East Asian Policy

Amidst growing protectionist and anti-globalisation sentiments, China has led the call for a free, open and inclusive multilateral order. It supports a multilateral trading regime, a Free Trade Area of the Asia-Pacific and the Regional Comprehensive Economic Partnership. It has launched the Asian Infrastructure Investment Bank where it wields significant veto power. China is pushing for a new regional security architecture. While shaping the international order, China is upholding its sovereign claims over the South China Sea and Taiwan.

China’s economy ended 2016 with 6.7% growth. It formally ended its era of double-digit growth in 2012 with 7.7%. China has managed growth deceleration remarkably well by letting it slide gradually. This was achieved mainly by the government’s pro-growth policy intervention through expansionary fiscal and monetary policies. The government has recently refocused its macroeconomic policy from demand-side management to supply-side structural reforms, giving priority to reducing over-capacity and de-leveraging. For 2017, growth is expected to slow to 6.5% due to great uncertainties including the potentially hostile US economic policies of President Trump.

In 2016 Chinese President Xi elevated himself to the “core” of the top leadership, beefed up intra-party supervision, and tried to resurrect the intra-party norms and traditions of intra-party political life developed in the Mao era. He also attempted to rebuild the ideological orthodoxy in order to restore the integrity and discipline of the Leninist party. The difficulties in applying Marxism to today’s reality led him to mainly resort to tightening ideological control.

Chinese President Xi Jinping has been consolidating his power over local affairs and preparing for the next round of power transfer at the 19th Party Congress in 2017. The Congress is likely to effect a far-reaching change in the composition of the central leadership. Xi Jinping and Li Keqiang are expected to retain their seats in the Politburo Standing Committee, while Wang Qishan may stay on due to his role in the anti-corruption campaign.

China enjoyed a relatively “stable” and peaceful 2016. This did not mean that social problems had been addressed, but indicated that the authorities had strengthened their capacity to maintain social stability. The middle class’ rising grievances over the deteriorating environment and the incompetent legal system have aroused collective action in cyberspace. The government has strengthened its control of non-governmental organisations and public opinion on the internet.

Prime Minister Abe Shinzo and his allies have unprecedentedly secured a twothirds majority in both houses of parliament, which allows Abe to revise the country’s post-war pacifist constitution and paves the way for Japan to become a “normal” state playing a larger security role in international affairs. Donald Trump’s surprise presidential victory caused great uncertainty in Japan about its alliance with the United States in the midst of a rising China and power transition in East Asia.

Japanese economy grew steadily in 2016. However, household consumption remained weak and inflation was far below the 2% target. The Japanese government substantially adjusted both monetary and fiscal policies to support economic growth. Despite a tight labour market, the meagre increase in base salary could not stimulate consumption. However, Japan remains an affluent society, with a large amount of liquid assets and relatively low debts. Japanese overseas assets have risen significantly and is a major source of national income.

Taiwanese President Tsai adopted a least provocative China policy. Negatively impacted social groups in Taiwan organised large scale protests against Tsai administration’s reforms. The main opposition party Kuomintang has been beset by an unpopular pro-China leader, open internal conflicts, lack of financial sources and low popularity. The Chinese government has frozen all official connections with Taiwan at the central level and blocked Taiwan’s participation in some international conferences. The Tsai-Trump phone conversation signals unstable Taiwan-China-US triangle relations in 2017.

In 2016, a scandal that involved President Park Geun-hye and her confidante shook the country. Cases of bribery, corruption, nepotism, cronyism, illegal persecution of dissenters and so on surfaced. Confidence in Park’s leadership began to waver when she closed the chapter on ‘comfort women’ issue with Japan in December 2015 without public consultation. The deal was unacceptable to the Korean public in the absence of a formal apology from the Japanese government. The speed with which President Park sealed the agreement with the United States to deploy Thermal High Altitude Area Defence also took the country by surprise. These foreign affairs endeavours have wiped out her diplomatic success achieved in 2015.

South Korea’s economy continued to be impacted by its waning exports in 2016. With moderate expansion in domestic consumption and services, economic growth rate rose to 2.7% in 2016, 0.1% more than in 2015. The impact of President Park Geun-hye’s political scandal on the domestic economy has been constrained so far. It remains to be seen whether strong opposition from society to some chaebols’ involvement in Park-Choi corruption cases will lead to weaker government-chaebols ties in developing the economy in the future.