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Asia’s Precarious Rise

Posted by hkarner - 5. März 2017

Date: 04-03-2017
Source: The Wall Street Journal

Riddled with economic, political and security woes, today’s Asia is more likely to produce instability and conflict than the freedom and prosperity that many once hoped for

Since Japan’s emergence as an economic juggernaut in the 1970s, experts have predicted the arrival of an “Asian century.” We should get ready, they say, for a tectonic shift in global power as U.S. influence declines, Europe’s discontents mount, and the countries of the Indo-Pacific come to dominate world politics, economics and security. Images of Asia’s rising power and prestige have embedded themselves in our imaginations, from the purchase of Rockefeller Center by Japanese investors in the late 1980s to the grand spectacle of the Beijing Olympics in 2008. Today, with more than half the world’s population living in the region, Asia looms ever larger.

But this impressive ascent has not reconfigured world affairs, and it is unlikely to. The more important Asia has become on the global stage, the more glaring have its flaws become. The region is deeply fractured, threatened by economic stagnation, political upheaval and flashpoints that could trigger new wars. And in our more integrated global society, its troubles could quickly become everyone else’s. Much of the world’s attention in the coming decades will be devoted not just to accommodating Asia’s growing power but to managing and mitigating its many serious problems.
The bad news is likely to arrive in five discrete but interrelated varieties. The first major problem is the end of Asia’s economic miracle and the failure of its economies to reform. From Japan to India, Asian countries are struggling to maintain growth, balance their economies and fight slowdowns. The worries they face include uneven development, asset bubbles, labor woes and state control of markets.

Perhaps the greatest risk is the dramatically slowing Chinese economy. When trading opened on the Shanghai Composite Index on June 12, 2015, its value had skyrocketed more than 100% since the summer of 2014. Then the bubble popped. Fueled by fears of a slowing economy, a weakening currency and an unsustainable debt bomb of some $30 trillion, China’s markets went into free fall.

In just weeks, the world began asking whether China’s glory days were over. Since then, the evidence has only accumulated that China has entered a prolonged economic slowdown, marked by a stampede of capital out of the country, totaling $725 billion last year, according to the Institute of International Finance. China’s leaders will have to craft meaningful reforms to maintain even moderate growth in the years ahead.

Asia’s advanced economies face their own problems. Japan continues to search for ways to end 25 years of economic torpor. An asset and property price bubble nearly brought down the country’s financial system in the 1990s, and the economy has limped along ever since. Most Japanese have a comparatively high standard of living, but decades of stimulus packages and a focus on exports have failed to nudge Japan beyond an average annual growth rate of barely 1%, according to World Bank data.

Japanese corporations once led the world; now they struggle with shrinking market share, growing inefficiency and waning innovation. In 2015, a Bank of Japan report noted that the country’s companies have more than $2 trillion in liquid assets sitting unused. Prime Minister Shinzo Abe’s reforms have neither changed Japan’s risk-averse corporate culture nor eliminated enough regulations to unleash entrepreneurship and innovation.

Even if Asia’s economies do muddle through, we must prepare for a far less economically energetic region than we are used to.

Asia’s second looming problem is demographic. Japan began losing population in 2011, after decades of dropping birthrates, according to World Bank data. The country’s health and welfare ministry and other experts worry that the number of Japanese, which stood at 127 million in 2014, could fall by as much as a third by 2060. One result of this failure to reproduce is that Japan, according to the U.N., “is home to the world’s most aged population,” with 33% of its citizens 60 or over in 2015; the country is thought to have more than 58,000 centenarians. No modernized society has ever faced such a challenge.

Elderly women walk through a shopping district in Tokyo, Japan, June 16, 2015. A U.N. report calls Japan ‘home to the world’s most aged population.’

Japan’s demographic problems today could well become those of South Korea, Hong Kong, Taiwan and Singapore tomorrow. The direst scenarios for South Korea’s population, for example, predict a drop from 50 million today to just 10 million in 2136, thanks to a low fertility rate of 1.19 children per woman. As populations shrink, these countries will struggle to maintain their labor forces, stay competitive, fund entitlement programs and reshape their societies to deal with mostly elderly populations.

China’s leaders have created another demographic problem through the Communist Party’s infamous one-child policy, promulgated in 1979. Meant to control overpopulation, the policy has prevented as many as 400 million births, China’s government says. Despite the loosening of Beijing’s draconian restrictions in 2015, China still projects that its population will begin to slide downward around 2030.

China’s one-child policy is already hurting the labor market. In 2012, the total number of working-age Chinese dropped by some 3.4 million, according to China’s National Bureau of Statistics. Between 2012 and 2014, the labor force shrank by some 9.5 million, the bureau reported, and the steady flow of migrant workers into coastal manufacturing centers has begun to dry up. These trends will increasingly pressure the government itself to provide health care and other basic social services for elderly Chinese who, because of the one-child policy, don’t have large families to support them.

At the opposite end of the demographic spectrum lie countries such as India and Indonesia. Much of South and Southeast Asia face the risk of too many people. The U.N. predicts that India’s population will surpass China’s by 2022, turning the world’s largest democracy into the world’s most populous country.

For governments, this youth boom means a growing demand for education, jobs, infrastructure and rising living standards. Though having a surplus of young people might seem like an economic asset, most poor countries have failed to turn abundant labor pools into lasting prosperity.

These demographic dangers point to a third major risk: dealing with the region’s unfinished political revolutions.

China is still decades—even generations—away from developing any sort of meaningful political liberty. The party has become ever more isolated from its citizenry, who widely (and rightly) see it as corrupt, inefficient and often brutal. The party has managed to keep a lid on dissent, but only because it has been able to point to the country’s huge economic gains. As growth wanes, unrest will increase. The distrust between citizen and state is the single greatest threat to the party’s continued rule.

To head off unrest, President Xi Jinping has consolidated his own power, making him probably China’s strongest leader since Mao. But if Mr. Xi overreaches and overturns the country’s longtime model of collective leadership, he could usher in a new era of strongman rule or unleash a power struggle among elites.

As some in Beijing worry that Mr. Xi won’t step down when his term expires in 2022, China is increasingly left in political stasis: The party cannot evolve without risking its hold on power, but the longer it resists change, the more dissatisfied citizens grow and the more sclerotic its governance becomes. The party will struggle to maintain control without becoming even more repressive, but further crackdowns could spark unrest that might sweep it from power.

Asia’s political troubles are hardly limited to its autocracies. South Korea is currently enduring its own Watergate. After weeks of demonstrations in Seoul, South Korea’s parliament decisively impeached Park Geun-hye, the country’s first female president, last December. Yet those in the streets were protesting not just Ms. Park’s alleged corruption and cronyism but also a socioeconomic system that many no longer believe in.

In Malaysia, Prime Minister Najib Razak is enmeshed in a multibillion-dollar investment-fund scandal even as liberal opposition leader Anwar Ibrahim remains in prison and the government cracks down on protesters calling for more open government. (Mr. Najib has denied wrongdoing in the fund scandal and has been cleared by Malaysia’s attorney general.) In the Philippines, disgust at government inefficiency and corruption helped to elect the populist firebrand Rodrigo Duterte as president. He made a war on drugs the centerpiece of his campaign, and police have killed more than 2,000 people in a bloody crackdown since he took office, with 5,000 more killed by alleged vigilantes. Across the region, the millions who feel left behind threaten the stability of governments.

And those governments aren’t so sturdy in the first place, which bring us to another regional problem: feeble institutions. Asia has no NATO, no European Union. It has no effective regional mechanism to tackle shared problems with joint resolve.

In large part, that is because Asia was dominated for centuries by its most powerful nations—China, Japan and India—and by imperialists from abroad. Today, the region is riven by the type of distrust and dislike among neighbors that used to bedevil Europe. Its great powers have no formal allies among their neighbors and few close partners—a legacy of their long histories as regional bullies.

This leadership gap helps to explain why Asia has never developed an effective regional community. Issues of mutual concern are either addressed in an ad hoc way or left to languish. Consider the failure of the Association of Southeast Asian Nations, or Asean—supposedly the region’s premier organization—to intervene meaningfully on behalf of the Rohingya, a Muslim minority group living in Myanmar’s Rakhine state. Myanmar’s military has been accused of violently persecuting the group, causing tens of thousands of Rohingya refugees to flee into Bangladesh or board boats for other Southeast Asian countries. The bloc’s tepid response, based in large measure on a longstanding reluctance to interfere in each other’s internal affairs, has highlighted the region’s institutional difficulties with solving shared problems.

‘The most profound obstacle to Asia’s continued rise is the risk of war.’

If these four worries weren’t bad enough, they pale in comparison with the most profound obstacle to Asia’s continued rise: the risk of war. Increasingly, the region is regressing to a 19th-century brand of power politics in which might makes right. Such realpolitik is hardly reassuring in a neighborhood that includes five nuclear-armed powers: China, India, North Korea, Pakistan and Russia.

Since 1945, the U.S. has underwritten regional stability in Asia, but that post-World War II order, established by President Harry Truman and his heirs, is now under threat. The problem is both the rise of China and new, widespread regional worries that President Donald Trump’s “America First” rhetoric—despite his attempts to calm anxious U.S. allies—may mean a diminished U.S. commitment.

The new U.S. pull toward isolationism has arrived just as Mr. Xi’s China is increasingly becoming a revisionist power, bristling at any resistance—especially American—to its regional ambitions. Japan, Taiwan, India and many others fear the rise of this sort of nationalist China—a fear exacerbated by the numerous unresolved territorial disputes in the East and South China Seas. An arms race has begun in Asia and with it an accelerating cycle of uncertainty and insecurity.

The South China Sea is among the globe’s most vital thoroughfares. More than $5 trillion of trade passes through its waters annually, including more than $1 trillion in U.S. trade. But control of the reefs, shoals and atolls that dot the sea is hotly contested. To enforce China’s claims, Beijing has constructed artificial islands as military bases, equipped with deep-water harbors, runways and missile fortifications, according to the Pentagon. Chinese coast-guard vessels and fishing fleets harass the ships of their neighbors, as well as those of the U.S. Navy. Many in the region fear that a small confrontation could spiral into outright conflict.

Meanwhile, North Korea is a growing threat, expanding its nuclear arsenal and developing new ballistic missiles to deliver them. Pyongyang has underscored its ruthlessness by striking beyond its borders, as seems to be the case in the recent murder in Malaysia of Kim Jong Nam, the half-brother of North Korea’s dictator. After years of failed diplomacy by Democratic and Republican administrations alike, North Korea is alarmingly close to being able to strike its neighbors and the U.S. mainland with nuclear missiles.

Taken together, this panoply of problems suggests that the years ahead in Asia won’t be an era of peace, expanding freedom and accelerating growth. The region is far more likely instead to become an engine of conflict and instability.

Asia’s successes over the past decades, particularly its economic gains, shouldn’t be dismissed. The region still has an advanced manufacturing base, deep savings and a strong middle class in many countries. China, Japan and South Korea, in particular, will remain central to the global economy. But the region’s strengths are increasingly imperiled by its many problems, which have been ignored for too long.

For the U.S., these risks make it even more important to maintain longstanding American commitments to promoting security, trade and democracy in the region. Ultimately, of course, the fate of Asia will be determined by its own leaders and people. The rest of the world can only try to ensure that the region’s troubles don’t worsen and spread.

Mr. Auslin is a resident scholar at the American Enterprise Institute and the author of “The End of the Asian Century: War, Stagnation, and the Risks to the World’s Most Dynamic Region” (Yale University Press), from which this essay is adapted.

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