Briefing MONTHLY #43 | October 2021
Quad plus | After the shutdown | Asia’s new poor | Asia Briefing LIVE special edition
Animation by Rocco Fazzari.
Is it an exclusive club, Brussels without the buildings, or a just neighbourhood chat group that’s open to anybody?
The Asia Briefing LIVE panel on the Quadrilateral Security Dialogue revealed that the region’s newest piece of diplomatic architecture was perhaps, appropriately, more like a submarine: the real action is happening below the surface.
While US Charge d’Affaires Mike Goldman described the diverse backgrounds of the group’s four members as a strength, the discussions provided an insight into how the diversity works.
Membership: Japan’s ambassador Shingo Yamagami declared the Quad was a “concept open to everybody” and was looking for cooperation with Southeast Asian and European countries. This appeared to be a slightly different tone to foreign minister Marise Payne in India recently where she said it was not necessary to “grow what is currently a very strong and productive group of four”.
Democracy: The group is often seen as a gathering of four of the world’s largest or oldest democracies, but this membership quality seems to be more flexible as it eyes new members, of some sort. After touting Vietnam as a likely close cooperation partner, Yamagami said: “Democracy is important, but at the same time, when it comes to the rule of law, it’s not only limited to democracies. That is my understanding.” And Goldman endorsed this saying the Quad looked forward to building a rules-based order with Vietnam.
Head office: Goldman and Department of Prime Minister and Cabinet deputy secretary Caroline Miller talked down the idea that the Quad would develop a European Union-style bureaucracy which would raise the spectre that it was an institution which could overshadow existing architecture of secretariats such as the Association of Southeast Asian Nations (ASEAN) or Asia Pacific Economic Cooperation group (APEC). “Where we could use a bit more institutional support is with the working groups. This would be very much more technical driven than policy driven,” Goldman said. But Miller sketched out a more substantial network of working groups drawing on whole of government resources and run by “very senior people” who would ensure that initiatives were aligned between the Quad and other parts of the regional architecture.
Submarines: Asked how the Quad might work with the AUKUS partnership, India’s High Commissioner Manpreet Vohra said they were “completely separate processes” for “completely separate purposes” continuing India’s low key public approach to the submarine deal. But Yamagami said they are “not mutually exclusive … they are all going to help each other … there are complimentary initiatives”. Goldman said: “we see it very much complementary to the Quad … not as something that’s in competition with it”.
As fate would have it, the panel was book-ended by an audience poll which showed virtually no support for AUKUS as a diplomatic priority and British Prime Minister Boris Johnston in London disparaging such sceptics of the submarine partnership as a “raucous caucus”.
But more tellingly for the panel, the poll found just as much support for broad bilateral engagement (23 per cent) as the Quad (25 per cent) and much more support for trade deals (40 per cent) as a diplomatic priority.
That, as Goldman had already neatly put it, seemed to underline that “we need to work with others, multilaterally, bilaterally, in many lateral forums, regional forums, et cetera.”
- See: Summit season in ON THE HORIZON
Asia Briefing LIVE Keynote Address by Singapore Foreign Minister Vivian Balakrishan.
SINGAPORE IN THE MIDDLE
Singapore foreign minister Vivian Balakrishnan has sought to emphasise Southeast Asia’s role in bridging US-China tensions by highlighting how it had become China’s largest trading partner last year.
At a time when the Association of Southeast Asian Nations (ASEAN) group is split over Myanmar and potentially overshadowed by the rising Quad group, Balakrishnan argued that Southeast Asia still expected to be “engaged on its own merits” rather than through the lens of US-China tension.
Delivering the keynote speech at Asia Briefing LIVE, he pointed out the US has more invested in the ASEAN area than the rest of Asia combined and ASEAN was a bigger trading partner for Australia than either the US or Japan.
“Southeast Asia, which has been at the cross-roads of civilisations and trade routes for many centuries, is where the action will be for at least the next couple of decades,” he said.
Balakrishnan said that while tensions between the US and China had escalated, he did not think the two countries’ leaders were aiming for conflict, but they would need space and time to work through their issues.
He said China was expecting to be treated like an equal after a century of humiliation and the US should not expect China to become like it. “This is a period of adjustment, recalibration and rebalancing, which the two superpowers will have to come to terms with but the rest of us too,” he said.
Balakrishnan appeared to deliberately highlight Singapore’s more centrist position in the tension between the US and China compared with Australia in the way he characterised Australia’s AUKUS submarine partnership.
He said: “If you look at AUKUS, what it really shows is that Australia has decided to tack far more closely to its historical staunch ally – the United States … Australia has done its own calculations and decided it needs to tack far more closely with America at a strategic level.”
He said Singapore had no “undue anxieties about this” because it had good relations with the US, United Kingdom and Australia. And he repeated the Singapore position that it hoped AUKUS will contribute constructively to the peace and stability of our region and the world, and that it will complement the existing regional architecture.
But Balakrishnan then went on to emphasise that unlike Japan and Australia, Singapore was not a formal ally of the US and instead was in a “unique category” of being a major security cooperation partner.
COVID RECOVERY: NEW POVERTY RISK
Asia Briefing LIVE The Global Economy panel.
The gradual headline economic recovery from COVID-19 is disguising a more worrying rise in poverty in parts of the region which would be difficult to turnaround, according to Asian Development Bank vice-president Bruce Gosper.
He said that from a broader perspective “the big story that we've seen in the last couple of decades about this region its growth, its potential, the middle-class, the emerging demand for food and energy, for skills, for leisure opportunities, those sorts of things. That's still all there.”
But Gosper, a former Austrade chief executive and Australian ambassador to Singapore, told the economy session “if you look across the region, there's relatively good news, but some bad news and some worst news – I'd put it that way.” He said there was a new poor emerging mostly in urban areas amongst migrant workers, the young, the very elderly and particularly women suffering violence and discrimination.
“These workers, two-thirds of all workers, they have very few social protections … Being able to help quite stressed, small governments manage increased social protections, and these marginalised workers who have seen their lives significantly disrupted is a very significant challenge,” he said.
“We see a region that continues to be of continuing promise, but very uneven with some significant problems that the pandemic has brought. It is a fraught environment in the sense that the pandemic has in a sense compressed many problems. The complex problems that the region faces are becoming more urgent,” he said.
Gosper said these challenges were putting a lot of stress on governments struggling with the broader issues after COVID-19 ranging from climate change to basic economic growth.
So, dealing with the new pockets of poverty would require innovative short term development aid measures from partners such as the ADB and Australia. Without this help, parts of the region could be facing a “severely lesser growth profile”.
Negotiations on a US-China leaders’ summit had just finished in Switzerland as the ABL China panel met, so the discussions appropriately may have shadowed the same grim search for common ground between US national security adviser Jake Sullivan and Chinese state counsellor Yang Jiechi.
Peking University’s Professor Zha Daojiong provided a somewhat optimistic start with what he described as “tough love” by pointing out that the two superpowers had managed to avoid turning the Afghanistan and Myanmar crises into a bilateral confrontation. Hawks on both sides could have turned these situations into havoc, he observed.
And Center for Strategic and International Studies senior fellow Bonny Lin noted how the first insight into the Biden Administration’s new China policy from Trade Representative Karen Tsai had just demonstrated that the two sides could “maintain open lines of communication”.
But Orville Schell, director of the Asia Society Centre on US-China Relations, was unconvinced, arguing: “I think we are in a very fraught moment and the relationship has been in something of a free fall. I think it's quite a confrontational adversarial relationship.”
And Lin shared this concern noting that there was now a recurring escalation dynamic in the relationship in which China acts, the US seeks to respond by bringing partners into the situation, and then China responds.
With rising security and economic tensions now clear, much of the conversation turned to the possibility of maintaining some below the radar contact between people and avoiding discrimination against Chinese communities in the US and Australia.
Orville argued this was now more difficult than ever with visa difficulties undermining cultural exchanges and civil society being shut out of China. “There's so many different kinds of musculatures that we once took for granted that help keep relationships up in that non-governmental way – business is one of these – that are more difficult now than before,” he said.
But Lim was less pessimistic arguing that people-to-people contact could still occur online, but government had to be careful not to let national security concerns narrow this space. She said that as long as Australia made itself an attractive place for Chinese people to come to live, study and work “I think that will give Australia a significant soft power when it comes to how Chinese people view Australia.”
Zha said there was little effort on both sides amid the rising US-China tensions to relate to the “main street.” There was little effort in China to understand or relate to non-ethnic Chinese sentiment in Australia and “selective listening on the Australian side as well”.
Asia Briefing LIVE Australia Reopened panel.
Their products might be very different, but Mark Scott and Matt Bekier are at the pointy end of one of the biggest questions in Australian engagement with Asia once the lockdowns end – how fast will students and tourists return?
The University of Sydney vice chancellor and The Star Entertainment Group chief executive offered a very positive outlook for the return of the services trade but emphasised that it still depended on a flow of people from China.
Bekier said The Star’s research showed that Chinese and broader Asian tourists were as keen to travel to Australia as they were before the pandemic. “We’ve got six hotels under construction and will open up over the next 18 months. I'm absolutely convinced that those hotels will be loaded up with inbound traffic from Asia as soon as the borders open up,” he said.
And Scott said the pilot projects to bring small numbers of students in and the recognition of the Sinovac vaccine had come just in time for Australian universities to rebuild contact with international students who had been looking at studying in other countries.
In a pointer to potential ongoing tensions between state governments and the federal government over international student numbers, especially from China, he said: “I think it’s state governments that understand the extraordinary economic value that international students bring. Not only are they a vital part of our communities, they are a vital part of our casual workforce. They’ll bring in significant investment dollars around things like accommodation and tourism.”
While he conceded there had been a disproportionate number of Chinese students, and that universities were rebalancing, he argued they had to be seen in the context of the size of the Chinese international education market, which was double the size of India and ten times the size of any other market in the region. “China will always be a massive market, as far as international students are concerned. And the Chinese government understands the value of international education,” he said.
Bekier said that while he expected good tourist growth from Southeast Asia he would still be relying on China beyond any continuing bilateral tensions over the next couple of years. “We have assets that last hundreds of years. So I’m absolutely convinced that we’re doing the right thing by continuing to work on the Chinese market.”
But Bekier warned that international tourism could not coexist with lockdowns with the average international business traveller coming to Australia for two days and the average Asian tourist comes for a week to visit three cities.
Also speaking on the Australia Reopening panel, Melbourne Lord Mayor Sally Capp said that her administration had tried through the lockdowns to maintain virtual contact with Melbourne’s sister cities in places like China, Japan and Indonesia to ensure that those connection could bounce back tourism to the benefit of education, tourism and other commercial connections.
“Markets in Asia are absolutely vital for us now and the way that we continue to nurture those have a really big effect on how quickly we can spring back and hopefully then exceed our engagement into the future,” Capp said.
CHINA PLUS …
Asia Briefing LIVE China, the US and Us panel.
Michaela Browning has occupied one of the more difficult jobs in the Australian China relationship in the past year – running the institution charged with maintaining bilateral connections when most parts of the government were heading in the opposite direction.
But the former National Foundation for China-Australian Relations chief executive told the China, US and Us panel: “I think it's absolutely possible to engage and to rebuild a lot of trust and confidence around areas of shared interests. The reason why I took on this job for the last year and a half with the Foundation is because of the opportunity to look for those areas of long-term practical engagement that are so obviously in our mutual interests.”
She said there were many areas where Australia and China could still cooperate in their mutual interest including climate change, other environmental issues, digitisation, ageing populations and chronic disease.
“Our people-to-people links are enormously extensive. So, my job has been to think about how we support the enduring strong engagement that we do still have with China, and what other ways can we engage with China into the future, but also build our own resilience, build our own understanding and defend our interests,” the former Hong Kong consul general said.
She said the government’s newly embraced ‘China plus’ trade strategy still recognised the country as very important to Australia’s economic growth but was also trying to make Australia more resilient after the pandemic.
And she emphasised that wholesale decoupling from China, as some people have advocated, was neither possible nor desirable for Australia. “The government consistently says that we value the enormously important relationships that we have with China. It is still our biggest trading partner, notwithstanding the significant challenges,” she said.
… THE OPTIONS EMERGE
Asia Briefing LIVE participants remain quite critical of the Australian government’s management of China relations with a near majority of 45 per cent saying it has been clumsy and inconsistent – although that is down from the 55-75 per cent levels seen at past events.
But the audience poll mood towards China as a business opportunity has slumped in response to the Chinese trade sanctions and emerging uncertainty about the country’s growth strategy.
Only 14 per cent of audience members said China now provided the biggest Asian business opportunity for Australian business compared with an average of about 40 per cent at past events.
Indonesia and India have been the winners from the falling out with China, now each receiving a third of the audience support which is up from an average of about one quarter in the past.
Japan continues to lag in this particular assessment of Asian business opportunity despite its recent status as Australia’s second biggest trading partner after China and third largest source of cumulative foreign investment.
But Vietnam’s inclusion in this poll question for the first time this year has confirmed is rising status as a diversification opportunity with similar levels of support to Japan and South Korea.
- See DATAWATCH for all the audience poll results.
DEALS AND DOLLARS
Australia has run down its goodwill capital by closing its borders and will have to return to overseas business travel soon, according to La Trobe Finance deputy chief executive Chris Andrews.
He told the panel session on recovering from the pandemic: “Business is a contact sport. It is about building personal relationships between people based on trust. You can’t build it over Zoom or other platforms.”
“There is no version of the future in which Australia can remain prosperous but also indefinitely isolated from our regional and global partners,” he said warning that the goodwill from overseas business contacts “will be exhausted sooner than we expect”.
But he said that while his company had offices in Asia, Australian executives still needed to travel to meet international clients and assess first-hand what was going on in the region.
“Reopening physical borders is a key priority for us as a nation,” Andrews said.
Andrews also said that his financial services company did not think the office was dead due to the experience of working from home during the pandemic because before long people would again appreciate the “value of the interchange of ideas, the social interactions, the learning that you get from sitting next to people in the same office.”
Fears about a decoupling of the US-China trade relationship and the emergence of new COVID variations overshadowed trade supply chain disruptions in a poll of the Asia Briefing LIVE audience.
Only 16 per cent of participants thought supply disruptions were the biggest threat to the global economy despite actions by government to deal with these disruptions, including, for example, the appointment of an economic security minister in the new Japanese government.
But the speakers in the economy panel underlined this more benign view about disruption to trade with World Trade Organisation trade in services and investment director Xiaolin Chai pointing out that while the pandemic had disrupted trade the actual decline in goods trade last year was only five per cent compared with an earlier forecast 30 per cent.
“It is true that the supply chains are under stress and there are problems such as the semiconductors scarcity and the port backlogs, but there was not a total breakdown of supply chains and the supply bottlenecks are more related to mismatch for supply and demand due to strong rebound in global trade and a surge in demand for consumer durable goods,” Chai said.
ADB vice president Bruce Gosper largely agreed observing that trade exposed parts of economies and integrated in supply chains had “managed reasonably well” through some disruptions and bottlenecks. Although he said skills shortages as supply chains shifted around in the region were now likely to be a constraint on some trading activity.
“The big story about strong inter-regional trade, particularly in Southeast Asia is still there. Investment was disrupted early on in areas like automobiles and electronics but is resuming and certainly the integration of this part of the world with the Atlantic economies and with China is still very much there,” Gosper said.
PAYING THE BILL
S&P Global Rating managing director Vera Chaplin said that while the pandemic had increased global debt, low interest rates made that debt manageable.
She said S&P analysts had calculated that debt could reach 260 per cent of global gross domestic product by the end of the year which would lead to increased defaults.
They had stress tested the likely sovereign debt with a three per cent interest rate rise to see how countries might manage ,and found they could mostly manage it. They had also modelled how government across the Asia Pacific might have to respond to new waves of infection with renewed financial assistance measures and found they would still be able to manage.
“The recovery is not complete until we get on top of the vaccine and have people feel more comfortable moving back to living with COVID,” Chaplin said.
REAL TIME: THE POLL RESULTS
Asia Briefing LIVE audience polls
Asia Briefing LIVE Ambassadors on the Quad panel.
"The US should not expect China to become more like the US. China has a deep, historical sense of identity. It is a civilisation state. It has absolutely no intention of becoming more like the US – both culturally, politically, and even in its economic manifestation."
- Singapore Foreign Minister Vivian Balakrishnan
"When it comes to disappointment and the grievances felt by our colleagues in Paris, I think Japan is in the best position to understand the depth of their feelings because five years ago we were in a similar position because our bid to introduce (our) submarines was not taken up. What we did was rather than dwelling on that issue, the Japanese government and Japanese people have decided to go ahead with promoting strategic partnership."
- Japan ambassador Shingo Yamagami
"What’s striking to me watching this relationship for 50 or 60 years is the middle ground is melting away from underneath people’s feet … Australia has gotten used to it, and you may not like it, but that is the result, I think, largely of actions that are being taken in China, which are pushing countries to decide, even though they don’t want to decide."
- Asia Society Centre on US-China Relations director Orville Schell
ON THE HORIZON
East Asia Summit: The 18 member EAS is expected to meet by video conference in Brunei on October 28 with the main focus likely to be recovery from the pandemic. However, there will be considerable interest in how this larger and process-driven group retains its influence as the small and more flexible Quadrilateral Security Dialogue exerts more influence. Some Southeast Asia countries have warned the Myanmar military junta that it may not be invited to the preceding Association of Southeast Asian Nations leaders’ summit because it has not cooperated with ASEAN enough over resolving the Myanmar democracy impasse.
Group of 20: This 20-large economies group already has an historic achievement in the bag with the Organisation for Economic Cooperation and Development agreement on the biggest changes to cross-border company taxation in a century. But when the leaders meet in Rome on October 30 that will be old news and they will be under new pressure to pave the way for a successful United Nations climate change conference by formalising a previous in principle agreement to mobilise $100 billion a year to help poor countries deal with climate change. Indonesia takes over the G20 next year. Australia is considering how it can help Indonesia run a once-rising group which is now challenged by decoupling between the US and China and deglobalisation.
Conference of the Parties: The United Nations climate conference in Glasgow runs from October 31 until November 11. The aim is to keep global temperatures from rising no more than 1.5 degrees and increasing international financing for climate adaptation.
Asia Pacific Economic Cooperation: The 21 APEC leaders will meet virtually in New Zealand on November 8 with the NZ government continuing its campaign to remove trade constraints on pandemic related trade.
China/US summit: The US and China have agreed to a virtual summit between President’s Joe Biden and Xi Jinping by the end of the year. Working groups have been established to identify issues where the two leaders can find common ground.
Asia Society Australia would like to acknowledge Asia Briefing LIVE partners
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- Executive Partners: MinterEllison and The University of Queensland
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