The Dragon in the Alphabet Soup

Did you miss me?

My apologies for dropping off of the blog cliff, but it’s all for a very good reason, I assure you.  I promise however, that this blog will resume its more regular schedule, with all the sage and snarky economic commentary you’ve come to expect from me.

Let’s start off with this weekend’s big turf war.  No, not Manchester United and Liverpool; no, not the NFL or MLB.  Rather, Japan vs. Australia on the field of ASEAN, of course.

Both Prime Minister Kevin Rudd of Australia and Prime Minister Yukio Hatoyama of Japan unveiled versions of an East Asian trading bloc at the ASEAN meeting in Thailand.  Rudd’s “Asia Pacific Community” would include Australia, naturally, and India, and focus on regional cooperation in the areas of economy, security and the environment.  Hatoyama, on the other hand, proposed an “East Asian Community” with an unspecified membership except that it should “have some room for the US to play.”

Indeed, the issue seemingly has little to do with ASEAN itself and more a political/ideological divergence between Japan and Australia about the role of the United States, with Japan seeking to lessen China’s regional influence by pairing up with its adopted President Obama, but Australia concerned about America’s continued influence in Asia-Pacific economic and security affairs.

ASEAN stands almost as a spectator to all of this, except to say that larger trading blocs are welcome but that ASEAN as an entity will not disappear as a result.  And of course, to say that this will “not happen overnight “and needs “more study” (seasoned Asia-watchers are more than familiar with the euphemism “more study” and its timeline, anywhere between five years and fifty).

But fine, fine.  Throw in some more letters to the Asia Alphabet Soup: ASEAN, APEC, and now the proposed APC or the EAC.  But Australia and Japan should take care, for as they yap about in the kitchen, China is cooking up an entirely new pot.

At the ASEAN meeting, China confidently announced an initiative to start a US$10 billion fund on investment cooperation and a US$15 billion commercial credit to support the development of infrastructure in ASEAN.  Chinese Prime Minister Wen Jiabao moreover announced that the first tranche of US$1 billion was nearly completed and it should be available within a year.  Moreover, China decided to increase the concessional loan part of its ASEAN commercial credit from US$1.7 billion to US$ 6.7 billion.

China seems to be keenly aware of the paradigm shift caused by the global financial crisis.  For those who dismiss the idea of decoupling (i.e. a world no longer dependent on the United States for growth), China arguably sees the global crisis merely as a blip on its trajectory towards become the world’s great economic leader, and certainly, its fast recovery this year is tangible evidence of that belief.

By focusing on investment and infrastructure development in Asia, China is assuming the role of economic and financial daddy in the region.  The Australian and Japanese proposals for a new regional regime – focused on trade –already feel dated compared to the steps China is making towards greater cooperation – centered on finance – in the region.  No doubt they’re more than happy for Japan and Australia to be debating acronyms while they engender political loyalty in ASEAN, establish greater commercial ties, and assume the regional leadership mantle currently abandoned by the United States given its continued domestic economic pressures.

Like all things in Asia, this will “not happen overnight.”  However, it will not need more study.  It’s happening, and it’s happening now.

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