The “change of throne” towards new regional economic order

In 2015, the Asia-Pacific region continued to be the most dynamically developing region, leading in growth rate and is expected to maintain relatively good growth rate in the medium term. Economically, four basic features emerged in the Asia-Pacific region:

First, there was a shift of position when China for the first time in decades no longer retained its growth rate above 7%, the highest in the region. The most optimistic forecasts show that the Chinese economy grew by 6.8% in 2015 and will drop to 6.3% in 2016. Instead, the Indian economy is expected to achieve 7.5% to become the “locomotive” of economic growth across the region in the coming period. The change has caused long-term impacts to economic development throughout the region.

Second, in 2015, China’s economic decline became ever more apparent. Recently, the Chinese government has approved the 13th five-year plan (2016-2020) with significant adjustments in growth objectives and measures to adapt to the irreversible “new normal situation.” After several years of high growth due advantages, such as low-cost labor, and large-scale production, at present, China's economy is facing serious problems, such as excessive industrial production capacity, large imbalance of income and economy between regions, and serious environmental pollution on an unprecedented scale. The fight against corruption and drastic military reform in China have also significantly affected economic growth in this most populous country.

China's economy has also suffered continuous large shocks like the stock market crisis which has led to the withdrawal of capital from China on a large scale. In just a short time, from August to December 2015, the amount of capital withdrawal from China reached a record high, averaging about US$ 100 billion/month, reducing its foreign exchange reserves from US$ 4,000 billion to around US$ 3.450 billion. This is forecast to continue in the coming period, especially after the US Federal Reserve’s (Fed) decision to raise interest rates to 0.25%.

Third, the International Monetary Fund (IMF) decided to include the renminbi (RMB) into the international currency basket (SDR) means that the yuan could become a currency for reserve and international payment and will be converted in a more liberal way. This will have widespread and long-term impacts to the global financial markets, forcing countries in the region and beyond to adjust fiscal and monetary policies and recalculate the ratio of foreign exchange reserves, and means of payment in many international transactions. An international financial order is taking shape with a new increasing role of the yuan as well as the Central Bank of China.

Fourth, the process of negotiating the Trans-Pacific Partnership (TPP) Agreement among 12 countries in Asia-Pacific was successfully concluded after 5 years. Although Member States have not yet formally signed the agreement, but obviously the successful TPP negotiations in 2015 ahead of the US presidential election is a victory, a milestone in the process of regional linkage and integration. With new and high standard “rules of the game” in many aspects, the Asia-Pacific region will witness the reorganization of value chains, the shift of capital flows, investment, trade in the coming time and the reassignment of production, labor and services to form a new order with new standards in the region.

Many regional institutions have been built or rearranged

First, the establishment of the Asia Infrastructure Investment Bank (AIIB) with 50 members, including Viet Nam marked a significant change in regional financial institutions formed since the War World II to the present. The AIIB was established and China has accelerated the realization of its initiative “One belt, one road” to have access to more effective tools in competition, creating a counterweight to the US’ TPP and strategy on rebalance in Asia-Pacific, expanding China’s influence, restructuring international economic order, diversifying markets, investment, boosting exports and enhancing China’s prestige. In essence, China is taking steps to use its power to change the status quo, redistribute spheres of influence, redefine the “rules of the game” and rise up to become one pole in the multipolar order which is taking shape.

Second, the three Northeast Asian countries, including China, Japan and South Korea, have taken efforts to form a free trade agreement (FTA) in Northeast Asia. Although much remains to be done, obviously, the meeting of top leaders of the three countries in Korea to agree on a roadmap, steps, content of negotiations towards an FTA for Northeast Asia is a big step. Japan’s success in TPP negotiations, and China's economic slump have put significant pressure on Northeast Asian region to form FTA. Once the FTA is formed and goes into effect, it will have tremendous impacts on the whole economic structure, and trade in the Asia-Pacific region, because these are the three leading economies in the region.

Third, leaders of the Association of Southeast Asian Nations (ASEAN) signed the 2015 Kuala Lumpur Declaration on the establishment of the ASEAN Community on 31 December 2015 in the framework of the 27th ASEAN Summit organized in Malaysia, and signed the statement of the 2025 ASEAN Community Vision which identified objectives, principles and measures to realize the ASEAN Community on politics, economic linkage and shared social responsibility. It also stated to build an ASEAN, a truly rules-based, people oriented, people-centered association. This shows tremendous efforts of ASEAN in maintaining internal unity and promoting economic integration, ensuring peace, security and self-reliance, thereby maintaining the central role of ASEAN in the Asia-Pacific dynamic and challenging region.

In addition, a number of Asian countries are seeking to institutionalize the Conference on Interaction and Confidence-Building Measures in Asia (CICA) into the Organization for Security and Development in Asia (OSDA); and China’s recent organization of a series of promotion forums, such as Huong Son Forum and a workshop on the East Sea is to compete against Shangri-La Dialogue and other mechanisms of ASEAN. These show that many countries want to change and rearranged institutions in the region.

Relations between powers: Détente and competition

First, the US-China relations have been relatively stable. The two sides have competed fiercely on strategy, but stepped up cooperation to maximize benefits and to avoid the risk of collision and conflict. During the visit to the US by Chinese President Xi Jinping in 9 May 2015, the two leaders laid stress on the importance, necessity and stability in bilateral relations. US President Barak Obama declared: “Our cooperation is effective,” while Chinese President Xi Jinping emphasized the construction of “new model of powers’ relations” with the US as a priority in the foreign policy of China.

Recently, the two countries reached some important agreements, such as: 1. The contract on China’s procure aircraft of Boeing Group with a total value of US$ 38 billion dollars and cooperation documents on the construction of Center for Boeing 737 completion and delivery in China; 2. On the issue of climate change, China announced the establishment of funds worth more than US$ 3 billion to support developing countries address the issues relating to climate change; 3. The two sides found a common voice on cooperation against cybercrimes, including cyber-enabled theft of intellectual property.

However, there remain many obstacles and disagreements in the US-China relations, such as human rights issues and cyber network, and first of all lack of strategic trust. China’s illegal actions, such as land reclamation and militarization of the East Sea on artificial islands, destruction of marine ecological environment, and violations of international law have caused concern in the US about the rising power of China. In summary, in 2015, the United States and China continued to be the leading economic partners of each other, but the two sides got stuck in the model of mix benefits and deep decline strategic trust.

Second, the China-Japan relations have shown signs of thaw. From early 2015 until now, officials at all levels between the two countries have conducted many meetings, contributing to normalization of political relations between the two countries. Most notable is in May 2015, the Japanese delegation by the Chairman of the Liberal Democratic Party leader Nikai Toshihiro visited China and conveyed the letter from Prime Japanese Minister Shinzo Abe to the President of China Xi Jinping. On 6 June 2015, the two countries resumed “Dialogue of Ministers of Finance,” which was interrupted for three years. In July 2015, Director General of the Japanese Security Agency Shotaro Yachi visited China and conducted “the first political dialogue” between the two countries with State Councilor Yang Jiechi. On 1 November 2015, leaders of the three countries of South Korea, China and Japan declared that trilateral cooperation has been fully restored after the conclusion of the first tripartite summit after more than 3 years. A peak development was the meeting on the sidelines of the 21st Conference of the Parties to the United Nations Framework Convention on Climate Change (COP21) in Paris in December 2015 between Chinese President Xi Jinping and Japanese Prime Minister S.Abe on China-Japan relations as well as regional situation.

However, China's viewpoints on history, maritime and island disputes have been unchanged. This shows that the detente in the China-Japan relationship in 2015 is short-termed and the nature of strategic competition between the two countries remains unchanged. Notably, 2015 continued to witness the plummet of Japan’s investment into China, and a shift of Japan’s investment to Southeast Asian countries, such as Viet Nam and Myanmar. This is a beneficial trend and Viet Nam should take advantage of.

Third, the US-Japan alliance has had new changes in nature, facilitating countries in the region. Balance of power in the region has changed, especially the rise of China has forced the US and Japan to strengthen their alliance towards building a more multi-faceted partnership. During the US visit of Japanese Prime Minister S.Abe in April 2015, the two countries announced the guidelines for between US-Japan defense cooperation amended for the first time since 1997, according to which the Japanese Defense Forces (SDF) will take on a greater role and the US-Japan security cooperation will be expanded and strengthened.

On 19 September 2015, the Japanese Senate passed the Bill on Security proposed by the Government allowing Japanese troops engage in fighting abroad to execute “the right to collective self-defense” for the first time after the Second World War. Accordingly, the Japanese army is allowed to exercise the right to collective self-defense, and dispatch combat troops abroad on the following three conditions: 1) The situation should pose a clear threat to the Japanese state or could fundamentally threaten the Japanese people’s constitutional right to life, liberty, and the pursuit of happiness; 2) There is no other way to repel the attack and protect Japan and its people; and 3) The use of force is limited to the minimum necessary. Japanese Prime Minister S.Abe said this new bill would allow Japan’s close alliance with the US in case of war breaks out on the Korean peninsula, or sea routes are blocked which seriously threaten Japanese security.

“Hot spots”: Détente and new complexity

In 2015, “hot spots” in the region, such as the Korean peninsula situation, the disputes over the East Sea and East China Sea continued complicatedly. However, they were contained from exploding into conflict.

In the East Sea, China has implemented double-face policies. On the one hand, China has been more actively in consultations with ASEAN on building the Code of Conduct of Parties in the East Sea (COC), on the other hand, in the field, China has continued militarization, renovation, expansion and illegal construction of airport on islands and reefs under the sovereignty of Viet Nam, complicating the situation in the East Sea and confronting protests from countries within and outside region.

The dispute over the East China Sea between China and Japan has also developed complicatedly. Besides sending ships and aircrafts to patrol regularly in the Diaoyu/Senkaku Islands, recently, China has also built some observatory stations, unilaterally conducted exploration and exploitation of oil and gas in the region. In response, Japan has strengthened patrolling, surveillance, redeployment of forces, including the army and sea police in the South, and consolidated its relations with the US and its partners.

Détente is the relation between the two Koreas in 2015, despite escalated tensions at times. On 20 August 2015, for the first time since 2010, the two Koreas fired artillery shells at each, threatening the detente. However, on 25 August 2015, South Korea and North Korea have reached an agreement to defuse tensions. The two sides also agreed to open new channels of dialogue to discuss issues to improve relations. This is an important breakthrough in inter-Korean relations, opening up a new stage for the two Koreas to discuss several major and critical issues in the future. However, inter-Korean relations remain volatile; the core conflict in their relations, such as the nuclear programs on the Korean peninsula have not yet gained substantive progress. In this context, China and South Korea have been increasingly getting closer together, while China and North Korea have been distant from each other. These are new developments which need attention in the coming period.

Besides, it is notable to mention the high-level meetings between Chinese President Xi Jinping and leader of Taiwan Ma Ying-jeou for first time in 70 years. This meeting took place at a time when relations between the two sides have increasingly improved, especially in economy and trade and people exchange, and Taiwan is preparing for presidential elections. It is expected that this meeting will open a long-term detent between the two sides in the interest of peace and stability in the region.

Increasing nontraditional challenges to security

“Hot” issues such as the crisis of illegal immigration, cyber security, high-tech crime, piracy and armed robbery in the Asia-Pacific region have developed complicatedly, posing new challenges to countries in the region. According to a report by the International Maritime Bureau (IMB) located in Malaysia which tracks piracy, in the first quarter of 2015 alone, there were 54 cases of piracy. Notably, more than half of the cases were in Southeast Asia. This poses urgent need for cooperation between security agencies, law protection and maritime law enforcement agencies to ensure the safety of ships, as well as information and computer systems of countries. In the near future, countries in the region should take more active measures, such as joint patrols, to contribute to maintaining peace and order at sea.

In 2015, the region faced with challenges, such as fierce climate change, smog, environmental pollution, diseases such as Middle East respiratory syndrome (MERS). It is essential to stand ready and proactively cope with the complicated situation.

Finally, we cannot help but mention the growing devastation of natural disasters due to climate change, which killed thousands of people. The latest report by the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) published on 27 October 2015 showed that the Asia-Pacific region suffers the highest number of natural disasters in the world. As reported by ESCAP, in the past decade, the Asia-Pacific region suffered 1,625 disasters, accounting for 40% of all disasters occurring around the world, claiming the lives of nearly half a million people. The year 2015 was not an exception. Therefore, countries should continue to share successful cooperation model of the region in dealing with natural disasters, sharing technology, information and skills in disaster prevention to ensure resilience and peaceful life for the people.

In summary, the Asia-Pacific region in 2015 continued to be a region of peace, relatively stable and dynamic development with uncertain and unpredictable potentials. As a responsible member of the regional community, Viet Nam should monitor closely and stay alert before regional developments to set out suitable guidelines and policies to make good use opportunities, overcome challenges and contribute to the cause of building and defending the Fatherland in the new situation while contributing to peace, stability and prosperity of the whole region.

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This article was published in Communist Review, No. 880 (February 2016)