Scenarios for Asia, 20 years on

Scenarios for Asia, 20 years on
Delivering his speech at the Nikkei Conference in Tokyo, PM Lee said the next 20 years will be an historic opportunity for Asia. The risks are not insignificant and the journey will not be easy. But on balance, we will achieve a large part of the good outcomes, and avoid most of the bad scenario, he added.

Everyone knows the remarkable progress Asia has made in the last 20 years. Since the end of the Cold War, Asia's strategic weight in international affairs has grown. It is home to more than half of the world's population, and its share of global GDP has risen from one-fifth to one-third. Asia is exerting greater soft power too, whether through Uniqlo fashion, Bollywood movies, or K-pop.

Where will Asia be 20 years from now? We can predict some trends with confidence, but there are many unknowns, and many different possible outcomes.

The key players will still be the US, China and Japan. (India may play a significant role too, but its focus will be in South Asia rather than East Asia.) What key questions will determine how things turn out in these countries?

Whither regional powers?

United States: Today, the US is the dominant global power. In the Asia-Pacific, US power and influence have underpinned regional security and stability since World War II, and enabled all countries to prosper. The US has been a benign and constructive power, which explains why it is still welcomed by countries in the region. The Obama administration's "rebalancing" towards Asia reflects the American strategic view, that the US has been and always will be a Pacific power.

Unfortunately, the strains of being the global policeman have taken their toll on the US. The wars in Iraq and Afghanistan have cost the US more than 50,000 soldiers killed or wounded. The American people are naturally war-weary. They are reluctant to engage in new fights or take on fresh burdens, whether in Syria, Ukraine or Asia. Its adversaries sense this, and harbour hopes that the US has lost the will to advance its interests and defend its "red lines".

The US economy too has also gone through a rough patch. The global financial crisis was a major setback. The crisis is past, but conditions have still not recovered to their pre-crisis levels.

Politically, deep divisions between the Democrats and Republicans have undermined America's ability to tackle the financial crisis, as well as other important issues ranging from reforming immigration laws to overhauling social spending.

Because of these difficulties, some say that the US is in permanent decline. I do not believe this. The US is a very resilient, dynamic and entrepreneurial society. It has been through many trials and tribulations in its history, but each time it has bounced back.

I believe that in 20 years' time, the US will remain the world's pre-eminent superpower. China's GDP will probably exceed America's in absolute terms, but not in per capita terms. The US will still be the world's most advanced economy, leading the way in innovation, technology and talent. I expect the Fortune 500 global list to include many new American companies which do not yet exist today, just as neither Google nor Facebook existed 20 years ago.

Shale gas will enhance the competitiveness of US industries, and could also be an additional tool of American diplomacy. The US armed forces will still be the most formidable and technologically advanced in the world.

Whatever its preoccupations elsewhere, the US will continue to have a huge stake in Asia. The US will still have important interests, large investments, major markets and many friends here. It will have every incentive to engage the region across a broad front.

There are two key uncertainties in this prediction.

The first is how soon Americans get over the current mood of angst and withdrawal, and regain the confidence and will to advance American interests around the world.

The second is when the US can get its politics to work. Politicians on both sides need to come together to overcome the present gridlock and forge a consensus on the way forward, rather than be mired in partisanship and fundamental disagreement. I do not know when the US public mood or political impasse will change, but I am confident these are not questions of whether, but when.

China: Besides the US, China will also play a vital role in the region. In fact, the biggest change for Asia in the next 20 years will be the growth of China's power and influence. Regional countries are still adjusting to this.

The World Bank forecasts that China will be the world's largest economy in PPP (purchasing power parity) terms by the end of this year. In 20 years, it will have grown three to four times larger. Its standard of living will have reached the level of what the Chinese call , or a modestly prosperous society.

Second-tier Chinese cities like Chongqing and Guangzhou will join Shanghai and Beijing among the world's leading metropolitan areas. Many more Chinese companies will be global leaders, such as ICBC, Haier and Alibaba.

The People's Liberation Army will be a much more advanced and powerful fighting force, commensurate with China's economy and power. The PLA is developing and acquiring advanced military hardware and capabilities like stealth jets, aircraft carriers and cyber warfare. It will still not be anywhere near the US military in sophistication or reach, but it will be a force to be taken very seriously.

China's military modernisation should not surprise anyone. National defence has always been one of China's Four Modernisations, along with agriculture, industry, and science and technology.

But China also has a serious demographic challenge. Because of the one-child policy, China will be one of the most rapidly ageing countries in the world. Already the size of China's working population has peaked, and is shrinking. In 20 years' time, China will have nearly 300 million seniors (aged 65 and above) - almost the entire US population today. China is likely to grow old before it grows rich.

I see two key uncertainties in China's future path. Internally, can China transform its society to meet the new social needs and expectations of a new generation, and its politics to produce a stable, forward-looking government that acts in China's enlightened self-interests? China's economic transformation is bringing profound social changes. The new generation is urbanised, educated, Internet-savvy, and vocal. Hundreds of millions are well-travelled, middle-income professionals. China needs to build social institutions and safety nets to take care of them. It also needs to adapt its political system to work in this new society, and overcome serious existing problems like corruption.

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