Asia Pacific Economic Leadership Shifting from the US to China for Free Trade framework

Apec 2014 China_FTAAP roadmap

All together now: Apec leaders posing for a family picture at the International Convention Center at Yanqi Lake in Beijing. Front row from left, Indonesian President Joko Widodo, US President Barack Obama, Xi, Russian President Vladimir Putin, Philippine President Benigno Aquino III, (backrow from left) Japanese Prime Minister Shinzo Abe, Australian Prime Minister Tony Abbott, Najib and New Zealand Prime Minister John Key. — EPA

The Asia-Pacific Economic Cooperation (APEC) Summit that just concluded in Beijing was no doubt China’s show. Beijing came out looking very much what it is touted to be — the world’s second-largest economy now leading the charge towards a free-trade region known as the Free Trade Area of the Asia-Pacific (FTAAP). For a once-closed economy that was not even part of the global trading system, this is one giant leap. In doing so, China overshadowed and reduced a rival initiative by the United States — the Trans-Pacific Partnership (TPP), which excludes Beijing — to what is a subsidiary platform

Chinese President Xi Jinping has shown that the agenda of liberalising trade in the Asia-Pacific region cannot but take China into account; indeed, this agenda will be dictated by China from now on. To show how serious it is, the Beijing APEC Declaration came complete with a road map towards the realisation of the FTAAP, though a clear deadline was shelved for now.

With the US outmanoeuvred, the economic power game entered a second stage in Myanmar this week, where the Association of South-east Asian Nations (Asean) hosted the East Asia Summit, in which both China and the US are members (with Beijing represented by Prime Minister Li Keqiang).

Interestingly, Beijing saw the revival of APEC as a major platform for regional economic integration — led by China. APEC has actually been the vehicle for trade liberalisation in the Asia-Pacific region since it was formed in 1989. Indeed, the FTAAP is not a Chinese idea, as Singapore Prime Minister Lee Hsien Loong made clear, but an APEC vision conceived in 2004 with its end-goal being a huge Asia-Pacific free-trade area.

But APEC lost its shine over time when no clear big-power champion emerged with the visionary leadership and commitment of then US President Bill Clinton, who hosted the first summit in Seattle in 1993.

During APEC’s downtime years, ASEAN fell back on its own trade liberalisation process, the Asean Free Trade Area (AFTA), and preached the message of trade liberalisation to the wider region. Two major platforms then emerged: One was the TPP, for which the US took leadership, with the exclusion of China. The other was the Regional Comprehensive Economic Partnership (RCEP), an outgrowth of the Asean Plus Three Summit comprising the association’s three North-east Asian trading partners, China, Japan and South Korea, as well as Australia, India and New Zealand.

China easily dominates the RCEP and insists that it be an East Asian platform — meaning it has no room for the US. This is partly the reason the US is eager to have the TPP as the key pathway to reach the FTAAP.

While the RCEP and the TPP evolve as competing platforms, both China and the US have, of late, downplayed this rivalry. This is just as well for Asean, whose members are divided between support for the RCEP and for the TPP. Only four of the 10 Asean members — Brunei, Malaysia, Singapore and Vietnam — are currently involved in the TPP negotiations, which demand a higher standard of trade liberalisation. The RCEP, on the other hand, sits better with many Asean members, virtually all of which benefit from huge trade with China.

The Asean dilemma

Apec 2014 China_ASEAN NUMBERSBut while Asean as a whole values China as a close economic partner, the group is also wary about Beijing as a security threat. This has resulted in a two-dimensional relationship — a duality, as some have called it — that Asean has with China: A growing economic relationship paradoxically matched by increasing political tension caused by Beijing’s aggressive claims to parts of the South China Sea.

How this two-dimensional relationship could be managed provided the backdrop for the Asean Summit this week in Myanmar and the East Asia Summit.

By stepping on the accelerator towards the FTAAP, China has virtually also quickened the pace of Asean’s own economic and political integration. The goal of an Asean Community — including a fully-integrated Asean Economic Community by December 31 next year — cannot be further delayed. At the moment, 80 per cent of its integration targets have been realised, with the remaining “hard part” set to be tackled after 2015.

But surely, the next lap cannot be only about tackling the unfinished business. If Asean Community 2015 is yet another pathway to the FTAAP, what is the vision of Asean after next year? This is where the group’s leaders must put on their thinking caps and collectively forge a road map to a new Asean that is a global player firmly situated in the 21st century.

This new vision must take into account the rapidly evolving economic and security architecture in the Asia-Pacific region. As displayed in Beijing this week, it will be a future in which China will not be shy to assert its economic leadership — in the same way it has staked its political dominance in the region.

As Asean leaders were convening for their summit in Naypyidaw, US President Barack Obama and Mr Xi in Beijing attempted to reforge the strategic relationship between the US and China, probing each other for a new calculus. Their major bilateral agreement on climate change was achieved in this context. But Mr Obama is a lame-duck President on his way out, while Mr Xi, who is only two years in office, will be around for a full decade to lead a rising superpower.

Asean’s dilemma is this: It appreciates the increasingly prosperous relationship that is blossoming with China under Mr Xi. Yet, Asean knows it is also entering a potentially tense future with Beijing under a leader who is prepared to flex China’s muscles — as seen in the resulting volatility regarding the South China Sea. Curiously, the tensions over the territorial disputes cooled down somewhat during the busy summit period.

Will Asean remain a mere bystander, watching from the wings as the power game continues to unfold between the two giants? Or will Asean do something to secure its pivotal position so it can shape the future regional balance in its favour? This key question must have preoccupied Asean leaders in Naypyidaw. ― Today

By Yang Razali Kassim, a senior fellow at the S Rajaratnam School of International Studies at Nanyang Technological University.

Apec leaders all for free trade framework

BEIJING: The Asia-Pacific Economic Cooperation Economic Leaders’ Meeting hosted by China endorsed the Beijing Roadmap for Apec to promote and realise the Free Trade Area of the Asia-Pacific (FTAAP).

The roadmap details actions to be taken to achieve FTAAP – a trade liberalisation framework that China had pushed for – and includes undertaking a collective strategic study with results to be reported by 2016.

Prime Minister Datuk Seri Najib Tun Razak, during the summit held by the Yanqi Lake in the Huairou district, expressed Malaysia’s support on the roadmap.

“Malaysia sees the FTAAP as a natural progression for an overall trade arrangement across all economies in the region.

“What we have on the table now, such as the Trans-Pacific Partnership, Regional Comprehensive Economic Partnership and Pacific Alliance, are building blocks towards the larger FTAAP,” he said.

Najib also called on Apec members to find a way out of the World Trade Organisation (WTO) impasse and place the Bali decisions back on track.

It was reported that an impasse over a global pact hammered out in Bali last December to streamline Customs procedures had paralysed all negotiations in the WTO.

“If we do not find a way out of the impasse, it means that the WTO can no longer hold sway as a rule-making entity,” said Najib yesterday.

The Apec summit, attended by heads of states from 21 Pacific Rim economies, also adopted a Connec­tivity Blueprint to promote integration through physical, institutional and people-to-people connectivity.

Najib told Malaysian reporters here that Malaysia could play a role in enhancing connectivity in the Asia-Pacific region, citing bilateral projects such as the Malaysia-Singapore high-speed rail project as an example.

Chinese Premier Li Keqiang had reportedly expressed China’s interest to help build the rail link during his meeting with Najib on Monday.

Commenting on this, Najib said it was a bilateral project between Malaysia and Singapore and both countries would call for international tenders.

Najib also said Malaysia welcomed the blueprint on connectivity and commended China for initiating the Asian Infrastructure Investment Bank.

He left Beijing yesterday evening.

Commenting on the visit, Tan Sri Ong Ka Ting, who is the Prime Minister’s Special Envoy to China, said mutual trust between China and Malaysia was growing stronger, judging from Najib’s bilateral meetings with Chinese President Xi Jinping and Li in the Chinese capital.

“Najib was given special treatment. At China’s initiatives, he met both Xi and Li on the sidelines of the Apec summit,” Ong noted.

He added that Xi called for mutual support as China strived to realise the Chinese Dream and Malaysia the goal of becoming a high-income nation by 2020.

By Tho Xin Yin The Star/Asia News Network


ASEAN SUMMIT: China pushes for code at South China Sea


Asean 214 plus Three

Standing united: Najib (fifth from right) posing for photographs with Thein Sein (centre) and other Asean leaders during the closing of the 25th Asean Summit at the Myanmar International Convention Centre.

Beijing pledges US$20b in loans to boost Southeast Asian connectivity

China will push for the implementation of a code of conduct for the South China Sea – a document that will lessen the risk of escalating tensions in the area-but experts said such an agreement faces obstacles, at least in the short term.

Chinese Premier Li Keqiang reaffirmed China’s resolve to safeguard territorial sovereignty at a series of three regional meetings in Nay Pyi Taw, Myanmar, on Thursday, saying the country is willing to adhere to the code, which has been under discussion for more than a decade.

Leaders from the Philippines and Vietnam, countries that have seen maritime tensions with China rise, also attended the meetings.

“China and Southeast Asian countries are close neighbours with common interests and diversified concerns. It is inevitable-not strange at all-that differences emerge among us, but those differences will not affect the general stability in the South China Sea,” Li said at the East Asia summit.

“I believe that as long as we treat each other with sincerity and seek common ground while acknowledging differences, there will be no insurmountable obstacles that will stand in our way,” Li said.

Li said China’s policy of building partnerships with its neighbours is sincere and consistent, and the situation in the South China Sea has been stable as freedom and safety of navigation is ensured.

Foreign Minister Wang Yi said last year that the code should reflect “consensus through negotiations” and “elimination of interference”, indicating that maritime issues should be left to the parties directly involved to sort out through dialogue.

The declaration on the Conduct of Parties in the South China Sea was signed in 2002, in which all signatories agreed to work out a code of conduct to guide future activities in the region. But limited progress has been made in drafting the code since then.

In a bid to reach long-lasting peace in the region, Li pledged to speed up negotiations on a cooperation treaty.

China also agreed to establish a hotline for joint search and rescue efforts at sea as well as a hotline for senior officials.

Wu Shicun, president of the National Institute for South China Sea Studies, said the negotiation of the code has gone on for more than 10 years because of different opinions regarding how the document will be drafted and whether it will allow third-party intervention.

Lu Jianren, the chief researcher of Sino-Asean relations at Guangxi University, said the importance of the code lies in the fact that it rules out the use of military force as a means to resolve issues and that no party is allowed to take further action to escalate tension.

Economic ties

Also at Thursday’s summit, China promised more loans and economic aid to Southeast Asia.

China will provide $10 billion in preferential loans to Asean countries and another development loan of $10 billion specifically for infrastructure.

China also started on projects for the second phase of the China-Asean Investment Cooperation Fund, which totals $3 billion.

Engineers have begun preliminary work on a rail network, which will start in Kunming, Yunnan province, and connect Laos, Vietnam, Cambodia, Myanmar, Thailand, Malaysia and Singapore.

Kavi Chongkittavorn, senior fellow at the Institute of Security and International Study in Thailand, said China and Asean were forging ever closer ties and despite differences there are areas of growing cooperation.

“Economic opportunities exist for each party,” he said.


Malaysia and China set trade target of RM511bil, usher new era of strategic partnership

Xi_NajibChinese President Xi Jinping (L) and Malaysian Prime Minister Najib Razak jointly meet the press in Kuala Lumpur, capital of Malaysia, Oct. 4, 2013. (Xinhua/Zhang Duo)

PUTRAJAYA: Malaysia and China have set an astounding bilateral trade target of US$160bil (RM511bil) by 2017.

Datuk Seri Najib Tun Razak and President Xi Jinping discussed this at a closed-door meeting at the Prime Minister’s office here yesterday.

The two leaders also discussed a five-year economic and trade programme and agreed to elevate the current cooperation between both countries into a comprehensive strategic partnership.

Najib and Xi said this in a joint statement issued after the meeting.

Last year, the bilateral trade volume between the two countries reached US$94.8bil (RM303bil).

This makes Malaysia China’s top trading partner among the Asean countries for the fifth consecutive year.

Najib said Xi expressed keen interest in seeing Chinese companies participate in Malaysia’s high-speed rail (HSR) project, the China-Malaysia Qinzhou Industrial Park and the Malaysia-China Kuantan Industrial Park.

“We also would like to see more trade between the countries settled in the renminbi and ringgit,” he said, adding that the information on this should be disseminated to the private sectors of both countries.

Najib said Xi indicated some new areas of cooperation between the two countries, which included information and communication technology, biotechnology, science and space technology.

“We agreed to step up our cooperation in law enforcement, combating transnational crime, cyber security, as well as stronger and deeper military cooperation,” he said.

Najib added that Malaysia would be opening a Consul-General office in Nanning while China would open similar offices in Kota Kinabalu and Penang.

“Malaysia also fully supports Xi’s suggestion, which he made in Indonesia, for the establishment of an Asian Infrastructure Investment Bank which would certainly help in the development of Asean,” he said.

The Prime Minister hoped that the project to develop the Malaysian campus of the Xiamen University, its first outside China, would become a reality in near future.

Najib added that he was also looking forward to visit China next year, at the invitation of the Chinese government and Xi, to celebrate the 40th anniversary of the Malaysia-China diplomatic ties.

Earlier in the morning, Najib and Xi and their spouses attended a welcoming ceremony at Dataran Parlimen in the presence of the Yang di-Pertuan Agong Tuanku Abdul Halim Mu’adzam Shah and Raja Permaisuri Agong Tuanku Sultanah Hajah Haminah Hamidun.

Sources: The Star/Asia News Network

Xi’s visit ushers in new era in China-Malaysia ties

Chinese President Xi Jinping left Kuala Lumpur Saturday after concluding his first state visit to Malaysia, which helps usher in a new era in China-Malaysia relations.

During his stay in Malaysia, Xi met Supreme Head of State Abdul Halim Mu’adzam Shah and Prime Minister Najib Razak, and attended a China-Malaysia economic summit. He also witnessed the signing of a series of cooperation agreements.

Both sides agreed to upgrade bilateral ties to a comprehensive strategic partnership, and make efforts to expand annual bilateral trade to 160 billion US dollars by 2017. The first Chinese university outside China, Xiamen University Malaysia Campus, will also be set up in the Southeast Asian country.

The visit by President Xi marks another great leap forward of bilateral relationship between Malaysia and China.

“In fact, the achievements of the visit are well beyond my expectation. It’s a miracle that so many achievements have been made within such a short period of time,” said Tan Khai Hee, secretary general of Malaysia-China Friendship Association.

Upgrade of bilateral ties

During their talks on Friday, Xi and Najib agreed to upgrade bilateral ties to a comprehensive strategic partnership.

“China highly values its relationship with Malaysia, which is taking the lead in China’s relations with ASEAN members,” Xi said, urging the two sides to enhance strategic cooperation to make their relationship a fine example in the region.

ASEAN stands for the Association of Southeast Asian Nations, which consists of Malaysia and nine other Southeast Asian countries.

Xi said the upgrade to a comprehensive strategic partnership will draw a more “beautiful” blueprint for bilateral ties.

For his part, Najib said his country hopes to enhance the comprehensive strategic partnership with China.

“China is a trustworthy friend of Malaysia,” he said. “Our bilateral relations enjoy vast prospects.”

The single most significant achievement of Xi’s visit is of course the upgrade of the bilateral relationship to comprehensive strategic partnership, which China only accords to its most valued neighbors and friends, said political analyst Oh Ei Sun, a former political secretary to Najib.

While the economic collaboration will continue to prosper in gigantic leaps, the comprehensive nature of the relationship will see more technological, cultural and educational exchanges, which are crucial for the ever closer relationship between the two countries, he said in an interview with Xinhua.

Win-win cooperation

China has been Malaysia’s biggest trading partner for the last four years, while Malaysia has been China’s largest in the 10-member ASEAN for five years in a row.

Two-way trade soared to a record high of 94.8 billion dollars last year, while trade in the first seven months of 2013 jumped 14.9 percent to 59.72 billion dollars.

The Qinzhou Industrial Park in China and the Kuantan Industrial Park in Malaysia, noted Xi, should be built as flagship projects of investment cooperation between the two countries.

Beijing encourages Chinese enterprises to participate in the development of northern Malaysia and the high-speed railway construction linking Kuala Lumpur and Singapore, which will promote regional inter-connectivity, said Xi.

When addressing more than 1,000 business people and officials at the China-Malaysia Economic Summit on Friday, Xi proposed that the two countries boost bilateral trade and investment, deepen cooperation in the sectors of finance, agriculture and fishery, and jointly improve regional cooperation.

The Chinese president and the Malaysian prime minister witnessed the signing of the five-year program for economic and trade cooperation, which emphasizes the sharing of knowledge, technological resources and investment in the service of sustainable economic development and maps out mutually beneficial initiatives.

The two leaders have set an ambitious target that by the end of the fifth year of this program, bilateral trade between China and Malaysia will hit 160 billion dollars.

The program covers many areas of cooperation, including agriculture, energy and mineral resources, information and telecommunication, manufacturing, infrastructure, engineering, tourism, logistics and retailing.

Pheng Yin Huah, president of the Federation of Chinese Associations Malaysia, said the program shows that China values its relations with Malaysia and President Xi wants more Chinese businessmen to invest in Malaysia.

“I believe that Malaysia and China will have more exchanges in politics, business and education,” he added.

Regional cooperation

During his visit to Malaysia, Xi called for further cooperation between Asian countries.

Although Asia remains the most dynamic and promising region in the world, Asian countries still face the arduous tasks of developing economy and improving people’s livelihood amid lingering impact of the international financial crisis, Xi said.

He called on Asian countries to focus on development, carry forward the all-in-the-same-boat spirit of unity and cooperation, and jointly safeguard the long-term stability and development in Asia.

“China supports ASEAN’s leading status in East Asia cooperation, and is happy to see Malaysia play a bigger role in the region,” Xi said.

Najib said Malaysia also stands ready to advance the development of ASEAN-China relations and promote peace, stability and prosperity in the region.

“Whether on bilateral trade relations or international efforts to build a more sustainable global economy, we are strongest when we work together,” Najib said.

In an interview with Xinhua prior to Xi’s visit, the Malaysian leader said that as a founding member of ASEAN, Malaysia stands ready to contribute to stronger China-ASEAN ties.

“Not only is China a dialogue partner with ASEAN, but it’s also an integral part of the East Asia summit,” he said.

“Because of that, the relationship between China and ASEAN is very important and continues to grow particularly in terms of trade and China’s involvement in major infrastructure projects in the whole region,” he added.

While in Indonesia, the first leg of Xi’s maiden Southeast Asia tour since he assumed presidency in March, Xi said China and ASEAN countries should work for win-win cooperation, stand together and assist each other, enhance mutual understanding and friendship to increase social support for bilateral ties, and stick to openness and inclusiveness.

Differences and disputes should be properly handled through equal-footed dialogue and friendly consultation for the overall interests of bilateral ties and regional stability, he said.

Xi arrived here Thursday and left the city Saturday for the 21st informal economic leaders’ meeting of the Asia-Pacific Economic Cooperation to be held in Bali, Indonesia. –  Xinhua

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China, Russia sound alarm on world economy at APEC summit

By Timothy Heritage

(Reuters) – China and Russia sounded the alarm about the state of the global economy and urged Asian-Pacific countries at a summit on Saturday to protect themselves by forging deeper regional economic ties.

Chinese President Hu Jintao said Beijing would do all it could to strengthen the 21-member Asia-Pacific Economic Cooperation (APEC) by rebalancing its economy, Asia’s biggest, to improve the chances of a global economic recovery.

Russian President Vladimir Putin said trade barriers must be smashed down as he opened the APEC summit which he is hosting on a small island linked to the Pacific port of Vladivostok by a spectacular new bridge that symbolizes Moscow’s pivotal turn to Asia away from debt-stricken Europe.

“It’s important to build bridges, not walls. We must continue striving for greater integration,” Putin told the APEC leaders, seated at a round table in a room with a view of the $1 billion cable-stayed bridge, the largest of its kind.

“The global economic recovery is faltering. We can overcome the negative trends only by increasing the volume of trade in goods and services and enhancing the flow of capital.”

Hu told business leaders before the summit the world economy was being hampered by “destabilizing factors and uncertainties” and the crisis that hit in 2008-09 was far from over. China would play its role, he said, in strengthening the recovery.

“We will work to maintain the balance between keeping steady and robust growth, adjusting the economic structure and managing inflation expectations. We will boost domestic demand and maintain steady and robust growth as well as basic price stability,” he said.

Hu spelled out plans for China, whose economic growth has slowed as Europe’s debt crisis worsened, to pump $157 billion into infrastructure investment in agriculture, energy, railways and roads.

Hu steps down as China’s leader in the autumn after a Communist Party congress, but he promised continuity and stability for the economy.

Putin, who has just begun a new six-year term as president, said on Friday Russia would be a stable energy supplier and a gateway to Europe for Asian countries, and also pledged to develop his country’s transport network.


The relative strength of China’s economy, by far the largest in Asia and second in the world to the United States, is key to Russia’s decision to look eastwards as it seeks to develop its economy and Europe battles economic problems.

APEC, which includes the United States, Japan, South Korea, Indonesia and Canada, groups countries around the Pacific Rim which account for 40 percent of the world’s population, 54 percent of its economic output and 44 percent of trade.

APEC members are broadly showing relatively strong growth, but boosting trade and growth is vital for the group as it tries to remove the trade barriers that hinder investment.

The European Union has been at odds with both China and Russia over trade practices it regards as limiting free competition. Cooperation in APEC is also hindered by territorial and other disputes among some of the members.

Putin, 59, limped slightly as he greeted leaders at the summit. Aides said he had merely pulled a muscle. Underlining Putin’s good health, a spokesman said he had a “very active lifestyle.”

Discussions at the two-day meeting will focus on food security and trade liberalization. An agreement was reached before the summit to slash import duties on technologies that can promote economic growth without endangering the environment.

Breakthroughs are not expected on other trade issues at the meeting, which U.S. President Barack Obama is missing. He has been attending the Democratic Party convention and Washington is being represented by Secretary of State Hillary Clinton.

U.S. officials say Clinton’s trip is partly intended to assess Russia’s push to expand engagement in Asia, which parallels Washington’s own turn towards the Asia-Pacific region.

Also missing the summit was Australian Prime Minister Julia Gillard. Putin said she had dropped out because her father had died.

(Additional reporting by Gleb Bryanski, Andrew Quinn, Katya Golubkova, Douglas Busvine, Denis Pinchuk and Andrey Ostroukh; Editing by Janet Lawrence)

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G20, Apec without gusto; Asean for peace; US cold war against China!

G-20, Apec summits – without gusto!


WHEN President Sarkozy of France assumed the presidency of G-20 for 2011, I was delighted for alas, international monetary reform would take centre stage. That’s what he promised. I felt it’s high time leadership was put to bear on an issue of critical international concern, where the Americans had for years “ feared to tread,” for obvious reasons: to protect US national interest to preserve (as long as feasible) an archaic international monetary system with the US dollar as its centrepiece and which has outlasted its usefulness.

But this was not to be. Political turmoil in Greece had added fuel to the European financial chaos, with the G-20 meeting scrambling to arrange (and rearrange) emergency measures aimed at preventing the eurozone sovereign debt crisis from contaminating the rest of Europe and the global economy. As they gathered in Cannes on Nov 3-4, leaders from G-20 faced high expectations to confront the festering European turmoil. Instead, the two-day summit in this Mediterranean resort largely resulted in more pressure on Europe to respond more forcefully. The United States, China and others were worried that Europeans may fail to avert a collapse of the Greek economy, bringing with it sovereign default and corporate bankruptcies that would inevitably send shock waves through the global financial system. Priority was placed to quickly resolve the evolving European crisis. It was clear the weight of the crisis had overshadowed other policy goals of the summit.

G-20 and France

France’s president had hoped to use the G-20 to burnish his reputation as a global statesman. I gathered Sarkozy had intended to focus the G-20 agenda on French ideas for reducing global imbalances. Instead, he found himself in the midst of a gathering euro-storm, now focused on Greece’s sudden decision to call a referendum on its bailout.

Behind the scene, France was itself subject to growing economic stress. The market’s verdict on France’s finances had since grown increasingly harsh. The spread between the yields on German & French 10-year AAA government bonds widened to a euro-era record of 1.95%-age points. France is a triple-A rated nation in name only because its debt is in danger of spiralling out of control.

Forecast by Fitch Ratings at 86.8% of gross domestic product (GDP) in 2013, it is the highest among AAA-rated nations. Its recent sharp economic downturn has exposed an 8-billion-euro gap in France’s efforts to reduce its budget deficit to 4.5% of GDP in 2012 from 7.1% in 2010 more than twice the permissible limit of 3%. At 45% of GDP, France is already among the most highly taxed in the Organisation for Economic Co-operation and Development or the OECD. The recent report by the Lisbon Council ranked France 13th out of 17 for its overall health, including growth potential, unemployment and consumption, and 15th for progress on economic adjustments, including reducing the budget deficit and unit labour cost.

G-20 and Italy

It’s quite clear G-20’s prime concern is Italy. The country is increasingly unable to raise debt at affordable cost, and its prime minister was struggling to push through austerity measures in the face of mounting labour unrest amid an unfriendly parliament. It was also clear the eurozone isn’t equipped to deal with the collapse of Italy. At G-20, although they had indicated a willingness to co-operate, non-European leaders had made it clear they want the eurozone to first rely on its own resources to resolve the crisis. Nevertheless, Europeans did consider seeking outside help, in particular to boost their bailout fund, including asking the International Monetary Fund (IMF) for co-operative support. But no one bit. The very hint of boosting IMF’s role underscored deepening worries about the adequacy of Europe’s own response. In the end, G-20 leaders agreed only to explore options, including voluntary contributions and using its special drawing rights (SDR) in some fashion.

G-20 has little to show

As in the previous year, an all too familiar G-20 meeting ended with a long list of promises made, many of which reflected a rehash of old ones; with most promises made and then broken in the past; and still others, not known to be kept.

However, one key step did emerge: Italy, the focus of most worries in the European, and indeed the world, markets agreed to permit the IMF to monitor its progress with fiscal reforms. This is as drastic a step as can be expected, given the biggest fear among Europeans is that markets will cease financing Italy, causing a meltdown the eurozone would be quite powerless to stop.

European leaders had hoped G-20 would conclude with an endorsement of their plan announced a week before, that would boost confidence in the markets. It included new efforts to recapitalise European banks, an upgraded bailout scheme for Greece, and an increase in funding available to the eurozone’s bailout fund, the European Financial Stability Facility (EFSF).

There was also the hope to enhance EFSF’s capacity through parallel “investments” from non-European G-20 members. G-20 had noted the European Central Bank’s (ECB) refusal to act as lender of last resort and to provide financing to help leverage the EFSF’s 440 billion euro into something much larger, which had led the Europeans to pursue the non-Europeans with large surpluses, such as China.

As the eurozone crisis deepened, much of the wider G-20 agenda to encourage “strong, stable & balanced” global growth fell by the wayside at this time. As I understand it, it would appear the stronger economies, including China, Germany, Canada & Brazil, did agree to limit efforts at fiscal tightening and possibly do more to boost demand at home. This marked a reversal from last year’s summit which centred on fiscal deficit reduction.

The G-20 pact

The more important conclusions reached at the Summit included the following:

● Commitment to take decisions to reinvigorate economic growth, create jobs, ensure financial stability and promote social inclusion; and to coordinate their actions and policies.

● An action plan for growth and jobs to address short-term vulnerabilities and strengthen foundations for growth. Advanced economies committed to adopt policies to build confidence and support growth, and implement clear & credible measures at fiscal consolidation.

● Commitment by (i) countries whose public finances remain strong to take discretionary measures to support domestic demand; (ii) countries with large current surpluses commit to reforms to raise domestic demand; and (iii) all commit to further structural reforms to raise output in their countries.

● Commitment to strengthen the social dimension of globalisation.

● Set-up a taskforce to work with priority on youth unemployment.

● Agreement to (i) ensure the SDR basket composition continues to reflect the global role of currencies; (ii) review the composition of the SDR basket in 2015, or earlier; and (iii) make progress towards a more integrated, even-handed and effective IMF surveillance.

● Commitment to move rapidly toward more market-determined exchange rate systems, avoid persistent exchange rate misalignments, and refrain from competitive devaluation.

Despite the cheering about Europe’s debt deal and G-20’s role in pressuring Europe to act swiftly, worries continue to mount that the world can’t succeed without stronger growth. Europe and the United States are virtually at a standstill. At the present pace of muted expansion, unemployment will stay high and incomes stall. Debt saddled nations will have an even tougher time generating enough revenue to pay bills & service debt. This would spark more default fears or even higher borrowing rates in Italy, Greece and others under pressure.

Latest projections point to the eurozone flirting with recession in 2012. Even in Asia, a critical engine of recovery, prospects are dimming. Yet, nations remain divided on enacting new measures to boost growth or continue focus on deficit reduction. Weak nations like Italy and Greece are under intense pressure to adopt very severe austerity schemes in the face of enormous suffering by its people who fall victim to weakened social safety nets and reduced cashflows.

Towards this end, the G-20 commitments fall far short. Markets worldwide have since responded; their verdict: continuing sell-off of bonds and shares, and continuing high cost of borrowing by Italy and Spain.

APEC Honolulu Declaration

Following the goings-on at G-20, the 21-member Asia-Pacific Economic Cooperation (Apec) economic leaders met in Honolulu on Nov 12-13 to bolster their economies and lower trade barriers as they seek to prop up global growth and shield themselves against fallout from Europe’s debt crisis.

They adopted the Honolulu Declaration in which leaders agreed to take concrete steps towards building a “seamless regional economy” to generate growth and create jobs in “three priority areas”: (i) strengthening regional economic integration & expanding trade, (ii) promoting green growth, and (iii) advancing regulatory convergence and co-operation. Apec leaders gathered at a time when “growth and job creation have weakened and significant downside risks remain, including those arising from the financial challenges in Europe and a succession of natural disasters in the region.”

Against this uncertain backdrop, the forum had something more concrete to focus on than the usual bromides about extending free trade. This reflected in part frustration with the long-running (entering its 11th year with no end in sight) world trade talks, and in part, a desire to snap out of the poor global economic outlook. There is also a broader influence from concern about how best to grow and create jobs.

The Trans-Pacific Partnership (TPP), a proposed free trade pact covering nine Apec members (the United States, Australia, New Zealand, Vietnam, Singapore, Malaysia, Brunei, Chile & Peru) account for 35% of the world economy, is unique, making it the blueprint for future global trade agreements since it had taken on new issues including green technologies & the digital economy. An agreement was reached on the broad outline of a deal with a final agreement in sight for 2012.

Since then, three more Apec members (Japan, Canada and Mexico) have expressed interest to join. Together, this would create a market of 800 million, the largest trade deal for the United States. The aim is to eventually cover all 21 members of Apec which accounts for more than one-half of the world’s economic output. Apec says: “We recognise that further trade liberalisation is essential to achieving a sustainable global recovery in the aftermath of the global recession of 2008-09.” An expanded TPP would provide the much needed boost.

But no trade agreement in the Pacific is complete without China. Looks like a power play between the United States and China is in the works. As such, optimism about its potential benefits needs to be tempered.

At the conclusion of Apec meeting, leaders agreed to: (i) address two key next generation trade and investment issues, viz. commitment to help the small and medium-sized enterprises grow and plug into global production chains; and to promote effective market-driven innovative policies; (ii) develop by 2012 a list of environmental goods (including solar panels, wind turbines and energy efficient light bulbs) that contribute to green growth on which members resolved to reduce tariffs to 5% or less by end 2015, and to also eliminate non-tariff barriers; and (iii) take steps by 2013 to implement good regulatory practices. In the end, the question remains how far leaders will be able to turn promises into action.

The biggest problem on the Asia-Pacific horizon remains Europe, where fiscal turmoil centred on Italy and Greece will continue to surprise and send shock waves worldwide.

As feared, both summits ended with a whimper, eclipsed by the Italian and Greek sovereign debt drama.

Former banker, Dr Lin is a Harvard educated economist and a British Chartered Scientist who now spends time writing, teaching and promoting the public interest. Feedback is most welcome; email:

Asean for Pacific peace


WHEN the US hosted this year’s Apec (Asia-Pacific Economic Cooperation) summit, Honolulu was the natural venue. Hawaii is the only US state in the Pacific, as distinct from merely being on the periphery.

But as regions go, the “Asia-Pacific” itself is a cumbersome construct alien to existing realities. Not only is the Pacific Ocean the largest expanse of water on the planet, making the Asia-Pacific a “region” is a geopolitical attempt to fuse several distinct regions lapped by Pacific waters into a single whole: East Asia, Oceania, North America and Latin America.

That has made an ambitious, 21-member Apec an unwieldy mass of anxieties in search of a higher purpose beyond generalities shared also by much of the rest of the world. With few common interests and fewer shared priorities and modalities, Apec proceedings have progressively suffered from inertia.

In contrast, more natural regions as clusters of nations or economies in and around the Pacific have evolved with greater vibrancy. The late Robert Scalapino, UC Berkeley’s specialist in East Asian affairs, called these “natural economic territories (Nets)”.

On one level, culture, history and trade (economics) have bonded these entities together as identifiable regions: thus the North American Free Trade Agreement (Nafta), Mercosur, the EU and Asean Plus Three (APT, with China, Japan and South Korea). They developed from geographical proximity and social affinity through economic logic and official policy.

Although today’s US-China economic relationship continues to grow, it is at least as competitive as it is complementary. Their non-economic relationship is even more troubled.

On a localised level, Nets are evident in “growth triangles” and various growth polygons in several cross-border regions. Without their non-political elements, however, “regions” become undernourished because they cannot live on strategic concerns alone.

Nets do not deny a unitary global economy with globalised supply chains and markets – or the contagion effect these produce when core economies decline. But Nets do help to explain the distinct economic impulses and motive forces for each region, such as why East Asia remains the world’s most economically dynamic region even when North American and European economies falter.

Politically, East Asia also has no ideological encumbrances when state policy determines economic priorities. Culturally, pragmatism is key, so that eclecticism is often rated above orthodoxy.

Differences between regions are also manifested in the way foreign relations are shaped. For Asean, it is better for countries to agree to disagree without being disagreeable, than for them to confront each other with self-righteous ire and distinct dogmas.

East Asia is also not as hypersensitive to the vagaries of a fickle electorate with sensibilities set to four-year election cycles. National policy therefore has more time to develop, mature and yield dividends.

In the build-up to Apec 2011, Ralph Cossa of Honolulu-based think tank Pacific Forum CSIS said: “China is becoming an 800-pound gorilla. The US is still the 1,600-pound gorilla, so which one would you rather have? … we’re housebroken; we’re a lot more fun to invite into your living room …”

China’s impressive rise still marks it as aspiring to only a fraction of what the US has already achieved, economically and more so militarily – if China is aiming for tactical parity at all, which is doubtful.

But Cossa is right only in part. The reality of a post-Cold War world, and one which all Asean countries hope will prevail, is not having to choose between superpowers.

The regional situation is not either-or, “with us or against us”. It is “both and”, so the question of “rather having” one or the other does not arise.

Besides, whether any superpower is, ever has, or can be “housebroken” remains very much in doubt. Nations that have borne the brunt of US military intervention are still hoping to recover.

But Cossa is right in that the US needs to be invited into this region’s “living room” – it is not an Asian country. China, however, has always been an Asian power, and an East Asian giant at that.

How the US today, still bristling with military technology and looking to confront global challenges, responds to a rising China forms the basis of the region’s concerns. Developments in recent days have not been reassuring.

On his way to the East Asia Summit (EAS) in Bali after Apec, President Barack Obama stopped over in Australia and announced plans for stationing US troops there.

Mean­while, the Pentagon has been working quietly on its AirSea Battle concept to counter China (see next).

On Wednesday the US said it would provide the Philippines with an additional warship to boost Manila’s claims to islands in the South China Sea disputed by China. The next day a US Congressional committee voted to provide Taiwan with new F-16 jet fighters in addition to technical upgrades to its existing fleet, upping the ante in Taipei against Beijing.

On Friday Japan pledged US$25bil (RM79bil) in infrastructure projects for Asean countries, in efforts described as raising its regional profile in competing with China. Following China’s reservations about the US-Australia military arrangements, Canberra warned Beijing not to interfere.

East Asia has tried and tested ways of satisfactorily engaging various powers, regardless of size and strength.

What the region does not need, and can ill afford, is superpower presumptuousness that upsets diplomacy and destabilises geopolitics.

A pragmatic Asean has learnt that bluster, bravado and brinkmanship are not the way to proceed. Its steadier if slower methods are respected internationally, having made it the most successful regional organisation in Asia.

Where US military dominance of the Pacific has ensured safe passage of international shipments, the US is the main benefactor and a resource-importing, export-oriented China the main beneficiary.

If there is any change to the status quo, China would want to be the least involved.

Pentagon planning Cold War against China – AirSea Battle concept

Washington Times: 12 November 2011

The Pentagon lifted the veil of secrecy Wednesday on a new battle concept aimed at countering Chinese military efforts to deny access to areas near its territory and in cyberspace.

The Air Sea Battle concept is the start of what defense officials say is the early stage of a new Cold War-style military posture toward China.

The plan calls for preparing the Air Force, Navy and Marine Corps to defeat China’s “anti-access, area denial weapons,” including anti-satellite weapons, cyberweapons, submarines, stealth aircraft and long-range missiles that can hit aircraft carriers at sea.

Military officials from the three services told reporters during a background briefing that the concept is not directed at a single country. But they did not answer when asked what country other than China has developed advanced anti-access arms.

** FILE ** A security officer walks on the roof of the Pentagon. (AP Photo/Charles Dharapak)** FILE ** A security officer walks on the roof of the Pentagon. (AP Photo/Charles Dharapak)

A senior Obama administration official was more blunt, saying the new concept is a significant milestone signaling a new Cold War-style approach to China.

“Air Sea Battle is to China what the maritime strategy was to the Soviet Union,” the official said.

During the Cold War, US naval forces around the world used a strategy of global presence and shows of force to deter Moscow’s advances.

“It is a very forward-deployed, assertive strategy that says we will not sit back and be punished,” the senior official said. “We will initiate.”

The concept, according to defense officials, grew out of concerns that China’s new precision-strike weapons threaten freedom of navigation in strategic waterways and other global commons.

Defense officials familiar with the concept said among the ideas under consideration are:

• Building a new long-range bomber.

• Conducting joint submarine and stealth aircraft operations.

• New jointly operated, long-range unmanned strike aircraft with up to 1,000-mile ranges.

• Using Air Force forces to protect naval bases and deployed naval forces.

• Conducting joint Navy, Marine Corps and Air Force strikes inside China.

• Using Air Force aircraft to deploy sea mines.

• Joint Air Force and Navy attacks against Chinese anti-satellite missiles inside China.

• Increasing the mobility of satellites to make attacks more difficult.

• Launching joint Navy and Air Force cyber-attacks on Chinese anti-access forces.

Pentagon press secretary George Little said the new office “is a hard-won and significant operational milestone in meeting emerging threats to our global access.”

“This office will help guide meaningful integration of our air and naval combat capabilities, strengthening our military deterrent power, and maintaining US advantage against the proliferation of advanced military technologies and capabilities,” Mr. Little said.

He noted that it is a Pentagon priority to rebalance joint forces to better deter and defeat aggression in “anti-access environments.”

Earlier this month, Defense Secretary Leon E. Panetta said during a visit to Asia that US forces would be reoriented toward Asia as the wars in Iraq and Afghanistan wind down. The new focus will include “enhanced military capabilities,” he said without elaborating.

The military officials at the Pentagon on Wednesday did not discuss specifics of the new concept. One exception was an officer who said an example would be the use of Air Force A-10 ground attack jets to defend ships at sea from small-boat “swarm” attacks.

China in recent years has grown more assertive in waters near its shores, harassing Navy surveillance ships in the South China Sea and Yellow Sea.

China also has claimed large portions of the South China Sea as its territory. US officials said the Chinese have asserted that it is “our driveway.”

The Pentagon also is concerned about China’s new DF-21D anti-ship ballistic missile that can hit aircraft carriers at sea. Carriers are the key power-projection capability in Asia and would be used in defending Japan, South Korea and Taiwan.

“The Air Sea Battle concept will guide the services as they work together to maintain a continued US advantage against the global proliferation of advanced military technology and [anti-access/area denial] capabilities,” the Pentagon said in announcing the creation of a program office for the concept.

Although the office was set up in August, the background briefing Wednesday was the first time the Pentagon officially rolled out the concept.

The Army is expected to join the concept office in the future.

One defense official said the Army is involved in cyberwarfare initiatives that would be useful for countering anti-access weapons.

“Simply put, we’re talking about freedom of access in the global commons. Increasing ranges of precision fire threaten those global commons in new expanding ways,” said a military official speaking on condition of anonymity. “That, in a nutshell, is what’s different.”

Defense officials said some administration officials opposed the new concept over concerns it would upset China. That resulted in a compromise that required military and defense officials to play down the fact that China is the central focus of the new battle plan.

A second military official said the new concept also is aimed at shifting the current US military emphasis on counterinsurgency to the anti-access threats.

The office was disclosed as President Obama sets off this week on trip to Asia designed to shore up alliances. He is set to meet Chinese President Hu Jintao in Hawaii on Saturday.

The concept grew out of the 2010 Quadrennial Defense Review that, in its early stages, had excluded any mention of China’s growing military might.

China was added to the review after intervention by Andrew Marshall, director of the Pentagon’s Office of Net Assessment, and Marine Corps Gen. James N. Mattis, at the time head of the Joint Forces Command.

China military specialist Richard Fisher said the new Air Sea Battle office is necessary but may be “late in the game.”

“A Pentagon office focused on China’s military challenges in Asia or beyond will be insufficient,” said Mr. Fisher, of the International Assessment and Strategy Center. “This challenge will require Cold War levels of strategic, political and economic policy integration well beyond the Pentagon’s writ.”

Said former State Department China specialist John Tkacik: “This new Air Sea Battle concept is evidence that Washington is finally facing up to the real threat that China has become an adversarial military, naval and nuclear power in Asia, and that the only way to balance China is to lend the weight of US air and naval forces to our Asia-Pacific allies’ ground forces.”

Source: Washington Times

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