Asia rising, Asia falling?

The End of the Asian Century: War, Stagnation and the Risks to the World’s Most Dynamic Region By Michael R Auslin (Yale University Press, 2017, 304 pp) Reviewed by Andrew Phelan

Wait a minute. It’s supposed to be Asia’s century – and now you’re telling me it’s over? Isn’t “the West,” caving in to a groundswell of populism, in terminal decline? What about Australia’s 2014 white paper on its future in the Asian century? Where is that paper now ? Figuratively, gathering dust on a departmental shelf ? I recently pulled that paper off the shelf and reviewed its almost 300 pages. It is comprehensive, and it takes Asia’s rise, especially China’s, as a given and projects it has some way to go yet.

So where is Michael R Auslin, the former Yale professor and present American Enterprise Institute scholar, coming from? Surely this book’s title is a signal in the noise of today’s media designed to grab your attention and sell a book? Or perhaps it’s a reassuring pat on the back for those within the Washington beltway: “Don’t worry, it’s really not all over for Pax Americana.” So, who’s got it right?

This book is a timely stock take and a risk assessment tool for the dynamic state of play in our region. It’s an ambitious project given the vastness and diversity of a region where at least 60 percent of the world’s population lives. Oh, and by the way, let’s make sure we have the nomenclature right. Just when everyone was getting nice and comfortable with the “Asia-Pacific,” Admiral Harry Harris, commander of the United States Pacific Command, uses the term “Indo-Asia Pacific,” which, while accurate, is a bit of a mouthful. So let’s settle on the “Indo-Pacific.” This does the narrative far greater justice because it brings India and the East Indian Ocean into frame, and it better serves the cultural legacy of India in Indochina, as well as Indonesia. It also makes sense for Australia and Indonesia, which both have vast coastlines in the Indian Ocean.

Auslin has peered through what Lawrence Summers, the former US Treasury secretary, called “Asiaphoria” – the idea that the sun has somehow shifted hemispheres to shine over Asia’s inexorable rise. If that were the case, the sun’s rays would struggle to penetrate the density of particulate matter shrouding megacities such as Chongqing and New Delhi.

This is a fine, measured work of analytical myth-busting that provides multiple stakeholders, from diplomats to business leaders to students, a primer on the real risks and challenges the broader Indo-Pacific region faces at it strives to attain a “Western quality of life.” Its publication, coincident with the swearing in of a new US president, could hardly have been more timely. Auslin’s Asia risk map has us navigating five hazards: failed economic reform; demographic risk; lack of political community; unfinished political revolutions; and the threat of war. All these risk areas overlap, so I’ll highlight some of them to give you a flavor of what to expect from this essential piece of work, as it would be impossible to touch upon them all in a book review.

Auslin starts out with Monday, June 15, 2015. When the Shanghai stock market opened on that day, it had been on a tear. A three-year bull run had it up 106 percent since the summer of 2014. China’s stock market now had a capitalization of more than $10 trillion, but on that Monday the bubble burst. By the end of the northern summer its stock market, despite some desperate measures, had lost onethird of its value. The Chinese government values two things above all else: control and stability. It was now caught, seemingly, like a deer in the headlights, not knowing from a policy point of view quite what to do.

China had viewed 2008 as a tipping point in its own rise and the decline of its strategic rival, the United States. The global financial crisis, spawned by the untrammeled greed and recklessness of a handful of Wall Street investment banks, was proof to Beijing that the American system was not only not infallible, but perhaps inferior to its own centrally directed one-party system. But here was a development dilemma, one faced in different ways by Japan and South Korea but unique to China. How does a system that values so much state control allow free markets to selfregulate under an independent legal system and a free stock exchange? The answer is: it doesn’t. Much of that pre-2015 investment had proven to be highly speculative. Chinese money has a history of running for the exits – think late 1940s – and given the opacity of Chinese markets, the stock sell-off led to an unprecedented flight of capital out of the country in the form of investments in overseas real estate, the US stock market and in many cases prior to President Xi Jinping’s crackdown, casinos outside of mainland China.

Since 2015, the rate of growth of China’s economy has slowed and recently even recorded its first current account deficit. The challenge for the Chinese leadership now is to plot the next stage in the maturation of its economy. According to Nicholas Lardy, of the Peterson Institute for International Economics, simply merging state-owned enterprises (SOEs) into bigger ones is not the answer. Measured by return on assets, China’s SOEs are rank underperformers compared to their US counterparts. In the recently concluded National People’s Congress, President Xi boldly announced that SOEs would have to behave more like private companies. China’s total debt to gross domestic product is believed to be in the order of 250 percent, so a reorientation of the economy away from shadow banking and a bloated state-owned sector and toward a more market-oriented private economy and more consumption would be a massive shift – one not without the risk of social dislocation.

China’s wealth is already very unequally distributed, and there is widespread anger among ordinary people at the wealth of its ruling elites, something the Communist Party goes to great lengths to conceal. One World Bank report states that since 1998, China has seen 800 million of its citizens lifted out of poverty. What it should read, though, is “extreme poverty.” The World Bank defines poverty as $1.90 per day. Try getting by on that in Beijing or Shanghai. According to the Pew Research Center, there are 900 million people in China who are “low income,” defined by making less that $10 per day. A slowing Chinese economy represents not only the risk of more social instability, but may also add fuel to China’s already fervent nationalism. More on that later.

Recent statements from the Chinese leadership have decried the idea of an independent judiciary as a Western concept, and herein lies the dilemma facing China in its next phase of development. To get to the next stage, it simply can’t have its cake and eat it too. To plot the next, more difficult, phase will require a new level of creativity and imagination. It’s going to be fascinating to watch.

An aging Asia

Auslin splits the chapter on demographic risk in three. Japan, which has too few people; China which used to have too many people and is going to end up with too few of working age as it races the clock to get rich before it gets old; and India and much of Southeast Asia, which have too many people.

Japan’s demographic risk

Japan was the first Asian nation to industrialize and match or surpass the best of the West that enjoyed a post-World War II dream run, which came to a screeching halt in the early l990s, and has endured more than two decades of next to no growth since. South Korea, which struggles to reconcile the power of chaebol economics and its political system, like Japan faces challenges to refresh its economy now that it has entered the rich club.

The so-called silver tsunami is hitting Japan first and hardest. Despite this it remains incredibly resistant to change. The belief in racial purity and “Japaneseness,” or “nihonjinron,” a buzzword that was doing the rounds in Japan in the 1980s, has been well documented, but so has the hollowing out of its once mighty consumer electronics industry that arguably missed the digital revolution due to its insular “island mentality.” Despite a low birthrate and top-heavy demographics, it appears Japan would rather experiment with robots than allow willing nurses from the Philippines and Indonesia to work and reside in the country. This is in sharp contrast to the United States, Canada and Australia, which have been reinvigorated by the transfusion of hungry and often highly skilled immigrants. Gender inequality in the workplace is also a drag on Japan, South Korea and India realizing their full potential.

The University of Tokyo Law School graduates who make up the upper echelons of Japan’s Liberal Democratic Party are unwilling to take on vested interests and disrupt industries such as agriculture and construction because it would be political suicide. It’s hard to imagine Japan plotting a radically different course. It seems to have turned in on itself since the heady days of the 1980s. There are far less Japanese students studying abroad. Two decades ago, more than 40,000 Japanese students studied in the United States, versus less than half that today, Auslin

points out. The opposite trend is the case for students from China. Japan may retain its racial homogeneity and is by no means a spent force economically, as the world’s thirdlargest economy, but it has and will continue to pay a price for its unwillingness to change. This has not gone unnoticed in the region. As Auslin states: “By some estimates, Japan’s population, which stood at 127.3 million in 2013, will drop as much as 30 percent by 2060 to as low as 86 million, which is smaller than Vietnam today.” He later adds: “As many as 40 percent of Japanese will be over 65 in just a few decades. This would be the largest peacetime demographic drop in modern world history.”

Meanwhile, countries such as India, Indonesia and the Philippines face the opposite problem: so many young people that they struggle to educate and employ them, and in the case of India, highly educated women who for cultural reasons don’t end up taking up their place in the work force. This leads me to Auslin’s next three risk areas.

The environmental cost

When I first visited China in 1988, Saturday was a workday. Imagine the impact when, a few years later, Chinese workers were given a whole weekend off. Like everything in China, the sheer scale of the country means that even the slightest reforms can reverberate around the world. In my adult lifetime, I have had a front-row seat on China’s transformation and urbanization, from skinny people on Flying Pigeon bicycles to heftier folk stuck in traffic jams, and everything in between. When the legacy of China’s recently relaxed one-child policy hits home mid-century, its median age will be just under 50 and it will have more elderly than Japan, Europe and the United States combined. Its current fertility rate of around 1.56 is on a par with South Korea, Japan and Singapore.

Meanwhile, the fastest, largest-scale industrialization and urbanization in human history has come at a terrible cost. The lack of enforcement of laws affects many sectors, for example health care and environmental protection. Visiting China’s megacities, especially in winter and spring, is like shifting back to black-and-white television. In January and February of 2013, the term “airpocalypse” was coined to describe air that, especially in northern China, had reached levels where the particulate matter was 50 to 60 times the World Health Organization’s recommended levels. Air and water quality are having a devastating effect on the health of China’s population. Of course, Beijing is both well aware of this and afraid of the social fallout it can bring, and is investing in solar and renewable energies. But the question remains: is it too little, too late and will China’s government have the political will to cut back polluting energy and industries at risk of lower economic growth, rising unemployment and social instability?

While China deserves credit for its reforms and opening up, it is a regime that has no tolerance for dissent. Those that oppose China within its borders are crushed or “disappeared.” Lost in the noise of Brexit in a Western media that remains light when it comes to giving Asia much airtime or providing really nuanced analysis, the former Canadian politician David Kilgour launched the 500-page “Bloody Harvest” report. In China, there is a lucrative trade in selling the organs of executed prisoners for high prices to desperate patients. China’s brutal suppression of religious groups and the Falun Gong movement also hardly wins friends in the West, not that it seems to bother it that much.

Let’s touch on the following three of Auslin’s five risk factors that are closely tied: lack of political community, unfinished political revolutions and the threat of war. It’s the unfinished revolutions or historical baggage that have led to the lack of political community and an ever-increasing threat of war.

When speaking of baggage, let’s start with Northeast Asia. It doesn’t help that the fathers of the current leaders of Japan, South Korea (prior to President Park’s impeachment) and China were all bitter enemies during World War II and the post-war era. You can imagine what those fathers might have passed on to their children around the dinner table. Unlike Germany, Japan has not done a great job of coming to terms with its brutal imperialist past, to which China (I was a graduate student in Nanjing in the 1990s) and South Korea are highly sensitive. The end of World War II was followed by struggles for independence. Having thrown off the shackles of either Western colonial rule or Japanese domination, so began the task of nation-building. The Indo-Pacific overall gets a passing grade on the back of economic growth, but the picture in India and Southeast Asia is decidedly patchier.

With the Association of Southeast Asian Nations (Asean), we can cover both unfinished revolutions and a lack of community. Most Asean summits are nothing short of embarrassing photo opportunities, although at least leaders are getting together and talking, which is better than nothing. Asean requires consensus among all its members and avoids legally binding agreements. Getting consensus has proved impossible.

Excising the wealthy city-state of Singapore from the rest of the group, there are unfinished revolutions everywhere. Most of Asean is stuck in the middle-income trap and characterized, with the possible exception of Malaysia, as having a small super-rich ruling and business elite, and a very large, very young poor class with little capital or education. Indonesia, far and away Asean’s largest member, has what I like to call the “merdeka mentality.” Indonesia’s struggle for independence from the Dutch after 1945 was supported by its southern neighbor, Australia, but like India it has a similar “Nonaligned Movement” way of thinking of the past, characterized by anti-Western rhetoric designed for domestic political consumption. Indonesia’s founding president, Soekarno, was famous for fist-shaking rhetoric, but he also tore up Jakarta’s only tram tracks while its neighbor Singapore was getting on with the job of building world-class infrastructure with the best suppliers in the world.

The threat of war

At the close of World War II, American military power and aid was as close the region had to any glue. Indeed, the United States has been the Indo-Pacific’s trusted security guarantor for the last 70 years, and its presence in the background has provided a platform for economic success, particularly in Northeast Asia.

In more recent times, the fall of the Berlin Wall heralded a bout of American triumphalism that, as Hugh White, the prominent Australian defense analyst, has just gently reminded us 25 years on, prompted Francis Fukuyama to produce “The End of History and the Last Man.” The rest of the world was then supposed to fall into this new, US-led world order, one where the institutions and rules of the game, the International Monetary Fund, the World Bank and so forth, were American-created and dominated. China, as we now all know, has other ideas. The former diplomat and intelligence official Michael Pillsbury, who is a fluent Mandarin speaker, prefaces his excellent book “The Hundred-Year Marathon: China’s Secret Strategy to Replace America as the Global Superpower” with a quote from Confucius: “There cannot be two suns in the sky, nor two emperors on the earth.”

If my review, and Auslin’s book, has been a little too China-centric, it now shadows the region. China is the main talking point. It’s impossible to cover such ambitious subject material in a book – let alone a book review. In my view, China’s rise and its strategic rivalry with the United States is the story of our time. Still, what Auslin has done is provide the handbook on the state of play and the real risks in the vast and diverse Indo-Pacific region, and where it’s likely headed. As such, it is essential reading.


Andrew Phelan is an observer and writer on Asia-Pacific geopolitics and economics, and welcomes comments at @ajphelo.

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