Foreign Powers in South East Asia – An Economic perspective

Image source: Asia News

Recently as a revised free trade agreement between Association of Southeast Asian Nations (ASEAN) and Japan came into force, it has become pertinent to discuss the economic interests and influence of big foreign powers (the states which can influence the region in one way or another). Economics is a big factor in calculating the strategic value of a region & South East Asia has been since the epoch of history a major node in the world maritime economy & transport. The majority of the sea-borne trade passes through the Indian Ocean and the strategic location of India on one hand and South East Asia, on the other hand, draws world powers towards controlling these regions in different ways at different times. The SEA is the gateway to & from East Asia as well as the Pacific Ocean for the power that controls it controls the 80% of world Sea-borne trade.

In the 19th & 20th century, western imperialist powers kept their tight grip on the region and the trade emanating as well as passing from there. The colonial experience, early instabilities and ever-existent differences of religious, ethnic, regional nature (making the region further vulnerable to any foreign power using it for their gains) have made the countries in the region to stick together with a common minimum programme, and this was the beginning of ASEAN in 1967. Although the influence of foreign powers has been ever-existent for a long time, the region was able to manage it to an extent where it worked in a net positive manner.

The region kept itself engaged with the Asian Tiger Economies and balanced it with always keeping the USA in the loop as a net security provider, it all worked well till the region was existing in the shadow of the USA’s alliance structure. As it currently stands, the ASEAN countries have a combined GDP of $2.8 trillion and with bright prospects in the future outlook. While welcoming guests to the first US-ASEAN Summit hosted by Washington in early 2016, President Obama said “Few regions present more opportunity to the 21st century than the Asia Pacific, that’s why, early in my presidency, I decided that the United States, as a Pacific nation, would rebalance our foreign policy and play a larger and long-term role in the Asia Pacific. And this has included engagement with Southeast Asia and ASEAN, which is central to the region’s peace and prosperity.” The combined trade of the two regions totalled $330 billion in 2018 which increased by $27 billion from 2017.

Billboard advertisement for the Laos-China railway in Oudomxay province, Laos/ Image source: RFA

And it is not just the United States that understands the value of the region both geopolitical and economical. China considers the region an extension to the Chinese civilization, part of Greater China; a large population of 30 million Chinese live here. The region became the largest trade partner of China as between the period of January to June has forced Beijing to relook at its global supply chains and adapt accordingly. The block accounted for 14.7% of China’s overall trade, which was 0.7% higher than in 2019.

Same is the case with India, historically speaking, the region is a cultural offshoot of Indian subcontinent’s culture, and similar to Chinese many people of Indian origin populate the Islands of South-East Asian. And as a corollary to it, India with its first “Look East” and then “Act East” has been trying to restart the paused relationship. The ASEAN-India FTA,2010 and their increasing trade every year with the total bilateral trade standing at the $142 billion and many projecting the numbers to double by 2025 and reach $300 billion.

The deal between Japan and ASEAN is also one to be considered to understand the direct economic interests of ASEAN for Tokyo. The region as a whole is 3rd largest of Japan, after China and the USA, with exports to the bloc totalling 11.58 trillion yen ($110 billion) and imports worth 11.76 trillion yen ($111 billion), according to Japanese Finance Ministry data.

Let us turn towards the European Union, the trade-in 2019 stands at $247.91 billion. The trade balance is inclined in favour of ASEAN by $46.72 billion, and it should be remembered that much of trade of the European countries towards East Asia passes through the region, to understand the gravity of it, European Union was the largest trade partner of China last year and before that as well.

Image source: Nikkei

China’s economic invasion of ASEAN

The subheader may sound a little harsh, but this is the reality, and with every passing year, the Mekong river is becoming the new flashpoint of Chinese debt diplomacy, with most of the peninsula entrenched in Chinese debt and economic support, the pandemic only extenuating the situation further with the trade war between Beijing and Washington is making China invest in the region to a place of no return. As shown above, the region has become the largest trading partner of China. If we think about the phases of transformation of East Asian Economies, the next stage for China is most likely to shift some of the manufacturing (where the labour cost has increased) to other regions and most of it is shifting to the ASEAN. China would like to transfer some of that manufacturing to a region which it can control and be an extension of Chinese civilization is a very welcome additive.

The Chinese are eyeing the two-way geographical dominance of the region, firstly by controlling the Mekong river and its delta, gaining a reason to become an overseer of the region for the safety of its investments. On the other hand, by controlling the South China Sea, controlling the major Island nations of the region as well as the only resisting nation to the Chinese dominance over the peninsula i.e. Vietnam, be it psychologically, economically or at times militarily.

ASEAN’s failing calculations in the face of Aggressive China and the retreating USA

Till very recently, the ASEAN states thought to have found a good balance in the Chinese and the USA. Giving both to hold stakes in the region, making it a stalemate for their striving of regional dominance. However, with the increasingly aggressive nature of Chinese foreign policy (especially with its neighbours), has shifted the balance and SEA nations finding themselves more vulnerable. As the asymmetry of investment and trade increases, the asymmetries of interests are bound to increase as well, giving China a very solid argument and reason for making the region a permanent extension of the Chinese sphere of influence and moving successfully towards the China Dream of Xi Jinping’s inaugural address.

However, as shown in the above section as it was shown that the region has a very keen interest in many regions and very many major powers. In itself it is an economic hub, very fast becoming the new manufacturing hub of the world replacing China and being a major terminal of world seaborne trade, it is in the interest of the whole world to keep it out of any-one country’s dominance as has been the case with Suez Canal historically.

35 ASEAN Summit

RCEP and ASEAN recalibrating political economy & geo-politics

The RCEP (Regional Comprehensive Economic Partnership) is in my view an ASEAN attempt to bring most of the regional powers together into a Free Trade Agreement, ranging from China, Japan to India & Australia. Although, it may look like exactly what its name suggests, on the second look we can understand the positive for the Southeast Asian nations is two-fold, firstly, it will be able to form a zone of bustling trade & commerce with itself being at the centre; secondly, other regional powers like India, Japan & Australia (3 of the 4 members of the Quad) will be involved so actively (towards a better symmetry of interests) that they will make sure the region maintains its post-Westphalia sovereignty. Containing Beijing’s bloated pride and ambitions without it escalating to a level that can cause long-lasting damage to the region. However, the Indian concerns were not taken care of and as a result, India has for the time-being stopped itself from committing fully. Although it is a setback, making sure most of the others have joined has increased the security situation and with a common understanding among the RCEP members to take India together soon is the best-case scenario for the regional stability.

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The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of The Kootneeti Team

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Abhyoday Sisodia

Abhyoday Sisodia is a Research Intern at The Kootneeti

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