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(Premium): Commentary ASEAN ASEAN (R) ASEAN-ISIS Chen Chen Lee Country (R): Indonesia Country (R): Malaysia Country (R): Myanmar Country (R): Philippines Country (R): Singapore Country: ASEAN Country: Australia Country: Cambodia Country: China Country: Germany Country: India Country: Indonesia Country: Japan Country: Laos Country: Malaysia Country: Myanmar Country: North Korea Country: Philippines Country: Qatar Country: Russia Country: Singapore Country: Singapore Country: South Korea Country: Taiwan Country: Thailand Country: UK Country: US Country: USA Country: Vietnam donald trump Elections: Indonesia 2019 Elections: Thailand 2019 European Union Event: SDSWR Events: AAF Focus CH: Hong Kong Focus JP: Abenomics Focus MM: Rakhine State Focus MY: GE14 Focus SG: SG Secure Focus SG: Smart Nation Focus SG: Society Focus TH: Protests Focus UK: Brexit Fukushima Global Citizens Singapore Institute: ERIA Institute: EU Centre in Singapore Institute: SIIA Leaders: Aung San Suu Kyi Leaders: Jokowi Leaders: Kim Jong Un Leaders: Lee Hsien Loong Leaders: Lee Kuan Yew Leaders: Mahathir Mohamad Leaders: Obama Leaders: Trump Myanmar: NLD Nicholas Fang Org: AIIB Org: G20 Region: Africa Region: Asia Region: Latin America Region: Middle East Reports Simon Tay Topic (Environment): Peatland Topic (Environment): Smallholders Topic (R): Belt and Road Topic (R): Business Topic (R): Digitisation Topic (R): E-Commerce Topic (R): Economy Topic (R): Green Finance Topic (R): Infrastructure Topic (R): Palm Oil Topic (R): Peatland Topic (R): Smallholders Topic (R): Sustainability Topic: Anti-Globalisation Topic: Belt and Road Topic: Business Topic: Development Topic: Digitisation Topic: E-Commerce Topic: Economics Topic: Elections Topic: Environment Topic: Finance Topic: Global Citizens Topic: Globalisation Topic: Green Finance Topic: Haze Topic: Human Rights Topic: Human Trafficking Topic: Infrastructure Topic: Investment Topic: Labour Topic: Nuclear Topic: Palm Oil Topic: Race Topic: Regional Integration Topic: Religion Topic: Security Topic: Small States Topic: SMEs Topic: Sustainability Topic: Sustainable/Green Infrastructure Topic: Trade Trade: AEC Trade: CPTPP Trade: FTA Trade: FTAAP Trade: Multilateralism Trade: RCEP Trade: TPP Trade: War Trends (Digital): Cybersecurity Trends (Digital): Data privacy Trends (Digital): Data security Trends (Digital): Digital Economy Trends (Digital): Digitisation Trends (Digital): Facebook Trends (Digital): New Media Trends (Digital): Smart Cities Trends (Environment): Air pollution Trends (Environment): Climate Change Trends (Environment): Energy Trends (Environment): Green Growth Trends (Environment): Hotspots Trends (Environment): Riau Trends (Environment): RSPO Trends (Environment): Sustainability Trends (Environment): Water Trends (Globalisation): ASEAN Citizens Trends (Globalisation): Populism Trends (Globalisation): Workers Rights Trends (Security): South China Sea Trends (Security): Terrorism Trends (Social): Demographics Trends (Social): Diversity United States us midterm elections WTO

How will S China Sea dispute affect businesses in Asean?

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15 Aug How will S China Sea dispute affect businesses in Asean?

Controversies over the South China Sea have dominated headlines, especially after last month’s decision by the Permanent Court of Arbitration, brought by the Philippines and denounced by China. But many businesses may look on more quizzically. What is the impact on the bottom line? Will prospects for Asean (Association of South-east Asian Nations) countries diminish if tensions with China escalate?

Yes, political differences can spill over to economic engagement and bilateral development assistance can dry up when relations sour. Yes, an outright naval confrontation or incident at sea — especially between China and the United States or Japan — could be destabilising. But negative outcomes are not inevitable.

Differences can be managed with win-win areas to keep the dispute in context. Both sides — and indeed all those interested in a prosperous and more interdependent Asia — have much to gain.

PARTNERS, NOT PUPPETS

Beijing has laid out a grand future vision of a “One Belt, One Road” — involving the construction of land, sea and air routes — across the region and beyond. China’s newly created Asian Infrastructure Investment Bank is expected to fund major parts of that vision and increase infrastructural connectivity, both within the region and to major partners beyond.

But while China is a key player, it is not inevitable that Beijing will dominate the region. Existing multilateral agencies such as the World Bank and Asian Development Bank can step up. So can other donors and partners, such as Japan. The US too can play a greater role through high-quality trade agreements like the Trans-Pacific Partnership (TPP), now pending ratification, and with support for the innovation-led sector.

Asean is not solely dependent on China but is well balanced between Beijing and other partners. Consider the trade and investment figures.

China is the region’s top trading partner with total bilateral trade at 15.2 per cent of total Asean trade, but this is followed by Japan, the European Union and the US, with each at about 10 per cent. Investment data shows the EU leading with 16.4 per cent of the total inflows, followed by Japan at 14.5 per cent, the US at 10.2 per cent and China at just 6.8 per cent.

While the global economy is facing strong headwinds and China is slowing, Asean continues to outperform. It is not only Asean who needs China. As an immediate neighbour, China stands to benefit economically and strategically from cooperation with the grouping. Asean is not doomed to be anyone’s puppet and can instead be a worthy partner to key players.

INTEGRATION AND REFORMS ACROSS ASEAN

This will, however, require Asean to be competitive and more closely integrated. The group’s economic ministers met in Laos on Aug 3 and provided impetus for the Asean Economic Community, inaugurated at the end of last year. A framework will monitor and evaluate progress on integration, for regular review from now and towards 2025.

Yet while this can help, some doubt whether the group can really push ahead. Protectionist sentiments and narrow nationalism seem to be on the rise and Asean is not a supra-national organisation that can command governments to obey. What remains more important is what is happening at the national level. Here, while less apparent, signs are emerging that key Asean economies show more ambition for reform than at any time in recent years.

Take Indonesia, for example. President Joko “Jokowi” Widodo has rolled out 12 economic reform packages aimed at stimulating economic growth and attracting fresh investments into Indonesia. This was followed by an announcement of a “big bang” plan earlier this year to reduce restrictions on foreign investment in 49 sectors. This is the country’s largest opening to international investment in a decade.

While nationalist voices are loud, the Jokowi administration is signalling ambition to go beyond the export of natural resources, and move up the global value chain. Reforms will be essential and must include efforts to increase government efficiencies and address corruption as well as balancing the budget.

Indonesia is not alone in such efforts, moreover. Economic reforms are being planned across Asean, from Thailand, which has the second-largest GDP in the grouping, to Myanmar, the frontier economy.

They are seeking the right kinds of investment that bring good-paying jobs for more workers and more opportunities to local small and medium businesses. In today’s political climate, governments strive for inclusive growth, whether they are populist — like the Rodrigo Duterte presidency in the Philippines — or controlled, like Vietnam and Thailand. Such reforms can spur the majority within the region to be more competitive and better integrated.

In this regard, it is not so much Asean at the regional level that is setting the pace to deepen economic integration. Rather, the efforts are coming from the national level, through these parallel reform initiatives.

Much remains to be done. Reform will not be easy and building infrastructure across the region will require long-term effort. But these are necessary and indeed essential. National governments will otherwise struggle to grow their economies and jobs for their people.

Asean can only remain central by pairing its political centrality with economic dynamism and moving ahead with integration.

This is the way to better manage bumps and controversies, even sensitive concerns such as the South China Sea, and move ahead on an agenda for integration and reform that all — governments, businesses and ultimately Asean citizens — may partake and benefit.
ABOUT THE AUTHOR:

Simon Tay is chairman of the Singapore Institute of International Affairs (SIIA), which is organising the 9th Asean & Asia Forum on Aug 22. This commentary was published in TODAY on 15 Aug 2016. A version of the article also appeared in The Nation and The Straits Times.