Briefing MONTHLY #41 | August 2021
IN THE EXIT ROW
Illustration by Rocco Fazzari.
The evacuation from Kabul has evoked three compelling historic images from the failure of US power in modern Asia, underlying both the immediate tragedy and future uncertainty.
Is this a modern version of the last desperate helicopter flight from the American embassy in Saigon in April 1975 or more like the unnerving slow march of the Khmer Rouge into Phnom Penh? On the other hand, and from a different perspective, should it be more like the US soldiers patrolling the Demilitarised Zone for 68 years after the Korean War?
These are certainly not neat alternatives or exact parallels, especially after the suicide bombing at the airport. But both the US and the Taliban had, and possibly still have, some capacity to choose how much history will rhyme in this latest end to an Asian war.
The exit from Saigon has become the most commonly quoted precedent for the evacuation from Kabul airport. With the airport out of action, more than 7000 people were flown to navy ships in a day, from various parts of the city, in the largest ever helicopter airlift. That is only a bit less than the daily average number flown out of Kabul during the two-week evacuation.
The perceived blow to US global prestige then was similar to the Taliban takeover today, although the US relationship with Vietnam has recovered in ways that could not be imagined at that time - demonstrated by Vice-President Kamala Harris’ visit last week.
And the North Vietnamese army was a battle-hardened conventional military force fighting a decades-long war for independence with the support of the alternate superpower in the Soviet Union, which makes the victory by the rudimentary Taliban forces more remarkable.
So, the Australian National University’s William Maley says the better parallel is the way the xenophobic and paranoid Khmer Rouge gained control of Cambodia the same month, with a plan to send the country back to Year Zero. “We should be thinking of the Taliban as much more of a Khmer Rouge sort of force than any kind of regular military and that’s very alarming because it opens the prospect that once foreign diplomats and journalists have exited the scene we may witness mass atrocities,” he says in this ABC interview.
Some critics of the Biden Administration’s swift and unilateral exit have argued that the US should be applying the lessons from the 1953 Korean War armistice (a.k.a. a draw), where it has left troops in South Korea to maintain an uneasy peace. They suggest that perhaps 3000 soldiers at a US base with major air support could have facilitated some form of compromise in Afghanistan.
Former deputy US defence secretary Paul Wolfowitz, who oversaw the 2001 US Afghan intervention, argues that this sort of continued deployment would be a “a price worth paying to keep that important piece of real estate out of the hands of our declared enemies.” He argues in this ABC interview that the need for more patience is demonstrated by how “South Korea was able to evolve in such a dramatic way both economically and in many ways politically and democratically that it would have been impossible to predict in the early 1950s”.
But the Lowy Institute’s Rodger Shanahan, who served with the Australian Defence Force in Afghanistan, says this sort of argument about a Korean armistice parallel is “too strange to even critique”.
The latest Afghan war has taken 20 years, which is a bit longer than the Indochina wars, while the Korean War lasted only three years. How might history rhyme?
Fifteen years after the Korean War, South Korea’s US-supported military dictator Park Chung-hee established the steel company Posco which went on to become Australia’s biggest resources customer and help underpin the modern Korean democratic economy.
Fifteen years after the Khmer Rouge takeover, Australia helped oversee an acclaimed peace process and free election. But the country has gone backwards in democratic terms since then under China-aligned Prime Minister Hun Sen, who joined the Khmer Rouge in 1970.
- For an insight into how the Taliban Mark II might try to run Afghanistan, this piece from The Conversation traces the movement’s Deobandi Islam ideological origins all the way back to colonial India.
Little more than three years after being tossed out of power for the first time in six decades, the United Malays National Organisation (UMNO) has its hands back on the Malaysian government.
But new Prime Minister Ismail Sabri Yaakob chose a cabinet of 31 ministers which notably excludes key figures from his UMNO party who have been accused or found guilty of corruption.
That was little surprise after former Prime Minister Muhyiddin Yassin had reluctantly offered the support of his Bersatu Party of ex-UMNO members to Sabri’s rise on the basis that parliament members facing corruption charges would not get ministries.
Muhyiddin was forced to quit when UMNO withdrew support for his government and the country’s King opted against a new election due to the rising COVID infections in Malaysia. UMNO and Bersatu each have ten ministers in the government but will struggle to run a coherent government given that they will are likely to be facing off in a battle for the country’s Malay voters when the pandemic has receded.
Longstanding Malaysian government insider and outsider Anwar Ibrahim, 76, was once again the key loser in this latest reshuffle with his Coalition of Hope remaining in opposition after a brief taste of power at the 2018 election.
- Straits Times Malaysia correspondent Shannon Teoh argues in this piece that Anwar may still be a winner at the next election because of the voters disenchantment with how Bersatu and UMNO have handled the pandemic.
- But James Chin argues in the South China Morning Post that the opposition parties need to dump Anwar to win the election.
COVID’S POVERTY TRAP
The number of people living in extreme poverty across developing Asia rose by as much 80 million at the end of last year due to COVID-19, according to new research by the Asian Development Bank.
It says that the pandemic has set back the long-term trend of the past three decades which has seen the Asian share of the world’s extreme poverty fall from 79 per cent, or 1.5 billion people, to 29 per cent, or 200 million people. (Extreme poverty is defined as living on US$1.90 a day).
It suggests Asia has an even bigger task meeting the 2030 Sustainable Development Goals given that many economies were trailing key targets even before the pandemic.
Noting that China has played the key role in the regional poverty reduction of the past three decades to now having only one per cent of its population in extreme poverty, the report notes that ten other countries still have more than 10 per cent of their people at that level.
“In the long run, disruptions caused by the pandemic are likely to have considerable adverse effects on human capital and productivity. Our region needs a people-centered development approach to recovery that ensures nobody is left behind,” ADB president Masatsugu Asakawa says.
- The pandemic has done what street protests may not – undermined public confidence in the Thai government. Craig Keating examines whether the military-dominated government is losing its grip on power in the latest addition to the Asia Society Policy Institute’s Southeast Asia and COVID-19 Project.
PASSAGE TO INDIA
Tony Abbott with High Commissioner Barry O’Farrell and Commerce Minister Piyush Goyal
Former prime minister Tony Abbott has declared he wants to devote much of his future public life to building stronger bilateral ties with India after being appointed the Morrison government’s Indian trade envoy.
Abbott told the Australia India Business Council’s annual address that he saw himself playing the sort of role former prime ministers Bob Hawke and Paul Keating had played in building the economic relationship with China.
“I want to devote a very substantial part of my post-parliamentary life to building the partnership between Australia and India,” he said, “I have always thought that there was much more natural synergy between Australia and India than between Australia and China, and I hope that all of us can focus at least as much in the future on the partnership with India as on the focus we have had, perhaps over focus, on the partnership with China.”
During a visit to India as prime minister in 2014, Abbott revealed how he had developed a fascination with the country when he spent three months backpacking there in 1981.
Later that year, after talks with newly elected Prime Minister Narendra Modi in Australia, he touted the idea that the two countries could reach a trade agreement in a year.
Seven years on, after his visit to India as special trade envoy in early August, he has now set some similarly ambitious targets.
He says India and Australia should be hoping for an “early harvest agreement” by the end of this year covering the 100 items which represent about 98 per cent of two-way trade which will set a pathway to zero tariffs on all those items.
“The time is ripe for this to happen in a way it has never been before,” he said of a comprehensive bilateral trade deal.
Trade minister Dan Tehan and his Indian counterpart Piyush Goyal met by video conference on August 27 and agreed to an early harvest announcement by December, but did not specifically mention the ambitions listed by Abbott.
- Debating India: see DIPLOMATICALLY SPEAKING below.
CHINA: STATE OF PLAY
Australia’s Beijing ambassador Graham Fletcher has warned that while China will become the world’s largest economy there is “less certainty” that it will ever become the leading economy because that is more about software than hardware.
However, he told an Australian Institute for International Affairs webinar that he was confident the Chinese could manage the country’s debt burden because they were “slowly and surely dealing with it”.
And in an interesting insight into official thinking about China, he said: “Central bankers in Australia and elsewhere are not worried about a financial crisis here.”
But he warned of the potential for more disruption in the bilateral relationship saying: “It’s going to be an extended period until we can get back to where we want to be.”
Meanwhile in a discussion about the ten years since he first called for an acceptance of China’s rising power, the Australian National University’s Hugh White said too much attention was being paid to President Xi Jinping’s role.
He told the Australia-China Relations Institute webinar that Xi didn’t make much difference to the problems Australia faced adjusting to China’s rise and uncertainty about the US response.
He said any modern enduring Chinese leader “would have to transform China’s stature” and so blaming the current problems on Xi was misunderstanding the extent of the challenge for Australia.
No one in the current federal government or opposition was showing they had the imagination to think differently about the “greatest challenge we have faced since British settlement.”
These views followed a double-edged speech by Foreign Minister Marise Payne to the Australia China Business Council, which claimed ongoing cooperation with China but emphasised how China’s 14 grievances represented a roadblock to improved relations.
“We cooperate on a range of challenges from countering drug trafficking and human trafficking, to dialogues on everything from health to development assistance. Close collaboration and cooperation with Chinese authorities was critical for the assisted departure of Australians from Wuhan early last year,” Payne said.
But she then argued: “We’ve been advised by China that they will only engage in high-level dialogue if we meet certain conditions. Australia places no conditions on dialogue. We can’t meet the conditions such as the now well-known list of 14 grievances raised in the media last year.”
- See China trade in DEALS AND DOLLARS below
South Korea is set to become the latest Asian country to bolster its relationship Australia with plans for the declaration of a comprehensive strategic partnership later this year to mark the 60th anniversary of diplomatic relations.
Ambassador Kang Jeong-sik said the elevated partnership would underline that the relationship was “vibrant and as good as ever” in an interview with The Australian Financial Review.
He said: “There is an opinion in some quarters that Korea is too much focused on north-east Asia and Australia is focused too much on the Pacific, but now that is changing with more active interactions at high level. We are very satisfied with what is going on.”
Korea is Australia’s fourth biggest trading partner and Australia is the only country apart from the US with which it has regular 2+2 meetings of foreign and defence ministers.
PHILIPPINES NEXT IN LINE
Australia and the Philippines have agreed to work towards upgrading their existing comprehensive partnership to a comprehensive strategic partnership.
The fifth joint meeting of foreign and trade ministers on August 23 agreed to “the advancement of the Comprehensive Partnership and agreed to work towards the elevation of bilateral relations to a Strategic Partnership in the near future, as articulated in the Plan of Action to be reflective of the mature and wide-ranging cooperation between the Philippines and Australia.”
The formal relationship with the Philippines has lagged Australia’s connections with the other large Southeast Asian countries and there is still not bilateral trade agreement, even though the Philippines is the largest source of migrants to Australia from that region.
Australia’s new agriculture visa for farm workers from Southeast Asia has been widened to take in more countries and provide a pathway for the workers to become permanent Australian residents.
The visa was demanded by the National Party in June, during negotiations over the United Kingdom free trade agreement when agriculture minister David Littleproud used Prime Minister Scott Morrison’s “Pacific family” language to describe the prospective workers from Southeast Asia as Australia’s “ASEAN family.”
But the visa will now cover workers from the UK and other unnamed countries and has been significantly broadened beyond the horticulture industry to fisheries and forestry. It has been fast-tracked to begin by the end of September.
The Department of Foreign Affairs and Trade has been given responsibility for rolling it out, apparently in response to earlier concerns that the visa would lower labour standards and undermine existing Pacific worker programs, which are a key part of the Pacific Step-up.
But Development Policy Center director Stephen Howes says it still poses a risk to worker programs at the heart of the Pacific Step-up unless it is labour market tested to ensure no Pacific workers are available for the jobs and Pacific workers are also now given a pathway to permanent residency.
STUDENTS ON HOLD
The Morrison government has rejected demands from universities for more assistance to offset the decline in international student enrolments.
Education minister Alan Tudge says universities actually suffered more last year from a downturn in their investments than from reduced student flows, and that for the most part, they were still in a good financial position.
He told an education conference that when borders reopen, he is confident “students will return in significant numbers”.
International education was once Australia’s fourth-largest export industry, but revenue is down 26 per cent on the record high of A$37.7 billion that it yielded in 2019, and it is expected to trend lower.
Educating international students has also been a key strategy for improving Australia’s regional outreach since the 1950s, when the Colombo Plan was introduced to foster intergovernmental cooperation in Asia and the Pacific, with graduates going on to become government and business leaders in their home countries.
While many international students are now studying remotely, a survey released in August suggested they are not content with this as a long-term option.
But pilot projects in New South Wales and South Australia to bring students back onshore have been put on hold due to the latest lockdowns.
DEALS AND DOLLARS
ASEAN MOOD SHIFT
Australian business activity in Southeast Asia is hitting a pandemic-related slowdown just as the Morrison government is trying to step up economic engagement as part of its China-hedging strategy.
A new survey of companies in the region found that 52 per cent had suffered revenue losses, including 20 per cent which had lost more than 40 per cent of their revenue. On the other hand, 27 per cent reported revenue growth. Businesses operating in Indonesia, Thailand and Cambodia experienced the largest downturns, while those in Laos, Vietnam and the Philippines reported the biggest rises.
This has resulted in a contraction in plans for new country expansion in the more integrated regional economy, with survey respondents planning an expansion in an average of 1.15 new markets compared with an average of 1.36 in the 2020 survey by AustCham ASEAN.
The group’s president Chau Ta says: “While COVID-19 helps explain the marked deterioration in business sentiment and activity captured by this year’s survey, it does not explain the full story. This downward trend can be seen across a range of indicators in last year’s survey, taken prior to the arrival of the COVID-19 pandemic in the ASEAN region.”
The federal government has initiatives under way to increase engagement with the region’s largest economy in Indonesia and fastest growing in Vietnam. This comes on top of the largest annual increase in aid spending to the region last year since the Aceh tsunami in 2004.
These initiatives are still well aligned with the continuing positive views in the business community about the opportunities in regional economic integration with a record 48 per cent of businesses saying they understand the integration process and 46 per cent saying it is the key to improved business conditions.
But a new question in the survey has revealed less confident views about the rising tension with China and potential benefits for Southeast Asia due to investment relocation. While 18 per cent of businesses expected a positive future impact, 26 per cent expected a negative impact.
A $23 BILLION QUESTION
Australia’s success in diversifying export markets in response to China’s economic coercion has been questioned in a new study which warns against overconfidence by governments and businesses.
It says it is too early to be definitive about the impact of China’s trade sanctions because the eight targeted commodities face different circumstances in the new markets they are trying to enter and different treatment by China. But exports valued at $23 billion are at risk.
“The greater the depth and breadth of China’s targeting, the greater the urgency for Australia’s trade to become more diversified. For many Australian exporters, this will require trading off higher returns on offer from China for a broader, more resilient export portfolio,” the Institute for International Trade study by three former Department of Foreign Affairs and Trade economists says.
They suggest that the much-celebrated diversification so far may be overstated because it has happened at the expense of lower prices in other markets which may not increase and may not fully account for the losses in China.
And they warn that the impact of Chinese coercive sanctions on Australia’s exports of education and tourism are still unclear because of the way the COVID-19 pandemic has obscured the outlook.
They say that, generally speaking, Australia can expect to sell its commodities to other countries if China reduces demand.
“The problem is with specific agricultural products that often earned a substantial risk-related price premium (in China), that were over-exposed to the vagaries of a single market and where producers did not manage risk as effectively as commodity producers like grain growers,” the report says.
MYANMAR MINING EXIT
Australian mining company Myanmar Metals has sold its historic gold mine in the north of the country to local companies in one of the first such Australian disinvestments since the February coup.
It sold its 51 per cent stake in the Bawdwin project to one of its two local joint venture partners, Win Myint Mo Industries, for $US30 million.
The company had been suspended from trading since the coup and had faced a possible takeover offer from a Chinese gold mining company taking advantage of the turmoil in Myanmar.
The Bawdwin mine, in the Shan state, has a history extending back to British colonial times and was once run by Herbert Hoover, who went on to become the US president in 1929.
BANKING ON FIJI
ANZ Bank has joined the federal government’s Pacific Step-up with a deal to fund Fiji airport infrastructure backed by the Australian Infrastructure Financing Facility for the Pacific (AIFFP).
Coming as the government is considering backing a much bigger Telstra investment in mobile phone company Digicel Pacific, the Fiji deal also possibly marks a turnaround from the sell-off of banking businesses in the Pacific by both ANZ and Westpac in recent years.
The AIFFP is providing a $68 million package to build airport infrastructure in Suva and other parts of the country while the ANZ is providing an additional local currency loan guaranteed by the AIFFP, in the first such guarantee for a local currency loan.
ANZ chief executive officer Shayne Elliott said: “Investing in infrastructure that puts Fiji in a position to quickly scale up capacity once international travel resumes is critical to driving future growth. The partnership with AIFFP draws on ANZ’s global banking expertise and local industry insights to support the rebuild of Fiji’s economy.”
The ANZ sold its retail banking business in Papua New Guinea to Kina Bank in 2018. Westpac sold its Cook Islands, Samoa and Tonga businesses to the Bank of the South Pacific in 2015 and is still trying to complete the sale of is Fiji and PNG banks to Kina Bank.
AIFFP was set up with $2 billion in loan and grant funding in 2019 and the airport deal is the largest share of $100 million in financing so far.
Australia’s sovereign wealth fund has joined the downturn in national sentiment towards China, revealing that it has cut back its investments there in the past year.
Future Fund chairman and former treasurer Peter Costello told a media briefing on its latest annual results that the fund needed to be careful with its almost $200 billion in funds due to the “difficulty in the relationship”.
“China is a big part of the emerging world and ordinarily we would be taking a big position in relation to that. We have just thought that given difficulty in the situation, we have to be careful with sovereign money. So, we have not grown our position in China in a way that we probably would have,” he told a media briefing.
The Fund’s most recent list of top equity holdings listed the Chinese technology companies Tencent and Alibaba as its sixth and seventh, after Microsoft but before Alphabet, Intel, and Facebook. It also held shares in China Construction Bank, Yum China Holdings and Ping An Insurance.
BABY BUST AT A2 MILK
Specialist dairy company A2 Milk is the latest one-time beneficiary of the China boom to review its strategy as it struggles with both changing demography and trade routes in China.
The company revealed a 79 per cent net profit fall and 30 per cent revenue fall, citing falling demand in the Chinese infant formula market and disruption to its cross-border trade.
Chief executive David Bortolussi said that China’s efforts to increase its birth rate would take years to have an impact and there had also been a shorter term downturn in the birthrate due to women delaying pregnancy due to COVID-19.
The company had been a beneficiary of the informal daigou trade of Australian products into China but that has been disrupted by travel restrictions and increased Chinese regulation.
He said that while the company was looking at expanding into the US, South Korea and Southeast Asia, that would take time and not fully replicate the opportunity that was still to be found in China.
“The answer to almost every question about China is India. Although currently not as rich as China … India is perfectly placed to substitute for China in global supply chains … India has revived the Quadrilateral Security Dialogue, and the first in-person Quad summit is expected before the end of the year. Under Modi, India has invited Australia to join the annual Malabar naval exercises that will soon involve India, the US, Japan, Australia and also the UK … It will be an impressive show of strength, demonstrating the democracies’ commitment to a free and open Indo-Pacific … If Australian business and officialdom were to make the same effort with India that they’ve long made with China, there’s potential for a ‘family’ relationship with India that was never likely with China.”
- Former prime minister Tony Abbott in The Australian (10/8/21)
“No, (Abbott’s comment) is just wrong. We all agree our relationship with India has been underdone over the years … India has got a very deep longstanding protectionist political culture. They weren’t even prepared to sign up to RCEP … You have got to be realistic about what you can achieve in terms of trade. They are different countries, different economies. We should be aiming to have much stronger deeper relations with India … Every prime minister should and will do that. But the idea that can sort of delete China and insert India is just nonsense.”
- Former prime minister Malcolm Turnbull at a La Trobe University webinar (10/8/21)
“We have got to be deeply realistic about one thing (about the Quad). Is it the assumption of future Australian governments, like Tony Abbott’s view in today’s press, that the Indian navy is going to go steaming into the South China Sea to defend Uncle Sam’s interest if the balloon goes up over Taiwan? I think not … We need to ask some very hard military questions about the core strategic utility of this (the Quad) for the longer term … We need to go into this with wide eyes open, not the blithering idiot remarks we’ve seen from Abbott in today’s newspapers.”
- Former prime minister Kevin Rudd also at La Trobe University
“The one thing we should not be doing is saying to India, this is to line you up to be the next member of ANZUS to take on China. I agree with what Kevin said, that equally just plays into the paranoia of China … We have to just move gently, avoid extravagant language (with India) … Frankly, extravagant claims of the type we were talking about a moment ago are not helpful.”
- Malcolm Turnbull again
“India is the world’s emerging democratic superpower and my god don’t we need another democratic superpower in the world right now. Isn’t it so important that a country like Australia do everything it can to ensure India does take its rightful place up there at the head of the world’s great democracies.”
- Tony Abbott, Australia India Address (17/8/2021)
The Asian region collected its largest medal haul at this year’s Tokyo Olympics in a marathon which began when two athletes (from India and Iran) competed in the 1900 Paris Games and which stepped up when Tokyo first hosted the event in 1964. But while 66 per cent of the world’s population resides in Asia, the region has only provided about 13 per cent of cumulative participants and collected about 10 per cent of medals. The next big step-up is looming for the 2036 Games which Indonesia is attempting to host in association with other Southeast Asian countries.
- This Heinrich Boll Stiftung Institute interactive looks at the region’s comparative performance.
- This Nikkei Asia piece questions whether geopolitics and inadequate investment will hold back new Olympic achievement records for the region.
- Meanwhile this New York Times piece tackles an old question about India: “Why is the country so bad at the Olympics? And does it even matter?”
ON THE HORIZON
JAPAN’S DUAL ELECTIONS
Japan is facing two elections in two months and the first one seems likely to matter most.
The ruling Liberal Democratic Party will hold a leadership ballot on September 29 just a year after Prime Minister Yoshihide Suga took over the top job from Shinzo Abe, who had been in power for eight years.
A sharp downturn in public support for the LDP government mainly due to its lacklustre management of the pandemic means Suga’s colleagues will likely be looking for a fresh face to lead them to an election which is due around October 21.
Previously Suga had been planning to use the warm feeling left by the Tokyo Olympic Games to go to a swift election in September and then face the mandatory party vote as a prime minister with a new mandate from the voters.
But that strategy has come apart with the LDP performing poorly in several by-elections or city elections in the past few months as its support has fallen towards 30 per cent.
After being anointed by faction chiefs last year as the next prime minister based on his close relationship with Abe, Suga now faces a diverse group of potential rivals raising the prospect that Japan will return to a revolving door prime ministership.
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