Chinese Competition with Japan and the U.S.: Implications for Southeast Asian Nations

Dr. Nobuhiro Aizawa

On May 20, 2020, Sasakawa Peace Foundation USA (Sasakawa USA) welcomed Kyushu University Associate Professor Dr. Nobuhiro Aizawa to deliver a talk on, Chinese Competition with Japan and the U.S.: Implications for Southeast Asian Nations. Dr. Aizawa is a Japan scholar at Wilson Center, supported by Sasakawa Peace Foundation.  Vice President and Director of the East-West Center in Washington, Dr. Satu Limaye was also present to provide commentary on the issues Dr. Aizawa presented. This talk was presented through Sasakawa USA’s Policy Briefing Series and was held virtually via Zoom Webinar. Attendees included distinguished guests from the Washington, D.C. policy community, foreign diplomatic corps from the region, including three ambassadors, academia, think tanks, and the Sasakawa Peace Foundation in Tokyo. Sasakawa USA’s Chairman and President, Dr. Satohiro Akimoto gave opening remarks and moderated the Q&A session.

During the discussion, Dr. Aizawa gave an in-depth presentation based on 20 years of research and experience in Southeast Asia, which started with research on overseas Chinese communities in Southeast Asia, shifted towards Japanese involvement in the region, and now focuses on U.S. policy and goals for the region. Dr. Aizawa framed his discussion in terms of two major questions: What is Japan’s relationship with Southeast Asia; and despite the U.S. relationship with Southeast Asia not being in an ideal position prior to COVID-19, how should the U.S. shift its focus on the region as issues involving China maintain prevalence? Additionally, Dr. Aizawa discussed several domestic issues throughout Southeast Asia that the U.S., Japan, and China will seek to remedy in the next 20-30 years.

Dr. Aizawa’s Approach to Southeast Asia

Dr. Aizawa began his presentation by providing what he determined as the most important assumption on Southeast Asia: “Southeast Asia is in a hurry to grow because time is not on their side.” In other words, the countries of Southeast Asia are seeking to escape the middle-income trap, but the populations are growing old before they are getting rich. In order to escape the middle-income trap, they must become rich before growing old. Dr. Aizawa points to the example of Venezuela as a case that leaders and influential individuals throughout the region recognize as a bad precedent for what their future may hold if they do not act. Dr. Aizawa noted, however, that this assumption is based on a few specific countries, notably Thailand, Indonesia, the Philippines, and Vietnam and certainly would not include Singapore or Laos. Dr. Aizawa’s approach to Southeast Asia focused on three main topics that were addressed throughout the remainder of the presentation.

1. Elderly Dependency Ratio

The first issue Dr. Aizawa discussed was the high elderly dependency ratio throughout much of Southeast Asia. A dependency ratio measures the ratio of the population that is dependent on the working age population. An example of a nation with a high elderly dependency ratio is Japan. The aging population of Japan has resulted in a higher-than-normal population that is no longer of working age and therefore dependent on the working population for pension benefits. In the case of Japan however, the population grew rich well before it grew old, so Japan successfully escaped the middle-income trap that many Southeast Asian countries now face. In order to overcome the middle-income trap, the dependency ratio is key, as you cannot have a high elderly dependency ratio. Dr. Aizawa recognized Indonesia, the Philippines, and Vietnam as countries that are in the critical phases of their approach to the middle-income trap and explained that it would take approximately another 15-20 years for the region to overcome. As Southeast Asian countries push into the advanced middle-income phase (between $4,000 to $20,000 GDP range), their relationships with countries like Japan, China, and the U.S. will matter most.

2. Income Growth

The next issue that Dr. Aizawa noted as a problem for Southeast Asia, that directly influences his third issue, Politics, is the slowdown of income growth throughout the region. Dr. Aizawa presented evidence illustrating dynamic income growth rates from 1988 to 2008, but significantly slower income growth rates from 2008 to 2018. In other words, the 20-year period prior to 2008 established a generation of growth for the region. Dr. Aizawa views this period as good for the politics of Southeast Asia based on the idea that in every country the population expects to have better lives than their parents. If countries meet this expectation politics will remain stable, but if they fail to meet this expectation then politics are bound to destabilize. Dr. Aizawa explained that this expectation makes the slowdown of the past 10 years even more important. Despite still being better off than in 2008, people today may not actually feel better due to their growth being less dramatic than before, and as a result, frustration with politics will rise. In response to the possibility of frustrations growing at an uncontrollable level, Dr. Aizawa stressed the importance that politics must address income growth expectations to prevent the inevitable social splits that would harm society. These issues directly linked to his third and final topic of Southeast Asian domestic interests.

3. Politics

Dr. Aizawa noted that the growing frustrations over income growth in Southeast Asia have already led to sharp increases in polarization, aided in part by social media. Although all Southeast Asian countries have seen an increase in politics-related issues, Dr. Aizawa utilized Thailand as a good example of the democratic backsliding that is occurring throughout the region. In 2014 Thailand experienced a military coup that was widely supported by the population. After five years of military rule, Thailand held its first general election in 2019, but the military backed party won an overwhelming majority of seats. As Southeast Asian countries continue to have difficulty with politics, Dr. Aizawa expressed a likelihood of increase in illiberal democracies and authoritarian regimes in the region. With an increase in such regimes, Beijing is provided the opportunity to increase its influence on the region. Illiberal democracies are likely to thrive in the current political environment of Southeast Asia due to an increase in frustration with elites and the view that liberal democracy brought the elites their wealth. When new illiberal regimes rise to power, they will seek new international partners and China will be an increasingly suitable partner as it is more likely to provide endorsements to these new regimes, whereas Japan and the U.S. will not.

How China, Japan, and the U.S. View Southeast Asia

China

China has become increasingly vocal about its role and deserved hegemonic status for Asia.  In order to increase the likelihood of Chinese hegemony in the region, China is currently undertaking measures to ensure that no Southeast Asian country will undermine Chinese decision making, especially given the technological and other means of superiority that China now experiences. In order to achieve this goal, the Chinese Communist Party (CCP) has established the additional goal of creating a Southeast Asian region of one-party states. As illiberal democracies and authoritarian regimes continue to gain power throughout the region, China will work closely with the elites to make sure not only the elites’ needs are met but Chinese needs are also met. This policy by China will eventually create opportunities for Japan and the U.S. to undermine the illiberal and authoritarian regimes. This is possible because as the elites grow closer to China, the rest of the population will begin to view China as a symbol of domestic corruption and therefore begin to search for better international partners.

Japan

Japan has a long history with Southeast Asia and views itself as a de facto ally of the region. Unlike in Northeast Asia, Japan experiences extremely high favorability ratings throughout Southeast Asia due to several reasons. Despite Japan’s own stagnant economy, especially when compared to 20-30 years ago, Japan’s commitment to Southeast Asia is still growing and continues to outpace the investments of China, South Korea, and the U.S. Japan has for years been by far the largest FDI contributor to Southeast Asia, even with an increased interest by China in recent years. Additionally, whereas Chinese investment mostly focuses on metals and rare earth materials, and ASEAN’s internal investment focuses on real estate, Japan provides FDI that touches every aspect of the economy.

In addition to FDI, the Japanese population in Southeast Asia continues to grow at rates that Tokyo would be happy to see at home. One cause of this demographic shift is the large number of Japanese who are moving from China to Southeast Asia. As the number continues to grow, the Japanese population has become a major bloc in Southeast Asia and a large influence on Tokyo. The Japanese communities in Southeast Asia have been major incubators for new businesses there, to the point that Dr. Aizawa suggested the new wave of Japanese innovation is housed in the region. This has led to a high favorability rate that Japan has experienced for the past few decades and continues to influence Japanese policy in the region. Thailand has especially been a major partner for Japan and the location of many instances of Japanese innovation. Dr. Aizawa went so far as to describe Japan’s relationship with Thailand to be like the United States’ relationship with Egypt. As an example of the importance of Thailand to Japan, despite Tokyo’s willingness to condemn the 2014 coup, the local Japanese population in Thailand prevented Tokyo from issuing a public condemnation This ensured that the relationship between the two countries was not harmed despite the coup being contrary to Tokyo’s interests.

Thailand is not the only country that Japan has sought to increase ties with. In the past year, Prime Minister Shinzo Abe took the initiative to visit 10 Southeast Asian nations, setting a high standard for commitment to the region that his ultimate successor will have to attempt to maintain. Although Japan has lost a lot of high-profile infrastructure projects to China, it has shifted to urban planning and enhancing the livability of the urban sector of societies throughout Southeast Asia. This includes various projects but has an increased interest in the development of better public transport. Dr. Aizawa promoted the idea that Japan is the only country that can be matched in scale with the urban centers of Southeast Asia. Like Japan, Southeast Asia is home to many of the world’s largest urbanized cities in terms of population, and therefore Japan’s experience and the model of the Tokyo-Yokohama metropolitan area is a prime model for Southeast Asian countries to develop their urban structure and growth. Additionally, Japan and Southeast Asia face similar threats from climate change and natural disasters. This has provided a key issue for Japanese collaboration with Southeast Asia.

Lastly, Dr. Aizawa noted space as a new field for cooperation between Japan and Southeast Asia. Although China and the U.S. are the major competitors in space, Japan also has a major presence and interest in the exosphere. In terms of how this interest relates to Southeast Asia, Japanese companies have satellites with routes that cover the region which could be used for agricultural enhancement, fisheries, and urban transportation. Dr. Aizawa expressed that information from these satellites should be shared with Southeast Asia, particularly in the megacities. Dr. Aizawa ended his discussion on Japanese interests in Southeast Asia by explaining that the key for Japan is utilizing the problems of a more assertive China and Japan’s aging society to its own benefit. Japan can utilize these crises to connect with Southeast Asia and develop opportunities to meet the common goal of making society resilient through technological advancement and mitigating challenges they both face.

United States

U.S. strategy in Southeast Asia has remained mostly the same over the past 30 years. Both republican and democratic presidential administrations share the goal of preventing a single hegemonic power in Asia. According to Dr. Aizawa, if this is the principle U.S. policy for the region, then priorities must be shifted to Southeast Asia. As evident by the ongoing COVID-19 crisis, establishing platforms and standards for the region is increasingly important. Although most of the cooperation is based on a forward-deployed defensive strategy, it is unlikely that this method will be able to remain forever. Instead the trend is moving towards cyber and other modes for cooperation and will be defined by what Southeast Asia chooses, not the priorities of the U.S. or China.

If Southeast Asia tilts towards China, the key question will become what side will Japan choose? If Japan chooses the U.S. then it will be at the expense of China and Southeast Asia, and likely as a result Japan. Fortunately, Japan is already intertwined with Southeast Asia which is why Japan must work with Southeast Asia to remain together and lean towards the U.S. There are a variety of opportunities for cooperation, but technology offers a key modem for increased Japan-Southeast Asia cooperation. Additionally, it is in the best interests of the U.S. to promote Japan’s strategy in Southeast Asia as Japan’s interests in the region overlap heavily with the U.S. interests.

Two topics that Dr. Aizawa noted of increased attention from the U.S. are COVID-19 and telecommunications related issues. Although COVID-19 infected rates throughout Southeast Asia have been relatively tame, except for Singapore, cooperating on this issue would provide the U.S. a key opportunity to increase ties and the possibility of future partnerships throughout the region. For telecommunications, China is seeking to further alter the standards of the internet in order to monitor who is saying what and to create the capability to shut down the internet if necessary. If China is able to push its model for the internet in Southeast Asia it would not be conducive to the U.S., Japan, or democracy in the region.

Lastly, Dr. Aizawa noted two possible opportunities for the U.S. to partner with Japan to strengthen Southeast Asia from the encroachment of China. First, decentralization must be established as a standard of resilience. Dr. Aizawa explained that decentralization is an additional key to fighting authoritarianism. In order to accomplish this, the networks of Mayors and Governors should be increased by bringing them into foreign policy spheres. This provides the U.S. and Japan the opportunity to develop deeper bonds with a variety of leaders outside of the limit of the federal governments. This would assist in warding off authoritarianism because it would provide legitimate alternatives to leadership as frustrations grow with national leaders. Second, the U.S. and Japan should focus on human capital advancement, rather than relying solely on FDI, to help Southeast Asia overcome the middle-income trap. In this regard, the U.S. could take the lead due to its strong and well-respected academic institutions. Dr. Aizawa suggested highlighting advancing democratically minded technological advancements with special attention being paid to increase the livability of Southeast Asian societies. This would increase the favorable views of democracy, establishing higher standards of living throughout Southeast Asia which would in turn increase the political stability of the region.

Dr. Satu Limaye’s Commentary

Following the in-depth discussion provided by Dr. Aizawa, Dr. Satu Limaye offered his commentaries to the presentation. Overall, Dr. Limaye expressed favorable reviews to Dr. Aizawa’s presentation and further provided constructive criticism to deepen Dr. Aizawa’s analysis.  First, Dr. Limaye questioned the weight of the dependency ratio as an aspect of Dr. Aizawa’s analysis. Dr. Limaye agreed that the dependency ratio is present in Southeast Asia, but there are likely policy-related issues that need more attention, particularly labor-intensive light industry, reforms in the agricultural sector, and the need to increase human capital. Additionally, Dr. Limaye introduced the issue of endogenous vs exogenous factors and their impact on Southeast Asian society. Exogenous factors are likely to be doubly disadvantageous to the middle-income trap, unless undertaken very carefully, especially as supply chains begin to split, regional fragmentation becomes more prevalent, and the process of deglobalization continues to become a possibility. A certain amount of this will occur, but the exact amount is currently unknown. Southeast Asia is left in an uneven position due to this as who receives benefits will likely shape what choices are made.

Additionally, Dr. Limaye suggested that it might be constructive for Dr. Aizawa to include parallels from Southeast Asia to Eastern Europe or even to the EU, although Dr. Aizawa pointed out the vast differences in structure and societal disparities between the EU and the Southeast Asian nations. For Japan, Dr. Limaye views the Japanese position to be of particular interest, especially in regard to the U.S.-Japan alliance. Since the onset of COVID-19, there have been no U.S.-Japan joint statements, but there have been ASEAN+3 statements. Could this signify a possible Japanese shift towards Northeast Asia? Dr. Limaye ended his discussion by explaining that there are limits to how far China can move into the region due to the limits on Chinese reliability and trustworthiness. Just as Japan is very welcome in the region, however, Japan will be placed under more pressure to make decisions about the alliance with the U.S. and other like-minded partners and allies, which could create more issues for Japan’s actions in the region.

Conclusion

Dr. Aizawa concluded his remarks by briefly responding to Dr. Limaye’s analysis and clarifying various points he made throughout his discussion. Dr. Aizawa expressed similar optimism that China will be limited in its ability to influence the region, but the U.S. must begin to take concrete actions to illustrate its commitment to Southeast Asia. This could come in a variety of forms, but Dr. Aizawa suggested shifted assets from North Korea to Southeast Asia and increased collaboration with Japan. While yes, North Korea is a threat to the U.S., in totality what is at stake with Southeast Asia is of greater importance. Now is a good time to shift some assets to Southeast Asia as the situation in North Korea is unlikely to make a significant difference in the holistic view of Asian power, but Southeast Asia will allow the U.S. to establish a very strong triangular relationship. Every country in the region does not want a hegemonic China, so there is a need for the U.S. and Japan to talk about Southeast Asia more. Not necessarily what the alliance can do, but what the region wants the U.S. and Japan to do. Dr. Aizawa admitted that historically, traditionally, and geopolitically Northeast Asia has been where the “game resets” exist in U.S. policy in Asia, but moving forward in order to achieve the goal of preventing China from attaining hegemonic status in the region, the U.S. must increase its focus on Southeast Asia and collaborate with Japan in the region.

Sasakawa USA is grateful to Dr. Aizawa for his presentation and to Dr. Limaye for his commentary.

For more information about Sasakawa USA’s Policy Briefing Series, go here.