As bright as the future may seem for China, crucial reforms are needed in order to maintain its current rate of economic growth and prevent the Chinese economy from falling over like a house of cards.

Some of the most imminent challenges that China faces in the near future include environmental pollution, income inequality, uneven development between rural and coastal areas, and a risky financial system. The central government has already identified these problems, and reforms are now in place — including those contained within China’s twelfth five-year plan announced in March 2011. But widespread corruption continues to undermine the effectiveness of any potential reform.

China’s domestic wealth has increased dramatically. But for some, the limits of transformative growth already seem to have been reached. Even conservative estimates suggest that the 54 million people currently unable to find work will remain in this position for at least another four years. China also runs on a risky financial system. Its banks are hiding piles of non-performing loans — piles built on the prediction that growth will continue to increase indefinitely. Income disparity, unbalanced growth and the need to reform the financial system were issues the IMF emphasised in their Chinese sustainability report. China also faces a grim battle against pollution. The price of rapid economic development is high; water, soil and air contamination puts the health of countless people at risk.

With the Twelfth Five-Year Plan, the Chinese government is setting out an ambitious proposal to put more money in the pockets of the poor and provide incentives to increase domestic consumption. It is also addressing economic restructuring, and tackling pollution by conserving energy and cleaning up the environment.

But corruption has the power to essentially nullify the government’s reform efforts. It is hindering development in remote areas and marginalising the poor. Often, money tagged for environmental programs disappears without making any noticeable impact. Corrupt officials are also obstructing individuals and groups reporting on pollution, and state-owned commercial banks are at the disposal of bureaucrats who exploit their position to benefit themselves. Above all, the biggest danger of corruption is that it undermines the very legitimacy of the government and key reformers.

One of Hu Jintao’s first addresses to party leaders in 2012 included an order to fight harder against corruption. The fight is crucial, but a poor record of success gives little reason for optimism. There are different views on why this battle is not being won. While some say it comes hand in hand with the benefits of an otherwise successful system, others say it is the legacy of extreme poverty during the Cultural Revolution. And others just believe it to be a part of Chinese culture. Be that as it may, the corrosive effects of corruption on government reforms, the economy and the reputation of the party are undeniable.

China’s previous efforts to curb corruption have focused on toughening related penalties, even resorting to capital punishment. But this approach has proved unsuccessful. Rather, transparency and public accountability are more effective in fighting corruption. And while China’s authoritarian leadership provided fast and comprehensive reforms, which turned the impoverished state into a superpower, accountability has little place within authoritarian regimes. This is why reform in China is so difficult.

China does not have to become a Western-style democracy; it should find a way to implement the idea of public accountability within its own system to allow for public scrutiny and expose corruption where it thrives. Channels that encourage credible and accurate reporting without fear of being labelled ‘anti-government’ have to be built. China will need to implement these reforms without forgoing the very characteristics that allowed for its economic development.

Failure to effectively curb corruption risks widespread public dismay with the country’s political leadership. Corruption is skimming away the resources allocated for China’s urgently needed reforms, and while it may not be the country’s biggest problem, it is seriously hindering efforts to tackle more-imminent ones. Consequently, success in curbing corruption is vital not only for China but also for the rest of an increasingly China-dependent world.

Michel May is a MEXT scholar and a Masters student in international relations and Asia-Pacific studies at the Graduate School of Asia-Pacific Studies, Waseda University.

1. Indian corruption: Time to fight back
2. Markets and corruption in Indonesia
3. Vietnam’s endless corruption campaign

The muddy floodwaters in Thailand having receded, one of the truths to emerge will be just how important the Thai economy is in both regional and global terms.

Thailand is a manufacturing powerhouse. Countless small and large factories churn out a broad range of finished consumer goods for export, as well as component products vital to global supply chains.

But, as an exception to broader regional attitudes toward Thailand, Australian business has largely failed to recognise the importance of the Thai economy to international commerce. Instead Thailand is seen through the narrow prism of beaches and bars. The US, China, Japan and Korea — among others — have all moved past this perception, and for them Thailand is now a serious business destination.

While the worst of the Thai floods has passed — and putting aside the tragic human toll — the disaster’s economic impact is becoming clearer. The central bank slashed economic growth expectations for 2011 from 4.1 percent to 2.6 percent. Despite frantic efforts to protect the many purpose-built industrial parks dotted around the country (which are largely the product of Thailand’s highly effective Board of Investment promotion activities), many remain inundated. An estimated 1,000 factories are submerged in a quagmire the size of Australia’s island state, Tasmania, or otherwise shut down due to supply-chain shortages, labour absences, transport roadblocks or other flood-related factors. Approximately 20,000 businesses and 780,000 jobs within Thailand are said to be affected. And there are many top-tier multinationals among them, highlighting Thailand’s quiet emergence into the word economy. Overseas, big-name buyers from Thai factories have been hit by supply shut-downs, including Hewlett Packard, Dell and Apple. Global output of hard drives, for example, is projected to fall by 30 per cent.

Equally, with Thailand manufacturing over 1.6 million vehicles in 2010, the floods are expected to induce a production drop of between 6,000 and 10,000 units per day — not to mention dramatic shortages of auto component parts for export. The latter has seen production delays in Japan, the United States, the United Kingdom, the Philippines, and elsewhere. For both Thailand’s export-dependent economy and in the current international economic climate this latest blow to the region is an unwelcome setback. And that some analysts are comparing the Thai floods’ economic impact with that of the Japanese tsunami is hardly surprising.

Australia will celebrate its 60th anniversary of diplomatic relations with Thailand next year, a feat which underscores the relative stability of Thailand’s place in the region and relations with its allies. But while the Australian diplomatic presence in Thailand is one of the largest globally, the same cannot be said for the business relationship with its Southeast Asian partner. Merchandise trade is strong — Thailand is Australia’s sixth-most-important merchandise trading partner — but investment tells a different story. Thailand’s A$4.99 billion of investment in Australia in 2010 was almost two and half times greater than the A$1.9 billion flowing the other way. The disparity can partly be explained by several large one-off Thai investments, but this tells only part of the story.

Each year there are over 700,000 Australian visits to Thailand. Yet some estimates put the Australian business community’s visits there at less than 3,000. To be fair, Thailand’s protectionist tendencies — particularly the Foreign Business Act — stymie participation in areas where countries like Australia excel, such as professional services and mining. And corruption, political instability and graphic scenes of violence in Bangkok do not help investor confidence. But many other nations have chosen to focus instead on Thailand’s strengths. As a place to do business Thailand offers a strategic location, world-class infrastructure, cheap business inputs and a cost-competitive labour force with good skills potential. And the World Bank has positioned Thailand 17th in ease of doing business — only Singapore ranks higher in Southeast Asia.

The US, China, Japan, Korea and increasingly others have identified Thailand’s commercial potential. They have invested significantly and — despite the floods’ heavy toll — stand to make a very positive return. 

Thailand’s economic fundamentals remain strong despite suggestions that the floods reveal an infrastructural weakness. But such suggestions ignore the fact that these floods are a one in 50 year event. And given the huge amount of water this year, the fact that Thailand’s infrastructure — and logistics — has stood up so well says a great deal. Also, the eastern seaboard, where much of the heavy manufacturing occurs, has not been affected by water at all. Any shut-downs or reductions in that area have been because of supply shortages from factories up north. Some of the major roads are also designed to be flood barriers and have worked very effectively. Other major highways are raised completely.

Thailand’s role as a production base is certain to increase, and bold infrastructure projects (largely financed by overseas interests) are set to take advantage of Thailand’s central geography. It has great potential as a transport and logistics hub for goods moving south from China into Southeast Asia and the Pacific. And with modest Burmese overtures to normalisation there is increased potential for an East-West economic corridor through Thailand.   

Australian companies have been slow to identify the business prospects in Thailand, and for them the receded floodwaters should reveal a new terrain of opportunity.

Mark Carroll is Executive Director of the Australian-Thai Chamber of Commerce, Bangkok.

This article appeared in the most recent edition of the East Asia Forum Quarterly, ‘Where is Thailand Headed’.

1. The Japan-Thailand economic partnership agreement: Utilization and implementation issues from the perspective of Thailand
2. Australia’s floods and farming
3. Thailand, a nation caught in the middle-income trap

Since the fourth quarter of 2010, the global economy has faced serious uncertainty and a turbulent outlook.

Both the US and Europe have gloomy growth prospects due to a lack of credible medium-term plans for debt reduction in the US and the sovereign debt crisis in southern Europe.

Against the downside risk to growth in the West, Asia’s recovery and growth in the past three years has been exceptional. China and India recorded the highest growth rates in the world with 10.3 and 10.1 per cent in 2010, respectively, while Indonesia, Thailand, Malaysia, the Philippines and Vietnam (ASEAN-5) grew 6.9 per cent. Asia, with a solid global market and a large pool of foreign exchange reserves, has proven to be the shining light of the world economy.

Asia’s future prospects are likely to be affected by the West, yet ‘rising Asia’ also appears able to help save the sinking world economy. Even with weaker demand from the West, Asian growth in 2012 is expected to remain strong on the back of solid domestic demand. But for robust, sustainable and balanced world growth, Asia needs to shift from its conventional extra-regional export orientation to intra-regional demand as a way to help advanced economies recover and to ensure its growth sustainability.

How can Asian governments accomplish these twin objectives amid the current global turbulence? First, they must continue to shift to more domestic demand-based growth in the short and medium term and accelerate ongoing regional economic integration to allow freer intra-regional trade and more cross-border investment. This policy shift will result in two things: greater self-propelled growth and more imports from Western economies, especially the US, which would help correct chronic trade imbalances and raise the growth potential of America and Europe.

Second, Asian governments must minimise external financial contagion and expand intra-regional FTAs to spur sustainable economic growth.

How can they do this? One effective means would be to create a cross-border free trade regime in East Asia. At present, there is a relatively low degree of intra-regional trade share in East Asia. Intra-regional trade among ASEAN+3 countries has increased steadily since 1998, when the Asian financial crisis was subsiding, but slowed a little after 2005. In 2008, the East Asian intra-regional trade ratio, at about 37 per cent, was lower than that of the North American Free Trade Agreement (NAFTA), and far lower than the euro zone’s ratio, with 60 per cent. Considering that the euro zone and NAFTA are free trade blocs, it seems plausible that East Asia could find significant growth sources from its own regional domestic demand if it established an East Asia-wide FTA.

Given the ongoing hub-and-spoke issues around intra-regional FTAs, East Asia should adopt a strategy of ‘doing easy things first’. A good example of such an approach is the Chiang Mai Initiative, which is already under way. The Asian Bond Market Initiative could also be accelerated to provide a viable cross-border financing scheme to small and medium enterprises. In this regard, a cross-border regional cooperation mechanism among sub-regions and mega-cities such as the Pan-Yellow Sea Circle and Greater Mekong Sub-Region could be a starting point.

Northeast Asian integration has great potential to build a robust regional community of peace and prosperity. It is encouraging that China, Japan and Korea in May 2010 agreed to establish a secretariat office in Seoul to address trilateral regional issues. Apart from FTA talks in Northeast Asia, Asian governments in ASEAN+6 need to pay attention to many proposals in cultivating diverse ‘public goods’ such as cross-border oil and gas pipelines and railways to enhance connectivity. Dynamic benefits resulting from a cross-border, bottom-up approach could also be derived from establishing common standards for production technology, product regulations, distribution and after-sales services.

By accumulating success stories for open Asian regionalism, major Asia Pacific economies can work together toward an Asia Pacific Economic Community, which the APEC forum has long addressed. Though it may take time to nurture mutual trust and confidence, Asia should be eager to establish open regionalism which a variety of external stakeholders, including the US, India, Canada, Australia and New Zealand, can join. Asian open regionalism needs to be translated into an Asia Pacific Economic Community to ensure it will be a building block toward viable multilateralism, not a stumbling block.

At this critical juncture of the world economy, East Asian integration must be pursued to increase its own growth momentum internally. Asia must move aggressively to shift its focus to the region’s 3.5 billion consumers so that its intra-regional demand-led growth can contribute to balanced and sustainable global growth. The Greek debt crisis clearly showed that no country can overcome the emerging economic malaise without a strong manufacturing base. Consequently, Asian economies need to strengthen the already existing global ‘manufacturing house’ through intra-regional trading. But Asia is diverse and still not free from historical rivalries. For both its own growth and the good of the global economy, Asia needs visionary political leadership to put historical legacies behind and look toward a long-term vision for an Asia Pacific Economic Community.

Choong Yong Ahn is Distinguished Professor at the Graduate School of International Studies, Chung-Ang University, Seoul.

This is an abridged version of an article that originally appeared here in Global Asia.

1. The DPJ: Sacrificing the economy to ‘save’ agriculture
2. World economy not quite out of the woods yet
3. Economic integration: Will Asia go regional?

The conflict between Cambodia and Thailand has made headlines around the world over the past few years.

The latest dispute was precipitated by Thailand’s failed effort to block Cambodia from unilaterally nominating Preah Vihear Temple — an ancient Khmer temple located within a disputed border area — as a World Heritage site.

But this latest dispute is the result of much broader tensions between the two neighbours, rooted in an historical legacy of hostility and mistrust. It is also the result of divergent constructions of history by today’s Cambodian and Thai elites, each of which has tried to promote a sense of national identity based on the concepts of defined territorial sovereignty, a glorified past, and cultural and ethnic superiority. And given half the chance, Cambodian and Thai politicians retreat back into this narrative rallying people around the idea of territorial defence — or ancient temples — to provoke nationalist sentiment and marshal popular support.

There have been several phases to the conflict. From 2008 to mid-2011, relations between the two neighbours deteriorated greatly. Both countries recalled their respective ambassadors; Cambodian and Thai leaders engaged in harsh verbal attacks; people were arrested and accused of spying; the Thai government revoked the 2000 Memorandum of Understanding after Cambodia appointed former Thai prime minister Thaksin Shinawatra as an economic advisor to Cambodian Prime Minister Hun Sen; the Thai Deputy Prime Minister, Suthep Thaugsuban, threatened to close the Cambodian-Thai border; and both countries reinforced their military presence in contested border areas. This led to a major outbreak of fighting, most seriously over several days in February and April 2011, causing many casualties, destroying houses, and sending tens of thousands of people living near the combat zones into evacuation centres.

The border dispute escalated as Thailand’s domestic politics became increasingly polarised between those who supported Thaksin (the red shirts) and those who opposed him (the yellow shirts, who are also supported by the Democrats, the military and the palace). After UNESCO endorsed Preah Vihear Temple as a World Heritage Site under the sole management of Cambodia in 2008, the yellow shirts, unhappy with the decision, launched protests in Bangkok and in the border province of Sisaket. Three protesters also gained access to Preah Vihear Temple and subsequently refused to leave, at which point Thailand stationed troops in the temple’s surrounding area — under the pretext of ensuring the protesters’ safety.

The Cambodian and Thai governments held meetings at different levels in an effort to reduce the tension, but these attempts failed. Prime Minister Hun Sen also sought assistance from ASEAN before proceeding to the UN Security Council in February 2011 when the situation degenerated further. In its decision, the Security Council allowed Indonesia, as chair of ASEAN, to mediate the dispute. Consequently, Indonesia was expected to send 30 unarmed observers to the disputed border area. While both governments agreed to the plan, the Thai military defiantly opposed any such deployment, claiming it could threaten Thai security. Hence, on 28 April 2011, as the fighting escalated once more, Cambodia’s government filed an application with the International Court of Justice (ICJ) to have the international judicial body interpret its decision of 15 June 1962 about the ownership of Preah Vihear Temple and the land surrounding it. While the judges deliberated, Cambodia also asked the ICJ to order the withdrawal of Thai troops and an end to all military activity in the temple’s vicinity. The ICJ issued its decision on 18 July 2011, ordering both countries to withdraw troops immediately from the temple and the contested surrounding areas. The ICJ’s decision included a map which flagged a provisional demilitarised zone. The court asked both sides to cooperate with ASEAN, in particular by allowing Indonesian observers into the demilitarised zone.

Relations between the two countries have improved significantly since Yingluck Shinawatra — Thaksin’s sister — and her Pheu Thai Party won the July 2011 elections. Yingluck and her foreign and defence ministers made various trips to Phnom Penh in September, and leaders from both countries have promised to allow observers into the demilitarised zone and to honour the ICJ’s ruling. The Regional Border Committee meeting, chaired by commanders from Thailand’s Second Army Region and Cambodia’s Fourth Army Region, resumed on 23–24 August 2011 in Thailand’s Nakhon Ratchasima Province. The General Border Committee meeting, chaired by defence ministers from both countries, has been delayed by the flood crisis in Thailand.

The general tone of relations between Cambodia and Thailand is improving. But the underlying roots of the conflict continue to threaten neighbourly ties, and have not yet been addressed. The historical legacy of hostility, different constructions of history, and the coupling of domestic politics with the defence of sovereignty, territory and ancient temples all need to be dealt with. Otherwise, the potential for future conflict remains.

Kimly Ngoun recently completed a Masters degree in Southeast Asian studies at Chulalongkorn University, Bangkok, and is currently a PhD student in political science at ANU. 

This article appeared in the most recent edition of the East Asia Forum Quarterly, ‘Where is Thailand Headed?‘

1. Thai-Cambodian conflict: an obstacle to the ASEAN Community 2015?
2. ASEAN and the Cambodia-Thailand Conflict
3. Domestic determinants of the Thai–Cambodian dispute

Kim Jong-il’s sudden death spurred yet another round of fevered speculation over the DPRK’s imminent demise.

Some analysts gave the North Korean state only a matter of months to live, and renewed calls on Beijing to engage in ‘contingency planning’ with Washington and Seoul to pre-empt catastrophe when collapse finally comes. This scepticism is not without foundation. The new leader, Kim Jong-un, is young and inexperienced. He does not yet project his father’s power, let alone his grandfather’s charisma. His policy preferences are unknown, but his grooming period witnessed ill-advised initiatives on the economic and political fronts — from the botched currency reform to the tragic shelling of Yeonpyeong Island. Despite these shortcomings and questions, the succession process seems to be going smoothly. There is no evidence of near-term political crisis, confusion as to the new pecking order, popular revolt or systemic breakdown.

Why is near-term crisis unlikely? For the simple reason that the country’s political system is unified around the new face of North Korea, Kim Jong-un. He does not need to build charisma; his Baekdu bloodline is sufficient to endow his rulership with legitimacy. And his power base is solid.

Think of Kim Jong-un surrounded, and protected, by three inner circles. The first circle is the ruling family. The second is the Korean Workers’ Party itself, which has been going through a period of resuscitation in recent years. The revitalised network of Party members, who now carry cell phones and who are eager to travel abroad, see their prospects linked to the grandson’s success. The third circle is the military, which would be the logical competitor for power. But here, too, there is no sign of high-level disaffection, like that seen in many Arab Spring states. The military has been the primary beneficiary of the North’s ‘military-first politics’ campaign that Kim Jong-il initiated in 1995. And so far, the military has pledged its unfailing loyalty to Kim Jong-un.

But what, then, of the outer circle — the 20 million or so North Koreans not in the Party? Kim Jong-il was not beloved like his father, and pragmatic North Korean civilians are likely to take a wait-and-see approach to the new leadership group. Even those who may wish to rebel have no networks or organisations through which to do so.

Consequently, the chances of political crisis in the near term appear remote. But in the medium to longer term, the new leadership is likely to face a dilemma, and this should be the focal point of international responses to the transition process. It is a dilemma created by two mutually conflicting goals the regime has set for itself.

Pyongyang has been loudly promising its citizens that 2012 marks the year of North Korea’s emergence as a ‘strong and prosperous great nation’ (Gangsong Daeguk). Kim Jong-il managed to achieve at least one thing for North Korea — the ultimate ‘strength’ of nuclear deterrence. Now, it is up to his son to achieve the other half of the equation: prosperity. There have certainly been unmistakable signs of a push to improve the national economy over the past few years — from growing trade with and investment from China to revived plans for special economic zones.

But the issue at stake is whether Kim Jong-un can enhance North Korea’s prosperity without undermining the source of its strength — its nuclear weapons program. Food aid and foreign economic assistance are urgently needed to ensure a smooth path through the first year of Gangsung Daeguk. Comprehensive economic development would also require foreign investment, trade, and financing — all requiring an initial loosening and eventual lifting of the sanctions regime that surrounds the North Korean economy. Achieving this will require substantive nuclear concessions on Pyongyang’s part.

This transition from security-first to security-plus-prosperity will pose the greatest challenge to the unity of the North Korean political system. Elements in the military might oppose sacrificing their prize possession. Hardliners will argue it would leave their country exposed to an Iraqi or Libyan fate. Therefore, the path to getting the North over that hump must start now.

So, the essential question is, what should the international community do? The most prudent course for key regional players is to re-open or expand channels with Pyongyang. The better we know the new leadership, the better we can respond to events as they unfold. Seoul, Washington and Beijing should focus energies on drawing out North Korean officials as the leadership consolidates around its new core, Kim Jong-un.

Fortunately, the US has some modest positive momentum to build on in crafting this kind of proactive diplomatic outreach. The US and DPRK were engaged in substantive bilateral talks on humanitarian aid and denuclearisation on the eve of Kim Jong-il’s death. The timing is fortuitous, and Washington should make the most of these revived channels, signalling readiness to work with the new powers. US Secretary of State Hillary Clinton seems to be taking a measured, constructive approach to Kim Jong-il’s passing — an encouraging sign that the US will be persistent and proactive.

Seoul’s reaction is even more crucial, and delicate. The South Korean public is divided over inter-Korean relations, and President Lee Myung-bak takes a hit whichever way he steps. But there have been increasing signs of fatigue with a hard-line approach, and this president, who has proven his conservative credentials, is uniquely positioned for a kind of ‘Nixon-in-China’ moment. In fact, President Lee has sent a New Year’s message to Pyongyang, noting the South’s willingness to reopen talks and foster cooperation with the North. Nonetheless, Pyongyang’s response has been quite hostile.

Beijing may have the best model for handling North Korea, as Chinese realists spend less time thinking about scenarios of North Korea’s collapse, and instead keep diplomatic channels open while supporting economic engagement. China also has military-to-military ties with the North, and can exert some leverage when it comes to moderating military behaviour.

In an optimistic scenario, China, South Korea and the US could use this changing of the guard to embark on a coordinated engagement policy to normalise, and denuclearise, the Korean Peninsula. For years, political analysts and military planners have discussed ‘contingency plans’ in the event of Kim Jong-il’s death. But now, with no sign of chaos or collapse, we need prudent and realistic diplomacy that lays the foundations for progress.

John Delury is Assistant Professor of East Asian Studies at Yonsei University, Seoul, and a book-review editor for Global Asia. Chung-in Moon is Professor of Political Science at Yonsei University and Editor-in-Chief at Global Asia.

1. North Korea provokes again
2. North Korean realities
3. Dangers lurk in North Korea’s leadership transition

Taiwan will hold its fifth direct presidential election on 14 January. But many Taiwanese will go to the ballot box without understanding the specific differences between the two leading presidential candidates.

In Taiwan, people tend to vote for the colour — blue for the Kuomintang (KMT) and green for the Democratic Progressive Party (DPP) — rather than the strengths and qualities associated with each candidate.

For many, Taiwan epitomises the success of democracy in Asia — some foreign policy analysts have even called Taiwan’s democracy a potential model for China. The high voter turnout during Taiwan’s elections is one example of its strong democratic values, with the past four direct presidential elections all receiving over 75 per cent voter turnout.

But whether the voting population makes informed decisions about which candidate can fix Taiwan’s economy and enhance its role in world affairs is another story.

In 1979, during the Kaohsiung Incident, demonstrators purposefully chose December 10 — UN Human Rights Day — to call for increased democracy and human rights under the authoritarian KMT rule. Although military police suppressed the protest, the incident produced a decade of struggle between the KMT and ‘outside parties’ (tangwai), along with a growing recognition and appreciation of democracy and self-determination. The DPP was officially formed in 1986 as a direct result of the protests. Ten years later, in 1996, Taiwan held its inaugural direct presidential election.

With this background in mind, voters today find it almost impossible to detach the history associated with each party when they cast their vote. Instead, politics is an outlet for most Taiwanese to showcase their historical identity and beliefs. Those who were born in Taiwan — and especially the children of those who lived through the White Terror of 1949–1987 — are weary of any KMT administration. They have developed a strong sense of nationalism, or rather a passion to ‘guard’ their island against the ‘foreign’ occupation of the KMT. But for those Taiwanese who fled with Generalissimo Chiang Kai-shek in 1949 from mainland China, the KMT represents a sense of belonging — a sentiment now passed onto their children. It seems that those who lived through Taiwan’s most politically turbulent periods will continue to vote for presidential candidates based on the histories associated with each party, rather than voting for the candidates themselves.

Many Taiwanese youths will also vote on 14 January without an in-depth understanding of the political differences between the presidential candidates, but for different reasons to their predecessors. The younger generation — mostly grandchildren of those who fled in 1949 — lacks a general interest in domestic politics. But the deteriorating quality of news reporting in Taiwan has hindered any opportunity to know politics at a deeper level in any case.

Most Taiwanese news services now broadcast events that simply amuse the public, rather than informing citizens of the most significant political developments. The news will often cover what many Taiwanese call the kou shui zhan (literally meaning the ‘saliva fight’) between President Ma Ying-jeou and DPP Chairwoman Tsai Ing-wen. The two candidates have focused their campaigns on coming up with condescending phrases, rather than taking the opportunity to share their political platforms. As a result of these two factors — the lack of interest in domestic politics and Taiwan’s poor quality of news broadcasting — the younger generation has not interested itself with the candidates’ domestic and foreign policies.

Many voters also overlook the presidential candidates’ personal qualities. Domestically, Tsai is not seen as the intellectual scholar along the lines of which she presented herself during a visit to Harvard in 2011. Her support comes more from those who ‘oppose President Ma’ rather than those who ‘support Chairwoman Tsai’. Simply put, it is not Tsai herself who is gaining votes; it is the party, colour and history that she represents — the DPP, the green and the democratic struggle against the authoritarian KMT.

Similarly, many voters continue to neglect Ma’s personal qualities. Although his economic engagement with China has brought a flight of capital, most DPP supporters choose to ignore his accomplishments, focusing single-mindedly on his flaws. In particular, his detractors argue that the Economic Cooperation Framework Agreement has only benefitted Taiwan’s big businesses and foreign multinationals, and has hurt the younger generation. Ma will continue to face difficulty in gaining the votes of those who perceive the KMT as the blue, the historically violent and as being associated with communist China.

On 14 January, many Taiwanese will choose to vote along colour lines, rather than candidates’ platforms. This should not be the case in a successful democracy like Taiwan. Taiwanese citizens must come to see past the parties’ historical ties and begin to examine the presidential candidates with scrutiny. Local media should also report on the actual political contest rather than comparing slogans. In order for Taiwan to maintain its status as a vibrant democracy, its citizens need to actively evaluate the implications of candidates’ domestic and foreign policies before casting their valuable votes.

Jennifer Chen is a recent graduate of School of Foreign Service, Georgetown University.

1. US, China await Taiwan elections with apprehension
2. Taiwan: The Democratic Progress Party’s ‘China Syndrome’
3. Typhoon Morakot and Taiwan: damaging Ma Ying-jeou’s presidency?

Contradiction is a mainstay in Burmese life. In downtown Rangoon, a giant new Toshiba TV screen hangs over the street, while rickety cars and taxis from the 1970s whir past below. Crumbling colonial-era buildings are mixed with shiny new Chinese-funded monoliths.

But nowhere is the country’s inherent contradiction more apparent than in the developments of 2011. Primarily, the new parliament’s formation must be juxtaposed against resumed violence in border regions. And we must decide which of the two dynamics to take as the year’s prevailing reality.

Following the excitement at the close of 2010 — with elections and Aung San Suu Kyi’s release — 2011 began in a more sombre way, with emphasis on the nitty-gritty of ‘discipline-flourishing democracy’. Parliament was formed and began sitting; the final government officials left Rangoon for the new capital of Naypyidaw; and Aung San Suu Kyi met with President Thein Sein and tested the limits of her new freedom by travelling outside Rangoon.

Later in the year, the suspension of the Myitsone Dam in Kachin State heated up the political atmosphere, injecting considerable optimism about the new government’s commitment to change. Responding to Aung San Suu Kyi and public opinion for the first time, the government suspended the dam’s construction and challenged Chinese patronage.

This action suggests the government is no longer preoccupied with the ‘threat’ of Aung San Suu Kyi and is, instead of dwelling on the past, forging a path forward. But the most vulnerable time for an historically oppressive and military-dominated government is often during the transition to democracy.

While Thein Sein is currently in charge, his control is yet to be truly tested. Following the suspension of the dam at Myitsone, can he withstand Chinese pressure to resume construction? Is he entrenched enough to resist a coup led by military hardliners opposed to his progressive tendencies? Or will he triumph over the very real threat presented, not only by Aung San Suu Kyi, but by the plethora of newly formed political forces rising in the tentatively liberalised political sphere?

In 2012 there is a chance the country will see a schism within the military, and a coup overthrowing Thein Sein. But unless Thein Sein loses favour with (retired) Senior General Than Shwe — who is rumoured to still wield control over the military from the back room — this is unlikely.

The most likely scenario — and we can only hope for Burma’s sake the one that plays out — will be the continuation and further entrenchment of ‘discipline-flourishing democracy’. While seemingly a contradiction of terms — and despite its countless detractors in the international community — a democratic system tempered by a constitutional requirement for military prominence is perhaps the most favourable outcome for the country’s short-term future.

Perhaps the deciding issue in 2012 will be the border conflicts. The Kachin Independence Army has demonstrated the military’s impotence when faced with a highly motivated guerrilla opponent. The Burmese population and international community — and the larger United Wa State Army further south — have undoubtedly noticed the difficulties which these combatants have presented to government troops.

Instead of viewing the resumed violence as undermining and contradictory to the new government’s progress, it can be seen as simply another way the military-aligned government is consolidating its control over Burma. Strengthening their popular support like never before through moves to placate the population and Aung San Suu Kyi — with the dam suspension and parliament formation — while crushing dissent from competing armies, shows the military is trying to get smarter. It remains to be seen whether this new style of ‘democratic’ dictatorship has longevity.

Jacqueline Menager is a PhD candidate at the College of Asia and the Pacific, the Australian National University.

This is part of a special feature: 2011 in review and the year ahead.

1. Aung San Suu Kyi and Burma’s change of heart
2. Burma: a test that ASEAN may be failing
3. Birthday blues in Burma

How does a Cold War organisation like the OECD respond to the end of the Cold War? Does it try to hang on to its former identity? Or does it embrace the new ‘age of globalisation’?

The end of the Cold War in 1989 represented a victory of values and ideology — the triumph of pluralistic democracy, respect for human rights and the market economy — for the OECD and its member countries. At the time, Asian economies were also emerging rapidly, based on a complex cocktail of export promotion, strong state intervention and non-democratic politics.

Before the fall of the Berlin Wall, a number of these Asian economies were ‘economically qualified’ for OECD membership in terms of GDP per capita. But politically, there was never any suggestion that they might join.

Politics has always trumped economics at the OECD, even though economics is its core business. In the 1990s, for example, four central European countries were rushed in as members (following Mexico’s 1994 membership), while they were still fledgling market economies and democracies. They were the lost sheep of the North Atlantic community, having been occupied by the Soviets, and Western Europe and the US strongly supported their membership ambitions.

But Korea’s membership was very much a different case in point. It was economically better qualified, with a GDP per capita more than 60 per cent higher than the other five new members. It was perhaps even more qualified politically. Nevertheless, it is widely recognised that the OECD went soft on Mexico and the central European countries during the membership process, and went much tougher on Korea.

By 2007 when it came to inviting other countries to join the OECD, none of the most interesting possible members — Brazil, China, India, Indonesia and South Africa — had expressed interest in joining. They were offered and accepted a program of ‘Enhanced Engagement’, which was designed to prepare them for possible future membership.

Today the OECD finds itself with 34 members, with some 24 from Europe and only two from Asia. In contrast, the WTO’s list of the world’s 34 leading exporters includes 10 Asian economies. Many of these Asian countries are also internationally significant in areas such as investment, finance and carbon emissions — and school students from Shanghai now outperform all OECD countries in the organisation’s Programme for International Student Assessment, which measures literacy, numeracy and scientific ability. But while the Enhanced Engagement countries participate in a wide array of OECD activities, none of them are interested in membership. A very senior OECD official once described this program as a ‘one-way love affair’.

So the OECD, which has sometimes called itself a ‘hub of globalisation’, seems destined to have a membership which accounts for an ever-declining share of the world economy. It stands at a crossroads, bypassed by Asian-led globalisation at a time when the G20 has more member countries from Asia than Europe.

What are the main problems and solutions?

Even though it is essentially an economic organisation, the OECD has retained a strong North Atlantic political identity. This is partly because it is governed by foreign ministries and also because of the US’ dominant role. And as the recent UN vote on Libya showed, there are still vast political gulfs between the Enhanced Engagement and OECD countries.

New members are also forced to accept and align their policies with a now vast array of instruments and conditions they had no role in creating. From an OECD point of view, this means becoming a ‘responsible stakeholder’. From an emerging country point of view, it means being a ‘rule-taker’, that is, swallowing an OECD agenda now increasingly questioned in light of recent financial crises.  The OECD also has too many European members.  Something must be done about this ‘eurocentricity’, such as establishing constituencies, to improve the organisation’s effectiveness.

Overall, the OECD must adapt much more radically to the changed world and offer a more flexible and pragmatic approach to the application of its values and instruments through its membership. It must then launch a major campaign to recruit the Enhanced Engagement countries as members. The OECD Secretariat and its membership have not yet managed to convince emerging Asian economies of the organisation’s manifest benefits. But the OECD is still in many ways the best idea in town, with its excellent analysis and opportunities for policy dialogue. And emerging Asia has much to learn from the OECD experience in many areas, like developing social safety nets, economic upgrading, dealing with ageing populations, and public-sector reform.

As well as revitalising the OECD, this strategy could contribute to improving relations between the two major blocs which divide the world today — the OECD countries and the Enhanced Engagement countries.

John West is Editor-in-Chief at MrGlobalization.  This article is based on his paper ‘The OECD and Asia: Worlds Apart in Today’s Globalization’, published in Revista de Economia Mundial No. 28 (2011), 67–92.

1. OECD policy brief on emerging economic giants
2. Engaging Central Asia: the EU-Shanghai Cooperation Organisation (SCO) axis
3. The South Asia Cold War ‘quadrilateral’ redux?

The euro crisis hijacked the G20 Summit in Cannes — even by late December Europe’s leaders still had not fully diagnosed the problem, but without an accurate diagnosis how can there be an effective prescription?

This missing link accentuates two challenges that Asian integration will face in 2012: the consolidation of regional architecture and the need for deeper structural adjustments. The prevailing crisis prescription in Europe focuses on regional architecture: Germany insists on fiscal union and the implied centralised power over national budgets. This is in return for giving the European Central Bank more room to apply the tools of lender of last resort. But this focus comes at the expense of essential attention to the structural adjustments necessary to restore growth impetus in the deeply indebted southern members. Growth and restructuring are the only acceptable ways to reduce debt. Faced with shrinking economies and rising unemployment, and lacking exchange rate flexibility to restore price competitiveness in external markets, how will they grow? Other countries have successfully dealt with such situations; Canada, for example — which in the late 1990s faced a serious fiscal imbalance — restored its books to balance with a depreciating exchange rate and by focusing on trade with strongly growing international markets. Clearly Europe’s prospects for export-oriented growth do not lie in the OECD countries, but in emerging markets like those in Asia.

But external expectations of Asia are growing much faster than Asia’s capacity to meet them. Of course regional architecture is required for cooperative action. Yet with some notable exceptions, Asia’s focus remains on the architecture rather than the domestic and regional economic adjustments required to sustain growth momentum in the face of potentially serious external shocks from renewed European recession and near-stagnation in the US.

Following the Cannes Summit (3–4 November), Asian leaders participated in a series of summits: APEC in Honolulu (12–13 November), the ASEAN summit (17–19 November) and the East Asia Summit (EAS) (19 November). Despite the Cannes fiasco and Europe’s continuing troubles, the prominent feature of the Asia Pacific meetings was the ‘return’ of the US: as host at APEC, where President Obama re-launched the Trans-Pacific Partnership (TPP) negotiations, targeting a 12-month completion date; and as one of the newest members of the EAS, which some see as the forum most likely to link regional and global strategic issues.

The immediate problem remains global rebalancing: current account surplus countries should rely more heavily for growth on domestic demand and allow greater exchange rate flexibility. Yet the issues were at best tangentially discussed at these summits, which were mainly focused on trade and integration. The EAS came closest with its emphasis on connectivity, among 10 other issues.

What, then, should Asia’s priorities be in 2012? Two stand out: macroeconomic rebalancing and trade liberalisation.

To carry out macroeconomic rebalancing, discussions among ASEAN+3 governments should take place in the multilateralised Chiang Mai Initiative, yet little has been seen or heard of the secretariat’s activities. In its inaugural year this silence may be understandable, but it is troublesome when viewed in the context of potential risks from the global economy.

In terms of trade liberalisation, recent indications of interest in the TPP by Japan, Canada and Mexico ignited debate about a possible US hidden agenda of excluding China. Additional entrants will not be invited to join — they must apply. And the TPP’s uniqueness is its refreshingly explicit admission bar: applicants must be prepared to talk about everything. Just as in any serious trade agreement, the outcome is based on bargaining over potential gains and losses, with phase-in periods for sectors that must adjust. China should apply while the negotiating parameters are still up for discussion. Otherwise it faces the prospect, as do other latecomers like Canada, of being a policy taker rather than a policy maker.

It is understood that Asian economic integration is a long-term process based on consensus decision making. But a lot of bad things can happen while this long-term process is unfolding. The likelihood of new external shocks from Europe through financial markets and trade flows is not declining. The shocks of the 2008 global financial crisis revealed the vulnerabilities of continued reliance on export-led growth strategies and created, at least for a time, incentives to rebalance the sources of domestic and regional growth. But has enough progress been made?

Asia’s growing economic weight brings with it growing responsibilities within cooperative responses to the global imbalances that weigh so heavily on our collective growth prospects. But will it take another crisis to catalyse the emergence of Asian leaders and institutions as champions of a stable and open global economic system?

Wendy Dobson is co-director of the Institute for International Business in the University of Toronto’s Rotman School of Management and a former Associate Deputy Minister of Finance in the Canadian government.

This is part of a special feature: 2011 in review and the year ahead.

1. Asia, Europe and regional cooperation in 2012
2. The 2012 G20 Summit: facing down global challenges in Mexico
3. G20: step towards a new global architecture

The idea that there is a coherent and distinct ‘Chinese model’ of political economy has gained attention in recent years — especially as financial crisis elsewhere has undermined confidence in the (neo)liberal models often associated with Western interests and objectives.

To be sure, there are many in China and elsewhere who argue the crisis has actually highlighted key defects in China’s development model.

The argument that there is an unsustainable reliance on exports — and investment — to generate growth seems widely accepted, even if it is less clear how a ‘rebalancing’ can be achieved. Still, the possibility that an identifiable Chinese model exists is not just the source of considerable interest, but also a degree of national pride.

But rather than highlighting a contradiction in thinking, these apparently divergent responses point to what most observers suggest is a key component of the model; it is flexible, pragmatic and responsive, as it is built around experimentation and doing what works, rather than basing itself on rigid ideological and/or policy prescriptions. This not only means doing different things as conditions change at home and abroad, but also having different models for different parts of the country. While it might not be possible for other developing countries to do what China has done, the essence of this understanding is that they should not search for blueprints, but should instead do whatever works for them.

In this respect, the Chinese model is less important for what it is as what it is not. It is not big-bang reform and shock therapy; it is not a process where economic liberalisation necessarily leads to democratisation; it is not jettisoning state control over key sectors or full (neo)liberalisation (particularly in financial sectors); it is not the Western way of doing things; and it is not following a model or a prescription, or being told what to do by others. And unlike other communist-party states, all this has taken place under regime continuity. While the successes of China’s economic experience are clearly important in promoting this idea, so too are the failings of the neoliberal ‘other’ against which China is being compared.

Within this ‘no-model model’ approach, we have the seeds of other ways of thinking. In defining the model, different people tend to focus on different aspects that reinforce their pre-existing thinking. For example, for those who focus on regime continuity, the model is sometimes reduced to rapid economic growth combined with strong state authoritarian politics. For at least some within China, such understandings focus only on the positives of what has happened, and ignore the myriad social and economic challenges that exist alongside the ‘miracles’. Similarly, for those who focus on the lack of liberalisation and the state’s dominance, the importance of early stages of marketisation and the relative retreat of the state are often under-emphasised. Many also focus on the managed process of integration with the global economy and globalisation that China is carrying out on its own terms — understandings which do not sit easily with earlier studies of how the process of opening up had much to do with acceding to the interests of global finance and production.

This is partly explained by the dualistic nature of China’s international economic relations. While liberalisation has been promoted to encourage investment to produce exports, key domestic actors and sectors have remained relatively protected and supported by the state. And here there seem to be commonalities between what is happening in China today and what has happened in developmental states previously — not just in terms of trade, but in the state’s organisation of capitalism more generally. Of course there are many country- and context-specific differences, but there are at least some characteristics that link China, not just with the East Asian developmental states of the post-World War II era, but with the renaissance of the post-Meiji Japanese economy and Germany’s Bismarkian development in the 19th century.

In some respects, it does not matter if the Chinese model is indeed a new and discrete entity; if people think there is a China model and act accordingly, the model exists. But debating the genealogy of models is more important than just an exercise in semantics. If the China model is thought of as new and different, this suggests it represents a distinctive deviation from the ‘norm’. But rather than being abnormal, China seems to provide the latest example in a relatively long line of cases of strong state developmentalism that have been ‘successful’ in generating GDP growth (in early stages of industrialisation and national infrastructure construction at least). In this respect, rather than thinking in terms of a China model, it is perhaps more correct to talk of 有中国特色的新李斯特式发展型国家 — a strong state developmentalism  developmental state with Chinese characteristics — and to rethink what is normal and what is a deviation.

Professor Shaun Breslin is the Director at the Centre for the Study of Globalisation and Regionalisation, Department of Politics and International Studies, University of Warwick, and Associate Fellow at the Chatham House Asia Programme, Royal Institute of International Affairs.

1. Is there a China model of overseas direct investment?
2. The China model and the authoritarian state
3. Rethinking energy security in China