Managing Asia’s bipolar disorder
US standing is up, China has been dragged down and middle nations have seen a steady decline in their influence, according to the latest Lowy Institute Asia Power Index. Originally published in The Australian Financial Review.
The past year has not been kind to most countries in the Indo-Pacific. Set aside the challenges each has faced in managing the pandemic at home, a strained strategic environment has frayed inclusive regional co-operation. Australia’s emphasis has shifted from proactively shaping the regional order to deterring China from altering it by force.
The region has become decidedly less favourable to middle powers in 2021 according to the latest Lowy Institute Asia Power Index — a data-driven annual ranking of the relative power of the states in the Indo-Pacific.
Most state actors are less powerful than either a year ago or prior to the pandemic, which has tested state capacity, turned societies and governments inwards, and weakened the ability of a majority of countries to shape and respond to their external environment.
The one standout exception this year is the United States, whose standing in the region grew by a more substantial (albeit still modest) margin than that of any other Indo-Pacific country. By contrast, China’s power has dropped for the first time in four editions of the Index, dragged down by growing economic headwinds, an ageing population, and an increasingly inward-looking political system. President Xi Jinping himself has not left ‘Fortress China’ in almost two years.
But here’s the hitch. Beijing’s lead in the rest of the region has not been substantially undermined. The two superpowers wield a growing advantage in relation to nearly every other established or emerging power in Asia.
The region has become more bipolar and less multipolar. The countries with the most potential to contribute to a regional multipolar order have each lost more ground than did China. Japan is a ‘smart power’ but its formidable influence is steadily eroding. India remains an underachiever relative to both its size and potential.
Developing economies, including India and Indonesia, have been hardest hit by the pandemic relative to their pre-Covid economic growth paths. Uneven economic impacts and recoveries from the pandemic will likely continue to alter the regional balance of power well into the decade.
US allies, such as Australia and Japan, and even key non-allied powers, such as India, have never been more dependent on American capacity and willingness to sustain a military balance. Beijing’s defence spending is now 50 per cent larger than the combined outlays of India, Japan, Taiwan and all 10 ASEAN countries.
Meanwhile, power politics and internal weakness have steadily undermined ASEAN’s ability to uphold a degree of multilateral order capable of tying both superpowers to the region. This has contributed to a rise in ‘mini-lateral’ coalition building and the steady decline in the influence of the Southeast Asian middle powers.
Sixth-ranked Australia has weathered these events better than most middle powers. Geographic isolation and high vaccination rates have helped us avoid both mass COVID-19 casualties and a major recession. And we have improved our economic resilience despite coming under sustained trade sanctions by China.
Nor should we be overly concerned by our future prospects. By 2025, Australia’s economy at market exchange rates will still be over 20 per cent larger than Indonesia’s with a population 11 times our size – no different to what it was prior to the pandemic. By that point we will also likely have overtaken Russia as the twelfth largest economy globally and sixth largest economy regionally.
But domestic strength is only half the story – just as important as what a country has is what it does with what it has.
Australia has been unusually swift to embrace the Indo-Pacific’s bipolar moment. The AUKUS pact marks a significant step towards greater integrated deterrence with our longstanding ally, the United States. But it also marks a deepening rather than a widening in our regional partnerships.
In parallel, closed borders and the consequent disruption to international exchanges mean we are also trending down in cultural, diplomatic and economic influence. As we move into a more contested and bipolar era, it becomes all the more important therefore that we maintain the depth of Australia’s engagement in the Indo-Pacific.
In the Pacific, Australia is the dominant resident power and will, alone if necessary, use military force to safeguard regional stability – see, for example, the timely intervention in the Solomon Islands.
In Southeast Asia, the multilateralists must work with and through a broad church of countries to navigate a path through US-China competition. Our participation in the ASEAN-led Regional Comprehensive Economic Partnership (RCEP), for instance, which comes into force in January 2022, marks a positive step towards shoring up an enfeebled rules-based regional order.
In the broader region, Canberra’s alliance managers have a seat at the major power table as part of the Quad. The grouping could in time contribute to US efforts to deter China or confront it militarily.
But the reality is Australia is still years away from acquiring the capabilities to project power at long range. In the meantime, Southeast Asia, for all its complexity and diversity, is where we must continue to expend the greatest diplomatic effort. The mixed reaction to AUKUS exposed two emerging camps of middle powers: between the balancers and the hedgers.
As Asia becomes more bipolar, balancing our mini-lateral and multilateral diplomacy requires a clearer differentiation of objectives: between deterring China through strategic partnerships, on one hand, and cooperating with a more diverse set of middle powers, on the other, to shore up the rules-based component of regional order.
