As James Manicom points out, although the move comes at a particularly volatile period in Northeast Asia’s foreign relations because most of China’s maritime neighbours are unnerved by recent Chinese behaviour in East Asian waters, and despite the swift and firm condemnation from the United States, Japan, South Korea and Australia, the Chinese declaration itself is unproblematic. It adds China to the small list of countries, including Japan and the United States — around 20 in all — that enforce ADIZs beyond their national airspace. Chinese spokespeople were quick to offer assurances that ‘normal international flights’ were not affected, despite the language in the declaration that ‘all flights must follow these rules’. It has no direct implications for territorial claims between China and its neighbours in Northeast Asia.

As Manicom says, ADIZs are not precluded by the Chicago Convention, which established the rules for air travel, but they do not reflect common international law practice. Moreover, it is a cardinal principle of international maritime law that freedoms of navigation and over-flight are identical and cannot be limited by coastal states. Reflecting this, America’s ADIZ rules are not applied to military aircraft; they would be intercepted over US airspace in any event. Likewise, when they operate abroad, US military aircraft ignore ADIZs declared by other countries, as they did in the immediate aftermath of the Chinese declaration.

So the wise first reaction, exemplified in the measured response from the United States to this development, is simply to take pause and cool it.

At the same time, the Chinese move is certainly not without significant indirect implications for the state of play in diplomacy over Northeast Asia’s fractious territorial disputes.

As Sourabh Gupta observes in this week’s lead essay, the initiative was intended to give Japan in particular a shock and serve as a sharp political rejoinder ‘(in an escalating series) to earlier provocation — the alteration of the status quo by the Noda government’s private purchase of three Senkaku/Diaoyu islands in September 2012. That purchase was officially frowned upon by even Japan’s chief ally, the United States. That Chinese coast guard vessels have also asserted an operational presence in the Senkaku/Diaoyu territorial sea 72 times since the islands’ purchase suggests that Beijing will persist in fanning the flames of a fire that it did not light’.

‘China’s policy’, Gupta goes on, ‘is intended to fully comport with international practice — albeit with an element of the extra-legal. An ADIZ is set up under a given nation’s domestic laws, not international law, and serves as a defensive perimeter beyond territorial airspace to monitor incursions by suspicious aircraft. It does not connote claim to territory; that claim exists separately — much like Japan’s claims to Dokdo/Takeshima and the Kuril Islands/Northern Territories exist separately’.

Gupta suggests that three conditions need to be met to avoid accidental escalation over the issue: Chinese military aircraft stay out of airspace over the Senkaku/Diaoyu islands and the Japanese government ensure no further change to the status quo on the islands; China needs to establish clear protocols with neighbouring militaries on ADIZ enforcement; and, if there is to be nomination of ADIZs elsewhere, China needs to consult fully.

That’s really only the beginning of it. The big challenge for the coming year and beyond will be to craft a regional diplomacy that lifts the focus above these peripheral issues to those of more fundamental importance to China’s and the region’s geo-economic-political security.

This week also begins our annual series of reviews across the Asian economies and polities.  Following the launch last week of East Asia Forum Quarterly on ‘Indonesia’s Choices‘, we lead this week with Thee Kian Wie’s essay on the economic outlook for Indonesia this year and next.

Indonesia is one of Asia’s economic success stories, with past reforms having laid strong foundations for an exceptionally long period of strong growth. The country’s economic success looks set to continue but the agenda of reform is far from complete, especially as it relates to competitiveness in Southeast Asia’s intense business environment.

‘Indonesia faces big challenges’, Thee points out. ‘Foremost is its competitiveness in respect to the ease of doing business, which the World Bank rates as poor. The World Bank’s 2014 Report on the Ease of Doing Business compares business regulations for domestic firms in 189 economies, including regulations for small- and medium-sized enterprises (SMEs). It reveals that although Indonesia has risen in the global rankings for the ease of doing business, the country  (ranked 120), remains far behind its regional peers, including Singapore (which ranked number one, as in previous years), Malaysia (ranked six), Thailand (ranked 18), Brunei Darussalam (ranked 59), and Vietnam (ranked 99)’.

While the World Bank commends Indonesia as one of 15 economies among 25 East Asian and Pacific economies that have implemented significant regulatory reforms in the past year that make it easier for local entrepreneurs to do business, these reforms alone are not sufficient to enhance Indonesia’s position over its rivals, which are also implementing reforms to improve their competitiveness.

As Thee concludes, more needs to be done. If it is not, the pessimistic outlook which sees growth slipping back below 6 per cent in real terms is more likely than seeing a growth rate above 6 per cent continue.

Enjoy our series on Asia in review  over the Holiday Season. And, on behalf of the EAF team, may I wish you all the very best for the New Year and thank you for your support in so many ways over the past year.

Peter Drysdale is Editor of the East Asia Forum.