In recent years, Southeast Asia has been attracting a lot of attention. At a special summit meeting of the Association of Southeast Asian Nations (ASEAN) in November 2021, Chinese President Xi Jinping declared a "comprehensive strategic partnership" with ASEAN countries. The Group of Seven (G7) foreign ministers' meeting in December of the same year invited their ASEAN counterparts to take part. Moreover, the U.S. administration announced its Indo-Pacific strategy in February 2022, which included the strengthening of the partnership with ASEAN along with its allies such as Japan and Australia.
What is the reason for this emphasis? Because Southeast Asia is located in the middle of the Indo-Pacific region, and ASEAN, as an organization of 10 Southeast Asian countries for regional cooperation, is playing a pivotal role in international arrangements such as the East Asia Summit, the ASEAN Regional Forum, as well as the Regional Comprehensive Economic Partnership (RCEP) agreement. The geopolitical importance of Southeast Asia will remain the same. ASEAN, however, is adrift due to a number of reasons.
One of them is the difference in the geopolitical positions of its member countries. This manifests clearly if you look at the territorial dispute in the South China Sea. Beijing is trying to make the South China Sea "China's Lake." On the other hand, Japan, the United States, Australia, and India are cooperating to protect the "free and open Indo-Pacific." For ASEAN, however, the only position that can be taken on this issue is one of ambiguity. There are countries that have territorial disputes with China in the South China Sea, namely Vietnam, the Philippines, Malaysia, and Brunei, while Indonesia is having a dispute over the exclusive economic zone there. And there are those without territorial disputes such as Laos, Cambodia, Thailand, Myanmar, and Singapore. Countries like Cambodia and Laos are not willing to offend China by joining Vietnam, the Philippines, and other regional players to take a firmer position on the South China Sea issue.
Another reason is their political and economic differences. In the past 20 years, the economies of the ASEAN countries expanded substantially. Let's look at the growth of real domestic income per capita in each currency from 2000 to 2019. In Myanmar, the figure grew 4.3 times while Vietnam did 2.8 times, Indonesia and the Philippines 2.1 times, and Thailand and Malaysia 1.8 to 1.9 times. This is the reason why the ASEAN countries became politically stable, and at the same time, the growth created a "revolution of expectations" that their incomes will continue to grow. When these expectations are not met, political instability may ensue. In this sense, economic growth is now the main challenge of governance; the governments are bent on avoiding anything that will negatively affect economic growth as much as possible.
In the meantime, the international economic environment has changed dramatically over the past 20 years. In Indonesia, Thailand, and the Philippines, exports to Japan accounted for 15-23% of total exports, while exports to the U.S. made up 14-30% and China just 2-5% in 2000. But in 2019, China was one of the top three export destinations for all of Southeast Asian countries. In Indonesia, Thailand, the Philippines, and Vietnam, exports to China were 12-17% of the total, while exports to Japan were just 8-15% and the U.S. received 10-22%. Investment from China is also increasing.
As trade expands and investment increases, more people visit each other between Southeast Asia and China, forming networks of ASEAN elites and executives from Chinese companies and banks over infrastructure projects such as the construction of high-speed railways and power stations. As a result, by the end of 2018, the ratio of debt to GDP in Cambodia and Laos already increased to 200-300%, around 40-50% in Vietnam and Myanmar, and 15-30% in Malaysia and Indonesia. Only Thailand and the Philippines were below 5%. In the past three-plus years, their debt to China must have increased substantially.
The observations above are a clear indication of the growing differences in the positions of the ASEAN countries with regard to their policies toward China. As a result, each member country has come to employ its own approach in responding to the situation, rather than as a group. In other words, geopolitically, they are trying to avoid being in the crossfire of conflicts as much as possible, while taking whatever they can get economically.
So how should Japan play the game in this region? Intensifying cooperation with individual countries is the answer, and I would like to make three points here.
The first one is about the South China Sea issue. Countries that are in dispute with China over territorial rights and exclusive economic zones -- the Philippines, Vietnam, Malaysia, and Indonesia, among others -- are opposed to China's unilateral actions. These countries welcome the U.S. and its allies getting involved in peace and security, freedom of navigation, and territorial issues in the South China Sea. However, they do not want to choose between the U.S. and China. We must understand this in supporting and cooperating with these countries by providing defense equipment and other means to improve their capabilities.
The second point is economic cooperation. Without this, there can be no engagement with the ASEAN countries. In this region, China has used the umbrella of the "One Belt, One Road" initiative in offering huge funds for infrastructure development. As a result, the debt to China may become a political issue in Cambodia, Laos, Myanmar, and other countries. In addition, the global economic tide is also turning. The U.S. Federal Reserve Board has announced it will end quantitative easing and resume raising interest rates. This policy will have a major impact on developing countries. Corporate and government debts are ballooning in ASEAN countries. When interest rates rise on the dollar market, money flows back to the U.S. and the exchange rate falls against ASEAN national currencies. When this happens, import prices rise and inflationary pressures intensify, and the monetary authorities have no choice but to raise interest rates. As a result, the economy decelerates, employment and incomes stagnate, companies fail, and some countries may end up in a debt crisis. We need to prepare to extend support in such a situation.
Third is political change. Thailand deserves attention here. Thai politics has been in flux for the past 20 years. Democracy with the king as head of state, based on a coalition of the military, royal family, and conglomerates, has stalled. They face "ancient regime" criticisms from the younger generation. When and how will the political transition take place? We do not know. But the time has come for a generational shift in the elite. What will happen to Thailand will substantially affect the politics of mainland Southeast Asia.
(By Takashi Shiraishi, Chancellor, Prefectural University of Kumamoto)