Last month, President Obama hosted ASEAN leaders in Sunnylands, California. The venue is emblematic of his administration’s attempt to disclose the commensurate value of ASEAN with China; he hosted President Xi at the same estate in 2013.
This summit was more of a goodwill gesture and an avenue for heads of states to hold candid conversations. Deliverables or plans of action were not to be expected from this gathering, however, a joint communique was issued at its conclusion.
It mostly included idealistic banalities like promoting rule of law, good governance, and accountability. Thankfully, the burgeoning maritime security crises were intimated, with a few lines expressing commitment to protecting the “rights of freedom of navigation and overflight and other lawful uses of the seas.” There were no explicit references to the South China Sea.
While some might deem this summit successful in galvanising support from ASEAN to co-operate with the US in its “pivot to Asia,” there are fundamental flaws in US foreign policy towards Asia that act as serious hindrances. Such oversights remain primarily in the areas of aid, security, and trade.
The communique’s omission of language unequivocally detailing the South China Sea issue is inextricably linked to aid. Vietnam and the Philippines, both currently involved in rows with China over territorial claims in the South China Sea, strongly advocated for the inclusion of text outlining maritime security challenges specific to China and its incursions into the Paracel and Spratly Islands chain. However, Cambodia and Laos vetoed Vietnam and the Philippines’ request fearing retribution from Beijing, their largest aid donor.
The GDP disparity between Cambodia and Laos and its other more prosperous ASEAN partners is stark, displeasing their “big brother” China could further widen the gap. These two nations also blocked the Philippines’ call to include “arbitration” as a means for settling disputes, Manila’s plea was predicated on their ongoing case at the Hague-based Permanent Court of Arbitration, the case concerning China’s territorial claim violations of the Spratly Islands chain under the United Nations Convention on the Law of the Sea (UNCLOS).
This rift within the US-ASEAN bloc enervates consensus-building efforts, and is extant largely due to Beijing. Cambodia relies on foreign aid for close to 40% of its fiscal budget, and increasing portions are coming from China. Chinese aid is most preferred, as it allows relevant ministries to manage funds without much supervision from the issuer.
In 2012, China provided $376 million in infrastructure aid, while in 2014 US foreign assistance to Cambodia stood at a paltry $77.6m. The Obama administration ought to repackage its aid to Cambodia if it is to counter Beijing. In fact, loan-based Chinese aid commands high interest rates, which makes servicing them difficult. The US could offer similar loans but with lower borrowing costs.
China’s grip over Laos is formidable as well. In 2013, it contributed 77% of total FDI (Foreign Direct Investment) and close to $80m in aid, both grant and interest-free loans. Washington ought to evaluate the feasibility of large-scale financial support akin to the 1948 Marshall Plan, which sought to distance fragile European states from Communist orbit. Whereas this time, it will be in South East Asia to empower developing countries to resist Beijing’s clout. Looks like the “domino theory” is germane again.
Obama’s security component of the “Pivot to Asia” is being led by a revised deployment of the US navy in the Asia-Pacific region. The Pentagon initiated the process of dispatching 60% of the navy’s warships to this region -- this reorganisation is likely to be completed by 2019.
Vice-Admiral of the navy’s Seventh Fleet, Joseph Aucoin, recently delineated the augmentation of the Asia-Pacific armada by revealing an additional 21 warships. According to Aucoin, the remobilisation will focus on intensifying patrols in the South China Sea to better respond to China’s swift military escalations. Chinese adventurism endlessly induces alarm across the region and seeks to destabilise the American engineered, and regulated, balance of power in Asia.
Notwithstanding the addition to the fleet, the problem herein lies with the number of vessels under the vice-admiral’s purview. The Seventh Fleet is 80 to 100 ship and submarine strong, encompassing an enormous swathe of water from the Japanese Pacific to the Indian Ocean. On the other hand, Beijing’s dedicated South Sea fleet currently operates 116 naval vessels and upwards of 200 coast guard ships, all guarding the South China Seas. China’s naval saturation in the South China Sea, combined with its navy’s larger size compared to the Seventh Fleet, gifts it a “preponderance of power,” or hegemony, in the region in question.
Sadly, the Seventh Fleet’s tribulations do not end there; China’s expansive naval support system has manifested itself on the contested reefs. The Paracel and the Spratly chains are being reclaimed vigorously by China, and now domiciles a myriad of military installations ranging from harbors, airstrips, surveillance, and satellite communication facilities.
The Seventh Fleet remains comparatively vulnerable with only a handful of naval bases in Japan; one in Korea and one in Singapore. Moreover, it lacks the kind of support network China is now establishing in the South China Sea.
A few days after the summit, news erupted of HQ-9 SAM (surface-to-air missiles) batteries appearing on Woody Island, part of the Paracel Chain a few hundred kilometers east of Vietnam. These missiles, with a range of 200km, will gravely endanger the stability of the region. Shortly following this revelation was news of possible installation of a high frequency radar system on Cuarteron reef in the Spratly chain.
HF radars have a far-reaching operating radius, making them effective instruments for China to position in its southernmost “territory.” This southernmost location provides an unprecedented advantage, affording China an early warning mechanism to confront, and ward off incoming ships and planes from the Strait of Malacca or Southern zones close to Singapore.
To put this into perspective, 25% of world goods and oil traded pass through the Strait. This HF radar installation would prove essential in sustaining Chinese anti-access area denial strategy, limiting the US navy’s operating autonomy in the region.
China’s hurried intensification of military presence in the South China Sea raises concern over the Seventh Fleet’s efficacy in reacting to future Northeast Asia crises. Success in responding to conflicts in Northeast Asia will remain contingent upon whether the Seventh Fleet is largely concentrated in Northeast Asia, or spread evenly across the entire continent.
Voicing dissatisfaction, or reverberating sentiments of ASEAN parties affected will not be the only solution for the Obama administration’s South China Sea troubles. Optimists at this point will resort to the $250m Southeast Asia Maritime Security Initiative, designed to improve naval capabilities of Indonesia, Malaysia, the Philippines, and Vietnam.
But like the analogous National Defense Authorisation Act, enacted to assist a handful of ASEAN nations and Taiwan boost their maritime security and domain awareness in the South China Sea, the security initiative remains elusive and unproven.
With regards to trade, one of Obama’s greatest shortcomings was the exclusion of Indonesia and the Philippines from the TPP (Trans-Pacific Partnership). Indonesia is the most populous country in ASEAN with 41% of the community’s share, while the Philippines comes in second possessing 16%.
Indonesia is ASEAN’s largest economy in terms of nominal GDP, and the only ASEAN member with a seat in the G20. Its second largest export market is China, with 12.4% of the share, while the US is merely fourth with 8.6%.
Indonesia runs a trade deficit of close to $7 billion with China, as its largest share of imports comes from there. The US is not even within the top five list of importing countries. The archipelago remains a key supplier of LNG (liquefied natural gas) and coal to China’s energy-intensive coastal areas.
Indonesia holds a special place in the hearts of the CCP (Chinese Communist Party) as one of China’s principal commodity suppliers, alongside Latin America and Africa, but likely has the CCP’s predilection due to geographic proximity. China invested heavily in the country’s commodities sectors; around $12bn from 2005 to 2014 in the gas, coal, and oil sectors, and $6.6bn during the same period in the steel industry.
Energy security is paramount for the CCP; investments in neighboring countries and relentless fortification of the People’s Liberation Army reflect its need to protect nearby energy sources and navigation channels to those sources. The Philippines has also welcomed Chinese energy investments. Except, rather artfully, Beijing placed their bets on renewable resources there.
In 2012, China invested $4.9bn in the country’s agricultural sector for the production of ethanol and bio-ethanol, securing one million hectares for the cultivation of high-yielding strains of corn, rice, and sorghum required in ethanol production. Ethanol processing plants, cold-storage facilities, and shipyards are also being constructed for the eventual export of this renewable energy to China.
The Philippines is a vital trading partner of the US and its inclusion in the TPP could further secure its place in Washington’s periphery, leaving it less susceptible to Beijing’s influence.
China has a slightly larger share of the country’s imports, at 13.1% compared to the US’ 10.9% -- a gap small enough for the US to close. Trumping China as the country’s main importee would come closer to fruition under the auspices of a Philippine membership in the TPP.
However, it is overriding that we return to the question of Indonesia, as it is the largest economy in ASEAN with the potential to become the “I” in what could be “BRICSI” in a decades time.
It would have been prudent for the Obama administration to include Indonesia in the original TPP grouping. Membership in the TPP may have been able to preclude the inexorable rise of Chinese investment and trade deficit in the country.
Indonesia is at a critical juncture in its history, as it departs from its historically protectionist stance. Last month, President Widodo announced reforms to liberalise sectors with as much as full foreign ownership in some, 67% in health-care, and around 49% in one’s surrounding transportation.
Further allaying investors’ fears, last month, he took steps to strengthen the Corruption Eradication Commission by gainsaying proposed legislative amendments designed to limit the Commission’s freedom of investigation.
As Indonesia’s vibrant and lucrative industries open up, large Chinese SOEs and privatised firms with state backing will be more effective in consolidating themselves in the archipelago than their American counterparts. Over the past few years, we have witnessed numerous foreign buyouts by the Chinese. In fact, ChemChina is presently offering $44bn for Swiss agrochemical giant, Syngenta. They seem to have blank checks.
Given Indonesia’s potential, its inclusion in the TPP is indispensable. In fact, a recent IMF (International Monetary Fund) forecast posits Indonesia to sustain close to 5.6% average annual growth, starting this year, going up to 2020, standing third after India (7.6%) and China (6.2%).
Furthermore, Indonesia is a country of relatively little debt compared to the US itself and India. The ratio of public debt to GDP in the US is 100%, in India it’s 50%, and in Indonesia it’s only 27%. Coupled with a populist reform-minded leadership stabilising the country, and making it more business-friendly by opening up industries and enacting fiscally responsible measures like abolishing fuel subsidies, investors are assured of high returns by virtue of prolonged boost to productivity.
If the US doesn’t jump on this growth bandwagon, China will ride it to the ground, leaving nothing behind for Washington and its friends. And it’s not too late. The US can leverage China’s brutally indebted economy hanging off the precipice; its non-financial debt now stands at 250% of GDP.
This egregious debt trickles down to the “well-performing” companies in pursuit of foreign acquisitions. American firms with capital to invest abroad tend to have better balance sheets, and therefore are more likely to upend Chinese competitors in the long run.
As China’s faltering economy engenders revelations of structural weaknesses inside its investing apparatus, the TPP will inadvertently grow stronger, paving the way for Obama’s “Pivot to Asia” policy to adopt a more assertive posture in the region.
However, this is only possible through pre-emptive economic patronage of developing nations in Southeast Asia like Indonesia, the Philippines, Cambodia, and Laos. Soft power may be Obama’s only power in this plight.