Illustration by Rocco Fazzari. View the full animation here.

NEW CHAPTERS

“If you only read the books that everyone else is reading, you can only think what everyone else is thinking,” Haruki Murakami once observed, perhaps ironically, between churning out his popular novels.

So, after a year of intimidating must reads (well, at least the executive summaries) ranging from the 208-page Southeast Asia economic strategy to the 112-page Defence Strategic Review to the 52-page development aid review, it’s time for broader horizons.

Some of my Asia Society Australia colleagues have suggested their summer reading (and viewing) options from and about the region for our annual end of year reading list. And I have curated a selection of new writing by Australian authors about Asia published this year. It’s an eclectic mix for summer reading or seasonal gift giving from romance in pre-war Java and Shanghai to an exploration of the rising Indian diaspora.

But first, a short recap of a still relatively new Australian government bedding down its approach to statecraft in a year of geo-political rivalry and possible economic fragmentation.

Thanks for reading this year.

Greg Earl
Briefing MONTHLY editor

NEIGHBOURHOOD WATCH

CHINA IN THE SLOW LANE

When the Chinese Communist Party’s top foreign policy official Liu Jianchao visited Australia last month, he was quick to pull out his briefing notes on the enduring heft of his country’s economy. Asked about an economic malaise, he claimed China’s annual economic growth was almost 50 per cent greater in dollar terms than back when the Australian bilateral free trade deal was being finalised in happier times.

But his country’s failure to rebound economically after its sudden reopening from the pandemic at the beginning of the year has been the shadow hanging over regional economic and strategic relations all year. The managers of the world’s biggest command economy have many levers they can still pull. But a troubled economy seems to have contributed everywhere from the grudging restoration of Australian trade, to pitching to American business rather than politicians at the San Francisco leaders’ summit, and then the cutting of tourist visa fees.

President Xi Jinping unusually conceded his “chairman of everything” stature was lacking in this domain at his end of year party address where he said: “Our country’s economic recovery is still at a critical stage. The development situation facing our country is complex.”

Foreign investment is being withdrawn for the first time since the late 1990s and deflation has been emerging in various measures through the year. At the more microeconomic level even Apple has started moving its once China-centric production to India and Vietnam and Chinese citizens are cancelling their health insurance due to loss of faith in the system.

This has seen some big calls about a historical turning point in China’s modern rise.  Former Japanese finance minister Takatoshi Ito says China’s economic problems are similar to Japan in the 1980s, but much more home grown. This collaboration Who killed the Chinese economy between Foreign Affairs and the Peterson Institute for International Economics captures the bearish mood.  

• This China Policy/Asia Society Australia briefing paper says greater centralisation, collapsing local government revenue and slowing household incomes have exacerbated challenges for the country’s economic managers. But DATAWATCH has a different image of China.

BHARAT OR BUST

Bossmen … Anthony Albanese and Narendra Modi in Sydney. Picture: TheStatesman.com

It may now be a natural corollary to a troubled China, but India’s growing assertiveness has been the standout feature of this year in Asia, symbolically underlined by it becoming the world’s most populous country.

And the world has begun to shift, from Prime Minister Anthony Albanese dubbing his visiting counterpart Narendra Modi “The Boss” during an Indian diaspora event in Sydney to US President Joe Biden describing the US-India relationship as the “most consequential in the world.”'

India’s stock market is poised to take Hong Kong’s spot amongst the world’s biggest exchanges; Goldman Sachs has forecast it will be the world’s second largest economy by 2075 overtaking the US; and the country’s demographic dividend from a youthful working age population is expected to peak in 2030 but continue until 2055.

Modi used his hosting of the Group of 20 economic powers summit to burnish India’s credentials as the potential new leader of the Global South countries and promote a potential alternative to China’s Belt and Road Initiative in the form of a land sea corridor from India via the Middle East to Europe. And more symbolically, he floated the idea of replacing the British Empire name of India with Bharat, evoking an older pre-colonial Hindu era.

Voting last month in state elections suggests Modi’s Bharatiya Janata Party, the world’s largest political party, has recovered its momentum ahead of a national election by next May with the once dominant Congress Party now overshadowed by an unruly coalition of regional parties.

But the darker side of a new rising power has also been revealed with allegations that Indian state officials were complicit in the planned or actual assassinations of Sikh independence activists in North America and India’s reluctance to break with it long-time ally Russia over the Ukraine War. And India has taken the US reaction more seriously than it has taken that of Canada.

• At the Financial Times, Ruchir Sharma says Modi is crusing towards a third term in office. But John McCarthy warns at Asialink Insights that the “democratic solder” between India and Australia has become more brittle. And see Passages to India

VOTING GAMES

New dynasty … Paetongtarn Shinawatra welcomes her father back to Bangkok. Picture: AFP

As the Albanese government tries to hitch Australia’s economic wagon closer to what it sees as an emerging Southeast Asian locomotive, the quality of governance in these close Asian neighbours may come under more scrutiny.

This year started with rising hopes that Thailand’s near two decades of military manipulated democracy might be replaced by a new government led by the youth-oriented Move Forward Party, with a slate of reform policies. But it is ending with the one time face of a new sort of Southeast Asian democracy – Indonesia’s President Joko Widodo – reverting to old style dynastic politics by manoeuvring his son into possibly becoming the next vice-president.

It's another reminder that while voting – or electoral democracy – is alive and well in this region, liberal democracy with its associated accountability, policy debate and minority rights is still only slowly evolving.

That was underlined in Cambodia’s election where the landscape was filled with campaign posters for the tiny alternative Candlelight Party, for an election which was a managed walkover for long-serving Prime Minister Hun Sen’s Cambodian Peoples Party. The stronger alternative Cambodia National Rescue Party had been prevented from running and now Hun Sen has transferred power to his son.

In the region’s two longest running electoral democracies the story has some similar undertones. In Malaysia, Prime Minister Anwar Ibrahim, who has been both an establishment insider and outsider, is struggling to hold together a notional multi-racial government in the face of potential return to power by a more dirigiste Malay Muslim majority coalition. In the Philippines, President Ferdinand Marcos junior, the son a dictator, is set to become the face of democratic stability in the region with a lengthy six-year term. But internally he is facing a shadow dynastic battle with his Vice-President Sara Duterte, the daughter of his predecessor.

Back in Thailand, former exiled prime minister Thaksin Shinawatra appears to be wielding significant power from his Bangkok prison hospital with official Prime Minister Srettha Thavisin conceding he is in joint power with Thaksin’s daughter Paetongtarn, from the family-linked Pheu Thai Party. And with the election plurality-winning Move Forward Party forced into opposition, former coup leader turned military party prime minister Prayut Chan-ocha has now been appointed to the King’s Privy Council, where ultimate elite Thai power resides.

Nevertheless, Move Forward’s ability to win more seats than other old and new parties by appealing to young voters with clear alternative policies remains a beacon of hope for the region.

• At The Bangkok Post, Thitinan Pongsudhirak says a second-best, semi-democracy is still better than ten years of military rule. But at New Mandala, Nathaneal Sumaktoyo says Widodo is proving to be more dynastic than his predecessors.

ASIAN NATION

Frequent flyer … Penny Wong on a South Pacific visit

A NEW PACIFIC

The idea of moving towards greater integration between Australia and some Pacific countries to deal with security, development and climate change issues has been kicked around for years. The dollar is used in some countries and judges serve in others. But this year the dial shifted.

The Australia-Tuvalu Falepili Treaty signed on the sidelines of the Pacific Islands Forum establishes a special visa to allow Tuvaluans to live, work and study in Australia; additional money to support climate adaptation; and gives Australia effective veto power over Tuvalu agreements with, for example, China.

The Australia-Papua New Guinea Framework for Closer Security Relations has a treaty-like status that commits both nations to deeper information sharing and holding joint consultations in the face of any security threats. Australian police officers will now be able to serve within the PNG police service.

The government’s new aid policy (see below) raises the prospect of more direct government equity investment in the region in the wake of the support for Telstra buying the Digicel Pacific telecommunications business.

Foreign Minister Penny Wong nominates the Pacific engagement as first amongst her accomplishments as foreign minister describing it as “a change in the way in which we engage with the Pacific, playing much more to our strengths”.

But meanwhile, the Australia-Vanuatu Bilateral Security Agreement which set the pace a year ago for the latest agreements, is facing some opposition after a change of government in Vanuatu, underlying how this is unlikely to be a simple process.

In moving towards potential compacts with some stressed Pacific nations, Australia has always faced the challenge of finding a path between perceptions of neo-colonialism and avoiding the development of a Pacific ghetto in Australia. The swift evolution of the Pacific labour schemes from short term work in agriculture to more permanent work in a range of service industries now seems to have provided the pathway to potentially much greater integration.

• In this edited speech to the recent Australian AID Conference, Fiji’s Finance Minister Biman Prasad says a visa free Pacific “is the most basic building block for integration”.

STATE AID CRAFT

The Albanese government’s new development aid policy in August was a key stepping stone towards the later Pacific security agreements. But it also formalised three broad trends which had been under way for several years through Coalition and now Labor governments.

1: Budget finance remains curtailed below global benchmarks which only added to the shift towards the use of non-cash tools such as concessional debt, equity investments to encourage more private participation, and partly self-financing activity such as the Pacific labour scheme.

2: The focus on Australia’s closest neighbours in the Pacific and Southeast Asia and to a lesser extent South Asia at the expense of other parts of the developing world is made even clearer.

3: Meanwhile the shift towards integrating aid more closely with the diplomatic and defence wings of international relations policy is made quite explicit, to some extent downplaying the moral and poverty reduction objectives of traditional aid.

And so, it became the third leg of the government’s attempts to craft a whole of government “statecraft” approach to regional relations after the Defence Strategic Review embraced aid and diplomacy and the May Budget used the language of “investing in all elements of our statecraft including diplomatic power, trade and development”.

The policy warns that the region faces “vexing strategic circumstances” with security and economic dynamics that have existed for decades shifting. “Progress has been uneven and can be eroded quickly - as shown by the pandemic. Corruption, fragility, and poor governance continue to hold some countries back.”

But the three parts of Asia in focus were characterised in different ways:

The Pacific is framed as having longstanding bonds with Australia but facing rising challenges from climate change and debt which will require Australia to respect local priorities.

Southeast Asia is framed as a region with shared security and economic interests with Australia and opportunities for cooperation on protecting development gains with joint investments.

South Asia is framed as a region with growing ties to Australia where climate change and social inequality are cramping opportunities, but Australia can provide assistance in education, resilient cities and infrastructure.

• Richard Moore at The Interpreter argues the new approach to aid contains a “fundamental mismatch between compounding crises, complicating Australia’s strategic circumstances” and the policy’s “tepid responses.”

END OF TERM

International education is Australia’s fourth largest export revenue source and the largest services export at about $30 billion. But it is also often the first port of call for people-to-people diplomacy when ministers visit neighbouring countries and meet Australian educated alumni members (See DIPLOMATICALLY SPEAKING). And it is a source of employees for businesses entering the region.

The pressure to rein in surging post-pandemic immigration due to inflation and housing concerns has been building all year as some international students used low quality, short vocational courses as a back door to employment. Now the Migration Review has made those students the  prime target for immigration cutbacks with debate about a new student tax or a cap. But this may have implications for how Australia is viewed abroad if it is not managed carefully.

Looking to the future, the revenue losses from fewer students is likely to increase pressure on educational institutions to expand their campuses on the ground in Asian countries.

The complicated interaction between students and eventual workers is underlined by the way the government has been quick to reassure India that last year’s trade agreement provision that gives certain Indian students more access to a long stay work visa will remain in place. But Indian student numbers have been growing faster than others amid the immigration surge meaning they may be more insulated from the cuts than students from other countries.

There are now more than 860,000 people in Australia on student visas or post-study work visas, amounting to more than three per cent of the total population. Here’s where they come from.

Source: Department of Education

DIPLOMATICALLY SPEAKING

"Education is the strongest foundation on which we can build the mutual respect that characterises the relationship between our nations … We see it in the 18,000 Indonesian students who choose to study in Australia each year - a choice I believe ultimately contributes to both of our nations."
- Prime Minister Anthony Albanese (Makassar, June 7, 2022)

"Dad brought back with him knowledge and skills … The value of that (Adelaide) education has never left him … I am glad that he is far from the only Malaysian to gain from an education in Australia … It is largely education that has been the foundation on which our countries - and our peoples - have built mutual respect and understanding."
- Foreign Minister Penny Wong (Kuala Lumpur, June 29, 2022)

"We’ve made it much too easy for people to use side doors and back doors into our workforce and the primary way that is happening at the moment is through international education and we need to fix that immediately." 
- Home Affairs Minister Clare O’Neil (December 11)

"We’ve closed some of those loopholes, but we’ve got to close more of them if we’re going to protect the quality and the integrity of international education. I think it’s one of our greatest exports. It doesn’t just make our universities money, it helps to make sure that when students come here and then go home, they take with them a love and affection for Australia."
- Education Minister Jason Clare (December 12)

DEALS AND DOLLARS

DIVERSIFY OR ...

Stabilisation may have been the word of the year in Australia’s international economic engagement as the Albanese government has sought to unwind the remaining Chinese trade impediments.

But “diversification” is never far behind with three government-funded reports this year promoting new Asian markets beyond China, which are reviewed below. Meanwhile the Australian Chamber of Commerce and Industry (ACCI) trade survey has provided some useful insights into how this core government policy aim is travelling.

China has fallen from the top position in the list of active trade partners for the first time in the six periodic surveys conducted since the bilateral trade agreement was being finalised in 2014, to be replaced by the United States. Back in 2016 and 2018 at least 60 per cent of businesses surveyed were trading with China. But now that is down to 43 per cent. The US, on the other hand, has risen to 50 per cent from slightly below that in the pre-pandemic period.

These figures measure the countries with which Australian companies are trading rather than the value of trade where China remains the largest export and import partner, and while down on historic highs, appears to be recovering.

The big diversifications, very much in line with government policy initiatives, are India and Vietnam. India, with a partial trade deal newly in place and a bigger one promised, is up from 25 per cent to 32 per cent. Meanwhile Vietnam, which didn’t even make the top 22 cut in 2018 is now at 29 per cent, reflecting at least in part the enhanced economic engagement program.

And with the government now focused on closer economic relations with broader Southeast Asia to 2040, Vietnam trade is doing all the heavy lifting so far. The rankings for Malaysia (35 per cent) and Thailand (31 per cent) are unchanged over five years while Singapore (42 per cent) and Indonesia (26 per cent) are down.

To round out Asia and the top partners, Japan remains the fifth or sixth most popular trading partner with a consistent 35 per cent of businesses nominating it, while South Korea has risen a little to 26 per cent.

ASEAN bound: Promoting more investment was one of the key themes of the renewed government push into Southeast Asia including the Nicholas Moore-led economic strategy to 2040 and the government-led missions to get superannuation funds to invest in the region.

While it is too early to make assessments, the year has closed on a less than stellar investment note with Commonwealth Bank of Australia (CBA) and Ramsay Health Care each exiting two-decade old flagship Australian investments in the region. CBA sold its Indonesian retail network to Singapore’s OCBC which is expanding in the region. Ramsay sold its Malaysian/Indonesian hospital business to a larger regional health group including Malaysia’s Hong Leong Group.   

Meanwhile the most significant new Australian investment project in the ASEAN region – the Sun Cable plan to build an undersea power cable from Darwin to Singapore -  suffered some disruption from an investor split. Meanwhile there has been no announced move into the region yet by superannuation funds which are also being pressed to invest in the government’s domestic priorities.

The Moore report’s 75 recommendations are quite complex and do repeat some common ground from predecessors such as the 2021 Business Council of Australia/Asia Society Australia A Second Chance study. But they are very usefully organised in a matrix format of short and long-term priorities, and then again in neatly arranged core themes of raising awareness, removing blockages, building capacity, and finally deepening investment. Then they are re-organised across sectors and countries, all of which is critical in such a diverse region of 11 nations. See more analysis here.

Revisiting Thailand: With a new government finally in place in Thailand, a report on new bilateral business opportunities commissioned by the Australian embassy in Bangkok has some ideas for reinvigorating the relationship.

Its economic modelling finds that five Australian products are well placed to increase their value and volume in Thailand: meat and poultry; milk products; cereals and seasonings; beverages and tobacco; and cotton. And it says four Australian services emerge as competitive: tourism; finance; telecommunications, computer, and data services; as well as personal, cultural and recreational services. And the Thai products which have opportunities in Australia are: fish and processed fish; rubber, leather and shoes; non-electrical machinery; and electrical machinery.

It says the 20-year-old bilateral trade agreement should be updated to improve access specifically by including new areas such as e-commerce, competition, state-owned enterprises, environment, public procurement and small enterprises. Australian companies should also receive the same access in Thailand as US investors; Australia should do more to support the Thai government in analysing and removing domestic protectionist measures; and Austrade should move out of the embassy to become more accessible to Thai business.

Passages to India: With negotiations on a comprehensive trade agreement with India still dragging on, a series of 26 case studies of bilateral businesses underlines how much is already happening. They are produced by Newland Global Group with funding from the Australia India Council.

They range from Indian state-owned mining company National Mineral Development Corporation’s first overseas purchase of Australia's Legacy Iron Ore to how Australian virtual reality business Zero Latency has opened free roam reality rooms in India in association with Indian entertainment company Samrey Entertainments.

DATAWATCH

CHINA IN THE FAST LANE

Trends in scientific publications

Trends in renewable energy capacity (Gw)

ON THE HORIZON

TAIWAN VOTES

There are big elections in Asia next year starting with the highly contested and geo-politically sensitive vote in Taiwan on January 13 for a new president and its parliament, the Legislative Yuan.

Opinion polls suggest the Democratic Progressive Party's William Lai is leading the race to replace his DPP colleague Tsai Ing-wen (who cannot stand again after two terms) as president, although he has been losing momentum.

Lai is facing a competition with the once dominant Kuomintang (KMT) Party's Hou You-yi and a candidate from the newer Taiwan Peoples Party Ko Wen-je, in a first-past-the-post race, along with a fourth minor candidate. A Lai victory would likely lead to at least some new rhetorical tensions with China over independence if not more significant intimidation, while both Hou and Ko favour more engagement with China.

Taiwanese voters identify as Taiwanese rather than Chinese underpinning the DPP’s successful China-phobic presidential campaigns in recent years. But the party is now seen more as the establishment, meaning voters could be looking for a change for domestic rather than foreign policy reasons. Housing, power blackouts and living costs have featured in the campaign apart from China relations.

The Legislative Yuan is chosen by a more complex mix of individual and party list proportional members for 113 seats, meaning the DPP has a harder task retaining its majority there.