Catching the tail of the Southeast Asian tigers

The state of economic despondency in New Zealand contrasts sharply with that of Asia. Sharemarkets throughout the region are at record highs and the main fear of most countries is that their already running-hot economies will over-heat from the flood of cheap US dollars.

US authorities are attempting to undermine China’s controlled currency by making the dollar even cheaper – a tactic has yet to spark the American economy.

The OECD is surprisingly bullish on the Asean economies with a prediction of 7.3% average growth this year. It comes in a new outlook report for six Southeast Asian economies.

It also shows an average annual growth of 6% through to 2015. New Zealand has bilateral free-trade agreements with three of them (Singapore, Thailand and Malaysia) as well as the more limited Asean FTA, which also covers the Philippines and Viet Nam (Indonesia in the only exception).

The OECD report highlights ways in which these economies need to change from a narrow dependence on exporting electronics goods to the development of new industries such as healthcare as well as higher-value products in fisheries, wood processing and agriculture.

All of these are well inside New Zealand’s orbit of expertise and come at a time when the Asian models of development are changing. The demands of urbanisation, demographics and infrastructure are turning these countries into consumers of imports and services.

Morgan Stanley forecasts China will become the world's largest market for consumer and industrial products by 2020. It has also been noted that purchasing managers indexes, a measure of mature economies, now show China leading those of the US and Europe.

How dollar diplomacy works
A key aim of diplomacy is to resolve disputes among countries, not exacerbate them. US Secretary of State Hillary Clinton demonstrated the art when she effectively upbraided Australia and New Zealand over the impasse with Fiji.

In some major developments, the US has been re-engaging with Fiji while its southern Pacific allies are doing nothing. The US is building a new embassy in Suva and is setting up an office of USAid – both aimed at combating the growing influence of China, which, as Fairfax Australia’s Asia Pacific editor Hamish McDonald has noted, is fast filling “the vacuum in military training and equipment created by Australian and New Zealand sanctions.”

McDonald’s reports are spot on: Fijian dictator Bainimarama may be running an unacceptable government, but he must be turned from linking up with China. His reaction shows he thinks he has the upper hand, according to his quotes on FijiLive, has advised Clinton to ignore Australia and New Zealand:

"It will not work as these two countries do not have any High Commissioners here and secondly, they have failed miserably in trying to engage Fiji with their foreign policies. The US should engage Fiji directly and work with us, it will not work if they are to come through New Zealand and Australia. We have our plans in place and they have their policy of isolation, I don't think these two will work,"

The commodore is referring to the planned 2014 elections, which are crucial in the US policy. McDonald reports that the assistant secretary of state for East Asia and the Pacific, Kurt Campbell, told a congressional committee the US wanted dialogue with the Fiji regime as long as the 2014 election date was firm.

''[Fiji] is the centre, sort of architecturally, of transportation and the like in the Pacific. It is high on the American priority to figure out if there's a way that we can be helpful in engaging diplomatically … We are stepping up our co-ordination and dialogue with New Zealand and Australia, who we also believe have key critical interests in Fiji.”

I don’t hold out much hope of any diplomatic rethink in Wellington, given the ministry’s mindset, but there are enough experts with goodwill toward Fiji that should be roped in to try some new ideas.

Black and white papers
The latest Defence White Paper, which was released while I was away in Asia, received a favourable if muted response. Critics noted its lack of detail on some major power shifts in Asia and how these should affect defence priorities (Indonesia and Japan, for example, are largely ignored).

This debate is not articulated here but is vigorously exercised in Australia where Professor Geoffrey Garrett, chief executive of the US Studies Centre at the University of Sydney, has subjected Hugh White, co-author of that country’s 2000 Defence White Paper, to a withering attack for his latest version as a private consultant. Garrett writes:

Hugh’s “White paper” will strike many Australians as bizarre. After all, Australia-US relations seem to go from strength to strength, from fighting in Afghanistan to tackling the global financial crisis...

So why does he now think Australian foreign policy needs such radical surgery? The answer seems to be that the global financial crisis has hastened the US-China power shift, summoning for White and others like Niall Ferguson the spectre of pre-first world war Europe.

There have been and will be flare-ups in China-US relations, led by the three Ts of trade (and other economic problems), Taiwan (and other territorial disputes) and Tibet (and human rights concerns).

But these are better viewed as pressure-release valves (acknowledging the real differences between the countries, often speaking mostly to domestic concerns) than as brushfires that could spiral into wildfires of trade wars, political crises or ultimately military conflict.

The reason to favour the pressure-release valve view of US-China tensions over White’s darker perspective is that the realities of economic interdependence matter so much more for China and the US today than they did for the countries of 19th century Europe, from which White draws inspiration.

Garrett's summary brings perspective to some of Asia's diplomatic hotspots, where large countries from China to Korea, to Japan and Russia, are in endless dispute over small patches of unoccupied territories. They result in a lot of media coverage but, year after year, seldom come to blows.