by Parag Khanna
The same scenario applies to Indonesia. As a founding member of ASEAN and a stalwartly nonaligned nation during the Cold War, Indonesia’s strong economic growth has given it the confidence to refuse to cave in to Chinese pressure. Outsiders often portray a Sino-Japanese rivalry to “win” Indonesia, with China in the lead due to its successful bid to build a high-speed railway between Jakarta and Bandung. But the Jokowi government nonetheless renamed the portion of the South China Sea falling within its exclusive economic zone (EEZ) the “North Natuna Sea” and pushed forward with extraction from the East Natuna natural gas field even though it lies within waters claimed by China. It has also been impounding Chinese fishing vessels plying its waters. Indonesia knows that China and Japan are competing to profit from its modernization and thus does not have to sell its loyalty to anyone.
The archetype of this self-confident diplomatic behavior is Singapore. This surprises many outsiders because it is the only other country in the world besides China that has a majority ethnic-Chinese population. But owing to its strategic geography and financial wealth, Singapore has been the most confident of ASEAN countries, hosting US warships and carriers for long stretches of time. It has also become the region’s neutral diplomatic hub, hosting important meetings between the leaders of China and Taiwan. After decades of China looking to Singapore for design and investment in its industrial parks, China recently began to voice its displeasure with Singapore over its support for international arbitration in the South China Sea dispute and its backing of the Trans-Pacific Partnership (TPP) trade agreement. The Chinese media took to accusing Singaporeans of being “Han traitors” and “forgetting their origins.” Meanwhile, sophisticated Singaporeans are fed up with the more than 1 million immigrants from mainland China who have arrived since the early 2000s, both for their unwillingness to integrate into the country’s urbane Anglophone culture and for their crowding of schools and public transport. The more Chinese Singapore has become demographically, the less comfortable it has become with China geopolitically. At the same time, Singapore has positioned itself to contribute to both the hardware and software of the Belt and Road Initiative (BRI). It has maintained privileged access to the most lucrative infrastructural investments in China, providing the high-quality engineering, and is also the conduit for more than 80 percent of the foreign investment flowing into BRI projects.
Though there is no single pattern to describe how Southeast Asians are coping with China’s expansionist forays, wealthier countries are inversely beholden to China. None, however, accepts that China’s seizure of disputed islands implies acceptance of its hegemony over waters that have for millennia belonged to them all. Each littoral state has a different name for its portion of the South China Sea, such as “West Philippines Sea” or “East Sea” (in Vietnam). And as the region’s strategic confidence grows, its ability to withstand Chinese pressure does as well. Though bodies such as the ASEAN Regional Forum (ARF) are more cooperative accords than treaty structures, they have the potential to grow into genuine stabilization instruments tackling tough issues such as counterterrorism and maritime patrols. The more frequent these interactions become, the more Asians will develop the ability to self-regulate. Such large groupings also have the potential to be diluted: too inclusive to be decisive. But even if these bodies do not become supranational European-style institutions, they can serve as working forums to resolve disputes and build confidence in an Asia for Asians.
Australia Finds Itself on the Map
After the 2016 Brexit vote, some haughty Brits triumphantly speculated that the European Union would disintegrate further in the wake of losing a pivotal anchor. Instead, the rest of Europe rejected British populism, banded together to extract maximum concessions from the United Kingdom on its way out of the union, and continues to maneuver to capture its financial edge. The Brexit debacle is instructive for Australians, who have long thought of their country as the Great Britain of Asia, the avuncular white Anglophone leader of an unruly and underdeveloped region. But that’s not how other Asians see it. Singapore’s late founding father, Lee Kuan Yew, once warned that Aussies were destined to become the “poor white trash of Asia” if they did not reform their economy, something his comments helped jolt them to do. If Australia wants to be more welcome in Asia than the United Kingdom is in Europe, it needs to swallow the hard truth that it is not the center of Asia’s solar system but merely a moon—one made of iron ore.
Australia’s schizophrenia is simultaneously economic, geopolitical, and cultural. The country’s leaders know they could not survive the economic consequences of alienating China. Furthermore, Chinese invest more than $10 billion per year in Australia in commercial real estate, infrastructure, health care, mining, energy, agribusiness, and other areas that help Australia’s economy prosper even as commodity prices slump. Any blockade of Australia’s exports to China, cooling of investment from China, or diversion of Chinese visitors from Australia would create an economic Armageddon.
It is this fear of “losing” Asia that reminds Australians just how strategically Asian they actually are and need to be. Australia remains deeply committed to preserving its role in Western security networks such as the Five Eyes intelligence-sharing initiative with the United States, Canada, United Kingdom, and New Zealand. But falling-outs between Australia and the United States over the sale of Darwin port—where the United States has a thousand marines stationed—to a Chinese People’s Liberation Army–connected business, as well as over the resettlement of Syrian refugees, have strained the trust between the Anglophone allies. During their most recent joint exercises in 2017, Australia invited the Chinese military as a third partner, even at the cost of making the United States uncomfortable. Like other Asian countries, Australia is learning to say no to the United States in its effort to maintain a balance between the two powers.
Former Australian prime minister Tony Abbott once remarked that his country’s ties to China are driven equally by fear and greed. Yet because Australia does not want to be too dependent on China economically nor the United States militarily, it has begun a new strategy of cultivating stronger economic and military ties with Japan, India, and Vietnam. ASEAN is Australia’s second largest trading partner behind China, followed by Japan and Korea—and new trade agreements between all of them signal substantial growth not only in goods but also in services. Trade between Australia and India grew sixfold between 2000 and 2012, then stalled, with Australians complaining about the complexities of doing business in India. But given India’s demand for commodities, improvements in infrastructure, and upwardly mobile population, there is a strong momentum behind Aussie-Indian trade growth.
Australia is learning to see Asia as not just a destination for commodities but a conduit for recycling capital into its own critical future industries. Whereas all its car-manufacturing plants have shut down due to lower-wage Asian competition, robust cattle exports to China fund major road upgrades as well as organic farms catering to Asian tastes. Australia is also reinvesting its iron-ore revenues into mining technologies that will be sold to Chinese at the new Sino-Australian Free Trade Industrial Park under construction on Zhoushan Island and to India, which needs to boost its own mineral production.
Most of Australia’s 9 million annual tourist visitors also come from East Asia, and nearly 100,000 Chinese students are enrolled in schools across Australia, making education the country’s third largest export. Australia has also set up dozens of technical institutes such as PSB Academy in Singapore, that lure Indian engineering students. Australia and New Zealand have among the highest rates of foreign student enrollment, and budget cuts at tertiary institutions make it that much more essential for them to recruit cash-rich, full-fee-paying Asians.19 This growing services trade was a prime motivation behind Prime Minister Malcolm Turnbull’s convening the Australia-ASEAN Special Summit in March 2018, at which, for the first time, leaders discussed Australia’s joining ASEAN.
Concretely, if Australia joi
ned ASEAN, it would encourage even more Asian immigration to Australia. For the better part of the twentieth century, various “white Australia” measures defined the country’s immigration policy. The name says it all. Australia preferred European migrants in its labor unions and working its gold mines; the policy systematically restricted or penalized Chinese. Only in the 1970s were racial preferences in migration formally eliminated. Since then, the country’s morphing demographics have set the stage for Australia’s current Asianization. The country’s most recent census reveals that from 2012 to 2017, Asians surged ahead of Europeans to become the largest source of foreign-born migrants, constituting half the country’s new population. This gap is widening every year. Half of Australia’s 1 million Chinese were born on the mainland, and Australia is the world’s top destination for millionaire relocation—mostly the newly minted Chinese upper class. Today about 5 percent of Australia’s population is of Chinese heritage and 2 percent of Indian heritage. About 15 percent of Australia’s population is ethnically Asian. And although the aging population is white, the younger population is increasingly Asian.
Asians have come for the gold rush, pearl fishing, and gardening; they have fought in the Australian armed forces and built national roads and railways—but they are absent from the nation’s grand story, as well as underrepresented in the country’s Parliament, boardrooms, and media. After decades of political marginalization, these first- and second-generation Asian Aussies are finally becoming an organized voice and confronting the anti-immigration stance of the old white guard.
Given how much the Chinese have already invested in Australia, some have jumped the queue. In 2017, scandalous revelations—that wealthy Chinese businessmen with large agricultural and real estate holdings had been making donations to political groups and academic institutions to nudge them toward pro-Chinese positions on delicate issues such as the South China Sea—gripped the nation. The Chinese Consulate in Sydney has been the hub for supporting—or intimidating—local Chinese Australian politicians depending on their degree of friendliness toward China, while urging mainland Chinese store owners to fire Taiwanese. At the same time, scholarly books critical of China’s penetration into Australian life have been pulled by publishers for fear of legal backlash from Chinese interests. The Australian government subsequently banned all foreign donations in its political system and is curbing foreign investment in strategic energy assets such as its power grid.
Australians’ rite of passage to adulthood is the walkabout, either roughing it in the outback or wandering the world for a year or two—or sometimes a decade or two. Twenty percent of Australian students study abroad at least once. In the past, most would go to Europe and America, but the number of Aussie students heading to China has tripled since 2010 to more than 5,000. With many hypereducated Aussies idling in the country’s traditional companies, some are being lured to work for Chinese tech companies. More Australian authors now have contracts with Chinese publishers than with American or British ones and feature well in literary festivals on the mainland.
The Singaporean businessman Calvin Cheng Ern Lee shows how wealthy Asians are capitalizing on the booming Chinese services sector. After spending several years in China licensing Western brands, he built a business setting up online training platforms for giant Chinese companies such as China Unicom and Ping An Insurance. His newest venture, now listed on the Australian Securities Exchange, takes gaming and other digital content made in Australia and delivers it to clients across China. Australia’s leading-edge design and engineering companies are also jumping at the chance to profit from the urbanization and cross-border infrastructure boom under way to their north. The opportunity is both commercial and financial. Australia’s Macquarie Group already manages the world’s largest portfolio of infrastructure assets and is keen to construct new funds that take larger stakes in China and Southeast Asia. The Australia and New Zealand Banking Group (ANZ) has made a top priority of boosting lending for cross-border expansion for Australian businesses, while the country’s largest insurer, QBE Insurance Group, has moved hundreds of jobs to the Philippines to save on costs and expand its business.
Australia is learning over time to embrace its Asian-ness. The Australian Open, the Southern Hemisphere’s biggest sporting event, achieved a reputation equal to its Grand Slam tennis peers only in the 2000s, when it began to attract throngs of followers across Asia, especially Japan and China. As tennis has surged in popularity, today double the number of competitors are Asian versus five years ago, with many talented Asian youths training in Australia. Many of these realities were not part of the Australian conversation a decade ago. The more Asian Australia becomes, the less it can think of itself—and the less we should think of it—as a detached outpost of the West in Asia.
Japan Goes Global (Again)
In the decades after its surrender after World War II, Japan achieved such spectacular growth that it earned both admiration and fear. Even as Japan’s economy plateaued in the 1990s, US policy makers and academics continued to imagine an East Asian order that could be designed around its leadership. But given Japan’s offshore and insular culture, twentieth-century history of regional aggression, postwar pacifism, and growth rates barely reaching 1 percent amid skyrocketing debt and political rudderlessness (with eight prime ministers in ten years), even the return of Shinzo Abe as prime minister in 2012 and his attempt to introduce all-encompassing changes from the economy to the military have failed to restore Japan’s confidence. Japan’s political economy remains entrenched in a pattern most aptly described as democratic socialism overlaid on corporate feudalism. Yet this same Japan, wrestling with economic stagnation and demographic decline, is one of the world’s most technologically advanced societies with an archipelago of pulsating metropolises.
Abe’s so-called three arrows of economic reform were monetary easing, fiscal stimulus, and structural reforms (such as advancing deregulation and privatization and promoting entrepreneurship and female workforce participation). While Abe and his loyal Bank of Japan governor, Haruhiko Kuroda, initially succeeded in boosting export growth and reducing unemployment, they sent mixed signals on fiscal policy by raising consumption taxes and failed to raise wages or stoke inflation and domestic investment despite negative interest rates. Japan’s debt continues to head into uncharted territory, with the Bank of Japan holding nearly half of it. Even a write-down of this debt is not expected to jump-start market confidence. Japan’s corporate culture remains steeped in hierarchical traditions of obedience to management and sadomasochistic patterns of overwork—even to the point of death—known as karoshi. Japanese firms once towered over humble regional upstarts, but now many have fallen victim to them. In 2016, the Japanese electronics giant Sharp was bought by Taiwan’s Foxconn.
But Japan should not be counted out. Contrary to much of the prevailing pessimism, global competition—and opportunities—are yanking Japanese companies out of complacency. With sluggish prospects at home, Japanese corporations had begun to look far beyond Japan for growth before Abe ever came to power. “Going global” has now become a progressive Japanese business mantra. More than half of Japanese merger and acquisition activity in recent years has been deals outside Japan. Japanese megabanks such as Mitsubishi Financial Group and Mizuho Financial Group have turned themselves into investment holding companies, financing Japanese firms pushing abroad to Southeast Asia as it displaces China as the new factory floor. From manufacturing Toyotas in Thailand and Indonesia to building ports in Myanmar, Japan is spending generously in the same countries it marched through rapaciously in the 1940s. Japan’s high-quality agricultural products are also in growing demand across Asia as incomes rise and trade linkages expand. Japan has thus become much more vocal in promoting free-trade agreements (FTAs). It signed its first FTA with Singapore in 2002 and agreed to its biggest FTA with the European Union in 2017. As the Euro-Japan FTA comes into effect, more European and Japanese cars will cross the Indian Ocean, the Eura
sian landmass, and even the Arctic to reach each other’s markets, elevating Japan’s incentive to throw its weight into the Belt and Road Initiative. Books Kinokuniya, the stylish Japanese bookstore chain, has become a prominent landmark in major Asian cities from Dubai to Singapore. In place of the old corporate culture known for seniority rather than meritocracy, new-economy companies such as the e-commerce pioneer Rakuten are promoting a more entrepreneurial and diverse workforce to match that of their investments such as Lyft and Pinterest in the United States and PriceMinister in France. Rakuten requires English competence, and at Uniqlo, English is the official workplace language. According to Rakuten founder Hiroshi Mikitani, “The greatest business risk [Japan] faces is that of staying at home.”20
Japan is invigorating its already deep advantages in precision industries through new public-private alliances amounting to several trillion dollars devoted to the Internet of Things (IoT), big data, AI, 3D printing, robotics, biotech, health care, clean energy, enhanced agriculture, and other sectors—all ready for export to Asia’s high-growth markets. SoftBank has become Japan’s standout example of a bridge between Japan, Asia, and the world. SoftBank’s Vision Funds—in which Saudi Arabia is the largest investor followed by the UAE—are the largest technology portfolio in the world, making aggressive investments in semiconductors, satellites, artificial intelligence, and IoT companies around the world. SoftBank also has stakes in e-commerce companies in India and a nearly 30 percent stake in China’s Alibaba. SoftBank and Alibaba’s partnership to capture India’s e-commerce market is a powerful example of the emerging commercial triangle between China, Japan, and India. SoftBank will also invest $25 billion back into Saudi Arabia to stimulate innovation in the Gulf countries.