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ASIAN (H)

Should Indonesia accept Islamic State returnees?

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Author: Chaula Rininta Anindya, RSIS

Indonesian former members of the so-called Islamic State (IS) stuck in Syria are now under the media spotlight. Many of them live in poor conditions, are struggling to make ends meet, expressing remorse for joining IS and pleading for the Indonesian government to repatriate them. The issue of how to handle them is now stirring debate on social media.

Indonesian police show scores of notebooks inscribed with Islamic State propaganda seized during a raid on the home of suspected militant in Jakarta, Indonesia, 30 June 2017 (Photo: Reuters/Antara Foto/Reno Esnir).

The vast majority of Indonesians oppose their return due to possible terror attacks and the spread of radical teaching. Should the Indonesian government leave them stranded in their Syrian camps? If not, what are the challenges associated with repatriating them?

In 2017, the Indonesian government repatriated 18 Indonesians who had joined IS in Syria. The group decided to leave Syria due to disillusionment with the terrorist group. Upon their return, they underwent a short deradicalisation program at the National Counterterrorism Agency’s (BNPT) deradicalisation centre in Bogor. BNPT also engaged them to testify on a Youtube video under the pretext of creating counternarratives for any aspiring jihadists. Still, the authorities sent three of them to trial for funding terrorist groups and hiding information related to terror activities.

The public’s fear over potential threats posed by IS returnees is understandable due to media reports about their involvement in foiled terror plots. But it is important to note that the media often uses the terms ‘returnees’ and ‘deportees’ interchangeably despite the two groups having different backgrounds.

Deportees have yet to enter Syria and were deported from foreign countries — primarily Turkey. Based on Law No. 15/2003, the security apparatus cannot arrest deportees if they did not have prior involvement in terror activities. As such, deportees are sent to Ministry of Social Affairs shelters to undergo a one-month rehabilitation program.

Civil society organisations, who assisted the reintegration program after deportees left the shelters, expressed  that dealing with deportees is more challenging than dealing with returnees. Deportees have yet to experience life in Syria, whereas returnees have been disillusioned with IS’s false promises. A number of deportees still aspire to perform amaliyah (jihad operations). For example, Endang (alias Abu Rafi) planned to mount a terror attack against a post-election protest on 22 May.

Much of the public demands that the government revoke the citizenship of Indonesian IS members in Syria, but this measure would violate Law No. 12/2006 on citizenship that prevents statelessness. The law does stipulate several conditions under which an Indonesian national may lose their citizenship, such as taking an oath to foreign countries or joining foreign countries’ military forces. But Indonesia does not acknowledge the sovereignty of IS and it cannot be identified as a ‘foreign country’. According to the constitution, IS returnees are still Indonesian citizens and entitled to protection by the state.

The threat of returnees alone should not be overstated. A study found that only 0.002 percent of IS returnees around the world became domestic terrorists. Those who do will typically launch an attack within a year. In the case of Indonesia, there has been only one terror attack involving a Syrian returnee — Syawaludin Pakpahan. He joined the Free Syrian Army in early 2013 and independently returned to Indonesia a few months later. It took him roughly four years to launch a domestic attack in June 2017. Intensive surveillance during the first critical four months is important, yet long-term surveillance is also needed.  In addition, the new Law No. 5/2018 empowers security forces to apprehend individuals who have joined terrorist groups overseas.

Unfortunately, imprisonment is a not a panacea and the government should address a range of problems. For instance, there is a lack of female officers in the police force — just 8 per cent of total officers. The majority of returnees are women and children, requiring a gender-based approach. Female officers could be assigned to reach out to the female returnees, which will eventually help build trust.

There has been discussion on implementing similar procedures for returnees as were used with deportees. The rehabilitation program for deportees used a personal and humanistic approach from Ministry of Social Affairs social workers that gradually changed the deportees’ perspective about the government, providing some valuable lessons.

But the question remains — should the government deny their return to reduce national security threats? Ignoring returnees may not necessarily eliminate security risks. Doing so may fuel their resentment towards the government and provide narratives to radicalise fellow Indonesians via social media. It would be far more dangerous if they are able to return independently through illegal routes.

Assisted repatriation would allow the government to monitor their activities and acquire information about their networks. The government can also engage them in building counternarratives to prevent violent extremism.

The government should also conduct a thorough assessment of their involvement in terror activities in Syria. It would be folly to assume that all of them have actively fought alongside IS. Understanding their involvement is important in determining a suitable approach for the rehabilitation and reintegration programs.

Chaula Rininta Anindya is a Research Analyst with the Indonesia Programme of the S Rajaratnam School of International Studies (RSIS), Nanyang Technological University, Singapore.



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ASIAN (H)

Modi’s China challenge

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Author: Kanti Bajpai, National University of Singapore

With the general elections resoundingly won, Indian Prime Minister Narendra Modi will likely maintain an accommodative realist policy towards China, largely because of ongoing difficulties with the United States and the country’s economic fragility.

From May 2014 to August 2017, Modi’s China policy focussed on constructing a balancing coalition with Australia, Japan, Vietnam and the United States, the most significant military powers in the Asia-Pacific (excluding South Korea). The objective was not to build an alliance, but rather to increase India’s diplomatic leverage with China. Doing this, Modi moved away from non-alignment and an insistence on following ASEAN’s lead in Asian security.

Russia's President Vladimir Putin (L), India's Prime Minister Narendra Modi (C) and China’s President Xi Jinping pose for a picture during a meeting on the sidelines of the G20 summit in Osaka, Japan, 28 June 2019 (Photo: Reuters/Sputnik/Mikhail Klimentyev).

Simultaneously, Delhi sought to deepen economic relations with China — cooperating to launch the BRICS’s New Development Bank (NDB) and the Asia Infrastructure Investment Bank (AIIB), promising to develop two industrial parks for Chinese investors and pushing for a more equitable trade relationship. China’s invitation to join its Belt and Road Initiative (BRI), however, was snubbed. Delhi clearly worried that the BRI would expand China’s influence in Asia and that India’s membership would reduce its strategic autonomy.

By early 2018, however, India had changed course. Around the ‘informal summit’ with Chinese President Xi Jinping at Wuhan, Modi curbed Tibetan activity in India and boycotted the 60th anniversary celebrations of the Dalai Lama’s sojourn. The tone on the BRI also lightened. Then, in his Shangri La Dialogue speech, Modi insisted that the Indo-Pacific was not directed against China. What’s more, Delhi resumed its support of ASEAN ‘centrality’ in Asia’s security architecture.

Modi’s accommodationist posture continued despite no major gains for India in the economic relationship. The NDB delivered little, except that an Indian headed the bank. India was the largest grantee of AIIB loans, but at US$1.5 billion this was hardly game-changing. The two putative industrial parks struggled and the trade deficit with China ballooned to US$70 billion.

What, then, caused India to reverse tack from anti-China coalition building to a non-alignment twinned to ASEAN centrality?

By 2018, India was only a year away from general elections. In key state elections that year, the opposition Congress Party unexpectedly scored four victories. Modi faced a serious domestic challenge and, after the 2017 Doklam border standoff, could ill-afford another confrontation with China. Following the Doklam crisis, China expanded its military forces and works in the area. Any future confrontation was therefore unlikely to be resolved in India’s favour.

On another front, relations with the United States under President Donald Trump have deteriorated. Washington’s reduction of H-1B visas for Indians, the worsening trade war, insistence that India stop buying Iranian oil and a threat to curtail military cooperation if India purchased Russian S-400 missiles dashed hopes for a smooth partnership. Furthermore, Modi’s meeting with Trump at the East Asia Summit in Manila in 2017 went poorly. Elsewhere, Trump was caught on camera mocking Modi’s accent.

What should we expect from Modi’s China policy in his second term?

Domestically, Modi now stands supreme. India’s China policy could toughen as a result, but India’s economic challenges remain considerable and tensions with Beijing would be dangerous. Indeed, given the economic situation, including growing protectionism abroad, Delhi has a strong incentive to woo Chinese investors and consumers.

Militarily — although the border with China is quiet — the People’s Liberation Army is formidable. Another confrontation with China in which the Indian Army could be forced to back down would seriously damage Modi at home. Thus peace and stability along the border are vital.

With the United States, relations oscillate disconcertingly. Modi’s meeting with Trump at the 2019 G20 Summit in Osaka was cordial, but came after a series of belligerent presidential tweets on trade. Indo–US defence relations are burgeoning, but US officials continue to insist that purchase of the S-400s is unacceptable. India is part of the four-country Quadrilateral Security Dialogue, but it insists on differences with the US conception. Not surprisingly, Modi seemed happier in the company of other G20 leaders such as Xi Jinping, Shinzo Abe and Vladimir Putin.

Looking ahead, India’s post-Wuhan overtures toward China will likely continue. Differences over Pakistan and India’s Nuclear Suppliers Group membership will persist and Delhi will be watchful over Chinese influence in South Asia and the Indian Ocean. But India is likely to be pragmatic regarding the border, confidence building and economics. While India will stay away from the BRI, it will seek to engage China across other platforms. On global issues — such as climate change, protectionism and data localisation — it will partner with China, Russia and other developing countries.

Regionally, India will emphasise ASEAN ‘centrality’, downplay the Indo-Pacific, and stop advocating for freedom of navigation in the South China Sea. ASEAN and its partners are keen to sign the Regional Comprehensive Economic Partnership (RCEP) this year. India has stalled on RCEP, and Modi faces a tough decision on whether to risk even greater integration with China or to opt out of the deal. Given his election victory and economic challenges, and the desire to stand behind ASEAN centrality, the chances are Delhi will eventually sign.

A wild card that could disrupt this policy stance is another border incident or an incident at sea. Part of the new normal in India–China diplomacy since Doklam is to hold ‘informal summits’ where Modi and Xi engage much more directly on bilateral military problems. Wuhan was the first informal summit, and Xi is due to visit India for a second summit in late 2019. Military-to-military contact has increased since Wuhan, but both sides need to ensure that commanders and troops in the field are in sync with broader policy. Spokespersons on both sides have expressed confidence on this account.

In short, Modi’s China policy will probably look a lot like the prudential realism of earlier governments.

Kanti Bajpai is Director of the Centre on Asia and Globalisation and Wilmar Professor of Asian Studies at the National University of Singapore.



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The Philippine economy remains stable despite Duterte’s instability

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Authors: Jenny D Balboa, Tokyo University of Foreign Studies and Shinji Takenaka, Japan Center for Economic Research

During his state visit to China in October 2016, Philippine President Rodrigo Duterte declared his ‘separation of foreign policy from the United States’ and his intention ‘to follow the ideological path’ of China and Russia — the first of many provocative statements against the Philippines’ traditional allies. The economic managers of the Philippine government sought to assure the international community that, despite the President’s rhetoric, it is still ‘business as usual’.

A woman carrying a baby passes though a construction of the Metro Rail Transit on Commonwealth Avenue in Quezon City, metro Manila, 23 May 2018 (Photo: Reuters/Dondi Tawatao).

The foreign economic policy direction of the Philippines has not deviated from its previous trajectory. Trade with the Philippines’ traditional economic partners remains robust, despite the Duterte’s declaration of a ‘foreign policy pivot’. The United States, the European Union and Japan remain the main economic partners of the Philippines.

In 2018, Japan and the United States were the top recipients of Philippine exports. Japan received 17.9 per cent of Philippine exports while the United States received 12.3 per cent. The European Union’s share declined slightly, from 11.4 per cent in 2016 to 9.7 per cent in 2018, due to ASEAN and other Asian countries increasing their export share.

China’s share of Philippine exports declined from 12.2 per cent in 2016 to 10.4 per cent in 2018 as a result of the diversification of export partners. China remained the third top export destination of the Philippines. Under Duterte’s term, the bilateral trade deficit with China increased — comprising 19.6 per cent of Philippine imports as of 2018. Trade in services remained upbeat for the same period. Driven by the strong Business Process Outsourcing Sector, the Philippines boasted a 20 per cent growth in services trade from 2017 to 2018.

The European Union, Japan and ASEAN remain the top sources of foreign direct investment (FDI) from 2016 to 2018. FDI from the European Union reached US$42.9 million; FDI from ASEAN — mainly Singapore — reached US$37.08 million and from Japan US$25.4 million. FDI from the United States tapered during that period at US$14 million.

But the United States remains one of the top 10 FDI sources. Investments coming from China remained small at US$4.6 million, compared with the investments from Southeast Asia, Japan, the European Union and the United States for the period cited. Russia has been a peripheral trade and investment partner despite Duterte’s statements of strengthening ties with the country.

The foreign policy pivot did not affect official development assistance (ODA). Japan remains the Philippines’ top source of ODA, providing the Philippines a total of US$5.98 billion in loans and grants as of September 2018. The other top five ODA sources were: the World Bank with US$3.13 billion, the Asian Development Bank with US$2.24 billion, the United States with US$806 billion and South Korea with US$659 billion. The European Union offered US$167 million in grants. China delivered US$124 million in loans and grants.

Negotiations for the Philippines–EU Free Trade Agreement were revived, showing a willingness to strengthen ties with the European Union. The Duterte administration continues the previous Aquino administration’s strategy to build a more competitive manufacturing sector. It was implemented in partnership with the United States, the European Union and Japan and is projected to be completed in 2025. The manufacturing sector has grown an average of 7.6 per cent from 2010–2017.

Duterte has admitted that he is not well versed in economic issues and that he would leave economic matters to the experts. Technocrats continued programs from the previous administration and pushed unaddressed reforms that have been difficult to implement in the past. They have gained a more influential role as was evident in the ratification of the rice trade liberalisation law (Republic Act 11203) in March 2019. The law converted the quantitative restrictions on rice imports into tariffs and limited the regulatory power of the National Food Authority to import and distribute food, aiming to address the chronic seasonal rice shortages of the country.

Deregulation faced strong opposition from the agriculture sector. Duterte disregarded the plea of the farmers’ groups, NGOs and food security advocates. They fear that cheap imports will threaten the livelihood of local small-scale rice farmers. Small traders may be weighed down by a few large rice traders who can form rice cartels to arbitrarily control the supply and prices of rice.

Duterte defied governance norms when he appointed Budget Secretary Benjamin Diokno as Governor of the Bangko Sentral ng Pilipinas on 4 March 2019. This position is traditionally selected from senior career central bankers to preserve its political independence. Diokno is a seasoned technocrat with a long record of public service. But his close ties to Duterte and his dovish reputation on fiscal deficit was seen by some analysts as a risk to macroeconomic stability.

Under Diokno’s watch as budget secretary, the fiscal deficit increased in nominal terms 1 percentage point from 2017 to 2018. The economy remained stable because it was growing at more than 6 per cent. As long as the GDP growth rate stays at 6–7 per cent, the economy will remain stable even with a projected fiscal deficit of 3.2 per cent of the GDP in 2019.

One of Diokno’s first initiatives was to cut interest rates. This was to stimulate the economy due to external risks, including the US–China trade war and economic growth deceleration to 5.6 per cent in the first quarter of 2019. Under a less popular administration, this would have been more difficult to implement given its impact on accelerating inflation.

Despite Duterte’s unpredictable leadership, the economy has remained stable enjoying one of the fastest GDP growth rates in Asia. Duterte inherited a strong economy and cash-rich government from the previous administration. This provided his government with plenty of opportunities to carry out his agenda while expanding reforms initiated by his predecessors. The sophisticated technocracy and economic institutions work as anchors of economic resilience and play important roles in cushioning the negative impact of Duterte’s crass leadership.

Jenny D. Balboa is a Lecturer at the Tokyo University of Foreign Studies (TUFS).

Shinji Takenaka is a Senior Economist at the Japan Center for Economic Research (JCER), Tokyo.



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Abe’s dominance belies Japan’s weak politics

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Author: Editorial Board, ANU

Japan goes to the polls on 21 July with half the seats of the Upper House up for grabs. There is little doubt that Japanese Prime Minister Shinzo Abe and his Liberal Democratic Party (LDP) are sailing towards their sixth consecutive electoral victory.

But how has Abe achieved such remarkable longevity in the top job? And what implications does this hold?

A police officer cycles past the Diet building, the seat of Japan's parliament, in Tokyo (Photo: Reuters/Thomas Peter).

After taking back the prime ministership in December 2012, and with his current term as leader of the LDP ending in September 2021, Abe is almost certain to become Japan’s longest serving prime minister. On 23 August he will overtake his great-uncle Eisaku Sato as the longest serving post-war prime minister. And on 20 November he will become the longest serving prime minister of any era since the inception of parliamentary politics in Japan during the Meiji Restoration in the 1880s.

This does not mean Abe has not faced obstacles. He suffered a miserable first stint as prime minister in 2006–2007 when his impatient and nationalistic tone and a series of ministerial scandals saw him accused of being out of touch with ordinary Japanese. This perception has continued to dog him as he rode out the Moritomo and Kake corruption scandals and other accusations that the bureaucracy is — whether under direct orders or surmising (sontaku) cabinet intentions — dispersing favours to Abe’s friends and allies. In its relations with the United States, the Abe government is hanging on for life through a strategy of obsequiousness vis-a-vis President Donald Trump’s threats to impose tariffs on Japanese automobiles and rhetoric undercutting the US–Japan Security Treaty. And Abe looked impotent as host of the G20 summit in Osaka last month in the fight to prop up the rules-based economic order against the background of the US–China trade war and the Trump-led chaos plunging the global economy toward protectionism and disorder.

So, what is the secret to Abe’s staying power?

The two factors that characterise the Abe era are ‘voter apathy and the moribund state of inter-party competition’, argues Tobias Harris. While ‘independents resist Abe’s muscular conservatism’ they are also ‘reluctant to embrace the anti-Abe politics of the [left] … Independents largely abstain, LDP and Komeito grassroots supporters turn out in strength, and Abe romps to victory — this has been the story of every election since 2012’.

This is despite the fact that, as Greg Noble argues in our first lead this week, the majority of the Japanese public actually support a great deal of the policy positions of the centre-left opposition parties — such as opposing tax increases, expanding social welfare and opposing the restarting of nuclear reactors.

The decisive factor at election time, however, is performance, particularly economic and security policy performance. And on these counts, the LDP enjoys ‘immense structural advantages’ including ‘association with the glory days of the rapid growth period; the backing of the United States; and familiarity’, explains Noble.

The opposition by contrast is in disarray. The two main opposition parties, the Constitutional Democratic Party (CDP) and Democratic Party for the People (DPFP), are saddled with their association with their predecessor the Democratic Party of Japan (DPJ). Its past ‘sad record of infighting and ineffectiveness during its stint in power from 2009–2012; the suspicion of the United States; and the extraordinary bad luck to be in office during the triple disaster of earthquake, tsunami, and nuclear meltdown in 2011’ continue to shape public perceptions. On top of that, the split up of the DPJ divides the anti-LDP vote.

Japan has thus become a ‘kind of managerial democracy’, explains Harris. ‘Abe cannot push too hard with his ideological preoccupations … But so long as he makes a good-faith effort to grapple with some of Japan’s more pressing economic and social issues … the public is willing to tolerate Abe’s staying in office’.

Despite his longevity, Abe is struggling to carve out a legacy.

The Abe government has won plaudits for its ‘Abenomics’ economic policy package. But it has implemented the politically easy bits — fiscal stimulus and monetary easing — while dragging its feet on the most important aspect: structural reforms to boost long-term economic growth. At the same time the opposition parties have failed to hold the government to account and articulate an alternative economic vision.

The Abe government had some success, but also encountered controversy, when it reinterpreted the Article 9 peace clause of the Constitution and passed the implementing security-related bills to recognise the right of the Japan Self-Defense Forces to engage in limited forms of collective self-defence. Despite all the energy expended, diplomatic negotiations with Russia to resolve the territorial dispute over the southern Kuril Islands/Northern Territories haven’t made any headway. There has been no progress in resolving the abduction issue with North Korea. And Abe’s long-cherished goal to revise the Constitution hangs delicately in the balance.

As Corey Wallace argues in our second lead, the LDP–Komeito coalition, along with other pro-revision parties, face an uphill battle to retain the two-thirds supermajority needed to put revisions to a national referendum. The ‘last time this year’s seats were contested was in 2013 when Abe enjoyed levels of public support since unmatched … With 67 LDP seats on the line this election, the LDP will struggle just to not lose seats’.

Another key factor is the support of the LDP’s junior coalition partner Komeito. As a political offshoot of the Nichiren Buddhist movement Soka Gakkai, Komeito ostensibly upholds pacifist values. ‘Komeito’s now six-year long association with the Abe administration is … grating on some sections of its usually reliable … voting bloc’, Wallace suggests.

This will impact not just on Komeito but also on the LDP in light of the two parties’ electoral cooperation strategy whereby the coalition partners don’t run candidates against each other and instruct their supporters to vote for each other in single-member districts (SMD). Since Komeito voters provide anywhere from 5 per cent to 20 per cent of the votes for each LDP candidate in the SMDs, ‘even a small drop off in Soka Gakkai support … might be decisive’.

With no end in sight on Japan’s long quest for contestable party politics, the Abe government appears to be the only game in town. Abe’s dominance belies Japan’s weak politics as the best the opposition can seem to do is play defence against his nationalist excesses. The lack of competitive party politics continues to impede the innovative policymaking needed to address Japan’s myriad economic, demographic and security challenges.

Under the Abe government Japanese democracy is no longer vigorous but complacent, Aurelia George Mulgan concludes in an article forthcoming on East Asia Forum later this week. The inability of the opposition parties to offer any kind of serious alternative to the LDP risks a crisis of Japanese democracy. And the lack of competitive party politics will continue to impede the innovative policymaking needed to address Japan’s myriad economic, demographic and security challenges.

The EAF Editorial Board is located in the Crawford School of Public Policy, College of Asia and the Pacific, The Australian National University.



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Abe faces obstacles to domination of Japan’s Upper House

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Author: Corey Wallace, Free University Berlin

The last three Upper House elections Japanese Prime Minister Shinzo Abe has faced as leader of the Liberal Democratic Party have been symbolic. In 2007 he suffered a devastating, seemingly career-ending, loss; 2013 was a blockbuster victory that decisively guaranteed Abe’s political domination; and 2016 was a status-quo maintaining win. What will happen at the next election in 2019 on 21 July?

A man walks past a poster board erected in Tokyo with candidates' posters for the July 21 Upper House election (Photo: Rodrigo Reyes Marin/AFLO/Reuters).

At first glance, an imminent consumption tax increase, revelations that future pension payouts will not cover the costs of retirement, low confidence in the economy, and high-level uncertainties surrounding the US–Japan alliance point to a 2007-like result. The opposition’s message should be simple and attractive — punish the ruling parties and give the opposition greater power to hold the government accountable. But neither the Abe administration nor the Liberal Democratic Party (LDP) appear worried about incurring public wrath.

The tax increase remains unpopular, but many also accept its inevitability. While surely queasy every time he hears the words ‘pension controversy’, Prime Minister Abe himself is not being directly blamed for the 20 million yen (US$184,000) per person gap between estimated payouts and necessary income for a 30-year retirement. Although the LDP took a short-term hit in popularity, there is a general acceptance that individuals — not the government or new taxes — should make up the shortfall brought about by still increasing Japanese life expectancy.

And if any other US president while visiting Japan had criticised the US–Japan alliance as unfair and demanded change while soft-pedalling the North Korea threat in the same speech, public and official reaction would have been quite different to what transpired after the Osaka G20. But subsequent coverage of US President Donald Trump’s comments focussed on Japanese officials brushing off the issue. Despite the awkwardness, Abe’s close and at times obsequious diplomacy towards Trump isn’t harming him domestically. The Trump-related challenges that could hurt Abe lie beyond the election: a bad North Korea deal, trade talks, and negotiations over host nation support.

The Abe administration therefore retains robust levels of support ahead of the Upper House election, where 124 out of 245 total seats will be contested. Indicators suggest that it will be another low-turnout affair — traditionally an advantage for the LDP as sceptical centrists stay at home. The LDP has also co-opted prominent former Democratic Party centrists with strong name recognition like Akihisa Nagashima and Goshi Hosono to campaign on its behalf around the country.

By doubling down on a core message of political stability, Abe and the LDP–Komeito ruling coalition should win their sixth consecutive national election, retain majorities in both Diet houses, and avoid a repeat of 2007.

The more burning question is whether the pro-revision parties can retain or extend the two-thirds supermajority they have in the Upper House — the key to initiating a constitutional referendum. Komeito will likely maintain its Diet strength. The Japan Innovation Party (Nippon Ishin) will likely remain strong due to the timely success of the Osaka Restoration Party (Osaka Ishin) in progressing local merger plans within the greater Osaka area.

Things are less clear for the LDP. The last time this year’s seats were contested was in 2013 when Abe enjoyed levels of public support since unmatched. With the centre-left reeling from electoral disaster, fragmented, and with no coherent electoral strategy, the LDP alone won 65 out of 121 seats, including a record-breaking 29 of 31 critical single-member districts that time round.

But the Abe administration’s current public support is closer to 2016 levels, when the LDP won a more modest 56 out of 121 seats, including 21 of 32 single-member districts. Also unlike 2013, the main centre-left Constitutional Democratic Party has a much more skilled leader and campaigner in Yukio Edano, and the broader left-leaning opposition secured agreement on running only one candidate in each single-member district. With 67 LDP seats on the line this election, the LDP will struggle just to not lose seats, unlike 2016 when it went in with 50 seats.

There are other wild cards that may also undercut a constitutional supermajority.

While the public wants to see the ruling LDP–Komeito coalition maintain its majority in the Upper House, according to NHK polling only 21 per cent of the public actually wants to see the ruling parties increase their Diet strength, with more (29 per cent) wanting to see a stronger opposition. The prospect of a too-lopsided victory may therefore result in pull-back and last-minute vote splitting.

Komeito’s now six-year long association with the Abe administration is also grating on some sections of its usually reliable but ostensibly pacifist Soka Gakkai voting bloc and even Komeito members. Denny Tamaki benefitted from a larger than expected degree of Soka Gakkai/Komeito voter support during the recent Okinawa governor election, contributing to the government-backed candidate’s losing.

Even a small drop off in Soka Gakkai support for LDP candidates might be decisive in tight single-member district races. For example, in Akita an LDP incumbent is running on a small majority, but recent controversy over the installation of an Aegis Ashore missile defence system bears similarities to the American base issue in Okinawa.

Still, these factors will only affect the size of the ruling coalition victory. Ultimately, with major international events such as the 2019 Rugby World Cup and 2020 Tokyo Olympics coming up, the Japanese electorate has little appetite to risk political instability.

Corey Wallace is Einstein Postdoctoral Fellow at the Graduate School of East Asian Studies, the Free University of Berlin.



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Abe sails toward another electoral victory

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Author: Gregory W. Noble, University of Tokyo

Members of the House of Councillors, Japan’s upper house, serve six-year terms — and half of those seats are up for election every three years. 124 seats will be contested on 21 July, 74 from the 47 prefectural districts and 50 using proportional representation (PR). Will these elections pose an obstacle to Prime Minister Shinzo Abe and his ambitious agenda?

Japanese Prime Minister and leader of the ruling Liberal Democratic Party (LDP) Shinzo Abe shakes hands with his supporters after he delivered a campaign speech for his party candidate Keizo Takemi for the 21 July Upper House election in Tokyo on Sunday, 7 July 2019. (Photo: Yoshio Tsunoda/AFLO). The combination of PR and the multi-member districts used in most constituencies leaves space for small parties, resulting in a multi-party system. The centre-right Liberal Democratic Party (LDP) dominated the Cabinet from its founding in 1955 until 1993, and then all but five years after that. Since Abe assumed the prime ministership in 2012, the LDP’s junior coalition partner has been Komeito, a small party affiliated with the Soka Gakkai sect.

On the centre-left are the Constitutional Democratic Party and the Democratic Party for the People. The Japanese Communist Party, two small centre-right regional groupings — Tokyoites First Party and Osaka-based Japan Innovation Party (Ishin) — and a smattering of micro-parties round out the field (notably missing are a Greens Party and strongly populist parties). Japan thus lacks a single, clear centre-left alternative to the LDP.

Political parties typically differentiate themselves based on identity, policies, and performance. Social identity, mediated by partisanship, is a crucial determinant of vote choice in the United States and many other countries. But it is conspicuously weak in Japan where major social cleavages such as ethnicity, language, and regionalism are lacking, and where even differences in social class and religion are relatively unimportant. Almost 60 per cent of survey respondents report that they support no particular party.

Policies also play a limited role in differentiating Japanese parties, as shown by the Asahi–Todai survey of Diet members. The main cleavage is over foreign policy and constitutional revision — the LDP and Ishin, reluctantly supported by Komeito, embrace the defence alliance with the United States and favour revising the constitution, ideally eliminating or neutering Article 9’s renunciation of war and aggressive use of military force. Parties also take contrasting stances on transitory issues such as increasing the consumption tax, legalising same-sex marriage or allowing couples to use separate surnames after marriage.

This year also features an implicit contest over female representation. Only 15 per cent of LDP candidates are women, while the centre-left parties have nominated far more in line with a recent law urging gender equality in political representation. But as in previous elections, parties are not that far apart on most domestic issues. If anything, on taxes, social welfare, and restarting nuclear power plants, the public agrees more with the centre-left than the LDP.

Since policy differences are modest, parties compete primarily over claims about performance — the ability to attain widely-shared goals such as a sound economy, minimal corruption, and coping effectively with natural disasters or foreign threats. On performance issues the LDP enjoys three immense structural advantages — association with the glory days of the rapid growth period; the backing of the United States; and familiarity.

In contrast, the centre-left can claim no association with good times and suffers from three equally immense liabilities — a sad record of infighting and ineffectiveness during its stint in power from 2009–2012; the suspicion of the United States; and the extraordinary bad luck to be in office during the triple disaster of earthquake, tsunami, and nuclear meltdown in 2011.

Electoral context can theoretically overcome the LDP’s structural advantages. Reforms of the lower house electoral system and campaign finance systems, along with strengthening of the prime minister’s office, have transformed Japan’s once notoriously factionalised and clientelistic political system into a more centralised and powerful — but also more fragile — system. A popular prime minister has long electoral coattails, but given the weakness of partisan attachments in the electorate, a weak one can drag the party down to defeat — as happened to the LDP in 2009.

Still, a swing back to the centre-left in 2019 is unlikely. Despite worries about demographic aging, staggering government debts, and the US–China trade conflict, the economy seems to be in decent shape. Slow but steady growth has led to record corporate profits and slight increases in wages. Prices are stable, and thanks to declining numbers of young workers and a wave of retirement by baby boomers, the unemployment rate is at record lows.

Having weathered the Moritomo Gakuen and Kake Gakuen influence-peddling scandals, Abe remains surprisingly popular. 45 per cent of survey respondents support Abe, while only 32 per cent oppose him. Support for the LDP is much lower at 28 per cent, but it dwarfs that of the other parties — the leading party on the centre-left, the Constitutional Democratic Party, has only 3 per cent support.

Despite the valiant efforts of opposition parties to coordinate nominations so as to avoid competition in the 32 single-seat districts, polls suggest that the LDP and Komeito should easily capture over half of the seats and are within striking distance of the two-thirds majority in both houses required to send constitutional amendments to the voters for a referendum. But even if they reach this mark, it is unlikely that the pro-revision forces can agree on any reform proposal, least of all elimination of Article 9.

Nearly eight years after the LDP’s return to power, Japan has a stable, reasonably competent government — but little effective electoral choice and no immediate prospects of political accountability via a change in partisan control.

Gregory W. Noble is Professor at the Institute of Social Science, the University of Tokyo.



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Making the Belt and Road work for Southeast Asia

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Author: Phidel Vineles, RSIS

Southeast Asia is an important strategic partner in China’s Belt and Road Initiative (BRI). The region serves as a key link in the BRI’s Maritime Silk Road, which aims to connect China’s coast to South Asia, the Middle East and Europe through the South China Sea and Indian Ocean. But criticisms of the BRI highlight some of the risks of participation. Southeast Asian countries should address these risks by persuading China to adopt multilateral rules that broaden participation in the BRI, including by leveraging ASEAN’s potential role.Chinese President Xi Jinping shows the way to the meeting room to Brunei's Sultan Hassanal Bolkiah before the bilateral meeting of the Second Belt and Road Forum at the Great Hall of the People on 26 April 2019 in Beijing, China. (Photo: Andrea Verdelli/Pool via Reuters).

According to a 2018 study by Oxford Economics and the CIMB ASEAN Research Institute, BRI projects in ASEAN countries amount to more than US$739 billion. Indonesia is home to the highest BRI investment total amounting to US$171 billion, followed by Vietnam (US$152 billion), Cambodia (US$104 billion), Malaysia (US$98.5 billion), Singapore (US$70.1 billion), Laos (US$48 billion), Brunei (US$36 billion), Myanmar (US$27.2 billion), Thailand (US$24 billion) and the Philippines (US$9.4 billion).

In April 2019, China hosted the second Belt and Road Forum which was attended by 37 heads of state, government and international organisations. During the Forum, President Xi Jinping said the BRI will adopt multilateral rules and international best practices in implementing the projects.

Xi’s apparent willingness to multilateralise the BRI is necessary to prevent projects in Southeast Asia from being exposed to operational risks, policy risks and project cancellations and to address criticisms of its lack of transparency and inclusivity.

In Laos, for example, locals complain that the labour force on the 414-kilometre BRI railway project, which will link its capital Vientiane to the China-Laos border, is mainly provided by Chinese nationals. This echoes the criticisms of BRI in some other countries which have similar complaints.

The promised BRI Debt Sustainability Framework is laudable for aiming to help allay growing concerns that the BRI is exposing its stakeholders to debt traps. In 2018, Myanmar’s Planning and Finance Minister, Soe Win, wanted to ‘lean’ down a China-led special economic zone project in Kyaukpyu, which was estimated to be worth US$10 billion.

China is also establishing a panel of international mediators from BRI countries to resolve cross-border disputes arising from BRI projects. This initiative is important, since a wide range of contracts and deals are already in place between China and ASEAN member states.

If President Xi is willing to multilateralise the BRI, some ASEAN countries have the opportunity to play important roles in improving the provision of mutual benefits.

Singapore has the potential to be a financial and third-country partnership hub within the BRI. According to Enterprise Singapore, 60 per cent of project finance transactions across ASEAN are led by Singapore-based banks. Moreover, Singapore is well regarded for its transparent business dealings and for being one of the largest offshore Renminbi centres. This puts it in an ideal position for Renminbi trade and investment-related flows. Some local banks have also signed MOUs with Chinese banks to cooperate in cross-border financing.

Some Singaporean firms are already proactive in BRI projects in other ASEAN countries. For example, Surbana Jurong is involved in master-planning for the Kyaukpyu Special Economic Zone and Port in Myanmar. Meanwhile, BRI Connect serves as a platform to facilitate communication within and between BRI projects and to promote Singapore as a regional infrastructure and financial hub. The platform is building a business community around the BRI into which Singaporean firms can tap as partners for BRI projects.

Singapore can also be a dispute resolution hub. In January this year, Singapore and China inked an agreement to establish an international panel of mediators to handle disputes that might arise from the multi-billion-dollar BRI projects. The agreement was signed between the Singapore International Mediation Centre and the China Council for the Promotion of International Trade.

Malaysia too plays an important role in helping the BRI achieve its goal of building a ‘community of common destiny’. This was demonstrated when Malaysia successfully renegotiated the controversial East Coast Rail Link (ECRL), reducing the project’s price tag by about a third. Under the new agreement signed in April between Malaysia and China, the 640-kilometre and 20-station ECRL will cost US$16.7 million per kilometre, compared with US$23.2 million previously. This success has shown that going back to the negotiating table can help partner countries come up with more equitable deals.

ASEAN countries can also diversify their participation in BRI projects. For example, Myanmar is becoming an increasingly vital node in China’s Digital Silk Road due to its strategic location between South and Southeast Asia. In 2018, China’s Huawei began working with Myanmar’s Ministry of Transport and Communications to deploy 5G broadband services in Myanmar within five years.

Aligning the BRI with other development and infrastructure initiatives could help BRI projects become more sustainable. In 2017, for example, China and Vietnam signed an agreement to promote connectivity between BRI projects and infrastructure in Vietnam through the ‘Two Corridors, One Belt’ project.

In the second Belt and Road Forum in April, observers saw the possibility of a ‘BRI 2.0’ — an improved version of the BRI — emerging. Since China has pledged to reform this strategic initiative, ASEAN member states can play important supporting roles by multilateralising the BRI. Key areas include financial connectivity, third-party collaboration, mediation, negotiations and project sustainability.

Phidel Vineles is a Senior Analyst at the S. Rajaratnam School of International Studies (RSIS), Nanyang Technological University, Singapore.

A version of this article was first published here by RSIS.

 



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Japan’s post-populist democracy

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Author: Tobias Harris, Teneo Intelligence

If pre-election polls are accurate, voter turnout in Japan’s Upper House election on 21 July could be well below historic highs. Voter interest in the campaign is subdued, and the share of voters who say they definitely intend to vote is lower than at the same point in 2016, when turnout was at 54.7 per cent — one of the lowest since 1995’s record low of 44.5 per cent. The three Lower House elections since Prime Minister Shinzo Abe became the leader of the Liberal Democratic Party (LDP) in September 2012 have also seen the lowest turnout rates in Japan’s post-war history.

Japanese Prime Minister and leader of the ruling Liberal Democratic Party (LDP) Shinzo Abe delivers a campaign speech for his party candidate Yoshiro Toyoda for the 21 July Upper House election in Funabashi, Tokyo, 7 July 2019 (Photo: Yoshio Tsunoda/AFLO/Reuters).

If voters do once again stay away from the polls, it will confirm perhaps that the dominant features of Japanese democracy during Abe’s tenure are voter apathy and the moribund state of inter-party competition.

Many commentators wonder how Japan has remained immune from the populism that is running rampant in its peers among the advanced industrial democracies of Europe and North America. But the question presumes that Japan has in fact been free of populism — even a cursory look at Japanese democracy since the early 1990s belies this claim. In fact, the Lower House elections of 2005 and 2009 that preceded Abe’s 2012 return turned on populist appeals and saw the highest levels of voter turnout since Japan adopted a new electoral system in 1994.

The collapse in voter turnout since 2012 may not have a single explanation, but it is at least partly a reflection of the public’s exhaustion with populist-tinged political competition.

Voters initially fell for former prime minister Junichiro Koizumi’s neoliberal populism in which he castigated the LDP’s old guard as the ‘forces of resistance’ and advocated for reforms that would open up Japan’s economy and break the old guard’s political power. They were then disillusioned when the LDP reverted to its old ways after Koizumi left office in 2006 and also wary of what they perceived as the harmful effects of Koizumi’s reforms — particularly growing inequality.

This combination created a unique opportunity for the Democratic Party of Japan (DPJ). It promised new social programs to address post-Koizumi social anxieties while also promising a veritable political revolution that would not only toss the LDP from power, but would also cut the bureaucrats down to size and introduce proper political control of the government. But like many inexperienced populist parties, during its time in power between 2009–2012 the DPJ committed mistakes — both large and small — and the public abandoned it clearing the way for Abe’s comeback.

The upshot is that Japanese politics since 2012 has essentially been a long hangover after the populist-fuelled frenzies of the 2000s. Most voters, particularly independents, have not necessarily been enamoured with Abe or his policies for much of his second premiership. Still, the Abe cabinet’s approval ratings are consistently robust and, when they have dipped in the wake of contentious legislative battles or other controversies, they have always drifted back to around 50 per cent or higher.

At the same time, support for the DPJ, and its various successor parties since 2017, has been abysmal. Polling averages show that only the centre-left Constitutional Democratic Party has approached double-digit support. It is still well behind the LDP’s support, which consistently hovers around 40 per cent.

Disillusioned by the populist waves of the 2000s, independents resist Abe’s muscular conservatism but are also extremely reluctant to embrace the anti-Abe politics of the DPJ and its successors or the Japanese Communist Party. The occasional outbreaks of mass demonstrations have been the exception that proves the rule. Independents largely abstain, LDP and Komeito grassroots supporters turn out in strength, and Abe romps to victory — this has been the story of every election since 2012.

A kind of managerial democracy has emerged as a result. Abe cannot push too hard with his ideological preoccupations — he tested the limits in 2014 and 2015 when he successfully reinterpreted the constitution to permit limited exercise of Japan’s right of collective self-defence. But so long as he makes a good-faith effort to grapple with some of Japan’s more pressing economic and social issues, the public is willing to tolerate Abe’s staying in office with the support of strong majorities in both houses of the Diet.

In fact, political volatility and the rise of populism in other democracies is likely strengthening the appeal of Japan’s Abe-dominated post-populist democracy. A stable, durable government bolsters Japan’s ability to cope with global instability — some of Abe’s highest marks from the public are for his foreign policies — and the status quo, whatever its faults, looks preferable to the alternative.

Japan’s post-populist democracy may not be particularly exciting. After all, the biggest question on 21 July is not whether the ruling coalition will win but rather just how big its victory will be. And it may not be good for Japan over time. Robust multi-party competition fosters the kind of creative thinking needed to tackle some of the country’s most pressing challenges — as Abe’s return and the birth of Abenomics showed.

But for the time being, Japan’s electorate seems content with being an island of stability in a volatile world, clearing the way for what looks like Abe’s sixth consecutive national electoral victory as prime minister.

Tobias Harris is Senior Vice President at Teneo Intelligence, and Economy, Trade, and Business Fellow at the Sasakawa Peace Foundation USA, based in Washington DC.



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Can the China–Laos railway keep on track?

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Author: Selina Ho, NUS

Of all the railway projects that Chinese companies are constructing in Southeast Asia, the China–Laos railway has proceeded most rapidly. Construction began in December 2016 and swung into full gear by mid-2017, involving six Chinese contractors from subsidiaries of the state-owned China Railway Group.

Workers build on a Chinese-funded bridge. (Photo: Reuters/Samrang Pring).

Early this year, it was reported to be half-finished and is on schedule to be completed by December 2021. The 414-kilometre railway line stretches from Boten, on Laos’ northern border with China, to Vientiane. It is slated to connect with Thailand to the south as part of a pan-Asia railway that will run from Kunming in Yunnan province to Singapore.

Laos lobbied hard for a slice of the pan-Asia railway. Officials calculated that the alternative — being left out of markets, trade and investment along the route — would be detrimental to the government’s plans to lift its people out of poverty. The railway’s ultimate goal is to transform Laos from a ‘landlocked’ to a ‘land-linked’ country.

Laos’ one-party system has allowed the Lao People’s Revolutionary Party, which has governed since 1975, to push ahead with the project. This is unlike the domestic situations in Thailand, Malaysia and especially Indonesia, where multiple political parties and decentralisation politics have made it harder for governments to ignore local opposition. Laos’ weaker state capacity has also, ironically, allowed the project to progress at a faster pace. Its reliance on Chinese feasibility studies, technical standards and equipment gives Chinese construction companies greater leeway in setting the pace of the project.

The rapid progress in the China–Laos railway line has made it a poster child of the Belt and Road Initiative. Chinese state media has showcased the project as one that benefits the local people. For instance, a Xinhua article claimed that the railway has created more than 5000 jobs for the local people and ‘changed the lives of local villagers whose dreams have now come true’.

But these reports have glossed over the deeper challenges in constructing the China–Laos railway line. Difficult terrain and geography are the first obstacles that construction companies have faced. They are to construct a total of 170 bridges and 72 tunnels throughout Laos’ mountainous terrain. The enormous volume of unexploded ordnance remaining from the Indochina wars compound the terrain problems. Construction companies have at times suspended construction temporarily to clear unexploded ordnance.

There has also been public discontent from the project’s outset. In October 2016, affected villagers were prevented from speaking out at public meetings held to promote the project. In January 2018, the Lao government revealed that a compensation law had been drafted for compulsory evictions related to infrastructure projects. That the law was drafted a year after construction had begun suggests that the government had not anticipated the level of discontent from those forced to relocate.

Initially, the government only took into account the cost of basic building structures when deciding on compensation, but villagers protested that this was inadequate. Eventually, the final decision was made to compensate evicted villagers for the loss of all property, including land, buildings, fences, crops and trees. This entire process created delays and drove up costs for an already fiscally-strapped government.

Vientiane is facing difficulties in coming up with its share of capital for the project. In March 2018, Deputy Minister of Public Works and Transport, Lattanamany Khounnivong, had to urgently request approval of a budget of 510 billion kip (approximately US$60 million) for Laos’ 2018 contribution to the project.

Chinese banks are also exercising greater prudence in disbursing loans. As early as 2014, the China Exim Bank announced that it would curb its loans to Laos for most infrastructure projects, a sign that it has doubts about Laos’ ability to repay its debts. Lack of funding had forced Chinese developers to postpone construction of hydropower dams on some of the tributaries along the Mekong River. It is widely believed that the loan from Exim Bank for the China–Laos railway was collateralised by putting up the railway’s future income and two mining concessions.

In the long run, the line through Laos will have to connect with the Nong Khai–Bangkok line in Thailand to make economic sense. But this could prove a challenge.

An example of the complexity is the planned extension of the railway line between Laos and Thailand at Thanaleng Station, 20 kilometres east of Vientiane. This project was supposed to begin in late 2010 but was scrapped by the Lao authorities because they wanted to study in detail how the existing 1-meter gauge Laos–Thailand track could be joined to the 1.435-metre standard gauge China–Laos line. The extension only resumed in 2017 — a delay of six years. Once the hardware is built, the issue of resolving customs, immigration and other operational and regulatory differences across borders will remain.

The China–Laos railway line serves as an example of the challenges involved in bringing a pan-Asia railway into fruition. Laos’ relatively less contentious political situation has facilitated the line’s construction. But even then, challenges abound. These challenges are only multiplied in domestically more complex Southeast Asian countries like Indonesia and Thailand.

Selina Ho is Assistant Professor at the Lee Kuan Yew School of Public Policy, the National University of Singapore.



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Stoking the engines of China’s next growth wave

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Authors: Ligang Song, ANU, Yixiao Zhou, ANU, and Luke Hurst, Asialink Business

The highly publicised meeting between US President Donald Trump and Chinese President Xi Jinping at the recent G20 Osaka summit signals a temporary truce in the trade war between the world’s two largest economies. While the return of China and the United States to the negotiating table may give international markets some breathing space, big questions about global growth remain.

A Chinese flag is seen near a construction site in Beijing's central business area, China, 17 January 2017. (Photo: REUTERS/Jason Lee)

Central to this is whether a rising China will continue to grow and transition into a high-income economy, or whether trade tensions — and other complex domestic headwinds — will derail this growth.

Over the past four decades, China has experienced three growth surges — the initial ‘reform and opening up’ from the late 1970s, taxation reform in the 1990s, and accession to the World Trade Organization in 2001. This incremental approach to reform transformed China into the largest contributor to global economic growth. Its economy averaged annual growth of more than 9 per cent from 1978 to 2018 with per capita income reaching US$9723 and total foreign trade reaching US$4.6 trillion in 2018.

China’s current growth is still robust but has slowed considerably since 2010. Buffeted by an ongoing drop in domestic productivity, an ageing population and a decline in domestic savings, China finds itself at an economic crossroads where tough choices are required to enable future growth.

There is still great scope for further reforms to unleash a new round of high-quality growth in China.

For China to achieve this transition to a high-income economy, it will be essential to stoke the fires of three growth engines. These are not newly-found sources of growth but are areas that have long been identified as critical, yet still have great room for reform and improvement.

The first growth engine will be fuelled by deep institutional reform to drive improvements in the business and regulatory environment and deepen integration with global markets.

In the latest World Bank Ease of Doing Business index, China ranked only 46 out of 190 — for comparison Hong Kong ranked 4th, Australia 18th, and Kosovo was 44th.

Deepening institutional reform will require China and its trading partners to uphold the multilateral trading system, while exploring how that system can be reformed to accommodate new trade and investment flows. This is both pressing and confronting given the current trend of ‘deglobalisation’, rising protectionism, and the global ‘rules based economic disorder’.

Although uncertainty around the future of globalisation is high, the temporary truce between the United States and China could provide a boost to growth prospects for both sides as well as the wider global economy.

To improve the business environment and encourage investment, the Chinese government has lowered value-added tax from 16 to 13 per cent. Even though the policy saw a fall in tax revenue in the first half of this year, it is expected that the policy will enhance growth from the second half of 2019. The impact of this significant change in fiscal policy can be further enhanced by possible cuts in official interest rates, following similar attempts by a number of economies including Australia, to boost economic growth.

The second engine of growth will be stoked by continuing to open the door to global innovation and foreign investment.

China’s goods, capital and labour markets have all been liberalised to varying degrees over the past four decades. But China needs to continue to lower barriers to market entry if it is to encourage global collaboration on research, innovation and business. There are a number of promising moves in this direction — for example, China’s new Foreign Investment Law adds the principle of ‘non-interference’ to the FDI approval process and increases financial penalties for those who infringe trademark rights. In financial services, caps on foreign ownership of local banks were removed and foreign insurance companies were allowed to establish businesses.

These policies are helping China to increase its attractiveness as a destination for FDI. But significant potential remains to grow the total share of FDI in China’s overall investment. This will become increasingly important as domestic savings fall and new FDI is required to sustain growth.

The third engine will be powered by China’s capacity to realise its human capital potential and contribute to the global talent pool. Significant education and skills gaps need to be addressed to alleviate poverty and quell rising income inequality.

The Chinese economy remains short on human capital compared with other developing and advanced economies. Only around 25 per cent of China’s entire workforce (aged 25–64 years) have obtained upper-secondary school education, compared to around 75 per cent of the workforce average in high-income OECD countries.

China’s continued investment in education and training will need to be a policy priority, with human capital underwriting innovation and knowledge-based growth. This is also an area where there is considerable scope to deepen collaboration with international partners such as Australia, where Chinese students already make up almost one third of Australia’s AU$35.2 billion (US$24.4 billion) international education export income.

Despite a challenging global and domestic backdrop, by pulling the right policy levers there is significant potential for China to unlock a new round of high-quality growth and continue its transition to a high-income economy. But further robust reform and ongoing integration into global markets will be required.

To draw on one of Xi Jinping’s more recent metaphors, China will need to ‘dare to chew the tough bones and navigate the rough waters’ as it stokes-up its growth engines in the challenging period ahead. To stoke the three growth engines requires great political courage — none present low-hanging fruits in reform and growth-enhancing policies.

Ligang Song is Professor and Director of China Economy Program at Crawford School of Public Policy, the Australian National University.

Yixiao Zhou is Senior Lecturer at Crawford School of Public Policy, the Australian National University.

Luke Hurst is the Director of Research and Information at Asialink Business.

This article is based on research published in the 2019 China Update to be launched by ANU’s China Economy Program on 12 July.



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