There are two ways to see whether something is going to do well or badly — a top-down view or a bottom-up view. I spent more than a month traveling through Indochina and visited eight out of the ten members of the Association of Southeast Asian Nations (ASEAN) in the last year to get a first-hand view from the ground up.
In two years time, ASEAN will celebrate its golden (50th) anniversary, having been founded in 1967. This year, Malaysia chairs the community in a year that will fulfill the dream of an ASEAN Economic Community (AEC).
In a world that is awash with strife and uncertainty, ASEAN remains the world’s rising star. Taken together, McKinsey Global Institute estimated that ASEAN is already the seventh largest economy in the world, and by 2050 it will be the fifth largest. Trade wise, ASEAN accounted for 7 percent share of world exports in 2012, surpassing all Asian economies but China (11 percent share). With a US$2.4 trillion GDP (larger than India or Italy) and 620 million population (100 million larger than the European Union), ASEAN can power global growth. ASEAN’s labor force is the world’s third largest and very young, with 50 percent below 30 years old.
Traveling in local buses through Vietnam, Laos and Cambodia last month, I could feel personally on the ground ASEAN’s rapid growth rate of more than 5 percent per year. Every city and countryside I visited seems to be under construction, feeling very much like China in the last decade. Cambodia, one of the poorest countries in the 1990s, achieved over 7 percent per annum growth over an extended period. A lot of this was through rapid urbanization, which exceeded half of the population in 2013. According to the U.N. “World Urbanization Prospects,” Indonesia’s urban population will nearly double to 228 million by 2050, with ASEAN having over 500 million urban population by then. McKinsey estimated that 125 million households in ASEAN will join the middle-income class by 2025, increasing by 87 percent.
War and Water
As I sat amidst the ruins of Angkor Wat, I reflected on the two factors that struck me most about this tour around IndoChina — war and water. Our tourist guide in Hanoi started her introduction to Vietnam history as “fighting China for a millennium, France for a century and the U.S. for two decades” and “we beat them all.” You only have to see that parts of Laos and Cambodia still have unexploded bombs and see the musicians maimed by mines to remind oneself that this was a region marred by war.
I brought along Robert Kaplan’s 2014 book “Asia’s Cauldron” about how the South China Sea could be the next flash point of geopolitical conflict. Born during the period of the Vietnam War, the ASEAN community realized that geopolitical neutrality and political stability is the anchor for peace and prosperity. ASEAN is now being actively courted by the U.S., Europe, China, Japan, India and Russia as well as the Middle East as a good friend and major trading partner. You only have to see how the rival proposals for trade and investments — particularly with Trans-Pacific Partnership and regional groupings of ASEAN+3 (China, Japan and South Korea) as well as ASEAN+6 (India, Australia and New Zealand) to form Regional Comprehensive Economic Partnership (RCEP) — have basically geopolitical alliances in mind.
Unlike the European Union, the ASEAN is not a political integration but an economic zone focused clearly on regional peace. Its fundamental strengths are its consensual nature of agreement, which can be highly frustrating for some, and its ability to get the balance of power right, not only amongst the external powers, but also within ASEAN. Even though Indonesia is by far the largest of the ASEAN nations, accounting for 40 percent of the population and 36 percent of GDP respectively, one tends to forget that the continental side, from Myanmar to Vietnam, accounts for 27 percent of the population and constitute the fastest growth potential.
The problems of ASEAN are shared with the rest of the developing world. Inter-country income disparity is narrowing, but within each country, inequality is still rising. Growth in six of the less developed countries remains far faster than the richer four — Singapore, Brunei, Malaysia and Thailand.
But the emerging six — Cambodia, Laos, Myanmar, Indonesia, the Philippines and Vietnam — all need higher levels of spending on infrastructure, education and healthcare in order to continue growing. Already, four ASEAN members commented they cannot meet ASEAN 2015 poverty target of 0 percent poverty headcount ratio. It was clear that fast growth has dealt substantially with extreme poverty, but at the same time, the Lamborghinis I saw in Hanoi and Phnom Penh suggest the gap between the few urban rich and the mass rural poor is not being addressed.
The good news is that the Japanese, Europeans, ADB and the new Chinese-led Asian Infrastructure Investment Bank, are more willing to fund the infrastructure. Indeed, China’s announced infrastructure strategy to build the Silk Road and Maritime Silk Road means that basic ports, rails and telecommunication funding and technology will become readily available to ASEAN members.
Furthermore, the fall in oil prices has meant that ASEAN members will enjoy cheaper energy and also enable Indonesia, Malaysia and Thailand to remove their energy subsidy policies, which in the last few years took up more than 30 percent of total government budget or 4 percent of GDP. The removal of these subsidies frees up funds for fiscal expenditure on infrastructure and dealing with social inequality.
However, traveling through the Indochina countryside also revealed to me the importance of water in the whole ecology of the region. Almost all the water in the region comes from the monsoon rains and the rivers that flow from the Himalayas through Yunnan in China. The Mekong River flows for over 4,800 kilometers through six countries, and provides water and transport for over 80 million people.
Deforestation, global warming and changing weather patterns all threaten the fertile rice-growing areas from Myanmar to Vietnam, which depend on water availability. The region produces 12 percent of global rice production. History showed that droughts and the associated malaria and water-based diseases all accelerated the fall of the Khmer empire, the builders of the magnificent temples in Angkor. According to Vietnam authorities, drought, salination and rising sea levels due to global warming may erode 40 percent of the Mekong Delta in the next century.
Despite these challenges, I disagree with Kaplan that territorial disputes in the South China over water and resources will be the end of a stable Pacific. First, there are just too many trigger points in the Balkans and Middle East before the East Pacific goes into armed conflict. Second, the region has too much to lose from rising trade and economic integration, not just within the region, but also with the U.S. and Europe. Fourthly, the powers that surround ASEAN are all nuclear powers and all great powers understand that the nuclear option can start with small skirmishes with total mutual destruction if not managed.
Having survived and thrived after nearly 50 years of living and working together, one has to trust the innate wisdom of ASEAN leaders who have the common sense, pragmatism and moderation to understand that the regional and global future rests on clear-sighted balance of power, opportunities and risks.
A cauldron needs an outside fire to be stoked. So far, ASEAN leaders have not lit their own cauldrons. Global warming already threatens to boil the world. We all have enough to do without boiling ourselves in our own cauldron.
The founding fathers of ASEAN had the foresight and overcame their differences to ensure continued stability and prosperity of the region. One only hopes that outside powers have the wisdom and restraint to keep ASEAN growing in peace for the next 50 years.
Andrew Sheng is a distinguished fellow of Fung Global Institute, (an independent think tank which examines global issues from Asian perspectives), and chief adviser to the China Banking Regulatory Commission.
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