Monday, November 14, 2011

Beijing blew it; Washington shouldn't

Nov 14, 2011


 By David F. Gordon

ATTENDING the Asia-Pacific Economic Cooperation (Apec) summit in Honolulu over the weekend, US President Barack Obama would have realised that he confronts a changing game in Asia. During a recent visit to the region, a senior Asian policymaker told me: 'We used to ask what we could get from the Americans in return for their military personnel and basing rights. The new question is, what will we have to give them to get them to stay. And it's all because of China.'

Japanese, Australian and South-east Asian policymakers and business executives have made clear to me that China is misplaying its hand in Asia. Beijing has miscalculated its ability to cater to nationalist sentiment at home without alarming its neighbours and is inadvertently driving Asian states to build closer economic and strategic ties with the United States and each other. This misstep gives Washington an enormous opportunity.

For the past decade, Beijing wagered that its neighbours' reliance on its economy for trade and investment would buy goodwill, closer ties and space for occasional strategic posturing. In other words, China sought to provide the economic engine for the region while espousing a 'peaceful rise' principle that eased suspicion over its geopolitical intentions. And for its neighbours, an economically vibrant and diplomatically modest China provided the perfect partner.

Over the past 18 months, however, China has taken a more aggressive tone towards territorial disputes in the South China Sea and elsewhere. This is partially driven by the leadership transition in Beijing, as factions in the Communist Party seek to curry favour with hawks, hard-liners, the nationalistic press and business. Although a few Chinese policy-makers have begun to walk back some of the aggression, their hands are tied by the jockeying for power in Beijing.

Wariness of China is pervasive and increasing among the elites and general populations in Vietnam, the Philippines, South Korea, Japan and elsewhere. Meanwhile, economic sentiment regarding China is shifting from bullishness to caution.

Even without an economic 'hard landing', China may face years of slower growth and higher inflation, coupled with rising fears about bad debt. Its neighbours worry that a weakening in China's economic trajectory could have drastic effects on their economies. A more assertive but less economically dynamic China is the region's worst nightmare.

In response, China's neighbours seek a balance to Beijing. When Chinese Foreign Minister Yang Jiechi last year warned members of Asean to 'remember how much of your economic prosperity depends on us', he motivated not a strategic kowtow but increased efforts by regional nations to reduce their dependence on China.

These dynamics are not yet fully appreciated in Washington, but they present a strategic opportunity. We have already taken advantage in the military sphere, strengthening cooperation beyond defence agreements with Australia, Singapore, Taiwan and Vietnam since last year. In Japan and South Korea, alliances with the US remain extremely popular.

Washington has an even greater opportunity in the economic realm: to shape the emergent Asia-Pacific financial and commercial architecture, enabling the US to provide what will probably be necessary economic underpinnings for long-term US military and security commitments to the region. But Washington has been slow to pursue this opening, even with a path readily available. The Trans-Pacific Partnership (TPP) is a free trade agreement that includes Australia, New Zealand, four South-east Asian nations, Chile and Peru.

Japan is expected to announce its intention to join negotiations. US Secretary of State Hillary Clinton emphasised the TPP when speaking about economic diplomacy last month, but negotiations have proceeded slowly. While Washington cannot drive the TPP on its own, the Obama administration's approach to Asian trade and commercial issues has been tepid. The Apec summit is likely to bring only a skeletal outline of the pact's terms, rather than the full agreement as originally planned.

As Mrs Clinton said last month: 'America's economic strength and our global leadership are a package deal.' A vibrant TPP, complete with rules and reciprocity on investment, will ensconce the US firmly in the emerging economic and political architecture in East Asia. Although the US is still a leading trade partner of many Pacific Rim countries, its share of regional trade is declining. The TPP, especially if it includes Japan, would provide a strategic counterpoint to last year's China-Asean pact. It presents an alternative to Chinese economic and strategic domination that nations in the region are actively seeking, and offers economic and strategic benefits for the US in a region that has begun to define the international scene.

This opportunity will not last. After China's leadership transition is complete, there could be a more decisive shift in Beijing towards a more effective Asian policy. For now, though, driving the TPP to a successful conclusion would be an important step towards ensuring that the US has a secure place in the region's new dynamics.

The writer is head of research and director of global macro analysis at Eurasia Group, a global political risk consultancy. He was director of policy planning at the US State Department from 2007 to 2009.


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