The changing geopolitics of APAC in a de-globalising world
In our blog article on Peak Globalisation published a year ago, we covered the risks and opportunities for small businesses Regionalisation offers. This article is about regionalisation in Asia. It is focused on the Asia-Pacific (APAC) region and the impact of recent geopolitical events.
Recent developments
On 24 February Russia invaded Ukraine. This has triggered several geopolitical events and accelerated regionalisation in Asia and around the world. Arguably, the world is now multipolar. At least to some extent. We define a multipolar system as one where power is distributed among three or more significant poles. A pole is a group of nations with enough economic and military capabilities to pursue strategies that do not follow those of other poles or disrupt those of other poles.
Here are the responses to the international crisis from selected APAC countries.
China
China considers itself a neutral party in the war in Ukraine. Which, Xinhua, the official state press agency of the People’s Republic of China, calls a special military operation. (Like the Russians.) It blames the United States for what is happening in Ukraine. And its mistrust of the West has deepened. This is not surprising – China and Russia announced a “no limits” partnership in February, just before Russia invaded Ukraine. Data shows that the Chinese people are very negative about the US and very positive about Russia.
However, unofficial reports from China say its leaders are not happy with the way Russia is managing the operation in Ukraine. Historically, China and Russia have not been the best of friends. And there still are issues that could limit the relationship from developing much further, keeping these two poles relatively independent from each other.
India
India considers itself a neutral party in the war too. At the UN, it did not vote to condemn Russia. India wants good relations with Russia for at least two reasons. First, to limit Russian ties with China and Pakistan (both want closer ties with Russia) – India considers these two direct threats: it has disputes over the border with China and Kashmir with Pakistan. Second, to continue to buy (cheaper) military equipment from Russia. The no-limits partnership announced by China and Russia is a significant concern for India.
Japan
China is the number-one problem for Japan. For many years, Japan tried to become a partner of Russia. But after the invasion of Ukraine, Japan considers Russia a challenge. For the first time, NATO has invited Japan, alongside South Korea, Australia and New Zealand, to their gathering in Spain this week. It now considers Japan and the other three countries as their key partners in APAC. Japan wants to upgrade its partnership with NATO substantially and thinks that the security of Europe is inseparable from that of Asia.
The ASEAN
Singapore is a small country and does not like to see a large country invading a smaller one. The security and even existence of small countries depend on the international rule of law. It has strongly condemned Russia’s attack and applied economic sanctions, unlike other ASEAN countries. Vietnam in particular is in a difficult position – it buys over 80% of its military equipment from Russia but considers the United States an important partner in the South China Sea dispute with China. Arguably, Vietnam is more likely to be invaded by China than Taiwan.
Taiwan
Taiwan is carefully monitoring and learning from the situation in Ukraine. The island thinks that China would now be more cautious about Taiwan, given Russia’s difficulties in Ukraine. Recently, however, a Chinese economist called to seize TSMC, the island’s leading microchip manufacturer. The US, Taiwan’s main security partner, remains intentionally unclear about what it would do if China invaded Taiwan. It does not want Taiwan to provoke China.
Australia
The Land Down Under is fully aligned with the West on the war in Ukraine and is supplying military equipment to Ukraine. Australia has been working on a defence strategy to protect itself from the increasing assertiveness of China in the region for a while: Quad, AUKUS and now a closer partnership with NATO. China remains Australia’s largest trading partner. In 2020, one-third of Australia’s foreign trade was with China, but it is declining. China is reducing its dependence on Australian raw materials.
ESG
With the regionalisation in Asia and elsewhere that is unfolding in front of us, Western-led rules will apply less and less in large parts of the world. These rules include the Environmental, Social and Governance (ESG) factors. This will make it even more difficult to coordinate global responses to challenges such as climate change. In the transition to a sustainable economy, the finance and technology sectors play a vital role. But their coordination across regions (poles) will need to change to work in the emerging new world order.
Final thoughts
China’s economic model is dependent on selling goods to developed markets such as the US and the EU – those that now see China as a challenge. Yet the Chinese leader Xi Jinping may conclude not only that China can trade just fine with a hostile West but also run its wars (Taiwan, South China Sea, etc) better than Russia. But more likely he will focus on increasing trade elsewhere. After all, global growth will come from emerging markets in APAC and other regions around a world where the West is less than 15% of the population and its demographics are shrinking.
The Russian invasion of Ukraine has accelerated regionalisation in Asia, just like in the rest of the world. It has made it more difficult for a Western business, especially a small one, to choose trade partners and markets in APAC. It will require business leaders to develop the ability to operate in a multipolar context where regional values and viewpoints must be better understood and respected than in the past.
Regionalisation in Asia will continue. However, many opportunities the region offers to businesses operating internationally will continue to be there. So, if you are a Western one make sure you understand how the region is changing and adapt your trading strategy accordingly.
If you are a member – learn more about these countries: P27 Regionalisation in Asia - some statistics.
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To learn how we can help your business navigate the uncertain waters of a regionalising world and trade with APAC nations: International Trade services.
Glossary
AUKUS – a pact announced in 2021 where the US and the UK will help Australia acquire nuclear submarines. Just before the pact was announced, Australia cancelled a submarine deal with France worth €56 billion. France called it a “stab in the back”. In 2022, Australia agreed to a €555 million settlement with French contractor Naval Group to rebuild its relationship with France.
NATO – the North Atlantic Treaty Organization is an intergovernmental military alliance between 28 European countries, Canada and the US, established after World War II to secure peace in Europe, promote cooperation among members, and guard their freedom. Its member countries agreed to help each other if they come under attack. NATO’s headquarters are in Belgium.
QSD – the Quadrilateral Security Dialogue (also known as Quad) is a diplomatic and military arrangement between Australia, India, Japan, and the United States initiated in 2007. Widely viewed as a response to the increased economic and military capabilities of China, which issued formal diplomatic protests to its members, calling it “Asian NATO”.
Acknowledgements
Thanks to our international team for their help with this article.
