US President Joe Biden has arrived in South Korea, the first stop in a five-day Asian tour that will also bring him to Japan. The trip – Biden's first to Asia since taking office – is meant to reaffirm the US commitment to restraining China, despite the recent focus on the Ukraine war. How Biden intends to pursue this objective, however, remains unclear. His main economic tool to contain China — the Indo-Pacific Economic Framework (IPEF) — and its participants will be finally unveiled. Last week, ASEAN countries gathered in Washington, and seemed unwilling to be part of this initiative, as they have chosen not to take sides in the great power competition between the US and China.
Why it matters
1.The war in Ukraine may further exacerbate the US-China divide, with the Indo-Pacific emerging as the major point of contention between Washington and Beijing. Over the last few months, Biden has tried hard to show that the conflict has not distracted his Administration from its main overarching strategic goal: containing China. During his visit, the US President will attend the second in-person Quad Leaders’ Summit which brings together also the political leaders of Japan, India and Australia. Established in 2007, the Quad was quickly sidelined until 2017, when it was “resurrected” by Donald Trump. In 2021, Joe Biden upgraded the format from a ministerial level to a leader's level. In this summit the discussion will revolve around the concept of a Free and Open Indo-Pacific (FOIP), as a mean to counter China’s attempts to take control of the South China Sea. The Quad leaders will also focus on non-military goals such as quality infrastructure, vaccine diplomacy, as well as critical and emerging technologies.
2. The US needs to develop an appropriate economic pillar to counterbalance the Regional Comprehensive Economic Partnership (RCEP), that entered into force in January 2021. Along with ASEAN countries, Australia and others, RCEP includes China, but not the US. An attempt to focus both on security and the economic dimension was made by the Obama administration, when it launched the Trans-Pacific Partnership (TPP). The TPP, however, failed when Donald Trump decided to withdraw. As a result, Asian and Pacific countries did not give up their hope for a regional trade agreement and launched two deals that do not include the US: the RCEP and the Comprehensive and Progressive Trans-Pacific Partnership. Is there any room for maneuvre left for the US today? This will strongly depend on Biden’s ability to convince his partners that his Indo Pacific Economic Framework is built on solid ground.
3. Keeping India in the grouping is the most urgent strategic target for Washington. India’s neutral position on the Ukraine war has sparked controversies among Quad members. Although such divergences now seem to be mending, India's persistent ambivalence should raise a red flag for Washington: the US should not take India's support for granted. And it is worth recalling that New Delhi holds frequent diplomatic exchanges with Moscow and Beijing, as it is a member in multilateral organisations (Shanghai Cooperation Oganization and BRICS) that are led by China and Russia, and where nor the US nor its allies are included.
Joe Biden has one goal as he arrives in Asia: to create consensus over the need to contain China. Last week’s US-ASEAN meeting in Washington was disappointing: not only has the US committed to spending just $150 million on infrastructure, security and anti-pandemic measures in the region, but above all participants lacked a clear common view on how to deal with Beijing. Without a larger consensus among ASEAN members to reshape the regional economy away from China, Quad members (Australia, India, Japan, and the US) cannot alone fulfill their commitment to contain Beijing. Although the US could easily convince allies such as India and North-East Asian countries to stand up against China’s threat – these countries share Washington’s same strategic goal – Biden needs to step up his efforts to win the hearts and minds of ASEAN countries. But so far, the IPEF – albeit still largely unknown – seems to fall short of this goal: for ASEAN countries, the economic gains from the IPEF could be too little to risk severing ties with China. President Biden seems to be aware of their hesitation and is willing to negotiate the content of the IPEF to attract more participants.
In the spotlight
As expected, China’s economy has performed badly during the last month. Data released on May 16 confirm that both the war in Ukraine and anti-Covid measures are taking their toll on the country’s economic performance. In March, retail and manufacturing had already slowed down – retail sales decreased by 3.5% and the most relevant index on manufacturing activity was negative. April performed even worse, with retail down -11,1% year-over-year (the worst performance since March 2020) and factory production at -2,9%. In addition , the property market is slowing at a pace unseen over the past sixteen years, and some crucial sectors are also experiencing remarkably bad outcomes. In April, automotive sales plunged 47,6% yoy and Shanghai’s car-market registered “zero-sales”. China had set a 5,5% GDP growth target for this year, hoping to overcome the US as the world’s fastest-growing big economy. If figures get worse, Xi Jinping will have a hard time at the upcoming 20th Party Congress this fall. This situation also explains the recent spike in rumors about a political clash among Party factions. There is no doubt that China’s economy will be under the spotlight in the coming months.
What to expect from Biden's Asia tour?
Biden’s visit to South Korea and Japan will focus on upgrading the US’ policy towards Asia. First, with the recently-appointed South Korean government, Biden will attempt to advance the US-South Korea alliance. This comprehensive, strategic US-South Korea alliance, which was initiated in 2008, has not been substantially realized at the regional level due to South Korea-China relations. Biden will make the alliance more geared towards a regional one so that South Korea can be aligned with the US to deal with China. Second, Biden will make the IPEF an official institution so that it can cover diverse issue modules. Unlike the CPTPP, which only addresses trade issues, the IPEF is expected to deal with multiple issue areas like trade, the digital economy, and global supply chains, among others. Third, Biden will attempt to restore the damaged South Korea-Japan relations and take the initiative to solidify the US-Japan-Korea trilateral relations to deal with threats from North Korea and China.
Kim Hyungwook, Korea National Diplomatic Academy
US President Joe Biden will be in Japan and Korea between the 20th and 24th of May, in his first visit to Asia since taking office last year. Arriving shortly after the conclusion of the May 12th-13th US-ASEAN Summit in Washington, the visit marks the US’ commitment to a free and open Indo-Pacific (FOIP) despite its preoccupation with Ukraine. During this trip, Biden is expected to provide more clarity on the Indo-Pacific Economic Framework (IPEF). Businesses will look forward to the IPEF's vision of resilient and sustainable supply chains, trade, investments, and the IPEF’s overall benefits for the region. Moreover, announcements of specific projects under the IPEF are expected at the Quad Heads of States’ meeting in Tokyo during the trip.
The visit comes at a time when US-China tensions are high over Taiwan. China’s regional geo-political influence has increased through the election of pro-Chinese leaders in Hong Kong and the Philippines. The region would expect the visit to be carefully calibrated to avoid an escalation of the US-China tussle over strategic influence.
Amitendu Palit, Institute of South Asian Studies, National University of Singapore
The US Indo-Pacific strategy was rolled out just as the invasion of Ukraine unfolded, prompting inevitable questions about whether the crisis would yet again suck political energies away from Asia. Biden’s trip, the recent US-ASEAN summit, and the new Indo-Pacific Economic Framework are intended to signal that the United States still sees the Indo-Pacific as its most important strategic priority. But recent months have also seen a shift in US analysis to view strategy in the two regions in a more integrated fashion. This is in part a reflection of the intensifying Sino-Russian relationship. But it also reflects a deeper appreciation of how far decisions in one theater have second-order consequences in the other, from the replicability of the Russia sanctions and export controls in a Chinese context to the new “friend-shoring” models that are being developed for supply chains with Asian and European partners. While there are certainly still trade-offs — not least over allocations of military resources — Biden’s trip will be characterized by a clear sense that the United States and its allies face a common set of challenges that need a collective response.
Andrew Small, Asia Program, German Marshall Fund
What and Where
BongBong’s Election in the Philippines Could Prove Thorny for both China and the US
Ferdinand ‘Bongbong’ Marcos, son of the dictator who ruled over the Philippines until his deposition in 1986, was elected President of the Philippines in the May 9th national election. The outcome is not surprising, considering that the Marcos family has invested much effort in redeeming their name. Also, the popularity of the Vice President nominee running alongside BongBong, Sara Duterte (the outgoing President Rodrigo Duterte’s daughter) has been key. Beyond domestic worries over the country’s democratic future, Marcos Jr’s election is likely to become a source of instability in the US-China competition for pre-eminence in the Indo-Pacific. The new President will attempt to strike a balance between Washington and Beijing: maintaining friendly relations with China – Manila’s main trading partner and the strongest regional power – while consolidating the Philippines-US military alliance to confront Xi Jinping’s expansionism in the South China Sea. However, while claiming that he wants to pursue an independent foreign policy, BongBong has recently spoken with Xi about boosting economic and diplomatic relations. As of now, he might thus be leaning a bit more toward Beijing than toward Washington. The decision to deepen ties with China should worry the Biden administration, although Xi Jinping won’t have an easy time in influencing Manila’s political agenda. China’s assertiveness toward its Southeast Asian neighbours, particularly in the SCS, coupled with the constant incursions of Chinese vessels in the Philippines’ national waters have turned the country’s public opinion more critical of Beijing, which is no longer considered a benevolent power. Xi will have to work hard to win the confidence of Filipino citizens and keep the country in China’s sphere of influence.
China’s Presence Is Strong in Australia’s Electoral Debate
On May 21st, Australians will head to the ballots for the federal election. Hoping to continue to lead the country, current Prime Minister Scott Morrison and his Liberal party will go up against the Labour Party’s candidate, Anthony Albanese. The nation’s future leader will have to face global challenges, such as rising commodity prices and high inflation rates, as well as a dire climate situation. However, the most difficult challenge for the incoming government will likely be China. Indeed, Xi Jinping has often been mentioned during the electoral campaign. Recently, tensions between China and Australia have escalated. The latter requested an inquiry into Covid-19's origins, to which Beijing replied with bans on Australian products. Sydney’s military alignment with the US – epitomized by the creation of the AUKUS and the Quad – has unnerved Beijing, and Canberra has been vocal in condemning China’s deal with the Solomon Islands. The Labor Party has accused the current administration of allowing China to court the Pacific Islands away from Australia. Both parties agree that, under Xi Jinping, China has changed and become more assertive. The two groups are looking to increase defense spending and deepen their security alliance with the US. However, with China remaining an important trade partner for Australia, as well as the strongest military regional power, the incoming administration might have to consider a more diplomatic response to China’s assertiveness in the region. This solution could ease economic tensions between the two countries and avoid an escalation of military competition in the Pacific.
Sri Lanka, Crushed by Debt and Lack of Foreign Reserves
Sri Lanka has officially defaulted on its debt for the first time in its post-colonial history. The country had plunged into its worst economic crisis ever. Due to a lack of foreign value reserves and the inability to repay its high external debt — amounting to around $50 billion — the government is unable to pay for basic imports and commodities like food and fuel. Sri Lanka has struggled on many occasions to hold on to its foreign reserves and has repeatedly applied for loans from the IMF. However, the current situation appears more complicated. Power cuts in the past month, paired with food scarcity and rising commodities prices and worsened by the war in Ukraine and rising global inflation, have all brought citizens to the streets, prompting Prime Minister Mahinda Rajapaksa’s resignation. Many factors have contributed to the current state of the economy, with the country’s over-indebtedness being most at fault. In the West, many have accused China of luring Sri Lanka in a “debt-trap”. However, Sri Lanka is equally indebted to China as it is to Japan, each holding around 10% of the nation’s debt. Domestic political choices have also played a role in worsening the situation, such as Rajapaksa’s ill-timed decision to cut taxes in 2019 resulting in lost revenues just before the pandemic, as well as poor agriculture policies that have caused a decline in agriculture productivity and an increased dependency on imports. The Covid-19 pandemic has stopped tourism – a major source of income for the island (over 10% of GDP) – and has halted economic activities during lockdowns. The default, socio-political instability and the scarcity of basic commodities, will heavily challenge the government’s ability to bring the country’s economy back on track.
Kishida Steps Up Efforts to Strengthen Japan’s International Standing
The Japanese Prime Minister, Fumio Kishida, elected in November 2021, has embarked on a flurry of meetings with his foreign counterparts to consolidate Japan’s alliances at a time of increasing global uncertainty. Kishida seems particularly keen on strengthening Japan’s partnerships with Southeast Asian powers, with a view to countering China’s perceived aggression in the region (although Beijing is momentarily more preoccupied with domestic concerns such as the Covid-19 spread and the economic downturn). Kishida’s meeting with Indian PM Modi is important as well. While India and Japan have adopted different stances on Russia’s invasion of Ukraine, both share worries over China’s increasing power in the region and see their cooperation as crucial to counter Beijing. Kishida also visited the UK and Italy, and during the EU-Japan Summit held in Tokyo, he reiterated his alignment with the West vis-à-vis Russia, as well as his intention to increase cooperation with Europe.
The Japanese PM’s recent efforts reflect many global leaders’ worry that — if perceived as too accommodating and unable to protect themselves — small countries could face a similar destiny as Ukraine. With NATO’s attention diverted on the current situation in Europe, Japan worries that a void would be left in the Indo-Pacific and that China could take advantage of the situation to expand its presence in the region. In this context, Tokyo is starting to rethink its foreign and defense policy by shifting closer to like-minded partners in the West, strengthening ties with other Asian powers to present an alternative to reliance on China, and increasing defense spending.
Looking ahead: the Median workforce in Asia
Asia’s workforce is set to age soon, as the median age is about to increase in every country of the region. The most developed economies face the greatest challenge, with Singapore, Japan, and South Korea expected to reach a median age of at least over 46 by the end of the current decade, while China’s will average 43. In comparison, the world’s median age for labor force was 38,9 in 2019, and the US median working age is projected to reach 42,8 by 2030, even though its economy is far more developed than China’s. By the same year, only Laos, Cambodia, Myanmar, the Philippines, and Malaysia will be well under a median age of 40 years in Asia, with India edging closer to that threshold. The median age is significant because it affects productivity: when it is too high, it implies a foreseeable reduction in the workforce. In order to slow this process down, China might raise the retirement age to 65 years, a policy that would postpone the demographic ageing phenomenon for up to 20 years, according to some estimates.
What We Are Reading
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Sri Lanka Falls Into Default For The First Time Ever
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