East Asian Policy

In 2015, Xi Jinping tried to restore many Leninist features to the Chinese Communist Party (CCP). He took measures to rebuild the ideological faith, entrench Party organisations with state administration and run the CCP as a meritocracy. “Party groups” (dangzu) are extended to non-governmental, non-profit and other societal organisations. He insisted that party members must observe both formal disciplines and informal norms of the Party, and show loyalty to the leadership.

In 2015, the XI administration snared 30 ministerial-and-above officials including Guo Boxiong of the Central Military Commission for corruption; abolished the long-delayed one-child policy; restructured state-owned enterprises; and overhauled the military by rejigging existing military regions and executing a cut of 300,000 army personnel. In the stock market meltdown, many officials, securities brokers and fund managers were arrested for insider trading and market manipulation. The stabilisation of the market laid the foundation for many long-awaited financial reforms.

Chinese society was largely stable in 2015 despite the slower economic growth and the stock market crash. Overall, the Chinese Communist Party (CCP) has prevented local protests from spreading and escalating into a political threat on a national scale. In November 2015, the CCP announced the guidelines for the 13th Five-Year Plan (2016-2020). The shift towards “innovative, coordinated, green, open and shared” development would require more changes in government and society.

China's economy ended 2015 with 6.9% growth, basically no different from the 7% target set. However, the slowdown had gathered momentum, despite the central bank's six rounds of interest and four rounds of reserves requirement ratio cuts. The 2016 growth is likely to be even lower. China has started its restructuring with several critical transitions taking place simultaneously. For 2016, the two dominant issues are the serious debt problem and exchange rate stability.

While China is committed to upholding a United Nations (UN)-centred world order and support the implementation of the UN development agenda for the next 15 years, it has ramped up its island building and facilities construction in the South China Sea to assert its national interest. Greater uncertainty can be expected with China operationalising the facilities it has built and the United States bent on conducting freedom of navigation operations to challenge China's claims.

In 2015, an unprecedented set of security bills was passed in Japanese parliament, permitting Tokyo to engage in collective security by aiding allies against third parties and to loosen the tight restrictions on the Self-Defence Force in United Nations Peace Keeping Operations, its rules of engagement and other multilateral deployment abroad. With these bills, Japan has crossed the Rubicon and evolved into a “normal” state in international affairs.

Abenomics entered its third year of implementation in 2015 with mixed results. The qualitative and quantitative easing had caused Japanese monetary base to surge to 70% of its nominal gross domestic product. Inflation had turned positive in 2015, but remained far below the 2% target set. Government debt continued to climb. Wage growth was too little to increase household consumption. The positive effects of Abenomics were likely to be counterbalanced by the ageing population.

Politically, Hong Kong's unease is with the level of control the Chinese central government exercises over the Special Administrative Region and how autonomy is perceived between the two. Against this backdrop of unease, 2015 was a challenging year for Hong Kong due to ongoing social debates and discontent over the cost of housing, income gaps and inequitable opportunities and job prospects due to inequitable wealth and resource distribution.

Hong Kong's economy grew by 2.4% in 2015, sustained largely by a strong expansion in household consumption. The government took supporting measures, including stronger public spending and tax reduction. The economy has become increasingly interwoven with that of the Mainland and a new bilateral agreement was signed to enhance trade in services. As Hong Kong's economy is likely to face even gloomier climate in 2016, improved physical connections with the Mainland and tighter cooperation are key.

Taiwanese politics in 2015 was overshadowed by party infighting within the ruling Kuomintang, restive social atmosphere due to the Sunflower Movement in 2014 and the uncertainties of a Democrative Progressive Party (DPP) government in May 2016. Cross-strait relations experienced a downturn after China pushed for the 92 consensus to frame future cross-strait policies. The Ma government leaves behind thorny issues in political, economic and legal fields, creating huge challenges for the coming DPP government.

Taiwan experienced a sharp deceleration in economic growth in the second quarter of 2015. If Taiwan's exports continue to deteriorate, Taiwan would have to struggle to maintain a one per cent growth rate. Taiwan's economic conundrums mainly lie with its deteriorating industrial structure. Without deepening industrial structural upgrades and reforms in the information and communications technology sector in particular, Taiwan will lose its international competitive advantage.

South Korea's gross domestic product expanded 2.6% in 2015, from 3.3% in 2014. The feeble private consumption following the Middle East respiratory syndrome outbreak and slumping exports held down growth. The unclear export prospect has led Korean policymakers to remain dependent on extra government spending for maintaining growth in 2016. In the long run, its growth will depend on its shift from exporting intermediate goods to high technology intensive products and high value-added services.

South Korea's foreign relations under President Park are characterised by a carefully crafted and balanced approach in both strengthening the traditional alliance with the United States and promoting a strategic partnership with China. The latter in particular is driven by the need to further expand economic ties and the hope that Beijing can help rein in Pyongyang's behaviours. North Korea's latest provocations threaten to unravel the premise of this approach.

Kim Jong-un's obsession with full control of power and his single-minded pursuit of nuclear advancement, as seen in the fourth nuclear test in January 2016, have further isolated his country. North Korea apparently is taking a revisionist strategy: to change the rule of the game in Northeast Asia and in inter-Korean relations. North Korea exploits the Chinese dilemma of condemning the defiant behaviour but cannot abandon the country.