Will Asia split in two?

There was a request from the US Brookings Institution to discuss the theme on “Does Asia break into two blocs?”. Thus, in October, the Japan Center for Economic Research organized an international seminar jointly with the Brookings Institution. Gterez UN Secretary-General had rung the alarm bell that “the world is on the brink of splitting into two blocs” at the UN General Assembly in September.

The risk of splitting Asia into two blocs is heightened by the rise of China; the risk is deeply linked to its digital technological development. Under the “Digital Silk Road” conception, China is expanding its influence, mainly focusing on the next generation communication standard system (5G) in which China has established its supremacy on global market.

The US is propagating the “Indo- Pacific Ocean Strategy”, which promotes high-quality infrastructure investment together with Japan, Australia and India. The US strategy includes not only protective tariff measures against China but also aims at isolating Chinese companies from the supply chain related to the US defense industry. The US requests the Taiwanese firms to restrain the semi-conductor exports to the Huawei Technologies; the request was extended to the Korean and Japanese firms. It is well-known that the China’s self-sufficiency rate of semi-conductor production is low.

There is also a proposal that the Chinese companies should be excluded from the US capital market; the capital outflow to China from the US should be regulated, given the insufficient access to the Chinese financial market for US investors. Mr. Kung Wang, research fellow of the National School of Development at Peking University, said at another joint international seminar with the Australian National University, “What China is most afraid of is the event in which Chinese companies are locked out from international payment networks (SWIFT) and the US payments system (CHIPS). In order to escape financial sanctions under US dollar dominated regime, China will hurry up the process of financial internationalization through the formation of the “digital yuan currency zone”

On the other hand, Asia has the potential to prevent the risk of fragmentation by promoting open and market-oriented policies. After the war, Asian countries, especially the ASEAN countries, advanced their steps toward market opening and economic integration in the midst of confrontation among the superpowers. Japan has consistently promoted to strengthen the free trade and investment system as well as the move toward economic integration in the Asia-Pacific region in the name of “open regionalism” throughout the postwar period. The Trans-Pacific Strategic Economic Partnership Agreement (TPP) is one of its outcomes. The RCEP is also moving forward, even though India has announced its withdrawal.

The obstacle is the rise of populism in Asia-Pacific countries. We organize the international conference of the “Asian Economic Policy Review” twice a year. Both of Professor Hal Hill, Australian National University and the former Indonesian Minister of Finance, Dr. Hattive Basri stated that the elected President Joko in the last Indonesian presidential election, has overcome the “Identity Politics” representing collective interests based on Islamic nationalism, by enhancing a development-oriented policy. In the Philippines, the powerful president has maintained the open economy oriented policies. On the other hand, the white “Identity Politics” provides the support to President Trump in the United States.

The confrontation between the United States and China has spread to the issue of human rights and democracy over Hong Kong and the Uyghur people. What is required of both the United States and China to avoid the division of Asia is the realization of a society which Hong Kong people are eager to obtain; its society is based on the universal values for human beings and liberal democracy as their own “identity.”

(The english translation of the article was published in the Nikkei morning edition 2019/12/6.)