Briefing MONTHLY #76 | September 2024
Asia Summit special edition | Plus: Japan’s new PM | Khuda cashes up | Jokowi’s legacy
Illustration by Rocco Fazzari.
WONG'S WAY
Foreign Minister Penny Wong has been stepping up her criticism of Australian businesses for not drawing on government initiatives to lift investment in Asia for several months.
But with a captive audience of the very people she thinks have not been listening, her speech to The Australian Financial Review/Asia Society Australia Asia Summit took this frustration to a new level.
“We have a good foundation in our free trade agreements across the region, but Australia's trade and investment has simply not kept pace – and we need to turn this around,” Wong told the Summit, perhaps with a nervous eye to a difficult election for Labor next year.
“I feel like I say this over and over again and people look at me and nod and move on … Our trade is not keeping pace with growth, and it is insufficiently diversified to maximise benefit. Our investment is similarly underweight … We're simply not keeping up.”
This can be dismissed as just the latest iteration of politicians complaining about risk averse business not taking up government programs to boost economic engagement with the region. But what was striking about the Summit discussions on this topic was the extent that the business participants were quite reflective about Australia’s somewhat narrow trade base and low investment exposure in Asia. They, of course, were the more dedicated advocates of Asian engagement in the broader business community.
But there has been generational change from those burnt by the Asian financial crisis so soon after the Asia Pacific Economic Cooperation group/Paul Keating era of business enthusiasm for Asia which has dampened the mood ever since.
There also seems to be more preparedness for sharing experiences on the ground in the region across a wider range of countries and business sectors then was seen in past periods of engagement stretching back decades.
And the maturing of the Asian diaspora here with the Australian-educated children of the diaspora sometimes returning to their families’ countries of origin as businesspeople is another fundamental change.
These shifts were a key feature of the Summit discussions to which this edition is largely devoted. But the central theme of the event was how to manage the complex nexus between peace and prosperity. And even more on this can be found in our new series Asia Agenda.
But first, a shorter than usual wrap of other developments from the future of our closest Asian neighbour under a new leader to a remarkable success story from the Asian diaspora.
Greg Earl
Briefing MONTHLY editor
JAPAN: first amongst many
The Liberal Democratic Party has been governing Japan for most of the past seven decades, but this Friday may well be a sort of coming-of-age moment.
The most contested leadership contest ever with nine contenders seems set to usher in either an unusually young new generation leader in Shinjiro Koizumi; the first women in Sanae Takaichi; or a long running failed prime ministerial favourite of party members rather than factional warlords in Shigeru Ishiba.
The competition to replace incumbent Prime Minster Fumio Kishida, who is standing down, is more competitive than usual because five of the party’s six major factions have been dissolved over a political funding scandal and so aspirants have been free to seek the job free of factional power sharing considerations.
In the first round of voting about one million party members collectively have the same weight as the 367 LDP Diet members. But with so many candidates, a second round of voting on the two leading candidates is almost certain. In that round the Diet members have much more weighting and old factional chiefs may re-emerge as powerbrokers.
- At Observing Japan, Tobias Harris says the campaign has been strangely sedate despite genuine differences amongst the large field of candidates.
SRI LANKA: volatile neighbourhood
Incoming President Anura Kumara Dissanayake Picture: Al Jazeera
India might be a steadily rising power at the global level underlined by Prime Minister Narendra Modi’s stature at this week’s Quad Leader’s Summit. But its own neighbourhood is getting increasingly challenging with an anti-establishment candidate winning the presidency in Sri Lanka this week, just months after Bangladesh Prime Minister Sheikh Hasina was forced from power.
Incoming President Anur Kumara Dissanayake originates from the fringe militant Marxist-inspired Peoples Liberation Front but founded the National People’s Power (NPP) alliance which itself only holds three seats in the 225 member Sri Lankan parliament.
However, he won a remarkable 42 per cent of the weekend vote for the president. In doing so he appears to have pushed aside various family-based establishment forces such as the Rajapaksa family which dominated politics for the past two decades.
Dissanayake is now expected to call a new election for the parliament to secure a legislative powerbase for a left-leaning agenda of renegotiating an International Monetary Fund bailout and anti-corruption measures. The bigger strategic question is whether he will tilt towards China as a similar new government in the Maldives has done, which would unnerve India, or blame China for Sri Lanka’s large foreign debt.
- Former Indian diplomat Gurjit Singh says in The Indian Express that Dissanayake is likely to seek a positive relationship with India and has welcomed its recent financial support for his country.
INDONESIA: back to the future
After ten years in power, outgoing Indonesian President Joko Widodo is showing little sign of letting go by meddling in party leadership contests; promoting his sons; and vigorously defending his pet project in the new capital city.
But the baton is steadily passing to his successor Prabowo Subianto, with the Australian National University’s Indonesia Update this month hosting one of the most comprehensive assessments of Widodo’s legacy.
And it is a varied mix ranging on the positive side from an infrastructure boom; to a remarkably stable economy compared with neighbours; to a new national capital under construction; and emerging from a regional city mayor’s job to running the country for ten years without a solid military, party or business powerbase. Widodo is the most powerful leader in the post-Soeharto era but ironically ushered in less institutional change than forgotten predecessors such as B.J. Habibie.
He ends his term with many conference presenters accusing him of undermining the country’s transition to democracy and regional autonomy by allowing the country’s elites to regain power in a period of democratic regression that is now seen to be tilting towards a form of competitive authoritarianism. This has been capped by his attempts to create a family dynasty by elevating his sons to positions including the vice-presidency.
Amid this mixed record perhaps the simplest but most compelling legacy idea comes from ANU Associate Professor Marcus Mietzner who has spent a year interviewing the outgoing president for a book on his administration. He says Widodo’s enduring mark on his country may well be his decision and ability to put Prabowo into the presidency after defeating him twice and questioning his abilities. “With this he assumes responsibility for his own decade in power and for what comes next,” Mietzner argues.
- For more from the Indonesia Update, see the Lowy Interpreter here and PRABOWO’s MOMENT in ON THE HORIZON.
THE DIASPORA: Bangladesh blinder
Data centre entrepreneur Robin Khuda has shot to the top ranks of the country’s Asian diaspora success stories with the sale of the AirTrunk business to US-based Blackstone for $24 billion.
The sale of the Bangladesh-born Khuda’s 11 per cent stake in the business he founded in 2016 will likely make him one of the 50 richest people in Australia and possibly the fifth richest person born in Asia.
He came to Australia in the late 1990s from Bangladesh when he was 18, and then studied accounting at the University of Technology Sydney, followed by an MBA in finance from the Manchester Business School in the UK and further studies in the USA.
Khuda has tended to play down his modest migrant background as he climbed the ranks of tech sector finance. But his family set up the Khuda Family Foundation in 2020 with more than $1 million earmarked to support women in STEM. He has also started to take a higher profile since the AirTrunk sale, for example, backing renewable energy and battery storage over nuclear energy to provide electricity for power hungry data centres.
- At Smart Company, Mrinaal Datt says Khuda’s success will be inspirational for other people of South Asian background in the Australian start-up sector. And see our Asian Rich List here.
AFR/Asia Society Australia Asia Summit in Melbourne, 3rd September
NEIGHBOURHOOD WATCH
MIDDLING THROUGH
Australian foreign policy makers and businesses have been urged to spend more time building connections to other middle-sized countries in the region rather than worrying about US-China rivalry.
Asia Society president and chief executive Kyung-wha Kang told the Asia Summit all countries in Asia had to live with super power rivalry but also had to find a way in which they were not just a “dependent variable”. Instead, smaller countries had to “create an independent space where we have a say in how this rivalry goes, in a way that strengthens the peace and prosperity dynamics in our region, rather than adding to the divisive and confrontational dynamics in that rivalry.”
She said it was incumbent on middle powers such as Australia, South Korea, and Japan who all had security relations with the United States, but also vital economic and trade ties with China, to “do our bit, to drive that rivalry in a way that is well managed, that is stable and that ultimately serves the interest of peace and prosperity for Asia.”
NEC executive vice-president Shigehiro Tanaka said Japan, Australia, and Singapore had demonstrated this value of middle-power cooperation by driving ecommerce rule-making in the World Trade Organisation amid waning support for free trade. “I think there's increasing role that this region can play. We are not only a rule taker, but I think, and I hope that we will have a bigger role in really remaking and creating the rules that are necessary for a truly peaceful economic order”, he said.
CHINA: GUARD RAILS NEEDED
With Foreign Minister Penny Wong telling the Summit she was alarmed at China’s lack of transparency over its military modernisation it was left to her one-time predecessor and now Ambassador to the United States, Kevin Rudd, to offer his solution.
He said by video link that it was hard for President Xi Jinping to pull back from ten years of increasingly assertive foreign policies reflecting a more Marxist and nationalistic direction. “Xi Jinping is doubling down. He's also making friends. We’re seeing, obviously, this relationship with Russia, with Iran and North Korea as well, now becoming a lot of concern.”
So, avoiding war with China required Western allies to present a strong enough show of deterrence to make clear the high cost of conflict while also establishing guard rails for dialogue.
He said the recent easing of tensions as high-level political dialogue restarted and co-operation on climate change was explored meant the bilateral relationship between the superpowers was better than before, but it did not mean security issues between Washington and Beijing were resolved.
CONFLICT OR COMPETITION
Can the United States and China cooperate on artificial intelligence (AI) and will the China-Russia relationship fall apart amid the same mutual suspicions that occurred half a century ago? The US-China relations panel started out pondering how the US presidential election mighty impact on the bilateral relationship but ended up discussing more left field possibilities.
UNSW law professor Mimi Zou argued that amid tensions, great powers could still be forces for stability including over managing AI. For example, the US and China had come together for an AI safety summit last year and she hoped that would continue despite geopolitical tensions. “This is an area where we do need international collaboration, and US and China have to show leadership,” she said while expressing concern that restrictions on technology transfer would possibly undermine this sort of cooperation.
Asia Society Centre for Chinese Analysis fellow Neil Thomas cautioned against overestimating the potential for a coherent alliance emerging from countries including China, Russia, North Korea, and Iran despite their affinity over authoritarian government and opposition to the western order. “Naturally they’re going to look to where they have opportunities to trade, or for Russia to refresh its defence industrial base. And those options are quite limited. So, in some sense, (their cooperation) is a reaction to weakness.”
He argued that a key lesson from the Cold War period was not to think that authoritarian or communist countries had a strong alignment of interests all of the time. “They have very different social and cultural and geographic backgrounds as well. So, it took us a long time in the Cold War to see the Sino-Soviet split that happened in really that the late 50s … So we shouldn’t overestimate the alignment that’s possible between these four countries and the idea that they would kind of form a global military alliance. It is possible, but I don’t necessarily think it’s likely, and there's a lot of mistrust and animosity between them.”
Thomas said the biggest differences between the candidates in the US election over China related to trade with Donald Trump showing more consistency over using high tariffs than other policies while Kamala Harris was likely to follow a more incremental approach to sanctions on China. However former Japanese national security adviser Kitamura Shigeru said his country saw both sides of US politics as consistently imposing economic sanctions on China.
While Thomas argued that Chinese President Xi Jinping did not want to become involved in a regional war, he said his actions were making that outcome more likely. “He’s not a reckless madman, he’s a calculated risk taker, and he has shown that when it comes to these types of disputes, when the prospect of conflict becomes credible, he tends to back down from the edge.”
But Cheung Kong Graduate School of Business Xiang Bing said the best way to avoid conflict was for the US to be more self-confident in its capabilities rather than being obsessed about where China was proving more competitive such as renewable energy technology. He said Chinese policymakers realised US military power could not be supplanted by any country, so it was suicidal for an emerging power like China to think in terms of winning a military conflict with the US. He said he did not believe there was a clash of civilisations underway and so analysts should “not use this hypothesis to justify today’s really terrible relations between China and the United States.”
ASIAN NATION
COUNTING VOTES
With a federal election now coming into view, the two politicians at the conference provided an early insight into how much Asia relations may emerge as an issue during the campaigning.
Foreign Minister Penny Wong kicked off the political point scoring with a hefty list of achievements in just six weeks in a contrast with the growing domestic stalemates for the government from gambling reform to central bank restructuring. It ranged from entry into force of the Tuvalu Falepili Union; the Indo-Pacific Broadcasting Strategy; the Civil Society Partnerships Fund; the Quad Cable Connectivity and Resilience Centre; the ASEAN-Australia Centre establishment; to the Defence Cooperation Agreement with Indonesia.
It was the Indonesia agreement which provided the stick to beat the Coalition Opposition over approaches to the region with Wong pointing out that the new defence agreement was the latest leg of a long history of Labor government’s deepening relations with Indonesia stretching back to the 1940s independence struggle.
“It is impossible to overstate Australia’s good fortune, in these earliest days of our sovereign foreign policy, that (Prime Minister Ben) Chifley and (External Affairs minister Herbert) Evatt understood how important Indonesia would be to Australia and the world,” Wong argued. “Their foresight was further underlined by contrast with the moral and intellectual leader of the Liberal Party, Robert Menzies, who in 1947 described Labor’s support for Indonesian independence as ‘the very ecstasy of suicide.’ Myopia and relentless negativity appears to be transmitted from one Liberal leader to another.”
But Opposition defence spokesman Andrew Hastie, who was an early advocate of a rising China threat, took a more cautious approach as the possibility of entering government looms. He said: “The challenge for us is, how do we work with China going forward? China's not going anywhere. Australia's not going anywhere … We're deeply economically integrated with China. We have very strong people-to-people links, and yet China's revisionism and expansionism is driving a lot of our defence and foreign policy.”
And he chided Wong for trying to link the current opposition to decades-old comments by Menzies when the Labor side of politics was once associated with the White Australia Policy. “So, you’ve got to be careful when you weaponise history like that … I have people from Sri Lankan, Chinese ethnicity working for me, and this is a great strength of Australia.”
FOLLOW THE (STUDENT) MONEY
Group of Eight universities chief executive Vicky Thomson found herself in an awkward position as the Summit conversation regularly returned to the theme of Australian punching below its weight in regional business due to risk aversion.
“We’re one of the great success stories in terms of our engagement into the region broadly. And you know, if you look at over the last couple of decades, we've grown our international education and research collaboration with the region,” Thomson argued.
And she pointed out that universities increasingly had bricks and mortar investment on the ground in the region with the construction of offshore campuses, when many other businesses were reluctant to do this. And the way they were punching above our weight in the region, she said, had been demonstrated by how every Summit panel had touched on the issues of innovation, technology and research.
“Let’s be really honest about what we are talking about here. It is a migration issue, it’s not an education issue, it’s not a housing crisis issue, it’s not a rental affordability issue,” she said of the Albanese government caps on international students at many universities.
Nevertheless, the business side of the student debate intensified as the Summit was held with Australian Industry Group chief executive Innes Willox splitting with the Business Council of Australia opposition to the student caps by arguing that universities should focus on higher quality training rather than larger numbers of students. “Imagine instead the exponential growth that might be possible if our tertiary education system was focused and empowered to work together to provide the high quality higher and vocational education we need to drive our economy forward?”
But Austrade acting deputy chief executive Peter Horn took a more expansive view of international education declaring its regional role to be “absolutely a success story” because Australian educated alumni were often at the heart of trade and investment deals. “So, there’s that commercial benefit as well as obviously the broader social benefit ... we’ve got some great advantage there, which has been building for many years.”
MANAGING CHINA
The Summit debate on dealing with Australia’s biggest trading partner ran the full gamut of the contradictions any Australian government will have to deal with for some time to come. And sometimes it is best to just let the words do the talking.
Institute for Energy Economics and Financial Analysis director Tim Buckley: “I would say the opportunities for Australia, rather than having peaked, are actually only just at the forefront at the start, and the opportunities are enormous. I think it's critical Australia actually double down and work and enhance and partner with China, because if not, they will go elsewhere. They’re actually overexposed to our commodities … We need to enhance and collaborate and partner with them, because China will otherwise diversify their risk.”
Former Australian ambassador Geoff Raby: “I think this stabilisation word is taking a life of its own, as many concepts do … but the reality is that this is now back to a normal relationship. It is quite normal in a relationship between states to have differences and sharply divergent points of view … That is part of a normal relationship. We should stop this discussion about stabilisation and just move on. The past has been resolved. The relationships back on reasonable footing, but it's never going to look like it did in the past.”
Lowy Institute fellow Richard McGregor: “I like to say the relationship is stabilising, but not stable, and there’s this kind of impatience. What’s beyond stabilization in many respects, that’s out of our hands … but we might be reaching peak complementarity in the economies, and I think that makes Australia less important to China, and perhaps they're much less willing to put in effort into the relationship with us. So, it's not quite calcification, but it is a relationship at a lower level.”
Sky News anchor and former jailed journalist Cheng Lei: “I think constant calibration is needed when it comes to looking at China. So, when you are actually swooning, do think about me and what I went through. I learned that the judicial process can be very arbitrary, from the surveillance to the detention to the actual sentencing and later release. I learned that the cruelty meter is calibrated differently in the state security apparatus.”
GOING GLOBAL
Visiting speakers urged Australians to stop worrying about how they were viewed in Asia and instead to think more about how they view themselves.
Hang Lung Properties honorary charman Ronnie Chan, who also chairs Asia Society’s Hong Kong Center, said: “You guys just need to get out … because the rest of the world is ready to receive you, at least Asia is ready to receive you … but you are constraining yourself with your own history … somehow we have to get out of that historic mindset that the world is still divided by history, by culture, by language. I think that Australia has a lot going for it. Just stop asking the question and just get the hell out of there and make some business.”
Asia Society President and chief executive Kyung-wha Kang said she had been surprised to read a survey showing that Australia did not rank highly with Southeast Asian opinion makers. “I couldn't quite understand why, but now I have come here and I have a bit of an understanding. I think it's because there is no visible business presence.”
DEALS AND DOLLARS
CULTURE MATTERS
After rescuing Lynas Rare Earths from an unexpected change of government in Malaysia in 2018, the company’s current chief executive Amanda Lacaze says Australian business leaders have work to do on cultural awareness to be more successful in doing business in Asia.
Amid a day of debate about why there are few large Australian companies with investment on the ground on the region, Lacaze declared: “I am going to try to say something somewhat controversial, which is [that] quite often we as Australians don’t recognise our unconscious bias with respect to other cultures.”
“It is not a case of us going in and being able to teach, right? When I first took over Lynas and went to Malaysia, despite the fact that we were replete with challenges, I set aside a full day [for cultural awareness].” Lynas runs the only major rare earth oxide processing plant outside China putting it in the middle of the rivalry between the US and China over rare earths for industrial production with the added complexity of operating in a country which tends to align more with China.
Lacaze said the cultural awareness day of local customs and food had provided her with a “true understanding, rather than reading a guidebook, to say, this is how you should address so-and-so … there’s a mutuality in that exchange which I think is incredibly important. And I think that it is the same no matter where you are.”
“Truly recognising and believing what we Australians think we believe, about being egalitarian and outward-looking, is something we should always ask of ourselves as we interact globally,” she said.
CHOICES, CHOICES
Amid general dismay at low levels of Australian investment in Asia, the participants in the core panel on deal-making were put on the spot and asked where they would invest their capital. And there was an emerging level of consensus.
Aurecon chief operating officer Louise Adams chose Vietnam saying her civil engineering company had spent a lot of time working with the Australia Vietnam Policy Institute to identify both large and small businesses which had succeeded in the country. “I think, sometimes our views of Southeast Asia can be quite outdated. So it’s about spending time up there and really asking yourself the deep business question, what have I got to offer? What can my business do to differentiate itself,” Adams said.
Hitachi vice-president Hirohide Hirai reminded the audience that Japan was still part of Asia and while slower growing was changing rapidly in terms of accepting foreign investment by embracing more international capital market practices. Some older owners and executives were seeing the value of selling to foreign investors. “So please think more positively about Japan. Maybe it would have been a very different story in 10 years ago, maybe more emotional.”
King & Woods Mallesons chief executive partner Renee Lattey said she would have also chosen Japan due to the legal environment, international connectivity, positive economic settings, and the generational shift outlined by Hirai. “Most importantly … Japan appears to want the investment, and that's certainly what's coming through from our clients.” But looking to the longer term Lattey opted for India because of its growth rate although conceded that this would require an investor to take a longer-term view than many Australian investors were prepared to do.
That left ANZ chief executive institutional Mark Whelan with a split casting vote for both India and Vietnam reflecting where he said the bank’s customers currently seemed to see the best opportunities. ANZ had put more capital into India to service demand with revenue doubling in the past two years and likely to do so again over the next two. Meanwhile Vietnam’s stature as a China-plus one supply chain diversification location was “gathering momentum”.
INVESTING LIKE SKIPPY
The man running Indonesia’s sovereign wealth fund has fallen back on a wildlife analogy to get his head around the preparedness of Australian companies to invest as far away as South America while overlooking Indonesia.
“I can only think of a kangaroo mentality. I guess you have to jump very far, because it's hard to jump a little bit shorter,” said Indonesia Investment Authority chief executive Ridha Wirakusumah on his fifth trip to Australia to drum up investment, “There's a bit of the fear of the unknown with Indonesia.”
The agency was given about US$5 billion in resources almost three years ago to pursue a complex mandate for a sovereign wealth fund of investing for both national development purposes and high return purposes both alone and in cooperation with other foreign investors.
“I don't expect the Australians to jump in and invest. What I would hope is for the Australian community to at least listen with some interest in terms of what is there to offer our partners. Maybe a few more meetings, and then who knows, maybe we will be working together,” he said.
Despite a high-profile mission to Indonesia by superannuation funds, he said they remained careful about investment there, but government-linked agencies like Export Finance Australia were “more open” possibly because they were more focused on trade than investment.
Ridha said he had been encouraged by discussions in Australia about improved cooperation between the two countries on an electric vehicle supply chain drawing on their respective mineral endowments missions. But that would still be up to the manufacturing companies in Indonesia.
DIPLOMATICALLY SPEAKING
My own view is going to be that when Xi Jinping, really for 10 years, has been very clear about China moving in a more divisively Marxist and nationalist direction … it becomes very hard for him to make fundamental changes ... in the ideological direction he has set the country over the last five years.
- US Ambassador and former Prime Minister Kevin Rudd speaking at the Asia Summit
I think the key thing when we look at the Chinese economy is to try and distinguish between what are cyclical factors and what are structural. Now, if you listen to Kevin, it’s all structural because Xi Jinping is embracing Marxism and it’s all over.
- Former China Ambassador Geoff Raby
Australia’s interests with China are mostly discussed only in bilateral terms. When the discussion isn’t just about our direct relationship with China, it’s about the impact and risks of China’s strategic competition with the United States ... But the way we manage our interests in the face of challenges involving great powers is only partly through direct dealing. Much of the answer lies in approaching these challenges in regional terms.
- Foreign Minister Penny Wong
DATAWATCH
Source: ABS 2023. Figures for Singapore and Hong Kong likely include both inbound and outbound Australian investment for other countries, especially in Southeast Asian countries.
ON THE HORIZON
Picture: AFP
PRABOWO’s MOMENT
Depending on how you do the calculations Prabowo Subianto has made about five serious attempts to lead Indonesia in the past quarter of a century.
So, whatever he does in power, his swearing in as president on October 20 will be a testament to persistence and the cementing of a major family dynasty in the country.
Prabowo’s father Sumitro Djojohadikusumo was a leader of the 1950s regional rebellion against then leftist President Sukarno and then an architect of economic policies in the Soeharto era. His grandfather was the founder of the first state bank and an independence movement figure. Some of his nephews and nieces are already emerging fourth generation politicians in Prabowo’s Gerindra Party including Thomas Djiwandono, who has recently been appointed deputy finance minister ahead of Prabowo announcing a Cabinet.
Meanwhile the two-month campaign period for Indonesia's regional head elections started this week adding another layer of leadership uncertainty in the country. The governor positions in 37 provinces, as well as mayors and village chiefs in more than 500 local governments are up for grabs on November 27.
These local polls began with the embrace of democracy and regional autonomy after the fall of the Soeharto regime in 1998, but this is the first time they have been simultaneously nationwide. After the rise of Joko Widodo to the presidency from the mayor’s job in the central Java city of Solo, this election may throw up future national leaders.
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