China’s magnetic force loses its pull

Asian nations are likely to prefer the US as long as it supports peace and free trade

Image of Jamil Anderlini

With Southeast Asian leaders from the Philippines, Malaysia and Thailand lining up to pay fealty to Beijing and distance themselves from Washington, their old ally, it is tempting to conclude that US influence in the region is in terminal decline. Philippines President Rodrigo Duterte’s declaration of economic and military “separation” from the US while on a visit to Beijing last month was the most dramatic example of apparent realignment.

Despite this, the strategic balance of power has barely shifted and is unlikely to do so for the foreseeable future.

For all his bluster, Mr Duterte is yet to cancel a single bilateral agreement with the US, and soon after leaving Beijing he toned down his “separation” pledge. Malaysia and Thailand have conducted military exercises with China in recent years but these symbolic manoeuvres are nothing compared with the deep and longstanding military ties both nations have with America. While these countries are clearly cosying up to China in ways that cost them virtually nothing, no one is cutting ties with America. Most have privately urged the US to increase rather than decrease its presence.

In fact, as long as Washington remains a staunch proponent of peace and free trade in the region, these countries are even more likely to choose America over China thanks to a crucial economic shift that is under way.

Until recently, Chinese imports from the 10 members of the Association of Southeast Asian Nations had increased by an average of more than 20 per cent a year for more than a decade. Many assumed this magnetic pull would draw all regional countries into China’s orbit and force them to accommodate Beijing’s wishes.

But that attraction is growing weaker. China’s imports from Asean grew by just 4.4 per cent in 2014 and last year they fell 6.5 per cent, according to official Chinese statistics. In the first nine months of this year, imports from Asean fell a further 5.3 per cent.

Changes under way in the Chinese economy make clear this is a structural problem for Asean exporters. China’s construction boom is faltering and with it the country’s previously ravenous appetite for raw materials.

Meanwhile, the ruling Communist party wants China to abandon its role as the world’s polluted workshop and create a consumption and services economy that relies far less on the inputs — such as rubber from Malaysia and computer chips from Singapore — supplied by its neighbours.

As a result, Southeast Asian economies are less dependent on China than just a couple of years ago and China has gone from being the primary source of external demand to the primary source of volatility.

Chinese investment in Asean and beyond will continue to grow in the long term but for now the ambitions of investors, such as China’s nascent state-backed Asian Infrastructure Investment Bank, are modest, amounting in AIIB’s case to barely $10bn globally by 2018. Apart from in tiny client states such as Cambodia and Laos, China’s investment presence in Asean is still dwarfed by that of Japan, the US and other western countries.

In the near future, tightening Chinese capital controls and a devaluing renminbi will curb outbound investment. Without its previous magnetic economic attraction, China has little to offer its neighbours besides tourists and threats.

The US, on the other hand, not only remains far ahead of China in terms of military capability but also has big regional reserves of goodwill and soft power. Just one example: Filipinos hold a more favourable opinion of the US, at 92 per cent, than even Americans themselves, according to the Pew Research Center. A separate opinion poll found 76 per cent of Filipinos trusted the US “very much”, compared with only 22 per cent who said the same about China.

Meanwhile, many countries in the region are quietly hedging against a more belligerent China. Just this week, Indonesia’s defence minister said his country had asked Australia to conduct joint naval patrols in the South China Sea. China lays claim to almost the entire sea, despite overlapping claims from several neighbours.

The perception of a triumphant China imposing its will on Asean at the expense of America is clearly premature if not totally misguided.

But whoever is elected next week in the US must quickly make clear that America has no intention of abandoning its allies in the region. They must also understand the opportunity presented by China’s fading economic attraction.

jamil.anderlini@ft.com

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