The Asean Economic Community: A Work In Progress
By Phar Kim Beng
Founder/Chair
Strategic Pan Indo-Pacific Arena
Strategicpipa.com
Twitter: @indo_pan
Facebook: https://www.facebook.com/Strategicpipa
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By the accounts of IMF and World Bank, Southeast Asia will have a growth rate twice that of the member states of OECD. This trend is expected to last well beyond 2020, extending all the way into 2050. This book isn’t all these targets. But it shows why ASEAN economic community can miss numerous targets.
Be that as it may, research reports by Hong Kong and Shanghai Bank, as well as the Asian Development Bank 2050 report, released in 2010, all confirmed the ballast of an upward trajectory. The caveats lie in three key factors: that Southeast Asia or ASEAN continue to get their education policy and health policy right, and that they do not get enmeshed in any geopolitical conflicts, that would otherwise disrupt their supply chain and connectivity to the world. The authors in the book made no mention of these reports, but they were generally realistic about the hits and misses.
The policy crucible seems easy enough to achieve. All ASEAN has to do is to coordinate the Ministry of Education, Health and Foreign Ministry, into a functional whole. Instead of operating in silos, all three can work in tandem through what is known as an “interagency process.” The Prime Minister, Parliament, and political parties would be kept in the know, as each move is carefully plotted, while concurrently mindful of the extenuating geopolitical circumstances occasioned by at least three sets of delicate relationships:
a. Sino US tie
b. Sino-Japan relationship
c. Sino-India tie
If all three pairs of relationships can retain an even keel, then ASEAN can remain the darling of international investors, perhaps more attractive than BRICS or MIITS i.e. Brazil, Russia, India, China and South Africa, or Mexico, India, Ireland, Turkey and South Africa. Both abbreviations have been coined by the likes of Goldman Sachs and other international financial corporations to focus the energy and investor dollars of the international community on a shortlist of countries.
But ASEAN functions, not so much as a policy driver, as it is a policy reactionary. There is nothing in the charter of ASEAN currently that permits ASEAN to operate as one entity. Hence, much of any talk of ASEAN being a go-getter, a star economy, or, a regional anchor, tends to be just talk. The discourse is perpetuated by the guided press of the respective member states to provide a patina of regionalist impulse and strategy, often under the guise of ASEAN 2030, or, ASEAN 2050 too. In and of itself, ASEAN actually does not function as a cohesive unit, and nowhere is this more apparent than in the banking sector.
Although ASEAN urges all banks in the region to subscribe to the common banking framework, a template which would have otherwise encouraged common banking licenses and cross share ownership, the reality is completely different. It is actually difficult, if not well-nigh impossible, for an established Indonesian bank to set up its branch in Singapore, or, Malaysia, even to the extent of buying into the local banking scene. When Indonesia does not get any leeway in this front, obviously Indonesian banking authorities will go protectionist too. The end result is a tit-for-tat where Malaysian banks that had originally invested themselves in Indonesia, are asked to dilute their ownership in Indonesia.
While the above is going on, the finance ministers in ASEAN still continue to meet, golf together, and be merry, all the while oblivious to the structural fissure in the regional economic enterprise. Thus, when one speaks of ASEAN having a growth rate that is twice that of the OECD, as the research units of the Bretton Woods Institution often affirm, one has to wonder if these analysts actually do know their “stuffs”? Do they have the local knowledge to understand the selfish genes that are lurking in the ecology of the ASEAN banking sectors?
Another initiative that has been often spoken of is the common ASEAN discourse. But who is the brand champion? Since the passing of Lee Kuan Yew, Suharto, indeed, Dr. Mahathir, all of whom were ardent ASEANISTS, there isn’t one leader in ASEAN who has invested the right amount of energy and time to pitch ASEAN to the regional and global audience. Singapore, over the years, has preferred to focus on the yield and value of the Trans-Pacific Partnership Agreement across all 12 economies that formed 45 percent of the world’s total GDP, as opposed to an ASEAN that is merely number six in the world’s total GDP combined. Without a brand champion, ASEAN can grow at a rate higher than OECD, no doubt, but there isn’t any policy coordination on the investor front to facilitate the flow of healthy foreign direct investment.
The end result is the sheer reliance on the strongest and the richest country in the region: China. But the investment matrix and style of ASEAN is different from China. China brings its own banks, own surplus labor, even its own railway and infrastructure blueprints to ASEAN. Thus, although there is a common ASEAN inter-connectivity plan to make ASEAN a seamless geographical whole on air, by sea, and by rail, the connectivity plan has been hijacked if not totally supplanted by China. Nor do the ASEAN officials mind, since China has basically done their job for them. Indeed, in the original ASEAN connectivity plan, ASEAN is expected to need at least USD 1 trillion worth of infrastructure investments to connect maritime and continental Southeast Asia into a sensible whole. China has and can easily triple if not quadruple that amount, by connecting Southeast Asia, especially Malaysia that shares six borders with other member states of ASEAN, to the east coast of China i.e. Mekong River leading up all the way to Yunnan, and ultimately, Fujian province through the One Belt One Road initiative.
When China enjoys such preeminence, the whole region will boom. But the whole region is also looking at three distinct possibilities. One, the influx of China money and dollars, will raise suspicion if China is semi-colonizing the countries, creating room for nationalist and hyper-nationalist to challenge the development narrative and script. Two, with China injecting their surplus labor into the regional mix, nationalists and small and medium entrepreneurs are going to ask if they will even get the crumbs at all? Three, a China that looms too large too quickly, will make the leadership in ASEAN longing for some kind of balance, by enlisting the US, Japan, India back into the fold. But, if China is investing the top dollars into the region, why would Beijing want others to partake in the development process? Thus, without a shadow of the doubt, the geopolitical mercury will continue to inch up, even if China’s investment dollars continue to ease into the region. Singapore is already wondering aloud if China has not disrupted the geopolitical balance in the region by buying up swathes of lands along with the coastal areas of Malacca, Johor and Pahang in Malaysia? In turn, China has warned Singapore, for the very first time in its diplomatic history, that the city-state should not meddle in the South China Sea or any regional affairs.
In all, there are 3000 small and medium enterprises (SMEs) in and across ASEAN. Some have a capital base of less than USD 1 million, some even lower. All 3000 SMEs can join the collective bourse in ASEAN, if it is formed one day, and trading begins in one centralized ASEAN time zone. But all 3000 SMEs are mainly addicted to exports, which again, leads them to lock their sight on China, the world’s largest market. When the needle keeps pointing north to China, other regional actors need to come up with a comprehensive regional trade agreement, as there is in the form of Asian Comprehensive Regional Trade Agreement that includes Japan. But the relationship between Japan and China will not be good in the foreseeable future. Thus, there is little by way of how China and Japan can jointly develop the region to the benefit of more stakeholders. Meanwhile, politicians being politicians, they are fine with working with China alone, even if the most ideal scheme must necessarily include the US, China, and India. The next development phase in ASEAN, therefore, begins and ends with Beijing. The economies in ASEAN will become satellite nations, and China will insist time and again there the policy of non-intervention be maintained, so that Beijing alone can have an asymmetric relationship with its Tiger economies, or, rather cubs.
