Global Outlook 2017: Southeast Asia and the U.S.-China dynamic

A map showing ASEAN countries and the other countries included in the proposed RCEP trade deal
With the demise of the TPP free-trade deal, RCEP, which includes China, becomes the only multilateral trade agreement option for Southeast Asian nations (source: macpixxel for GIS)

In 2017, the stances of Southeast Asian nations toward the region’s central geopolitical feature – the United States-China rivalry – will be characterized by long-term stability rather than change. Despite uncertainty about the incoming U.S. administration and tensions with Beijing in the South China Sea, the Philippines, Vietnam and Malaysia will maintain ties with Washington while continuing their cautious engagement with China.

Philippines

Since taking office last June, President Rodrigo Duterte has pursued an antagonistic approach toward the U.S. and energetically courted China. The headlines will continue to belie a strong behind-the-scenes relationship with the U.S., even if, as seems likely, Mr. Duterte is successful in building closer ties with Beijing.

Advisors to President-elect Donald Trump have created a narrative around Mr. Duterte’s hostility centered on disappointment with how the U.S. has met its security commitments to the Philippines. In 2012, in a series of events that even members of the Obama administration admit to having bungled, the Philippines ceded control of Scarborough Shoal in the South China Sea to China. The Trump narrative elevates this development to the main motivation behind Mr. Duterte’s shift toward China.

The U.S. is unlikely to play Mr. Duterte’s game

In fact, U.S. policy in the South China Sea probably plays little role in the Philippine president’s attitudes toward the U.S., which have much deeper roots and more personal motivations. China’s seizure of Scarborough Shoal was a setback for the Philippines, but not so egregious as to overturn the gains made by the Philippines in its relationship with the U.S., most of which occurred after the loss of the shoal.

This serves as critical background to the December phone call between Mr. Duterte and Mr. Trump. According to readouts by the Philippines side, the U.S. president-elect invited Mr. Duterte to Washington and gave him a pass on his controversial drug war. If true, and if it signaled the new administration’s approach to the Philippines, this invitation will lead President Duterte to believe he has a winning hand in the geopolitical game he has started. It will encourage him to continue his outreach in search of benefits from Beijing, which he could then use as leverage to extract more benefits from Washington.

However, the U.S. is unlikely to play Mr. Duterte’s game, for two reasons. First, budget constraints mean American security assistance to the Philippines can only increase slowly, if at all. Moreover, the U.S. government has no power to dedicate similar levels of funding that China has dedicated to building infrastructure abroad. Second, Congressional objections to President Duterte’s drug war will serve as a brake on any effort by the administration to court him energetically.

Presidents Rodrigo Duterte of the Philippines and Xi Jinping of China at a ceremony in Beijing in October 2016
Philippine President Rodrigo Duterte (L) has courted China, meeting with President Xi Jinping in Beijing in October 2016. But Manila’s ties with the U.S. will remain strong (source: dpa)

President Duterte will end up disappointed that his strategy has not worked. He will continue to tack toward China, while his cabinet and lower-level bureaucrats try to limit the collateral damage to relations with the U.S. Japan, meanwhile, will develop its relationship with Mr. Duterte. This will serve Tokyo’s interests in providing a counterweight to Chinese influence amid uncertainty over the new U.S. administration. It will also be Japan’s way of helping Washington keep the Philippines anchored in the U.S.-led alliance network.

Vietnam

The big geopolitical setback for Vietnam in 2017 is the demise of the Trans-Pacific Partnership (TPP). Among the members of the agreement, Vietnam stood to gain the most economically and was prepared to make major changes in governance to implement it. In the broader strategic sense, TPP was important to Vietnam as a way to limit its dependence on China by intensifying economic ties with the U.S. and contributing to a rules-based order in the region. Faced now with uncertainty about American commitment to the region, Vietnam will have to expand relationships with other partners and stay alert to safeguard its interests in areas like the South China Sea.

Vietnam is committed to an “omnidirectional” foreign policy that seeks to maximize its autonomy through cautious engagement with great powers and an active role within the Association of Southeast Asian Nations (ASEAN). Despite the setback on TPP, it will continue to explore new areas of cooperation with the U.S., including potential arms sales and military-to-military cooperation. Despite Hanoi’s difficulties with Beijing over the South China Sea and anti-China sentiment among its population, it will keep working to mend the relationship, most recently damaged by a 2014 standoff over China’s deployment of an oil rig in Vietnam’s Maritime Exclusive Economic Zone.

This reality will lend itself to a more ad hoc, deal-based order that undermines U.S. strengths

With the U.S. likely out of the business of constructing a rules-based order via multilateral trade agreements, the ASEAN-initiated Regional Comprehensive Economic Partnership (RCEP), which includes China, will become the only multilateral option for a trade agreement. This reality will lend itself to a more ad hoc, deal-based order that undermines U.S. strengths and would bolster Vietnam’s relationship with China by default.

Beyond the U.S. and China, Vietnam will seek to engage other regional powers. It has growing security relationships with Japan and India. The decades-long strategic relationship with Russia can always be used by Hanoi to balance its ties to China. Vietnam also has several bilateral free trade agreements completed or pending, including with Japan and the European Union. Look for the authorities in Hanoi to expand these relationships over the coming year, and to build new ones. They will also continue to interact with major partners through ASEAN – an organization whose founding rationale is to maintain regional autonomy against outside powers.

Regarding direct action, Vietnam will likely conduct naval patrols in the South China Sea and continue reclaiming and fortifying the land features it holds in the Spratly Islands. It will also continue its arms buildup.

Malaysia

Over the past year, there has been a great deal of speculation that Malaysia may be moving into China’s orbit. The speculation revolves around a scandal in Kuala Lumpur. The state-owned investment company 1MDB, which was established by Prime Minister Najib Razak and is overseen by him, has been accused of misappropriating up to $3.5 billion, largely for political purposes.

Partly due to overpayments linked with this scandal, the 1MDB fund is deeply in debt, and Chinese state-owned companies have stepped in to help bail it out. This has led to concerns that in return for saving Prime Minister Najib politically, the Chinese are getting preferential treatment for public infrastructure contracts and generally garnering more clout in Kuala Lumpur. Some even tie Malaysia’s relatively low-key approach to the South China Sea territorial dispute to Mr. Najib’s IOU to China. Substantiating this narrative was a visit the prime minister paid to Beijing in November 2016, during which $34 billion in business deals were signed and Malaysia committed to its first purchase of naval vessels from China.

Kuala Lumpur will continue to engage both sides to preserve its independence

Malaysia’s ruling party, the United Malays National Organization (UMNO), is no doubt grateful for China’s contribution to keeping 1MDB solvent and “money politics” alive and well. That goes double for Mr. Najib. However, Malaysia is also welcoming Chinese investment for its own sake, as a necessary means to accelerate economic development. This does not mean the country is entering China’s orbit. Kuala Lumpur will continue to engage both sides, not just for material benefit – as Mr. Duterte is calculating in the Philippines – but also to preserve its independence in policymaking.

Malaysia is a founder of ASEAN and a leader within the organization. Over the years, it has been behind some of ASEAN’s boldest initiatives to stake out an independent course, sometimes against Chinese and sometimes against Western influence.

It also has been an active participant in the South China Sea dispute, both on its own behalf and for ASEAN. This equilibration was clearly on display during Malaysia’s ASEAN chairmanship in 2015, and it was central to an incident during the ASEAN-China Summit in 2016, which saw the organization clash with China over the issue. Malaysia has a very active military-to-military relationship with the U.S., including multiple annual joint exercises and basing arrangements for American surveillance flights. Finally, it is worth noting ethnic tensions between the Malay majority and the ethnic Chinese minority in Malaysia make a too-cozy relationship with Beijing politically risky for any government in Kuala Lumpur.

Malaysia will continue to work with the U.S., even as it slowly expands cooperation with China and reaches out to other partners.

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