Animation by Rocco Fazzari.

HEADS DOWN

The Ukraine invasion has produced mostly low-key responses across Asia reflecting old ties to Russia, exposure to commodity price rises, and a proclivity to often wait for a lead from the United Nations on international crises.

The United Nations Security Council (UNSC) debate over condemning the invasion last Friday provides a useful regional summary. Only Japan, South Korea, Singapore, Timor Leste, Papua New Guinea and Fiji (plus some small Pacific nations) joined the 81 co-sponsors, including Australia. On the 15 member UNSC, India joined China and the United Arab Emirates in the Council’s current Asia-bloc in abstaining from the motion, which was ultimately vetoed by Russia.

The lack of a clear or strong voice from Asia was also underlined by the delayed Association of Southeast Asian Nations (ASEAN) statement on Saturday which simply called on “all relevant parties to exercise maximum restraint”.

China has drawn the most attention for its criticism of the US for fostering the crisis and its refusal to criticise Russia. But it is nevertheless trying to position itself above the fray as it considers what it means for its claim on Taiwan. This has been called “pro-Russia neutrality”.

While Japan has imposed economic sanctions on Russia, it was a noticeable absence on Saturday when the other six Group of Seven countries (plus the European Union) blocked Russian banks from the SWIFT international payments system. Foreign minister Yoshimasa Hayashi said Japan had to consider the financial market impact of the move, although it has subsequently joined the ban.

India’s UNSC abstention reflected long ties to Russia, a dependence on Russian weapons imports, its multi-polar diplomatic strategy and concern Russia could easily pivot to Pakistan, which was underlined by Pakistan prime minister Imran Khan visiting Moscow late last week. But on Saturday, in a sign of apparent frustration with its Quadrilateral Security Dialogue partner, the US State Department said it had urged India to use its influence with Russia to “protect the rules-based international order”.

In South Korea where the centre left Democratic Party government sees Russia as important to a North Korean settlement, candidates in the March presidential election have been exploiting the invasion for their own domestic purposes. Democratic candidate Lee Jae-myung said Ukranian president Volodymyr Zelenskyy was a “novice politician” who had provoked Russia.

Singapore has one of the strongest Asian statements saying it was gravely concerned by the Russian action. But while Indonesia said it condemned violation of national sovereignty, it did not single out Russia.

Meanwhile, Malaysian PM Ismail Sabri Yaakob was more representative of the neutral non-committal character of the ASEAN statement saying: “Malaysia hopes that the best possible peaceful settlement between Ukraine and Russia can be reached soon.”

Vietnam, which was closely allied with Russia during its wars with both the US and China, called for the two sides to use self-restraint, step up dialogue and deal with conflicts in line with the United Nations Charter.

While the Southeast Asian reaction reflects ASEAN’s lowest common denominator compromise approach to many contentious issues, the group has also recently engaged with Russia over vaccine distribution and a joint naval exercise.

Most Asian countries are highly exposed to a spike in energy prices from a long war and disruption to energy supply chains from sanctions. For example, Russia and Ukraine combined are the third largest suppliers of cereal grains to ASEAN countries, accounting for more than 10 per cent of supply. And Russia particularly stands out as a military supplier to Southeast Asia, as well as India.

• Asia Society Policy Institute senior fellow C. Raja Mohan says in this The Straits Times piece the invasion has put “India's strategy of multi-alignment under even greater pressure.”
• Pusan University’s Robert Kelly, says in The Japan Times, the Ukraine war does not provide a model for a Chinese takeover in Taiwan.

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NEIGHBOURHOOD WATCH

ASEAN: STUCK IN THE MIDDLE

Southeast Asians appear to be backing hope over reality as they struggle with growing superpower rivalry amid the faltering performance of their own flagship Association of Southeast Asian Nations (ASEAN).

The latest annual survey of elite opinion across the region shows positive feeling towards the Biden Administration but still a sustained acceptance that China is the established economic and diplomatic power in the ten-nation region.

The ISEAS/Yusof Ishak State of Southeast Asia survey shows 36.6 per cent of respondents think the US can maintain a rules-based order and 30.1 per cent think it can lead free trade. This compares with 13.6 per cent and 24.6 per cent for China on those respective questions.

But 76.7 per cent see China as the most influential economic power and 54.4 per cent see it as the most influential strategic power, compared with 9.8 per cent and 29.7 per cent for the US.

The US remains the preferred country of the two when Southeast Asians are forced to choose, by 57 per cent to 43 per cent, but counterintuitively nervousness about China’s rising economic and strategic influence is actually down compared with last year.

In another interesting balancing act, 31 per cent of respondents think Chinese membership of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership trade deal would reduce regional economic tension while 29.9 per cent think it would increase tension.

It says something about the region’s state of mind post the pandemic and the Myanmar coup, that concern about ASEAN’s effectiveness in dealing with regional challenges has emerged as the biggest concern this year, overtaking concern about superpower rivalry which dominated last year.

And here is an interesting reaction to Australia’s newest regional priorities. Fifty-eight per cent of people support the Quadrilateral Security Dialogue while 42 per cent are either opposed or neutral. On the other hand, 36.4 per cent think the AUKUS submarine deal will balance China’s military power, while 40.5 per cent think it will either escalate a regional arms race or weaken ASEAN’s centrality.

• See: FALLING BEHIND in ASIAN NATION

INDO-PACIFIC: MIXED MESSAGES

 

Mapmakers (from left): The US, French and German strategies.

The Indo-Pacific entered the diplomatic lexicon a decade ago mostly as a way of accommodating India amid perceptions of Asia that had tended to focus more on East Asia or the Asia-Pacific.

While it has become an accepted way of framing the world’s new centre of economic and security, its graphic presentation in the latest strategy documents shows how the region is still very much in the eye of the beholder.

The cover of the newest outlook from the US on February 2 just manages to squeeze India in as it studiously makes space for the vast Pacific Ocean, through which the US views Asia.  Inside, the US stakes its claim declaring: “Our ties were forged two centuries ago, when Americans came to the region seeking commercial opportunities, and grew with the arrival of Asian immigrants to the United States.”

But this strategy shifts its gaze very smartly to China’s rise with the US declaring that China “seeks to become the world’s most influential power.”

France drew new attention to its three-year-old Indo-Pacific strategy last week when it used an update to downgrade Australia’s previous close strategic partner status following the row over the cancellation of the French submarine contract. France will now only “pursue bilateral cooperation with Australia on a case-by-case basis, according to its national interests and those of regional partners,” the Update said.

But France’s outlook had already drawn attention for its refashioning of the Indo-Pacific to include the entire east coast of Africa and only the very western part of the Pacific short of Hawaii where it maintains colonial possessions, despite its declaration that it “intends to maintain close relations with the United States, an ally and major player in the Indo-Pacific.”

Meanwhile, the cover of Germany’s strategy is noticeably focussed towards Southeast Asia where it has significant economic influence and notes there are “many initiatives and promising structural approaches, especially in the guise of the Association of Southeast Asian Nations”. But at least it acknowledges that: “The Indo-Pacific region is not clearly delineated in geographical terms and is defined variously by different actors.”

JAPAN: KOREA LOOMS

Japan finally showed signs of escaping the economic pain of the COVID pandemic in the last quarter of 2021 with the economy expanding at an annualised rate of 1.7 per cent.

After declines of 0.2 per cent in 2019 and 4.5 per cent in 2020, Japanese people may well now be looking for some structural uplift from Prime Minister Fumio Kishida’s promise of a new form of capitalism.

But just as he turns to fleshing out his still vague strategy of better distributing the results of higher economic growth after the pandemic, he is facing the long shadow of South Korea steadily catching up with its former colonial ruler.

The Japan Center for Economic Research issued forecasts in January that South Korea’s nominal GDP per capita would overtake Japan in 2027 in a highly symbolic transition for these two uneasy neighbours.

But meanwhile Japan economist Richard Katz has calculated that using the World Bank’s purchasing power parity-based real data, Korea has already passed Japan’s per capita GDP and is pulling away. This is because its productivity has been growing faster as Japan’s output per worker has been flat.

Moreover, Katz points out “unlike Japan, Korea has passed on the fruits of its productivity growth to its workers. For the three decades from 1990 through 2020, annual real wages (not including benefits) barely increased in Japan, whereas they almost doubled in Korea. Korean workers now enjoy higher wages than their Japanese counterparts.”

In a foretaste of what of the future holds, last September a member of Korean President Moon Jae-in’s Democratic Party claimed that his administration “will go down in history for surpassing Japan, 75 years after winning independence from the country.”

But perhaps Kishida will be able to rely on the patriotic tone of some reporting about this transition in the Japanese media with, for example, the Nikkei Asian Review pointing out that Koreans had more economic problems of their own to worry about.

As Korea goes to a fiercely-fought presidential election in March, the report noted: “The lack of interest seems to reflect the country's tough economic reality in which the average worker does not feel the benefits of the nation's economic advances.”

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ASIAN NATION

FALLING BEHIND

Australia’s attraction as an education and tourism destination in Southeast Asia has continued to decline just as the country has opened up over the past month to foreign students and tourists after the pandemic shutdown.

The latest State of Southeast Asia report shows that Australia’s ranking as the preferred place to go for a scholarship-funded university education or for a holiday has now consistently fallen and halved over the past four years. Only 9.9 per cent of respondents chose Australia for an education, compared with 25.6 per cent for the US, and only 5.1 per cent chose it for a holiday compared with 22.8 per cent for Japan.

First choice for university

In 2019:

In 2022:

Source: State of Southeast Asia report

This downward trend in the ISEAS-Yusof Ishak Institute report was first identified in Briefing MONTHLY here last year and raises questions about how effective Australia’s growing diplomatic outreach and spending on Southeast Asia has been.

The Morrison government has committed about $700 million to new initiatives in the Association of Southeast Asian Nations (ASEAN) region in the past two years on top of about $1 billion in annual aid and up to $100 million on pandemic measures.

The survey of opinion makers across the region also shows that Australia’s reputation as a free trade leader has also been declining, to being chosen by only 1.4 per cent of respondents this year compared with 6.7 per cent in 2020, or to 24.6 per cent for China this year.

VIETNAM RISING

Vietnam’s ambassador to Australia Nguyen Tat Thanh has flagged that the 50th anniversary of diplomatic relations next year could be marked with an upgrade in the bilateral relationship.

He said he had discussed establishing a Comprehensive Strategic Partnership between the two countries with Foreign Minister Marise Payne last year and that the countries were working towards that.

Thanh was speaking at the launch of the Australia-Vietnam Policy Institute (AVPI) at RMIT University, which is the latest part of the Federal Government’s Enhanced Economic Engagement Strategy of doubling bilateral foreign investment and becoming bilateral top ten trading partners.

He also stressed that one of the key priorities for the new shared economic strategy was to “overcome the legacy of war and the misrepresentation of our political systems.”

The AVPI joins other similar country-focussed institutes covering countries including Japan, China, Indonesia and India. But it has drawn on a broader than typical base of founding partners: RMIT University, Asia Society Australia, Asialink and the Australia-Vietnam Leadership Dialogue.

SPEAKING INDONESIAN

The University of Newcastle has bucked the downturn in tertiary Indonesian language study by introducing a new introductory course in Indonesian.

The new first year course, which students can take as part of a bachelor degree or a diploma of languages, is being promoted by the university as part of its focus on the Asia-Pacific and as an outcome of the lowered fees for language study in the government’s revamped fee structure.

Deputy vice-chancellor (global) Kent Anderson said: “UON has explicit commitment in our strategy ‘Looking Ahead’ to focus on Asia and the Pacific. Introducing Bahasa Indonesia is part of that.” The University was also in the process of hopefully joining the Australian Consortium for In-Country Indonesian Studies, which arranges study programs in Indonesia for students with the backing of the New Colombo Plan.

The University has also this month rebranded its University of Newcastle – Singapore campus as the Newcastle Australia Institute of Higher Education which it now calls its Asia Pacific study hub.

BACK TO SCHOOL

Asian students have started flowing back into Australia with the latest immigration numbers showing that 80,000 have arrived since the borders reopened in late 2021 and the latest education figures showing the total number of students studying is down 17 per cent on 2020.

But the numbers from the top five Asian countries – which provide 62 per cent of these students – show what a management and diplomatic challenge the government faces introducing its diversification strategy which was released early in February.

The number of students from China (which provides 30 per cent of overall students) is down 11 per cent and India (which provides 17 per cent) is down 13 per cent. Nepal (which provides eight per cent of students) is also down 13 per cent.

But the numbers from the next two largest source countries – which might be expected to provide more students under the diversification strategy – have fallen more. Malaysian numbers are down 23 per cent and Vietnam is down 14 per cent.

The Department of Education, Skills and Employment (DESE) discussion paper on how the government plans to improve foreign student diversity says reliance of the top five Asian sources countries has risen from 61 per cent in 2010 to 72 per cent in 2020, driven by China and India which are up from 46 per cent to 57 per cent.

It warns: “Market concentration presents a clear risk to the sustainability of revenue streams for institutions that are dependent on a small number of source countries and have flow on effects for student experience on campuses and in classrooms.”

And it notes that some universities are particularly at risk of over dependence with, for example, seven universities taking more than half their international students from a single country within the top five source markets of China, India, Malaysia, Nepal and Vietnam.

Without mentioning the downturn in relations with China, the discussion paper says: “A lack of diversity further exposes providers to the impacts of unexpected changes in market dynamics. A diverse student cohort minimises universities’ exposure to the risks associated with economic shocks, shifts in student preference changes or regulatory changes in source markets.”

The top five source countries accounted for 72 per cent of enrolments in 2020, which is a significant increase in concentration relative to 2010, where the top five accounted for 61.4 per cent.

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DEALS AND DOLLARS

MINING DIPLOMACY

BHP chief executive Mike Henry has given the Department of Foreign Affairs and Trade a welcome boost from the business community by using the company’s half-year results day to say the department needs a spending increase.

He told The Australian Financial Review that more funding for DFAT was one of his top requests for the coming federal budget and for the parties contesting the federal election.

“We do find ourselves in a world that is more volatile, more uncertain, and investing more in DFAT, we would like to see them as a winner coming out of the next budget. We think that is going to be good in terms of ensuring an export-oriented economy like Australia is able to continue to perform well,” he said.

Henry said the mining industry was being affected by geopolitical issues such as China’s ban on Australian coal, potential interference with trade through the South China Sea, and moves to declare some minerals critical to national security.

BHP’s sensitivity to China was underlined in the economic outlook released with the results which highlighted its estimate that China’s share of world exports rose from 13 per cent in 2019 to about 16 per cent in 2021. The outlook points out that this was twice as high as Japanese export reached during the 1980s and was only matched by the US in the early 1960s.

DRIVING SOUTH

The long quest to integrate the car markets of Australia and Indonesia may be taking off with the export of the first Indonesian-made cars to Australia from Toyota’s Indonesian subsidiary.

The export of the first Toyota Fortuner SUVs follows years of negotiations on safety, fuel and emissions regulations and the conclusion of the bilateral trade agreement two years ago.

It also marks another twist in a trade relationship which began with the export of Holden cars from Australia to Indonesia in the 1960s and which may now develop into cooperation over electric car production, with Australia providing raw material for Indonesian battery manufacturing.

President Joko Widodo hailed the development as showing Indonesia could do value-added manufacturing, with 75 per cent of the components, spare parts and accessories on the cars supplied by Indonesian manufacturers.

CRITICAL MINERALS

Australia’s bid to build a critical minerals supply chain independent of China’s dominant role in this sector is being tested by Chinese company Shenghe Resources Holdings buying a 19.99 per cent stake in ASX-listed Peak Rare Earths.

Shenghe, which already has other rare earths interests in Australia, was reportedly attracted by Peak’s rare earth project in Tanzania, which the company describes as the biggest undeveloped rare earth deposit in the world.

Privately-owned foreign companies are typically permitted to buy up to 20 per cent of an Australian business without needing permission from the Foreign Investment Review Board (FIRB). But the government has funded a $2 billion critical minerals fund, expanded the national interest scope of the foreign investment rules, and FIRB has said it will more closely scrutinise critical minerals transactions.

The Australian has reported that Shenghe may be caught out by the lower FIRB threshold for government-owned foreign companies because several Chinese government companies own shareholdings in it which would possibly exceed 20 per cent.

WINE EXPORTS

The impact of China’s tariffs on Australian wine exports are still flowing through the sector with total overseas sales down by 30 per cent to a little more than $2 billion last year. Wine Australia’s latest Export Report shows exports to mainland China, once the biggest single overseas export destination, fell by almost $1 billion for the year to only $29 million.

But non-China exports increased seven per cent in value to $2 billion, with the largest increases coming from other Asian countries including Singapore (up 108 per cent to $166 million), Hong Kong (up 45 per cent to $191 million), South Korea (up 74 per cent to $47 million), Taiwan (up 65 per cent to $31 million) and Thailand (up 31 per cent to $28 million).

Wine Australia corporate affairs and regulation manager Rachel Triggs said: “It will take time to offset the loss in trade to mainland China. This is not something that will happen overnight, nor within a year. But the Australian wine sector is resilient, and there are early signs that hard work in expanding and diversifying markets is paying off.”

Meanwhile the former biggest exporter to China, Treasury Wine Estates, is balancing finding new markets for former China stock with maintaining a long-term presence in the country for the future.

Chief executive Tim Ford used his half-year results to say the company was ahead of schedule in shifting wine away from China, although analysts say it has only moved about half of the excess.

And the company is exporting Penfolds wine made in California to China and is planning to follow up with Penfolds products made in France. It continues to run Penfolds out of China with Shanghai-based Penfolds manager Tom King using the results briefing to suggest the company still had good relations with the Chinese customs service.

SINGAPORE SLINGS

Singapore’s sovereign wealth fund is planning to open its first Australian office as it has emerged as the biggest offshore player in Australian commercial real estate.

GIC chief executive officer Lim Chow Kiat told The Australian Financial Review that the planned opening of the Sydney office was a “good testament to the early mover advantage we had in real estate. It will further capitalise on our private market capabilities to generate good, risk-adjusted returns for the overall portfolio.”

At the same time, GIC is set to get a big new capital injection from a change in the way Singapore manages its foreign reserves. The transfer of S$185 billion (AU$192.3 billion) from the foreign reserves of the Monetary Authority of Singapore would make GIC the world’s third largest sovereign wealth fund with assets under management estimated at US$880 billion, according to sovereign investor specialist Global SWF.

After a big year in 2021, GIC has emerged as the biggest source of foreign funds in commercial property in Australia with stakes in Sydney’s Chifley Tower and Melbourne’s Emporium.

But curiously, as GIC is wading further into investment in Australia, its sibling sovereign fund Temasek Holdings has cut its exposure in Australia over the past decade from 12 per cent to four per cent.

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DIPLOMATICALLY SPEAKING

MANCHURIAN CANDIDATES

We respect China and deeply value our relationship with China. We must seek to build it. And not just in economic terms, but also through exploring political co-operation and even defence co-operation.
– Deputy opposition leader Richard Marles, Beijing (2019)

He said that as the shadow defence minister. I tell you where I do agree … We've got another Manchurian candidate.
– Prime Minister Scott Morrison, House of Representatives (February 16)

If it assists the House, I will withdraw.
– Morrison (February 16)

He got up and withdrew, but he knew what he was doing. That was effectively accusing the opposition of treason … That's the kind of behaviour they (China) are trying to incite in our country, and the Prime Minister is so desperate, so naive, he fell into the trap again and again.  
– Labor Member for Bruce, Julian Hill (February 16)

If you're looking for a Manchurian candidate, he (Morrison) sits over there, because, with the campaign that has happened this week, he has served the interests of China, not our national interests.
– Opposition Leader Anthony Albanese (February 17)

Of course, (Marles) is not a Manchurian candidate, and the Prime Minister very quickly withdrew that comment, and I note that when Anthony Albanese made the same comment towards the Prime Minister he didn’t withdraw it, so the Labor Party's stance on this is confected. They (are) very sensitive about their weakness on China …  The only place you can read (Marles speech) is in on my website, not his. Don't you think that's strange? He is embarrassed about that speech and doesn't want to talk about it.
– Senator James Patterson, ABC Insiders (February 20)

I think the first question voters are entitled to have an answer to is: ‘Why is Mr Morrison saying these things?’ … He’s saying them because he is desperate to ensure his political survival … The relationship with China has become much more difficult … None of that has been made easier by the sort of political games we have seen from the man who calls himself prime minister.
– Shadow foreign minister Penny Wong (February 22)

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DATAWATCH

POWERPLAYS

The most trusted outsiders in Southeast Asia

Source: ISEAS State of Southeast Asia report

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ON THE HORIZON

Presidents Jiang Zemin and Bill Clinton at the 1993 Summit

APEC: BACK TO HOME BASE

The United States hosted the first leaders’ summit of the Asia Pacific Economic Cooperation (APEC) group under President Bill Clinton in 1993, helping make the group the latest shining light in regional diplomacy.*

Surprisingly, the White House didn’t celebrate the return of the Leaders’ Summit to its inaugural country when it announced that it would host the event in 2023. Perhaps that was because the Biden Democrat Administration still sees itself as cleaning up from the perceived open trade and China engagement policies under the Clinton Administration that ultimately resulted in a loss of support from the party’s working-class base.

Instead, the White House noted that hosting the 21-country summit would allow it to underscore “our commitment to advance fair and open trade and investment, bolster American competitiveness, and ensure a free and open Indo-Pacific.”

Given the US is excluded from the region’s biggest trade group in the 18-member Regional Comprehensive Economic Partnership and departed the 11-member Comprehensive and Progressive Agreement for Trans-Pacific Partnership (which it once led), hosting APEC will allow it to get a significant foothold back in the region’s economic architecture. Despite its promised Indo-Pacific Economic Framework, the US is facing growing scepticism around the region for failing to produce a substantial regional economic engagement strategy to complement its stepped up security activities.

But hosting APEC will also require it to take some responsibility for the group’s direction after the last four summits have been destablised by superpower rivalry (PNG), civil upheaval (Peru) and COVID (Malaysia and New Zealand).

* The first four APEC summits starting in Australia in 1989 were held at the ministerial rather than leadership level.  

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ABOUT BRIEFING MONTHLY

Briefing MONTHLY is a public update with news and original analysis on Asia and Australia-Asia relations. As Australia debates its future in Asia, and the Australian media footprint in Asia continues to shrink, it is an opportune time to offer Australians at the forefront of Australia’s engagement with Asia a professionally edited, succinct and authoritative curation of the most relevant content on Asia and Australia-Asia relations. Focused on business, geopolitics, education and culture, Briefing MONTHLY is distinctly Australian and internationalist, highlighting trends, deals, visits, stories and events in our region that matter.

We are grateful to the Judith Neilson Institute for Journalism and Ideas for its support of Briefing MONTHLY and its editorial team.

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