Obama re-election sustains US pivot to Asia ?

Posted on November 8, 2012

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WASHINGTON – President Barack Obama’s re-election means he can sustain the strategic shift toward the Asia-Pacific started during his first term but the attention and resources the region gets may be hostage to instability in the Middle East and budget battles in Washington.

>> The Response of China’s Neighbors to the U.S. “Pivot” to Asia

Obama is slated to attend a summit of East Asian leaders in Cambodia this month, underscoring his commitment to the region. He could also make a side-trip to Myanmar, becoming the first U.S. president to visit that military-dominated country to reward its democratic reforms.

Many Asian governments are likely to welcome Obama’s victory over Republican challenger Mitt Romney. Concerned about China’s rising power and assertive behaviour, they have supported the Obama administration’s “pivot” to the region as the U.S. disentangles from the wars in Iraq and Afghanistan.

Still, they also want the U.S. to get along with China, the hub of the Asian economy. Romney’s more confrontational stance, based on his threat to designate China as a currency manipulator, could have set back U.S.-China relations and even sparked a trade war.

Romney’s defeat will be greeted with quiet relief in Beijing, which wants stability in its most critical bilateral relationship as it undergoes its own leadership transition that kicks off at a Communist Party Congress on Thursday.

Whether Asia policy gets the kind of attention from the U.S. as during the first term will depend partly on who succeeds Secretary of State Hillary Rodham Clinton. She has made at least a dozen trips to the region and championed the view that U.S. interests lie in more ties with that booming continent. Her hard-charging top diplomat for East Asia, Kurt Campbell, is also expected to move on.

The agenda of the next secretary of state, who is yet to be named, could be at the mercy of events.

Walter Lohman, director of Asian studies at the Heritage Foundation think-tank , said China is the main long-term strategic threat for the U.S., but the most immediate foreign policy concern is Iran’s nuclear program. A conflict there would suck up resources and could upset what the administration wants to achieve elsewhere, he said.

Fighting in neighbouring Syria also shows no sign of abating. Security in Iraq remains fragile, and in Afghanistan, a withdrawal of U.S. combat forces by 2014 leaves it vulnerable to the kind of civil war that blighted the country in the 1990s and led to a Taliban takeover.

Political problems at home could also cramp Obama’s outreach to Asia.

His most immediate domestic challenge is an impending showdown over tackling the national debt that economists say could send the world’s biggest economy back into recession.

Even before Obama gets to his second inaugural on Jan. 20, he must reach a budget deal with Republicans to prevent a combination of automatic tax increases and steep across-the-board spending cuts — dubbed a “fiscal cliff” — set to take effect in January.

That would entail nearly $500 billion in defence spending cuts over a decade that could undermine plans to devote more military assets to the Asia-Pacific, where the increased capabilities of Chinese forces pose a growing challenge to U.S. pre-eminence in the region.

China is already acting with growing assertiveness in the seas of East Asia.

Its territorial dispute over islands administered by U.S. treaty ally Japan could trigger a military confrontation between Asia’s two biggest economies. This year, China has already faced down the Philippines over sovereignty of a reef in the South China Sea, where the competition among China and its neighbours for fish and potential underwater oil and gas reserves could also sow seeds of conflict.

Two years ago, Clinton announced the U.S. national interest in the peaceful resolution of South China Sea. That step irked Beijing, and managing those diplomatic tensions will be of growing importance in the second term. Washington supports efforts by Southeast Asian nations to negotiate collectively with China on the disputes, but China remains reluctant to play ball.

A strident nationalistic tone in China’s state rhetoric in its dispute with Japan has fueled concerns that the Communist Party could increasingly resort to such patriotic appeals if China’s juggernaut economy slows and public dissatisfaction with the party grows further.

Obama has attempted a balancing act in relations with Beijing, seeking deeper ties and encouraging it to play by international norms to ward off the possibility of confrontation, but also stepping up trade complaints in an effort to protect the interests of U.S. companies.

His second term is likely to see more attention on economic ties with Asia. The U.S. will be looking to finalize the Trans-Pacific Partnership, an 11-nation regional trade pact that excludes China. In a time of bitter partisanship in Washington, that could be an issue where Obama finds common cause with Republicans.

Understanding the U.S. Pivot to Asia

Matthew Pennington

The Paradox of China’s Reform

NEW YORK – The compelling drama of former Chongqing Communist Party chief Bo Xilai’s ouster amid allegations of corruption and murder, and of blind Chinese human-rights advocate Chen Guangcheng’s dash to safety in the US Embassy in Beijing, are more than just fascinating narratives of venality and courage. Unless China can purge the thousands of corrupt Party leaders like Bo, and empower people – like those Chen represents – who have been left behind or harmed by rapid growth, its economy will increasingly suffer.

Like the Asian Tiger economies before it, China has excelled in the first phase of capitalist economic growth, benefiting from massive infusions of capital, low-cost labor, intellectual-property theft, and centralized planning. And, like many of them, China is now facing a “middle-income trap”: as wages rise, its low-end manufacturing is losing global competitiveness while government policies, endemic corruption, and dominant state-owned enterprises are stifling the type of private-sector innovation that China needs most to generate products and services with higher added value.

China’s leaders understand this, which is why the government’s 12th Five-Year Plan calls for a gradual opening up of the Chinese economy. Likewise, a Chinese government think tank worked with the World Bank to produce the China 2030report, which outlines the structural reforms needed to strengthen the foundations of the country’s market-based economy and create a climate of open innovation.

But if China’s national imperative today is reform, the greatest threat to that goal is the massive influence and institutionalized corruption of the country’s entrenched elites. For years, senior Chinese officials and their families have received a cut of countless major investments throughout China. They and their families have become multimillionaires by exploiting the close association of business and politics, as well their strong links with China’s state-owned enterprises.

The resulting rise in inequality has been exacerbated by China’s capital controls and mandated low interest rates on savings. For lack of other options, poor people put their money in banks which then lend to more privileged people to fund state-owned enterprises or much higher-yielding real-estate investments.

This system worked to drive overall economic growth and financial rewards in the first phase of China’s post-reform growth, but the incomes of ordinary Chinese have stagnated over the past decade, their interests have been neglected, capital has been misallocated, and major negative environmental and social side effects have emerged. Now those who have benefited most from the current system are blocking badly needed reforms.

For example, years of imbalanced incentives have led China to overbuild premium residential real-estate, which should cause prices to fall dramatically. But, although the government is trying to take some of the air out of the market, the authorities cannot easily take the more aggressive action that is required, because Chinese officials and other elites store so much of their wealth in real estate, which also comprises much of the collateral of state-connected banks, Similarly, although state-owned enterprises are sucking too much oxygen out of China’s economy, reforming them would require taking on China’s most powerful business and government leaders.

This is why the Chinese government’s dance around the Bo scandal has been so complicated. Bo may have lost an internal political struggle, and may have crossed a line after the murder of British businessman Neil Heywood, for which Bo’s wife is under arrest; but vilifying him is a double-edged sword for the government. On one hand, the authorities need to pursue him aggressively to justify the purge of someone who was so recently lauded. On the other hand, many of the accusations against Bo could be leveled at an extremely large number of senior officials across China who, like Bo, have amassed multimillion-dollar family fortunes.

In highlighting Bo’s misdeeds, the Party is trying to demonstrate that it alone can and should be responsible for addressing official corruption. But given that the people who have benefited so much from the current system are unlikely to clean it up, the only other way to generate reform would be to empower the people getting the short end of the stick – people like Chen and those he has helped.

The crackdown on Chen for representing villagers who have been abused by the authorities follows the same pattern as the silencing of parents who protested shoddy school construction after the 2008 Sichuan earthquake, and of opponents of the environmentally damaging Three Gorges Dam. If China is serious about reform, it will need armies of people like these, fighting for their rights, in order to balance the overwhelming political power of its entrenched elites.

China’s reform process can succeed only if it is pushed from the top and the bottom. The Party needs to find every possible way to get rid of the Bo’s in its midst. Instead of threatening people like Chen, the Party should give them recognition and support. None of this will be easy, but the future of China’s economy depends on it.

Jamie F. Metzl

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