Briefing MONTHLY #7 | May 2018
Summit watch | Malaysia decides | China business moves | Counting Asia’s biggest vote
FACE TO FACE
Is this the new leitmotif for modern Asian diplomacy? Two strongmen who could have been at war not long ago taking tea in a bucolic setting. Two things stand out from the weekend of Asian summitry: unlike so many such stage-managed international summits personal chemistry really matters here and no matter whether they are authoritarian, nationalist, Confucian or democrat, all these leaders seem to appreciate the value of a good digital image. The divisions between the nations at these two meetings are so deep that it is unrealistic to expect sudden substantive changes although there seems to be some movement in the Koreas. Any reduction in recent bilateral tensions would be significant for Asia’s emerging role as the center of world economic growth. But a more constructive relationship between India and China and on the Korean peninsula at the same time would be an historic development. The Korean thaw is likely to continue hogging the headlines – as it did on the weekend – if for nothing else but the human pathos of more family reunions across the 38th parallel and the awkwardly amiable new image of Kim Jong-un. But greater trust between the leaders of India and China could change the strategic landscape from the management of international institutions to the construction of infrastructure across Asia.
Winner: South Korean President Moon Jae-in, who has managed the US, China, Kim Jong-un, Japan, the International Olympic Committee and two faded inter-Korean peace initiatives by his leftist predecessors to pull off Friday’s meeting.
Loser: Japan, which would be side-lined by better relations between India and China and unnerved by the two halves of its former colony in Korea looking for some historical reason to bond.
IT’S UMNO v UMNO IN MALAYSIA
Malaysian elections are short, noisy and increasingly leave some big questions unanswered. The ruling Barisan Nasional coalition, dominated by the United Malays National Organisation (UMNO), lost its vaunted two thirds majority in 2008 and the popular vote in 2013. But weighing up its result at the May 9 poll will be harder. With a healthy economy, a very favourable redistribution of seats and multiple candidate battles in an unusual 85% of seats, the government is set to win, yet again. But, while it is not unprecedented, the number of high profile former UMNO heavyweights taking on their old party may be paving the way for some sort of change in Malaysian politics. The return of former long serving prime minister Mahathir Mohamad as opposition leader against his former protegee and incumbent Prime Minister Najib Razak is the highest profile personality battle. But two of the more interesting battles to watch will be in the states of Johor (near Singapore) and Sabah (on Kalimantan) where two other former UMNO heavyweights are leading new opposition parties.
Japan has emerged as an unexpected “bright spot” on the global economic landscape in the latest World Economic Outlook from the International Monetary Fund. This year’s forecast 1.2% growth is 0.5 percentage points higher than what the IMF was forecasting last October prompting deputy director Odd Per Brekk to declare Abenomics is finally delivering after five years. Nevertheless, from a longer-term perspective India remains the standout economy in Asia with growth forecast to increase from 6.7% last year to 7.8% in 2019 – although, unlike Japan, that is not a change from October. Overall, the IMF says, Asia accounts for more than 60% of global growth.
SUNSET FOR ABE?
The sun might be rising on the Japanese economy, but Prime Minister Shinzo Abe’s latest meeting with US President Trump was rewarded at home by reports of Liberal Democratic Party (LDP) factional bosses discussing his future. Despite leading the LDP to a substantial lower house victory only last October amid opposition divisions and the strong economy, Abe is facing a new outbreak of the 1990s style factional rivalry which then turned over leaders almost every year. What made all this more intriguing was the way this speculation was kicked off by former Prime Minister Junichiro Koizumi whose son is waiting in the wings ahead of a party leadership vote in September. Abe hasn’t helped himself by allowing series of scandals to fester and drag down his opinion poll ratings. The speculation has promoted several economists to start issuing notes on whether the prime minister’s eponymous Abenomics will outlast him - and most think it will (See Japan’s investment in Australia below). But for a much bigger take on Abenomics, this is the first of a new series of Sasakawa Peace Foundation papers on Abe’s economic legacy.
NSW Governor (and enthusiastic Bahasa speaker) David Hurley neatly captured the challenge of living with our closest neighbour in his opening speech to the latest Indonesia Dialogue in Sydney when he said: “Our relationship needs to go beyond the successful management of incidents.” These gatherings have been held four times now with the aim of finding some organic ideas for a deeper relationship free from the binds of traditional diplomacy. This time there were two notable features. There was a lot less talk about domestic politics which might say something about the uncertain year ahead to elections in both countries. And there was recurring cry for a better system of work visa access certainly at the student/intern level but then extending into some way of experimenting with a more integrated labour market. For more on the Dialogue see the Australian Institute of International Affairs Australian Outlook here and the Lowy Institute’s The Interpreter here.
DEMOGRAPHY AND DESTINY
Australia’s dependence on exports to Asia for economic growth is well known, but a new immigration research paper has underlined how important Asian immigration also is to the economy. The unusual joint research from the Departments of Treasury and Home Affairs was intended to defend the immigration program from recent calls for cuts but, in doing so, it has highlighted how much the program has changed in less than a generation. British and New Zealanders still top the foreign-born population. But the Chinese born residents (2.2% of the population in 2016) should be seen as the new Italians (1.4% in 1996), the Indians (1.9% in 2016) are the new Greeks (0.8% in 1996) and the Filipinos (1% in 2016) are the new Germans (0.7% in 1996). Vietnamese born people continue to sit around 1%. The change at the lower end of the top twenty sources of foreign born residents is even more symbolic. Those distinctive post-World War 2 additions to the Australian community – Poles, Croatians, Maltese, and Serbs - have now been matched by South Koreans, Indonesians, Singaporeans and Thais in that order.
ASEAN GETS THE WHEEL
From former foreign minister Gareth Evans’ East Asia Hemisphere to former Prime Minister Kevin Rudd’s Asia Pacific community, it is not surprising some neighbours are a little weary at Australia’s efforts to redefine its region. Now the embrace of the Indo-Pacific in last year’s Foreign Policy White Paper as the latest favoured regional construct has run into some scepticism - particularly in Southeast Asia. This was evident during discussions at the Indonesia Dialogue (above) and the ASEAN-Australia Dialogue on the sidelines of the ASEAN leaders summit in Sydney in March. But foreign minister Julie Bishop has moved quickly in this La Trobe University speech to calm any challenge to the White Paper strategy by declaring that “ASEAN is the geographical and diplomatic heart of the Indo-Pacific.” Although, it is interesting she didn’t use full ASEAN-speak and describe this as being in the drivers’ seat.
WHO’S ON FIRST BASE
One omission from the heated debate about whether or not China is considering a military base in Vanuatu is the fact Australia already has more offshore military bases than China. And they are all closer to China than Australia. Butterworth, in Malaysia, is openly described as a base. The various military operations in the Middle East dotted around China’s sole, but controversial, offshore military base at Djibouti (where Japan also has its sole offshore base) may not necessarily all be bases. But the facility in the United Arab Emirates, which Australia does not officially disclose, has hosted several hundred military personnel on and off for a decade. There’s been a predictable flood of commentary by military analysts and aid experts on the Vanuatu story. But this piece by Papua New Guinea legal scholar Bal Kama from Devpolicy provides a distinctive voice from the South Pacific about how Australia should deal with this strategic challenge.
“We have a very constructive relationship with China and that's all I intend to say. Thank you.” newly appointed Chief of the Defence Force Angus Campbell when asked about China’s military activities in the South Pacific
DEALS AND DOLLARS
YEN FOR AUSTRALIA
Japan’s slow and steady role as a source of foreign investment for Australia hit the headlines in 2015 when the country overtook the United Kingdom with cumulative direct investment of $91 billion. That trend seems to be continuing with a new survey of the past year by law firm Herbert Smith Freehills underlining the growing sectoral diversity, ownership structures and turnover of Japanese capital inflow. The survey identifies at least $5 billion in more than 30 new investments in the year to January, although the real figure will be higher due to non-disclosure of some prices. About twenty of these investments were by newcomers to Australia underlining how the country is a testbed for a new wave of sometimes smaller Japanese companies going abroad for growth.
Australian businesses in China remain confident about their outlook despite the rising political tension between the two countries although they say the operating environment has become more complex. The latest survey by the Australian Chamber of Commerce Shanghai found 78% of respondents had a positive outlook for the year ahead and 83% were positive about the next five years. AustCham Shanghai says this is a more positive outlook than parallel surveys of businesspeople from other countries in China.
NEW AGED CHINA
Construction company Lendlease will spend $400 million developing a retirement village in Shanghai underlining how business opportunities in China are changing with the growing demand for services. The company is drawing on its 30 years of commercial construction experience in China and its expertise in retirement villages in Australia to meet a new development priority of Chinese city governments.
Fortescue Metals Group has more than doubled the amount of its iron ore production being sold outside China in a move to reduce reliance on Chinese demand as the country closes down dirty steel mills. During the March quarter 11% of shipments went outside China as the company tries to tap into rising steel production in places such as India, Indonesia and Vietnam.
IN THE RED
Chinese stock market listings in Australia are the latest part of the bilateral relationship to suffer a setback - although this is the result of China’s complex capital controls rather than politics. The Australian Securities Exchange has curtailed new listings after a series of failed Chinese floats, shareholder disputes and poor governance. This Australian Financial Review analysis found only five out of 26 Australian listed Chinese stocks are trading above their issue price. China’s tougher controls on capital outflow have hurt the Australian listing boom.
ASIA'S FASTEST GROWING CITIES
Looking at a forecast of average annual GDP growth (all under 10%) 2018-22 here are the cities to watch. More >>
WHAT WE’RE READING
RESURGENT INDONESIA BY VASUKI SHASTRY
(Straits Times Press)
Vasuki Shastry brings an unusual perspective to the 1997 economic crisis that almost brought Indonesia undone - and certainly did that to its longstanding leader Soeharto (see On the Horizon below). He was a newspaper reporter during the crisis but then spent many years afterwards as an International Monetary Fund (IMF) official helping explain the agency’s tough approach, which it then partly recanted. This book provides a timely insiders’ account of the crisis and its aftermath 20 years on when there is some new debate about how much Indonesia has really moved on from the Soeharto system. Shastry says instead that the IMF’s decision to hold its huge annual meeting in Indonesia later this year will underline how far Indonesia has come from the turmoil of 1997-8. He argues that Indonesia could have descended into chaos and dismemberment in 1998 but escaped this fate “due to a diligent and committed political leadership” deep in its ruling elite. He sees incumbent President Joko Widodo as part of this leadership. But he also argues that Indonesia benefits from its deeply embedded ethnic Chinese community and a global diaspora of people who typically want to return home. He characterises the long-term challenges that will decide the country’s future as the three Cs: combatting climate change, controlling corruption and fostering an inclusive culture.
800 MILLION VOTES AND STILL COUNTING
For a man who already has the world’s largest election on his watch, Indian chief election commissioner Om Prakash Rawat still wants to take on the world. He is scheduled to chair the Association of World Election Bodies (A-WEB) next year just when India’s 875 million voters are set for a national election. And he sees a big scope for expanding the Election Commission of India’s foreign education program where it uses its stature as a longstanding democracy and still developing country to promote efficient election processes in other developing countries. On a brief visit to Australia to speak at an Australian Electoral Commission (AEC) conference, he said he would also be promoting the potential use of India’s electronic voting machines in Australia. Despite India’s expertise in digital technology, Rawat said India’s stand-alone battery powered voting machines were much less vulnerable to tampering or failure than the internet-based voting processes being tried in other countries. “They will call us rudimentary, but our machines are uncorruptible,” he said in his only interview during his visit. India has conducted election education program in about 60 countries and Rawat said that a cooperation agreement with Australia signed in 2017 could involve international cooperation. Despite the mammoth task of collecting more than 800 million votes in an election which is typically phased over nine days, Rawat says the commission remains focussed on other reforms like the recent women only polling stations and better facilities for the disabled. But since his Australian visit, Prime Minister Narendra Modi has given him the mind-boggling challenge of trying to arrange India’s 29 state and the national elections at the same time.
ON THE HORIZON
On May 21 it will be twenty years since Indonesia’s then President Soeharto ended 32 years in office via a hastily arranged morning TV broadcast. With his one-time son-in-law Prabowo Subianto considering another presidential run in 2019, his then military chief Wiranto heading a contemporary party and his youngest son Tommy trying to launch yet another party, it may not seem much has changed. But this detailed survey, led by the Australian National University’s Ed Aspinall, of politicians from ten parties across the country is a great measure of the change that has occurred. Some academics will no doubt find a flawed democratic structure in this data, but from the perspective of the chaos in 1998 it still shows how far the country has come.
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