For many years, Asia has seen the dawn break at the start of a new year on a land of relative peace and prosperity. This year, however, the morning sky is clouded with ominous signs of uncertainty and perhaps coming storms.
This is unusual for a region which has been mainly at peace since the Vietnam war ended nearly 50 years ago and has been seen as a poster child for economic development ever since. Hong Kong-based security consultant Steve Vickers and Associates (SVA) said in analysis published on January 9 that geopolitical risks in Asia are “at their highest level in years, with significant implications for the business climate”.
The malaise is not confined to Asia or business, however. As the World Bank’s chief economist Indermit Gill put it on the release, also on January 9, of the latest Global Economic Prospects report, “Without a major course correction, the 2020s will go down as a decade of wasted opportunity.”
As SVA noted, “much of Asia’s growth in recent years has rested on strategic stability”. Cooperation among states and businesses enabled the integration of manufacturing processes across national borders. This was also aided by stable and safe shipping and other transport ties.
However, what we see now is shipping being disrupted, and not only in the Suez Canal and the Red Sea, which are vital to linking Asia with Europe. There are also threats closer to home in the shape of risks in the Taiwan Strait and in other Asia-Pacific sea lanes.
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Yemen’s Houthi fighters behind Red Sea attacks threaten to disrupt global trade
Yemen’s Houthi fighters behind Red Sea attacks threaten to disrupt global trade
The trade and investment wars that have characterised the US-China relationship during the Biden and Trump administrations are changing shape into something more dangerous, and that could come to a head in 2024.
As the SVA report observes, tensions, blockades or even conflict could undermine willingness to cooperate across national borders and directly impede the free flow of goods while adding to the costs of shipping. The implications for business would be particularly serious in the case of China, Taiwan, South Korea, Vietnam and Thailand, among others.
Logistical threats are only a small part of the darkening picture. Geopolitical risks are growing, and even in Japan – long considered an island of stability in Asia – the spectre of political instability is growing too large to ignore. The Japanese government’s image has been tarnished by a fundraising scandal at the heart of the Liberal Democratic Party, whose rule has been almost uninterrupted since World War II.
This risks triggering a bigger political crisis. As I wrote recently, if political developments in Japan call into question its stability, the country might come to be viewed as an unpredictable and unreliable partner.
The SVA report also acknowledges that “Japan’s political stability is now somewhat in doubt” owing to the scandal related to illicit fundraising which has already claimed four cabinet ministers. Prime Minister Fumio Kishida faces serious distraction in the coming months and could fall as a result.
Officials from the Tokyo District Public Prosecutors Office enter a building to search the office of Shisuikai, a faction of the Liberal Democratic Party, in Tokyo on December 19, 2023. Japanese prosecutors raided offices of the ruling party over a funding scandal that forced Prime Minister Fumio Kishida to replace four ministers. Photo: AFP
This is happening at the same time as US-China relations continue to be highly strained despite efforts by both sides to achieve some kind of rapprochement. The United States arguably needs Japan to be a source of a stability now more than ever, but the latter’s being seen as entering a period of political uncertainty could in turn affect perceptions in China and elsewhere of its ability to respond effectively to any regional crisis.
Storm clouds are also gathering elsewhere in the Asia-Pacific region. What appear to be small, sudden splashes of rain in the form of scattered maritime incidents could quickly turn into damaging storms of huge proportions. One such concern relates to the situation in the South China Sea and the growing frequency of close encounters between Chinese and Philippine vessels in contested waters.
The risk of an accident in these waters escalating into armed conflict is rising, particularly if China comes to the conclusion that the use of its maritime militia or coastguard would not provoke a military response. This issue is all the more pressing as the Philippines – a treaty ally of the US – has bolstered its military links with Washington in the context of increasing Chinese pressure.
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Marcos Jnr says China showing interest in South China Sea atolls that lie close to the Philippines
Marcos Jnr says China showing interest in South China Sea atolls that lie close to the Philippines
It is also worth remembering that the issues around Taiwan, the South China Sea and the East China Sea are all closely linked. Consider that the US is seeking access to sites in northern Luzon in the Philippines which it could use as a base from which to operate in the event of fighting breaking out in the Taiwan Strait.
In the meantime, these growing regional stresses are occurring in the context of a slowing global economy. The World Bank noted in its report, “As the world nears the midpoint of what was intended to be a transformative decade for development, the global economy is set to rack up a sorry record by the end of 2024 – the slowest half-decade of GDP growth in 30 years”.
The risk of a global recession has receded, largely because of the strength of the US economy, but mounting geopolitical tensions could create fresh near-term hazards for the world economy.
The unmistakable message to national leaders and other policymakers in all this is that it is dangerously irresponsible to play games in the hope of scoring points against their opponents. Playing with people’s lives and livelihoods is not a sport.
Anthony Rowley is a veteran journalist specialising in Asian economic and financial affairs
