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ASEAN Must Balance China in Asia

Lee Kuan Yew is senior minister of Singapore.

Singapore-Fifty-five years after World War II is time enough to gauge the potential and capabilities of the various peoples and countries of East Asia. By the close of the 20th century, anti-colonialism and anti-communism had ceased to be the critical issues. And the financial crisis of 1997-2000 has shown how differently the various governments and the peoples have used these last 55 years. There is enough data for us to draw more than tentative conclusions as to their future performance.

There is a neat divide between Northeast and Southeast Asia. Japan, Korea, Vietnam are East Asians who adopted the Chinese script for centuries and with it Confucian philosophy: hardworking, thrifty, always saving for the education of the next generation and for a better tomorrow. The most outstanding people have been the Japanese; their recovery from the ashes of defeat has been spectacular with the help of American markets and patents. The Japanese are now going through a difficult period as they settle on a new model around which they will regroup in a national consensus and forge ahead.

Next, the transformation of the big cities along the China coast, like Shanghai, Guangzhou, Dailan, Tianjin, Xiamen and Beijing itself, when extrapolated for another 50 years, will mean a giant of an economy. Per capita, China's GNP may still be about one quarter to one third that of the US, but its total GNP and technological competence will make it a heavyweight.

By 2040, China and Japan's combined GDP will exceed that of the United States. These developments will shift the economic center of gravity of the world from the Atlantic to the Pacific. Already, American trade with East Asia exceeds that with Western Europe. By 2050 the living standards of nearly 1.75 billion people in Northeast Asia will reach levels approximately that of present-day Japanese. The high growth rates of East Asian countries in the last four decades were not fortuitous. They spring from the intense cultures of peoples keen to acquire new knowledge and master new technology. Six hundred million in Southeast Asia will achieve about half the per capita GDP of Northeast Asia.

China will be a formidable player in the region. No combination of other East Asian economies-Japan, South Korea, Taiwan and ASEAN will be able to balance China. The Russian Federation will not be a major player for at least another 20 years. Therefore the role of America as the balancer is crucial if we are to have elbow room for ourselves. There was a time, at the height of the Asian economic miracles, around 1990, when Indonesia believed that it could carve out an area of influence for itself, when the US forces left Subic Bay. Hence in 1990 when we gave the US access to our bases and allowed them to maintain a logistics support unit in Singapore there were protests. But when in the mid-1990s China built facilities on the islands in the Spratlys and the Paracels, especially after fishermen's huts were built on Mischief Reef, it was not only the Philippines who realized that the dismantling of bases at Subic Bay did not add to security and stability. Attitudes toward the American access to Singapore bases underwent a silent change.

This need for the US as a balancer is clear to Korea, Japan, Australia, New Zealand, the Philippines, Singapore and Indonesia. Malaysia has taken a contrary view. Vietnam, Laos, Cambodia, Thailand and Burma, on mainland Asia, as distinct from archipelagic Southeast Asia, take different views.

To meet the economic challenge of China's attractiveness to foreign investments, the ASEAN countries will have to combine their markets in an ASEAN Free Trade Area. It will be tough to compete against a homogenous China that is likely to grow at 7-9 percent per annum. Hence the pressures on ASEAN countries to combine their markets. Without this, the ASEAN countries will be left out by international investors.

The way Northeast and Southeast Asia have responded to the financial crisis reflects the differences in their cultures and political systems. Before the crisis, Southeast Asia was more open and outward-oriented. Northeast Asia, Korea, Taiwan and Japan, were seen as xenophobic to foreign investors, with many non-tariff barriers to trade. Korea has shown determination to implement the structural reforms agreed with the IMF. Thailand and Indonesia have yet to complete their structural reforms to their banking and corporate sectors. Because of Northeast Asia's aggressive liberalization and deregulation, this differentiation between Southeast and Northeast Asia is now gone. As a result, foreign direct investment and portfolio inflows into Northeast Asia have risen strongly, and those to Southeast Asia have slowed.
The country worst hit by the financial crisis has been Indonesia, for the present mired in not just economic but political and social turmoil as well. It will take some years to heal the ethnic, religious, provincial and other divides that have been ripped open. Until Indonesia's leaders restore order in Indonesia, investor confidence will be weak.

Despite regional autonomy, lasting solutions to Indonesia's current difficulties must come from Jakarta.
That said, any fallout from problems in Indonesia is minor compared to the consequences of a clash of arms across the Taiwan Straits. That could change the course of developments in the whole of the Asia-Pacific. In Taiwan, with a new president whose party stands for independence, the danger has increased.
Another flash point, the Korean peninsula, now looks less likely to blow up. But reunification and peace are not at hand. It looks more like a protracted struggle. It is neither in the interest of the North, nor of China, to have the North absorbed by the South. The North will use every leverage-missiles, nuclear proliferation and the danger of collapse to extract concessions from the South and the US, giving the minimum as quid pro quo.


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