Tipping Points to Asia’s Future

YURIKO KOIKE

Yuriko Koike, Japan’s former defense minister and national security adviser, was Chairwoman of Japan’s Liberal Democratic Party’s General Council and currently is a member of the National Diet.

MAY 23, 2014

Tipping Points to Asia’s Future

TOKYO – A week, it is said, is a long time in politics. But events in Asia over the past week may define the region for decades to come.

Thailand, one of Asia’s most prosperous countries, seems determined to render itself a basket case. A military coup, imposed following the Thai constitutional court’s ouster of an elected government on spurious legal grounds, can lead only to an artificial peace. Unless Thailand’s military is prepared to serve as a truly honest broker between deposed Prime Minister Yingluck Shinawatra (and her supporters) and the anti-democratic Bangkok elite, which has sought a right to permanent minority rule, today’s calm may give way to a new and more dangerous storm.

To Thailand’s east, Vietnam is the latest Asian country to feel pinched by China’s policy of creating facts on the ground, or in this case at sea, to enhance its sovereignty claims on disputed territory. Vietnam’s government reacted vigorously to China’s placement of a huge, exploratory oilrig near the disputed Paracel Islands in the South China Sea. Ordinary Vietnamese, taking matters into their own hands, reacted even more vigorously, by rioting and targeting Chinese industrial investments for attack.

China’s unilateral behavior has exposed a strain of virulent anti-Chinese sentiment bubbling beneath the surface in many Asian countries. Renewed protests over China’s mining investments in Myanmar this week confirmed this trend, one that China’s leaders seem either to dismiss as trivial, or to regard as somehow unrelated to their bullying. Indeed, like Russian President Vladimir Putin, who faces widespread public antipathy in Ukraine, China’s leaders appear to believe that popular protests against them can only be the product of an American plot.

Yet, despite their shared contempt for expressions of the popular will, China’s President Xi Jinping and Putin struggled, during Putin’s two-day visit to Shanghai, to agree on a new gas deal that the Kremlin desperately needs. Putin had viewed China as his backup option should the West seek to isolate Russia following its annexation of Crimea. Putin’s idea was that he could pivot Russia’s economy into a partnership with China.

But Xi balked, signing the gas agreement only after Putin offered a steep, long-term discount. Xi’s self-confidence reflected not only the Chinese leadership’s contempt for Putin’s mismanagement of the Russian economy, but also the fact that China’s energy worries have lessened considerably of late. Successful deployment of hydraulic fracturing (“fracking”) technology in Xinjiang suggests that China, like America, will soon be able to draw on its own reserves of shale energy. Moreover, plentiful gas supplies from Myanmar and Central Asia will provide China with sufficient supplies of energy for at least a decade.

China’s hard bargaining with Russia has exposed the limits of the two countries’ bilateral cooperation, which has important geo-strategic consequences for Asia and the world. China, it now seems, is happy to see Putin poke his finger in the West’s eye and challenge America’s global leadership. But it is not willing to underwrite with hard cash Russian pretensions to world power status. Instead, China appears interested in turning Russia into the sort of vassal state that Putin is seeking to create in Ukraine.

But the most epochal events of the last week took place in two of Asia’s great democracies: India and Japan. Narendra Modi’s landslide victory in India’s general election was not only a huge personal triumph for the son of a tea seller, but may well mark a decisive break with India’s traditional inward-looking policies. Modi is determined to reform India’s economy and lead the country into the front rank of world powers.

Here, Modi will find no stauncher ally than Japanese Prime Minister Shinzo Abe, who was among the first Asian leaders to embrace him in his bid to lead India. Given that both countries have almost perfectly aligned regional security interests, there should be plenty of scope for the two to act in tandem to improve regional security and mutual prosperity. Thailand’s crisis might well mark a good early test of their ability to work together, because both countries have strong interests in Thailand’s rapid return to democracy and the credibility needed to act as an honest broker in ending the country’s crisis.

In the past week, Abe created for himself considerably more political space to act as a strategic partner, not only to India, but also to Japan’s other allies, particularly the United States. Quietly, a panel appointed by Abe’s government this week offered a reinterpretation of a key element of Article 9 of Japan’s constitution. For the first time since the Pacific War’s end in 1945, Japan’s Self-Defense Forces would be able to participate in “collective self-defense” – meaning that Japan could come to the aid of its allies should they come under attack.

Of course, China and others in Asia have tried to muddy this change with the alarmist charge of a return to Japanese militarism. But the new interpretation of Article 9 augurs just the opposite: it embeds Japan’s military within an alliance system that has been, and will remain, the backbone of Asia’s prevailing structure of peace. Abe will make this clear when he delivers the keynote address in Singapore at this year’s Shangri La Dialogue, the annual meeting of Asian military and civilian military leaders.

Modi’s victory and Abe’s increased ability to stand by Japan’s allies can help to forge deeper bilateral ties and, if properly understood by China, foster a greater strategic equilibrium in the region. It is now possible for Asia’s greatest powers – China, India, Japan, and the US – to form something akin to the concert system that gave Europe a century of almost complete peace in the nineteenth century.

Of course, such a system would require China to set aside its goal of regional hegemony. Clear-sighted Chinese must already see that, short of a victorious war, such dominance is impossible. Now is the moment for China to anchor its rise within a stable and mutually acceptable Asian regional order. Indeed, for China, this may be the ultimate tipping point in its modernization.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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