Have US-China rivalry and coronavirus tipped the balance of power in Asia?
The deepening US-China rivalry, Asia's superior handling of the Covid-19 pandemic, economic interventionism, and growing insecurity are among the most powerful trends shaping politics and business across the region this year, a new report says.
South Korea, Vietnam and Taiwan set the global standard in pandemic measures such as testing and contract tracing, minimising the economic fallout in Asia and setting the region up to "lead the restart of the global economic engine", according to the latest Asia Power Trends report by Asia Group. Vietnam and Taiwan are both expected to avoid recession this year, while South Korea is on course for a much smaller economic contraction than most of its developed peers.
"The crisis has not shielded Asian economies from the economic downturn, but successful containment and unprecedented amounts of fiscal and monetary stimulus have left the region, for the most part, better off than the rest of the world and poised to lead the restart of the global economic engine," the Washington-based strategic advisory firm said in the report. "Looking ahead to 2021, major economies such as China, India, and Indonesia are all expected to grow at a faster pace than Europe and North America."
Get the latest insights and analysis from our Global Impact newsletter on the big stories originating in China.
Asia Group partner Kurt Tong said Asia's relatively successful pandemic response added "further momentum to the ongoing shift of economic and political power to Asia".
The widening rift between the United States and China, however, poses a "significant risk to the Asian business landscape", according to the advisory group, with a broad economic decoupling between the superpowers appearing increasingly likely.
"As Washington ramps up pressure on a more assertive China, the arena of competition between Beijing and Washington is expanding, unleashing a new set of policy disruptions across sectors including the digital economy, electronics manufacturing, high-technology production, pharmaceuticals, and financial services," the report said.
Trade in the region had become more "complex and contested", it said, with deteriorating US-China relations leading some countries to seek a consensus on free trade and forge new partnerships. Asia Group noted that negotiators appeared close to a deal on the Regional Comprehensive Economic Partnership - a free-trade agreement comprising China, Japan, the Association of Southeast Asian Nations, South Korea, Australia and New Zealand - which, if implemented, will cover almost one-third of the global economy.
At the same time, more governments turned toward interventionism in 2020, with China and India among those curbing exports of "essential" products such as pharmaceuticals, food, and medical equipment, and countries including Japan, Australia, and India moving to reduce their supply chains' dependence on China.
"The coronavirus crisis and escalating geopolitical tensions between Washington and Beijing have prompted questions about the potential redefinition of the governance of globalisation," the report said. "While firms' desire for greater market access and higher returns will continue to drive cross-border trade and investment, the rules and coordination around these movements will be increasingly fragmented."
In the security sphere, China's increasing assertiveness, growing rivalries between other Asian powers, and doubts about US influence in the region were leading governments to boost defence spending and prepare for possible military confrontation, Asia Group said, with key security hotspots including the South China Sea, North Korea, and the Sino-Indian border.
The other key trends in the report were the rise of tech in Asia, growing nationalism, the increasing influence of middle powers such as Australia, the uncertain future of Hong Kong, and movements for environmental sustainability and clean energy.
A Chinese missile frigate during a military exercise in the waters near south China's Hainan Island and Paracel Islands. Photo: AP alt=A Chinese missile frigate during a military exercise in the waters near south China's Hainan Island and Paracel Islands. Photo: AP
Asia Group's Tong said a striking feature of the past year was the increasing centrality of government policy to economies and businesses across the region.
"This of course includes the impact of the wide variety of government responses to the coronavirus pandemic, but perhaps even more important has been the impact of government policy on trade rules and supply chains - exhibited in a range of expanded government interventions that stretch well beyond the widely reported events related to the US-China conflict," said Tong, who previously served as the US Consul General to Hong Kong.
"In that context, nations beyond China and the US have simply not accepted the notion that they have to choose between the two, and thus many so-called 'middle powers' have been extraordinarily active in shaping the policy environment, with big repercussions for global firms."
Jeffrey Wilson, research director of the University of Western Australia's Perth USAsia Centre, said Asia had a number of advantages that would see its economies bounce back quickly from the pandemic, including the "demographic dividend" of a low dependency rate and young people entering the workforce.
"Part of the reason Asian economies will roar back to life after Covid-19 is favourable demographics," he said. "I guess it's not something new in 2020. But it is important. I would hazard that Asia is the only region in the world that combines economic openness, reliable domestic institutions, and good demographics. Every other region picks two, but Asia arguably has all three."
This article originally appeared on the South China Morning Post (SCMP).
Copyright (c) 2020. South China Morning Post Publishers Ltd. All rights reserved.
