Asia braces itself for the churn to come

Czar Nicholas II, contemplating the new year a century ago, is said to have written in his diary that "1916 was cursed; 1917 will surely be better".

After a year of slowing growth, tension in maritime spaces, several political shocks and the threat of extremist violence, wide swathes of Asia could be excused for sharing similar sentiments as they settle in for the challenges that lie ahead in 2017.

Still, it is always wise to not allow hope to get ahead of reality; the optimistic Czar was forced to abdicate in March 1917 and executed the following year.

Such dire tidings are hopefully not in store for Asia, but it is pretty clear, even this early in the day, that even if the region is spared a revolution, it is heading for a period of considerable turbulence.

From North Korean dictator Kim Jong Un's eagerness to develop his nuclear toys and the warm breath of developing strategic contests in East, South-east and South Asia, to the war in West Asia that threatens to spill over into our neighbourhood - we are, as the saying goes, headed for interesting times.

Three main elements make up this picture.

The first is economics.

Will Asia continue to drive global growth, as China's turbocharged economy helped to do for a quarter century?

The forecasts for the broader region are reasonably positive; the Asian Development Bank and the International Monetary Fund think it could expand at more than 5 per cent this year.

But that does not speak enough for the worry lines over some key economies, particularly the Chinese mainland, where growth has significantly slowed amid warnings of calamitous debt addiction.

Corporate defaults are rising.

Debt that has climbed steeply to between 260 per cent and 280 per cent of GDP - against an average of 188 per cent for emerging economies - is being watched around the world.

Some firms, like Nomura, calculate the debt level to be even higher, at 309 per cent of GDP - compared with 78 per cent back in 2007.

There are worries that the party may end in a bad way, even if in many instances debtors and creditors are both state entities and the state can absorb much of this for longer without wilting.

Continuing capital flight from China underscores pervasive worry among its elite over the state of things.

A rise in US interest rates, which looks inevitable, could widen that flow as investors chase better returns in safe havens.

Meanwhile, an unhelpful US President-elect has added political tension to the mix by threatening a trade war and disturbing settled ways of business on issues such as Taiwan.

Oddly, the US - the nation that traditionally pushed for trade liberalisation - has turned the tables on itself on this score.

India, Asia's No. 3 economy and one that was comfortably positioned to carry the mantle of fastest-growing major economy, is in self-inflicted shock with the Modi government's move to cancel the high-value currency notes that account for 86 per cent of the money in circulation.

Demand has eased and thousands have lost jobs - at least temporarily - from the dislocation, which came even as the investment cycle was yet to pick up.

Like China, India is poised to run into some heavy weather with the Trump administration.

The President-elect looks poorly on US companies setting up overseas manufacturing, while Mr Modi's Make In India is precisely the opposite - offering the lure of a huge market in exchange for the domestic siting of production facilities that bring jobs and technology.

Apple, for instance, has already run into difficulties with the Modi government over its plea for relaxed local sourcing rules.

Likewise, India's annual services trade surplus with the US - to the tune of about US$23 billion (S$33 billion), stemming largely from its outsourcing industry - will also come under unfavourable scrutiny.

And this at a time when India's information technology industry is struggling to stay relevant amid the swift march of automation and artificial intelligence.

The second challenge is geopolitical tensions, even as North Korea's nuclear weapons programme steadily advances.

The young dictator in Pyongyang has proved remarkably durable.

What was thought to be attention-seeking attempts to get Washington to talk to him has turned out to be a serious military programme seeking to miniaturise nuclear warheads which, when married to ballistic missiles, could reach the West Coast of the US.

It is interesting that Mr Trump, who has been disdainful of intelligence briefings, sought his first special classified intelligence briefing on North Korea, according to a recent Reuters report.

This week, he is also said to have finally asked for a briefing on Russia.

The North Korea issue will also severely test US-China ties, particularly if Washington deems China's inability to influence Pyongyang to be deliberate unhelpfulness.

Meanwhile, new players are showing up.

The Russian navy this week arrived in Manila, and in Central Asia it is gradually calibrating its policy with Pakistan and China - raising eyebrows in New Delhi, an old and trusted strategic partner of Moscow's.

China has just won its first big defence contracts with Malaysia and Bangladesh, thus continuing to steadily advance its influence across Asia.

The US response, muted under President Barack Obama, could be altogether different under Mr Trump, and many Asian states are waiting to take their cue from Mr Trump's behaviour in office before making their own strategic choices.

In Japan, Mr Shinzo Abe, the first global leader to call on the victorious Mr Trump, is comfortably placed to rule until at least 2021.

He seems poised to embark on a new phase of militarisation, especially in the light of threats from North Korea's Mr Kim and his own increasingly testy ties with Beijing.

Meanwhile, in South Asia, tensions are rising on both of India's key flanks - the western front with Pakistan and the eastern front with China.

The batch-testing of India's nuclear-capable missiles in recent weeks was a reminder of nations keeping their powder - and delivery systems - dry.

The Korean peninsula is not the only theatre where the threat of a nuclear exchange exists.

The third key issue is extremism and religion.

Issues around faith are taking centre stage in several key nations.

Aside from the persistent threat of terror attacks - a spillover of the war in the Middle East and the trained fighters pushed out of that war heading home to South-east Asia - indigenous factors are also influencing events.

Indonesia, soon to hold polls for the key position of Jakarta governor, is already seeing the cynical use of religion to keep the incumbent off balance - and possibly to bring him down.

State elections looming in several Indian states will also raise religious and other social tensions as the Hindu nationalist Bharatiya Janata Party, having seized power in New Delhi, now tries to bag more provinces.

Meanwhile, Myanmar's continuing crackdown on its Rohingya Muslims has added one more fault line within Asean, as majority Muslim nations such as Malaysia, Indonesia and Brunei look askance at the predominantly Buddhist nation's treatment of its minorities.

More than ever, external forces could impact Asia this year.

Aside from Mr Trump's presidency and the prospect of rising US interest rates, Europe is going to be a big factor.

Besides a "hard Brexit", which now seems the likely scenario, the world will be shaken if German Chancellor Angela Merkel, that anchor of European stability, should suffer an electoral setback.

French politics are also raising anxiety, particularly when it comes to what the ascent of hard-right anti-immigration leader Marine Le Pen could mean for the European project.

This is going to be one bumpy ride.

This article was first published on Jan 06, 2017.
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