Year of living dangerously

Slowing growth, regional and local spats make for a lively Asia in 2014

THE WORLD

Among the memorable speeches delivered by that supreme orator, the late president Sukarno of Indonesia, is an independence day address in 1964 called The Year of Living Dangerously.

Fifty years on, and as the anniversary of that oration approaches, perhaps the theme could apply not just to South-east Asia's largest nation, but all of Asia too.

Slowing growth, political tensions over water, land and even air, unstable regimes in some key states, widening defence spending and opposition groups that haven't reconciled to electoral verdicts at home are poised to create a potent brew that should make 2014 one of the liveliest years of our generation.

Perhaps the biggest worry is China, the biggest regional power, and its relations with Japan and, by extension, the United States.

Japanese Prime Minister Shinzo Abe's determination to not allow Japan to be eclipsed by China, three years after his country's economy was surpassed by the mainland's, has set in motion a trail of events that not only leaves the region needing to recalculate many sums, but also pondering the implications of a militaristic Japan.

For the moment, some may be tempted to cheer as Mr Abe develops his theme of "active pacifism", tweaks the military doctrine of self-defence and goes about building a military industrial complex, even as he raises the defence budget. But the implications of Mr Abe's nationalism, and the reaction it is drawing from across the water, are profound.

Beijing and Tokyo are setting up national security councils, an exercise in coordinating security, intelligence and military muscle that would have been considered overdue except for the timing - coming amid the worst wrangling over control of uninhabited islands and vast stretches of the East Sea that could threaten the peace which has underwritten Asia's prosperity these past four decades.

Equally worrisome is that over the past year and a half, the vaunted long view and cool-headedness is sometimes seen to be missing in the Chinese calculus. In September last year, as political tensions began to rise with Japan over the islands it nationalised, Panasonic briefly shut three of its China plants after suffering mob attacks. Yet, in an earlier era, when China was treated as a global outcaste following the Tiananmen Square incident, it was Matsushita, the parent company of Panasonic, that had sent a firm signal of support by investing significantly on the mainland.

When Super Typhoon Haiyan hit the Philippines, China's initial aid offer was so niggardly that many accused it of pettiness. Although it later changed tack to send in a hospital ship that provided invaluable help, and raised the quantum of aid, the damage to its image was done. Meanwhile, the US sailed in an aircraft carrier group to help out.

Likewise, many are baffled by China's recent declaration of the air defence identification zone without apparent warning. The announcement dragged in South Korea by including a corner of its territory in the zone, thus riling Seoul and setting back bilateral ties at a time when they were fast developing.

Earlier in the year, India and China nearly came to blows after Chinese troops set up camps deep inside territory claimed by India in the Ladakh region of Jammu and Kashmir state.

Fear of China and Chinese intentions has caused defence spending in Asia to balloon, diverting money from infrastructure, health and education. The region now spends more on defence than all of Europe, as militaries add aircraft carriers, fighters and missiles. The gains, if any, are to weapons producers, chiefly in the US.

More problematic, perhaps, is that recent data indicates the Chinese economy is slowing, judged by both manufacturing activity and fixed asset investment. With the population profile having tilted towards a less favourable dependency ratio - a factor bound to slow domestic consumption as the old are more cautious spenders - more sand will show up in the Chinese economic machine.

Mr John-Paul Smith, global emerging markets strategist at Deutsche Bank, who correctly called the Russian stock market crash of 1998, says he sees China expanding by less than 5 per cent annually over the next five years.

Not that Japan, the No. 2 Asian economy, is doing much better.

The uptick in growth from Mr Abe's expansionary fiscal policy and monetary easing is in danger of taking a pause. The third arrow in the so-called Abenomics policy hasn't left the quiver for the bowstring.

Yale professor Koichi Hamada, the brains behind Abenomics, recently bemoaned Mr Abe's inability to move on relaxing labour and financial market reforms, cut company tax, liberalise trade and have a more open immigration policy.

That's bad news for Asia, which needs China and Japan to both do well. With India, the No. 3 Asian economy caught in a blue funk, the picture is not very pretty.

Indeed, thanks to political tensions, Asia's area of instability now arcs from Japan to China, North Korea, Thailand, Myanmar, Bangladesh and all the way to India.

Pyongyang's antics such as building and testing long-range missiles have sometimes been thought to be aimed at forcing the US to sit down and negotiate with it. However, the recent assassination of young supremo Kim Jong Un's uncle, Jang Song Thaek, speaks of internal turmoil in the reclusive state that's deeply unsettling to the region and even its patron state, China.

Farther to the west, the political opposition in Thailand, Asean's second largest economy, seems unable to reconcile to the electoral verdict of its people. Next door, Myanmar's sectarian fissures are coming to the fore, and in South Asia, looming elections in the big nations of India and Bangladesh complete and complicate the picture.

India, with its economy already underperforming its potential, could be particularly affected if the deeply divisive Hindu nationalist Narendra Modi comes to power, as many expect him to do mid-year.

He is a charismatic man and Indians are turning their eyes to him in a quest for decisive leadership. Yet, India's political system and current permutations make a clear victory unlikely, a factor that will hobble the famously impatient Mr Modi.

Closer to home, Indonesia, Asean's biggest nation and economy, is also due for a series of elections, with no clear leader having as yet emerged either by way of party or presidential candidate.

One positive for Asia, indeed the world, is a surge in US economic activity. This week, International Monetary Fund managing director Christine Lagarde indicated that the IMF may soon raise its 2014 forecast for the world's No. 1 economy, currently tipped to expand by 2.6 per cent. American wages are increasingly competitive; the shale phenomenon is not only making manufacturing cheaper stateside but could also see Uncle Sam soon turn into a net energy exporter. All that will have profound implications for Asia.

A return to trend growth for the US, at a time when China is slowing, will extend American dominance and renew its people's interest in the wider world and in policing it. It will also force strategic calculations to alter globally and compel affected parties to modify their own plans, partly out of insecurity and partly, necessity.

Where and how the chips will fall are not known. Some surprises are inevitable. One thing though is certain: Asia is poised for interesting times, perhaps dangerous even.

velloor@sph.com.sg