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The Asia-Pacific: an agenda for new challenges

A Note by the Director                                                                       Ditchley 15/07

18-20 September 2015

Introduction

Ditchley was in Vancouver for its first ever conference on the shores of the Pacific, with an appropriately Pacific-focused subject. We were very grateful for the generosity of the Canadian Ditchley Foundation, and its sponsors, and for the assistance of the Asia Pacific Foundation of Canada, in supporting the staging of this event. Joint chairmanship by the Governor General and the Clerk of the Privy Council lent extra lustre to our proceedings. We had a large and diverse group around the table to tackle the large and diverse issues thrown up by our look at the future challenges of the region. The broad sweep of these challenges made it even more difficult than usual to reach neat or specific conclusions and recommendations. However, looking at the problems in the round was a valuable exercise in itself, and left us all both wiser and more thoughtful about how we can collectively manage to maintain prosperity and avoid future conflict.

Summary

We started with the economic and social challenges, while recognising the difficulty of generalising about such a vast and diverse region. Was the region likely to go on growing at the same fast pace as hitherto, and where was China’s economy in particular heading? Clearly China was in for a period of lower growth, rightly so given the need for the transition to a different economic model. Views were divided on how serious this might be and how well the Chinese authorities were likely to manage the process, given the stock exchange muddle over the summer. The country had many strengths, but enormous challenges too, not least demography. There were doubts about the depth of the party and government commitment to increasing the role of the market, and about whether a one party system could successfully preside over a devolved market economy, with all the unpredictability and volatility that implied, and still retain exclusive power, as was its main priority.

Asia was of course much bigger than China. India’s demography was very different from that of China, and her growth rate might soon overtake that of China, although the Indian economy was still much smaller. Constraints on future Indian growth, for example from government regulation and lack of infrastructure, were also still multiple. The Japanese and Korean economies were still large and successful in many ways, and many other countries still had plenty of growth potential. We looked at problems arising across the region, including youth unemployment, local frustration at inappropriate central decisions, corruption, lack of physical and virtual infrastructure, environmental degradation, the effects of climate change, and water scarcity in some areas. All these could contribute to the difficulty of countries breaking out of the so-called middle-income trap. There was also a large question mark about the sustainability of the western levels of consumption of resources, including meat, to which so many now justifiably aspired. Overall we were not pessimistic, but realistic about the seriousness of some of these problems and the governmental challenges they involved. One way forward for all concerned was to ensure that they were providing the right conditions to unlock the potential of their private sectors, including to innovate successfully.

We spent some time on the implications of the Trans Pacific Partnership (TPP) trade and investment deal, then under final negotiations and since concluded. There was general, if not universal, optimism about the benefits this might bring and its importance for the region, although ratification and implementation would be major challenges. Setting rules and norms in the region was in itself a useful exercise. We agreed that it was important that the TPP be open and seen as open to other countries to join later, if they met the standards, including China. Other regional initiatives, such as the Regional Comprehensive Economic Partnership (RCEP) and the Free Trade Agreement for the Asia-Pacific (FTAAP), should also be seen as complementary not competitive. Ideally there would be a move back to genuine free trade multilateralism in due course, but plurilateral agreements, open to all but not necessarily agreed by all, might be the most realistic ways forward for the short and medium term. There was also a need for governments and politicians to sell the benefits of agreements like the TPP to sceptical democratic publics and SMEs more enthusiastically and effectively.

We could not look at the economic and social issues without also considering their political and security contexts. There were plenty of tensions around in the South and East China Seas, the Korean Peninsula, South Asia and elsewhere, and little effective regional security architecture to deal with them. Historical grievances and rising nationalism in some countries were worrying factors. China’s rising military strength and the gradual erosion of previous US military dominance clearly created new dynamics which needed to be managed well if conflicts and open strategic rivalry were to be avoided. While defence spending was rising in some countries, particularly in the naval/submarine area, we did not think a new arms race was under way as such. However this was a trend to be watched. Nor did we think a major war likely to break out in the region, not least because of the presence of nuclear weapons. However there were certainly plenty of chances of minor skirmishes and conflicts in some places, deliberately or through escalating accidental clashes, not least in the South China Sea. Korean reunification was likely at some stage, but it was much less clear how this might happen, unless (as some thought) Chinese policy changed away from support for the status quo. India’s strategic role in the region was meanwhile likely to evolve, with a degree of rivalry with China inevitable. The extent of the Indian rapprochement with Japan and the US was already interesting.

Beyond the military area, there were other strategic and security issues in the region which might usefully encourage cooperation, such as climate change, water scarcity, and infectious diseases, and violent Islamic extremism. The latter was rapidly rising up the agenda in many minds. Overall there should be enough in common to ensure that cooperation not conflict was the dominant theme for the future, but history was not altogether reassuring on the chances of this. Adherence to rules-based systems would be crucial. Active and effective diplomacy should be the watchword for the next few years, together with multilateral approaches where possible.

One final more optimistic conclusion was that the youth of the region would increasingly have their say, and might well take a more internationalist approach than some of their forebears, helped by increasing travel, contact, knowledge and understanding between peoples. Increasingly large private sectors and middle classes might also have beneficial effects on the governance of the region over time.

Main Note

Economic and social challenges

This was clearly a vast canvas, not all of which we could hope to cover in the time available. We were also conscious that the Asia-Pacific was an extraordinarily large and diverse region and that generalising about it was inevitably of little value. Each country had its specificities. Nevertheless, there were some overall trends which could be identified, and some issues affecting the biggest countries which would inevitably have an impact on all their neighbours. We deliberately tried to avoid focusing too much on China, as conferences on Asia almost always do, but only succeeded up to a point. In any case, no one country could plausibly claim to represent or speak for Asia, and we had to remember this.

One broad underlying theme was the inevitability or otherwise of the region continuing to grow economically at such a fast pace. To put the question another way, was this bound to be the Asian century, as many argued, or was this just a meaningless slogan? There was no doubt that the economic success of many Asian countries had rebalanced the world towards what could be considered as a more normal situation, following two centuries of European/US dominance. The political consequences of this were still being worked through, with many outstanding questions about the extent to which global institutions would be replaced by new ones, or refashioned to reflect Asia’s new weight in the world. In this context the US Congress refusal to ratify the agreed changes to the IMF to reflect better the weight of the large emerging economies had been a major error, leading directly to developments such as the Asian Infrastructure Investment Bank (AIIB).

We discussed the need to avoid falling into the trap of extrapolating from current trends, and assuming this would be the path of the future. It was not so long ago that Japanese economic success had been thought likely to lead to Japanese dominance of the world economy for many years. Continued rapid economic growth was not destiny, even for China, and would depend on many factors, internal and external. It was already clear that Chinese growth was slowing, as indeed it needed to do in order for the necessary transition to a more consumption-led economy to take place. Some thought it was in fact slowing more, and more rapidly, than the existing statistics suggested, and could even be heading for a period of significant difficulty (though probably not a “hard landing” as such). Most participants nevertheless took the view that the authorities would probably manage the transition reasonably well. The country had many strong points: infrastructure was good, the education system was excellent in some areas, and there were many entrepreneurial young people just as active as those in Silicon Valley. However, the government’s ability to deal with the unexpected had been called into question by the Stock Exchange mess over the summer, and its immediate resort to non-market ways of handling it.

This meant that there remained a question mark over the depth of the government and party commitment to increasing the role of market mechanisms, and to the kind of economic reform which would allow China to continue to flourish and grow. The authorities needed, for example, to drop their obsession with the current 7% growth target, open up the financial system and reduce the role of the state and state-owned enterprises (SOEs). If they wanted the renminbi to be an international currency, they had to relax capital controls. However, this was where the central paradox of modern China arose. To stay legitimate and relevant, and continue to produce the economic growth which was the price of its continuing rule, the Communist Party had to carry out this kind of reform. But doing so inevitably involved a degree of loss of Party control, and a risk of increased volatility. How would the Party manage this given that its overriding aim was to stay in power, not least since its leaders considered anything else would lead to chaos? Put another way, could a modern economy be successfully run by a pre-modern political system?

China also faced other fundamental problems which could derail future economic growth, for example demography and the rapid ageing of the population: rising costs, making basic manufacturing less competitive; inherent corruption, which the current anti-corruption campaign would not eradicate; the need to introduce some kind of social safety net, particularly for older members of society left behind in the villages; environmental damage on a massive scale and the effects of climate change; water scarcity in some parts of the country; and local discontent with central decisions and land grabs. The system also had to be able to encourage innovation and a shift towards high-tech products and services, and away from old-style manufacturing for export. It was noticeable that the most successful parts of the economy now, for example in the digital area, were those where the state had had least influence. All these issues would daunt any political system. The current clamp down on all forms of dissent suggested that the Chinese authorities were much less confident about the prospects, and about public attitudes, than they were willing to admit.

Whether they found the right answers to these questions mattered a lot to the rest of the world. There was no room for schadenfreude about China’s problems. Without the Chinese locomotive, global growth would be in serious trouble. Whatever our views might be about some aspects of Communist Party rule, we needed China to remain stable and to go on growing.

Asian economic performance was of course far from all about China. Japan’s economy was still the third biggest in the world, and retained huge strengths. The current government was working hard to break out of its long stagnation. Japanese investment in other parts of Asia was much larger than that of China in many cases. Similar considerations applied to South Korea, whatever the short term problems.

The Indian economy was much smaller than that of China for now, but its growth rate could well overtake China’s in the coming months and years. Its scope for rapid growth was considerable, not least given its opposite demography to that of China. However, the constraints on growth were also clear: poor infrastructure, slow decision-making, government policies and regulations restricting business opportunities, lack of capital investment, corruption, and an inadequate education system. Prime Minister Modi was determined to make India more business-friendly but this would continue to be an uphill struggle given entrenched attitudes in many quarters. In India, as in China, the newer areas of the economy seemed to do better because the state and politicians were less present there, even though the political system was completely different.

One major concern in India was the future of the 400 million urban dwellers who did not form part of the well-educated, English-speaking middle class, and who were much less employable. Even if Indian industry took off in some areas, this would probably be largely based on cooperation with the successful Indian IT sector, and involve a lot of robotisation and relatively few new jobs.

This linked into a wider discussion about economic and social issues which were problems across the region. We were told that youth unemployment, or under-employment, was a much bigger and wider problem in the Asia-Pacific, particularly East Asia, than often supposed, including in China, and had the potential to create a disgruntled and politically unstable generation. Expectations of those coming out of higher education in fast-growing countries were particularly high, and particularly likely to be disappointed. The governments concerned needed to recognise this and start to take measures to tackle it. Otherwise there would be a backlash, including against free trade deals and other globalising measures which seemed to have no obvious link to more jobs. Again robotisation was part of the problem.

This was related to another growing phenomenon of local frustration with decisions taken elsewhere, in capital cities or international groups, in the name of globalisation. These decisions were resented because there had been no consultation about them, and there seemed to be little if any local benefit in exchange for the disruption to traditional activities and ways of life involved. This was certainly visible in China, not least through the chat sites, but elsewhere too. Again it was likely to lead to resistance and protectionism at local level, which would inevitably feed through to national levels as well. Governments would do well to take more account of the impact on communities of what they were doing or encouraging.

Corruption was another major issue across most of the region. It was not so much its existence, which was hardly new in most of the countries concerned, but its scale. This was closely linked to perceptions of growing income and wealth inequalities. The gulfs between rich and poor seemed particularly huge in India and China, but the problem was hardly confined to them. This was of course an issue virtually everywhere in the world too, including many developed countries, and was often seen as potentially explosive in political terms, but the disparities seemed especially glaring in parts of Asia. This analysis was not universally accepted around the table. It was pointed out for example that studies in South Asia had suggested that increasing prosperity had brought benefits to all groups in society and had not noticeably widened the gaps between rich and poor, though it had certainly not narrowed them either.

The question of environmental sustainability was also seen as an issue across much of the region, with air and water pollution and water scarcity in some areas regarded as particularly threatening. The risks of major natural disasters, already a big problem for some countries, were increasing with the impact of climate change. Some governments were increasingly aware of these threats and were beginning to react, including to popular disquiet. China was perhaps the most obvious example, but by no means the only one. There were clear risks of competition for scarce resources. Some participants warned against scare-mongering in these areas. Water was certainly a problem, but the region had historically been good at cooperating about water when it had to, even between countries with difficult relationships such as India and Pakistan, or India and Bangladesh.

Lack of decent infrastructure was another huge challenge in many countries of the region, both within and between countries. Some faced massive logistical challenges, such as Indonesia with its thousands of islands. The investments needed to overcome such challenges were vast, and it was mostly unclear where they would come from. The issue was not just roads, bridges, airports and the like, but also IT connectivity. How far could initiatives such as the Chinese One Belt One Road proposal begin to remedy some of these infrastructure gaps? Views differed. Some saw a great opportunity for Chinese excess savings and industrial over-capacity to be put to good use. Others pointed out that the Chinese proposals showed few signs of being thought through, and had certainly not been the object of consultation with the other countries concerned. Moreover, in many cases, the reason infrastructure projects had not been taken up was because they were uneconomic, at least in the short term. Chinese involvement could not change that, and the risks of losses/failures were correspondingly great. Altogether there were plenty of opportunities for tension and conflict, as much as for a new era of benevolent collaboration and mutual progress. The jury was still out.

We also discussed the oft-repeated mantra of the difficulty for many countries of the region in escaping the so-called middle income trap. Some warned that the examples of countries of the region breaking out of this were few – Japan and South Korea, as well as Hong Kong and Taiwan, being obvious exceptions. There was no reason to suppose that the current generation of tigers, including China, would find it any easier. Others questioned what was really meant by the middle-income trap, and suspected this was more of a westerners’ notion to reassure themselves that they would not soon be overtaken. However it was certainly the case that most countries in the region still had a very long way to go before they could hope to achieve western standards of living and quality of life. This also raised the issue of the sustainability of hundreds of millions of people in Asia moving to western levels of consumption of resources, including levels of meat consumption which would put a huge strain on global agricultural production. We had no easy answer to this, but recognised the importance of the issue and of course the right of people in Asia to aspire to the standard of living of others.

While we gave a lot of attention to the role and problems of governments, we were also well aware that it was the private sector in most countries which would need to provide the jobs and innovation needed to sustain continued growth. How could they be best helped to do that? The answer for the most part was that governments needed to ensure the right basic conditions for successful economic activity, and then get out of the way as much as possible. However this was not necessarily the Asian way, at least hitherto. The voice of the private sector therefore needed to be heard more loudly.

It will be evident from the above that we had many more questions than answers. But some common themes for the right kind of directions for governments and the private sector to move in did emerge:

  • More emphasis on education and skills, at both white and blue collar level
  • Greater consultation and involvement of populations in what is happening to them
  • Top priority to tackling environmental problems
  • Tackling corruption and inequality seriously
  • Recognising the risks of frustrated youth if the right kind of jobs are not available for them
  • Promotion of innovation and creativity.

Trade and investment across the region

The conference took place as the negotiations on the Trans Pacific Partnership (TPP), since concluded, were entering their last lap. We naturally focussed a lot of our attention on the prospects for success, and on what the TPP might mean for the region’s economic future. We were told that it was the most important current initiative in the global trading system, involving as it did 12 countries representing some 40% of global GDP. If successfully agreed and ratified it would add significantly to the growth rates of the countries involved, and create jobs and investment across the region. Whatever some commentators in Washington might claim, it had never been intended by the US as part of a China containment strategy. The aim was an open process, which others could join in due course, including even from outside the APEC area, if they wanted to, and if they were ready and able to meet the standards involved. That included China. The Chinese could not join immediately from a technical stand-point and probably would not want to be seen to be jumping too quickly on a US-led bandwagon in any case. But there were signs that the Chinese leadership were ready to look at the agreement with an open mind, and see in due course whether there were parts of the deal to which they could accede, or at least start negotiations about. That would be entirely welcome. It was possible that the Chinese leaders might see advantage in using TPP requirements as a way of driving internal reform, as they had done before in the context of WTO accession.

Other countries might want to sign up as soon as they could, including South Korea, which would not have much difficulty meeting most of the standards concerned. It was important to recognise that this was not an agreement about tariffs, for the most part, but a new generation deal about ‘behind the border’ standards and regulations. The aim was to create rules and norms to which others could in due course aspire, and to set the bar reasonably high in the process. The countries which had agreed the deal were diverse, and indeed not at all alike in many cases. But they had shown an important degree of like-mindedness.

One of the reasons behind the TPP was the stalling of negotiations at multilateral level, and the failure to complete the Doha Round. There was no reason to suppose that the WTO process could get off the ground any time soon, however regrettable that might be. However it was the wish of all concerned that there should be an eventual return to multilateralism, and an extension of the benefits of this kind of deal to others, particularly the poorest countries, who were likely to lose most. ‘Plurilateralism’, whereby deals did not have to be agreed by every country, but could be joined by any country which wanted to and which met the standards required, could well be the way forward in the short and medium term.

We discussed the prospects for ratification of the TPP deal. The general expectation seemed to be that, while it would have problems in the US Congress, it would eventually get through, thanks mainly to republican votes, before the next Presidential election in 2016. There should not be major problems in e.g. Canada or Japan either, though each country had its sensitivities. But there might be some unexpected places where ratification would struggle or even fail, for example in Vietnam.

This overall rosy picture was not shared by everyone round the table. Some questioned whether the benefits would be as great as claimed – such studies were notoriously unreliable. There was little sign that companies in the countries concerned were focussed on what had been going on or were likely to move quickly to take advantage of the new opportunities. SMEs were particularly difficult to reach with this kind of information and encouragement, even though there was usually a positive effect from the announcement of a deal. Others argued that, whatever the official line, the overriding motive for the Americans was really geopolitical and related to China. There was scepticism about how far such an agreement could actually lead to the regulatory convergence desired, given the sensitivity of domestic standards. Concerns were also raised about one of the most controversial aspects of this and other agreements, namely the ability of companies to take governments to court over claimed trade and investment discrimination (ISDS).

The TPP was not of course the only game in town. The Regional Comprehensive Economic Partnership (RCEP) being promoted by ASEAN also had important potential, though it would be a less deep agreement than the TPP. It was unclear how fast this might move, but in any case it should be seen not as competitive with the TPP but as complementary to it. The same was true of the proposed Free Trade Agreement for the Asia-Pacific (FTAAP), put forward by China. There were also negotiations under way on a China/US Bilateral Investment Treaty (though no-one should expect quick progress here), on an EU/China Bilateral Investment Treaty, and on the possibility of China becoming involved in plurilateral arrangements in IT-related goods, environmental goods, and some kinds of services. There was also consideration being given to an East Asia Free Trade Agreement. The conclusion of the TPP negotiations might give new life to such ideas, and to related trade negotiations between China, Japan and South Korea.

We discussed how far trade agreements like the TPP could be said to contribute to regional economic integration. They certainly helped trade and investment flows, particularly nowadays in terms of parts, components and services, but the region was still a very long way indeed from any kind of meaningful economic integration, let alone political integration. ASEAN was likely to make a declaration before the end of the year about the Asian Economic Community, but there would not be much reality behind it. Nevertheless it was argued that the TPP would favour greater economic integration over time, just as the North American Free Trade Agreement (NAFTA) had in its time.

We discussed the problem democratic governments had in selling free trade agreements to their parliaments and public opinion. Why was this apparently so difficult? It was partly because of a backlash against globalisation in general, and a perception that this had not benefitted most people, even in developed countries, and had damaged the interests of poor countries and poor people alike. There were also popular views, especially in the US, that other governments like China did not stick to the rules and gave their manufacturers illegal subsidies or used provisions like local content rules to favour domestic producers. There were also always losers and they usually had loud voices. Both governments and companies therefore needed to step up to the challenge by explaining the benefits clearly and taking on the contrary arguments vigorously.

Our overall thinking about trade could be summarised as follows:

  • the TPP was a significant agreement which would have a real impact, though there was perhaps more optimism about it in North America than in Asia itself;
  • an important part of its impact should be in helping to create a more rules-based environment for trade and investment in a region which tended to lack both rules and institutions;
  • it was vital that the agreement remained open to others to join in the future, including China, even if that might take some time;
  • other potential agreements such as RCEP and FTAAP should be seen as complementary not competitive;
  • such regional agreements, however good in themselves, also left out a lot of countries – there therefore needed to be a move back to multilateralism as soon as practicable, and in the absence of that towards at least plurilateralism (the benefits of which developing countries should recognise more clearly);
  • it would be good to work out what the way stations back towards multilateralism/plurilateralism might be, for example for the 2018-2025 period

Political and security challenges

Although the themes of our debate were mostly economic and social, it was important to set them in their proper strategic context. The paradox of the region is that, while it has successfully avoided large-scale conflict for several decades, the tensions between some countries have increased, not disappeared, serious potential flashpoints remain, and institutional arrangements to manage security risks are still largely absent. In this conference, as in others we have had on the Asia-Pacific, the comparison with 1914 Europe was made: no-one wants conflict, mutual economic links are strong, but rigid organisational behaviours in the right (wrong) conditions could still lead to those concerned sleepwalking into war.

The underlying issue for most was the rise of China as a military as well as economic power, and the inevitable erosion of previous US military dominance. This was a relatively gradual process. The US still had pre-eminence in most domains, and remained determined to maintain their presence and their commitment to their alliances. However, there were limits to how much they could spend. Meanwhile, advances in Chinese military capability, not least anti-ship missiles, and their determination to challenge US dominance of the seas, were changing the nature of the strategic balance. The question was how well this process of change would be managed. It could over time lead to a stabilising new strategic balance, or alternatively to a new arms race, if the US was unwilling to accept loss of their previous dominance and the Chinese carried on their push to become a major maritime power.

At the same time, Japan’s desire under Prime Minister Abe to become a more “normal” country in security terms, however understandable in some ways, was creating new strains with China and South Korea, and even with the US in a different way. China was also now seen as posing a threat to ASEAN countries individually, because of its South China Sea territorial claims, and to ASEAN’s role as a central force in the region. Similarly, the Chinese push into Central Asia and beyond through the One Belt One Road initiative, while opening up new possibilities for cooperation with Russia and Europe, also opened the way for new rivalries with neighbouring countries and others.

The biggest relationship issue was obviously between the US and China. It was bound to be a mixture of cooperation and competition. Overall cooperation rather than destructive rivalry was still possible, and what both sides said they wanted. However there had been an erosion of confidence in engagement on both sides, and things were going in the wrong direction for now, not least because of the emotional arguments over Chinese commercial cyber espionage. Meanwhile, there was no shortage of flashpoints: the essentially minor but still dangerous territorial disputes in the South and East China Seas; the unresolved issue of North Korea nuclear weapons, and the future of the peninsula; Taiwan (however calm things seemed for now); China/Russia tension and rivalry, even if an apparently close relationship suited both sides for now; China/India strategic rivalry; and, of course, India/Pakistan. We found it hard to rank these threats, but most delegates seemed to regard developments in the South China Sea as the most immediately risky, though the China/Japan relationship was in other ways more worrying and dangerous, not least because of the US alliance context, and the Korean peninsula was where things could perhaps go most spectacularly wrong.

Was it right to talk of an Asian arms race? We thought this was not an accurate description of what was happening. Some countries were certainly spending more, particularly China and, more recently, Japan. But overall it was less of a race so far than a somewhat haphazard collection of increases. The picture was very mixed among ASEAN countries, for example, with some countries not involved in South China Sea disputes, such as Singapore and Brunei, seeing large increases, while large countries such as Indonesia were not really spending more. At the same time others such as Vietnam, which did have a dispute with China, were equally certainly stepping up their military efforts. In South Asia, Indian spending had been flat lining in real terms for some years, and any increases were often more to do with domestic manufacturing imperatives than geopolitics. But Pakistan and Sri Lanka, for different reasons, continued to spend heavily.

There had certainly been a change in the nature of the defence spending in the region, towards the naval area, particularly submarines. Some two thirds of all conventional submarines in the world were now in the Asia-Pacific area, and spending on anti-submarine warfare had increased correspondingly. This was clearly a response to the geopolitics of the region, including US-China dynamics and the maritime territorial disputes. One interesting question was why China had become much more assertive about these claims in recent years, and had then appeared to back off again to some extent. How much of this was about internal politics, including the role of nationalism as a legitimising and unifying domestic force, and how much about Chinese perceptions of US weakness? Meanwhile another question which exercised many in the region was the ultimate reliability of the US as an ally. The US so-called pivot to Asia, or rebalancing, had never been entirely convincing for some. 

How great were the risks of real conflict arising from all these tensions and complexities? On balance we thought there was little risk for now of all-out war (not least because of the deterrent effect of nuclear weapons), but plenty of things to make all concerned nervous, including outsiders. Localised conflicts and “wars of humiliation” were certainly possible, and the danger of accidental clashes, with unpredictable potential for escalation, was high. Mature, transparent military doctrines were largely absent; communication between militaries was mostly poor; and many regional governments by no means averse to playing the nationalism/history card when it suited them.

The absence of regional security architecture also remained striking. ASEAN and its various offshoots could not play the stabilising roles to which they had long aspired. The East Asian Summit had the right players present, but was only a brief encounter once a year (participants from the region were unenthusiastic about suggestions that the EU or Canada should be invited as participants to the East Asia Summit). President Xi Jinping of China had recently proposed a fresh look at regional security architecture but no details had so far been forthcoming, and any proposals which attempted to exclude the US would go nowhere. How serious a problem was the absence of this architecture? Most participants seemed to think it increased the risks, but a contrary view was that this perception was a result of an imposition of Western concepts and practices onto Asia, which had other habits of dialogue outside fixed institutions, and its own ways of managing potential disputes without allowing them to get out of control.

What future role would India play in the region, militarily and strategically? She would always regard China with suspicion, and strategic rivalry would never be far from minds in either Beijing or Delhi, however close both wanted to appear at times, including now. The extent of the current Indian rapprochement with Japan was certainly very striking. India was also hedging its bets through a closer relationship with the US.

How great was the risk of a further India-Pakistan conflict? It could certainly not be excluded. There were fears that Pakistan, dominated on the conventional side by India, could think it could make up the difference on the nuclear side, including through tactical nuclear weapons, and might even think it could fight such a war without sparking an all-out nuclear exchange. That would be a catastrophic error.

We did not discuss the Korean peninsula in great detail, but acknowledged throughout the debate the unresolved issues and the dangers presented by unpredictable North Korean behaviour, particularly under its brutal young leader. Reunification remained likely at some stage, but when and how could not be foreseen. One question was always where Chinese policy would go. There were clearly splits in Beijing. It was possible that an argument was gaining ground in favour of China abandoning its support for the increasingly hostile North Korean regime, and seeing the advantages of reunification (less US troops in the area, greater chances for rapprochement with a unified Korea, and new commercial opportunities). For their part, the South Koreans were improving their links with China, which could also prove significant over time.

We were conscious in all this that there were other serious security issues beyond the politico-military ones: climate change, infectious diseases, violent Islamic extremism, water scarcity etc. There was plenty of room for cooperation over these, including between US and China, even when there was strategic rivalry overall. Violent Islamic extremism in particular was rising rapidly up the priority list, including for China. There was scope to work together on this, despite severe western doubts about Chinese treatment of its own Muslim populations.

Our overall concern was that the Asia-Pacific region (including the South Pacific, which had its own problems) should be characterised by adherence to rules-based systems and acceptance of international norms, rather than a regional version of ‘might is right’, or dominance by size. In this region, as elsewhere in the world, there was an urgent need for more active and enlightened diplomacy. None of the problems was unfixable, given good leadership and common sense. The shared interest in maintaining the stability and prosperity of the region ought to be enough to convince all concerned of the need to work together and to avoid escalating tensions leading to real conflict. But no-one could be completely confident that this was what would happen.

Conclusion

Our discussion enumerated a great many challenges faced by the Asia-Pacific, from slowing growth through nationalism and corruption to environmental damage, and a good deal more besides. At the same time Asia was one of the more peaceful regions of a world in turmoil. So were we exaggerating the problems, as conferences like this tended to do, and ignoring the many good news stories to be found in the region? Were we also underestimating the ability of the countries of the region to deal sensibly with their problems, whatever the inflammatory rhetoric at times, and the lack of obvious institutional architecture? That was certainly a possibility. However it was also possible that the dangers lurking in the region, though less visible than in some other areas, were at the same time more profound, and that an economic slowdown led by developments in China might provoke some of them to come more to the surface.

If that did happen, how should they be managed? We did not think any kind of US/China G2 joint leadership, even assuming it were possible, would be a good idea, given the positions and sensitivities of others. A constructive bilateral relationship between them would certainly be needed, but better multilateral relationships and institutions to reinforce these looked a more productive way forward, however far away this might seem for now. Two important trends might reinforce this – freer movement of data and freer movement of people across the region. Both were already happening in a big way, and might help over time to increase mutual knowledge and understanding, make conflict seem more inconceivable, and cooperation more natural. The youth of the region would be the determining factor here. This diplomacy of knowledge took no account of national boundaries, and was particularly appealing to the digital generation. Increasingly powerful private sectors, and increasingly large and vocal middle classes in some countries, might also have beneficial effects both economically and politically. That was at least a hopeful note on which to end.

This Note reflects the Director’s personal impressions of the conference. No participant is in any way committed to its content or expression.

To view the participants to this conference click here.

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