Asia enters an age of increasing uncertainty

Kurt Campbell

January 30, 2014

Asia enters an age of increasing uncertainty

Long regarded as a region of unbounded promise and rising prosperity, Asia has been sometimes the lone bright spot on a global balance sheet that featured turmoil in the Middle East, torpor in Europe and tilting at windmills in the US. There have been Asian uncertainties and occasional tensions, historic and regional rivalries, but these have been largely muted, generally, for well over a generation as investment, innovation and manufacturing on the continent shifted into overdrive.

However, this year interested observers and key players collectively confront a much more worrisome set of indicators across a diverse Asian scene. Tensions are up, uncertainties outweigh stabilising constants, and suddenly ominous and dark clouds hover on the Asian horizon. The signs of trouble that are stirring anxieties in boardrooms and senior political councils are no longer confined to any one sector or a single country. Many of the challenges are interconnected and even where they are not, there are worries of spillover and contagion.

A quick survey reveals the risks. Tensions in northeast Asia have not been this high since the Korean war. Relations between Japan and China are at a nadir with political leaders on both sides hurling invective, and their maritime forces circling ominously and ceaselessly around contested barren rocks. With no mechanisms for crisis communication, the situation is primed for an incident or miscalculation. Then there are the usual challenges presented by a still dangerous North Korea but are now compounded by a volatile and unpredictable young despot in Pyongyang. Relations between Japan and South Korea are little better, with recurring political problems triggered from persistent itching of historical scars that still bleed and refuse to heal.

Challenges to stability are not limited to northeast Asia. There are mounting worries over maritime territorial differences in the South China Sea, with Beijing applying a calculated series of salami tactics to underscore its expansive claims, while various members of the Association of Southeast Asian Nations remain divided and uncertain over how to respond. Thailand is facing a profound societal clash that defies democratic remedy and threatens to upend arguably the subregion’s most important economy with potentially enormous spillover effects due to manufacturing and transport connections.

Then there are the leadership transitions ahead in Asia. Indonesia and India are moving towards defining elections with candidates vying for power that range from the unpalatable to the unproven. Challenges in Asia have been compounded by questions about American leadership with the Obama administration forced to deal with domestic political turmoil and flaring problems across a turbulent Middle East.

Add to this swirling political brew a deep uncertainty around various economic questions affecting the continent. How much impact will the “tapering” of quantitative easing have on emerging markets, particularly those already struggling with macroeconomic fundamentals? Perhaps most importantly are the uncertainties associated with the economic transformation that President Xi Jinping is undertaking in China, that both risks short-term domestic unrest but holds the medium-term prospect of a more sustainable model of economic growth.

There are bright spots to be sure across Asia that contrast with this darker picture. China and South Korea are building stronger political ties to complement their robust economic links. The Philippines is confronting its traditional problems with corruption and enjoying sustained strong economic growth. Myanmar is slowly – if sometimes unsteadily – advancing reform. The Trans-Pacific Partnership negotiations are entering a decisive phase, with the prospect of an historical trend-setting trade arrangement linking Asia and the US within reach. Institution building at the East Asia Summit is being taken more seriously.

Still, the worries outweigh the wonders. Asia arguably is entering a newer, more unpredictable phase – animated by harsh differences over historical memory (and forgetting), disagreements over maritime providence, questions about the durability of democratic institutions, and anxieties over changing economic fundamentals – further complicated by the tectonic political shifts triggered by China’s seemingly inexorable ascent. The continent has escaped other tough scrapes and returned on investment before, but the gathering challenges this time appear more daunting. Only time will tell whether 2014 sees another Houdini act or whether history finally catches up with Asia.

The writer is chairman and chief executive of The Asia Group and on the board of the Center for a New American Security. From 2009-13 he served as the assistant US secretary of state for east Asian and Pacific affairs