The construction budget for the East Coast Rail Link project, for instance, has been cut by a third, and the share of contracts allocated to Malaysian companies have been raised from 30% to 40%.
In Myanmar, total investment in the Kyaukpyu port project has been reduced from $7 billion to $1 billion, along with an increase in Myanmar's stake from 15% to 30%. This project has a major strategic significance for China as it involves the construction of a corridor from Kunming, in Yunnan province of southern China, to the Indian Ocean. But China had no choice but to back down in the face of rising "debt trap" criticism.
At the beginning of this year, Beijing took up Singapore's request and held the first International Dispute Resolution Conference, during which a framework for dispute resolution was reached among China, Singapore and countries hosting BRI projects, although its effectiveness remain to be seen.
Southeast Asian countries, especially those facing territorial disputes with China over the South China Sea, have welcomed security involvement by the U.S. and its allies. In response, Beijing has put the territorial issues on the back burner, on one hand, agreeing to accelerate joint development of marine resources with Manila, and on the other hand, dispatching survey vessels to disrupt off-shore resource development projects between Hanoi and foreign companies. In short, China is driving a wedge between the Philippines and Vietnam in order to establish its effective control over the South China Sea. Unlike China's earlier attempts at constructing man-made islands over the area, this approach makes U.S. intervention harder.
Moreover, Southeast Asian countries are adopting different responses to China's efforts to introduce its 5G communications technology. Manila has decided to introduce telecommunication equipment developed by China's Huawei Technologies Co. The company is also collaborating with Thailand's leading telecom carrier to run 5G test beds in the Eastern Economic Corridor area. In contrast, Vietnam has decided to exclude Huawei from its domestic market, while the Malaysian military is conducting a risk analysis after a government adviser called the exponential development of the Chinese 5G technology a "threat."
As shown above, Southeast Asian countries have responded quite differently to the intensifying tension between Washington and Beijing. The Association of Southeast Asian Nations (ASEAN) has been adrift since the mid-2010s, but the current situation leaves one no choice but to say that it is difficult to expect ASEAN to play a central role for regional cooperation in Asia for the time being. Yet, Southeast Asian nations are either small- or middle-sized nations that have to seek out avenues for leverage to protect their respective national interests. Even though everyone knows that Japan is not an economic superpower, there are still high expectations of Japan; they want Tokyo to provide support through its investment, infrastructure building, human resource development, science and technology, and maritime security programs.
Since the East Asian economic crisis of the 1990s, Southeast Asian countries have maintained their political stability by growing their economies and raising the living standards of their people. This steady economic growth of 20 years has created an expectation for people's lives to continue improving. A failure to meet such expectations would have destabilizing effects on politics. This means that a global economic downturn could directly induce political instability.
If the U.S.-China confrontation deteriorates into a competition for currency devaluation, the macroeconomic conditions of the world would further destabilize. Debts, including dollar-denominated borrowing, have been rising in Southeast Asian countries, as is the case in other parts of the world, due to the quantitative easing policies introduced by Japan, Europe and the United States following the 2008 global financial crisis. Countries such as Indonesia that have prioritized infrastructure projects on their national agenda have not only sought projects financed by China, but they also have a number of other projects lacking strong economic foundations. It is possible for a crisis to emerge if some kind of shock occurs. It is time for us to think about a contingency plan. And in this respect as well, Japan is expected to play a role.
(By Takashi Shiraishi, Chancellor, Prefectural University of Kumamoto)