Welcome to Pivot to Asia, our new monthly newsletter on key issues and trends in Asia. Today, we turn the spotlight on the France's Ministerial Forum for cooperation in the Indo-Pacific and on its implications for the Eu’s policy towards Asia and China.
A new chapter of the European policy towards Asia is at the starting line. As the rotating EU President, France hosted the first Ministerial Forum for Cooperation in the Indo-Pacific with a clear-cut target: shaping Europe’s strategy towards Asia and China. Neither Washington nor Beijing received an invitation to the Forum, but Canada, UAE, Oman and South Africa were there. Subscribe to the Pivot to Asia newsletter
Why it matters
- The Indo-Pacific is a priority of France’s EU presidency. This could be the first “Indo-Pacific Presidency”: France's term comes right after the Joint Communication on EU Strategy towards the Indo-Pacific(September 2021), which aims at enhancing economic cooperation and securing supply-chains between the two regions.
- Before 2020, only France had developed an Indo-Pacific strategy in Europe, mainly because Paris sees itself as a “resident” power in the region. France is present in the region via its overseas territories and 93% of its exclusive economic zone (EEZ) is located in the Indian and Pacific Oceans. The Indo-Pacific is home to 1.5 million French citizens, and 8,000 soldiers are stationed there. Germany and the Netherlands followed Paris with their own strategies mostly focused on trade routes. They all paved the way to the European strategy.
- Even if not officially on the agenda, the forum is key to shape the EU’s China policy.When the Comprehensive Agreement on Investment (CAI) between the EU and China was signed on December 30, 2020, Emmanuel Macron was at the forefront along with Angela Merkel, notwithstanding the US disagreement. Since then, the European Parliament has put CAI on hold and do to date its approval seems very unlikely. Will France try to revive the spirit of CAI during its semester as EU president, or is the momentum now definitively lost, and China is nothing but a “systemic rival”?
Will the EU be able to put its own Indo-Pacific strategy in practice, with some degree of autonomy from China and the UsS? When it comes to China, how to strike a balance between economic cooperation and political values? And can France take the lead in shaping the EU’s policy towards Asia? Our take is that France is playing a powerful card with this Presidency (and the Ministerial forum) to become the European leader in the most relevant geopolitical game of the decade. The reduction of dependency from China’s economic leverage is taking center stage in the EU and the Lithuanian affair has just set the tone of the coming discussion about Beijing. The EU seems to increasingly share concerns with a growing number of countries around the world about China’s economic interests.
Today's crisis: Eyes on Vilnius
Today, the Eu’s China and Indo-Pacific policy may not be tested in Brussels or Paris, but in Vilnius. After Taipei opened a de facto embassy in the Baltic capital Lithuania's diplomatic delegation to China left the country in December in a hastily arranged exit as a consequence of downgraded diplomatic ties between Beijing and Vilnius. Moreover, China's blockade on Lithuanian products is affecting selected European supply chains (e.g. automotive). On January 27, the dispute escalated and reached the desks of WTO officials after the EU decided to officially refer China.
What impact will the Indo-Pacific Forum have?
The European view | "France means business in the Indo-Pacific. On February 22, the French government organized the first ever Ministerial Forum of the region. Foreign Ministers of EU-Member-States and their counterparts from the Indo-Pacific have discussed issues as varied - yet inter-linked - such as security, connectivity in particular digital connectivity, ocean governance, etc. Six months after the release of the EU strategy for cooperation in the Indo-Pacific, the French government intends to both further the appropriation of the concept by Member-States whose interests in, and perspectives on the region are inevitably different, and demonstrate to Indo-Pacific countries that Europe is serious in its willingness to engage the region. In order to do that the French government has been working with its European counterparts on a list of concrete projects that will mark the beginning of the implementation of the strategy. What happened in Paris did not drastically change the situation in the Indo-Pacific but it clearly intends to impulse a new dynamic."
Frédéric Grare, European Council on Foreign Relations (ECFR)
The Indian view | "Asia and the Indo-Pacific have long been primarily US domains; France’s massive effort of outreach via an inclusive platform like Indo-Pacific Forum – that will see major power states like India, Japan, South Korea and Australia as well as small archipelagos like Seychelles, Samoa, Fiji, Mauritius, Maldives, Comoros and Micronesia take part – is a sign of France’s commitment to a strong European presence in the region. As Asia rises to become a hub of geo-political and geo-economic activity in the coming ‘Asian century’, France’s Indo-Pacific Forum would be laying the foundation for a stronger and larger Asian-European connection that has become indispensable. Asia and Europe are inherently tethered by their common security interests, like global health, climate change, biodiversity and the protection of oceans, and great power rivalry. By excluding China and the US, the Indo-Pacific Forum, France is looking to initiate a substantive and progressive dialogue with Asia and the Indo-Pacific that is far removed from any great power dynamics but focused on concrete action that establish the EU (and especially France) as a credible partner for Asia in times to come."
Jagannath Panda, Manohar Parrikar Institute for Defence Studies and Analyses
The Lithuanian affair: how is it affecting Eu-China relations?
The Chinese View | "The recent developments in the Sino-Lithuanian relations caught many in China off guard. For many Chinese citizens, Lithuania, the small Baltic state, is too remote and insignificant to deserve much serious attention. Lithuania had not loomed large within the framework of “17+1” either. I suspect there is a decent number of Chinese who do not know where Lithuania is on a map. Therefore, the general public is a bit unprepared to see an otherwise quiet Eastern European state making big noise over one of the core issues in China’s foreign policy. It is the irony of the foreign relations of China: that Lithuania can allow itself to put its relations with Beijing at risk, over an issue of paramount concern for China, is largely due to the fact that, here, it is regarded as relatively insignificant. However, it takes more than one cold day for the river to freeze three feet deep - the trouble might have been brewing for quite some time. I think the solution to the difficult situation in the China Lithuania relations rests mainly upon those who caused the problem."
Chen Changwei, Peking University
The European View | "Beijing is examining, in an unprecedented way, the EU’s unity and solidarity. The PRC probes whether the EU and its member states will bow under Chinese pressure, or adhere to the EU’s own norms and back Lithuania, despite real economic losses of their companies. Therefore, the credibility and security of the EU (and the West) is at stake. So far, the EU is united, speaking in one voice. Decision to initiate WTO proceedings against China (with other like-minded countries willing to step in) shifted the dispute from bilateral to the EU or even global level. Germany backed Vilnius and requested its own companies to stay in and/or to continue cooperation with Lithuania, while France, holding the EU’s presidency, announced the speeding up of legislation for an anti-coercion instrument. However, this unity might not hold once and for all if China prolongs its pressure both upon Lithuania and multinationals. Snowballing economic losses (if the EU fails to cope with losses) may result in companies putting pressure on their own governments to make concessions to China. Should this happen, China will prove how effective the weapon of dependency is and how vulnerable the EU is to illicit pressure. Credibility of the EU and its core values – solidarity, non-discrimination, free market – as well as security of EU citizens – would be seriously undermined."
Justyna Szczudlik, The Polish Institute of International Affairs
What and Where
LNG: The Ukraine crisis highlights the need for diversification
If economic dependency from China is a major source of concern for countries gathering around the concept of Indo-Pacific, then the Ukrainian crisis is further troubling those Asian countries that are too reliant on gas from Russia. Last year, Japan imported 6.57 million tonnes of LNG from Russia. Its gas market may now suffer potential sanctions on Russian LNG and Tokyo might be forced to search for alternative suppliers in the Indo-Pacific. Conversely, India, which is expected to increase it’s consumption of LNG by 15-17% between April 2022 and March 2023, should be less vulnerable to the fluctuations of LNG prices, as over 85%of its gas imports are contracted through long-term deals. When it comes to China, it has become the largest importer of LNG worldwide, with a +18% increase in 2021. Even if Beijing has strong ties to Russia, the country may still encounter some trouble with LNG supplies as gas demand has risen with colder weather and with the return to full productivity of industries whose production had been halted during the Olympics. Moreover, Central Asian countries have cut their furniture of natural gas to China by 10%, further reducing the country’s supply of LNG. Uncertainty is still the prevailing sentiment in Asia’s gas market, but the rising demand of LNG from Asian countries might trigger a “price war” over gas with the EU.
China: Xi Jinping to return to in-person diplomacy
On the sidelines of the Winter Olympics, Xi engaged in face-to-face meetings after two years of diplomatic isolation and virtual encounters with foreign leaders. Amid tensions over Ukraine, international criticism over human rights in China and the Western diplomatic boycott of the Games, only 22 foreign leaders participated in the opening ceremony in Beijing. Still, Xi used this opportunity to strengthen and forge alliances. Beyond the long-awaited summit between Xi and Putin, Xi held another noteworthy meeting with Argentina’s president Alberto Fernández. The two leaders signed a memorandum of understanding to include Argentina in the Belt and Road Initiative, platform for Chinese investments and infrastructure. The South American country has turned to China to diminish its dependence on the US and the IMF, while Xi seeks to advance China’s influence in Latin America. The development could present a challenge for Biden’s nascent Build Back Better for the World (B3W) and his plans to regain political momentum in South America.
East Asia: South Korea's Economy overtakes Japan's
In January, the Japan Center for Economic Research had declared that South Korea’s nominal GDP per capita would overtake Japan’s by 2027. However, the overtaking may come sooner. According to the World Bank, South Korea’s GDP had already surpassed Japan’s in real terms in 2018. In addition, by 2023, the IMF expects South Korea’s total real GDP to grow by 2.9%, while Japan’s GDP will lag behind, growing only by 1.8%. The difference in projection between the countries is due to South Korea’s higher productivity growth, which is now just one percentage point behind Japan's. Moreover, while Japanese wages have not increased significantly since the '90s, South Korean wages have almost doubled. While South Korea has not escaped the slow growth typical of mature economies, its growth rate until 2035 is predicted at 4.1% percent average - higher than Japan’s forecasted 2%
Southeast Asia: ASEAN and the Myanmar dilemma
Myanmar’s crisis remains an unresolved issue in the ASEAN bloc. In April 2021, the adoption by ASEAN of the Five-Point Consensus on the Myanmar crisis and the refusal to host the army chief and country leader Min Aung Hlain in the organization’s annual summit gave hope over the unity of the bloc. However, with Cambodia as ASEAN’s new 2022 chair, divisions seem to be back. Cambodia's leader Hun Sen used do favor engagement with Myanmar – a position supported by China, a long-time ally of Cambodia – and he was the first foreign leader to visit Myanmar after the coup. Cambodia has temporarily abandoned this position and announced that no political representative from Myanmar would participate in ASEAN summits until the country starts to implement last year's Five-Point agreement. In response, Myanmar refused to send any representative to the first ASEAN foreign ministers retreat on February 16-17. The division within the bloc brought to light by the Myanmar crisis is likely to hinder ASEAN's capability to devise a common agenda and push “ASEAN's centrality” at a time of heightened pressure from the US and China.
India: Ballots in five states will test Modi
From February 10, citizens of the five states of Uttar Pradesh, Uttarakhand, Punjab, Manipur and Goa – totaling over 250 million people – will vote for their representatives. The results of the elections will be crucial indicators of the country’s political direction and of the future of Narendra Modi’s Bharatiya Janata Party (BJP). As India’s most populous state and home to some of its poorest communities, the bellwether state of Uttar Pradesh is crucial in national politics, sending the largest number of representatives to New Delhi’s Parliament. Therefore, losing in Uttar Pradesh could damage Modi’s popularity and hinder BJP’s success at the next general election. The last months were characterized by increasing religious tensions between Muslim and Hindu groups and by criticism over the handling of the Delta-variant spread that led to the collapse of the health system and caused two lockdowns. As such, these elections might give an indication of the popular sentiment towards Modi, setting the tone for his possible third term bid in 2024.
The Asian century tells us the story of a rising middle class. If in the ‘90s the middle classes of India, Indonesia and China were just between 0% and 4% of their total population, by 2030 India’s middle class is expected to reach almost 80%, China’s to reach 72% and Indonesia’s to hit a still remarkable 41%. However, the path to success for middle classes in these three countries is quite different. China skyrocketed from 0% to over 40% in a quarter of century (1995-2020) and is expected to maintain a stable growth during the following ten years. During the current decade, India is set to experience the highest leap, moving from 21% in 2020 to 79% in 2030, while Indonesia is forecasted to record a smaller +9% in the 20’s. In 1995, Indonesia was the first among the three countries in terms of the size of its middle class. Later on, however, it lost pace, becoming second in 2020; at this pace, the country will be third in 2030. These figures well represent the different development paths occurred in the region and highlight the forthcoming economic opportunities that trade agreements such as the Regional Comprehensive Economic Partnership (RCEP) are trying to capitalize.
What We're Reading
- France’s Ambitious Indo-Pacific Goals for Its EU Presidency
- Lithuania tests the EU’s resolve on Chinese economic coercion
- Taiwan Sees China's Xi as Too Focused on Party Reshuffle for Any Attack
- One year after Myanmar’s coup, old and new resistance is undermined by divisions
- Asian Economic Integration Report 2022