Risk, fragility in the ebb-tide for growth

THE attention deficit of a multi-tasking United States, China’s growing assertiveness and the amoebic spread of militant Islamism are the over-arching risk issues facing governments and business today, says Simon Tay, Chair of the leading ASEAN think-tank, the Singapore Institute of International Affairs . . .

SINGAPORE — As the tide of global growth goes out, the sharp rocks of risk are being exposed, and can  no longer be ignored by either Governments or business, warns Simon Tay, who Chairs the Singapore Institute of International Affairs (SIIA), long ranked as ASEAN’s leading independent think-tank.
Awareness of higher political risks has been evident for 18 months, he says, and the path ahead is now strewn with what he calls ‘time bombs’, each of which could unwittingly be triggered, and potentially plunge the global economy into renewed crisis.
Overarching issues, as Tay sees them, are the ‘attention deficit’ of a ‘multi-tasking’ United States, China’s growing assertiveness, and the amoebic development of militant Islamism.
The most immediate threat, he says, is fallout from the bombing of ISIS strongholds in the Middle East, as this could engender sympathy from Muslims in South and Southeast Asia.
The list of geopolitical risks is long and lengthening even as the solutions become more complex and difficult, he warns. The state of global and Asian affairs has become fragile.
Tay, a distinguished scholar and high-profile lawyer, is not your average intellectual.
He has served a term in Singapore’s Parliament, and, through his role as Chairman of SIIA, acts as External Advisor to other ASEAN Governments when they Chair the 10-nation grouping. Last year, he advised the Brunei Government, this year, he is advising Burma.
SIIA is a non-profit organisation which also provides research and briefings to business – increasingly hungry for information on evolving problems around the hotspots of the world.
“The interconnectivity of the news and financial markets makes the echo chamber that much shorter,” says Tay. “This speed and proximity sharpens both awareness and reactions to perceived risks.”
Tay told ATI: “The market is nervous.” He confesses that he is not so sure that, as in the past, the world can now afford to ignore some of the risks. “Against the background of moderate growth, unknown factors can pop up,” he says, adding that the emergence of ISIS, for example, was not something that was anticipated two years ago (as in recent days, the world witnessed scenes of mass protest in Hong Kong against the Hong Kong and Chinese Governments).
There are three things happening, all involving America, says Tay. “The first is that America is trying to multi-task, and this is creating an attention deficit.”  While the US promised a ‘pivot’ to Asia, Tay says the intention is there but the will and capacity is not evident.
There is a movement away from both State authority and especially American authority, he says. At a time when Governments need to co-operate more, especially on security, they face more sensitivity, stemming from increased assertiveness or just plain nervousness.
The global retaliation against ISIS, led by America, will make countries with strong Muslim populations vulnerable.
 “As the tide (global growth) goes down, we are more aware of the sharp rocks that could hit our boats. The rocks have always been there. It is just that our awareness and perception of risk has made the rocks loom larger.
“In times of growth and optimism, these things happen but somehow or other the market and investments continue.
“For example, three years ago Thailand had serious street protests and killings. Yet, its economy grew by 8.0 per cent.”
Similarly, when America was even more enmeshed with the Middle East a few years ago, Asia was unaffected.
“And we have had this South China Sea problem for a long time, but there always seemed to be enough win-win so it has not become a huge issue.”
But the stakes are higher today, he says, and these events have translated into “time bombs” which might go off. If they do “he says, the global economy could go downhill.”  
“Clearly, ISIS will create a kind of (anti-American) swelling among the Islamic ummah (communities). America’s effort to destroy ISIS will create more sympathy and will radicalise some people. When they start to see bombs falling on fellow Muslims, they can’t help but feel some resentment.”
The ones to watch are, perhaps, Indonesia and Malaysia, he says, pointing to news reports of 100-200 Indonesians and Malaysians heading off to fight with ISIS. Even if 99.9 per cent of Indonesians are moderate Muslims, given the size of Indonesia’s population (240 million) the 0.1 per cent can represent a sizeable number of radicals.
Tay says Indonesia has a very strong tradition of moderate Islam, but the large moderate Islamic parties did not gain ground in the last election, while the more extreme Islamic parties gained slightly. The gain is small and comes from a small base, he says, but nevertheless it is a directional sign of a subtle shift in Indonesian politics.
He does not believe it would be right to connect Muslim insurgents in the Southern provinces of Thailand or the Philippines to ISIS. “They will not be impacted. These are localised issues which have been there for more than a generation.  
“In Thailand, for example, the Muslims are present only in the three far Southern States.  You and I can holiday in Phuket, which is one province to the North, and there is no problem.  So I hope it will remain a very contained problem. It is not a global issue.”
Still, ASEAN itself has to be aware of the possibility that America’s actions in the Middle East could make things worse. “We are seeing reports of people volunteering to be comfort women or recruits in countries like Britain, where they are holding down jobs. These are not penniless people, and yet they are involved.  (So) we must not be complacent.”
Then there is the Rohingya (Muslim) issue in Myanmar.  Burmese authorities have clashed with these stateless Muslims, who have generated a lot of emotion in predominantly Muslim States. Both Indonesia and Malaysia have spoken out in support of the Rohingya refugees.
Unlike the Thai Muslim problem, Tay says, the Rohingya issue is unpredictable and spreading within Myanmar. Incidents are spilling over out of the northeast provinces into different parts of the country.
Recently, incidents were reported in Mandalay, the second largest city, and a predominantly Chinese city. “The speed and the spread of the outbreaks in Burma has been quite a different pattern from what you see in Thailand.”
Another geopolitical risk is the situation in the South China Sea, which remains tense and, indeed, threatening.
Tay says bluntly: “There is a view in China that the rest of us must bow when China is in the room.  Clearly, the Chinese are more assertive and sure of themselves.
“At one point, when Hu Jintao was giving way to Xi Jinping, there was talk that maybe China was acting incoherently. Now that Xi has consolidated power and we are still seeing
China pushing Chinese claims in the South China Sea, we must realise that China is serious in its intention to make territorial claims.
“This doesn’t mean that we have to give them everything they want. We have to take them seriously and respond.
“In recent months, China has been taking little bites and nibbles, and no one has said ‘No’. I am not saying that we have to declare war on China. I don’t think we have to go as far as the Philippines in being aggressive, but we do need to draw a line and be quite firm.”
Like all countries, Tay believes the Chinese will assess their options and do what is best for China. They won’t give up their claims, but they are starting to talk about joint development. As he sees it, if countries are not prepared to be firm, China will take everything it can. “If we are firm with China, the pragmatists and internationalists in China will be prepared to give and take. And we will end up bargaining.”
 He cautions countries to consider their response to China. Vietnamese reacted to the presence of a Chinese oil rig this year in their waters with violent protests in Hanoi. But such protests are ineffectual. Tay says the Vietnamese ended up hurting themselves more than the Chinese. The Vietnamese protestors torched Taiwanese factories and rampaged through a Singapore industrial park, owned by the Singapore company, SembCorp.
“Such action makes foreign investors nervous and rebounds against the Government,” Tay says.  The question is how tough can you be with China when you have a large border with China and large trade with the Chinese.”
The issue is now being handled on a party-to-party basis. The complication here is that the Chinese unofficially control the entire Paracel Islands.
Tay says the Chinese gained control of the Paracels after their war with Vietnam in the 1970s. While the Vietnamese have not ceded control to China, the Chinese nevertheless are in physical control of the islands.  
It is a difficult situation and his best hope is that China may actually make a deal with Vietnam. But, as yet, there is no sign of a resolution — although both sides are continuing to talk.  There will likely be a deal — but on whose terms?
Tay says it would not be good idea to paint China into a corner. That is why ASEAN cannot take up the Philippines position against China over its territorial claims on the Spratly Islands.
ASEAN can empathise with the Philippines and be firm with China, but similarly, sometimes it has to co-operate with China.
Tay strongly advises against taking the hardline adopted by Manila, which is taking the Chinese to an international court in The Hague.
It won’t be easy, but ASEAN as a group will have to try to draw a line between being firm and being confrontational.
But is ASEAN capable of taking a united approach? Two years ago, ASEAN revealed its fracture under Cambodia’s chairmanship when member nations failed to agree on an all-important post-summit communiqué. They were at loggerheads over China and the South China Sea disputes.
Sino-Japanese relations have gone through a very bad patch over the Senkaku/Daioyu Islands in East China Sea. The dispute has led to incidents at sea and in the air.
“I am concerned because there has been no clear will by either side to have a leaders’ summit,” says Tay, adding that flag-waving conservatives now lead both China and Japan, and both leaders actually gain from being tough with the other side.
Soon after taking office, Japanese Prime Minister Shinzo Abe visited ASEAN countries and offered to provide vessels to the Philippines and Vietnam. In this sense, Abe took an assertive political role in response to the region’s nervousness about China.  
“In the past, we used to say that when it came to America, China and Japan – it was always America in the lead with Japan in tow,” says Tay. “Now, we say Abe is going in front of America, and this is not necessarily a good thing.”
Relations between China and Japan have been rocky since the flare-up of China’s East China Sea territorial claims. Japanese investment into China has fallen, partly for economic reasons as costs in China have risen sharply — but also because there is increased risk.
Chinese demonstrators destroyed Japanese investment in many locations in China at the peak of the dispute in 2012. Southeast Asia has been the main beneficiary of the Japan/China spat, with Japanese companies channelling their investment to the region.
Is it possible that Japan/China relations could worsen? Tay says there are no immediate signs of the relationship improving. The proposed China-Japan-Korea FTA negotiations are going nowhere.
Tay says both Japan and China are large holders of US Treasury bonds and there was a time when they even pledged closer yen-yuan co-operation. Nothing has happened.
China is casting itself in a different role, positioning to stand shoulder to shoulder on global affairs with the United States.
Tay says Beijing has proposed a major power dialogue with America. The idea is to hoist China into the league of a super power, and Japan is not even in the equation.
Like the rest of the world, according to the Chinese, Japan will be relegated to a bit player — much further down the totem pole.
America does not understand the word for “equality”, says Tay, who has been a Visiting professor at US Ivy League institutions including Harvard Law School and Yale. “Even if you are America’s ally it does not mean that you are equal to them,” he says, adding ruefully that even the Chinese themselves do not have the word “equality” in their vocabulary.
“America is not always an angel, but we are used to its power. And we are more comfortable with America as the leader,” says Tay. For all its flaws, he adds, America is acceptable — but not the power of China, Japan or India.
Overlaying regional and global problems, Tay says each country in the region has its own problems. And aside from geopolitical challenges, he says the path ahead for Asia is tricky.  There is pent-up demand for reform.  
China, Japan, India and Indonesia are all talking about reform.
Since coming to office, China’s President, Xi Jin-ping, has embarked on a reform programme, covering State-owned enterprises, the banking system, the financial services sector, the rights of rural people, and construction of second-tier cities. Meanwhile, Abe is attempting reform, and the newly-elected leaders of India and Indonesia come to power on a reform agenda.
Smaller countries have their own reform priorities. Even in Thailand, the military Government staged a coup with the intention of building infrastructure and taking care of the poor, possibly much better than in the past.
In the present climate of moderate growth and uncertainty, reform becomes a necessity, but it is a tricky path. “We will have to see