East Asia: Developments And Challenges : Developments and Challenges 9789814407830, 9789814407823

Citation preview

EAST ASIA Developments and Challenges

8505_9789814407823_tp.indd 1

2/8/12 3:07 PM

Series on Contemporary China

(ISSN: 1793-0847)

Series Editors: Joseph Fewsmith (Boston University) Zheng Yongnian (East Asian Institute, National University of Singapore) Published* Vol. 21

Oil and Gas in China: The New Energy Superpower’s Relations with Its Region by Lim Tai Wei

Vol. 22

China and The Global Economic Crisis edited by Zheng Yongnian & Sarah Y. Tong

Vol. 23

Social Cohesion in Greater China: Challenges for Social Policy and Governance edited by Ka Ho Mok & Yeun-Wen Ku

Vol. 24

China’s Reform in Global Perspective edited by John Wong & Zhiyue Bo

Vol. 25

The Transition Study of Postsocialist China: An Ethnographic Study of a Model Community by Wing-Chung Ho

Vol. 26

Looking North, Looking South: China, Taiwan, and the South Pacific edited by Anne-Marie Brady

Vol. 27

China’s Industrial Development in the 21st Century edited by Mu Yang & Hong Yu

Vol. 28

Cross-Taiwan Straits Relations Since 1979: Policy Adjustment and Institutional Change Across the Straits edited by Kevin G. Cai

Vol. 29

The Transformation of Political Communication in China: From Propaganda to Hegemony by Xiaoling Zhang

Vol. 30

The Great Urbanization of China edited by Ding Lu

Vol. 31

Social Structure of Contemporary China edited by Xueyi Lu

Vol. 32

East Asia: Developments and Challenges edited by Yongnian Zheng & Liang Fook Lye

*To view the complete list of the published volumes in the series, please visit: http://www.worldscibooks.com/series/scc_series.shtml

Lixi - EAST ASIA.pmd

1

8/23/2012, 1:41 PM

Series on Contemporary China – Vol. 32

EAST ASIA Developments and Challenges

Yongnian Zheng Liang Fook Lye East Asian Institute, National University of Singapore, Singapore

World Scientific NEW JERSEY

•

LONDON

8505_9789814407823_tp.indd 2

•

SINGAPORE

•

BEIJING

•

SHANGHAI

•

HONG KONG

•

TA I P E I

•

CHENNAI

2/8/12 3:07 PM

Published by World Scientific Publishing Co. Pte. Ltd. 5 Toh Tuck Link, Singapore 596224 USA office: 27 Warren Street, Suite 401-402, Hackensack, NJ 07601 UK office: 57 Shelton Street, Covent Garden, London WC2H 9HE

British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library.

Series on Contemporary China — Vol. 32 East Asia: Developments and Challenges Copyright © 2013 by World Scientific Publishing Co. Pte. Ltd. All rights reserved. This book, or parts thereof, may not be reproduced in any form or by any means, electronic or mechanical, including photocopying, recording or any information storage and retrieval system now known or to be invented, without written permission from the Publisher.

For photocopying of material in this volume, please pay a copying fee through the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA. In this case permission to photocopy is not required from the publisher.

ISBN 978-981-4407-82-3

In-house Editor: Dong Lixi

Typeset by Stallion Press Email: [email protected]

Printed in Singapore.

Lixi - EAST ASIA.pmd

2

8/23/2012, 1:41 PM

b1401

East Asia: Developments and Challenges

Acknowledgements Most of the chapters in this collection were previously submitted as Background Briefs, a product of EAI that examines contemporary developments related to China, Japan and South Korea, which are circulated to the Singapore government. The chapters were subsequently presented at a one-day public conference titled “East Asia: Outlook For 2012” where the authors shared with the audience their prognosis for China, Japan or Korea in 2012. For the purpose of this publication, the authors have further revised and updated their chapters or written entirely new portions. We wish to acknowledge their concerted efforts which have made this publication possible. We would further like to express our thanks to our colleague John Wong who gave us the idea to turn the chapters presented at this conference into a publication. He is an ardent advocate of empiricalbased research and constantly exhorts us to have our chapters published. This publication is partly due to his strong motivation. Our thanks also extend to the editorial team of EAI, in particular Jessica Loon, Chia Shuhui and Lily Hong for their painstaking efforts in editing and improving the chapters that are published here.

v

b1401_FM.indd v

8/28/2012 8:03:54 PM

b1401

East Asia: Developments and Challenges

vi Acknowledgements

In addition, we wish to thank the World Scientific for its efforts in publishing the book, and especially to Ho Yi Kai, Michael Heng and Dong Lixi who were involved in various stages of the publication. ZHENG Yongnian and LYE Liang Fook Singapore June 2012

b1401_FM.indd vi

8/28/2012 8:03:54 PM

b1401

East Asia: Developments and Challenges

Contents

Acknowledgements

v

List of Contributors

ix

Chapter 1

Chapter 2

Chapter 3

Chapter 4

Introduction East Asia: Developments and Challenges ZHENG Yongnian and LYE Liang Fook

1

China’s Politics: Maintaining Status Quo and Preparing for Leadership Succession ZHENG Yongnian and CHEN Gang

9

China’s Economy: Moderate Slowdown, Still Weaker Growth Prospects for 2012 John WONG

29

China’s Foreign Policy: Coping with Shifting Geopolitics and Maintaining Stable External Relations ZHENG Yongnian and LYE Liang Fook

49

vii

b1401_FM.indd vii

8/28/2012 8:03:54 PM

b1401

East Asia: Developments and Challenges

viii Contents

Chapter 5

Chapter 6

Chapter 7

Chapter 8

Chapter 9

Japan’s Politics: Under the Shadow of the Triple Disasters LAM Peng Er

73

The Korean Peninsula Faces Uncertainties and Challenges YUAN Jingdong

97

Taiwan’s 2012 Presidential and Legislative Elections QI Dongtao

115

Taiwan’s Economy: Unspectacular Growth and Further Dependence on China CHIANG Min-Hua and Sarah TONG

133

US-Taiwan Relations under Ma Ying-Jeou Katherine TSENG Hui-Yi

151

Chapter 10 Fifteen Years After Hong Kong’s Handover: Is this City Dying? KWONG Kin-ming and YEW Chiew Ping

165

Index

189

b1401_FM.indd viii

8/28/2012 8:03:54 PM

b1401

East Asia: Developments and Challenges

List of Contributors (in order of chapters in running sequence)

ZHENG Yongnian is Professor and Director of the East Asian Institute (EAI), National University of Singapore. He is the editor of the Series on Contemporary China (World Scientific Publishing) and editor of China Policy Series (Routledge). He is also the editor of China: An International Journal and East Asian Policy. His research interests include China’s transformation and its external relations. His chapters have appeared in journals such as Comparative Political Studies, Political Science Quarterly, Third World Quarterly and China Quarterly. He is the author of an enormous number of books, including The Chinese Communist Party as Organizational Emperor, Technological Empowerment, De Facto Federalism in China, Discovering Chinese Nationalism in China and Globalization and State Transformation in China, and co-editor of 15 books on China’s domestic development and international relations with the latest volumes being China and the New International Order (2008) and China and International Relations: The Chinese View and the Contribution of Wang Gungwu (2010). Professor Zheng received his B.A. and M.A. degrees from Beijing University, and his Ph.D. at ix

b1401_FM.indd ix

8/28/2012 8:03:54 PM

b1401

x

East Asia: Developments and Challenges

List of Contributors

Princeton University. He has been a columnist for Xinbao (Hong Kong) and Zaobao (Singapore) for many years, writing numerous commentaries on China’s domestic and international affairs. LYE Liang Fook is Assistant Director and Research Fellow at the East Asian Institute of the National University of Singapore (NUS). His research interests include China’s mass media (including newspaper media groups and the Internet), leadership changes and political legitimacy in China. He has also done extensive research and written on Singapore’s relations with China, particularly on various bilateral cooperative projects between the two countries. In particular, he was part of a team that completed a study on the Suzhou Industrial Park, a flagship project between China and Singapore. He follows developments on the Sino-Singapore Tianjin Eco-city Project, another flagship project between the two countries, closely. CHEN Gang is Research Fellow at the EAI, National University of Singapore. Since he joined EAI in 2007, he has been closely interpreting China’s environmental and energy policies and publishing extensively on sustainable development of China. He is the author of China’s Climate Policy (London and New York: Routledge, 2012), Politics of China’s Environmental Protection: Problems and Progress (Singapore: World Scientific, 2009) and The Kyoto Protocol and International Cooperation against Climate Change (in Chinese) (Beijing: Xinhua Press, 2008). His research chapters have appeared in internationally refereed journals such as The International Spectator, China: An International Journal, The Chinese Journal of International Politics, and The Journal of East Asian Affairs. He has also contributed a number of book chapters on China’s environmental governance, natural disaster management and climate change politics to edited volumes published by Routledge, Rowman & Littlefield and other scholarly publishers. His research interests include China’s domestic politics, foreign policy, environmental governance and energy policy. He is frequently interviewed by The Wall Street Journal, The

b1401_FM.indd x

8/28/2012 8:03:54 PM

b1401

East Asia: Developments and Challenges

List of Contributors xi

Economist, CNBC, the BBC, NHK, Channel NewsAsia and Xinhua News Agency. John WONG is currently Professorial Fellow and Academic Advisor at the EAI, National University of Singapore. He was formerly Research Director of EAI and Director of the Institute of East Asian Political Economy (IEAPE). He taught Economics at the University of Hong Kong from 1966 to 1970 and at the National University of Singapore from 1970 to 1990. He has held short-term visiting positions at Harvard, Yale, Oxford and Toronto. He obtained his Ph.D. from the University of London in 1966. He has written/edited 33 books, and published over 400 articles and chapters on China and other East Asian economies, including ASEAN. In addition, he has written over 80 policy-related reports on China’s development for the Singapore government. LAM Peng Er is Senior Research Fellow at EAI. He obtained his PhD from Columbia University. His latest single authored book is Japan’s Peace-building Diplomacy in Asia: Seeking a more active political role (New York and London: Routledge, 2009). YUAN Jingdong is Acting Director and Associate Professor at the Centre for International Security Studies (CISS), University of Sydney. He received his PhD in political science from Queen’s University in 1995 and has had research and teaching appointments at Queen’s University, York University, the University of Toronto, the University of British Columbia, where he was a recipient of the prestigious Iaazk Killam Postdoctoral Research Fellowship, and the Monterey Institute of International Studies. He is the co-author of China and India: Cooperation or Conflict? (Boulder and London: Lynne Rienner Publishers, 2003) and his publications have appeared in Asian Survey, Contemporary Security Studies, Far Eastern Economic Review, The Hindu and Japan Times, among others. Prior to joining CISS, Dr Yuan served as Director of the East Asia Nonproliferation Program at the James Martin Center for Nonproliferation Studies,

b1401_FM.indd xi

8/28/2012 8:03:54 PM

b1401

East Asia: Developments and Challenges

xii List of Contributors

and was Associate Professor of International Policy Studies at the Monterey Institute of International Studies. QI Dongtao is Research Fellow at EAI, National University of Singapore. He obtained his PhD in sociology from Stanford University. His research interests cover mainland China and Taiwan with a focus on social movements, nationalism and state-society relations. His publications have appeared or are forthcoming in Journal of Contemporary China, International Journal of China Studies, East Asian Policy and Rural China Review. He is working on a book manuscript on popular support for the Taiwan Independence Movement and the Democratic Progressive Party in Taiwan and is collaborating with colleagues on a research project about Chinese higher education reform. CHIANG Min-Hua was awarded a doctorate at the International Political Economy from the Université Pierre-Mendès-France in Grenoble, France in 2008. Her research interests include economic integration between the United States and East Asia, Taiwan’s economic development and cross-strait economic relations. Before joining EAI, she was involved in the research project, “The Current Situation in the South China Sea Region and Taiwan’s New Strategic Thinking” at the Institute of International Relations, Chengchi University. She then joined the Taiwan External Trade Development Council where she was responsible for Indonesian market research. She was later involved in Taiwan and global service sector research when she was at the Commerce Development Research Institute. Sarah Y TONG is Senior Research Fellow at EAI, National University of Singapore. She graduated from Beijing University of Aeronautics and Astronautics and worked at the Development Research Center of China’s State Council for several years. She obtained her PhD in Economics from the University of California in San Diego. She held an academic position in the School of Business and Economics at the University of Hong Kong before joining NUS. She was Assistant

b1401_FM.indd xii

8/28/2012 8:03:54 PM

b1401

East Asia: Developments and Challenges

List of Contributors xiii

Professor at the Department of Economics at the National University of Singapore. Her research interests concentrate on the recent transformation of the Chinese economy, including developments in trade, foreign investment and industrial restructuring. Her recent works appeared in journals such as Journal of International Economics, Global Economic Review, China: An International Journal, Review of Development Economics, China and the World Economy, Comparative Economic Studies and China Economic Review. In addition to contributing chapters to several recent books on contemporary China, she co-edited a book titled China and the Global Economic Crisis, published by World Scientific in 2010. She is also associate editor for China: An International Journal. Katherine TSENG Hui-Yi is Research Associate at EAI. After obtaining her doctoral degree from UW-Wisconsin, Madison, she went to Beijing, China and spent some time with The Beijing Arbitration Committee (2010, Spring), studying current arbitration issues in China. She then joined the Singapore International Arbitration Centre (2010, Autumn) and had first-hand experiences with how states and private sectors worked to resolve their disputes. Subsequently, she joined EAI around end-2010. These experiences greatly enriched her perceptions towards conflict management and dispute resolutions in the international community, enabling her to see these issues from various angles instead of mere legal ones. Her research interests range from international trade dispute resolutions in the World Trade Organization to maritime conflict management and dispute resolution in East Asian areas. Currently, she is working on issues concerning maritime territorial issues involving China, ASEAN and Taiwan. KWONG Kin Ming graduated from the Department of Government and Public Administration at the Chinese University of Hong Kong in 2009 before he pursued his Masters degree in public policy at the Lee Kuan Yew School of Public Policy with a scholarship from 2009 to 2011. He is also interested in other disciplines including sociology, cultural studies and philosophy. His current research interests include

b1401_FM.indd xiii

8/28/2012 8:03:54 PM

b1401

xiv

East Asia: Developments and Challenges

List of Contributors

transitional politics, politics in Hong Kong, Singapore, China and Southeast Asia as well as issues towards a better model of governance. Before joining EAI, he was a research assistant on a book project, China Experiments: From Local Innovations to National Reform (published by the Brookings Institution in early 2012) under Professor Ann Florini at the Lee Kuan Yew School of Public Policy. YEW Chiew Ping obtained her PhD in Political Science from the National University of Singapore in 2009. Her ongoing research interests include comparative development and democratisation in Hong Kong, Taiwan and Singapore, the politics of land use conversion in China, and transnational activism for the Tibet cause. She has published in The China Quarterly and Journal of Contemporary China.

b1401_FM.indd xiv

8/28/2012 8:03:54 PM

b1401

East Asia: Developments and Challenges

Chapter

1 Introduction East Asia: Developments and Challenges ZHENG Yongnian and LYE Liang Fook

FOREWORD The chapters in this volume attempt to identify important and emerging political and economic trends in East Asia.1 There is an urgent need to conduct such a review of the state of East Asian affairs 1

The chapters in this volume were initially presented at a forum titled “East Asia: Outlook for 2012” organised by the East Asian Institute in Singapore in February 2012. The forum traced China’s domestic political and economic development as well as its foreign policy challenges. It also examined the domestic and external challenges of Japan, the two Koreas, Hong Kong and Taiwan. The editors would like to thank the contributors for revising and updating their chapters following the forum. All the chapters have been revised and updated to reflect long term developments in the region. 1

b1401_Ch-01.indd 1

8/28/2012 7:26:51 PM

b1401

2

East Asia: Developments and Challenges

Y. Zheng and L.F. Lye

as the international and regional environments seemed to be heading towards greater uncertainty. In this volume, East Asia refers to countries such as the People’s Republic of China (hereafter China), Japan, North and South Korea, and the localities of Taiwan and Hong Kong. At the international level, the European Union (EU) continues to grapple with its debt crisis with no clear resolution in sight. The Greek government, at the forefront of the crisis, and in attempting to seek a way forward, is expected to introduce more austerity measures that could result in more taxes, wage cuts and layoffs. There have even been calls for Greece to leave the eurozone. Even if the Greek situation is addressed, serious doubts still hover over the financial health of other European countries such as Portugal, Italy and Spain. While the EU will continue to work hard to cope with the crisis, the problems of the eurozone will mean slower economic growth for the EU as a whole for years to come. This will also imply reduced exports from countries in Asia, including East Asia, as the EU is a major import market for the region. Furthermore, there is the related issue of market confidence in the EU that will also take some time to recover. On the other side of the Atlantic, the United States is gearing up for its presidential and congressional elections that will take place towards the end of 2012. The outcome of these elections would have implications for America’s relations with countries in East Asia, particularly China. In the run-up to these elections, there are already potential candidates who have whipped up anti-China sentiments or even called for tough anti-China measures to appeal to their respective constituencies. In particular, the Republican presidential hopeful Mitt Romney has accused Obama for being soft on China during Chinese Vice President Xi Jinping’s visit to the United States in February 2012. While the White House has called Xi’s visit as an investment in the future, Romney described it as “empty pomp and ceremony”. If elected as president, he has promised to designate China a “currency manipulator” and take “appropriate action”.2 Not to be outdone, the 2

“How I will respond to China’s growing power”, The Wall Street Journal, 16 February 2012.

b1401_Ch-01.indd 2

8/28/2012 7:26:51 PM

b1401

East Asia: Developments and Challenges

East Asia: Developments and Challenges 3

Obama administration had pressed Xi on a range of sensitive issues during his visit. Following Xi’s visit, Obama signed an executive order in the same month of February to create a trade enforcement unit to investigate unfair trading practices in countries such as China. These anti-China sentiments can be partly attributed to the heat of electioneering. More significantly, they reflect how the fortunes of the United States and China have changed over the years. Since the economic crisis struck the United States in the fall of 2008, the United States has never fully recovered to its position prior to the crisis. Apart from the immediate challenge of reviving the economy by raising productivity and competitiveness, the United States and even countries in the EU face the even more difficult psychological challenge of having to adjust to China’s increased prominence on the world stage. With the relative decline of the United States and the EU, increasing doubts have been raised concerning the values and beliefs that have undergirt the United States and individual European countries’ political systems and institutions since World War Two. China’s current stellar economic growth in the midst of the sputtering performance of the United States and the EU economies has lent increasing legitimacy to the attractiveness of China’s model or development path that combines strong authoritarian leadership with the vibrancy of a market economy. Managing a rising China and a declining United States and the EU will have an impact, whether big or small, on the countries in Asia. In East Asia, a number of countries have either undergone or will undergo major elections that have elected or will elect a new leadership to take over the helm, with implications for policy adjustments or possibly even policy changes in these countries. China, for one, is all geared up for its crucial leadership transition at the 18th Chinese Communist Party (CCP) Congress at the end of 2012. Hu Jintao is expected to hand over the mantle of leadership to a younger generation of leaders led by Xi Jinping. In North Korea, Kim Jong-un has been thrust into the political limelight with his father’s demise in December 2011. How will Kim consolidate his power and introduce policy changes in the direction of greater economic liberalisation to

b1401_Ch-01.indd 3

8/28/2012 7:26:51 PM

b1401

4

East Asia: Developments and Challenges

Y. Zheng and L.F. Lye

sustain the North Korean regime remain matters of key interest to outside observers. Regarding Japan, the country not only is still reeling from the triple disasters (tsunami, earthquakes and the radioactivity fallout), but has yet to find a way out of its economic malaise. The change of premiership from Prime Minister Naoto Kan, who resigned in August 2011 over his administration’s poor handling of the triple disasters, to the new administration under Prime Minister Yoshihiko Noda has not helped either. Prime Minister Noda faces daunting challenges including implementing arduous nuclear decontamination efforts and reviving Japan’s economy. In Hong Kong, the new Chief Executive (CE) will most likely have to implement and oversee the controversial issue of universal suffrage for the CE and Legislative Council during his term. In Taiwan, even though the incumbent President Ma Yingjeou won a convincing victory in the presidential election in February 2012, he faces the unenviable task of devising more effective policies to spread the benefits of the ever-improving cross-strait relationship to the ordinary Taiwanese.

OUTLINE OF CHAPTERS In Chapter 2, Zheng Yongnian and Chen Gang highlight the domestic challenges that range from inflationary pressures, widening disparities and rampant corruption to pockets of social unrests that the CCP and government have to grapple with. In particular, the authors observe that local protests and riots are on the rise, most of which are triggered by land seizures and corruption that infringe the interests of individuals. However, these unrests are usually targeted at the immediate officialdom and not at the central authorities. The paper also observes that many Chinese intellectual groups have become increasingly impatient and unhappy with the slow pace of political reforms. The overall political landscape is one in which a more pluralistic society is forming within an authoritarian governing structure. On China’s economy, John Wong in Chapter 3 debunks the view that China’s economic growth suffered a “hard landing” due to the

b1401_Ch-01.indd 4

8/28/2012 7:26:51 PM

b1401

East Asia: Developments and Challenges

East Asia: Developments and Challenges 5

slower growth of 9.2 per cent in 2011 compared to 10.3 per cent in 2010. Instead, he asserts that China’s growth performance in 2011 was a “very soft” landing, as the growth of 9.2 per cent was actually quite remarkable by regional and global standards. In the years ahead, the author argues that China is unlikely to have double-digit rates of growth. As the Chinese economy is already large and fast maturing, it should not continue with such breakneck growth anymore. It would simply be too disruptive for the world if China’s economy should keep on adding another Japanese-sized economy every five years. Turning to China’s foreign policy, Zheng Yongnian and Lye Liang Fook observe in Chapter 4 that China faces a more complex external environment with the decision by the United States to step up its political, diplomatic, economic and security presence in the Asia-Pacific region. Other issues that will have an impact on China’s national interests include the possibility of a Trans-Pacific Partnership Agreement that could raise the development bar for China as it would cover areas beyond trade such as intellectual property rights, labour standards and the environmental issues, all of which China is relatively weak in. Regional flashpoints such as the South China Sea disputes and the stability of the Koran Peninsula may also rear their ugly head again and affect the dynamics of the region. On Japan, Lam Peng Er in Chapter 5 points out that the triple disasters have brought out the best and worst in Japan. On the one hand, the stoic countenance and good social order of the Japanese people in the wake of the disasters were “admirable, awesome and impressive”; on the other hand, the disasters revealed the lack of proper state supervision, accountability and adequate preparation for natural disasters, and the “incestuous” relations among politicians, bureaucrats and industry players in the nuclear energy sector. Besides dealing with nuclear decontamination and reconstruction issues, the Japanese government has to also manage a growing public debt and fiscal crisis, cope with an ageing and shrinking population, revive a stagnant economy and restore public confidence in the political leadership. Turning to the Korean Peninsula, Yuan Jingdong in Chapter 6 argues that Kim Jong-un faces a daunting task of consolidating his position as North Korea is experiencing a severe food shortage, a

b1401_Ch-01.indd 5

8/28/2012 7:26:51 PM

b1401

6

East Asia: Developments and Challenges

Y. Zheng and L.F. Lye

debilitating economy and continued isolation. However, in the short run, forces within North Korea would most likely coalesce around Kim to ensure regime stability. In South Korea, Yuan observes that there are increasing calls for a return to the “sunshine” and “peace and prosperity” policies as the hard-line stance of President Lee Myung-bak has made little headway in both the denuclearisation and peninsula reconciliation issues. In Chapter 7, Qi Dongtao analyses the outcome of Taiwan’s elections in 2012 and offers his take on the issues that will preoccupy Taiwan in the years ahead. Qi opines that the incumbent President Ma Ying-jeou’s successful China policy is the biggest contributory factor to his victory at the presidential polls. Conversely, Tsai Ingwen’s (Ma’s opponent) defeat was primarily due to her ambiguous China policy. With victory behind him, Ma will need to get down to the unenviable job of addressing social injustice issues in his second term. As for the Democratic Progressive Party led by Tsai, it is likely to take a more realistic and pragmatic position on cross-strait issues. Chiang Min-hua and Sarah Tong focus on Taiwan’s economic challenges in Chapter 8. In their view, Taiwan will experience much slower growth due to the economic uncertainties in the United States and Europe, the continued appreciation of Taiwanese currency, and the implementation of South Korea’s Free Trade Agreement with the EU and America which will negatively impact Taiwan’s exports to these two large consumer markets. Amid these uncertainties, Taiwan’s economic dependence on China is expected to increase further. This could help to ensure a reasonable rate of growth for Taiwan. In Chapter 9, Katherine Tseng examines the implications of Taiwan’s increasing dependence on mainland China on US-Taiwan relations. Tseng observes that Ma Ying-jeou’s victory in the January 2012 presidential elections seems to have reinforced a view that most Taiwanese prefer the benefits and stability of closer ties with China. On its part, the United States also appeared to favour a Ma victory, judging from a series of pro-Ma initiatives the United States introduced before the presidential election. Not surprisingly, Taiwan’s greater dependence on China has fed an intense debate within the US on whether it should continue to sustain its ties with Taiwan (to

b1401_Ch-01.indd 6

8/28/2012 7:26:51 PM

b1401

East Asia: Developments and Challenges

East Asia: Developments and Challenges 7

prevent Taiwan from falling completely into China’s embrace) or gradually reduce its ties with Taiwan (in recognition of China’s unstoppable dominance over Taiwan). To a large extent, the reality of closer Taiwan-China ties is bound to lead the United States to review or adjust its Taiwan policy. Kwong Kin-ming and Yew Chiew Ping highlight in Chapter 10 the challenges faced by Hong Kong under the “one country, two systems” model of governance. While Hong Kong remains the world’s top international financial hub, the authors observe that there is pervasive discontent over the society’s widening rich-poor gap, rocketing housing prices and perceived collusion between the government and business interests, whose political and economic power are entrenched in the existing system. These issues have undermined Hong Kongers’ trust in their government and weakened confidence in the “one country, two systems”. Besides having to grapple with the above challenges, the new CE may have to implement and oversee universal suffrage for the CE election and Legislative Council election during his term. He may also have to look into the legislation of Article 23, a political “hot putato” that brought down the first CE Tung Chee-hwa.

b1401_Ch-01.indd 7

8/28/2012 7:26:51 PM

b1401

East Asia: Developments and Challenges

This page intentionally left blank

b1401_Ch-01.indd 8

8/28/2012 7:26:51 PM

b1401

East Asia: Developments and Challenges

Chapter

2 China’s Politics: Maintaining Status Quo and Preparing for Leadership Succession ZHENG Yongnian and CHEN Gang

ABSTRACT In 2011, the Chinese government overcame a string of challenges ranging from inflation and corruption to social unrest. However, the government’s soaring fiscal revenue in the aftermath of a global financial crisis has sparked a domestic backlash of guofu minqiong (the state is rich, the people are poor). Social protests in 2011, particularly Internet-based ones, were largely driven by global upheavals elsewhere. The flurry of “independent candidates” for grass-roots parliamentary elections and the arrest of political critic Ai Weiwei reflected the growing tension between state and society. Local protests and riots are on the rise, most of which are triggered by land seizures and corruption

9

b1401_Ch-02.indd 9

8/28/2012 7:31:28 PM

b1401

10

East Asia: Developments and Challenges

Y. Zheng and G. Chen

that infringes on indigenous people’s economic interests. Protesters who are seldom driven by political motives usually target local officials instead of the central government in Beijing. On the Party front, the Chinese Communist Party (CCP) has been busy reshuffling thousands of Party and administrative officials at various levels to prepare for the leadership succession scheduled for the 18th Party Congress in 2012. Bo Xilai, a once hopeful candidate for the next Politburo Standing Committee lauded by leftists for leading a high-handed campaign against corruption and crime, launching egalitarian welfare programmes and initiating the singing “red (revolutionary) songs” campaign in Chongqing was sacked due to his wife’s scandal. A more liberal approach in the form of “Guangdong Model” has been advocated by Wang Yang, Bo’s rival, whose chance of being promoted to top leadership has been greatly enhanced since Bo’s dismissal. The focus for China in 2012 will be on maintaining stability to ensure a smooth leadership transition. It is unlikely that Beijing will introduce any radical measures to liberalise its rigid political system despite the intellectuals’ call for political reform.

AN ALMIGHTY GOVERNMENT VERSUS A MORE PLURALISTIC SOCIETY The year 2011 can be said to be a relatively “non-eventful” year for China. Nothing of particular significance has surfaced even in the face of a string of challenges ranging from a runaway inflation, rampant corruption, to pockets of social unrest. The Chinese leadership has sidestepped the shockwave of the western debt crisis, curbed inflation and deftly tackled social protests in different parts of the country. The pa-luan (fearing instability) mentality has prevented the government from scaling back economic development plans that will create more resources for it to muddle through. Despite the quiet confidence, the Chinese leadership is keeping a close tab on the mushrooming of disgruntled social groups and an increasingly vocal and politically more conscious intelligentsia. The internet age has globalised protests from the “Arab Spring” to

b1401_Ch-02.indd 10

8/28/2012 7:31:28 PM

b1401

East Asia: Developments and Challenges

Maintaining Status Quo and Preparing for Leadership Succession 11

“Occupy Wall Street”.1 Chinese citizens today are no longer apolitical or passive; their deft usage of social networking sites like Weibo (Twitter-like microblogging service) to challenge China’s political establishment testifies that China has entered a new age. The global financial crisis has proven to be a double-edged sword for the Chinese government. On the one hand, the party-state has successfully minimised China’s exposure to the economic downturn in the west through the massive launch of Keynesian-type stimulus measures and reinforced state sectors in the national economy; on the other hand, the enhanced state capitalism has sparked a domestic backlash on issues of guojin mintui (the state advances, the private sector retreats) and guofu minqiong (the state is rich, the people are poor). In the first half of 2011, the Chinese government’s fiscal revenues soared 31.2% year on year, much faster than the 9.4% gross domestic product (GDP) growth and 7.6% per capita income growth of urban residents.2 China’s astronomical investment in infrastructure has also stoked rampant corruption in various public sectors. Despite the fact that incumbent Minister Liu Zhijun of the Railway Ministry and some of his subordinates had already been arrested in early 2011 for alleged embezzlement, a deadly train crash that took the lives of 40 near Wenzhou still sparked a torrent of public criticism over the irregularities of China’s iconic bullet train project. The jostling for power has intensified, particularly at the provincial level, for potential candidates to enter the most powerful Politburo Standing Committee. Chongqing’s Party Chief Bo Xilai, who had been commended by leftists for leading a high-handed campaign against corruption and 1

Joseph E. Stiglitz, a Nobel laureate in economics, said in his article, “From Tunisia to Wall Street: the globalization of protest”, that “the protest movement that began in Tunisia in January, subsequently spreading to Egypt, and then to Spain, has now become global, with the protests engulfing Wall Street and cities across America.” He attributed the globalisation of protest to the widening economic inequality caused mainly by political influence and anti-competitive practices often sustained through politics. 2 “Fiscal revenue growth outruns residents’ income growth in first half of 2011”, (2011 nian shangbannian caizhengshouru zengsu gaoyu juminshouru), 15 July 2011, http://news.163.com/11/0715/11/790IFIRK00014AEE.html

b1401_Ch-02.indd 11

8/28/2012 7:31:28 PM

b1401

12

East Asia: Developments and Challenges

Y. Zheng and G. Chen

organised crime, launching egalitarian welfare programmes and initiating the singing “red (revolutionary) songs” campaign, was sacked after his assistant Wang Lijun defected to the U.S. consulate in February 2012. A more liberal approach in the form of “Guangdong Model” has been advocated by Wang Yang, Bo’s rival, whose chance of being promoted to top leadership has been greatly enhanced since Bo’s dismissal. Although Wang, a factional ally of Hu Jintao, asserted that “there is no competition between the Guangdong model and the Chongqing model”,3 such regional divergence is reflective of the ongoing ideological debates over China’s development model among intellectual groups from the Right to the Left of the political spectrum. Meanwhile, many Chinese intellectual groups have become increasingly impatient and unhappy with the slow progress of political reforms. The Hu-Wen leadership has failed to diverge from the development model of the Jiang-Zhu era to rectify problems such as the widening income disparity, corruption and social injustice in its 10-year rule; not only are these problems unresolved, the overall situation is deteriorating. With the passing of the Hu-Wen leadership in 2012, intellectual groups have intensified their debates on the kind of political reform China should have and the way it could be implemented. In February 2011, the Arab revolution had led some disgruntled social groups, mostly from the well-educated middle class, to attempt to organise a similar revolution in China. The movement had the strong support of an overseas website which set up a special forum called China’s “Jasmine Revolution”. The issue had evidently caught the attention of the leadership. In the same month, CCP General Secretary Hu Jintao delivered a speech at the Central Party School calling for proper “social management” and for innovative ways to cope with social problems. Violent protests erupted in the fishing village of Wukan in Guangdong Province when Xue Jinbo, the village’s negotiator over land grabs, died in police custody in December 2011. Provincial leaders finally offered rare concessions to protesters including returning the remains of Xue and extending 3

“China’s Political Winds Shift”, The Sydney Morning Herald, 2 September 2011.

b1401_Ch-02.indd 12

8/28/2012 7:31:28 PM

b1401

East Asia: Developments and Challenges

Maintaining Status Quo and Preparing for Leadership Succession 13

recognition to protest leaders. Local protests and riots are on the rise, most of which are triggered by land seizures and corruption that infringes upon the economic interests of the indigenous people. Protesters who are seldom driven by political motives usually target local officials instead of the central government in Beijing. In March 2011, the National People’s Congress announced plans to create a nationwide “rapid-response system for tackling emergency incidents” which consists of forces from the “police, People’s Armed Police and People’s Liberation Army” by 2015. The system will be supported by a network of “social management offices” to be set up nationwide at county, township and city district levels.4

IN PREPARATION OF THE 18TH PARTY CONGRESS The last few months of 2011 saw the CCP busy reshuffling thousands of Party committee secretaries, Party committees members and administrative officials at various levels to prepare for the leadership succession at the 18th Party Congress in 2012.5 Table 1 lists important nominations at the central and provincial levels in 2011. At the top level, Vice President Xi Jinping’s and Vice Premier Li Keqiang’s ascension to the respective positions of Party Secretary in 2012 and Premier in 2013 is a certainty. According to the unwritten rule of “seven-in and eight-out” (qishang baxia, an arrangement adopted by the Politburo in which the 67-year-olds and below will stay, and the 68-year-olds will exit), all the other seven existing Politburo Standing Committee (PSC) members including Hu Jintao and Wen Jiabao will retire after the next reshuffle, while eight incumbent Politburo members under the age of 68, plus potential “dark horses”

4

W. Lam, “Beijing’s Blueprint for Tackling Mass Incidents and Social Management”, The Jamestown Foundation: China Brief 11 (5) 25 March 2011. 5 The Party Congress serves three major functions: announce major policy changes and directions; select Central Committee members, the elite governing group, which in turn selects the ruling Political Bureau headed by the General Secretary, and lay the ground for personnel changes in the central government and across the country.

b1401_Ch-02.indd 13

8/28/2012 7:31:28 PM

b1401

14

East Asia: Developments and Challenges

Y. Zheng and G. Chen Table 1. Major nominations at ministerial/provincial level in 2011 (as of 11 December) Post Hebei Party Secretary

Name Zhang Qingli

Age 60

Tibet Party Secretary

Chen Quanguo

56

Yunnan Party Secretary

Qin Guangrong

61

Governor of Yunnan

Li Jiheng

54

Hainan Party Secretary

Luo Baoming

59

Governor of Hainan

Jiang Dingzhi

57

Gansu Party Secretary

Wang Sanyun

59

Minister of Railways

Sheng Guangzu

62

Governor of Guangdong

Zhu Xiaodan

58

Governor of Fujian

Su Shulin

49

Governor of Jiangxi

Lu Xinshe

55

Governor of Anhui

Li Bin

57

Governor of Hebei

Zhang Qingwei

50

Governor of General Administration of Customs

Yu Guangzhou

58

China Banking Regulatory Commission Chairman

Shang Fulin

59

China Securities Regulatory Commission Chairman

Guo Shuqing

55

China Insurance Regulatory Commission Chairman

Xiang Junbo

54

Deputy General Secretary of State Council

Jiang Xiaojuan

54

State Electricity Regulatory Commission Chairman

Wu Xinxiong

62

Source : Compiled by the authors.

like State Councillor Meng Jianzhu (64), CCP Central Secretariat Secretary Ling Jihua (55) and Wang Huning (56), will be eligible to vie for the remaining seven seats (Table 2).

b1401_Ch-02.indd 14

8/28/2012 7:31:28 PM

b1401

East Asia: Developments and Challenges

Maintaining Status Quo and Preparing for Leadership Succession 15 Table 2. Hopeful candidates for the 18th politburo standing committee (excluding Xi Jinping and Li Keqiang) Name

Year of birth

Current post

Yu Zhengsheng

1945

Politburo member, Shanghai Party Secretary

Liu Yandong (female)

1945

Politburo member, State Councillor

Zhang Dejiang

1946

Politburo member, Vice Premier, Chongqing Party Secretary

Zhang Gaoli

1946

Politburo member, Tianjin Party Secretary

Liu Yunshan

1947

Politburo member, CCP Publicity Department Chief

Wang Qishan

1948

Politburo member, Vice Premier

Li Yuanchao

1950

Politburo member, CCP Organisation Department Chief

Wang Yang

1955

Politburo member, Guangdong Party Secretary

Meng Jianzhu

1947

State Councillor, Minister of Public Security

Ling Jihua

1956

CCP Central Secretariat Secretary, CCP General Office Director

Wang Huning

1955

CCP Central Secretariat Secretary, CCP Policy Research Office Director

Source: Compiled by the authors.

Competition among the hopefuls, especially Politburo members, has heated up with the approach of the next Party Congress. Bo Xilai, a once hopeful candidate who was lauded by leftists for leading a high-handed campaign against corruption and crime, launching egalitarian welfare programmes and initiating the singing “red (revolutionary) songs” campaign in Chongqing, was sacked due to his wife’s scandal. A more liberal approach in the form of “Guangdong Model” has been advocated by Wang Yang, Bo’s rival, whose chance of being promoted to top leadership has been greatly enhanced since Bo’s dismissal. Wukan’s unrest is also unlikely to affect Wang Yang’s

b1401_Ch-02.indd 15

8/28/2012 7:31:28 PM

b1401

16

East Asia: Developments and Challenges

Y. Zheng and G. Chen

political career. Inner Mongolia Party Secretary Hu Chunhua, Jilin Party Secretary Sun Zhengcai and Hunan Party Secretary Zhou Qiang of the 1960s generation are regarded as frontrunners for the sixth generation leadership slated for the 20th Party Congress in 2022. Though some of them are eligible to join the Politburo in 2012, the chances of sixth generation leaders entering the 18th Politburo Standing Committee are slim.6 The growing public demand for political reforms has led some local party committees to introduce contested elections for key positions during this massive personnel reshuffling. For instance, as an experimental move towards intra-Party democracy — a buzzword in Chinese politics since the 17th Party Congress in 2007 — Wuxi, Nantong and Suqian cities of the Jiangsu Province have for the first time nominated a total of 1,127 candidates for the three party secretary positions.7 After going through two rounds of screening by two panels of provincial-rank cadres based in Jiangsu, the list was narrowed to six candidates. The final three candidates for the position of party secretaries of the three cities were selected after a round of balloting by Standing Committee members of the Jiangsu Provincial Party Committee. Despite sporadic experimentations in some localities, the call for political reforms is generally losing steam in China; no substantial institutions have been introduced for further democratisation even within the Party. Competitive elections are means and not an end to help the Party single out capable and loyal officials for important positions. The whole process is still within the control of the provincial Party committee and winners of the elections are usually the Party’s favourites. At the grass-roots level, Chinese citizens today are no longer apolitical or passive; instead, they tend to be active participants. The flurry of “independent candidates” standing for grass-roots People’s Congress (parliamentary) elections in 2011 had tested CCP’s limits 6

Wu Guoguang, “China’s Leadership Transition: Certainties and Uncertainties”, EAI Background Brief no. 640, 8 July 2011. 7 For details of the contested voting in Jiangsu Province, please refer to Chen Gang, “Balloting for Municipal Leaders in Jiangsu: Intra-party Democracy in Practice”, EAI Background Brief no. 642, 15 July 2011.

b1401_Ch-02.indd 16

8/28/2012 7:31:28 PM

b1401

East Asia: Developments and Challenges

Maintaining Status Quo and Preparing for Leadership Succession 17

of democratisation. In theory, ordinary citizens can become candidates in the local election of representatives to the “People’s Congress”, the legislature, with the support of 10 fellow constituents. In practice, however, the elections have always been carefully choreographed to ensure that all shortlisted candidates are endorsed by the Party. The ruling Party seemed somewhat unnerved when more than 100 independent candidates mustered for support using microblogging tools such as Sina’s Weibo, a hugely popular Twitter-like service. Some of the candidates were eventually disqualified as having “no legal basis”,8 while some in Beijing were put under house arrest after trying to register themselves for an election in November 2011. Despite the crackdown, two candidates who had fought for the rights of villagers in the land appropriation tussle with the local government still won seats in the city of Foshan, Guangdong.9

CCP’S HEADACHE: AN INCREASINGLY DISGRUNTLED SOCIETY The unprecedented number of independent candidates across China indicates the growing problem of income inequality and dissatisfaction with the CCP’s ironclad grip on political life. Over the past decade, incidents of unrest have risen sharply in China. According to official figures, 80,000 incidents of social unrest were recorded for 2006, and 127,000 for 2007. The year 2007 is also the last year such incidents were included in official reports.10 In 2010, according to Sun Liping, a professor of Qinghua University, over 180,000 separate incidents of unrest were recorded across the country.11 In 2011, social protests became an almost common phenomenon, with the riots in Inner Mongolia, Xinjiang and Guangdong drawing international attention. 8

“China: Vote as I say”, The Economist, 16 June 2011. “Independent Candidates Score First Victory in Chinese Elections”, The Telegraph, 12 October 2011. 10 “Wave of Unrest Rocks China”, The Wall Street Journal, 14 June 2011. 11 “China Cracks Down in Wake of Riots, Bombings”, Bloomberg, 13 June 2011. 9

b1401_Ch-02.indd 17

8/28/2012 7:31:28 PM

b1401

18

East Asia: Developments and Challenges

Y. Zheng and G. Chen

Social protests have now expanded to major cities. In the past, protests had occurred largely in rural areas and small towns, and were led by migrant workers and farmers etc. In 2011 for the first time, more incidents were reported in major cities. On 26 May 2011, a farmer set off three bombs simultaneously in Fuzhou City in Jiangxi province, killing two people including himself while injuring 10 others, to protest against the low compensation for the resettlement of his farm. The case caught additional attention as the farmer had posted extensively about his problems online. Subsequently, two officials were blamed for the incident and dismissed from their positions.12 On 10 June 2011, a man claiming revenge on society set off explosives outside the offices of the local government in the Hexi district of the city of Tianjin. Two people were injured in the attack, and the perpetrator was soon arrested.13 While the government has tightened political control and media censorship, social networking sites facilitated by information and communication technology have been behind many collective protests. Social networking sites have taken off in China since 2009. Today, more than 200 million Chinese use microblogs to discuss politics and social news etc. They spend hours each day discussing issues, asking questions and responding to suggestions from other users. This rapid expansion has stretched China’s political and propaganda establishment to its limits. A case in point is the high speed train collision in Wenzhou, Zhejiang province, on 23 July 2011, which caused 40 deaths and injured at least 192. Through the social media, millions of Chinese netizens expressed their anger at the Ministry of Railways, forcing the Chinese government to apologise and launch an immediate and thorough check on the nation’s bullet train system. Social protests, particularly Internet-based ones, come under the influence of demonstrations elsewhere, such as the Arab revolution. Disgruntled social groups, mostly from the well-educated middle class, tried to organise a similar revolution, and an overseas website provided strong support by providing a special forum called China’s 12

“The Sad Story of Jiangxi Bomber, Qian Mingqi”, Shanghaiist, 27 May 2011. “Bomber Targets Govt Building in North China Report”, Channelnews Asia, Singapore, 11 June 2011.

13

b1401_Ch-02.indd 18

8/28/2012 7:31:28 PM

b1401

East Asia: Developments and Challenges

Maintaining Status Quo and Preparing for Leadership Succession 19

“Jasmine Revolution”. This led to a new wave of crackdowns on civil society on the part of the government. Dozens of bloggers, human rights lawyers and writers were arrested. The most high profile case was the arrest of famous Chinese artist Ai Weiwei,14 who was later released after the Chinese government was pressured by both the domestic and international media. Maintaining social stability has thus become the highest priority of the government. On 19 February 2011, Hu Jintao made a speech at the Central Party School stressing the need for “social management”. Hu was deeply concerned about rising social instability and called for innovative ways to manage society. This anxiety for maintaining social stability is reflected in some of the policies promulgated in the 12th FiveYear Programme. A “blueprint” was announced at the National People’s Congress in March 2011 to create a nationwide “rapid-response system for tackling emergency incidents”, which would consist of forces from “the police, People’s Armed Police and People’s Liberation Army” by 2015. The system would be supported by a system of “social management offices” to be set up nationwide at county, township and city district levels. The emphasis on social stability is evident in the country’s spending on internal policing. China’s military spending is even less than its spending on public security. In 2010, China spent 533.5 billion yuan on national defence, while public security funding increased by 15.6% to hit 548.6 billion yuan.15 Apparently, the leadership is more concerned about its internal than its external problems.

CONTINUING ETHNIC TENSIONS No massive ethnic riots comparable to the bloodshed in Tibet (March 2008) and Xinjiang (July 2009) broke out in 2011. This however does not mean that the tension and hostility between the Han Chinese and other ethnic groups have been resolved by Beijing’s 14

“Chinese Artist Ai Weiwei Arrested in Latest Government Crackdown”, Washington Post, 4 April 2011. 15 “China’s Spending on Internal Policing Outstrips Defense Budget”, Bloomberg, 6 March 2011.

b1401_Ch-02.indd 19

8/28/2012 7:31:28 PM

b1401

20

East Asia: Developments and Challenges

Y. Zheng and G. Chen

appeasing policies in recent years. In July 2011, a team of Uyghur attackers using axes, knives, daggers, Molotov cocktails and explosive devices assaulted a police station and killed two hostages, two policemen and a security guard in Xinjiang’s Hotan city. A few days later, another attack launched by Uyghur separatists in Kashgar, a border city in Xinjiang, left at least 15 people dead. Apparently, the Xinjiang ethnic minority issue has not been resolved. In Tibet, 11 ethnic Tibetans including two nuns set themselves on fire to call for religious freedom and the return of the Dalai Lama.16 Most of the self-immolations took place in Aba prefecture around the Kirti monastery, which has become a focal point of ethnic Tibetan anger in southwest China’s Sichuan province. Some monks were jailed for their alleged involvement in these self-immolations. In May 2011, a Mongol herder was killed by a Han Chinese trucker in a road block the herder had erected in protest against noise and pollution from coal trucks. The incident sparked protests across Inner Mongolia by herders and students demanding justice and greater protection of Mongol culture as well as the nomadic herding lifestyle. The truck driver was subsequently executed to appease the protesters. The string of ethnic demonstrations and other violent acts reflect the growing disgruntlement among ethnic minorities over the inflow of Han Chinese migrants, the widening income gap and the loss of indigenous religion, culture and lifestyle. The rift between local people and migrants has been expanding in not only ethnic regions but also coastal provinces like Guangdong.17

IDEOLOGICAL DEBATES AMONG INTELLECTUAL GROUPS For the last few decades, China has witnessed the pluralisation of its intellectual circles with the emergence of different social ideologies such as 16

“Tibetan Buddhist Nun Burns Herself to Death in China”, BBC news, 3 November 2011. 17 In June 2011, thousands of migrant workers mainly from Sichuan Province, rioted for several days in a garment manufacturing zone near Guangzhou, the capital city of Guangdong Province. They threw stones at the police, burned cars and ransacked government buildings after a confrontation between migrant vendors and local security officials.

b1401_Ch-02.indd 20

8/28/2012 7:31:28 PM

b1401

East Asia: Developments and Challenges

Maintaining Status Quo and Preparing for Leadership Succession 21

the New Left, democratic socialism, nationalism, neo-Confucianism, new liberalism and pluralism. These intellectual groups became unusually active in 2011 with the impending power reshuffle in 2012. The ideological debates in 2011 took a different approach. Despite tight political control, these debates have reached a wider spectrum of society through interpersonal communication, overseas media coverage, book publication and the new social media such as the Internet and Weibo in particular. The most noticeable phenomenon is the re-emergence of debates on political reforms. When the Hu Jintao-Wen Jiabao leadership assumed office and put forward its new policy initiatives of “harmonious society” and “scientific development”, the initiatives were warmly received by the Chinese intellectuals. The leadership was expected to change the country’s development paradigm to rectify serious emerging problems such as widening income disparity, increasing social injustice and worsening corruption. These problems are now not only unresolved, but worsening. The rise of social ideologies in recent years reflects the deep concerns of the intellectuals for the country’s future. The Left side believes that the fundamental framework of the current political system is sound and any political reforms should aim to consolidate the current system rather than undermine it. The Left side has expressed its dissatisfaction with the current no-reform situation which it believes will continue to weaken the CCP. In contrast, the Right side is doubtful about the effectiveness of the current system and believes that fundamental reforms such as various elements of democratic constitutionalism have to be introduced into the system. Intellectuals who have a strong political background are bold enough to speak out on sensitive political issues. In this group, the descendents of the old revolutionaries and retired Party-state cadres have played leading roles in the political discussions. An example could be seen in the members of the “Association of Yan’an Descendants”, who claim to be the “daughters and sons of old revolutionaries who are not in power.” In their open letter to the 2012 Party Congress, they called for intra-party democracy with the introduction of direct elections of CCP leaders at every level.18

18

http://www.xici.net/d140760264.htm, accessed 27 September 2011.

b1401_Ch-02.indd 21

8/28/2012 7:31:28 PM

b1401

22

East Asia: Developments and Challenges

Y. Zheng and G. Chen

LOOKING AHEAD TO CHINESE POLITICS Xi Jinping, a compromise choice of Hu Jintao’s (Chinese Communist Youth League) (CCYL) clique, Zeng Qinghong’s princeling group and Jiang Zemin’s Shanghai Gang, is expected to become the CCP General Secretary in the 18th Party Congress scheduled in the fall of 2012. If Xi succeeds Hu, he will be the first top leader with a princeling background in the PRC history. This outcome could be a harbinger for the political rise of princelings as a political stratum since the transformation of the CCP from a revolutionary to a ruling party. Most of the politicians who are expected to be in the top-level Politburo Standing Committee in 2012 are either the offsprings of veteran CCP leaders (princelings) or officials with CCYL working experience. Of the 10 hopefuls already in the Politburo, seven of them namely, Xi Jinping, Wang Qishan, Liu Yandong, Li Yuanchao, Zhang Dejiang, and Yu Zhengsheng, have princeling background while five, namely Li Keqiang, Liu Yunshan, Liu Yandong, Li Yuanchao and Wang Yang have CCYL working experience. Competition to some extent does exist between the princelings and CCYL cadres, but it is mild and within control. The two groups have no ideological divergences and adopt similar supportive stances towards reform, opening-up as well as the one-party domination. Although power is still highly concentrated at the top in today’s China, whoever ultimately succeeds usually cannot make draconian changes to the political system. The political game has been transformed from the conventional model of “winner-takes-all” to the new model of power balancing, which is non-zero-sum and entertains the possibility of multiple winners in terms of political outcomes.19 Another key preoccupation of the Chinese government will be to sustain economic growth while paying close attention to other considerations such as inflationary pressures, food safety, environmental protection and wealth distribution. It is unlikely that Beijing will introduce any radical measures to liberalise its rigid 19

Bo Zhiyue, China’s Elite Politics: Political Transition and Power Balancing (Singapore:World Scientific, 2007), pp. 7–8.

b1401_Ch-02.indd 22

8/28/2012 7:31:28 PM

b1401

East Asia: Developments and Challenges

Maintaining Status Quo and Preparing for Leadership Succession 23

political system despite intellectuals’ call for political reforms. Beijing will face continued resistance from vested interests in making progress in social policies related to public housing, health care, pension and education. The focus in 2012 will therefore be on maintaining stability with a view to ensuring a smooth leadership transition. Only after the leadership transition will it be possible to discern any shifts in policy focus or emphasis under a new generation leadership led most likely by Xi Jinping.

b1401_Ch-02.indd 23

8/28/2012 7:31:28 PM

b1401

24

East Asia: Developments and Challenges

Y. Zheng and G. Chen Appendix 1. List of provincial leaders by December 2011 (Party leaders in bold letterings were newly appointed in 2011)

Provincial units

Party secretary

Mayor/Governor

Anhui

Zhang Baoshun

Li Bin

Beijing

Liu Qi

Guo Jinlong

Chongqing

Bo Xilai

Huang Qifan

Fujian

Sun Chunlan

Su Shulin

Gansu

Wang Sanyun un

Liu Weiping

Guangdong

Wang Yang

Zhu Xiaodan

Guangxi

Guo shengkun

Ma Biao

Guizhou

Li Zhanshu

Zhao Kezhi

Hainan

Luo Baoming

Jiang Dingzhi

Hebei

Zhang Qingli

Zhang Qingwei

Heilongjiang

Ji Bingxuan

Wang Xiankui

Henan

Lu Zhangong

Guo Gengmao

Hubei

Li Hongzhong

Wang Guosheng

Hunan

Zhou Qiang

Xu Shousheng

Inner Mongolia

Hu Chunhua

Bagatur

Jiangsu

Luo Zhijun

Li Xueyong

Jiangxi

Su Rong

Lu Xinshe

Jilin

Sun Zhengcai

Wang Rulin

Liaoning

Wang Min

Chen Zhenggao

Ningxia

Zhang Yi

Wang Zhengwei

Qinghai

Qiang Wei

Luo Huining

Shaanxi

Zhao Leji

Zhao Zhengyong

Shanxi

Yuan Chunqing

Wang Jun

Shandong

Jiang Yikang

Jiang Daming

Shanghai

Yu Zhengsheng

Han Zheng

Sichuan

Liu Qibao

Jiang Jufeng

Tianjin

Zhang Gaoli

Huang Xingguo

Tibet

Chen Quanguo

Padma Choling

Xinjiang

Zhang Chunxian

Nu’er Baikeli

Yunnan

Qin Guangrong

Li Jiheng

Zhejiang

Zhao Hongzhu

Xia Baolong

Source: Compiled by the authors.

b1401_Ch-02.indd 24

8/28/2012 7:31:28 PM

b1401

East Asia: Developments and Challenges

Maintaining Status Quo and Preparing for Leadership Succession 25 Appendix 2. List of ministers in the state council by December 2011 (Ministers in bold letterings were newly appointed in 2011) Ministry

Minister

Foreign Affairs

Yang Jieci

Defence

Liang Guanglie

National Development and Reform Commission

Zhang Ping

Education

Yuan Guiren

Science and Technology

Wan Gang

Industry and Information

Miao Wei

State Ethnic Affairs Commission

Yang Jing

Public Security

Meng Jianzhu

State Security

Geng Huichang

Supervision

Ma Wen

Civil Affairs

Li Liguo

Justice

Wu Aiying

Finance

Xie Xuren

Human Resources and Social Security

Yin Weimin

Land and Resources

Xu Shaoshi

Environmental Protection

Zhou Shengxian

Housing and Urban-Rural Construction

Jiang Weixin

Transport

Li Shenglin

Railways

Sheng Guangzu

Water Resources

Chen Lei

Agriculture

Han Changfu

Commerce

Chen Demin

Culture

Cai Wu

Health

Chen Zhu

National Population and Family Planning Commission

Li Bin

People’s Bank of China

Zhou Xiaochuan

National Audit Office

Liu Jiayi

Source: Compiled by the authors.

b1401_Ch-02.indd 25

8/28/2012 7:31:28 PM

b1401

26

East Asia: Developments and Challenges

Y. Zheng and G. Chen Appendix 3. A Chronology of Domestic Events in China in 2011

26 Jan

To cool down the overheated property market, China’s State Council raised minimum down payments on mortgages for second-home purchases to 60% of transaction value from 50%.

27 Jan

The State Council approved the trial of a property tax in some cities. Shanghai and Chongqing were the first to levy the tax, from 28 February.

Jan

The State Council published the White Paper on China-Africa economic and trade cooperation.

Feb

Activists mainly from outside China have called on citizens in China to express their displeasure with the country’s autocracy and corruption by joining the “silent meeting” in front of department stores or other public areas for a “Jasmine Revolution”, a named borrowed from the Tunisian revolt that set off the Middle East unrest. Some organisers were detained by the Chinese police.

19 Feb

Chinese President Hu Jintao delivered a speech at the opening ceremony of a seminar attended by provincial and ministerial-level officials, urging officials to enhance social management capabilities and make innovations in this regard so as to “ensure a harmonious and stable society that is full of vitality”.

12 Feb

China’s railway minister Liu Zhijun was stripped of his party role and investigated by disciplinary watchdogs over corruption charges.

Mar–Nov

Eleven ethnic Tibetans, including two nuns, set themselves on fire to call for religious freedom and the return of the Dalai Lama. Most of the self-immolations were in Aba prefecture around the Kirti monastery in southwest China’s Sichuan province. Some monks were jailed for their alleged involvement in self-immolation.

9 Mar

The government announced that China will build 10 million affordable homes in 2011, as part of a plan to build 36 million properties for low-income families during the 12th Five-Year Programme period (2011 to 2015).

5–14 Mar

During its annual meeting, the National People’s Congress passed the 12th Five-Year Programme. According to the conference, the central government was planning the creation of a nationwide “rapidresponse system for tackling emergency incidents”, which will consist of forces from the “police, People’s Armed Police and People’s Liberation Army”, by 2015. (Continued)

b1401_Ch-02.indd 26

8/28/2012 7:31:28 PM

b1401

East Asia: Developments and Challenges

Maintaining Status Quo and Preparing for Leadership Succession 27 Appendix 3. (Continued) 3 Apr

Chinese police detained famous artist and political critic Ai Weiwei at Beijing airport.

18 Apr

Twelve people were killed and 27 others injured as hailstones, thundershower and gales pounded Guangdong province.

May

A Mongol herder who blocked the road to his village during a protest against noise and pollution from coal trucks was killed by a Han Chinese trucker. The incident sparked protests across Inner Mongolia by herders and students demanding justice and greater protection of Mongol culture as wells as the nomadic herding lifestyle. The Chinese government had to execute the truck driver to appease the protesters.

26 May

A farmer set off three bombs simultaneously in Fuzhou City in Jiangxi province, killing two people including himself while injuring 10 to protest against the low compensation for the resettlement of his farm. The case gained additional attention as the farmer had posted extensively about his problems online.

22 Jun

After more than two months in detention, human rights activist Ai Weiwei was released on bail when he reportedly pleaded guilty to charges of tax evasion.

18 & 30–31 Jul

A team of Uyghur attackers using axes, knives, daggers, Molotov cocktails and explosive devices assaulted a police station and killed two hostages, two policemen and a security guard in Xinjiang’s Hotan city. A few days thereafter, another attack launched by Uyghur separatists in Kashgar, a border city in Xinjiang, left at least 15 people dead.

23 Jul

Two high-speed trains travelling on the Yongtaiwen railway line collided on a viaduct in the suburbs of Wenzhou City, Zhejiang Province. The train crash that killed 40 people and injured at least 192 sparked a torrent of public criticism over the irregularities in China’s iconic bullet train project.

July

China celebrated the Chinese Communist Party’s 90th birthday with the ‘red song’ (revolutionary song) initiated in Chongqing by Bo Xilai, an ambitious party figure.

10 Aug

The Chinese navy’s first aircraft carrier, a refitted former Soviet warship, left its shipyard in the northeast and began its sea trials. (Continued)

b1401_Ch-02.indd 27

8/28/2012 7:31:28 PM

b1401

28

East Asia: Developments and Challenges

Y. Zheng and G. Chen Appendix 3. (Continued)

Sep

Floods and landslides caused by a week of heavy rain killed at least 57 people and forced more than a million from their homes in Sichuan, Henan and Shaanxi provinces. The flooding in Sichuan was said to be the worst since floods were recorded in 1847.

29 Sep

China’s first space lab module Tiangong-1 blasted off from Jiuquan Satellite Launch Center in the northwest desert area.

9 Oct

Chinese President Hu delivered a speech in a commemorative ceremony for the 100th Anniversary of the 1911 Revolution, calling for the peaceful reunification of China.

16 Nov

Twenty-one people, including 19 preschoolers and two adults who died, and 43 others were injured when a nine-seater school bus illegally carrying 64 people collided head-on with a coal truck in Gansu province. The accident revealed problems in the country’s school bus management system, including regulatory loopholes, unimplemented safety measures and a failure to carry out government responsibilities.

22 Nov

The Chinese People’s Liberation Army established a strategic planning department to improve the strategic management of the military.

Late Nov

The People’s Liberation Army naval fleet went for routine training in the western Pacific.

3-6 Dec

The almost opaque air around Beijing Capital Airport had caused a delay in air flights, leaving thousands of travellers stranded. Chinese authorities insisted that the murk was fog, a purely weather phenomenon, and conceding only to a “light pollution”. However, the US Embassy in Beijing, which had its own air monitor on the roof, reported that the index of fine particulate matter had soared to 522 micrograms per cubic metre, which was off the charts.

11 Dec

A draft regulation on school bus safety management was made public by the Legislative Affairs Office of the State Council, and the public was invited to submit their comments.

Dec

Violent protests erupted in the fishing village of Wukan in Guangdong Province when the village’s negotiator over land grabs died in police custody. Provincial leaders finally offered rare concessions to protesters including returning the remains of the negotiator and extending recognition to protest leaders.

b1401_Ch-02.indd 28

8/28/2012 7:31:28 PM

b1401

East Asia: Developments and Challenges

Chapter

3 China’s Economy: Moderate Slowdown, Still Weaker Growth Prospects for 2012 John WONG

ABSTRACT China’s economic growth in 2011 slowed to 9.2% from the 10.3% in 2010 while inflation went up to 5.4%, well above the government’s original target of four per cent. China’s growth performance in 2011 was actually quite remarkable by regional and global standards, far from the “hard landing” as some pundits had warned of. However, the economy showed clear signs of a slowdown towards the end of 2011. In view of the dim external and domestic growth environment, China’s economic growth in 2012 has been variously slated to be around 8.5%, the lowest growth in ten years, while inflation will be brought down further to around 4.5%. Some are even more downbeat about the 2012 growth prospects.

29

b1401_Ch-03.indd 29

8/28/2012 8:01:13 PM

b1401

30

East Asia: Developments and Challenges

J. Wong

The 18th Party Congress is due to convene in the autumn of 2012, which will formalise the handover of the top leadership. The outgoing leadership is likely to mobilise all available resources and policy instruments to maintain reasonably fast growth for the sake of smooth leadership transition. With the easing of inflation, the government certainly has plenty of room for pro-growth monetary and fiscal policies should the economy further lose its growth momentum. China’s economic growth mode started to change in 2011, with external demand (exports minus imports) contributing a smaller share to its overall gross domestic product (GDP) growth, in line with government efforts to render China’s long-term growth more dependent on domestic demand. Overall, starting with 2012, China’s economy will be saying goodbye to its double-digit rates of growth. As the economy is already large and fast maturing, it should not continue with such breakneck growth anymore. It would just be too disruptive for the world if China’s economy should keep on adding another Japan’s size economy every five years.

The Chinese economy ended 2011 still in relatively good shape, even though growth dipped to 9.2% from the 10.3% of 2010 and average inflation rose to 5.3% from 3.3% for 2010 — still well above the government’s original target of four per cent (Figure 1). High growth had already been losing its momentum through 2011, primarily because the 2009 anti-recession stimulus package had already run its course. In fact, the economy showed clear signs of a slowdown in the last two months of 2011 on account of the sharp deterioration of the external and domestic growth environment, a development which certainly bodes ill for 2012. Inflationary pressures, in the meanwhile, had continued to build up until recently, with the consumer price index (CPI) rising to the 28-month peak of 5.1% in November 2010. This was in spite of the fact that the central bank had raised the reserve requirement ratio (RRR) of banks six times along with two rounds of interest rate hike in 2010.

b1401_Ch-03.indd 30

8/28/2012 8:01:14 PM

b1401

East Asia: Developments and Challenges

Moderate Slowdown, Still Weaker Growth Prospects for 2012 31 Fig. 1. China’s economic growth and inflation, 1990–2011. 30

30

25

25

20

20

15

15

GDP

10

10 CPI

5

5

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

-5 1992

-5 1991

0 1990

0

Source: National Bureau of Statistics for 1990–2011 data.

Accordingly, the main thrust of the government’s economic policy through most of 2011 was to curb inflation. With low political and social threshold for any serious inflation, the Chinese leadership naturally got worried at the first appearance of any inflationary spectre. The 2010 Central Economic Work Conference (chaired by Hu Jintao), which set the basic tone for the nation’s economic policy for 2011, pledged to intensify efforts to curb inflation: “The priority (for 2011) is to actively and properly handle the relations between maintaining steady and relatively fast economic growth, economic restructuring and managing inflation expectations”. The economy entered 2011 with renewed growth momentum on account of robust export expansion and rising domestic consumption, chalking up 9.4% growth in the first half of 2011 (Figure 2). But such strong growth-further stoked inflation, with the CPI continuing to climb until it culminated at 6.5% in July 2011. High inflation still came about despite the central bank’s efforts to raise the RRR of banks six times in a row in the first half of 2011. Worse still, speculation in the property market had also intensified, fuelling more inflation. In fact, high inflation and property boom did not just go hand in hand but also reinforced each other. That was the

b1401_Ch-03.indd 31

8/28/2012 8:01:14 PM

b1401

32

East Asia: Developments and Challenges

J. Wong Fig. 2. China’s quarterly growth, 2007–2011.

14.00% 11.90% 11.50% 11.60% 11.20% 10.10%

11.90%

12.00% 11.10% 10.00%

10.70%

9%

10.30% 9.80% 9.60%

8.90%

9.50% 9.60% 9.10% 8.90%

7.90%

8.00%

6.80% 6.10%

6.00% 4.00% 2.00%

Q4

Q3

Q2

2011 Q1

Q4

Q3

Q2

2010 Q1

Q4

Q3

Q2

2009 Q1

Q4

Q3

Q2

2008 Q1

Q4

Q3

Q2

2007 Q1

0.00%

Source: National Bureau of Statisitcs.

time when the foreign media started to circulate the warning of a potential “Chinese bubble”. The government understandably got worried. Its main policy objectives during Quarter 3, apart from continuing with its tightening measures to fight inflation, were also to rein in the red hot property market. Fuelled by excessive liquidity and leakages from the government’s anti-stimulus programme, China’s property market started its explosive growth from Quarter 4 of 2009, with property transactions going up by 75% and unit price by 25%. Property prices in 75 major cities continued to climb throughout 2010 in spite of a series of cooling measures. By the end of 2010, Premier Wen Jiabao had to admit that the government’s cooling measures “have not achieved satisfactory results”.1 The government’s anti-property speculation measures were actually quite comprehensive, including restricting multiple property ownership (in 35 major cities), imposing property taxes (Shanghai and Chongqing) and limiting mortgage loans to buyers. In the event, property speculators were only brought to their knees in 1

“Wen vows to tame housing”, China Daily, 27 December 2010.

b1401_Ch-03.indd 32

8/28/2012 8:01:14 PM

b1401

East Asia: Developments and Challenges

Moderate Slowdown, Still Weaker Growth Prospects for 2012 33

Quarter 3 of 2011 after the anti-property policy package (this time overseen by First Vice Premier Li Keqiang) was effectively applied alongside stringent loan and credit policies to financially squeeze the developers. Together with the government’s announcement of building 10 million affordable housing units, housing prices started to plummet from September 2011 in most cities, including Beijing and Shanghai. The government has since announced that it will not let up on its efforts to continue with its property cooling measures. Ironically, the combined anti-inflation and anti-property speculation policies have worked so well that it started to hurt economic growth, with Quarter 3 growth (2011) slowing to 9.1%. This, plus the deflating of the property bubble, had led many pundits to talk about the possible “hard landing” for the Chinese economy. It may be stressed that there are no uniform standards to judge if an economy has experienced a hard or soft landing. The term, hard or soft landing, is not a precise scientific term based on any established economic theory, even though it has been commonly used in popular economic journalism. Some economists in China take the view that it would truly be a “hard landing” for China’s economy if its growth were to plummet abruptly from the double-digit rate to just about seven per cent or so, along with the inflation shooting up to over six per cent. In this context, China’s economic growth for 2011, having moderately declined from 10.3% to 9.2%, with inflation rising from 3.3% to 5.3%, is clearly not a case of any hard landing at all. Indeed, China’s 9.2% growth for 2011 in this economically turbulent time is simply stellar performance by both regional and global standards. High-income economies in Europe and America are expected to end 2011 with only 0%–2% growth while the average growth rates of many East and Southeast Asian economies add up to just about half of China’s. China’s inflation is also not high by regional standards — China’s 5.3% is pretty much on par with the average level in the region, but is much lower than that of the other BRICs (seven per cent for Brazil, eight per cent for Russia and nine per cent for India). If anything, China’s growth performance in 2011 should be a very soft, soft landing!

b1401_Ch-03.indd 33

8/28/2012 8:01:14 PM

b1401

34

East Asia: Developments and Challenges

J. Wong

Towards the end of 2011, there were plenty of signs of China’s growth deceleration, particularly pertaining to the export sector. With the US economy in a fragile recovery and the eurozone in a deep debt crisis, the external environment for China’s economic growth had sharply deteriorated. This, along with China’s declining comparative advantage in its labour-intensive exports due to rising export prices caused by the renminbi (RMB) appreciation and increasing domestic wages and costs, has started to hit China’s overall export growth. More than the anti-inflation monetary tightening, the collapse of the property market is posing a direct threat to GDP growth, as property development accounted for about 17% of total fixed investment in 2010 and higher for 2011. In the context of a rapidly deteriorating global economic environment, the combined antiinflationary and anti-property speculation policies have thus turned out to be the “right policies” but implemented at a “wrong timing”, subsequently reinforcing each other to produce an overkill effect on the economy. Accordingly, the prospects of further growth deceleration in 2012 look inevitable. To signal the about-turn of China’s macroeconomic policy from anti-inflation to pro-growth, the central bank on 30 November 2011 slashed the RRR by 50 base points for banks, the first of such a cut in three years. The move is aimed at easing the credit strains on the economy and shoring up confidence for greater domestic consumption and investment. More RRR reductions and even interest rate cuts are expected to follow.2 In fact, with the CPI for December falling sharply to 4.1% (a 15-month low) from 5.5% in October, the government’s worries of inflation are by now all but gone. However, the success in inflation control had also dragged down economic growth, with the industrial value-added growth in December dipping further to 12.8% from 2

Cutting RRR is not only aimed at providing more domestic liquidity, but also needed as the central bank’s foreign exchange purchases go down due to falling export surplus. “Bank reserves may be cut again next year”, China Daily, 26 December 2011.

b1401_Ch-03.indd 34

8/28/2012 8:01:14 PM

b1401

East Asia: Developments and Challenges

Moderate Slowdown, Still Weaker Growth Prospects for 2012 35

13.2% of October. The good news is that falling inflation will certainly give the government more room for a more aggressive monetary policy easing in 2012. Apart from the dim global economic outlook, domestic conditions for growth in 2012 will clearly be mixed. For domestic demand, the property slump along with rising local government debt will significantly impact fixed investment, even though social housing construction and the ear-marked new industrial investments under the 12th Five-Year Plan could partially offset the decline. Domestic consumption (about 40% of GDP) should be able to hold up quite well because of the recent wage hike, even though the slump in both property and stock markets could affect consumer confidence. For 2011, retail sales went up by 17.1% (or 11.6% after adjusting for inflation), compared to 18.4% in 2010.3 In recognition of the “extremely grim global economic outlook”, the 2011 Economic Work Conference (held in mid-December) has made known the government’s decision to maintain “stable growth for 2012” with “prudent monetary policy” and “pro-active fiscal policy”. Clearly, the government’s macroeconomic intervention this time is more of a fine-tuning kind, rather than the 2009 massive stimulus package that was introduced by Premier Wen to counter the global financial crisis. Accordingly, growth for 2012 is widely forecast to come down to around 8.5%, with inflation also down to be around 4.5%. This will be a truly soft landing. For China, the 8.5% growth in 2012 will be its lowest over the last 10 years. But it is certainly a highly respectable growth performance in the context of the current turbulent global economy. As the world’s second largest economy already with a large base, China’s economic growth in the years ahead should not be at doubledigit rates anymore, and the government has come to accept this. The new mode of growth in future will de-emphasise the quantitative aspects of economic growth. It would simply be too disruptive for the world and for China itself if China’s economy were to continue to add another Japan’s size every five years or so.

3

“China’s retail sales up 18.1% in December”, China Daily, 17 January 2012.

b1401_Ch-03.indd 35

8/28/2012 8:01:14 PM

b1401

36

East Asia: Developments and Challenges

J. Wong

The global economic environment in the second half of 2012 could possibly fare better if the US economic recovery could get a strong booster from the presidential election campaign. More importantly for China, the 18th Party Congress is due to convene in the autumn of 2012, which is also the occasion for the handover of the top leadership. Beijing is likely to do all it can to maintain fast growth so that the outgoing leaders could be seen as handing over a prosperous economy and a stable society to the new leadership. Beijing has the policy tools as well as the necessary financial means to support fast and stable growth in defiance of serious global economic slump.

THE GROWTH PATTERN STARTING TO CHANGE The major source of China’s high economic growth, on the supply side, is derived from relocating labour in low-productivity agriculture to high-productivity manufacturing. Economic growth rate in any given year is then the sum of labour force growth and labour productivity growth. Currently, half of China’s labour force is still living in what is administratively defined as “rural areas”. With a rapidly declining total fertility rate (TFR) largely due to the one-child policy, China’s natural rate of population growth has been coming down to about 0.5% a year. But this does not mean that China will soon run into labour shortages because the rural areas will for years to come still have a huge reservoir of unemployed and underemployed labour to meet growing urban demand. In recent years, China’s annual employment has been growing at only 1.5% a year, despite its double-digit rates of economic growth. This means that labour productivity growth, rising at 7–8% a year, constitutes the major source of China’s GDP growth. In fact, some studies show that China actually tops the world in total factor productivity (TFP) growth for the period of 1990–2008. This is because China has been investing heavily in both physical and human capital formation during this period. A more convenient way of analysing the source of economic growth is to look at the demand side of growth. Thus, increases in

b1401_Ch-03.indd 36

8/28/2012 8:01:14 PM

b1401

East Asia: Developments and Challenges

Moderate Slowdown, Still Weaker Growth Prospects for 2012 37 Fig. 3. Source of growth of china’s economy, 1990–2011. 20 GDP

Investment

15 Consumption 10

5

0 Net Export -5

-10

Source: China’s National Statistical Bureau.

GDP are caused by the rise in both domestic demand (domestic investment and domestic consumption) and external demand (exports minus imports or net exports). As shown in Figure 3, China’s economic growth since 2000 has been primarily fuelled by the rise in domestic demand, particularly domestic investment. Of the 9.4% GDP growth for the first three quarters of 2011, domestic investment and domestic consumption respectively contributed 5.0 and 4.5 percentage points while external demand posted a negative contribution of −0.01. With the eurozone already in recession and the US economy in slow growth, China’s exports to the developed world would inevitably suffer. The negative contribution of external demand to China’s overall growth for 2011 is set to become larger than in 2010. China’s economic growth, like that of other East Asian economies, is commonly dubbed the “export-led” type. Despite China’s deceptively high export-GDP ratio (about 30%), the direct contribution of external demand to China’s economic growth has always been far smaller than its domestic demand. In 2009, as China’s exports plunged due to the slump in global demand caused by the financial crisis, external demand actually made a huge negative contribution to growth (−39%), and it was still only nine per cent for 2010

b1401_Ch-03.indd 37

8/28/2012 8:01:14 PM

b1401

38

East Asia: Developments and Challenges

J. Wong

(as opposed to 91% for domestic demand). In this sense, export dependence of China’s economy has been exaggerated. Indeed, domestic demand has always been the mainstay of economic growth for all large economies. As in the United States and India, China primarily depends on its vast domestic market as the foundation of its own economic growth. Viewed from another angle, however, the actual total economic significance of exports to China’s economic growth is much higher than what is statistically illustrated in Figure 3. This is because the export sector indirectly generates a lot more GDP through the multiplier effect of employment as well as additional GDP created by the forward and backward linkages of the export industries. This also explains why the Chinese economy, though mainly depending on domestic investment and consumption for growth, is still highly vulnerable to external fluctuations. Some have argued that external demand is actually crucial for China by providing the “extra” few percentage points on top of its basic economic growth. For domestic demand (investment plus consumption), China’s domestic investment for the past 10 years has contributed an average of 53% to its economic growth as compared to only 41% for domestic consumption. China’s relatively low consumption stems primarily from its high domestic savings — nearly 50% of GDP. The contribution to economic growth by external demand (exports minus imports) in the same period, however, works out to be only six per cent on average, which is still high by international standards mainly because of China’s sizeable annual trade surplus. It may be noted that slightly more than half of China’s exports are in processing trade, which by its very nature yields a trade surplus for China. As China imports raw materials and all the necessary parts and components for fabrication for the export markets, the real domestic value-added to China is the margin that it charges as processing fees (basically returns to labour), which invariably ends up as China’s trade surplus. With rising costs and increasing wages, China is losing its comparative advantage in processing trade, and this will produce less trade surplus in the future. Eventually, external demand as a source of growth will also become less important for China’s overall economic growth.

b1401_Ch-03.indd 38

8/28/2012 8:01:15 PM

b1401

East Asia: Developments and Challenges

Moderate Slowdown, Still Weaker Growth Prospects for 2012 39

Indeed, the global financial crisis, in causing a sharp decline in global demand for China’s exports, has precipitated China’s move towards a more balanced source of economic growth. After their plunge in 2009, China’s exports had barely recovered in 2010 before facing bleak prospects again now, this time mainly caused by the debt problem in the EU. For 2011, China’s exports growth was only 20.3%, compared to 31.3% in 2010 (still lower in real terms), compared to 26% of 2010. China’s trade surplus in 2011 narrowed to US$155 billion from US$180 billion of 2010.4 In other words, China is making progress to reduce export dependency. It may be pointed out that China’s strategies of reducing exports for its economic growth will lead to “collateral damage” for its neigbhouring economies such as Japan, Korea and Taiwan, which have consistently incurred enormous trade surplus with China. If China were to further reduce its exports to the EU and the United States, China would also have to cut down its imports from its East Asian neighbouring economies. They, too, will have to rebalance their growth patterns. The year 2011 marks the 10th anniversary of China’s accession to the WTO. During this period, China’s foreign trade has experienced dynamic growth, making it the world’s leading trading nation today, with exports growing at 17% and imports at 15% a year, five times higher than world trade growth. China’s recent White Paper on foreign trade spells out China’s priority to promote “sustainable” foreign trade growth based on a more “balanced” trade. China is well aware of the fact that it is fast losing comparative advantage to other late-comers for many of its labour-intensive exports; it will hence shift its foreign trade development from “extensive to intensive mode”. Accordingly, China is also paying more attention to promoting imports so as to cut down its trade surplus and reduce trade frictions with developed countries, including external pressures on the renminbi to appreciate. In fact, Hu Jintao recently clarified that “China did not deliberately pursue a trade surplus”. In short, China 4

“China’s foreign trade surges 22.5%”, China Daily, 10 January 2012.

b1401_Ch-03.indd 39

8/28/2012 8:01:15 PM

b1401

40

East Asia: Developments and Challenges

J. Wong

is making a significant move towards restructuring its source of economic growth and rebalancing its macroeconomic structure.

RISKS AND CHALLENGES FOR 2012 Inflation China started 2011 with high inflation, which appears to be well under control entering 2012, as shown in Figure 4. As the Chinese leadership is always politically very sensitive to inflation, a question may then be posed: Will inflation recur in the near future? The Chinese economy has experienced an average of 9.9% growth for over three decades with an average inflation of only 1.8%. This is a classical case of high growth with remarkable price stability. In recent years, however, inflation has cropped up as a serious problem to the Chinese government (5.8% for 2008, down to 3.3% for 2010, and then up again to reach 6.5% in July 2011), partly due to excessive liquidity within the economy and partly caused by some structural factors. This follows that the Chinese inflation is made up of elements that conform to both a demand-pull and a cost-push type, Fig. 4. China’s CPI in 2011. 7 6 5

%

4 3 2 1 0 Nov 2010

Dec

Jan 2011

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Source: National Bureau of Statistics.

b1401_Ch-03.indd 40

8/28/2012 8:01:15 PM

b1401

East Asia: Developments and Challenges

Moderate Slowdown, Still Weaker Growth Prospects for 2012 41

with the process further complicated by seasonal price fluctuation and imported inflation (e.g. higher prices for imported energy and raw materials). Since the Chinese CPI basket gives a very high weight to food items (34%), fluctuation in food prices due to seasonal factors, bad weather, or the hog cycle (pork being a highly important protein item in Chinese diet) will inevitably affect the CPI movement from time to time. In recent years, rising wages and increasing costs have also pushed up the CPI, and they can have a spiral effect on inflation. The Chinese economy has also become so open and globalised that the country will become susceptible to imported inflation, especially when the government has been reluctant to speed up the process of RMB appreciation. All told, China may be winning the battle against inflation for 2012, but the problem of inflation will not easily go away in future. In any case, inflation is always lurking behind a fast-growing economy. China’s economy today is also facing rising costs and increasing wages, apart from its hidden structural rigidity. All these underlying factors can easily stoke inflation, making it extremely difficult for the Chinese government to keep inflation at three per cent in future. It would be more realistic for the government to accept a higher inflation level of around four per cent, just as in the other East Asian economies.

Property bubble China ended 2011 having also successfully deflated its property bubble and with the government making it clear that it would stand fast on its property cooling measures. How will the problems of a declining property market spill over to 2012? To begin with, there is no “sub-prime problem” whatsoever for the Chinese real estate market, as many Chinese buyers often make their property purchases with cash while others have to pay a minimum down payment of 30% for the first house and 50% for the second one. There is also real demand for housing from the rising middle class and rapid urbanization — almost 20 million of rural people moving to urban

b1401_Ch-03.indd 41

8/28/2012 8:01:15 PM

b1401

42

East Asia: Developments and Challenges

J. Wong

areas every year. A major proportion of housing demand is actually not for speculation. Still, as discussed earlier, the collapse of the real estate sector is apt to produce a significant contractionary effect on the real economy in terms of reduced investment and consumption. Furthermore, a serious property slump always sparks fears of collateral damage to the financial sector. Recently, the International Monetary Fund (IMF), after performing a stress test of China’s financial system, urged China to speed up the reform of its state-owned banking system. But the report also says that “China’s financial system is robust overall, but faces a steady build-up in vulnerabilities”. In response, China’s bank regulator Liu Mengkang pointed out that the stress test was referring to the worst-case scenario. Liu further affirmed that banks in China could stand the plunge of property prices by 30% or even 50%. (Figures 5 and 6). In standing firm on its property curbs, the Chinese government must have done the calculation that the real estate problem will not run out of hand. Should the property market continue to

10

4500

9

4000

8

Housing Prices

7

3500

6

3000 Outstanding Mortgages

2500

5

Outstanding Mortgages

2010

2009

2008

2007

2006

2005

2004

0 2003

0 2002

1 2001

2

500 2000

3

1000

1999

4

1500

1998

2000

Outstanding Mortgages in Trillion RMB

5000

1997

Housing Price in RMB per sq m

Fig. 5. Outstanding mortgages and housing prices, 1997–2011.

Housing Prices

Source: China Financial Yearbook 2011.

b1401_Ch-03.indd 42

8/28/2012 8:01:15 PM

b1401

East Asia: Developments and Challenges

Moderate Slowdown, Still Weaker Growth Prospects for 2012 43 Fig. 6. Share of property loans to total bank loans. 25 20

%

15 10 5

Developer Finance

Dec 10

Jun 10

Sep 10

Mar 10

Dec 09

Jun 09

Sep 09

Mar 09

Dec 08

Sep 08

Jun 08

Mar 08

Dec 07

Jun 07

Sep 07

Mar 07

Dec 06

Jun 06

Sep 06

Mar 06

Dec 05

Jun 05

Sep 05

Mar 05

0

Mortgage Loans

Source: China Banking Supervision Commission.

plunge — not an impossible scenario, as any falling property market has the potential to feed the downward dynamics by itself — the government would come in to support the market. In 2012, China’s property market is likely to experience a soft landing, not a messy bursting of the property bubble, as predicted by some doomsayers.5

Public debt Recently, China’s public debt problem suddenly received a lot of international attention, with some commentators even blowing the problem out of proportion. To begin with, China’s outstanding external debt in September 2011 amounted to US$697 billion, excluding trade credit and loans owed by China’s state-owned enterprises (SOEs) and banks overseas. With China being a creditor country which persistently enjoys balance of payments surplus and holds vast foreign exchange reserves at US$3.2 trillion, such an amount of external debt is considered minuscule. On domestic public debt, official debt figures from all sources added up to 21 5

See Stephen Roach, “Why India is riskier than China”, Today, 29 December 2011.

b1401_Ch-03.indd 43

8/28/2012 8:01:15 PM

b1401

44

East Asia: Developments and Challenges

J. Wong Table 1. China’s public debt Dec 2010

Government debt issuance Domestic Foreign borrowing Government debt payment Domestic Foreign borrowing Central government debt outstanding Domestic Foreign borrowing Foreign debt outstanding Local government debt outstanding Government debt outstanding (Total)

Dec 2009

RMB billion

% of GDP

RMB billion

% of GDP

1,785 1,775 10 1,205 1,198 3 6,755

4

5

17

1,628 1,621 7 932 927 5 6,024

18

6,699 56 3,513 10,717

9 27

5,974 50 2,928 9,017

9 26

20,986

52

17,968

53

3

3

Source: Ministry of Finance; National Audit Office. Note: Foreign debts include loans from foreign government, international financial institutions, international commercial loans, and trade credit.

trillion yuan or 52% of China’s GDP at end 2010 (Table 1). The latest figures from the National Bureau of Statistics show that for both the central and local governments, debts work out to be only 43% of GDP, which is considered a low debt burden by international standards.6 However, some have rightly taken issue with these official figures on the ground that local government debt could well be underreported while debts incurred by certain SOEs might have well been excluded. A much more stringent alternative estimate, which includes debts incurred in the underground credit markets and off-balance exposures of banks, could bring up China’s debt to the hefty level of 70–80% of its GDP, roughly on par with the US level. The trouble 6

This figure was disclosed at the press conference by Ma Jiantang, Director of China’s National Bureauc of Statistics, on 17 January 2012 when he released China’s economic performance report for 2011.

b1401_Ch-03.indd 44

8/28/2012 8:01:15 PM

b1401

East Asia: Developments and Challenges

Moderate Slowdown, Still Weaker Growth Prospects for 2012 45

with this estimate is that it takes into account all sorts of private commercial debt as government liabilities. It also assumes that most loans are potential bad debts. Some local government borrowers have recently applied to the banks to defer payment. But this does not mean a debt crisis is imminent. The bulk of the local government borrowing is for local infrastructure development, not for social consumption (welfare spending) like in Europe. The China Banking Regulatory Commission recently put the ratio of non-performing loans (NPL) by Chinese banks at only 1.84%. The coming economic downturn would, of course, increase the risk of the debt problem. Many local government bad debts are likely to surface in 2013. Put China’s debt problem in a proper perspective. Even for the worst-case scenario of assuming China’s total domestic debt level reaching 70–80% of its GDP, its debt problem would still not become a banking crisis for China. This is because all these debts are basically domestic liabilities within the country. It should be stressed that China, as a fast growing economy with high levels of domestic savings and strong fiscal potential, can easily absorb and digest a much higher volume of domestic debt. That is exactly how Japan has continued to live for with its high level of debt at over 200% of its GDP for years. In reality, a lot of discussions of China’s public debt issue outside China has been put in the wrong context of the insolvency issue from just following the cue from the EU. China’s debt problem actually points to the existence of serious policy deficiencies in its financial sector and public finance system. For instance, as the state banks channel most of their credit to the large state sector, many small and medium enterprises have to resort to the informal markets for credit, making the debt problem worse. As local governments have only a small or no legitimate tax base, they are often forced to raise revenue through land speculation in order to finance their infrastructure building. Suffice it to say that China’s debt problem is basically a problem of further financial reform, not a prelude to an imminent financial crisis. Politically speaking, it points to the governance issue. Some of the local

b1401_Ch-03.indd 45

8/28/2012 8:01:15 PM

b1401

46

East Asia: Developments and Challenges

J. Wong

government debt is just the outcome of corruption and rentseeking activities on the part of some unscrupulous local officials.

Renminbi exchange rate By comparison, the renminbi exchange rate issue will continue to be a headache for the Chinese government throughout 2012 and beyond. Since it went off the US-dollar peg in July 2005, the renminbi has appreciated over 30% against the US dollar — about five per cent in 2011 (Figure 7). Taking into account China’s inflation and rising domestic wages, the RMB today has actually appreciated nearly 40% in terms of its “real exchange rate” (REER). But this has not prevented the US government from politicising the issue and accusing China of manipulating its exchange rate. At the recent APEC meeting in Bali, US President Obama still hammered China for keeping the renminbi “grossly under-valued”. What is more significant is that the renminbi in mid-December experienced a brief episode of a slight depreciation as some hot money flowed out of China. In the offshore markets, demand for the renminbi also went down. This prompted China’s central bank, for the first time in many years, to intervene to support the renminbi. Once a currency stops its one-way upward trend and can move in both directions, the market is signalling that its exchange rate is approaching the market equilibrium level. It should be stressed that China’s renminbi exchange rate is still far from being market driven. Given China’s continuing surplus in current and capital accounts, the renminbi exchange rate will still be moving up in 2012 against the US dollar, perhaps at about 2–3%. But 2012 is also the presidential election year in the United States. American politicians could in their rhetoric during campaigns still put pressure on China for a larger measure of renminbi revaluation. In particular, the recent decision of the US Federal Reserves to keep interest rate near zero until 2014 is likely to add new pressure on the renminbi to move up. In the long run, a truly market-based flexible exchange rate of renminbi would actually be good for China.

b1401_Ch-03.indd 46

8/28/2012 8:01:15 PM

130

120

Singapore Dollar

110

100

90

80

70

Japanese Yen USD

RMB

8/28/2012 8:01:15 PM

Source: Bank of International Settlement.

SGD Japanese Yen USD

EURO

60

EURO

b1401

East Asia: Developments and Challenges

Moderate Slowdown, Still Weaker Growth Prospects for 2012 47

Jan 2005 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan 2006 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan 2007 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan 2008 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan 2009 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan 2010 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan 2011 Feb Mar Apr May Jun Jul Aug Sep Oct

b1401_Ch-03.indd 47

Fig. 7. Monthly real effective exchange rate of RMB and other currencies, January 2005–October 2011 (With January 2005 REER = 100).

140

Chinese RMB

b1401

48

East Asia: Developments and Challenges

J. Wong

However, China has its own timetable for reforming the renminbi, including the latter’s internationalisation. The Chinese government has taken to the policy of not letting the speed of the renminbi revaluation overtake that of the progress of China’s industrial upgrading and macroeconomic rebalancing, including its trade balance. Needless to say, this is a complicated process. In a fundamental sense, the renminbi exchange rate problem stems from China’s persistent trade surplus, which in a macroeconomic sense just reflects China’s net surplus of savings.7 Hence China will continue to be caught between the political demand from the outside for a faster renminbi appreciation and the domestic economic reality that allows only a gradual process of change. The Chinese leadership is apparently still haunted by Japan’s bad experience of having revalued the yen too much and too fast under strong US pressure — the Plaza Accord in 1985. The renminbi movement in the near future will still face a lot of uncertainties.

7

Trade surplus can be easily explained by this simple macroeconomic identity: X − M = S − I. “Trade surplus” as the difference between exports I(X) and imports (M) just equals “saving surplus”, as gross savings (S) minus gross investment (I).

b1401_Ch-03.indd 48

8/28/2012 8:01:16 PM

b1401

East Asia: Developments and Challenges

Chapter

4 China’s Foreign Policy: Coping with Shifting Geopolitics and Maintaining Stable External Relations ZHENG Yongnian and LYE Liang Fook

ABSTRACT China’s foremost foreign policy challenge in 2011 was to grapple with a heightened US presence in the Asia-Pacific on the political, diplomatic, economic and security fronts. This presence has affected the dynamics of big power relations in the region. Some in China see this as a US attempt to contain China. Fortuitously, at the official level, China has refrained from over-reacting and appeared keen to opt for stable ties with the major powers and friendly cooperation with its neighbours. It also tempered expectations of its role in the eurozone debt situation.

49

b1401_Ch-04.indd 49

8/28/2012 8:01:29 PM

b1401

50

East Asia: Developments and Challenges

Y. Zheng and L.F. Lye

With an impending leadership succession in 2012, China will place a higher premium on maintaining a stable external environment. As such, China can be expected to closely monitor several external developments that could impact China’s interests. In the run-up to the forthcoming US presidential and congressional elections, anti-China sentiments or possibly anti-China retaliatory measures could be whipped up or introduced that could have a negative impact on China-US ties. The possibility of a Trans-Pacific Partnership Agreement also has the potential of changing the rules of the game by raising the development bar for China as it would cover trade beyond areas such as intellectual property rights, labour standards and the environment where China is relatively weak in. Regional flashpoints, such as the South China Sea disputes, may again rear its ugly head as the smaller claimant states work closer with third parties such as the United States and India to further press their claims with a China preoccupied with its internal leadership succession.

CHINA-US RELATIONS: COMPETITION AMID COOPERATION China took the initiative to set its relations with the United States on a more stable footing with Chinese President Hu Jintao’s visit to the United States from 18 to 21 January 2011. This was Hu’s first state visit of the year, indicating the level of importance China attached to its ties with the United States. This pro-activeness on China’s part was intended to avoid a repeat of 2010 when China-US relations seemed to have lost strategic direction with individual events generating their own negative momentum such as the Google episode, US President Obama’s meeting with the Dalai Lama, US arms sales to Taiwan and the strengthening of the US-Japan-South Korea nexus (over China’s response to Japan’s detention of a Chinese ship captain, and the Cheonan and Yeonpyeong incidents). To lay the groundwork for Hu’s visit, Chinese Foreign Minister Yang Jiechi went to the United States from 3 to 7 January 2011 to sort out the details. Even more noteworthy was Hu taking the rare step of setting the tone of his US visit by preparing written

b1401_Ch-04.indd 50

8/28/2012 8:01:29 PM

b1401

East Asia: Developments and Challenges

Coping with Shifting Geopolitics and Maintaining 51

answers to questions posed by The Wall Street Journal and The Washington Post, two key American newspapers with a wide reach. In one of his written replies, Hu, while acknowledging differences and sensitive issues between the two countries, reportedly underscored the theme of cooperation by stating that “we both stand to gain from a sound China-US relationship, and lose from confrontation”.1 Following Hu’s visit, China-US relations seemed to have moved on to a relatively stable plateau. This was palpable at their regular Strategic and Economic Dialogue (SED) in May 2011. Under the SED framework, the first Strategic Security Dialogue was held, opening up an additional platform of engagement for civilian and military leaders from both sides. Capping it all was US Vice President Joe Biden’s visit to China in August 2011. Besides renewing his acquaintance with his Chinese counterpart Xi Jinping, Biden’s efforts to reach out to the man-on-the-street by stopping at a local noodle shop in Beijing and delivering a lecture at Sichuan University endeared him to the Chinese public. Yet, barely a month after Biden’s visit to China, the United States announced a US$5.85 billion arms package to Taiwan. To China, this was a smack in the face as Beijing had been a gracious host during Biden’s China visit. Even then, Beijing’s response was relatively measured compared to 2010 when it froze all high-level visits with the United States and threatened economic sanctions. Partly, Beijing did not wish to upset the overall tone of cooperation set earlier by Hu. It also probably did not wish to weaken the domestic position of Taiwan President Ma Ying-jeou with a strong reaction that would play into the hands of the pro-independence camp. China had to further contend with a renewed US effort to step up its presence in the Asia-Pacific region. At the political level, the United States made its presence felt at the East Asia Summit as a full member and raised sensitive issues like the South China Sea 1

“Hu Says US, China must Work Towards Mutual Trust”, The Washington Post, 17 January 2011 and “World News: Highlights of Interview with Hu Jintao”, The Wall Street Journal, 18 January 2011.

b1401_Ch-04.indd 51

8/28/2012 8:01:30 PM

b1401

52

East Asia: Developments and Challenges

Y. Zheng and L.F. Lye

(SCS) disputes. On the economic front, the United States pushed for a Trans-Pacific Partnership (TPP) Agreement that went beyond trade and investment to include items like labour, intellectual property rights and the environment. China regarded this as an attempt by the United States to change the rules of the game by raising the bar for China. In a seeming rebuff of the TPP, President Hu reportedly stated that China prefers to work through existing global trade architecture like the World Trade Organisation (WTO).2 On the security front, the United States reaffirmed its military alliance with Australia with an agreement to station up to 2,500 marines in Darwin and for the US Air Force to have greater access to Australian Air Force facilities. China’s response to this has been rather restrained. Its foreign ministry spokesman, Liu Weimin, in a veiled criticism of the United States and Australia, reportedly questioned the appropriateness of broadening military alliances at a time of sluggish world economic growth.3 While cooperating with the United States, China is fully cognisant of the intense competition from the United States. The United States’ renewed engagement of the Asia-Pacific demonstrates the preeminent role that the United States can and is still willing to play in this region. It also exposes the limits of China’s power projection such as the inability of its current batch of missiles to reach the American marines to be stationed in Darwin. Of note is the non-mention of “core interests”, a favourite Chinese catchphrase, in the joint statement accompanying Hu’s visit to the United States in January 2011, although they were first included in the joint statement issued during President Obama’s visit to China in 2009.4

2

“Obama, Hu Airs Economic Disputes at APEC Summit”, Reuters, 13 November 2011. 3 “China Cool on US Troop’s Aussie Deployment”, Herald Sun, 16 November 2011. 4 “US-China Joint Statement”, The White House: Office of the Press Secretary, 17 November 2009 at http://www.whitehouse.gov/the-press-office/us-chinajoint-statement.

b1401_Ch-04.indd 52

8/28/2012 8:01:30 PM

b1401

East Asia: Developments and Challenges

Coping with Shifting Geopolitics and Maintaining 53

CHINA AS “CUDDLY PANDA” TO THE EU Unlike the complex China-US relationship that pits a rising power against a declining power, China-EU ties are more intricate given the varied interests and perceptions of individual European countries of China. Throughout 2011, China’s relations with the European Union (EU) were generally positive due to China’s growing importance to the EU. To the EU, China came across more as a “cuddly panda” than a “menacing dragon”. A key reason is the growing interdependence, especially on the economic front, between China and the EU, as well as that of individual European countries. This growing interdependence has raised China’s relative importance to the EU and individual European countries. In July 2011, China overtook the United States to become the EU’s largest trade partner even though bilateral trade had shrunk for the second consecutive month since June 2011. Citing figures from Eurostat, China’s Ministry of Commerce reported that the total value of China-EU trade rose to EUR35.6 billion in July 2011. This figure exceeded the EU-US total trade by EUR800 million, accounting for 13.4% of the region’s total imports and exports. At the same time, China remained EU’s second largest export market. EU’s exports to China totalled EUR11.7 billion in July, up 12.3% year-on-year, higher than the EU’s total export growth rate of 4.1%.5 Complementing the EU relationship, China has continued to build on its ties with individual European countries. Chinese Premier Wen Jiabao took advantage of his visit to the UK and Germany in June 2011 to underscore the benefits of cooperating with China. In the 5

“China Surpasses U.S. as EU’s top trade partner: MOC”, Xinhua News, 17 October 2011. In 2010, EU exports to China increased by 37% to reach a record EUR113 billion. The EU is also China’s biggest export destination with goods and services amounting to EUR282 billion. This produced an EU trade deficit of EUR168.8 billion with China in 2010, just below the 2008 record of EUR169.5 billion. This figure fell to EUR132 billion in 2009, driven mainly by a drop in imports from China due to the world economic crisis. See data by the European Commission at http:// trade.ec.europa.eu/doclib/docs/2009/september/tradoc_144591.pdf.

b1401_Ch-04.indd 53

8/28/2012 8:01:30 PM

b1401

54

East Asia: Developments and Challenges

Y. Zheng and L.F. Lye

United Kingdom, he launched the MG6 Magnette, the first European car produced by Shanghai Automotive Industry Corporation since it took over the British automobile company in 2007. In Germany, Wen led a delegation of 16 ministers that met with their German counterparts at their first ever inter-governmental consultations. Both sides also signed deals reportedly amounting to US$15 billion, including new and firm orders for 88 Airbus A320 aircraft.6 A second key reason is that the EU and individual European countries view China as a key player in helping to address the eurozone debt crisis and even to stabilise the world economy. During his visit to China in August 2011, former French President Sarkozy reportedly told his Chinese counterpart Hu Jintao that China has an “essential role” to play in efforts to boost the global economy.7 Klaus Regling, CEO of the European Financial Stability Facility (EFSF), had expected to attract Chinese investment in EFSF bonds when he visited China in October 2011.8 Officially, China has been reticent about playing an active role in bailing out the debt-ridden economies of Europe. Chinese leaders such as President Hu Jintao, Premier Wen Jiabao and Vice Premier Wan Qishan have separately expressed their confidence in “Europe’s wisdom and ability” to overcome its current difficulties.9 In other words, Europe will need to set its own house in order. On its part, China stands ready to render the necessary support and assistance to aid this process along. This approach underscores China’s acute realisation of its own limits given that the size of its economy is only a third of the United States’ and it is grappling with its own pressing domestic challenges. As expected, during German Chancellor Angela Merkel’s visit to China in February 2012, Premier Wen Jiabao, 6

“China Signs for 88 Airbus A320s”, Reuters, 28 June 2011. “Hu Says China Confident in Europe”, China Daily, 26 August 2011. 8 Regling’s visit comes after European leaders reached an interim agreement to reduce Greece’s debt by 50% and expand the EFSF bailout fund to EUR one trillion from EUR 440 billion. See “EU bailout fund chief eyes China investment”, China Daily, 28 October 2011. 9 “President Hu Confident in Europe”, China Daily, 1 November 2011 and “China Vows to Boost European Investment”, China Daily, 15 September 2011. 7

b1401_Ch-04.indd 54

8/28/2012 8:01:30 PM

b1401

East Asia: Developments and Challenges

Coping with Shifting Geopolitics and Maintaining 55

without giving any firm commitments, said that China was considering greater involvement in resolving Europe’s debt crisis by participating in the European Financial Stability Fund and the European Stability Mechanism. Taking a long-term approach, China has stated its willingness to step up its ongoing cooperation with the EU in terms of trade, investment, technology and finance. China has also, since the outbreak of Europe’s debt crisis in 2009, reportedly been buying bonds from Spain and other European nations as part of its effort to help alleviate the crisis. Its holdings of euro-denominated assets have apparently increased over the years.10 Such an approach is in line with China’s aim to diversify its foreign exchange reserves away from US Treasury debt into other investments, including euro-denominated debt. It further underlines China’s long-term objective of reducing the world’s dependence on the US dollar as the world’s sole global reserve and shifting towards a more multi-polar reserve system that includes a role for the Chinese renminbi. Issues such as trade disputes and human rights that used to dog relations between China and the EU have taken a back seat. Throughout 2011, Chinese goods ranging from ceramic tiles, traditional Chinese medicinal products, fasteners (such as screws, nuts, bolts and washers), leather shoes and bicycles to toys have been subjected to anti-dumping measures or tighter regulatory standards imposed by the EU.11 China has also complained about barriers to its direct investment in the EU. China has further pressed the EU to recognise China’s market economy status ahead of the 2016 deadline.12 These differences, however, have not disrupted the overall positive momentum of relations between China and the EU. 10

“China backs Europe amid debt crisis”, China Daily, 10 May 2011. In a seeming tit-for-tat, China has either imposed anti-dumping duties or launched investigations into alleged dumping of European products such as potato starch and steel tubes. 12 From China’s perspective, by listing China as a non-market economy, the EU can easily impose high anti-dumping duties on Chinese products, thereby hindering the development of China’s exports and protecting EU industries. This discriminatory practice is viewed by China as a kind of disguised protectionism. 11

b1401_Ch-04.indd 55

8/28/2012 8:01:30 PM

b1401

56

East Asia: Developments and Challenges

Y. Zheng and L.F. Lye

CHINA-JAPAN AND CHINA-INDIA RELATIONS: MENDING FENCES AND FRAYING TIES China’s relations with Japan improved in 2011 after they nose-dived following Japan’s detention of a Chinese ship captain near the disputed Diaoyutai (or Senkaku) Islands in September 2010. Among the first signs of a thaw was the holding of a strategic dialogue led by their vice foreign ministers in Tokyo in February 2011, their first ministerial-level talks since ties soured in 2010. Both sides pledged to create a favourable atmosphere in the run-up to the 40th anniversary of diplomatic relations in 2012. In the same month of February, two giant pandas from Sichuan arrived at Ueno Zoo in Tokyo in another sign of improving relations.13 The earthquake, tsunami and nuclear disaster that struck northern Japan in March 2011 provided a fortuitous opening for relations to improve further. Beijing dispatched a 15-member search and rescue team, reportedly the first disaster team from China ever to set foot on Japan.14 This was soon followed by further aid in money and in kind from Beijing, local governments and other public and private sources. Setting aside their differences, China reached out to the Japanese public in their hour of need. China was also reciprocating the aid that Japan extended to China during the Wenchuan earthquake in 2008. Pressing home the message that it was a friend, China continued to show concern for the families of the victims well after the disaster struck. Most notably, Premier Wen Jiabao visited Japanese residents in the disaster hit areas in Miyagi and Fukushima prefectures while attending the trilateral summit of China, Japan and South Korea in Tokyo in May 2011. Wen further extended an invitation to 500 students from the disaster areas to visit China. The first batch of 100 Japanese students, including the 11-year-old Kayo Fukushima who 13

The two pandas were sent to Japan as part of an agreement between the Tokyo Metropolitan Government and the China Wildlife Conservation Association signed in July 2010. See “Chinese Giant Pandas Arrive at Ueno Zoo in Tokyo”, People’s Daily Online, 22 February 2011 at http://english. eopledaily.com.cn/90001/90776 /90883/7296199.html. 14 “Setting Rivalry Aside: China Responds to Japan’s Plight”, TIME, 14 March 2011.

b1401_Ch-04.indd 56

8/28/2012 8:01:30 PM

b1401

East Asia: Developments and Challenges

Coping with Shifting Geopolitics and Maintaining 57

wrote a thank you note to Premier Wen following his May visit, visited the resort island of Hainan in August 2011.15 Amidst improving ties, there remained issues of concern between the two countries. In particular, in its 2011 annual Defence White Paper, Japan expressed concern with China’s perceived increasing assertiveness and expanding military activities in the waters surrounding Japan.16 In response, China’s Foreign Ministry expressed its “strong dissatisfaction” with the “irresponsible comments” made in the paper.17 When China began the first sea trial for its aircraft carrier in August 2011, Japan called on China to explain why it needed an aircraft carrier. The Japanese Prime Minister Noda, who was elected in August 2011, also appeared keen to strengthen Japan-US ties to balance the growing heft of China. In contrast to the improving China-Japan ties in 2011, ChinaIndia ties deteriorated. China perceived India as interfering in matters that fall under its “core interests”. China was upset with a deal reached between Indian and Vietnamese firms in September 2011 to exploit oil and gas in two offshore SCS blocks which Vietnam asserts are within its Exclusive Economic Zone.18 This is apparently the first time India is involved in the sea disputes between China and Vietnam.19

15

“100 Children from Japan’s Quake Zone Begin Vacation in China’s Island Resort”, Xinhua News Agency, 2 August 2011. 16 The waters surrounding Japan included the East China Sea, South China Sea and the Pacific. See “China angered by Japan’s defense paper warnings”, BBC, 4 August 2011. 17 “Foreign Ministry Spokesperson Ma Zhaoxu’s remarks on Japan’s new Defense White Paper”, China’s Foreign Ministry Website, 3 August 2011 at http://www. fmprc.gov.cn/eng/xwfw/2510/ 535/t846261.htm. 18 There have been separate reports asserting that the move by the Oil and Natural Gas Corporation (ONGC), India’s state-owned producer, to exploit oil and gas in the disputed SCS is India’s response to China allowing its companies to build hydroelectric and other infrastructure projects on the disputed Pakistan occupied Kashmir. 19 “China Warns India against Exploring Oil in South China Sea Ahead of Krishna’s Visit to Hanoi”, Times of India, 15 September 2011.

b1401_Ch-04.indd 57

8/28/2012 8:01:30 PM

b1401

58

East Asia: Developments and Challenges

Y. Zheng and L.F. Lye

Ruffling China’s feathers further, India stepped up its military cooperation with Vietnam in an apparent move to counter China’s growing influence. In July 2011, an Indian warship was reportedly warned against entering “Chinese waters” while cruising from the Vietnamese port of Nha Trang (in south central Vietnam) to Haiphong (in north Vietnam).20 India has also reportedly offered to train Vietnamese sailors at India’s navy submarine school, the INS Satavahana in Vishakapatnam, a port city that is home to India’s Eastern Naval Command. India and China further called off their Special Representatives talks on their disputed border in New Delhi scheduled from 28 to 29 November 2011. Before this, India had refused China’s request to prevent the Dalai Lama from addressing the Global Buddhist Congregation in New Delhi on 30 November.21 China’s request was driven by concerns that the Dalai Lama would use the occasion to launch anti-China activities related to Tibet, causing embarrassment to State Councillor Dai Bingguo who would otherwise be in New Delhi for the border talks. In recent months, the self-immolation of several Tibetan Buddhist monks has drawn attention to the Tibetan issue which China regards as an internal matter.

CHINA-ASEAN RELATIONS: RESPONDING TO CONCERNS AND EMPHASISING COOPERATION China has continued to stress its commitment to work with the Association of Southeast Asian Nations (ASEAN). Yet, ties were 20

“China Harassed Indian Naval Warship on South China Sea”, Times of India, 2 September 2011. It was also reported that while the Indian warship was docked at Nha Trang, its captain and crew offered flowers at the statue of Tran Hung Dao, a war hero who led Vietnam to victory in the Battle of Bach Dang in 1288 over the naval fleet of China’s Yuan Dynasty. See “Indian Warship in Vietnam on Friendly Visit”, Thanh Nien News (Vietnam), 20 July 2011. 21 The Global Buddhist Congregation was organised by the Asoka Mission to commemorate the 2,600th year of Sambobdhi Prapti (the enlightenment of the Buddha). The congregation was reportedly attended by around 900 Buddhist scholars and others from 46 countries.

b1401_Ch-04.indd 58

8/28/2012 8:01:30 PM

b1401

East Asia: Developments and Challenges

Coping with Shifting Geopolitics and Maintaining 59

somewhat dampened by the continuing row between China and ASEAN claimant states, particularly the Philippines and Vietnam, over their SCS disputes. On its part, China has been proactive in trying to keep the SCS issue from being blown out of proportion to its broader relations with ASEAN and individual claimant states. China is either the number one or number two trade partner with most ASEAN countries. It adopted a multilateral and bilateral approach vis-à-vis ASEAN and the claimant states to stress the potential of cooperation and reduce the saliency of the SCS issue. The year 2011 did not begin well for China in terms of its relations with ASEAN. Tensions between China and the claimant states of the Philippines and Vietnam over the SCS disputes threatened to get out of hand. In March 2011, Vietnam protested against Chinese counter-piracy drills near the disputed Spratly islands. Tensions escalated when Vietnam asserted that a Chinese patrol vessel intentionally cut a submerged cable towed by a Vietnamese seismic survey ship in its waters in May 2011.22 Not long after, rare anti-Chinese protests took place in Hanoi and Ho Chi Minh City for several weeks, apparently with the tacit approval of the Vietnamese government. In June 2011, Vietnam began live firing naval drills and its Prime Minister issued a decree specifying the details of a military call-up in times of war. Ties between China and the Philippines were affected as well. In March 2011, the Philippines complained of harassment of its oil exploration vessels by Chinese patrol vessels in Reef Bank (within Philippines territorial boundaries). There were reportedly other incidents in which the Philippines claimed that its fishermen were fired upon by Chinese naval vessels; of “foreign markers” being installed on three reefs and banks in the SCS claimed by both the Philippines and China;23 and of Chinese surveillance ships’ intrusion into a new part of the disputed Spratly islands with the Philippines. In view of China’s 22

In another incident in June 2011, Vietnam again accused China of harassing a ship hired by Vietnam to conduct seismic surveys in the SCS. 23 The markers were reportedly on Boxall Reef in the Spratly Islands, and in the nearby Amy Douglas Bank and Reed Bank, all three of which are in waters of the SCS disputed by the Philippines and China.

b1401_Ch-04.indd 59

8/28/2012 8:01:30 PM

b1401

60

East Asia: Developments and Challenges

Y. Zheng and L.F. Lye

perceived assertive moves in the SCS, both the Philippines and Vietnam have separately called on the United States to play a role. The Philippines has even attempted to mobilise ASEAN’s support for a Zone of Peace, Freedom, Friendship and Cooperation. In response, China embarked on a proactive effort to prevent the SCS disputes from escalating. In July 2011, China and ASEAN reached an agreement on a set of guidelines to implement the 2002 Declaration on the Conduct of Parties in the South China Sea. China also separately invited Philippines’ President Benigno Aquino and Vietnam’s General Secretary Nguyen Phu Trong to visit China in August and October 2011 respectively. During Trong’s visit, the two countries even signed an agreement on the basic principles guiding the settlement of maritime issues that committed both sides to resolve maritime disputes through negotiations and friendly consultations. China has further pledged to be a “good neighbour, good friend and good partner” of ASEAN. The anchor of its relations with ASEAN is economics. Minus short-term disruptions, the ChinaASEAN Free Trade Area has continued to boost trade between China and ASEAN. In the first 10 months of 2011, bilateral trade reached US$295.9 billion, up 25.7% compared to the same period last year.24 At the Bali Summit in November 2011, Premier Wen Jiabao went on the charm offensive to impress his ASEAN counterparts. Wen pledged an additional US$10 billion credit to ASEAN, on top of the US$15 billion committed in 2009 that has reportedly supported over 50 infrastructural projects covering most ASEAN countries.25 Wen also suggested setting up a China-ASEAN committee to examine the details of strengthening connectivity with ASEAN. He further announced the establishment of a three billion yuan ChinaASEAN maritime cooperation fund to look into issues like marine research and environmental protection, navigation safety, search and 24

“China-ASEAN 2011 Bilateral Trade to Hit Record High”, Xinhua News, 17 November 2011. 25 “Full Text of Chinese Premier Wen’s Statement at 14th China-ASEAN Summit”, Xinhuanet, 18 November 2011 at http://news.xinhuanet.com/english2010/ china/2011-11/18/c_131255936_3.htm.

b1401_Ch-04.indd 60

8/28/2012 8:01:30 PM

b1401

East Asia: Developments and Challenges

Coping with Shifting Geopolitics and Maintaining 61

rescue, and transnational crimes. The China-ASEAN centre to promote various activities to spur cooperation was also launched during the Bali Summit. During his visit to Vietnam and Thailand in December 2011, Vice President Xi Jinping reiterated the importance China attached to expanding and deepening its ties with these two countries. To Vietnam in particular, China is sending an unequivocal message that both sides should focus on practical areas of cooperation to build a long-term relationship and not allow existing disputes such as the SCS issue to detract them from this broad strategic objective. Implicitly, China is telling Vietnam not to go overboard by drawing in other foreign powers such as the United States and India to assert its claims in the SCS. In 2010, China was somewhat taken off guard when US Secretary of State Hillary Clinton asserted that the United States had a national interest in the freedom of navigation in the SCS. To prevent the likelihood of such a situation arising again, China mounted a proactive effort to keep the SCS issue in check. With ASEAN, it made some headway with the agreement on the implementation guidelines in the SCS. It also enticed ASEAN with potential benefits of further cooperation. With individual claimant states, especially the Philippines and Vietnam, it tried to reach some common understanding on managing maritime disputes in line with its preference for resolving the disputes bilaterally.

CROSS-STRAIT RELATIONS: MAKING STEADY PROGRESS Building on the basis of 2010, cross-strait relations made further progress in especially economics, cultural and people-to-people exchanges in 2011. Both the CCP on the mainland and Kuomintang (KMT) in Taiwan separately emphasised that these exchanges were bringing concrete benefits to the people of Taiwan, particularly the broad masses. This approach is intended to reinforce the positive momentum of cross-strait ties.

b1401_Ch-04.indd 61

8/28/2012 8:01:30 PM

b1401

62

East Asia: Developments and Challenges

Y. Zheng and L.F. Lye

In economics, the two parties have concurred that the “early harvest” programme of the Economic Cooperation Framework Agreement (ECFA) that began in January 2011 had produced tangible results.26 According to figures by Taiwan’s customs, exports from the island to the mainland in the first five months of 2011 reached US$51.3 billion, a rise of 11.7% year-on-year. It was also reported that the export increase after the ECFA kicked in had largely benefited small Taiwanese firms.27 Separately, Taiwan’s Council of Agriculture reportedly stated that the overall value of Taiwan’s agricultural exports to China in the first 10 months of the year totalled US$536 million, up 26% year-on-year.28 Both sides have also formed the Economic Cooperation Committee (ECC) that met twice in 2011 to try to conclude ECFA-related follow-up negotiations. Several working groups have been formed to look into concluding agreements in areas such as trade in goods, trade in services, dispute settlement, investment, industrial cooperation and custom cooperation. So far, hopes for an early agreement on investment protection have been stalled due to differences over how disputes should be settled. Taiwan reportedly favours international arbitration while China has strongly resisted the proposal for fear of internationalising cross-strait issues.29 Besides economic issues, both sides have continued to step up people-to-people and other exchanges. Since June 2011, mainland tourists were allowed to visit Taiwan on an individual basis. This policy was further relaxed in November 2011 to allow family members, friends or colleagues who live in different Chinese cities to travel together to Taiwan. More direct flights have also been mounted between Chinese 26

Under the “early harvest programme” of the ECFA, the mainland has reduced tariffs on 539 Taiwanese goods while Taiwan dropped the duties on 267 mainland goods. The duties on these products will be reduced to zero within two years. 27 “Taiwan Exports to Mainland Booming after ECFA”, People’s Daily Online, 1 July 2011 at http://english.peopledaily.com.cn/90001/90777/7426248.html. 28 “Taiwan Agricultural Exports to China Up”, Central News Agency (Taiwan), 27 November 2011. 29 “Taipei, Beijing Seek Consensus on Investment Protection Pact The China Post, 4 July 2011.

b1401_Ch-04.indd 62

8/28/2012 8:01:30 PM

b1401

East Asia: Developments and Challenges

Coping with Shifting Geopolitics and Maintaining 63

cities and Taiwan. In response to the negative fallout of Japan’s Fukushima nuclear disaster, both Taiwan and China also inked an agreement on nuclear safety to share experiences and information on regulations and standards for nuclear safety, emergency reporting, radiation monitoring and information transparency. Amid deepening cross-strait exchanges, China has been cautious not to overreact on sensitive cross-strait matters to avoid embarrassing Taiwan President Ma Ying-jeou and lending political ammunition to the pro-independence Democratic Progressive Party (DPP). As mentioned earlier, China was noticeably restrained in its reaction to the US arms package to Taiwan in September 2011. In another episode, Ma Ying-jeou came under intense fire from the DPP for selling out Taiwan’s security when he suggested in October 2011 the possibility of a peace treaty with China in 10 years’ time. Ma later qualified that any deal would be preceded by a referendum to gauge public opinion, a comment that risked upsetting Beijing. Ignoring the call for a referendum, Yang Yi, the spokesman for China’s Taiwan Affairs Office, stated that a peace agreement was a common wish of both sides and would be the natural outcome of the peaceful development of cross-strait relations.

CHINA’S FOREIGN POLICY IN 2012 AND BEYOND The year 2012 is a very important one for China as it prepares for the handover of power to a new generation of Chinese leaders at the 18th CCP Congress at the end of the year. A conducive external environment will help facilitate a smooth leadership transition. Furthermore, the leadership that takes over the helm will continue to require a friendly external environment to enable China to grow peacefully and tackle the many pressing domestic challenges. In this regard, China will most likely re-double its efforts to maintain stable relations with other major powers and its neighbours while sustaining economic growth a crucial pillar for internal stability. As such, China can be expected to closely monitor several external developments that could have an impact on China’s interests.

b1401_Ch-04.indd 63

8/28/2012 8:01:30 PM

b1401

64

East Asia: Developments and Challenges

Y. Zheng and L.F. Lye

The first development is the forthcoming US presidential and congressional elections at the end of 2012 that could lead to more anti-China sentiments or retaliatory measures. Incumbent presidential candidate Obama is under intense pressure to revive the US economy and generate jobs. The perception that cheap China goods and its undervalued currency are adversely affecting US businesses resonates among the general public. Already, there are ardent calls by potential candidates for the United States to be more hard-line on China. The anti-currency manipulation bill endorsed by the US Senate in October 2011 is a prime example of a legislation driven by the vagaries of American domestic politics. US President Barack Obama has also announced the setting up of a trade enforcement unit in his State of the Union Address in January 2012 to investigate unfair trading practices in countries such as China. Such anti-China sentiments, and even possible anti-China measures, if taken to the hilt could have a negative impact on China-US ties. In another effort to keep China-US relations on an even keel, Chinese Vice President Xi Jinping embarked on a visit to the United States in February 2012. The visit underscores China’s recognition of the greater interdependence and need for closer cooperation between the two countries. This was exemplified by Xi’s visit to the soybean and corn farm in Iowa (US’ biggest soybean market is China)30 and to the Los Angeles port (where nearly 60% of the imports moving through the port originate from China).31 The two countries also agreed to further strengthen cultural and economic relations. By identifying functional areas of cooperation, Xi had intended his visit to build on the momentum set by Hu Jintao during the latter’s state visit to the United States in January 2011. The second development is the possibility of a TPP Agreement that has the potential of changing the rules of the game by raising 30

In 2011, China purchased 20.6 million metric tons of soybeans from the United States, or 60% of the total shipped overseas. See “China Signs $4.3 billion of Soybeanbuying Deals with US”, Bloomberg Businessweek, 15 February 2012. 31 “Chinese leader Xi, Biden promote trade in LA”, Associated Press, 18 February 2012.

b1401_Ch-04.indd 64

8/28/2012 8:01:30 PM

b1401

East Asia: Developments and Challenges

Coping with Shifting Geopolitics and Maintaining 65

the development bar for China. Since the Asia-Pacific Economic Cooperation (APEC) Leaders’ Meeting in November 2011, more countries have shown interest in coming on board. It remains to be seen whether they can come up with an agreed text by June 2012. Although China has so far been lukewarm to the TPP platform, it can be expected to closely watch how the interested parties negotiate among themselves on this issue. The third development is the potential of regional flashpoints getting out of hand. In particular, with China’s preoccupation with internal succession, the SCS disputes may again grip the headlines as the smaller claimant states press their claims and enhance their collaboration with third parties such as the United States and India in doing so. China will need to manage these perceived increased “intrusions” that have the tacit support, if not involvement, of third parties. China is also likely to step up its naval presence to lend weight to its irrefutable claim to the area. The challenge would lie in how it asserts its claims without appearing overbearing to others. The fourth development is the implications for stability on the Korean peninsula as the North Korean leader Kim Jong-un, who is relatively inexperienced, attempts to consolidate his power following his father’s demise. China has been quick to rally behind the young Kim. In a strong vote of confidence, the CCP and Chinese government have called on the North Korean people to rally behind him. Chinese President Hu Jintao, Premier Wen Jiabao and other Political Bureau members had also visited the North Korean Embassy in Beijing to offer their condolences. Beijing can be expected to render the necessary support to Kim to help him consolidate his power and draw him closer to China. The fifth development is the state of cross-strait relations following Ma Ying-jeou’s successful re-election as Taiwan’s president in the elections in January 2012. In the run-up to the elections, China has done its level best to “sweeten” the ground for incumbent President Ma Ying-jeou by stressing the socio-economic benefits of closer crossstrait ties. Judging from the outcome of the elections, with Ma winning 51.6% of the votes as opposed to his main challenger Ms Tsai Ing-wen who secured 45.6%, it is clear that the majority of Taiwanese voters

b1401_Ch-04.indd 65

8/28/2012 8:01:30 PM

b1401

66

East Asia: Developments and Challenges

Y. Zheng and L.F. Lye

prefer stable cross-strait relations and the enhanced socio-economic linkages that come with it. Ma’s challenge is to do more in terms of effective policies to spread the benefits of cross-strait ties to more ordinary Taiwanese. By doing so, he will be able to sustain the momentum of cross-strait ties. Overall, China can be expected to continue to espouse the themes of peace, development and cooperation in its foreign relations in 2012. These themes are even more relevant as China seeks an orderly and smooth leadership transition. They are also relevant as China has to deal with a multitude of domestic challenges, which although unlikely to derail China’s trajectory of growth, will nevertheless deserve constant tending to so as to keep them manageable. Already, China is either the number one or number two trade partner with an increasing number of countries or bodies including the United States, Japan, South Korea, Australia, the EU and most ASEAN countries. With its rising leverage, China can be expected to resort more to the “economic card” to either dent pressures exerted by these countries or even “cajole” these countries into factoring China’s concerns in their foreign policy calculations.

b1401_Ch-04.indd 66

8/28/2012 8:01:30 PM

b1401

East Asia: Developments and Challenges

Coping with Shifting Geopolitics and Maintaining 67

A CHRONOLOGY OF SELECTED KEY EVENTS IN CHINA’S FOREIGN AFFAIRS IN 2011 3–7 Jan

Chinese Foreign Minister Yang Jiechi visited the United States to prepare the ground for Chinese President Hu Jintao’s visit to the United States later in the same month.

9–12 Jan

US Defence Secretary Robert Gates’ China visit marked a resumption of military-to-military ties that had been suspended since US arms sales to Taiwan in early 2010. Hours before he called on Chinese President Hu Jintao, Beijing confirmed that it had tested a prototype J-20 stealth fighter.

18–21 Jan

President Hu Jintao embarked on a state visit to the United States, bringing China-US ties to an even keel following a rocky relationship in 2010.

10 Feb

While visiting Abu Dhabi, Chinese Foreign Minister Yang Jiechi reportedly told his Egyptian counterpart in a telephone conversation that China believed that Egypt has sufficient wisdom and capability to overcome its current difficulties and realise national stability and development.

17–19 Feb

China’s State Councillor Meng Jianzhu visited Singapore at the invitation of Singapore Minister for Home Affairs and Minister for Law K Shanmugam. Besides Singapore, he also visited the Democratic People’s Republic of Korea, Laos and Malaysia.

21 Feb

During a port call in Hong Kong, the Commander of the US Seventh Fleet Scott Van Buskirk reportedly said that the United States does not consider China as a “direct threat”. He further observed that the United States has a broad, deep and complex relationship with China, and much of that relationship is positive.

21 Feb

Two giant pandas from China’s Sichuan province arrived at Ueno Zoo in Tokyo, in a sign of improving ties between China and Japan.

22 Feb

The inaugural meeting of the Economic Cooperation Committee (ECC) co-convened by Zheng Lizhong (Vice President of China’s Association for Relations Across the Taiwan Straits or ARATS) and Lao Koong-lian (Vice Chairman of Taiwan’s Straits Exchange Foundation or SEF) met in Taoyuan County, Taipei.

23–28 Feb

Leading a Chinese business delegation, ARATS President Chen Yunlin began his first ever visit to the southern part of Taiwan to promote trade and investment ties. (Continued )

b1401_Ch-04.indd 67

8/28/2012 8:01:30 PM

b1401

68

East Asia: Developments and Challenges

Y. Zheng and L.F. Lye (Continued )

28 Feb

At the 11th China-Japan strategic dialogue held in Tokyo, Chinese Vice Foreign Minister Zhang Zhijun and his Japanese counterpart Kenichiro Sasae agreed to jointly create a favourable atmosphere to celebrate the 40th anniversary of diplomatic relations in 2012.

2 Mar

Vietnam Foreign Ministry officials met Chinese embassy officials in Hanoi to protest against Chinese counter-piracy drills near the disputed Spratly islands.

3 Mar

The Philippines lodged an official protest against China, claiming Chinese patrol boats had harassed a Philippine ship while the latter had been exploring for oil in the Reef Bank (within Philippines territorial boundaries), about 150 kilometres east of the Spratly islands in the SCS.

14 Apr

The Philippines announced that it had lodged a formal protest with the UN over China’s claims to the Spratly Islands and adjacent SCS waters.

21 Apr

China’s State Council Information Office has issued the first White Paper on China’s foreign aid since 1950.

7–8 May

The Seventh Cross-Strait Economic, Trade and Culture Forum, a regular forum between the Chinese mainland and Taiwan, opened in Chengdu, Sichuan province. Jia Qinglin, member of the Political Bureau Standing Committee, and Wu Poh-hsiung, KMT Honorary Chairman, attended the opening ceremony.

9–10 May

China and the United States held their third round of the Strategic and Economic Dialogue in Washington. Vice Premier Wang Qishan and State Councillor Dai Bingguo co-chaired the dialogues with US Secretary of State Hillary Clinton and Secretary of Treasury Timothy Geithner. Under the SED framework, the first Strategic Security Dialogue involving civilian and military leaders from both sides was held on 10 May.

21–22 May

Chinese Premier Wen Jiabao attended the Fourth China-Japan-ROK Leaders Meeting in Tokyo. While in Japan, Wen visited Miyagi and Fukushima Prefectures, both seriously hit by the 11 March earthquake, tsunami and nuclear disaster.

26 May

Vietnam accused Chinese surveillance ships of cutting the exploration cables of an oil exploration vessel within 200 nautical miles of the Exclusive Economic Zone (EEZ). (Continued )

b1401_Ch-04.indd 68

8/28/2012 8:01:30 PM

b1401

East Asia: Developments and Challenges

Coping with Shifting Geopolitics and Maintaining 69 (Continued ) 9 Jun

Vietnam accused a Chinese fishing boat of ramming the cables of another oil survey ship within its EEZ in a “premeditated” attack.

12 Jun

Anti-China rallies took place in Hanoi and Ho Chi Minh City in a show of support for Vietnam’s maritime sovereignty.

13 Jun

Vietnam conducted live fire drills at the uninhabited island of Hon Ong, some 40 kilometres off Quang Nam province in central Vietnam.

15 Jun

Haixun 31, one of China’s biggest maritime surveillance ships, left Guangdong for Singapore. It sailed through the disputed SCS before reaching Singapore. The Philippines announced that its navy had removed “foreign markers” in May that had been found installed on three reefs and banks in the disputed areas of the SCS claimed by both the Philippines and China.

20 Jun

ASEAN and China senior officials agreed on the “Guidelines for the Implementation of the Declaration of Conduct” in the SCS in Bali. The DOC was signed in 2002.

24–28 Jun

Chinese Premier Wen Jiabao embarked on official visits to Hungary, Britain and Germany.

28 Jun

The first batch of individual tourists from mainland China departed for Taiwan. Before this, mainland tourists to Taiwan had only been allowed to travel in groups.

22 Jul

The INS Airavat, an Indian warship, was making its way from Nha Trang (in south central Vietnam) to Haiphong (in north Vietnam) when it was apparently contacted on open radio channel by a caller identifying himself as belonging to the Chinese navy. After asking the Indian ship to identify itself, the caller reportedly warned that “You are entering Chinese waters. Move out of here”.

26 Jul

Chinese Vice Premier Wang Qishan visited Singapore to co-chair with Singapore Deputy Prime Minister Teo Chee Hean the Eighth Joint Council on Bilateral Cooperation, the 13th Suzhou Industrial Park Joint Steering Committee and the Fourth Sino-Singapore Tianjin Eco-City Joint Steering Committee. (Continued )

b1401_Ch-04.indd 69

8/28/2012 8:01:30 PM

b1401

70

East Asia: Developments and Challenges

Y. Zheng and L.F. Lye (Continued )

1 Aug

The United States and Vietnam military officials signed a Statement of Intent on Military Medical Cooperation in Hanoi, marking the first formal military cooperation between the two sides since ties were normalised in 1995. Under the agreement, the two sides will exchange medical experts, collaborate in medical research and jointly conduct workshops, conferences and civil action projects. A month before, the two countries had conducted joint naval drills.

10 Aug

China’s first retrofitted aircraft carrier, acquired from Ukraine, began its inaugural sea trial from the northern port of Dalian. On 12 August, Japan’s Defence Minister Toshimi Kitazawa asked China to explain why it needed an aircraft carrier.

13 Aug

Several senior Vietnamese military and civilian officials were hosted to an onboard tour of aircraft carrier named USS George Washington.

17–22 Aug

US Vice President Joe Biden visited China at the invitation of his Chinese counterpart Xi Jinping. Besides renewing his acquaintance with Xi whom he last met in Rome in June, Biden used the occasion of his visit to reassure his Chinese audience that China’s investments in the United States were safe.

30 Aug-3 Sep

During a state visit to China, Philippine President Benigno Aquino discussed a broad range of issues with Chinese leaders. On issues concerning their maritime disputes, both sides agreed not to let such disputes affect cooperation in other areas.

6 Sep

China’s State Council Information Office issued a White Paper on “China’s Peaceful Development”. This White Paper introduces the path, objectives and foreign policies of China’s peaceful development and what this development means to the rest of the world.

15 Sep

In response to a question on plans by the Oil and Natural Gas Corporation India’s state-owned oil producer to exploit oil and gas in two offshore oil blocks in the SCS that Vietnam claims to be its own, China’s Foreign Ministry spokesperson Jiang Yu expressed the hope that foreign countries would not be involved in the dispute.

21 Sep

The US government announced a US$5.852 billion arms package to Taiwan that includes upgrades of its existing F-16 A/B fighter jets, components and parts of military aircraft and relevant training programmes. (Continued )

b1401_Ch-04.indd 70

8/28/2012 8:01:30 PM

b1401

East Asia: Developments and Challenges

Coping with Shifting Geopolitics and Maintaining 71 (Continued ) 26 Sep

Beijing hosted the first meeting of the China-India Strategic Economic Dialogue co-chaired by Chairman Zhang Ping of the National Development and Reform Commission and Deputy Chairman Montek Singh Ahluwalia of the Indian Planning Commission.

11–15 Oct

A six-point agreement on Basic Principles Guiding the Settlement of Maritime Disputes between China and Vietnam was signed during the visit of Vietnam’s General Secretary Nguyen Phu Trong to China. Both sides expressed their commitment to “friendly consultations” to “properly handle maritime issues”.

20 Oct

An agreement on cross-strait cooperation on nuclear safety was signed by the mainland’s ARATS and Taiwan’s SEF.

30 Oct-4 Nov

President Hu Jintao embarked on a state visit to Austria and attended the Sixth G20 Summit in Cannes, France. In his address at Cannes, Hu called on the G20 to address key problems, boost market confidence, defuse risks and meet challenges, and promote global economic growth and financial cooperation.

1 Nov

The cross-strait Economic Cooperation Committee met for the second time.

10–14 Nov

At the 19th APEC Economic Leaders’ Meeting in Hawaii, President Obama pressured his Chinese counterpart President Hu Jintao to do more to let the renminbi appreciate and to better protect intellectual property rights.

17–21 Nov

Chinese Premier Wen Jiabao attended the 14th China-ASEAN (10+1) Leaders’ Meeting, the summit on the 20th Anniversary of the establishment of China-ASEAN dialogue relations, the 14th ASEAN Plus China, Japan and the ROK (10+3) Leaders’ Meeting and the Sixth East Asia Summit in Bali, Indonesia.

28–29 Nov

The 15th round of Special Representatives talks between China and India on their disputed border scheduled on these dates was called off.

7 Dec

Representatives from China and the United States held their 12th Defence Consultative Talks in Beijing, a sign that military ties have recovered since the US decision to sell arms to Taiwan in September. (Continued )

b1401_Ch-04.indd 71

8/28/2012 8:01:30 PM

b1401

72

East Asia: Developments and Challenges

Y. Zheng and L.F. Lye (Continued )

10 Dec

In a latest effort to dampen expectations of China’s role in the ongoing European debt crisis, Chinese Vice Foreign Minister Fu Ying expressed confidence in the European Union’s ability to find a way forward. She added that Europe does not need a “saviour” but international partners and a win-win relationship.

12 Dec

A Chinese fisherman stabbed a South Korean coast guard officer to death when he was being arrested for illegal fishing in South Korean EEZ.

17 Dec

The three Taiwanese presidential hopefuls, namely Ma Ying-jeou (from the KMT), Tsai Ing-wen (from the DPP) and James Soong (from the People First Party) concluded their last round of televised debate. Taiwanese would go to the polls on 14 January 2012.

20 Dec

Chinese President Hu Jintao visited the North Korean Embassy in Beijing to offer his condolences on the demise of North Korean leader Kim Jong-il. A day thereafter, Premier Wen Jiabao followed suit.

20–24 Dec

Chinese Vice President Xi Jinping visited Vietnam and Thailand to further strengthen relations with the two countries.

25–26 Dec

Japanese Prime Minister Yoshihiko Noda visited China at the invitation of Premier Wen Jiabao.

Source: From various public sources as of 22 December 2011.

b1401_Ch-04.indd 72

8/28/2012 8:01:30 PM

b1401

East Asia: Developments and Challenges

Chapter

5 Japan’s Politics: Under the Shadow of the Triple Disasters LAM Peng Er

ABSTRACT On 11 March 2011, Japan suffered its worst post-war crisis when a magnitude nine earthquake triggered a massive tsunami which devastated northeast Japan and crippled the Fukushima daiichi nuclear power plant. The tardy crisis management of Prime Minister Kan Naoto’s administration to the triple disaster led to his replacement by Noda Yoshihiko. This baton switch signifies a generational change of political leadership in Japan. A consequence of voter discontent with the two major political parties to address Japan’s problems after 11 March is the rise of regional parties in the Osaka and Nagoya regions and a possible political realignment in Japan. In 2012, Japan will continue to struggle with post-tsunami reconstruction, economic recovery and political issues especially the hiking of the consumption tax to address the country’s fiscal crisis.

73

b1401_Ch-05.indd 73

8/28/2012 8:01:48 PM

b1401

74

East Asia: Developments and Challenges

P.E. Lam

2011: A MOST HORRIBLE YEAR The year 2011 was Japan’s most horrible year (annus horribilis) since the end of World War II. On 11 March 2011, Japan suffered its worst post-war crisis when a magnitude 9 earthquake triggered a massive tsunami which devastated northeast Japan. These natural catastrophes resulted in 15,839 lives lost, 3,642 missing and considerable damage to infrastructure, local communities and homes. In addition, the tsunami-stricken Fukushima number one nuclear power plant suffered a meltdown, leaked radioactivity and contaminated its vicinity including agriculture, livestock and fisheries. The triple crises also led to power shortages and a disruption to the supply chain of factories in northeast Japan. Refugees from the devastated areas numbered around 87,000 by July 2011. Heroic workers, working under life threatening conditions, tried their best to contain the radioactive Fukushima power plant and stabilise its leakage by end 2011.1 But the plant’s immediate environment is likely to take at least a few decades to decontaminate. The cost of the triple disasters and the subsequent reconstruction may total more than US$300 billion. Tons of debris and contaminated soil have to be painstakingly cleared and disposed. The economic dislocation of northeast Japan and the cost of reconstruction will surely aggravate government debt equivalent to 195% of Japan’s gross domestic product (GDP).2 The Japanese government forecasted that Japan’s real GDP will grow 2.2% in fiscal 2012 starting April 2012, up from an estimated −0.1% in fiscal 2011. The 2012 growth forecast is predicated on the 1 See “Editorial: Government Declares Cold Shutdown at Nuclear Plant but Crucial Steps Lie Ahead”, Mainichi Daily News, 17 December 2011. 2 The media reported: “The outstanding balance of central and local government debt at the end of fiscal 2012 is expected to rise to an all-time high of 937 trillion yen … leaving Japan with the worst fiscal health among major developed countries. The total debt will be equivalent to 195 percent of Japan’s gross domestic product, the Finance Ministry said”. See “Combined Government Debt Poised to Hit All-time High 937 trillion yen in 2012”, Japan Times, 25 December 2011.

b1401_Ch-05.indd 74

8/28/2012 8:01:48 PM

b1401

East Asia: Developments and Challenges

Under the Shadow of the Triple Disasters 75

sanguine assumption that “turmoil in global markets caused by the European sovereign debt crises will be stabilised and overseas economies will start picking up”.3 In actuality, the Japanese government has downwardly revised its forecast for fiscal 2011 and 2012 due to the negative impact of the yen’s appreciation and the eurozone debt crisis.4 Paradoxically, the triple disaster brought out the best and the worst in Japan. The stoic countenance and good social order of the Japanese people in the wake of the natural and nuclear disasters were admirable, awesome and impressive. But the disasters exposed the poor crisis management of the ruling Democratic Party of Japan (DPJ) and the malfeasance of the “nuclear village”.5 This so-called “nuclear village” is a collusion between Tokyo Electric Power Company (TEPCO) and other nuclear energy providers, the regulators led by the Ministry of Trade, Economy and Industry (METI), and politicians (mostly from the then ruling Liberal Democratic Party). That METI — a promoter of nuclear energy — was also entrusted with the task of supervising nuclear safety showed a fundamental flaw and an inherent clash of interests in the regulatory system. Engaging in pork barrel politics, these politicians sought to promote nuclear power plants in their constituencies for financial compensation and subsidies from the central government to stimulate the local economies, create jobs and win votes. Some bureaucrats from METI and its agencies which supervise the nuclear industry 3 “Japan Government Forecasts FY2012 Real GDP +2.2%, FY11 −0.1%”, Duetsche Borse Group, Market News International, 22 December 2011. 4 “Japan Government Lowers GDP forecast”, Xinhua, 22 December 2011. 5 Haruko Satoh, “Fukushima and the Future of Nuclear Energy in Japan”, ARI: Real Instituto Elcano, 29 June 2011. For a whistle blowing account of the “nuclear village” and its network of supporters in complicity, see Genpatsu no fukai yami: Toden seijika kanryo gakusha masukomi bunkajin no daizai [The deep darkness of nuclear power: Takarajima (ed), The terrible crimes of TEPCO, politicians, bureaucrats, scholars, mass media and men of culture] (Tokyo: Takarajima sha, 2011).

b1401_Ch-05.indd 75

8/28/2012 8:01:48 PM

b1401

76

East Asia: Developments and Challenges

P.E. Lam

would “descend from heaven” (amakudari) when they retire and seek plum post-retirement positions with the energy providers.6 The calamity at Fukushima number one nuclear plant revealed the lack of proper state supervision, accountability and adequate preparation for natural disasters, and the “incestuous” relations among politicians, bureaucrats and industry players. But given the entrenched interests of politicians, METI bureaucrats and the nuclear industry, it would not be easy to quickly demolish the Japanese “nuclear village”.

NO “CREATIVE DESTRUCTION”7 OF JAPAN’S “NUCLEAR VILLAGE”? Then Prime Minister Kan Naoto had the golden opportunity to galvanise the nation in the wake of the triple disasters but failed to do so. After losing the confidence of the DPJ members of parliament, Kan was forced out of office in August 2011.8 Hitherto, the DPJ has been led by the triumvirate of Ozawa Ichiro, Kan Naoto and Hatoyama Yukio. Kan’s resignation as DPJ party president and Prime Minister marked the end of the troika which dominated the DPJ’s top leadership. Kan’s departure followed the resignation of Prime Minister Hatoyama Yukio in 2010 and the public prosecutor’s charge against party bigwig Ozawa Ichiro for financial corruption the year after. The ascension of Noda Yoshihiko at 52 years of age as Prime Minister in August 2011 signifies the changing of the guard in Japan.9 6

The Nuclear and Industry Safety Agency (NISA) tasked to regulate nuclear safety is not independent but a part of METI — a keen promoter of nuclear energy. Many officials of NISA are on secondment from METI and would be transferred back to METI after they have completed their stint at the Agency. Simply put, there is a blurring of roles between the promoter and regulator of nuclear energy in Japan. 7 Joseph Schumpeter coined the term “creative destruction” in his 1942 book titled Capitalism, Socialism and Democracy to denote the destruction of the old which leads to something new or even better. 8 See Lam Peng Er, “The End of the Kan Administration”, EAI Background Brief, no. 634, 17 June 2011. 9 See Lam Peng Er, “Japan’s New Prime Minister Noda Yoshihiko: Generational Change in its Political Leadership?”, EAI Background Brief, no. 656, 6 September 2011.

b1401_Ch-05.indd 76

8/28/2012 8:01:48 PM

b1401

East Asia: Developments and Challenges

Under the Shadow of the Triple Disasters 77

In a society hitherto dominated by seniority, it is quite remarkable that the average age of Noda’s Cabinet is only 58. But Prime Minister Noda has thus far adopted a low posture and proceeded very cautiously in public policy to minimise political opposition. With the exception of Koizumi Junichiro, Japanese prime ministers in the past two decades have, on the average, held office for only one to three years. Inoguchi Takashi labelled this system of political musical chairs as “karaoke democracy”.10 Typically, politicians with sufficient seniority and factional backing but of middling quality would go on the political stage to perform as Prime Minister from a fixed repertoire of songs before yielding the spotlight to another. It remains to be seen whether the Fukushima nuclear disaster will change social expectations of political leadership and lead to the creative destruction of Japan’s “karaoke democracy”.11 The Fukushima nuclear disaster and public unease about nuclear safety resulted in Germany’s decision to phase out its nuclear power stations. Ironically, energy-dependent Japan continues to cling to nuclear power with no timetable to phase out nuclear facilities. Although entrepreneurs like Softbank’s Son Masayoshi (the richest man in Japan) has argued that the country should seize the opportunity to shift away from nuclear power-dependence and turn to new energy sources especially solar (with investments from the private sector), the Noda administration has yet to make any bold steps in this direction.12 10

See Purnendra Jain and Takashi Inoguchi (eds.), Japanese Politics Today: Beyond Karaoke Democracy?, Melbourne, Macmillan Education Australia, 1997. 11 Criticisms have been levelled against the “leadership deficit” in the Japanese political system. But given mainstream Japan’s preference for collective leadership, a factionalised ruling DPJ, a split parliament (with the Lower and Upper Houses in the hands of different parties) and the absence of a presidential system at the national level, it is difficult for strong political leaders to emerge in Japan. This “leadership deficit” problem is compounded by the triple crisis of March 2011. 12 See “Softbank’s Son Denounces Keidanren’s Energy Proposal”, Asahi Shimbun, 16 November 2011. The same article gave the following detailed report: “Pounding his desk in frustration, Masayoshi Son, chairman and CEO of Softbank Corp., denounced the energy policy proposal of Keidanren (Japan Business Federation),

b1401_Ch-05.indd 77

8/28/2012 8:01:48 PM

b1401

78

East Asia: Developments and Challenges

P.E. Lam

Indeed, the Noda administration has not officially proposed the dismantling of the 10 regional power companies with local monopolies producing and selling energy within its own power grids. Conceivably, Japan can emulate the way some European countries share a single national grid, and households with solar energy devices can even sell excess power to the power companies. It remains to be seen whether the Noda administration will dismantle the “nuclear village”. However, the concentration of power (control of both the promotion of nuclear power and nuclear safety regulation) by METI and its agencies is likely to be changed.13 According to the Environment Ministry, a new nuclear safety agency will be established in April 2012 to overhaul the country’s nuclear safety regulation system.14 Then Prime Minister Hatoyama Yukio’s earlier promise that Japan would reduce its carbon emissions by 25% from its 1991 level was predicated on the assumption that the country would build more nuclear power stations. In the wake of the Fukushima nuclear disaster saying the business group has its priorities mixed up. ‘I am firmly opposed to a policy proposal centered on nuclear power generation’, Son said at a meeting of Keidanren’s board of directors on Nov. 15. But none of the other directors openly backed the views of Son, who has invested heavily in solar-power infrastructure projects since the accident started at the Fukushima No. 1 nuclear power plant in March”. 13 The media reported: “Responding to criticism that lax oversight played a role in the Fukushima nuclear accident, Japan’s government may make its nuclear regulatory agency more independent as early as next year. The country’s minister of trade and industry, Banri Kaieda … said that the government wanted to separate the regulatory agency from his ministry, which is in charge of promoting Japan’s nuclear industry. Cozy ties between government and industry are now widely blamed for allowing the Fukushima Daiichi plant to operate despite inadequate protections against large tsunamis and insufficient backup power systems. Those vulnerabilities proved disastrous after the devastating earthquake on March 11”. See “Japan Plans to Unlink Nuclear Agency from Government”, New York Times, 21 June 2011. The Mainichi Shimbun noted: “The Japanese government has decided to remove the Nuclear and Industrial Safety Agency (NISA) from under the jurisdiction of the Ministry of Economy, Trade and Industry, turning it into an independent body”. See “Fukushima Japan - Nuclear Safety Agency NISA to Become Independent”, Mainichi Shimbun, 7 June 2011. 14 “Details of New Nuclear Agency Announced: 485-strong body to tighten safety rules”, Yomiuri Shimbun, 26 December 2011.

b1401_Ch-05.indd 78

8/28/2012 8:01:48 PM

b1401

East Asia: Developments and Challenges

Under the Shadow of the Triple Disasters 79

and mass protests against nuclear power stations in Japan, it seems unlikely that the Noda administration will commit itself to a sharp reduction in the country’s carbon emission. Not surprisingly, Tokyo did not offer any major initiatives or substantive reductions at the Conference of the Parties (COP) 17 global climate change talks at Durban, South Africa in December 2011.15

JAPANESE POLITICS: “CREATIVE DESTRUCTION”?16 The tardy and clumsy efforts by the DPJ government to deal with the triple disaster cannot be attributed to the personal failings of inexperienced political leaders alone. Japan today is confronted by a “twisted” parliament and a fragmented policymaking process. The ruling DPJ controls the Lower House while the Liberal Democratic Party (LDP) and other opposition parties dominate the Upper House after winning it in July 2010. This political gridlock and partisanship despite a national catastrophe makes it difficult for the triple disasters to be speedily addressed. Public frustration with the two major political parties, the ruling DPJ and the opposition LDP, had already mounted before the 11 March 15

Even though Japan spearheaded the legally binding 1997 Kyoto Protocol to govern carbon emissions, it has deemed the Protocol to be obsolete because the rising economies of China and India are not a party to it, and the United States has not acceded to it. See “Renewing Kyoto Pledges is not Enough: Japan”, Reuters, 2 December 2011. The same article noted: “Power utilities, which account for about 30 percent of total carbon dioxide emissions in Japan, burnt more fossil fuels than planned this year to make up lost output from nuclear plant shutdowns after the Fukushima plant was struck by the tsunami, causing the world’s worst radiation leakage in 25 years”. See also, Editorial, “Let Kyoto Protocol Expire; get big emitters to join new pact”, Yomiuri Shimbun, 29 November 2011 and “Cloud of Doubt Hangs over COP17: Japan in no Position to Led Climate Movement into Post-Kyoto Era”, Nikkei Weekly, 5 December 2011. 16 See also Gerald L. Curtis, “‘Creative Destruction’ in Japanese Politics” in McKinsey & Company (ed.), Reimagining Japan: The Quest for a Future that Works (San Francisco: VIZ Media, 2011), pp. 127–132.

b1401_Ch-05.indd 79

8/28/2012 8:01:48 PM

b1401

80

East Asia: Developments and Challenges

P.E. Lam

triple disaster. But 11 March accelerated public discontent with the major parties. The ruling party has been muddling through the triple disaster while the LDP, bereft of ideas to reconstruct Japan and with complicity in the “nuclear village”, has not played the role of a constructive opposition party. A consequence of voter discontent with the two major parties is the rise of regional parties in the Osaka and Nagoya regions and a possible political realignment in Japan. In February 2011, Genzei Nippon (Tax Reduction Japan), a regional party headed by Nagoya mayor Kawamura Takashi, won the mayor’s post again, and his close ally Omura Hideaki was elected Aichi prefecture’s governor. In November 2011, Hashimoto Toru, the leader of Osaka Ishin no Kai (Osaka Restoration Party) resigned as Osaka prefectural governor, ran and won the mayoral race of Osaka city against an opponent jointly supported by the DPJ and LDP. Simultaneously, his party’s secretary general Koshiishi Azuma won the governor’s election to replace Hashimoto.17 The goal of this local Osaka party is to make Osaka prefecture a metropolitan unit like Tokyo with greater regional autonomy and administrative economies of scale.18 Osaka prefecture (with the city of Osaka as its capital) has a population of 17

The Mainichi Shimbun opined: “More established parties must take the election results, which effectively indicate voters’ rejection of them, seriously.” See “Editorial: Osaka Elections Mark Beginning of Full-fledged Debate on Double Administration”, Mainichi Shimbun, 28 November 2011. The same editorial noted: “Underlying the residents’ hope for change is a sense of stagnation. Osaka has been experiencing severe economic decline, and has a high rate of unemployment.” See also “Nagoya ‘Tea Party’ Mayor Brews Trouble for Japan PM”, Reuters, 3 March 2011. 18 The media reported: “Hashimoto and his allies envision the abolition of the existing governments of Osaka Prefecture and the cities of Osaka and Sakai to create a single, macro administrative entity with an administrative structure similar to Tokyo’s. In the planned overhaul, the current local administrative system in the Osaka area would be transformed to consist of an overarching Osaka metropolis and 10 to 12 ‘special autonomous districts’ with populations of about 300,000 each, plus smaller city, town and village government.” See “Vision of Osaka Metropolis Faces 3 Hurdles: Hashimoto’s plan would need OK’s from local assemblies, a citizens referendum and the Diet”, Yomiuri Shimbun, 30 November 2011.

b1401_Ch-05.indd 80

8/28/2012 8:01:48 PM

b1401

East Asia: Developments and Challenges

Under the Shadow of the Triple Disasters 81

8.8 million and is number two in gross prefectural product (GPP) behind Tokyo. Its GPP in 2008 was 38 trillion yen (US$487 billion).19 Hashimoto’s victory is significant because it may well be a catalyst to the “creative destruction” of Japan’s national politics dominated by the major parties centred in Tokyo.20 The Nikkei wrote: “Some might be tempted to write off the double triumph of reformers in Osaka’s mayoral and gubernatorial elections as a mere regional development, far away from Tokyo. But Japan’s major parties are not taking the results lightly. They sense the emergence of a new political force — the victorious Osaka Ishin no Kai (Osaka Restoration Association) — that could turn the present order upside down”.21 Osaka mayor Hashimoto warned that his Osaka Ishin no Kai will make its debut in national elections if other established political parties ignore his endeavours to reform Osaka.22 Mayors Hashimoto and Kawamura are allies against the established national parties. During the local election campaign in Nagoya in January 2011, Hashimoto came from Osaka to campaign for Kawamura in Nagoya.23 19

Ibid. The media speculated that Hashimoto’s victory is a harbinger of political change: “Restoration party with ‘sub-capital’ plan could change structure, politics of Tokyo-centric Japan.” See “Osaka’s Metropolitan Moment”, Nikkei Weekly, 5 December 2011. See also “Political Earthquake in Osaka”, Japan Times, 7 December 2011. 21 “Hashimoto has Old Guard sweating: DPJ, LDP wary of Osaka star’s potential to win national support”, Nikkei Weekly, 5 December 2011. The same article reported that other political parties are cosying up to Hashimoto: “Other smaller players smell an opportunity. Having supported the Restoration Association since before the elections, the People’s New Party and Your Party hope to achieve closer cooperation with Hashimoto’s organization going forward.” 22 See “Editorial: Osaka Elections Mark Beginning of Full-fledged Debate on Double Administration”, Mainichi Shimbun, 28 November 2011. 23 The media reported: “‘Let’s say no to conventional parties’, Osaka Governor Hashimoto Toru has said in his speeches to support Kawamura and Omura. Hashimoto arrived in Nagoya on Saturday with 100 members of his political organization Osaka Ishin no kai (Osaka restoration group).” See “Triple electoral battle underway”, Yomiuri Shimbun, 27 January 2011. 20

b1401_Ch-05.indd 81

8/28/2012 8:01:48 PM

b1401

82

East Asia: Developments and Challenges

P.E. Lam

It is intriguing to note that ex-DPJ bigwig Ozawa Ichiro is on good terms with both mayors Hashimoto and Kawamura.24 Apparently, Kawamura knew Ozawa when the former was a DPJ member of parliament from the Lower House. Kawamura was appreciative of Ozawa’s assistance when he won his first Nagoya mayoral election in April 2009.25 The media also noted that immediately after the February 2011 Nagoya mayoral re-election, “Kawamura came to Tokyo and met with Ozawa demonstrating their closeness”.26 The media also reported that the Ozawa faction is seeking cooperation with Hashimoto and the Osaka Ishin no Kai “with an eye toward forming a new political party with it in the future”.27 It is not inconceivable that if the Ozawa faction (the largest within the DPJ) would join up with the local parties in Nagoya and Osaka after leaving the DPJ and compete in the next Lower House Election, Japanese politics at the national level may undergo another political realignment.28 It is also unclear whether the local parties of Osaka and Nagoya would tie up with Osaka given his reputation for financial 24

Apparently, Ozawa, Hashimoto and Kawamura share similar ideas to dismantle the old system of “bureaucratic-led” politics, and advocate a politician-led approach and local initiatives to reform Japan. 25 In the Nagoya mayoral election of April 2009, Ozawa, then chief of the opposition DPJ, supported Kawamura. See “DPJ-backed Kawamura Wins Nagoya Mayoral Election”, Kyodo News, 27 April 2009. 26 “Ozawa has Little Room to Maneuver”, Asahi Shimbun, 17 February 2011. See also “Ozawa Group Cozies up to Nagoya Mayor”, Yomiuri Shimbun, 28 February 2011. This Yomiuri Shimbun article wrote: “Ozawa, unlike the DPJ executives, has praised Genzei Nippon and other regional parties, saying that they can be ‘great forces for changing Japan’.” 27 “Parties Agonize over What Stance to Take with Hashimoto’s Party”, Yomiuri Shimbun, 30 November 2011. 28 According to the media, Ozawa, who opposes Prime Minister Noda’s aim to raise the consumption tax, is bidding to regain the DPJ leadership again. See “Three Pro-Ozawa Groups Rally the Forces: Joint gathering could be first step in DPJ kingpin’s bid to regain party leadership”, Yomiuri Shimbun, 23 December 2011.

b1401_Ch-05.indd 82

8/28/2012 8:01:48 PM

b1401

East Asia: Developments and Challenges

Under the Shadow of the Triple Disasters 83

corruption.29 It is also conceivable that other localities and regions may emulate Osaka Ishin no Kai and Nagoya’s Genzei Nippon to challenge the established national parties. However, such a scenario may lead to the weakening of the two major national parties, the DPJ and the LDP, and the formation of unstable coalition governments and a fragmented decision making process. This does not bode well for Japan which must deal with the problems of an ageing society, a shrinking population, a stagnant economy and a rising national debt. According to a December 2011 public opinion poll by Sankei Shimbun, voter support for the two major parties adds up to only 42% (Table 1).30 Moreover 67.8% of respondents agree that Hashimoto’s Osaka Ishin no Kai should participate in national politics (Table 2). But voters are uncertain about the “creative destruction” of the two major political parties. Only 36.6% support the split of established parties leading to a new political framework of governmental power (Table 3). Table 1. Which party would you vote for in the next lower house election? (%) Liberal Democratic Party

21.2

Democratic Party of Japan

20.8

Your Party

6.0

Japan Communist Party

4.6

Komeito (Clean Government Party)

2.6

Others

6.6

Not Decided Abstention

35.6 2.6

Source: Sankei Shimbun, 5 December 2011.

29

Despite Ozawa’s financial scandals, he raked in 328.63 million yen in 2010, the biggest political fund among all politicians in Japan. See “Ozawa Raises Most Cash for Second Straight Year”, Japan Times, 8 December 2011. 30 In the same survey, 48.8% of the public support the Noda administration while 45.6% do not. Sankei Shimbun, 5 December 2011.

b1401_Ch-05.indd 83

8/28/2012 8:01:48 PM

b1401

84

East Asia: Developments and Challenges

P.E. Lam Table 2. Should Hashimoto’s Osaka Ishin no Kai participate in national politics? (%) Yes

67.8

No

27.4

Don’t know/others

4.8

Source: Sankei Shimbun, 5 December 2011.

Table 3. What is your preferred framework of governance? (%) LDP or LDP-led coalition government

19.2

DPJ or DPJ-led coalition government

18.4

DPJ-LDP grand coalition

17.0

Established parties split followed by new framework

36.6

Others/ Don’t know

8.8

Source: Sankei Shimbun, 5 December 2011.

UNRESOLVED PROBLEMS: 2011–2012 The ruling DPJ is divided by the following issues: the party status of Ozawa Ichiro amidst his forthcoming corruption trial, the honouring or revising of the party’s 2009 electoral manifesto, the doubling of the consumption tax and Japan’s participation in the Trans-Pacific Partnership (TPP) negotiation. Ozawa is adamant that a hallmark of the DPJ’s 2009 manifesto — a generous subsidy of 26,000 yen each year for child support to every household — must not be jettisoned in exchange for the support of the opposition parties to smoothen the legislative process to fund the reconstruction of northeast Japan after 11 March. Ozawa is also against the hiking of the consumption tax and is sympathetic to the interests of farmers in the wake of market liberalisation. However, Prime Minister Noda Yoshihiko is reputed to be a fiscal “hawk” and is seeking to double the consumption tax in stages from the current five percent to 10% by 2015. The hiking of the consumption

b1401_Ch-05.indd 84

8/28/2012 8:01:48 PM

b1401

East Asia: Developments and Challenges

Under the Shadow of the Triple Disasters 85

tax has always been politically tricky in Japan because it is unpopular with the electorate.31 While mindful of the domestic opposition, Noda supports Japan’s participation in the TPP negotiations. But many DPJ members of parliament, from the rural constituencies where agriculture and the farmers’ votes are still important, are against the TPP which will pry wider Japan’s domestic agricultural market to foreign competition. Apparently, many Japanese are also afraid that the TPP will worsen the plight of farmers in northeast Japan who are already suffering from the triple disaster of 11 March. The Noda administration is likely to financially compensate the farmers when Japan joins the TPP. A festering problem for the Noda administration is the US marine base at Futenma in Okinawa and its planned relocation to Henoko in the same prefecture. Governor Nakaima Hirokazu of Okinawa and many Okinawans strongly oppose the planned relocation. The Obama administration is adamant that the DPJ government make good the agreement forged between the United States and the then LDP-led government of Japan to relocate Futenma. In 2010, Prime Minister Hatoyama Yukio resigned over his failure to honour an electoral promise to move the US marine base out of Okinawa. Not surprisingly, subsequent prime ministers have been very cautious about this thorny issue. However, the Noda administration slashed the funding for the envisioned transfer of US marines from Okinawa to Guam from 51.8 billion yen (set aside in fiscal 2011 budget) to just 7.3 billion yen in fiscal 2012. This cut comes in the wake of the US Senate’s decision to cut the entire US$150 million in funding from Washington for the planned relocation.32 The media noted: “The reduction in 31

Then LDP Prime Minister Nakasone suffered a beating at the 1987 Local Elections after he hinted that his government was considering the implementation of a consumption tax. In 1989, the then ruling LDP lost the 1989 Upper House Election after a consumption tax was introduced. In 1997, then LDP Prime Minister Hashimoto lost his Upper House Election when the consumption tax was raised. 32 “Funding Slashed for Guam Transfer”, Japan Times, 25 December 2011.

b1401_Ch-05.indd 85

8/28/2012 8:01:48 PM

b1401

86

East Asia: Developments and Challenges

P.E. Lam

the US has cast a shadow over the future of a Japan-US accord on relocating the Futenma air base within Okinawa prefecture.”33 In October 2011, Prime Minister Noda apologised to the people of Okinawa after Defence Minister Ichikawa Yasuo sacked Tanaka Satoshi, a senior defence official who was the chief of the Defence Ministry’s branch in Okinawa, for offensive remarks. According to the Japanese media, Tanaka likened the government’s lack of a clear schedule for submitting an environmental assessment report to officials in Okinawa to the “rape of a woman”. Tanaka made a lewd remark during a drinking session: “Do you declare ‘that I am going to rape you’ when you rape someone”?34 This statement was exceedingly offensive and hurtful to the people of Okinawa because three US military personnel raped a local high school girl in September 1995. The 1995 Okinawa Rape Incident triggered mass anger in Okinawa against the US bases there for environmental noise, military accidents and crimes by American forces. In December 2011, Prime Minister Noda also faced mounting calls (by both DPJ and opposition MPs) for the dismissal of Defence Minister Ichikawa for gaffes related to the 1995 Okinawa Rape Incident. Ichikawa said in parliament: “I have no detailed or accurate knowledge” of the rape. This led to many questioning his qualifications as Defence Minister. The opposition parties planned to file a censure motion in the Lower House against Defence Minister Ichikawa.35

FOREIGN POLICY: 2011–12 The US-Japan Alliance was strengthened when the US military mounted Operation Tomodachi (Friend) to provide substantial 33

Ibid. “Japan’s PM Apologises to Okinawa for Defence Official’s ‘Rape’ Remark”, Xinhua, 30 October 2011. See also “Editorial: Government must Rebuild Trust with Okinawa Prefecture”, Yomiuri Shimbun, 1 December 2011. 35 See “Many DPJ Members Want Ichikawa to Quit”, Yomiuri Shimbun, 5 December 2011 and “Noda Rejects Dismissing Defence Minister Ichikawa”, Mainichi Shimbun, 5 December 2011. 34

b1401_Ch-05.indd 86

8/28/2012 8:01:48 PM

b1401

East Asia: Developments and Challenges

Under the Shadow of the Triple Disasters 87 .

emergency assistance shortly after 11 March.36 As stated earlier, the Futenma issue remains a thorn in the side of bilateral relations. Japan’s relations with a rising China remained ambivalent in 2011. China overtook Japan as the second largest global economy by end 2010, a status Japan had held since 1968. Even though Japan is a developed country and a much richer nation on a per capita basis compared to a developing China, “there’s no wafting away that whiff of gloom. A general sense of equanimity, or resignation, in the nation reflects a sense Japan has joined the ranks of slower-growing mature economies in Europe and America”.37 Japan faces a strategic dilemma. On the one hand, China is Japan’s most important trading partner. In 2010, 19.4% of Japanese exports went to China while 22.1% of its imports were from China.38 In that year, Sino-Japanese trade was valued at US$301.9 billion, a new record.39 On the other hand, many Japanese elite perceive China’s rise as a strategic challenge to Japan and that a closer US-Japan alliance is indispensable to balance a more assertive China. According to the 2011 Japanese Diplomatic Bluebook, there were at least two issues of concern: China’s lack of transparency in its military build-up, and assertiveness as apparent in the 2010 collision between a Chinese fishing vessel and two Japanese coast guard ships. The Diplomatic Bluebook noted: “While China, which is realizing rapid economic growth, is stressing peaceful development and coming to play an important role in the world and the region, the increase in its military strength, which lacks transparency, and its more active 36

“Japan-US Alliance in New Light after March Disaster”, Nikkei Weekly, 5 December 2011. 37 “Japan: Number 3 in GDP, Still ‘Loaded’”, Wall Street Journal, 14 February 2011. See also “Japan as Number Three: watching China whizz by”, Economist, 19 August 2010 and Heizo Takenaka, “Japan as Number Three”, Project Syndicate, 7 July 2010. 38 Nihon Kokusei Zuei [Japan Statistical Yearbook]: 2011/2012, Tokyo: Yanotsuneta-kinenkai, 2011, p. 316. 39 “Japan-China Trade in 2010 exceeds US$300 billion to set new record”, Asia Today, 1 March 2011.

b1401_Ch-05.indd 87

8/28/2012 8:01:48 PM

b1401

88

East Asia: Developments and Challenges

P.E. Lam

maritime activities are of concern to the region and the international community.”40 The Bluebook tersely noted: “Relations with China grew tense at one point after a Chinese fishing ship collided with two Japan Coast Guard patrol vessels in Japanese territorial waters off the Senkaku Islands.”41 In December 2011, Tokyo announced that it has picked the F-35 stealth jet under US-led development as its next-generation mainstay fighter for its Air Defence Force. This is, in part, a response to China which is developing stealth planes.42 In the same month, Japan said that it will ease its self-imposed ban on weapon exports. Not surprisingly, Chinese analysts interpreted this move as a further step for Japan to “become a normal country”, leading to the erosion of Japanese pacifism and generating a “negative effect on China”.43 Tokyo also acted in concert with Washington to deal with rising concerns about China’s territorial disputes with other claimant states in the South China Sea at the East Asian Summit in November 2011. Apparently, Tokyo perceives that there is a commonality of Chinese assertiveness in both the East and South China Seas. The media reported: “Doing Japan’s part to help resolve the South China Sea issue, Prime Minister Yoshihiko Noda proposed at the East Asia Summit held on the Indonesian resort island of Bali creating a forum on maritime cooperation where EAS members and experts can freely exchange views”, a Japanese Foreign Ministry official said.44 As a gesture of humanitarian goodwill and support to Japan after 11 March, Chinese Premier Wen Jiabao visited tsunami-struck

40

See “Pursuit of Japan’s National Interests and Development of Proactive Diplomacy” in Ministry of Foreign Affairs of Japan, Diplomatic Bluebook 2011, Tokyo, MOFA, 2011. 41 Ibid. 42 “Japan Picks F-35 Stealth Jet as its Next Generation Mainstay Fighter”, Mainichi Daily News, 20 December 2011. 43 “Japan Relaxes Arms Export Ban”, People’s Daily Online, 28 December 2011. 44 “Japan Takes Stand in South China Sea Row but Eclipsed by U.S.-China Clash”, Kyodo News, 20 November 2011.

b1401_Ch-05.indd 88

8/28/2012 8:01:48 PM

b1401

East Asia: Developments and Challenges

Under the Shadow of the Triple Disasters 89

Fukushima in May 2011.45 Premier Wen was in Tokyo to attend the Fourth Trilateral Summit with leaders of Japan and South Korea. In December 2011, Prime Minister Noda met Chinese President Hu Jintao in Beijing and both leaders agreed that peace and stability in the Korean peninsula are of “common interest” to the two nations in the wake of the death of North Korean leader Kim Jong-il.46 Noda and Premier Wen also agreed in Beijing to step up cooperation in international finance with Japan to purchase Chinese government bonds and both to increasingly use their own currencies instead of the US dollar when settling bilateral trades.47 As a gesture of goodwill to Noda’s visit, China will loan pandas to a zoo in Sendai city which was affected by the 11 March earthquake and tsunami to “cheer up children there”.48 Noda then left Beijing for New Delhi to meet India’s Prime Minister Manmohan Singh to strengthen political and economic ties. The Chinese media reported: “Boosting ties with India is part of Japan’s strategy of strengthening alliances with Asia-Pacific nations with an eye on China.”49

EPILOGUE: 2011–12 The year 2011 was an unprecedented year for contemporary Japan — a year of horrifying trials and tribulations of simultaneous crises. 45

“Chinese Premier Arrives in Japan for Trilateral Summit”, Xinhua, 21 May 2011. “Japan, China Agree Korean Peninsula Peace in Common Interest”, Mainichi Daily News, 26 December 2011. 47 “Japan to Start Purchasing Chinese Government Bonds”, Japan Times, 26 December 2011. 48 “China Likely to Lease Pandas to Zoo in Disaster-hit Sendai”, Mainichi Daily News, 23 December 2011. 49 Despite 11 March, India seeks civil nuclear cooperation with Japan. Noda and Manmohan Singh also signed a dollar swap accord worth up to US$10 billion under which Tokyo would provide capital when the rupee lunges against the US currency. See “Noda’s India Tour Part of Strategy to Build Alliances”, China Daily, 28 December 2011. 46

b1401_Ch-05.indd 89

8/28/2012 8:01:48 PM

b1401

90

East Asia: Developments and Challenges

P.E. Lam

Japanese society rose to the occasion while the Japanese state and political parties were found wanting. While there were initial hopes that the major political parties would set aside their partisanship in the wake of a national catastrophe and forge a national consensus to rebuild Japan, the political reality turned out otherwise. The problems of 2011 will continue to haunt Japan entering 2012. These include settling 11 March, dealing with nuclear decontamination and reconstruction of stricken regions, managing a growing public debt and fiscal crisis, reviving a stagnant economy, and addressing the need to hike the consumption tax, join the TPP, and avoid a “third lost decade” and an ageing and shrinking population.50 In January 2012, the Health and Welfare Ministry’s National Institute of Population and Social Security Research projected that in 2060, Japan’s population will fall to about 30% below current level, while people aged 65 or older will account for 40% of the population. Japan is therefore facing a “population time bomb”.51 The ageing and shrinking of Japan’s population have grave implications for its economy and future role in the world. Its GDP will shrink inexorably and the country is likely to become a mere upper middle economic power like France and Germany and no longer an economic superpower within a few decades. (Appendixes 2 to 4). An intractable social problem which resulted from Japan’s stagnant economy is the erosion of its lifetime employment.52 Moreover, many youths are facing problems seeking employment and lack the financial means to marry and start a family. A large percentage of Japanese youth undergo tertiary education with over 50% of high school graduates now completing four-year university courses. But a 50

Japan’s first lost decade began in 1991 when its “bubble economy” burst. Japan is in danger of entering its third lost decade. 51 “Editorial: Japan’s Population Time Bomb”, Japan Times, 8 February 2012. See also “Rate of Japan’s Aging Unparalleled in World”, Daily Yomiuri, 1 February 2012. 52 By 2011, around one-third of employees are “temporary workers” with fewer benefits and lacking in job security compared to regular workers who work for only one company in their lifetime.

b1401_Ch-05.indd 90

8/28/2012 8:01:48 PM

b1401

East Asia: Developments and Challenges

Under the Shadow of the Triple Disasters 91

fifth of this well-educated group can only obtain insecure, low-paid jobs. Moreover, a fourth of all 25- to 34-year-olds are stuck in nonregular employment.53 Both major political parties, the ruling DPJ and the opposition LDP, are losing their popularity among voters.54 “Floating” voters — those unaligned with political parties — may support new regional parties from the major business centre of Osaka and industrial heart of Nagoya to challenge the national political and bureaucratic centre in Tokyo. Japanese politics and its party system are in a state of flux. While domestic politics and political leadership remain uncertain, Japan’s considerable problems accumulate and cannot be readily resolved. Though Japan remains an affluent society and a stable democracy, the country is in danger of facing irreversible decline as a great power if its “leadership deficit” persists.55

53

“Those in this group are at risk of forgoing (1) a decent income; (2) essential occupational skills (since training takes place mainly on the job in Japan); (3) full social security benefits; (4) all-important organizational membership; (5) the social status of an adult fulltime worker (shakaijin; literally, ‘a member of society’); and (6) the opportunity to form a family. Significant psychological distress is often suffered as a result.” See Tuukka Toivonen, Vinai Norasakkunkit and Yukiko Uchida, “Unable to Conform, Unwilling to Rebel?: Youth, culture, and motivation in globalizing Japan”, Frontiers in Cultural Psychology, September 2011. 54 LDP membership declined inexorably from 5.47 million in 1991 to only 1.05 million in 2010. The 2010 statistics is from Yomiuri Nenkan 2011 [Yomiuri yearbook] p. 200 while the 1991 statistics cited are from Yomiuri Shimbun, 21 September 2006. 55 On the issue of Japan facing relative decline, see Purnendra Jain and Brad Williams (eds.), Japan in Decline: Fact or Fiction, Folkstone, Kent, UK, Global Oriental, 2011.

b1401_Ch-05.indd 91

8/28/2012 8:01:48 PM

b1401

92

East Asia: Developments and Challenges

P.E. Lam Appendix 1. Japan at a glance

Population:

126,475,644 (July 2011 estimate)

Age structure:

0–14 years:

13.1%

15–64 years:

64%

65 years and over:

22.9%

Population growth rate:

−0.278% (2011 estimate)

Life expectancy:

82.25 years

Total fertility rate:

1.21

Unemployment

5%

(Youth aged 15–24):

9.1 %

GINI Coefficient Index:

37.6 (2008) 24.9 (1993)

GDP (PPP):

US$4.31 trillion (2010)

GDP (official exchange rate)

US$5.459 trillion (2010)

GDP growth (2011)

−0.1%

GDP growth (2012)

2.2%

Exports:

S$730.1 billion (2010 estimate)

Imports:

US$639.1 billion (2010 estimate)

Top export partners:

China 19.4%

US 15.7% (2010)

Top import partners:

China 22.1%

US 9.9% (2010)

Foreign exchange reserves:

US$1.063 trillion (2010)

Stock of FDI abroad:

US$795.7 billion (31 December 2011 estimate)

Exchange rates (yen per US$):

77.92 (2011) 87.78 (2010) 93.57 (2009) 103.58 (2008)

Sources : CIA World Fact Book 2011 and Market News International.

b1401_Ch-05.indd 92

8/28/2012 8:01:48 PM

b1401

East Asia: Developments and Challenges

Under the Shadow of the Triple Disasters 93 Appendix 2. Japan’s future population growth (estimates by the Japanese government) 2010 (actual)

2060

Total Population

128.06 million

86.74 million

Elderly (aged 65 and above)

29.48 million (23.0%)

34.64 million (39.9%)

Working age (aged 15 to 64)

81.73 million (63.8%)

44.18 million (50.9%)

Juveniles (aged 14 and younger)

16.84 million (13.1%)

7.91 million (9.1%)

Total fertility rate

1.39

1.35

Average longevity

Male: 79.64 years Female: 86.39

Male: 84.19 Female: 90.93

Moderate estimates are shown in 2060 category. Ratios to total population are shown in parentheses.

b1401_Ch-05.indd 93

8/28/2012 8:01:48 PM

b1401

94

East Asia: Developments and Challenges

P.E. Lam Appendix 3. Projection of age distribution

Source: Yomiuri Shimbun, 1 February 2012.

b1401_Ch-05.indd 94

8/28/2012 8:01:48 PM

b1401

East Asia: Developments and Challenges

Under the Shadow of the Triple Disasters 95 Appendix 4. Japan’s total fertility rate

Source: Yomiuri Shimbun, 1 February 2012.

b1401_Ch-05.indd 95

8/28/2012 8:01:48 PM

b1401

East Asia: Developments and Challenges

This page intentionally left blank

b1401_Ch-05.indd 96

8/28/2012 8:01:49 PM

b1401

East Asia: Developments and Challenges

Chapter

6 The Korean Peninsula Faces Uncertainties and Challenges YUAN Jingdong

ABSTRACT With the passing of Kim Jong-il, North Korea has entered a new era with an untested leader who has limited experiences and is likely to be supported by party and military elders entrusted by his father. The hermit kingdom faces uncertainties and challenges. The junior Kim will need all the help he can muster to consolidate his position, lead the country through a difficult time and ensure regime survival. These will be daunting challenges, as the country is experiencing a severe food shortage, a debilitating economy and continued isolation. Meanwhile, China, Republic of Korea and the United States, the principal players that have great stakes in peninsular peace and stability, will all be going through either leadership transition or elections. The outlook for the peninsula remains indeterminate as key powers contemplate, negotiate and coordinate to develop an effective common approach that addresses the North Korean nuclear issue. But all agree that it is 97

b1401_Ch-06.indd 97

8/28/2012 8:02:18 PM

b1401

98

East Asia: Developments and Challenges

J. Yuan

essential that stability be maintained and engagement must remain an important policy option. The challenge is how to persuade Pyongyang to return to the Six-Party Talks and to ensure that North Korea fulfil its pledges for the phased dismantlement of its nuclear weapons programme. Navigating through these uncertainties and challenges require closer and better coordination among key powers, especially the United States, China and South Korea.

The Korean Peninsula enters 2012 facing uncertainties and challenges. With the passing of Kim Jong-il, a new era has begun where the anointed successor Kim Jong-un, an untested leader with limited experiences, will need all the help he can muster to consolidate his position. This will be a daunting challenge as the country is experiencing a severe food shortage, a debilitating economy and continued isolation. In the short run, to ensure regime survival and their own security, the forces within North Korea would likely coalesce around the “great successor” in Kim Jong-un and that would ensure some level of stability. Likewise, regional powers and the United States, for whatever perspectives and interests may have come to a common understanding, for the time being at least, that any other scenario beyond the current status quo may pose serious problems and therefore should by all means be averted. Meanwhile, critical parliamentary and presidential elections will be held in South Korea, the results of which could have major repercussions for Seoul’s policy towards the North and for that matter, the Republic of Korea (ROK)-US alliance. After more than four years under President Lee Myung-bak, where inter-Korean relations have made little headway in either denuclearisation or peninsular reconciliation, there are significant forces calling for change and the return to the “Sunshine” and “Peace and Prosperity” policies promulgated by Lee’s more liberal predecessors. China and the United States, two major powers having important stakes in and significant influence over the fate of peninsular peace and stability, will undergo their respective leadership transitions and elections. These critical changes are happening at a time when the Obama administration is “pivoting” back to East Asia and Beijing’s

b1401_Ch-06.indd 98

8/28/2012 8:02:18 PM

b1401

East Asia: Developments and Challenges

The Korean Peninsula Faces Uncertainties and Challenges 99

growing confidence and assertiveness in regional diplomacy, including in peninsular affairs, could see China and the United States butting heads over one of the Cold War’s unresolved legacies. At the same time, their ever closer economic interdependence, mutual needs in joining hands when dealing with emerging global issues such as the financial crisis, economic recovery and climate change offer strong incentives for the two countries to avoid open conflict over the North Korean issue. That said, how to translate their common interests to ensure North Korean nuclear disarmament and peninsular peace and stability requires mutual understanding at the strategic level and skilful diplomacy in negotiating and executing actionable deals.

RISING TENSIONS ON THE PENINSULA On 26 March 2010, the Cheonan, a South Korean Navy corvette, sank in the Yellow Sea after an explosion tore the ship in half, killing 46 of its 104 crew. The Lee Myung-bak administration was shocked by the attack but proceeded cautiously by calling for investigations by a multinational team rather than immediately blaming North Korea as the culprit. At the same time, Seoul suspended all inter-Korean trade except the joint venture in the Kaesong Industrial Zone. That summer, the United States and South Korea staged naval exercises in a show of force while North Korea heightened tensions again in November by shelling Yeonpyeong Island, killing a few soldiers and civilians.1 The Cheonan and Yeonpyeong incidents grabbed international attention, putting the spotlight on the security environment on the peninsula which had already experienced significant setbacks since 2008. Historically, South Korea’s approach towards the North has clustered around three strategies: treating the Democratic People’s Republic of Korea (DPRK) as the primary enemy, pursuing peaceful coexistence and seeking change through engagement. For most of the Cold War period, South Korea had felt vulnerable and, facing constant North Korean assassination attempts, commando attacks, 1

International Institute for Strategic Studies, Strategic Survey 2011, pp. 370–2.

b1401_Ch-06.indd 99

8/28/2012 8:02:18 PM

b1401

100

East Asia: Developments and Challenges

J. Yuan

bombings and infiltration, depended on its alliance with Washington and sought US protection against North Korean aggression. In the 1990s, with the end of the Cold War, the Kim and Roh administrations began to introduce the “Sunshine” and “Peace and Prosperity” policies to engage the North, hoping to defuse tension and build trust over time. Between 1995 and 2006, an estimated $6.5 billion in cumulative aid from both government and private sources had been offered to the North.2 Lee Myung-bak’s policy towards the North since his administration assumed office in early 2008 has been to link continued economic assistance to the North to the latter’s fulfilment of its denuclearisation commitments. Indeed, outright economic aid dropped from $310 million in 2007 to about $52 million in 2009.3 Not surprisingly, inter-Korean relations experienced a significant downturn and remained at best highly volatile during the past four years when Lee was in office. The left elements in South Korea polity argue that engagement, rather than punishment or containment, is a better strategy when dealing with the North. It is likely that the 2012 National Assembly elections in April 2012 and the December 2012 presidential elections could return the Democratic Party to power.4 The past few years have also witnessed major setbacks in nuclear disarmament. The Six-Party Talks have stalled since North Korea pulled out in late 2008. In November 2010, North Korea revealed its uranium enrichment programme to the outside world, which it had denied having for a long time. A newly constructed modern 2,000-centrifuge uranium enrichment plant was built in Yongbyon to supply low enriched uranium (LEU) to feed a light water reactor that was under construction. It remains to be determined whether the 2

Jonathan Pollack, No Exit: North Korea, Nuclear Weapons, and International Security. Adelphi Chapters 50:418–9 (London: Routledge for the International Institute for Strategic Studies, 2010), pp. 195–9. 3 IISS, North Korean Security Challenges, p. 17. 4 International Crisis Group, South Korea: The Shifting Sands of Security Policy. Asia Briefing No. 130 (Seoul/Brussels: 1 December 2011); Aidan Foster-Carter, “South Korea-North Korea Relations: A Turning Point?” Comparative Connections (September 2011).

b1401_Ch-06.indd 100

8/28/2012 8:02:18 PM

b1401

East Asia: Developments and Challenges

The Korean Peninsula Faces Uncertainties and Challenges 101

programme is civilian for generating electricity as Pyongyang claims. Nonetheless the dual-use nature of nuclear technology means that it could also provide North Korea with the ability and materials to develop nuclear weapons.5 North Korea has also become increasingly adamant in clinging to its nuclear weapons programme. A recent foreign ministry statement suggests: “Our agreement to the 19 September [2005] joint statement started precisely from the principled position of denuclearisation through the normalisation of relations, not the normalisation of relations through denuclearisation. … Once US nuclear threats are removed and the US nuclear umbrella for South Korea disappears, we will not need nuclear weapons, either… [but] as long as the United States’ hostile policy toward the DPRK and nuclear threats are not fundamentally eliminated, we will never give up our nuclear weapons first, not even in a hundred years.”6 The implication here is quite clear. Given the sunk costs for the programme and barring fundamental change in the North Korean regime, Pyongyang is unlikely to give up its nuclear weapons programme for both security and bargaining purposes. Indeed, some have suggested that the nuclear weapons programme is an essential core of the Songun system in that it both serves as a bargaining chip to extract economic concessions from the international community and rallies domestic support for an otherwise illegitimate and precarious regime.7 Tension in the Korean Peninsula has provided the opportunity for Seoul and Washington to restore their bilateral alliance. During the 1990s, as the North Korean nuclear crisis intensified, Seoul and Washington seemed to be drifting apart on issues such as threat perceptions, negotiation tactics and priorities in dealing with Pyongyang. Indeed, a sizeable number of South Koreans blamed the 5

Siegfried S. Hecker and Robert Carlin, “North Korea in 2011: Countdown to Kim il-Sung’s Centenary”, Bulletin of the Atomic Scientists 68:1 (January/February 2012), p. 53; Siegfried S. Hecker, “Where is North Korea’s Nuclear Program Heading?” Physics and Society 40:2 (April 2011), pp. 5–9. 6 Cited in Pollack, No Exit, p. 159. 7 Benjamin Habib, “North Korea’s Nuclear Weapons Programme and the Maintenance of the Songun System”, The Pacific Review 24:1 (March 2011), pp. 43–64; Pollack, No Exit, p. 188.

b1401_Ch-06.indd 101

8/28/2012 8:02:18 PM

b1401

102

East Asia: Developments and Challenges

J. Yuan

United States for unnecessarily provoking the North. Meanwhile, antiAmerican sentiments were also on the rise. In the end, however, broader interests in preserving the alliance prevented further deterioration and agreements on US force adjustments and redeployment.8 Since President Lee Myung-bak came into office in 2008, the ROK-US alliance has improved. Presidents Lee and Obama have developed close personal relationships and Seoul has also taken on responsibilities on the global stage such as hosting the G-20 summit and the 2012 Nuclear Summit, transforming the bilateral alliance into a global partnership.9 President Lee’s successful visit to Washington in 2011 and the conclusion and ratification of the free trade agreement (ROKUS FTA) further consolidated ROK-US relations.10 Meanwhile, the Obama administration’s approach of “strategic patience” has so far yielded limited results, especially where US interests are concerned — seeking Pyongyang’s return to the Six-Party Talks and fulfilment of the latter’s commitments to nuclear disarmament/ dismantlement as spelled out in the September 2005 and February 2007 joint statements. Critics have characterised this approach as “a policy of doing nothing while outsourcing North Korea policy to a particularly hawkish government in Seoul. … a policy of sanctions and hostility toward Pyongyang.”11 On 23 July 2009, Secretary of State Hillary Clinton made the following statement, the clearest so far of 8

Gi-Wook Shin and Hilary Jan Izatt, “Anti-American and Anti-Alliance Sentiments in South Korea,” Asian Survey 51:6 (November/December 2011), pp. 1113–1133; Jae-jeok Park, “A Comparative Case Study of the US-Philippines Alliance in the 1990s and the US-South Korea Alliance between 1998 and 2008,” Asian Survey 51:2 (March/April 2011), pp. 268–289; Jong-yun Bae, “South Korean Strategic Thinking toward North Korea: The Evolution of the Engagement Policy and Its Impact upon US-ROK Relations”, Asian Survey 50:2 (March/April 2010), pp. 335–355. 9 The Korea Society and APARC/Stanford, “New Beginnings” in The US-ROK Alliance: Recommendations to the Obama Administration. May 2010; Victor D. Cha and Katrin Katz, “South Korea in 2010: Navigating New Heights in the Alliance”, Asian Survey 51:1 (January/February 2011), pp. 54–63. 10 Victor Cha and Ellen Kim, “US-Korea Relations: Death of Kim Jong Il,” Comparative Connections (January 2012). 11 Charles K. Armstrong, “The Korean Peninsula on the Verge”, Current History (September 2011), p. 229.

b1401_Ch-06.indd 102

8/28/2012 8:02:18 PM

b1401

East Asia: Developments and Challenges

The Korean Peninsula Faces Uncertainties and Challenges 103

the Obama administration’s policy towards North Korea: The United States “cannot accept a North Korea that tries to maintain nuclear weapons.” However, Washington would consider “full normalisation, a permanent peace regime, and significant energy and economic assistance if North Korea undertakes verifiable denuclearisation”. And the United States “does not seek any kind of offensive [military] action against North Korea”.12

CHINA’S BALANCING ACT Beijing’s handling of the Cheonan and the Yeonpyeong Island incidents both reflect the dilemma it faces in dealing with the wayward behaviour of North Korea and raises the fundamental question of whether and for how long, can China’s policy be sustained and for what purposes. China called for calm in the aftermath of the Cheonan incident and refused to openly blame Pyongyang as the culprit. From Beijing’s perspective, Lee Myung-bak’s policy towards North Korea and the strengthened ROK-US alliance were not conducive to further progress with regards to denuclearisation. China also considered the post-Chenonan ROK-US military exercises in the Yellow Sea highly destabilising, worsening the already tense situation and therefore posing serious threats to China’s security interests.13 This may explain China’s positions at the United Nations Security Council (UNSC) and its resistance against casting blame and imposing additional harsh measures on North Korea. As a result, Beijing-Seoul ties were under noticeable strain.14

12

The Korea Society and APARC/Stanford, “New Beginnings” in US-ROK Alliance, p. 11. 13 International Crisis Group, China and Inter-Korean Clashes in the Yellow Sea. Asia Report No. 200 (27 January 2011); Scott Snyder and See-won Byun, “Cheonan and Yeonpyeong: The Northeast Asian Response to North Korea’s Provocations”, RUSI Journal 156:2 (April/May 2011), pp. 74–81. 14 Woo Jung-Yeop and Leif-Eric Easley, “Yellow Sea Turning Red: Darker Views of China among South Koreans,” Issue Brief No. 15 (Seoul: The Asan Institute for Policy Studies, 16 December 2011).

b1401_Ch-06.indd 103

8/28/2012 8:02:18 PM

b1401

104

East Asia: Developments and Challenges

J. Yuan

China’s responses to Cheonan and Yeonpyeong must be understood in the context of major geo-strategic changes in the region. Since 2009, after North Korea’s second nuclear test and the subsequent UNSC sanctions (which Beijing endorsed; it also cancelled a number of high-level visits to the North) and the near collapse of both the inter-Korean dialogue and US-DPRK negotiations, China has decided to separate the nuclear issue from its relations with North Korea. While Beijing has allowed debates, including strong dissenting voices, to be publicised, no major policy shift was adopted in the end. Kim Jong-il’s reported stroke and the succession issue convinced Beijing that stability must be the top priority.15 According to some analysts, China’s stance on the North Korean issue is influenced by two considerations: whether its reactions would lead to stability or instability in North Korea; and whether North Korean provocation would lead to direct US military responses. The latter scenario would obviously threaten Beijing’s interest in maintaining stability; barring direct US attacks on the North, expanding and strengthening American military presence and alliances would also pose long-term threats to Chinese interests in the region, as well as push North Korea into behaving even more erratically.16 According to Jonathan Pollack, Pyongyang “also believes that China’s fear of the North’s potential responses to heightened pressure inhibits Beijing from taking major measures against the DPRK, lest such steps trigger a far larger regional crisis.”17 While Beijing would doubtlessly like to see an end to North Korea’s nuclear weapons programme, the extent to which it can pressure Pyongyang into submission remains questionable. This has less to do with the means at its disposal but more with the unforeseen consequences and competing policy interests. Indeed, China’s limited influence can be demonstrated by the numerous instances where North Korea simply ignored the wishes of its principal patron. 15

Pollack, No Exit, pp. 168–176. Jooyoung Song, “Understanding China’s Response to North Korea’s Provocations”, Asian Survey 51:6 (November/December 2011), pp. 1,134–1,155. 17 Pollack, No Exit, p. 207. 16

b1401_Ch-06.indd 104

8/28/2012 8:02:18 PM

b1401

East Asia: Developments and Challenges

The Korean Peninsula Faces Uncertainties and Challenges 105

Indeed, Chinese President Hu Jintao, in his May 2010 meeting with Kim Jong-il, proposed heightened contact between the two countries, specifically: “reinforcing ‘strategic coordination;’ deepening collaboration on economic and trade; increasing personnel exchanges; and strengthening ‘coordination in international and regional affairs’.” In defiance of Beijing’s entreaty, Pyongyang continued with its ways, causing significant frustration in Beijing.18 Indeed, as observed by a Chinese analyst, “in its contemporary relationship with North Korea, China has often acted like a kidnapped country, kidnapped by that much weaker neighbor, depending on China’s assistance.” Beijing’s policy since 2009 clearly indicates that China now places more emphasis on regime stability over anything else. If this goal requires that China come to North Korea’s defence, provide economic aid and even offer political support, Beijing will do it.19 Over the past few years, Beijing has begun to offer economic assistance as well as strengthen political ties, including more frequent high-level visits between the two countries to mark important anniversaries. In the process, Beijing is in fact offering its own “sunshine” policy towards the North and some analysts suggest that growing economic ties have benefited China in its development strategy for reviving the industrial northeast, but have also undermined the effectiveness of sanctions imposed by the UNSC.20 China’s expanding economic ties with North Korea concentrate on energy supplies, commodity trade, especially border trade, and investments in the resource sector. Chinese energy supplies have certainly been critical to addressing North Korea’s severe shortfalls and in the process help the country to weather otherwise much graver economic situations. Beijing’s considerations are multiple. Preventing

18

Xinhua, 7 May 2010, quoted in Pollack, No Exit, p. 175. Shi Yinhong, “New Games in Tightly Fixed Structures: North Korea’s Volatile Desperation and China’s Cornered Strategy”, The Korean Journal of Defense Analysis 23:3 (September 2011), pp. 353–368, quote on p. 360. 20 John S. Park, “Beijing’s ‘Sunshine Policy with Chinese Characteristics’ ”, in Choi Jinwook, ed., US-China Relations and Korean Unification (Seoul: Korea Institute for National Unification 2011), pp. 68–79. 19

b1401_Ch-06.indd 105

8/28/2012 8:02:18 PM

b1401

106

East Asia: Developments and Challenges

J. Yuan

regime collapse, building up influence and developing long-term economic strategies, especially for China’s own energy security interests, are driving Chinese decision-making to a significant extent.21 Bilateral trade has also expanded in recent years, although from a very low base and it remains miniscule compared to China’s trade with South Korea, which in 2011 was over $200 billion. In contrast, the first 11 months recorded a mere $5.2 billion between China and North Korea.22 In early 2010, China reportedly pledged $10 billion to develop North Korea’s infrastructure. In December 2010, a Chinese state-run company agreed to invest up to $2 billion in North Korea’s Rason free trade zone. However, reports suggest these pledged investments have yet to materialise.23 Compared to China’s investments in other countries, its investments in North Korea remain relatively small. Very few Chinese investments have been made by state-owned enterprises controlled by the central government. Instead, investments by private companies and local government controlled enterprises form the bulk of Chinese investments. Many of them are also joint ventures.24 China-ROK and China-US relations are also key considerations in Beijing’s North Korea policy. While the United States and China share important common interests in North Korean denuclearisation and have indeed coordinated over the years, their assessments of the situation, priorities and expectations are quite different, and these have prevented the two powers from developing and executing strategies at the same pace and with the same focus. For Washington, the fact that North Korea is increasingly dependent on China for its survival should give Beijing leverage to pressure Pyongyang to give up its nuclear weapons programme. For Beijing, on the other hand, it considers the tension between North Korea and the United States 21

Julia Joo-A Lee, “To Fuel or Not to Fuel: China’s Energy Assistance to North Korea”, Asian Security 5:1 (2009), pp. 45–72. 22 Evan Ramstad and Brian Spegele, “South Korea Touts China Trade”, Wall Street Journal, 10 January 2012. 23 IISS, North Korean Security Challenges, p. 18. 24 Drew Thompson, Silent Partners: Chinese Joint Ventures in North Korea (Washington, D.C.: The US-Korea Institute, February 2011).

b1401_Ch-06.indd 106

8/28/2012 8:02:18 PM

b1401

East Asia: Developments and Challenges

The Korean Peninsula Faces Uncertainties and Challenges 107

a major cause of the North’s insecurity. In addition, Beijing has to worry about the consequences of regime instability or worse, collapse — massive refugee inflows, major disruptions in regional economic development, not to mention the custody of North Korea’s nuclear weapons and materials.25 Growing economic ties between Beijing and Seoul have been accompanied by efforts in both capitals to develop closer political and military relations. Bilateral trade, which stood at $6.3 billion in 1992, had grown to over $200 billion in 2011 and the two countries have set $250 billion as the target for 2015. Negotiations on a free trade agreement are also underway. There are about 30,000 Korean businesspeople operating in China.26 Since 2008, the two countries have established a strategic partnership. At the same time, bilateral defence consultation has also been introduced. For China, maintaining a carefully crafted and balanced two-Korea policy remains a key variable influencing its approach to Seoul. This policy has, in turn, diluted the substance of the partnership, and served as an obstacle to substantially elevating and strengthening the strategic components of the relationship.27 Lee Myung-bak’s January 2012 visit to China has defused the tension between Beijing and Seoul after the Cheonan’s sinking and Kim Jong-il’s passing away, and the uncertainties these events had created has provided incentives for closer policy coordination. For the latter, internal debates within China have been principally drawn from and further reinforce the three schools of thoughts — the traditional, internationalist and realist perspectives. However, these debates have yet to result in major policy shifts since for Beijing, the North Korean issue cannot simply be dealt with on its own merit but must be placed within the larger peninsular and indeed regional context. 25

Denny Roy, “The North Korea Crisis in Sino-US Relations”, The Journal of Comparative Asian Development 10:2 (December 2011), pp. 281–304. 26 Song Sang-ho, “Korea Moves on FTA Talks with China”, The Korea Herald, 9 January 2012. 27 Heeok Lee, “China’s Policy toward (South) Korea: Objectives of and Obstacles to the Strategic Partnership”, The Korean Journal of Defense Analysis 22:3 (September 2010), pp. 283–301.

b1401_Ch-06.indd 107

8/28/2012 8:02:18 PM

b1401

108

East Asia: Developments and Challenges

J. Yuan

These considerations in turn have imposed significant constraints on Beijing’s ability to exert pressure and hence influence Pyongyang. In other words, as a mediator, China has failed to prod Pyongyang and Washington to come to terms within the Six-Party Talks framework and its concern over stability and crisis management is a disincentive to supporting harsher measures against the North.28

UNCERTAINTIES AND CHALLENGES IN THE YEARS AHEAD North Korea under Kim Jong-il increasingly considered regime survival, rather than reforms that could have addressed some of the domestic woes, to be its only concern. From the juche ideology in the 1970s and 1980s to songun introduced in the mid-1990s, ideologies have played a critical role and remain the preoccupation of the North Korean regime. Since his stroke in 2008, Kim Jong-il had carefully built a power structure to support a smooth succession to his youngest son, Kim Jong-un. Skilled in family politics, Kim Jong-il made sure that no single power centre would emerge to threaten his son’s succession.29 The death of Kim Jong-il in December 2011 has sped up succession plans. For the time being at least, Pyongyang has presented a public show of support with key figures indicating their support for the newly anointed “great successor” Kim Jong-un. Kim Yong-nam, president of the North Korean Parliament, announced at Kim Jong-il’s funeral. “Respected Comrade Kim Jong-un is now supreme leader of our party, military and people. He inherits the ideology, leadership, courage and audacity of Comrade Kim Jong-il.”30 The likely inner circle would include the following power brokers: Vice Marshall Yi Yong-ho, director of the General Staff Department; General Jang Song-taek, vice-chair of 28

Feng Zhu, “Flawed Mediation and a Compelling Mission: Chinese Diplomacy in the Six-Party Talks to Denuclearise North Korea,” East Asia 28 (2011), pp. 191–218. 29 International Institute for Strategic Studies, North Korea Security Challenges: A Net Assessment (London: IISS, 2011), pp. 9–25. 30 Choe Sang-hun, “North Korea Declares Kim Jong-un as Supreme Leader”, New York Times, 29 December 2011.

b1401_Ch-06.indd 108

8/28/2012 8:02:18 PM

b1401

East Asia: Developments and Challenges

The Korean Peninsula Faces Uncertainties and Challenges 109

the National Defence Commission who oversees internal security and Kim’s uncle; General Kim Kyong-hui, Kim’s aunt, Politburo member; General O Kuk-yol, vice chair of the National Defence Commission; Vice Marshall Kim Yong-chun, minister of People’s Armed Forces.31 The key anniversaries in 2012 — 16 February 2012, for Kim Jong-il’s birthday, and most importantly, 15 April, Kim Il-sung’s centenary, when the DPRK will celebrate the occasion as a “strong and prosperous” nation — should offer further glimpses of Kim Jong-un’s consolidation of power. But it could also usher in a period of uncertainties marked by power struggles among competing factions.32 Leaving aside the power structure in the post-Kim Jong-il era, North Korea today also poses serious threats to regional and global security. The world’s fourth largest armed forces — armed with nuclear weapons and ballistic missiles, the third largest chemical arsenal and perhaps biological weapons as well, and transfers of nuclear and missile technologies for profit — also threaten international non-proliferation regimes.33 Despite the economic stagnation, the post-Kim Jong-il uncertainty in power transition, and the 2009 unrest in the aftermath of the currency devaluation fiasco, any Arab Springlike uprising in North Korea would be highly unlikely simply because either the spark is missing, or should there be any, could be quickly snuffed out by the ever-alert and paranoid regime.34 A North Korean 31

Ken Gause, “Leadership Transition in North Korea: Current Issues in US-ROK Relations”, Council on Foreign Relations, January 2012, at: http://www.cfr.org/ north-korea/leadership-transition-north-korea/p27071 32 Sung-Yoon Lee, “The Boy Who Would Be King: Can Kim III Last?” The National Bureau of Asian Research, December 28, 2011; Michael Mazza, “The Top Five Ways Things Could Go Wrong in the Hermit Kingdom”, Washington, D.C.: American Enterprise Institute, 5 January 2012. 33 Mark Fitzpatrick, statement at the launch of North Korean Security Challenges: A Net Assessment, London, IISS, 21 July 2011; IISS, The Military Balance 2011 (London: Routledge for IISS, 2011), pp. 205–207, 249–251. 34 Victor D. Cha and Nicholas D. Anderson, “A North Korean Spring”? The Washington Quarterly 35:1 (Winter 2002), pp. 7–24; Daniel L. Byman and Jennifer Lind, “Pyongyang’s Survival Strategy: Tools of Authoritarian Control in North Korea”, International Security, 35:1 (Summer 2010), pp. 44–74.

b1401_Ch-06.indd 109

8/28/2012 8:02:18 PM

b1401

110

East Asia: Developments and Challenges

J. Yuan

implosion, on the other hand, would demand enormous resources, and careful planning and coordination among the region’s affected powers. The severe consequences that will result from the regime collapse would lead to regional instability and humanitarian disasters. Most worrisome is the custody of the nuclear weapons and materials, and other Weapons of Mass Destruction (WMD) inventories including chemical weapons and biological agents and the need to prevent their use and transfer outside of the country.35 However, the Kim Jong-un leadership must confront grave challenges ahead. The economy remains stagnant and it could get worse without fundamental reforms and timely international assistance. However, according to Jonathan Pollack, a North Korea analyst at the Brookings Institution, “structural rigidity, songun politics, the primacy placed on Kim family survival, incomplete and stuttering reform efforts, international sanctions and isolation, ineffective responses to natural disasters and poor infrastructure — have produced a stagnant economy.”36 The results are disastrous. In 2011, as many as one quarter of the North Korean population was starving accordingly to the United Nations World Food Programme.37 The regime reportedly faces a 700,000 ton grain shortage. Both China and South Korea have pledged to provide assistance. Pyongyang has turned to Washington for 320,000 metric tons of grain in exchange for the suspension of its clandestine uranium enrichment programme. The United States remains cautious on food aid. Media reports suggest that Pyongyang may be prepared to discontinue its nuclear programme in exchange for 240,000 tons of food aid from the United States.38 35

Bruce W. Bennett and Jennifer Lind, “The Collapse of North Korea: Military Missions and Requirements”, International Security 36:2 (Fall 2011), pp. 84–119. 36 IISS, North Korean Security Challenges, p. 20. 37 IISS, Strategic Survey 2011 (London: Routledge for IISS, 2011), p. 383. 38 Chico Harlan, “N. Korea Reopens Door to Food-for-Nukes Deal with US”, Washington Post, 11 January 2012; John M. Glionna, “US Still Taking Cautious Approach to North Korea Aid”, Los Angeles Times, 24 January 2012; Shim Jae Hoon, “Hunger Pains Test North Korea’s Dynastic Succession”, YaleGlobal Online, 1 February 2012.

b1401_Ch-06.indd 110

8/28/2012 8:02:19 PM

b1401

East Asia: Developments and Challenges

The Korean Peninsula Faces Uncertainties and Challenges 111

In the light of the current situation, Washington faces both challenges and opportunities. If all agree that there is almost no prospect that North Korea will ever scrap its nuclear weapons programme, then the best option would be to contain the further expansion of its nuclear programmes and prevent it from transferring nuclear materials and technologies to other state or non-state actors. The year 2011 had at least opened the door slightly, with a number of US-DPRK informal meetings on food aid and a possible North Korean return to the Six-Party Talks where the DPRK reportedly also indicated its willingness to agree on a moratorium on nuclear and missile tests. Further steps can be taken in furthering that objective through engagement, although the exact formula and the sequence have yet to be worked out.39 But any breakthroughs in the current impasse probably will require major changes in US approaches. While the bottom-line positions should remain unchanged — the dismantlement of North Korea’s nuclear weapons programme — the steps and sequence, and better policy coordination within the Obama administration and with its key allies and interested parties are clearly called for. The key is to keep the dialogue open and seize the opportunity to return to the Six-Party Talks to continue with the implementation of the 19 September 2005 joint agreement.40 The challenge is to work out a formula, assuming North Korea returns to the Six-Party Talks, that would address a number of issues in tandem — denuclearisation and verification, normalisation, peace treaty and economic assistance — and the ways these will reinforce and facilitate, rather than block and derail the multilateral process.41 39

Mark E. Manyin, Kim Jong-il’s Death: Implications for North Korea’s Stability and US Policy. CRS Report. R42126 (Washington, D.C.: Congressional Research Service, December 22, 2011), p. 8; Kathleen E. Masterson and Peter Crail, “US Envoy Sees Progress in N. Korea Talks”, Arms Control Today (November 2011), pp. 38–39. 40 Choe Sang-hun, “North Korea Open to Talks on Nuclear Program”, New York Times, January 11, 2012. 41 Ralph A. Cossa, “Next Steps with North Korea and the Six-Party Talks”, Issue Brief No. 16 (Seoul: Asan Institute for Policy Studies, December 2011).

b1401_Ch-06.indd 111

8/28/2012 8:02:19 PM

b1401

112

East Asia: Developments and Challenges

J. Yuan

Beijing also faces major challenges of its own. China has clearly decided to lend its support to Kim Jong-un, if for no other reason than to ensure stability in North Korea. All nine members of its Politburo Standing Committee went to the DPRK embassy to express their condolences. In its condolence message to Pyongyang, the Chinese leadership highlighted both the Korean Workers Party and Kim Jong-un, and Hu Jintao congratulated Kim after he was appointed Supreme Commander of North Korean armed forces. Beijing has reportedly extended an invitation to Kim Jong-un to visit China.42 The key questions will be whether Beijing’s current approach would continue to work; how much influence China has and is willing to exercise and for what purposes, and what it must prepare for in worst-case scenarios; and protect its core interests. Despite recent thawing of inter-Korean relations, Pyongyang remains angry at the Lee Myung-bak government and could resort to future provocation if such tactics are found to be useful. In all likelihood, Kim Jong-un may seek to wait out on Lee and bet on the next more moderate government in Seoul. For Seoul, 2012 could be a year fraught with uncertainties and challenges, including domestic politics and the evolving power transition in North Korea. At the same time, South Korea’s responses to both Cheonan and Yeonpyeong have raised broader questions about military preparedness, rules of engagement and procurement priorities. The scheduled transfer of wartime operational control from the United States to South Korea has been postponed to 2015. However, how to respond to future North Korean provocations without losing control over escalation remains a serious challenge.43

42 Victor Cha and Ellen Kim, “US-Korea Relations: Death of Kim Jong Il”, and Scott Snyder and See-won Byun, “China-Korea Relations: New Challenges in the Post Kim Jong Il Era”, Comparative Connections: A Triennial E-Journal on East Asian Bilateral Relations, January 2012; Roger Cavazos, “Nothing Succeeds Like Succession: Chinese Language Perspectives on Kim Jong-un’s Transition to Power”, Policy Forum, Nautilus Institute, 23 December 2011. 43 IISS, The Military Balance 2011, pp. 208–209.

b1401_Ch-06.indd 112

8/28/2012 8:02:19 PM

b1401

East Asia: Developments and Challenges

The Korean Peninsula Faces Uncertainties and Challenges 113

CONCLUSION The year 2012 will be a year of major transitions for all key players in the region. Elections and changes of leadership will take place in China, South Korea and the United States. But the key question remains as to the potential developments in North Korea which are unknown. An untested leader, Kim Jong-un’s ability to consolidate his power is in question as it depends on a host of factors that are beyond his control but could be used to foster change. For the short term, his position will be assured given the interests of key stakeholders in North Korea. Over time however, Kim Jong-un, should he remain in power, would confront serious economic problems at home and external isolation abroad. The regime could yet again muddle through, but the enormity of problems and the need to burnish his leadership credentials could lead him to seriously consider alternative policy options or continue further down the well-worn path of calculated provocation. So far, Kim appears to have chosen the path of negotiation. In late February 2012, after the third round of talks between DPRK and US officials in Beijing, Pyongyang announced that it would halt its uranium enrichment programme and suspend nuclear and long-range missile tests in exchange for 240,000 metric tons of nutritious food provided by the United States.44 However, while this development has generated some cautious optimism, including the speculation (and hope) that North Korea may return to the Six-Party Talks, Pyongyang’s announcement in mid-March that it plans to launch a long-range rocket mounted with a satellite to mark DRPK founder Kim Il-sung’s 100th birthday has been condemned by Washington and could derail the February agreement.45 Peninsular peace, stability and denuclearisation remain the shared goals of all parties involved. The challenge is how to revive, and in 44 Steven Lee Myers and Choe Sang-Hun, “North Koreans Agree to Freeze Nuclear Work; U.S. to Give Aid”, New York Times, 29 February 2012. 45 Chico Harlan and William Wan, “U.S. and Others Condemn North Korea’s Planned Rocket Launch”, Washington Post, 16 March 2012.

b1401_Ch-06.indd 113

8/28/2012 8:02:19 PM

b1401

114

East Asia: Developments and Challenges

J. Yuan

particular, to persuade Pyongyang to return to the Six-Party Talks, especially the agreed upon mechanisms and steps through which the phased dismantlement of North Korea’s nuclear weapons programme could be implemented. But the multilateral negotiating forum could still play an important role. This is a critical issue and continued impasse could result in further erosion of the international nuclear non-proliferation regime and North Korean transfers of nuclear materials and technologies to state or non-state actors simply to acquire desperately needed hard currency. Meeting these uncertainties and challenges require closer and better coordination among key powers, especially the United States, China and South Korea. But election politics, leadership transitions and changing geo-strategic landscape in the region make such coordination at once an essential and daunting task.

b1401_Ch-06.indd 114

8/28/2012 8:02:19 PM

b1401

East Asia: Developments and Challenges

Chapter

7 Taiwan’s 2012 Presidential and Legislative Elections QI Dongtao

ABSTRACT Taiwan’s incumbent President Ma Ying-jeou of the Kuomintang (KMT) won his re-election on 14 January 2012. Ma’s successful China policy was the largest contributor to his victory. His campaign was also better organised than that of his major election rival Tsai, the Democratic Progressive Party (DPP)’s presidential candidate. Ma created a sense of crisis during his campaign, driving many marginal voters, some young middle-class and the third candidate James Soong’s potential voters, to support the KMT. Tsai’s defeat can be mainly attributed to her dubious China policy that failed to convince the majority of Taiwanese that she could maintain improved cross-strait relations if elected. Nevertheless, Tsai’s election campaign focussed on social justice and made Ma work hard for his re-election. The legislative election result indicates that the DPP has maintained its reviving trend following two successful local elections in 2009 and 2010. 115

b1401_Ch-07.indd 115

8/28/2012 8:02:33 PM

b1401

116

East Asia: Developments and Challenges

D. Qi

China policy and social justice issues will continue to be the major issues in Taiwan’s politics during the Ma administration’s second term from 2012 to 2016. Ma’s re-election will further promote peaceful and active cross-strait relations, a situation which is in line with both China’s and America’s interests. Nevertheless, cross-strait political and security talks are not expected to occur in the near future. The global economic slowdown is expected to seriously impact the Taiwanese economy, which will make it even harder for Ma to address social justice issues in his second term. The DPP is likely to continue with Tsai’s moderate policy line and become more realistic and pragmatic on crossstrait issues. While the DPP needs to thoroughly review its China policy, chances of it accepting the “1992 consensus” remain slim. Both parties will also face challenges from intra-party politics such as leadership succession struggles.

MA’S STABILITY CARD DEFEATS TSAI’S SOCIAL JUSTICE CARD On 14 January 2012, Taiwan had its first two-in-one presidential and legislative elections. President Ma Ying-jeou of the KMT was re-elected with 51.6% of the votes. The other two presidential candidates, main opposition DPP chairwoman Tsai Ing-wen and People First Party (PFP) chairman James Soong, received 45.63% and 2.77% of the votes, respectively.1 In the legislative election, the KMT won only 64 of the seats, down from 81 in 2008. Nevertheless, it managed to garner over 50% of seats (about 57%), while the DPP successfully increased its number of seats to 40 from 27 in 2008. Two small parties, pro-unification PFP and proindependence Taiwan Solidarity Union, received three seats each respectively.2 After a tough election campaign and very close race against Tsai, Ma’s comfortable winning margin of six per cent was unexpected. Speculation had it that Ma would win the re-election by a much smaller margin. Observers tend to believe that Ma’s successful China policy was the largest contributor to his victory. Based on 1 2

http://www.cec.gov.tw/zh_TW/IDX/indexP1.html, accessed 16 January 2012. http://www.cec.gov.tw/zh_TW/IDX/indexT.html, accessed 16 January 2012.

b1401_Ch-07.indd 116

8/28/2012 8:02:34 PM

b1401

East Asia: Developments and Challenges

Taiwan’s 2012 Presidential and Legislative Elections 117

unprecedented improved cross-strait relations in his first term, Ma had successfully convinced the majority of Taiwanese that only his administration had the ability to maintain cross-strait stability, a necessary condition for Taiwan’s economic revival under current bleak world economic conditions. Ma’s campaign was also better organised. He was able to create a sense of crisis during the campaign, driving many marginal voters, some young middle-class and James Soong’s potential voters to support the KMT. The two-in-one presidential and legislative elections also had a positive impact on Ma’s election campaign. The municipal elections results in 2010 clearly demonstrated the KMT’s weakness with regards to grass-roots mobilisation as compared to the DPP’s. This two-in-one format compelled the KMT’s legislative candidates to mobilise stronger grass-roots support for both themselves and Ma. The threat of a large split in voters caused by the PFP candidate Soong on the KMT camp did not materialise as he only received 2.77% of the votes. Moreover, the KMT took advantage of this potential threat to increase its inactive supporters’ sense of urgency for voting. The KMT’s legislator-at-large candidates list was also an effective answer to the DPP’s criticism of the KMT’s disregard for social justice issues. Compared to the DPP’s nomination list which included some candidates with corruption records, the KMT’s had more representatives of disadvantaged social groups and reform-oriented scholars. Additionally, a large number of overseas Taiwanese, mostly from mainland China, returned to vote for the KMT. They would be especially concerned about the possible setback in cross-strait relations if Tsai had been elected president. Tsai was mainly defeated by her dubious China policy based on a confusing “Taiwan consensus” after her rejection of the “1992 consensus”. Although she made a series of concessions on cross-strait issues such as the Economic Cooperation Framework Agreement (ECFA) during her election campaign, the majority of Taiwanese still doubted her ability in maintaining improved cross-strait relations if elected. With an apparent disadvantage in cross-strait issues, Tsai hit hard on social justice issues such as income inequality, unemployment, and bread and butter issues to gain support. This was Ma’s weakest area as his administration had yet to prove itself on many of these issues. The mainland Chinese and American governments showed

b1401_Ch-07.indd 117

8/28/2012 8:02:34 PM

b1401

118

East Asia: Developments and Challenges

D. Qi

their preference for Ma before the election. Especially for the Chinese government, Ma’s electoral victory would mean that it was on the right track with its current Taiwan policy. Ma will continue to work with the mainland Chinese government to further improve cross-strait relations. However, the possibility of political and security talks between the two sides in the near future is slim. Ma’s peace agreement proposal during his election campaign was unpopular with the masses, indicating that the majority of Taiwanese were not ready for political talks with mainland China.

IMPORTANT BACKGROUND TO THE 2012 ELECTIONS General context In the 2008 presidential election, Ma Ying-jeou’s unprecedented landslide victory was driven by popular dissatisfaction with President Chen Shui-bian and his administration in four areas: corrupt practices of Chen, his family members and his close government officials; disappointing economic development supposedly caused by his closed-door China policy; increasing “ethnic” conflicts as a result of his radical pro-independence and ethnically divisive policies; and finally, Taiwan’s deteriorating international relations, especially with the United States, caused by Chen’s provocative pro-independence policies. Therefore, the Taiwanese people had been expecting the Ma administration to perform much better in these areas. In general, Ma’s report card did not disappoint his supporters: Ma and his administration have had no serious corruption scandals; Taiwan’s economy has survived the 2008 world financial crisis and the ECFA with mainland China is expected to boost Taiwan’s economic revival; “ethnic” tension in Taiwan has declined visibly, while Taiwan’s relations with the United States have improved. Though these general positive performances seemed to greatly favour Ma’s re-election, his re-election campaign was much more difficult than what most observers had

b1401_Ch-07.indd 118

8/28/2012 8:02:34 PM

b1401

East Asia: Developments and Challenges

Taiwan’s 2012 Presidential and Legislative Elections 119

expected. This requires a much deeper analysis of Taiwan’s economic, political and social developments from 2008 to 2011.

Economic context: economic uncertainty and weak recovery, but better economic prospects with the Mainland During his 2008 presidential election campaign, Ma Ying-jeou ran under the slogan of “633”, representing a six per cent gross domestic product (GDP) growth rate, US$30,000 per capita GDP and an unemployment rate of three per cent or less, as his administration’s goals for Taiwan during his term. His performance yielded mixed results four years later. Table 1 provides a comparison of the Ma administration from 2008 to 2011 with the Chen administration from 2004 to 2007 on some key economic indicators. The results do not always favour Ma. First, it is obvious that Ma has not achieved any of his “633” goals. In the past four years, the annual averages of the GDP growth rate, per capita GDP and unemployment rate were 3.54%, US$18,147 and 4.9% respectively. These numbers suggest that there is still a long way to go for Ma to reach his goal of “633”. In view of current world economic uncertainties, political pundits and the public now tend to believe that the “633” goals are overstretched and un-accomplishable even in Ma’s second term from 2012 to 2015. Compared to the Chen administration from 2004 to 2007, the Ma administration only performed better on per capita GDP growth. During Ma’s first term, Taiwan’s per capita GDP grew by 16.4% from US$17,399 in 2008 to US$20,246 in 2011. This is higher than the Chen administration’s 14.3% increase. In terms of GDP growth, the Chen administration maintained a fairly stable growth rate, ranging from 4.7% to 6.19%, and an annual average of 5.58%. In contrast, the world financial crisis of 2008 had impacted Taiwan negatively, registering extremely slow and negative GDP growth in the first two years of the Ma administration (0.73% and −1.81% in 2008 and 2009, respectively). It was only in 2010 that the Taiwanese economy

b1401_Ch-07.indd 119

8/28/2012 8:02:34 PM

b1401

120

East Asia: Developments and Challenges

D. Qi

Table 1. Comparison of key economic indicators between Ma’s and Chen’s presidency

Year

Real wage index of Per non-agriculture capita GDP workers growth GDP Unemployment (2004 = 1) rate (%) rate (%) (US $)

Chen 2004 administration

6.19

15,012

4.44

1.00

2005

4.70

16,051

4.13

0.99

2006

5.44

16,491

3.91

0.99

2007

5.98

17,154

3.91

0.99

2004–2007 Average

5.58

16,177

4.10

Ma 2008 administration

0.73

17,399

4.14

0.96

2009

−1.81

16,353

5.85

0.92

2010

10.72

18,588

5.21

0.96

2011

4.51

20,246

4.40

N.A.

2008–2011 Average

3.54

18,147

4.90

Data source: Directorate General of Budget, Accounting and Statistics, Executive Yuan, R.O.C.

rebounded soundly with a two-decade high of 10.72%. However, the rebound was short-lived. In 2011, Taiwan’s economic growth dipped to 4.5%. Overall, Taiwan’s economy had experienced its worst economic setbacks during Ma’s first term of office. With an average annual growth rate of 3.54%, Ma’s economic performance was no better than Chen’s (5.58%). In terms of employment and real wage index, the Ma administration also did not perform better than Chen’s (see Table 1). The average unemployment rate was 4.9% during Ma’s 2008–2011 term, 0.8% higher than that of the Chen administration (4.1%). The real wage during the Ma administration declined by four to eight per cent from 2004 levels, while it only declined by one per cent during

b1401_Ch-07.indd 120

8/28/2012 8:02:34 PM

b1401

East Asia: Developments and Challenges

Taiwan’s 2012 Presidential and Legislative Elections 121

the Chen administration. As unemployment and real wage decline impact the masses more directly and strongly than any positive impact of GDP growth, the economy has been criticised by the DPP as a “recovery unfelt by the people” (wugan fusu). This had also prompted the DPP to run its election campaign around social justice and class issues. Although Ma Ying-jeou’s performance in economic indicators was not particularly outstanding as compared to Chen Shui-bian’s, his efforts in improving cross-strait relations have been substantial and visible. As a result, cross-strait relations have been peaceful, active, mutually beneficial and the best ever in history. The signing of the ECFA is considered by the Ma administration as one of the most important contributors to Taiwan’s economic revival. However, most Taiwanese are ambivalent about improved cross-strait relations in general, and ECFA in particular. While appreciating the positive outcomes of stable and peaceful cross-strait relations, such as economic gains and mutual understanding between the people in Taiwan and mainland China (the KMT perspective), the Taiwanese are also concerned about the potential negative consequences brought about by more frequent interactions in various fields between the two sides (the DPP perspective). Both parties have won sizeable support for their respective stances.

Political context: DPP’s revival in local elections In Taiwan, because of the high frequency of various elections at different levels, election results are the best indicator of the island’s changing political landscape. Figure 1 indicates that since 2008, when Ma was elected president with a record high vote share, the most significant change in Taiwan’s politics has been the ever increasing popular support for the DPP in contrast to the declining vote for the KMT as evident in the two major local elections in 2009 and 2010. This demonstrated the people’s increasing dissatisfaction with the local governance of the KMT, which undoubtedly had a negative impact on their evaluation of the Ma administration at the national level.

b1401_Ch-07.indd 121

8/28/2012 8:02:34 PM

b1401

122

East Asia: Developments and Challenges

D. Qi Fig. 1. KMT and DPP’s vote share: 2008–2012. 70 60

58.45

KMT

50 40

47.88 45.32

49.87 44.54

51.6 45.63

41.55

%

DPP

30 20 10 0 2008 presidential election

2009county/city governor elections

2010 municipal mayor 2012 presidential election elections

Data Source: Central Election Commision, ROC (Taiwan), http://www.cec.gov.tw/

For the DPP, under the leadership of Tsai, the party has successfully emerged from the shadow of Chen Shui-bian’s corruption scandals and the DPP’s disastrous electoral defeats in 2008 to finally compete with the KMT on an equal footing in local elections by the end of 2010. Tsai has managed to transform the party’s radical, emotional and incompetent public image to one which is moderate, rational and competent. The transformation has largely been a success as shown by the DPP’s rising popular support. In contrast, although Ma Ying-jeou has won due credit for improving cross-strait relations, his administration has been viewed by many as incompetent in local governance and indifferent to the difficulties ordinary people face in making ends meet. For example, his administration’s mishandling of the August 8 (2009) flood was criticised severely by the public and led to the Premier’s resignation and the reshuffling of the Cabinet. In another widely criticised case, the new Premier and also the vice

b1401_Ch-07.indd 122

8/28/2012 8:02:34 PM

b1401

East Asia: Developments and Challenges

Taiwan’s 2012 Presidential and Legislative Elections 123

presidential candidate, Wu Den-yih, once commented at a conference that unpaid leave is a great invention which deserves a Nobel Prize in economics.3

Social context: rising Taiwanese nationalism Apart from economics, Taiwanese nationalism has played a big part in Taiwan’s politics and elections. Since its founding, the DPP has been the largest promoter and beneficiary of rising Taiwanese nationalism. The Chinese government’s Taiwan policy is largely aimed at containing Taiwanese nationalism and its radical and moderate tendency to pursue Taiwan’s independence. It hopes that ECFA and working with the Ma administration to improve crossstrait relations will help win the Taiwanese people’s hearts. But a series of public opinion surveys conducted by the National Chengchi University’s Election Study Centre suggest otherwise. The surveys show that during the Chen administration from 2004 to 2007, on average, about 43.5% of people in Taiwan identified themselves as Taiwanese only rather than Chinese only or both Chinese and Taiwanese, and about 20.5% of the respondents were pro-Taiwan’s independence and not pro-unification or pro status quo. During the Ma administration (until December 2011), on average these two indicators of Taiwanese nationalism went up to 51.8% and 21.9%, respectively.4 Rising Taiwanese nationalism contributed to the popular disapproval of Ma’s proposal for a peace agreement between Taiwan and mainland China in October 2011. In general, the DPP stands to gain more from rising Taiwanese nationalistic sentiments than the KMT. Especially in previous presidential elections, the DPP had been extremely adroit at mobilising supporters based on nationalistic issues. However, in 3

http://www.ttv.com.tw/news/view/?i=092010012010482DEB106229479AB9F 911265A0746 D805F0, accessed 16 January 2012. 4 Recoded and then recalculated from http://esc.nccu.edu.tw/modules/tinyd2/ index.php?id=3, accessed 16 January 2012.

b1401_Ch-07.indd 123

8/28/2012 8:02:34 PM

b1401

124

East Asia: Developments and Challenges

D. Qi

this election, the DPP replaced its highly provocative campaign strategy with a relatively low profile and defensive strategy on nationalistic issues. This was the result of both Tsai’s preference for moderate campaign strategies and the DPP’s obvious disadvantage when dealing with cross-strait relations.

International context: tension and cooperation between China and the United States The most important international development for this election was America’s decision to return to Asia. The DPP believed that Taiwan would play an important role in the United States’ “return to Asia” strategy to contain China’s rise. Consequently, the DPP regarded this as a good opportunity for Taiwan to balance cross-strait relations with American power. Specifically, Tsai proposed building bilateral crossstrait relations within a multilateral framework with other world powers such as the United States and Japan.5 The KMT on the other hand held a more realistic and balanced view about Sino-American relations. They tended to believe that cooperation, rather than tension, was the main theme of Sino-American relations. As the United States needed China’s cooperation on issues relating to Iran and North Korea, a peaceful and stable cross-strait relationship suited American interests better as it would reduce conflicts between China and the United States.

CAMPAIGNS AND PLATFORMS Platforms of the three candidates In general, the 2012 presidential and legislative elections demonstrate that Taiwan’s democracy and electorates have attained another level of maturity. Compared to previous presidential elections, the campaign strategies of the three participating parties were more rational, practical and positive. Consequently, the negative impact of 5

http://www.bbc.co.uk/zhongwen/trad/chinese_news/2011/06/110619_taiwan_ china_tsai.shtml, accessed 16 January 2012.

b1401_Ch-07.indd 124

8/28/2012 8:02:34 PM

b1401

East Asia: Developments and Challenges

Taiwan’s 2012 Presidential and Legislative Elections 125

post-election social divisiveness as experienced in previous elections was almost non-existent in this election. DPP candidate Tsai gave up the party’s traditional campaign strategy of mobilising emotional support through a play on nationalistic and ideological issues. Instead, her campaign generally focussed on the DPP’s specific policy agenda, the Ten-Year Platform. Ma Yingjeou’s campaign was policy-oriented as well. His campaign was based on the success of his administration’s past policies, a belief that would make his future policy proposal of Ten Golden Years more credible than Tsai’s. A general comparison of their platforms shows more commonalities than differences. Both platforms emphasised the importance of sustainable economic development, environmental protection, social justice, and maintaining peaceful and active crossstrait relations.6 Nevertheless, after the two candidates’ frequent policy debates and other campaign activities, the public saw substantial differences in the two camps’ platforms. Ma seemed to prioritise economic development over social justice, while Tsai proposed the opposite and appealed to the “three middles”: the middle and lower middle classes, residents in middle and south Taiwan, and small and medium enterprises (SMEs). Ma’s policy agenda emphasised his biggest achievement in the past three years: ECFA and the significantly improved cross-strait relations. Ma repeatedly reminded the Taiwanese that only his administration could maintain long-term stable economic relations with mainland China, which is the most important condition for Taiwan’s future economic revival. Ma argued that Tsai could not do the same as she refused to accept the “1992 consensus”, the consensus of “one China, different interpretations (yi zhong ge biao)” agreed between Taiwan and mainland China in 1992. Most importantly, the Chinese government had reiterated that the “1992 consensus” was a necessary prerequisite for the implementation of ECFA and future improvement of cross-strait relations. Therefore, with the implicit but strong support of the Chinese government, Ma’s China policy was his largest 6

http://10.iing.tw/, http://www.nownews.com/2011/09/29/301-2745692.htm, accessed 16 January 2012.

b1401_Ch-07.indd 125

8/28/2012 8:02:34 PM

b1401

126

East Asia: Developments and Challenges

D. Qi

campaign advantage. If most Taiwanese accepted this argument, Tsai’s China policy would obviously become her largest disadvantage. Tsai tried to minimise the negative impact of this disadvantage in her campaign by attacking the Ma administration on its incompetence in solving ordinary bread and butter issues. These issues included the high unemployment rate especially among youth, real wage and stock market decline, income inequality, high and still rising housing prices etc. To counter the “1992 consensus”, Tsai proposed the “Taiwan consensus” as the cornerstone of her China policy. She defined the “Taiwan consensus” as the democratic process to achieve a consensus in Taiwan which would provide a more legitimate basis for the new administration’s China policy. The outcome of this democratic process however, would not be known until, for example, a referendum was held. The “Taiwan consensus” seemed a good strategy that would enable Tsai to overcome her disadvantaged position on cross-strait issues. In reality however, it did not address the public’s concerns about the ability of her China policy in further improving or maintaining current cross-strait relations. To allay the fears of swing voters about her China policy, Tsai gradually shifted from her complete rejection of ECFA to one of acceptance. She also promised that the current amicable cross-strait relations would be maintained under her future administration. This promise however, lost ground when the Chinese government insisted that good cross-strait relations would only be possible if Tsai accepted the “one China principle/framework”. Throughout the election campaign, Tsai enjoyed much less public trust and support than Ma on cross-strait issues. However, her criticism of the Ma administration’s incompetence in addressing bread and butter issues received a strong echo from the public, especially from social science scholars and various underprivileged groups. Academic surveys since the 1990s have shown that the KMT has generally been viewed by most Taiwanese as a conservative (status quo oriented) and rightist party representing the rich and powerful, while the DPP was viewed as a progressive (reform oriented) and leftist party representing the interests of the ordinary people. During the Chen administration from 2000 to 2008, this popular distinction

b1401_Ch-07.indd 126

8/28/2012 8:02:34 PM

b1401

East Asia: Developments and Challenges

Taiwan’s 2012 Presidential and Legislative Elections 127

between the two parties became somewhat less prominent because of Chen and his close associates’ corrupt relations with some powerful Taiwanese business people. Nevertheless, in the 2008 presidential election, various underprivileged classes, such as the elderly, lowermiddle class, less-educated, southern Taiwan residents, workers and farmers, were more likely than others to vote for the DPP. Two major characteristics of these classes explain their stronger support for the DPP. First, since the 1990s, these classes have displayed stronger Taiwanese nationalistic sentiments than other social groups. Second, since 2000, they have shown a stronger tendency to believe that they were victims instead of beneficiaries of improved economic exchange between Taiwan and mainland China. The DPP’s nationalistic and leftist policy agenda thus seemed more appealing to them. The election campaigns of the two camps have revealed their biggest strengths and weaknesses. It was Ma’s “importance of better cross-strait relations” versus Tsai’s “importance of social justice”. James Soong, the presidential candidate of PFP, tried to borrow both Ma’s and Tsai’s strengths for his own use. His platform had an equal emphasis on cross-strait relations and Taiwan’s social justice. He furthered the KMT’s stance on cross-strait relations by explicitly proposing Taiwan’s unification with mainland China. Meanwhile, he emphasised policies favouring the interests of the “three middles”, a Tsai stance.

Major campaign events and fluctuating popular support In the early period of the election campaign, public opinion polls conducted by different Taiwanese media showed Ma’s large lead of over 10% against Tsai. Although the Taiwanese media have been famous for their polls’ inaccuracy and bias, it was commonly believed that a 10% margin would guarantee Ma’s re-election. However, James Soong’s unexpected participation in the election significantly reduced the possibility of a Ma re-election. Early polls showed that Soong generally enjoyed 10% support and most of his supporters were from the KMT’s pan-blue base. His participation had hence negatively impacted Ma’s chances instead of Tsai’s. Ma’s leading margin against Tsai went down to around six per cent after Soong’s participation.

b1401_Ch-07.indd 127

8/28/2012 8:02:34 PM

b1401

128

East Asia: Developments and Challenges

D. Qi

This narrow margin made Ma’s re-election extremely difficult. As a result, Soong became the critical minority in the election. Another major negative turning point for Ma’s popular support was his proposal in October of a peace agreement with mainland China. The intention of this peace agreement, as explained repeatedly by Ma, was to institutionalise current peaceful cross-strait relations and guarantee peace across the strait. Based on his substantial achievements in improving cross-strait relations, Ma expected this proposal to work in his favour. However, as the KMT had been viewed as a pro-China and pro-ultimate-unification party by most Taiwanese, this proposal triggered the public’s suspicion that Ma would promote unification in his next term. Under the DPP’s attack and public pressure, Ma quickly compromised by proposing new conditions, such as referendum support, for such an agreement. After this event, Ma’s lead in various opinion polls plummeted to an insignificant leading margin. In November 2011, to reverse the declining support trend, the KMT released the legislator-atlarge candidates list, which came as a happy surprise to the public. Compared to the DPP’s list, the top nominees on the KMT list included more representatives of disadvantaged social groups and reform-oriented scholars. In contrast, the DPP’s nomination list was a disappointment. The list included some nominees with corruption records and fewer representatives of the disadvantaged groups. Interestingly, both the KMT and the DPP lost credit on positions they had a supposed advantage on: cross-strait relations for the KMT and social justice issues for the DPP. This complicated the race between the two candidates and made it an extremely close race. In October 2011, the DPP capitalised on a warning issued by the Control Yuan for its possible violation of the law on donation to political parties when it accepted piggy banks from three-year-old triplets. The DPP cleverly used this warning to launch a “three little pigs” campaign to distribute free piggy banks first, and then collect them back full of small donations from the ordinary people. This twomonth small donation drive was a big success for the DPP. It collected

b1401_Ch-07.indd 128

8/28/2012 8:02:34 PM

b1401

East Asia: Developments and Challenges

Taiwan’s 2012 Presidential and Legislative Elections 129

143,000 piggy banks worth NT$201 million (over S$9 million).7 It also effectively consolidated its image as the genuine representative of “three little pigs” (ordinary people) in its fight against the “big bad wolf” (the coalition of the KMT and powerful business conglomerates). On the external front, the US government’s attitude towards Ma and Tsai was closely watched by the Taiwanese public. The US government showed its disapproval of Tsai as early as in September 2011 during Tsai’s visit to Washington. Financial Times reported that after Tsai met with US administration officials, a senior official said “[s] he left us with distinct doubts about whether she is both willing and able to continue the stability in cross-strait relations the region has enjoyed in recent years.”8 In the months thereafter, the US government demonstrated its preference for Ma through a series of actions, such as arms sales to Taiwan; high level delegations’ visit to Taiwan; nomination of Taiwan to its Visa Waiver Programme; and finally, two days before the election, the ex-AIT (American Institute in Taiwan) director Douglas Paal’s supportive remarks on Ma’s “1992 consensus” in Taipei.9 In the roundup of the last 10 days of the election, a series of final public opinion polls showed that James Soong still received about five per cent support, while Ma led Tsai by about six per cent in some opinion surveys, and Tsai enjoyed the same level of support in some others.

POST-ELECTION CHALLENGES FOR MA AND THE DPP Compared to the 2008 presidential and legislative elections, the vote share for Ma Ying-jeou and the number of legislative seats for the KMT in the 2012 elections decreased by about seven and 15%

7

http://focustaiwan.tw/ShowNews/WebNews_Detail.aspx?ID=201201060036& Type=aIPL, accessed 16 January 2012. 8 http://www.ft.com/cms/s/0/f926fd14-df93-11e0-845a-00144feabdc0.html# axzz1jQBIoPVG, accessed 16 January 2012. 9 http://focustaiwan.tw/ShowNews/WebNews_Detail.aspx?Type=aIPL&ID= 201201140009, accessed 16 January 2012.

b1401_Ch-07.indd 129

8/28/2012 8:02:34 PM

b1401

130

East Asia: Developments and Challenges

D. Qi

respectively. This makes the second term of the Ma administration more challenging. Ma is likely to have gained a much stronger sense of urgency in solving many bread and butter issues after the DPP’s challenges in this election. However, Taiwan’s difficult economic prospects as a result of global economic uncertainties will make these issues even harder to tackle. The global economic slowdown would seriously impact Taiwan’s economy. Unemployment will rise and youth unemployment, in particular, is likely to become a flashpoint. Long viewed as a pro-rich, pro-powerful, pro-capitalist, elitist and conservative party, the KMT is not expected to change its developmental mentality in the foreseeable future. In other words, the highest priority in Ma’s second term will still be economic development rather than wealth redistribution. Essentially, solving the social justice issues raised by the DPP requires a redesign of Taiwan’s wealth redistribution systems. Although the Ma administration may increase the social welfare budget in the second term, it will not be willing and able to complete some more important systematic reforms such as a taxation reform disfavouring the rich. Therefore, it is expected that social justice will be a contending issue again as the DPP’s major challenge to the KMT in the 2016 presidential election. Rising Taiwanese nationalism will impose additional constraints on the Ma administration because of the KMT’s pro-China image. Although Ma’s China policy was the largest contributor to his victory in this election, the China policy will remain a double-edged sword for his administration. Ma should have learned from the significant decline in his popularity following his peace agreement proposal during the election campaign. Therefore, in the early years of his second term of office, Ma will have to tread carefully, especially on sensitive cross-strait issues, to avoid arousing the suspicions of many Taiwanese and the unease of the American government. In her visit to the United States in February 2012, Taiwan’s Mainland Affairs Council Minister Lai Shin-yuan emphasised that “it is not very likely for Taiwan and China to embark on any political talks in the absence of a high level of consensus at home and mutual trust between the two

b1401_Ch-07.indd 130

8/28/2012 8:02:34 PM

b1401

East Asia: Developments and Challenges

Taiwan’s 2012 Presidential and Legislative Elections 131

sides.”10 This is a clear message from the Ma administration to the Taiwanese public, and the American and the Chinese governments that rising Taiwanese nationalism will continue to restrain its China policies. Despite his hesitance on cross-strait political talks, Ma is likely to continue with the KMT policy of improving economic relations with mainland China as the most effective way to revive Taiwan’s flagging economy in the current global economic slowdown. However, stronger popular support for Ma’s China policy does not mean the Taiwanese public would be blind to the negative domestic impacts of Taiwan’s increasing economic dependence on mainland China. As Tsai had pointed out in her election campaign, these impacts mainly include rapidly increasing Taiwanese investments to mainland China at the expense of domestic investments, delayed industrial upgrading, rising income inequality and so on. Therefore, the Ma administration will also have to work hard to minimise these negative impacts. In particular, he needs to show that his China policy can eventually help address Taiwan’s social justice issues, issues which the KMT will be the most vulnerable to criticisms in the 2016 presidential election. The DPP’s defeat in the presidential election does not indicate the end of its road to revival. On the contrary, the increased number of legislative seats it has won suggests that popular support for the DPP is expanding. Although the majority of Taiwanese do not feel ready to appoint the DPP to office, they have empowered it with other important positions. The DPP is becoming a much stronger opposition against the Ma administration after this legislative election. Without doubt, the largest challenge for the DPP in this election is its China policy. If the Ma administration maintains its relatively stable performance without obvious failures in the second term, the DPP may well stay as a local power after 2016 without a new China policy. Tsai Ing-wen, in her speech after the election, has suggested that the DPP thoroughly review its China policy.11 Although it is 10

http://focustaiwan.tw/ShowNews/WebNews_Detail.aspx?Type=aALL&ID= 201202010030 accessed 4 February 2012. 11 http://udn.com/NEWS/NATIONAL/NATS9/6846979.shtml, accessed 16 January 2012.

b1401_Ch-07.indd 131

8/28/2012 8:02:34 PM

b1401

132

East Asia: Developments and Challenges

D. Qi

unlikely that the DPP will accept the “1992 consensus,” this election result may prompt the DPP to take a more pragmatic stand on specific cross-strait issues in the future. On the other hand, while Tsai resigned as DPP chairperson to take responsibility for the electoral defeat, her moderate line on cross-strait relations and the DPP’s new priority on social justice issues are likely to continue in the party. With significantly increased legislative seats, the DPP will need to maintain its commitment to social justice issues through legislative actions. Both the KMT and the DPP will face leadership succession problems and intra-party politics will continue to influence both parties’ development in the next four years. For the DPP in particular, its newly elected chairman, Su Chen-Chang needs to maintain the DPP’s popularity. There are also many DPP members who would like to see Tsai retake the helm and run for the presidential election again in 2016. For the KMT, Ma has repeated his determination to introduce further reforms to the party. His relatively smooth re-election has improved the creditability of KMT’s Ma-King mechanism (ma jin ti zhi), which has also been the largest promoter of intra-party reforms. However, some KMT politicians consider the Ma-King mechanism an indication of Ma’s over-reliance on King Pu-tsung on many important issues. For example, one of King’s major reform efforts was to cut off the KMT’s long term “black gold” ties with local factions in central and southern Taiwan. Consequently, local factions were said to have stopped garnering votes for the KMT in elections, leading to a drop in votes for the Party in the 2010 municipal elections. KMT candidates for future local and national elections may want to work towards building the party’s conventional connections with local factions in a quest for more votes. Therefore, how long Ma and King can persist with their disconnection with local factions is still a question. Finally, the seven-in-one local elections in 2014 will be a mid-term report card for both the KMT and the DPP. Taiwan’s political landscape for the 2016 presidential election will become clearer by then.

b1401_Ch-07.indd 132

8/28/2012 8:02:34 PM

b1401

East Asia: Developments and Challenges

Chapter

8 Taiwan’s Economy: Unspectacular Growth and Further Dependence on China CHIANG Min-Hua and Sarah TONG

ABSTRACT The Taiwanese government forecasted economic growth to dip from 10.7% in 2010 to about four per cent in 2011 and 3.9% in 2012. The earthquake on 11 March 2011 in Japan and the weak demand in both Europe and the United States were the main reasons behind Taiwan’s slower growth in 2011. In contrast, domestic consumption remained strong in 2011. In 2012, Taiwan’s export prospects will continue to be affected by the economic uncertainties in the United States and Europe, the New Taiwan dollar’s continued appreciation, and the implementation of South Korea’s Free Trade Agreement (FTA) with the European Union (EU) and with America. Domestically, low interest rates will be helpful in boosting private consumption. However,

133

b1401_Ch-08.indd 133

8/28/2012 8:03:11 PM

b1401

134

East Asia: Developments and Challenges

M.-H. Chiang and S. Tong

if external demand continues to weaken, the potentially rising unemployment is likely to further dampen private consumption. Nonetheless, cross-strait economic relations are likely to progress further following Kuomintang (KMT)’s victory in the 2012 presidential election. On the one hand, Taiwanese entrepreneurs will try to preserve their competitiveness through either increasing their investments or cooperating with their Chinese partners. Taiwan’s service sector, in particular, has much to gain by tapping on China’s huge market. On the other hand, tourists and investment from across the strait are expected to rise and further tie Taiwan’s economy to that of the Mainland.

TAIWAN’S ECONOMY IN 2011: WEAKER EXPORTS BUT CONSUMPTION REMAINS STRONG In the first quarter of 2011, Taiwan’s economy achieved a healthy growth (6.6%) thanks to the steadily improving global economy. However, the earthquake on 11 March 2011 in Japan, the unsolved debt crisis in Europe and the economic decline of the United States have dampened Taiwan’s external demand begining from the second quarter of 2011. Decreasing demand from these markets led to the slowing down of Taiwan’s economic growth rate from 4.5% in the second quarter to 3.4% in the third and 1.9% in the fourth quarter of 2011 on a yearly basis. In September 2011, the International Monetary Fund (IMF) concluded that the world economy was in a “dangerous new phase”. Global economic activity had dampened confidence and downside risks were growing. As a result of the global economic downturn, economic indicators announced by Taiwan’s Council for Economic Planning and Development (CEPD) went from “orange-red”(prosperous) in January to a “green”(stable) in April, and to a “yellow-blue”(unsatisfactory) for the months of August to December 2011. Overall, Taiwan’s economic growth rate is estimated to reach about four per cent for 2011, a significant decrease from 10.7% in 2010. Gross domestic product (GDP) per capita was about US$20,154 in 2011 (Figure 1).

b1401_Ch-08.indd 134

8/28/2012 8:03:11 PM

b1401

East Asia: Developments and Challenges

Unspectacular Growth and Further Dependence on China 135 Fig. 1. Taiwan’s economic growth rate and GDP per capita 2000–2012. GDP per capita (US$1,000)

Economic growth rate (%)

24

10

20

8

16

6

12

4

8

2

4

0

0

-2

-4

-4

-8

US$ 1,000

%

12

Source: Quarterly National Economic Trends, Directorate-General of Budget, Accounting and Statistics, Executive Yuan, Taiwan, 31 January 2012.

Net exports and domestic consumption were the main drivers behind Taiwan’s economic growth. In 2011, 3.7% of the four per cent economic growth rate was expected to come from net exports and 1.8% from domestic consumption, while investment (−1.5%) contributed negatively to economic growth (Figure 2). During the first quarter of 2011, external demand for Taiwan’s electronic, communication, petrochemical and mechanical products was high. But in the second quarter, Taiwan’s export growth was knocked off track by the economic turmoil in developed countries. Because Taiwan’s imports are largely induced by exports, the slide in exports had led imports to plunge as well (Figure 3). Orders for shipments, another chief indicator of Taiwan’s export performance, have shown a clear decline since September 2011. The year-on-year contractions in orders are especially obvious for electrical machinery and precision instruments. Meanwhile, due to a series of industrial safety accidents, the Ministry of Economic Affairs (MOEA) in Taiwan ordered the suspension of the Formosa Plastic Group’s Six Naphtha Cracking Plant in order to fully investigate its safety problems. Formosa Plastic Group is Taiwan’s largest upstream supplier of petrochemical products. The shutdown of Formosa Plastic Group, Taiwan’s largest

b1401_Ch-08.indd 135

8/28/2012 8:03:11 PM

b1401

136

East Asia: Developments and Challenges

M.-H. Chiang and S. Tong

Fig. 2. Contribution of consumption, investment and net exports to Taiwan’s economic growth 2000–2012. 12 10 8

%

6 4 2 0 -2 -4 -6 -8 -10

Net exports

Investment

Domestic Consumption

Economic growth rate

Source: Quarterly National Economic Trends, Directorate-General of Budget, Accounting and Statistics, Executive Yuan, Taiwan, August 2011; “National Income Statistics and Domestic Economic Outlook”, Directorate-General of Budget, Accounting and Statistics, Executive Yuan, Taiwan, 31 January 2012 (in Chinese). Note: Domestic consumption includes private and government consumption. Investment includes gross capital formation and inventory increase.

Fig. 3. Growth rates of Taiwan’s exports and imports. 50 44

45 40 35

Export growthrate (YOY)

Import growth rate (YOY)

35

%

30 25

20

20

22 19 15

15

12

10

10

5

5

-0.4

0 -5

2010

2011Q1

2011Q2

2011Q3

2011Q4

Source: Ministry of Finance, Taiwan.

b1401_Ch-08.indd 136

8/28/2012 8:03:12 PM

b1401

East Asia: Developments and Challenges

Unspectacular Growth and Further Dependence on China 137

upstream supplier of petrochemical products, severely affected the exports of Taiwan’s petrochemical products. In addition, following the weak external demand, some high technology manufacturing firms in Taiwan cut their expenditure on capital equipment, giving rise to the negative growth of gross capital formation since the third quarter of 2011. As for domestic consumption, private consumption has played a more important role than government consumption in stimulating economic growth for many years. In the first half of 2011, decent economic growth helped restore consumer confidence. Low interest rates, low unemployment rates and innovative consumer products played an important role in contributing to the positive growth in private consumption. Local commerce sectors (e.g., retailing and wholesale business, restaurants and transport services) reported a respectable expansion in revenue during the first three quarters of 2011 on a yearly basis, an indication of growth in private consumption. Moreover, the rise of inbound tourists, especially from mainland China, helped boost Taiwanese retail sales as well. According to Taiwan’s Tourism Bureau, foreign visitor arrivals in Taiwan reached a new high in 2011, amounting to about six million people, of which 29% were from mainland China. Given that economic difficulties in Europe and the United States may not be easily resolved in the short term, Taiwan is increasingly turning to emerging markets, including China, India, Indonesia and Vietnam for export expansion. Rapid innovation in Information and Communication Technology (ICT) products is an important factor. The gradual tariff reduction for trade between Taiwan and Chinese mainland, with the implementation of the Economic Cooperation Framework Agreement (ECFA) in January 2011, was also helpful in preserving the competitiveness of Taiwan’s exports. In fact, emerging economies have been regarded as new export markets for Taiwan after the global financial crisis triggered an export downturn that began in 2008. In 2010, MOEA launched a three-year (2010–2012) export promotion scheme, “Promotion of Good Quality Products with Affordable Prices in Emerging Markets”, to capture the rising consumption power of the middle class in the emerging countries.

b1401_Ch-08.indd 137

8/28/2012 8:03:12 PM

b1401

138

East Asia: Developments and Challenges

M.-H. Chiang and S. Tong

ECONOMIC RELATIONS ACROSS THE STRAIT INTENSIFY China has long been the top destination for Taiwan’s outward investment, serving as a low-cost production and main export platform. In 2011, Taiwan’s investment in China amounted to about US$14 billion, which accounted for 80% of Taiwan’s total outward investment. Manufacturing sectors accounted for 72% of Taiwan’s total investment in China, mainly in the production of electronic parts, computers and optical products. According to Taiwan’s Investment Commission, Foxconn Technology and Compal Electronics Inc. both made considerable investments in China in 2011, amounting to US$700 million and US$400 million respectively. Over the past few decades, China’s abundant labour and large land area have enabled Taiwanese companies to expand their operations, thus benefiting from economies of scale and keep their global competitiveness. Taiwanese investments have been increasing steadily and more technology-intensive enterprises are joining the small and medium enterprises (SMEs), which are mostly labourintensive. The shift from SMEs to large enterprises can be observed by the increase in the average amount of investment per project, from US$0.7 million in 1991 to US$16 million in 2011. The shift is also reflected in the changes in the sectoral distribution of Taiwan’s investment in the mainland. In 1991, rubber, plastic and non-metallic mineral products (31%), and textile related products (23%) accounted for the majority of Taiwan’s total investment in China. In 2011, the shares of these two sectors declined to seven per cent and two per cent respectively. In the meantime, computers, electronic and optical products have become the main sectors for Taiwanese investment in the Mainland since 1998. In 2010, 56% of Taiwan’s total investment in China was in computers, electronic and optical products, although the ratio declined to 35% in 2011 due to the global economic downturn and China’s economic slowdown (Table 1). In general, Taiwan’s large enterprises produce more capital and technology intensive goods in Taiwan while their subsidiaries in China manufacture products that are less valued-added. That shift

b1401_Ch-08.indd 138

8/28/2012 8:03:12 PM

b1401_Ch-08.indd 139

Table 1. Taiwan’s investment in China by sectors 1991–2011 Total Computer Electrical and Rubber, plastic Petroleum, Textile, Food, chemical and and non-metallic and electronic machinery Metal, vehicles manufacturing clothing beverage sectors equipment and others products and tobacco and leather medical goods mineral products As % of Taiwan’s total investment in China 2 5 6 10 9 9 6 8 12 5 7 8 9 7 7 8 5 9 6 3 8

Source: Investment Commission, MOEA, Taiwan.

31 19 15 17 13 10 18 10 11 11 12 11 12 11 9 9 9 7 8 9 7

11 5 9 10 16 18 15 34 36 47 43 35 26 42 40 46 47 44 48 56 35

12 12 10 13 11 11 12 14 13 19 14 14 14 12 15 12 16 14 12 8 8

9 14 22 17 23 23 19 13 13 9 10 18 18 16 16 14 13 12 8 9 9

100 100 95 95 95 94 93 95 97 96 95 95 93 95 94 94 94 92 93 90 72

East Asia: Developments and Challenges

23 26 22 11 10 12 14 11 6 4 7 7 9 6 6 4 4 3 5 3 3

b1401

11 19 11 16 12 11 9 4 5 2 2 3 5 1 1 1 1 3 6 2 2

Unspectacular Growth and Further Dependence on China 139

8/28/2012 8:03:12 PM

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

b1401

140

East Asia: Developments and Challenges

M.-H. Chiang and S. Tong

in investment from SMEs to large enterprises and from labour intensive to high technology related sectors is still motivated by cost considerations. Although Taiwan’s overall investment in China is already very significant, Taiwan’s high-tech businesses are still calling for the further relaxation of Taiwan’s investment rules on the mainland as Korean and Japanese competitors have been stepping up their activities in China. Indeed, China is not only a manufacturing base for Taiwan but also for Japan and South Korean companies. Especially in information and technology (IT) related products, Taiwan is facing growing competition from these two countries in the global marketplace. When the Japanese and South Korean IT companies began to invest in China to cut costs, Taiwanese companies felt the urgent need for more flexible regulations by the Taiwanese government on high technology investment in China. As a result of Taiwan’s growing investments in China, exports of capital equipment and semi-industrial goods from Taiwan to China have increased rapidly. Since 2000, China and Hong Kong combined have surpassed the United States to become Taiwan’s largest export destination, accounting for 40% of Taiwan’s total exports in 2011. Most of the exported items are electronic products and machinery. While Taiwan’s exports to China continue to take a greater share of its total exports, Taiwan’s exports to the United States, Europe and Japan as shares of its total exports have declined significantly. The share of Taiwan’s exports to six countries of the Association of Southeast Asian Nations (ASEAN-6), including Brunei Darussalam, Indonesia, Malaysia, Philippines, Singapore and Thailand had also risen, from 11.9% in 2001 to 16.4% in 2011 (Table 2). For imports, although Japan remains Taiwan’s largest import source, its share in Taiwan’s total imports had decreased considerably from 24.2% in 2001 to 18.5% in 2011. Imports from the United States, Europe and ASEAN also decreased noticeably over the last decade. Meanwhile, Taiwan’s imports from China increased from 7.4% to 16.1% in the same period (Table 3). Consider the rapid growth of imports from China in recent years; China will most likely overtake Japan to become the largest source of imports for Taiwan in the next few years. However, Japan will still remain the main supplier

b1401_Ch-08.indd 140

8/28/2012 8:03:12 PM

b1401

East Asia: Developments and Challenges

Unspectacular Growth and Further Dependence on China 141 Table 2. Share of Taiwan’s export destinations by country/region 2001–2011 China (including Hong Kong)

ASEAN-6

USA

Europe

Japan

Others

2001

26.6

11.9

22.3

15.8

10.3

13.1

2002

32.1

11.9

20.2

13.9

9.1

12.8

2003

35.7

11.8

17.6

13.8

8.3

12.8

2004

38.0

13.0

15.8

13.1

7.6

12.5

2005

39.2

13.6

14.7

11.9

7.6

13.0

2006

39.8

13.7

14.5

11.7

7.3

13.0

2007

40.7

14.5

13.0

11.6

6.5

13.7

2008

39.0

15.0

12.1

11.7

6.9

15.3

2009

41.1

14.8

11.6

11.1

7.1

14.3

2010

41.8

15.1

11.5

10.7

6.6

14.3

2011

40.2

16.4

11.8

10.1

5.9

15.6

Source: Quarterly National Economic Trends, Directorate-General of Budget, Accounting and Statistics, Executive Yuan, Taiwan, August 2011; Ministry of Finance, Taiwan.

Table 3. Share of Taiwan’s import origin by country/region 2001–2011 Japan

China (including Hong Kong)

ASEAN-6

USA

Europe

Others

2001

24.2

7.4

14.7

17.0

14.0

22.7

2002

24.2

8.7

14.7

16.1

13.0

23.3

2003

25.6

10.1

13.7

13.3

12.7

24.6

2004

25.9

11.3

12.1

12.9

12.6

25.2

2005

25.2

12.2

11.6

11.6

12.0

27.4

2006

22.8

13.2

11.5

11.2

10.6

30.7

2007

21.0

13.6

10.8

12.1

10.7

31.8

2008

19.3

13.7

10.6

10.9

10.2

35.3

2009

20.8

14.7

11.3

10.4

11.2

31.6

2010

20.7

15.0

11.5

10.1

10.4

32.3

2011

18.5

16.1

11.6

9.1

9.2

35.5

Source: Quarterly National Economic Trends, Directorate-General of Budget, Accounting and Statistics, Executive Yuan, Taiwan, August 2011; Ministry of Finance, Taiwan.

b1401_Ch-08.indd 141

8/28/2012 8:03:12 PM

b1401

142

East Asia: Developments and Challenges

M.-H. Chiang and S. Tong

of key components to Taiwan because of its more advanced technology. In fact, one reason for the rising share of Taiwan’s imports from China is that some Taiwanese companies have begun to sell industrial goods manufactured in China back to Taiwan. Crossstrait trade has thus become more of “intra-industry trade”in which the exchange of goods is from similar industries. As part of China’s overall export sector, Taiwanese enterprises in the mainland played an important role for the country’s export expansion. According to the Top 200 Exporting Companies in China issued by the PRC’s Ministry of Commerce, six of the top 10 export companies in China in 2009 were subsidiaries of Taiwan enterprises. In particular, the three Taiwanese owned firms Quanta Computer, Foxconn and Compal are the leading exporting companies in China.1 The cross-strait manufacturing nexus has not only contributed to China’s export sector, but has also transformed the business arrangement between Taiwan and US multinationals. For a long time, Taiwan had served as the major supplier of PCs and electronic components to large US multinationals via the original equipment manufacturer (OEM) production. As the island faced fierce competition in the world market, many Taiwanese firms moved to China to reduce costs. The American multinationals have also benefited from that cost reduction as they obtained the same components from the Taiwanese companies with lower prices. In 2009, the Taiwanese government lifted the ban on investment from mainland China. Mainland Chinese now can invest in a variety of sectors including manufacturing, services and public construction on the island. The Taiwan government hopes that the opening up to Chinese investment will be helpful in making up for Taiwan’s deficiency in inward foreign investment. Indeed, there has been for many years, a large gap between inward and outward direct investments in Taiwan. In 2011 for example, Taiwan’s total outward investment reached US$18 billion, but only attracted US$5 billion inward investment. However, Chinese investment to date has been 1

“Top 200 Exporting Companies in China” (accessed 8 February 2012). (in Chinese).

b1401_Ch-08.indd 142

8/28/2012 8:03:12 PM

b1401

East Asia: Developments and Challenges

Unspectacular Growth and Further Dependence on China 143

minimal. Between 2009 and 2011, the total accumulative investment from China to Taiwan amounted to US$180 million, still far less than the yearly investments from Europe (US$716 million), the United States (US$738 million) and Japan (US$445 million) in 2011. Indeed, as a small market, Taiwan is not highly attractive to Chinese investors and the high-tech sector may be the only area that draws the most attention from Chinese investors. With China’s huge financial resources and vast market, Taiwanese manufacturers may also be willing to forge strategic alliances with their customers or suppliers in China.

ECFA AND TAIWAN’S GROWING DEPENDENCE ON CHINA Shortly after KMT regained the presidency in early 2008, crossstrait negotiations which had been halted for nine years resumed. During the Fifth Chiang-Chen Summit in June 2010, the Economic Cooperation Framework Agreement (ECFA) and Cross-Strait Agreement on Intellectual Property Rights Protection and Cooperation were signed. Based on ECFA’s early harvest programme, China began to lower tariffs on 539 items, while Taiwan started to reduce tariffs on 267 items on 1 January 2011. The products included were mainly petrochemical goods, machinery and textile products though several service items were included as well. The tariffs of the aforementioned items will be reduced progressively until they reach zero in 2013. As per the terms of the agreement, 11 and nine service sectors were opened up in China and Taiwan respectively for investment. In general, the Taiwanese government viewed ECFA as comparable to a Free Trade Agreement (FTA) and an important means to promote Taiwan’s economy. It also hopes that China’s huge market would provide a platform for the brand development of Taiwan service sectors. At present, it may be too early to accurately assess ECFA’s impact as it is a largely general framework that sets up objectives and directions for future cooperation in trade and investment. The effects of the early harvest programme on Taiwan’s economy have

b1401_Ch-08.indd 143

8/28/2012 8:03:12 PM

b1401

144

East Asia: Developments and Challenges

M.-H. Chiang and S. Tong

not yet been noteworthy. There could be several reasons. First, exports of the products listed on the early harvest programme only accounted for 16% of Taiwan’s total exports to and 11% of Taiwan’s total imports from mainland China in 2009. As such, the impact on these products, even if considerable, can only be translated into a much smaller change in the overall trade. Second, a complete trade negotiation process usually takes a longer period of time. The short term changes in trade between Taiwan and China are thus more politically symbolic than substantive. In reality, cross-strait economic integration in the past decades has been driven largely by business interests of entrepreneurs, rather than promoted by any formal bilateral economic mechanism. The recently signed ECFA was only a sort of formalisation of existing bilateral economic ties. In the long run, the more institutionalised relations are expected to foster closer trade and investment ties between Taiwan and the Chinese mainland. Even without ECFA, Taiwan’s trade has been more dependent on China than vice-versa. According to Taiwan’s official estimation, Taiwan’s exports to China as a percentage of its total exports jumped from 27% in 2001 to 40% in 2011. On the contrary, China’s exports to Taiwan have remained at around two per cent of its total exports during the same period. The rising share of Taiwan exports is in part to support the manufacturing production on the mainland. The much smaller increase of Chinese exports to Taiwan, as a share of its total, indicates that Taiwan’s small market provides only limited growth potential for China’s exports. Taiwan’s imports from China as a percentage of its total imports rose from seven per cent in 2001 to 16% in 2011. Meanwhile, China’s imports from Taiwan as percentage of its total imports declined from 11% to seven per cent. As some Taiwanese companies began to sell their products back to Taiwan, the share of imports from China naturally increased. However, in recent years, some Taiwanese companies on the mainland have shifted their procurement from Taiwan to China and that has resulted in the decreasing share of China’s imports from Taiwan. According to a Taiwanese government survey, in 2009, 60% of Taiwanese companies in China purchased capital equipment, raw materials and intermediate goods locally in China,

b1401_Ch-08.indd 144

8/28/2012 8:03:12 PM

b1401

East Asia: Developments and Challenges

Unspectacular Growth and Further Dependence on China 145

up from 31% in 2002. On the contrary, 26% of them imported capital equipment and raw materials from Taiwan in 2009, down from 45% in 2002.2 Looking to the future, Taiwan’s manufacturers will continue to invest in the high-tech industry in China so as to better compete in the global market. China’s huge domestic market also provides lucrative business opportunities for Taiwan’s service sectors. Moreover, cross-strait relations will continue to improve after the KMT’s victory in the 2012 elections. The number of Chinese tourists and Chinese investment to Taiwan are expected to rise further. Given the inevitable growing economic ties with China, the signing of the ECFA is indeed crucial. However, without signing FTAs with other countries at the same time, Taiwan may lose its leverage in negotiating with China in the future. It is unlikely that Taiwan will be able to complete FTA negotiations with its other major trading partners, such as the United States, the EU and Japan, while China has yet to do so. While Taiwan is eager to pursue the trade agreements with other economies, the positive effects of such agreements would only be evident with time. In the short term, neither the ECFA nor FTAs will effectively improve Taiwan’s comparative advantages vis-à-vis its competitors in the region. The more pressing job for Taiwan at present is to upgrade its domestic industries through innovation, and to find a niche market in Asia to avoid being marginalised during the recent wave of regional economic integration.

CHALLENGES FOR TAIWAN’S FUTURE ECONOMIC DEVELOPMENT Although Taiwan’s economy in 2011 retained a modest growth rate (four per cent), a potential decline in exports and uncertainties in

2

Survey on Taiwan’s Business Operations in mainland China, Investment Commission, Ministry of Economic Affairs, Taiwan, 2002, p. 35. Survey on the Overseas Business Operations in 2010, Investment Commission, Ministry of Economic Affairs, 2010, Taiwan, Table 9–2, p. 114 (in Chinese).

b1401_Ch-08.indd 145

8/28/2012 8:03:12 PM

b1401

146

East Asia: Developments and Challenges

M.-H. Chiang and S. Tong

domestic consumption may overshadow Taiwan’s economic growth in 2012.

Challenges to exports There are three concerns for Taiwan’s export prospects. First, the uncertain economic situation in the United States and unresolved European debt crisis will continue to constrain consumption in both economies. Second, the continued appreciation of the renminbi (RMB) and New Taiwan dollar are disadvantageous for export-oriented Taiwanese companies operating both within the island and on the Mainland. The RMB has appreciated considerably from 8.3 per US dollar in 2001 to 6.5 per US dollar in 2011. Meanwhile, the New Taiwan dollar has also appreciated from 33.8 per US dollar to 29.5 per US dollar. In consideration of China’s large current account surplus, the RMB is expected by many to appreciate further. The depreciation of the US dollar and the quantitative easing measures in the United States may encourage more foreign capital inflows into Taiwan and push the New Taiwan dollar to appreciate further. Third, the implementation of South Korea’s FTA with the EU in July 2011 and that with the United States in January 2012 will have an impact on Taiwan’s export prospects in the world’s two largest consumer markets. According to the Bureau of Foreign Trade in Taiwan, Taiwan’s exports of textiles, plastic products, vehicles, metal and mechanical products will be especially hurt by South Korea’s two FTAs with the EU and the United States.

Challenges to domestic consumption Given the daunting uncertainties in external demand, the economy will have to rely more on domestic consumption. Low interest rates could boost private consumption. Stable prices may allow Taiwan’s central bank to have sufficient room to relax interest rates if the economic situation worsens. The large foreign exchange reserves also

b1401_Ch-08.indd 146

8/28/2012 8:03:12 PM

b1401

East Asia: Developments and Challenges

Unspectacular Growth and Further Dependence on China 147

enable the central bank to maintain the stability of the NT dollar and the island’s export strengths. However, if external demand continues to fall, the potentially rising unemployment is likely to reduce private consumption. In addition to the decreasing global demand, an important concern in Taiwan is the potential unemployment problem which may result in lower domestic consumption. Although the average unemployment rate in 2011 was kept relatively low (4.3%), there were worrying signs. From September 2011, some manufacturing firms in Taiwan have either laid off employees or initiated “unpaid leave”, following the contraction of global demand for technology related products. Moreover, Taiwan’s unemployment problem is characterised by relatively higher unemployment among the young and higher educated.3 In order to keep the unemployment rate low, the Ma Yingjeou government initiated an employment promotion programme in 2009, which encouraged the employment of “lowly paid” temporary workers with government subsidies.4 Unemployment rates subsequently declined from 5.9% in 2009 to 5.2% in 2010, and to 4.4% in September 2011. However, this prompted some private sectors to only employ these low-salaried workers, with a perhaps limited impact on private consumption. Unlike other major economies in East Asia, Taiwan’s consistent budget deficit limits the government’s capacity to promote growth

3

In part, this may correspond with Taiwan’s expansion of universities in recent years. The enrolment rate to universities now is nearly 100%. However, Taiwan’s environment is not yet ready to receive the great number of labour force from the university level and above. 4 In 2009, the Ma administration initiated the “employment promotion programme”on a yearly basis. The measure in the programme that is subject to the most criticism is the “low salary policy”. Enterprises, universities and public sectors have been encouraged to employ “temporary workers” with the government compensating the employers on these additional spendings. To increase employment rate with minimum government spending, the monthly salaries of the temporary employees have been lowered to NT$22,000 (about US$733) for people with an undergraduate degree, NT$28,000 (US$933) for a Masters degree and NT$44,000 (US$1,466) for a PhD degree.

b1401_Ch-08.indd 147

8/28/2012 8:03:12 PM

b1401

148

East Asia: Developments and Challenges

M.-H. Chiang and S. Tong

through extra government spending. In 2009 for example, the Taiwan government’s budget deficit as a percentage of its GDP reached 3.5%, much higher than that in South Korea (−0.2%). In contrast, the governments of Hong Kong, mainland China and Singapore all had budget surpluses in 2009, amounting to 1.6%, 6.6%, and 0.1% of GDP respectively.5 In the foreseeable future, an ageing population and low birth rates will force the government to increase spending on social welfare when government budgetary expenditure on social welfare is already quite high, accounting for 37% of the total government budget in 2011. Without further fiscal reforms, the Taiwanese government’s budget deficit is likely to expand further and constrain its ability to boost the economy.

Challenge to develop service-driven economy As outward investment by the manufacturing sector grew, the service sector has become a major element of Taiwan’s economy. However, severe challenges have to be overcome to transform the economy into a strong, service sector driven one. In 2011, the service sector accounted for 70% of Taiwan’s total GDP while manufacturing and agricultural sectors accounted for 29% and one per cent respectively. At the same time, the employment shares were 59% for service, 36% for manufacturing and five per cent for agriculture.6 Although the service sector’s share of GDP and employment has risen considerably over the past decade, it is more a reflection of the decline in manufacturing activity in Taiwan than a strengthening of the service sector. As the contribution of the industrial sector to the economy declined, the increasing share of the service sector to GDP has been associated with relatively slower economic growth. As new jobs created by the service sector were unable to replace the job losses resulting from the closure of factories, the number of those unemployed rose. While the service sector has not yet become the engine of economic growth, the industrial sector has already moved out of Taiwan quickly and largely 5 6

Statistics from DGBAS, Executive Yuan, Taiwan. Ibid.

b1401_Ch-08.indd 148

8/28/2012 8:03:12 PM

b1401

East Asia: Developments and Challenges

Unspectacular Growth and Further Dependence on China 149

to China. As Taiwan’s service sector is low-tech (as in retail, catering etc) and low-wage, it is unable to be a strong engine for future growth. In fact, Taiwan’s service sectors have for many years been domestically oriented. This is very different from Hong Kong and Singapore, where an internationally competitive service sector has contributed significantly to their growth. In contrast, Taiwan’s services have been mainly for domestic consumption (low valueadded) and non-tradable. The roles of Hong Kong and Singapore as important transit ports for the huge markets of China and Southeast Asia respectively are essential to their more significant development of trade in services. To overcome these difficulties, in 2004, the Taiwanese government began to promote measures to develop the service sector in the national economic development plan, with the objective of creating both the industrial and service sectors to become the two “engines”of Taiwan’s economic growth. However, the effect of these policies has not been evident. When Taiwan was moving from an agricultural-based to a manufacturing-driven economy in the 1970s, foreign direct investment (FDI) played an essential role. However, Taiwan’s current “de-industrialisation”and subsequent move towards the service sector lacks FDI to support its development. In addition, over 80% of firms in services in 2009 were SMEs. Although SMEs have the advantage of being flexible, they have little experience in international business operations and possess limited global marketing strategies, bargaining power and capacity in research and development (R&D). Overall, with Ma Ying-jeou’s re-election in January 2012, crossstrait relations are expected to remain stable in the following four years. Political stability is advantageous for Taiwan to attract FDI. Beyond ECFA, Taiwan-China economic cooperation may expand to other economic related areas. The number of Chinese tourists and the amount of investment from the Mainland are likely to increase considerably. Due to the weaknesses in both the United States and European economies, the Taiwanese government wishes that China’s relatively strong economy can help maintain Taiwan’s steady economic growth. Feeble fiscal positions may also force the Taiwanese government to depend more on the Chinese economy if the demand

b1401_Ch-08.indd 149

8/28/2012 8:03:12 PM

b1401

150

East Asia: Developments and Challenges

M.-H. Chiang and S. Tong

from the United States and Europe still remains gloomy. Although closer cross-strait economic ties are beneficial to Taiwan’s overall economy, bleak global economic prospects continue to cast a dark shadow over the island’s long term economic future.

b1401_Ch-08.indd 150

8/28/2012 8:03:12 PM

b1401

East Asia: Developments and Challenges

Chapter

9 US-Taiwan Relations under Ma Ying-Jeou Katherine TSENG Hui-Yi

ABSTRACT The US-Taiwan relations have been one crucial factor shaping Taiwan’s external exchanges with the international community. After Ma became president in 2008, bilateral ties have improved and exchanges have expanded. Both Washington and Taipei agree that both regions have enjoyed their warmest ties in three decades. However, these close interactions have raised suspicions about Washington’s role in the 2012 Presidential Elections. The victory of the Nationalist Party (Kuomintang, KMT) candidate, incumbent President Ma Ying-Jeou, received strong criticism from his major rival, the Democratic Progressive Party (DPP), which alleged undue interventions by both Washington and Beijing. Ma’s victory is believed to have allayed Washington’s fears of another turbulent four years of cross-strait relations. While the United States has, on several occasions, endorsed Ma’s rapprochement strategy 151

b1401_Ch-09.indd 151

8/28/2012 8:03:24 PM

b1401

152

East Asia: Developments and Challenges

H.-Y. Katherine Tseng

with mainland China, some have observed that Washington kept a close eye on Ma’s every step to ensure that developments were in its best interests. Future US-Taiwan relations are expected to tread the same line, featuring the principles laid down in the three Joint Communiqués, the Taiwan Relations Act and the set of six assurances and, the hopes for a peaceful resolution to the cross-strait dispute. Nevertheless, there are two variables that may further rattle bilateral ties: Washington will most likely continue with its arms sales deal with Taipei, and it has already pushed hard for the export of US beef, which contains a locally prohibited chemical, to the island. Besides these immediate concerns, opinions have emerged in Washington that another Taiwan Policy Review is required. While the Obama administration has not responded clearly to such opinions, the presence of both supporting and opposing views reveal that US-Taiwan relations are at a turning point after more than three decades of unique bilateral ties. Putting US-Taiwan relations into the context of US deployment in the region, the cross-strait issue is regarded as a gauge of US commitment to its Asian ally. Accordingly, future Sino-American interactions, as well as future US deployment in the west rim and the whole of the Pacific Ocean, will inevitably affect future US-Taiwan relations.

THE 2012 ELECTION AND CHALLENGES TO US-TAIWAN RELATIONS Taiwan held its 13th Presidential and eighth Legislative Elections on 14 January 2012, resulting in the re-election of the Kuomintang (KMT) with 57% of legislative seats in the parliament.1 KMT’s major rival, the Democratic Progressive Party (DPP), grabbed 45.6% of the total votes in the presidential competition and 40 parliamentary seats or around 36%. In the course of the campaign, cross-strait relations and domestic policy issues remained the two pillars of the campaign theme. The KMT advocated widening and deepening cross-strait exchanges with 1

More details available at http://news.ifeng.com/taiwan/special/tw2012/, http:// news.ifeng.com/taiwan/special/liweixuanju/index.shtml, accessed 20 February 2012.

b1401_Ch-09.indd 152

8/28/2012 8:03:24 PM

b1401

East Asia: Developments and Challenges

US-Taiwan Relations under Ma Ying-Jeou 153

regards to economic issues and at people-to-people levels. Meanwhile, to appease the Taiwanese public, the KMT was careful to demonstrate that Ma would not rush into political negotiations with the mainland in anytime soon. Ma also vowed to continue with efforts to improve various social-welfare policies if re-elected. During the campaign, KMT’s major rival, the DPP, focussed on social issues like income inequality, shortcomings of current taxation laws and inadequacies of housing policies etc. On cross-strait relations, the DPP preferred to distance itself from the Mainland, while pursuing closer US-Taiwan relations in a bid to gain greater international spaces and recognition for Taiwan. Ma’s win by a six per cent margin came as a surprise to many. It was more considerable than what was expected before the election, sparking speculations that the “1992 Consensus” and China-friendly approach had paved the way for a KMT victory. Such speculation raised public fears about the roles China and the United States played in affecting the election outcomes. However, both countries have repeatedly asserted their neutral positions. Nevertheless, several of US practices have attracted considerable controversies, instigating rumours of its bet on Ma’s victory. On 21 September 2011, Washington announced an arms sale package to Taiwan.2 It was the second deal in Obama’s presidency after 2008, worth US$5.3 billion. While Washington was hesitant about fulfilling its obligations under the Taiwan Relations Act (TRA)3 by declining Taiwan’s request for more advanced ammunitions like F16 C/D jets, the sale raised the ire of Beijing, who reportedly took

2

More details available at http://www.nytimes.com/2011/09/23/world/asia/ china-expresses-anger-over-latest-us-arms-sales-to-taiwan.html, accessed 8 February 2012. 3 US-Taiwan Relationship: Overview of Policy Issues, Congressional Research Service Reports, 4 August 2011, available at www.crs.gov, at p. 9. Section Three of the Taiwan Relations Act provides for the sale of US defence articles and services to Taiwan. It is not specific about the nature of these articles. Yet, it calls for “such defence articles and services…as may be necessary to enable Taiwan to maintain a sufficient self-defence capability”.

b1401_Ch-09.indd 153

8/28/2012 8:03:24 PM

b1401

154

East Asia: Developments and Challenges

H.-Y. Katherine Tseng

retaliatory measures in subsequent Sino-American exchanges.4 While the September arms sale dispute was still unsettled, the United States announced Taiwan’s candidacy for the visa-waiver programme on 22 December 2011.5 Following the announcement, the United States sent two high-ranking officials — Rajiv Shah, the administrator of United States Agency for International Development (USAID) and the US Deputy Secretary of Energy, Daniel Poneman — to the island for a visit in December 2011.6 On 12 January 2012, two days before the election, former chairman of the American Institute in Taiwan (AIT), Douglas Paal, visited Taiwan and endorsed the “1992 Consensus” upheld by the KMT.7 Describing the DPP’s proposed “Taiwan Consensus” as “not possible” and instead, “allows [room] for independence”, Paal upheld the “1992 Consensus” as an effective means to find ways for both sides of the strait to cooperate while holding on to their respective principles.8 The DPP views Paal’s statement and the election results as evidence of US intervention and pressure to compromise the free will of the Taiwanese. Nevertheless, the 2012 election reveals that the strategic environment in East Asia that shaped the unique framework of US-Taiwan relations three decades ago (in 1979 when the two formally dissolved diplomatic ties and the Taiwan Relations Act was enacted) has undergone rapid and dramatic changes. With these changes, both the United States and Taiwan are confronted with a serious question: How are they going to address the changes and new challenges in future US-Taiwan relations? 4

Supra, note 2. More details available at http://www.chinapost.com.tw/taiwan/foreignaffairs/2011/12/24/326859/Visa-waiver-program.htm, accessed 8 February 2012. 6 Ibid, note 5. 7 More details available at http://www.chinapost.com.tw/taiwan/national/ presidential-election/2012/01/15/329058/Former-AIT.htm, accessed 9 February 2012. 8 More details available at http://www.taipeitimes.com/News/taiwan/archi ves/2012/01/13/2003523130/1, accessed 5 February 2012. An AIT Spokesman denied any official connection to Paal’s statement and stressed again that the United States did not take sides in the election. 5

b1401_Ch-09.indd 154

8/28/2012 8:03:24 PM

b1401

East Asia: Developments and Challenges

US-Taiwan Relations under Ma Ying-Jeou 155

WARMING-UP AFTER MA TOOK OFFICE IN 2008 US-Taiwan relations witnessed a resurgence after Ma Ying-Jeou took office as President in 2008. Expectations of a mild and rational route by Ma in Taiwan’s foreign relations, mainly with the United States, were soon met by several achievements. In April 2009 and May 2010, a number of current and previous US government officials expressed approval of Ma’s efforts, while they applauded the rapprochement between Beijing and Taipei at the same time. AIT Chairman, Raymond Burghardt, also praised the improvement in US-Taiwan relations on several occasions, describing them as excellent and headed in the right direction. Meanwhile, the AIT started construction of a new office building in a newly developed urban district in Taipei city on 22 June 2009. Since it is rare for the United States to build a permanent building in a political entity without formal relations, such events signify that US-Taiwan relations had regained an even footing after a prolonged low ebb. In mid-August 2009, US troops visited the island to rescue the victims of Typhoon Morakot. Although the gesture was under the name of humanitarian relief, it was considered ice-breaking as it was the first visit by US troops after 1979 when the two halted formal relations. Many in Taiwan took it as signifying the resumption of mutual trust between both sides. Subsequently, Taiwan cooperated with the United States more closely in similar rescue missions around the world. The Haitian earthquake served as a good start and the two vowed to continue with their collaboration. At the governmental level, new developments with the focus on less sensitive issues were conducted at administration levels with a low profile. Ma called for the signing of a US-Taiwan extradition treaty on 27 May 2009. The US Department of State responded quickly and positively the following day and negotiations started in late 2010. The United States announced Taiwan’s candidacy for the visa-waiver programme on 22 December 2011. While the assessment was ongoing, Washington had opined on several occasions that the outcome should be optimistically expected in a short period of time.

b1401_Ch-09.indd 155

8/28/2012 8:03:24 PM

b1401

156

East Asia: Developments and Challenges

H.-Y. Katherine Tseng

MA’S SECOND TERM OF PRESIDENCY-WHERE TO GO FROM HERE? Ma’s victory was widely believed to have allayed both Beijing’s and Washington’s fear of yet another four years of turbulent and frigid cross-strait relations. The White House quickly released a statement congratulating Ma, with the hope that the impressive efforts that both China and Taiwan had undertaken to build up cross-strait ties would continue9 particularly since such ties and stability had also benefited US-Taiwan relations. This official position of the United States is in line with its frequent interactions with Taiwan during Ma’s first presidency, in multifarious dimensions and at governmental levels. Nevertheless, several variables lurk behind the resurging US-Taiwan relations, which further raise doubts about future directions of US-Taiwan relations. Two major concerns are the importation of US beef and the possibility of future arms sales, both indicating potential flare-ups that could lead to the souring of currently warm US-Taiwan ties.

Importation of US beef The current AIT Chairman paid a visit to Taiwan on 29 January 2012,10 bringing the message that Washington was prepared to resume talks on the Trade and Investment Framework Agreement (TIFA).11 Among a wide range of trade issues, the importation of US beef is of crucial importance. Washington reportedly suspended scheduled talks with Taiwan after the latter decided to remove some American beef products that were found to contain the locally banned animal feed additive, ractopamine, in January 2011.12 9

The January 2012 Taiwan Elections and What They Mean, Richard Bush III, 23 February 2012, available at http://www.brookings.edu/speeches/2012/0117_ taiwan_elections_bush.aspx, accessed 24 February 2012. 10 More details available at http://www.chinapost.com.tw/taiwan/foreignaffairs/ 2012/01/31/330174/AIT-head.htm, accessed 5 February 2012. 11 Ibid, note 10. 12 Supra, note 10.

b1401_Ch-09.indd 156

8/28/2012 8:03:24 PM

b1401

East Asia: Developments and Challenges

US-Taiwan Relations under Ma Ying-Jeou 157

The United States has repeatedly urged Taiwan to accept a maximum residue limit for ractopamine instead of insisting on the current zero-tolerance policy. While the AIT Chairman did not specify US beef as the main reason behind interrupted TIFA negotiations, it is widely believed to be the true cause of the long delay.13 Experts in the Council of Agriculture (COA) and universities are working on amending the island’s current sanitary standards for imported beef. Practical alternatives, like Japan’s approach, have been suggested as possible solutions for Taiwan.14 Japan took a dual approach, allowing certain levels of the feed additive ractopamine in US beef imports and banning the chemical in its domestic beef products. The beef issue seems to be a major hurdle standing in the way of closer US-Taiwan economic integration, first in the case of the TIFA and at a later stage, the TPP. Washington believes it has fully explained the beef issue and described Taipei as “an unreliable trading partner”.15 It has been suggested that the United States is unlikely to contemplate any new major economic initiatives with Taiwan until the beef controversy has been resolved.16 Yet, these controversial meat products account for less than one per cent of US exports to Taiwan.

Future US arms sales Future requests of arms procurement by Taiwan constitute another variable in US-Taiwan relations. Each of the three arms sale packages 13

More details available at http://www.taipeitimes.com/News/front/ archives/2012/01/31/2003524295, accessed 8 February 2012. 14 More details available at http://www.chinapost.com.tw/taiwan/foreign-affairs/ 2012/02/01/330283/MOEA-trying.htm, accessed 8 February 2012. Yet, reports say that the Council of Agriculture is waiting for the Codex Alimentarius Commission to come up with an internationally accepted set of Maximum Residue Level (MRL) standards for ractopamine by July 2012, before it can propose amendments to existing laws. 15 Getting Beyond Beef in US-Taiwan Relations, Don Shapiro, on 23 February 2012, available at http://www.brookings.edu/opinions/2012/0210_beef_taiwan_ shapiro.aspx, accessed 24 February 2012. 16 Ibid, note 15.

b1401_Ch-09.indd 157

8/28/2012 8:03:24 PM

b1401

158

East Asia: Developments and Challenges

H.-Y. Katherine Tseng

that has been approved since 200817 have all provoked retaliatory responses from Beijing.18 Despite the series of arms sales since 2008, it would be premature to conclude that more sales would take place over the course of Ma’s second term. On one hand, these arms sales may lend support to arguments that the Congress has increased its active engagement with Taiwan. Despite the important role played by the Senate in pushing through the September 2001 arms sale,19 the House Committee on Foreign Relations, under the leadership of Congresswoman Ileana RosLehtinen, resumed its leading role in US-Taiwan policy by holding public hearings and enthusiastically championing new legislations designed to boost bilateral ties.20 On the other hand, Washington has been dismayed by the lack of efforts on the part of the Ma administration to enhance Taiwan’s own defence posture.21 A usual yardstick is the proportion of Gross Domestic Product (GDP) devoted to the defence budget. Ma has yet to fulfil his pledge to raise that level to three per cent. Washington’s support was further swayed by debates concerning the extent of US commitment to help defend Taiwan. There are also opinions opposing more arms sales to Taiwan, giving priority to cooperation with a rising China. The perception is that Taiwan has become more of a strategic liability to the United States in its East Asian deployment. The tension plaguing 17

The three deals took place in October 2008, January 2010 and September 2011. China issued harsh warnings and adopted, more or less, retaliatory measures subsequently. See Shirley Kan, Taiwan: Major US Arm Sales since 1990, Congressional Research Service 2011, available at www.crs.gov, accessed 8 February 2012. 18 Nevertheless, commentators opine that arms sales would not considerably hinder Sino-American relations to the extent that they once had. The latest one in September 2011 exemplified US efforts at maintaining a balance between Beijing and Taipei. The relatively mild and self-restrained responses by the Chinese government lend support to such arguments. 19 Taiwan Election Results: President Ma Wins A Second Term, 15 January 2012, US-Taiwan Biz Council Report, available at http://thenextsiliconvalley.com/6742/ taiwan-election-results-president-ma-wins-second-term, accessed 24 February 2012. 20 Ibid, note 19. 21 Supra, note 15.

b1401_Ch-09.indd 158

8/28/2012 8:03:24 PM

b1401

East Asia: Developments and Challenges

US-Taiwan Relations under Ma Ying-Jeou 159

cross-strait relations, mainly from 2002 to 2008 under the DPPled Chen administration, further strengthens the opposition’s standing. US concern of deeper involvement in cross-strait frictions is reflected in the oft-repeated official proposition that “…inherent in the intent and logic of the TRA is the expectation that Taiwan will be able to mount a viable self-defence….the reality is, it is Taiwan that is obligated to have a sufficient self-defence…”22 Ma thus ruled out any possible American military deployments on the island.23 Ma’s assurance could be directed at Beijing. Despite having secured a second term in office, Ma is hampered by a smaller majority in parliament and a weaker mandate, having only obtained 51% of popular vote. Thus, even if Ma were to pursue cordial relations with the Mainland by maintaining and deepening current cross-strait exchanges in his second term, Ma would not be able to afford to take the United States’ support and presence in Taiwan for granted. As such, serious efforts to strengthen future US-Taiwan relations are required.

US’ TAIWAN POLICY: CHANGES EXPECTED? The US’ Taiwan policy is closely intertwined with its long-standing China policy. Drastic changes are not expected in the near future. The three pillars that constitute the basic foundation of the policy are likely to be upheld: US-China joint communiqué,24 Taiwan Relations

22

Supra, note 17 at p. 26. Ma told CNN in an interview on 1 May 2010, and at a later occasion when meeting visiting Senator Dianne Feinstein in June 2010 that while Taiwan will continue to purchase US weapons, Taiwan will never ask the Americans to fight for Taiwan. Supra, note 17 at p. 27. 24 Three joint communiqués comprise the Shanghai Communiqué (1972), the Communiqué on Normalisation of Relations with the PRC (Peoples’ Republic of China) (1979), and the August 17 Communiqué on Arm Sales to Taiwan (1982). Taiwan-US Relations: Developments and Policy Implications, Congressional Research Service Report, 2 April 2009, available at www.crs.gov. 23

b1401_Ch-09.indd 159

8/28/2012 8:03:24 PM

b1401

160

East Asia: Developments and Challenges

H.-Y. Katherine Tseng

Act and a set of six policy assurances,25 and a peaceful resolution of cross-strait issues. Nevertheless, Ma’s rapprochement with Beijing has sparked debates in Washington on whether the United States should develop closer or reduce ties with Taiwan. Proponents of closer ties base their arguments mainly on the premise that Taiwan is an ally with a similar vibrant democratic system and the United States has the obligation to ensure Taiwan’s freedom of choice.26 They also view cross-strait issues in the context of regional peace and stability, stating that flare-ups in the Taiwan Strait may provoke other potential flashpoints and harm the current region-wide order. Hence, US commitment to Taiwan is thus of symbolic importance which far outweighs its actual strategic impact, serving as a yardstick for other regional alliances to examine US engagements in this area. Opposing voices urging the United States to consider reducing ties with the island are also prevalent.27 Those in this group contend that the United States’ first priority is to cooperate with China on global governance, while simultaneously championing negotiations in contentious issues like the renminbi exchange rate. A smooth SinoAmerican relationship better serves US interests and trumpets US 25

Taiwan Relations Act (TRA — P.L. 96-8) was enacted after extensive and complicated debates in 1979. A set of six policy assurances were formulated by the US Government, guiding US-Taiwan policy. Basically, they are that the United States will not change the TRA and will not pressure Taiwan to negotiate with the PRC, or become involved as a mediator in negotiations between Taiwan and the PRC. Ibid, note 24. 26 Vigorous debates to whether the United States should reduce ties with Taiwan were stirred up. Should the US Abandon Taiwan?, N. Tucker & B. Glaser, The Washington Quarterly, Fall 2011, available at http://twq.com/11autumn/ docs/11autumn_tucker_glaser.pdf; Dim Sum for China: Why America Should Not Walk Away from Taiwan, The Economist, 24 September 2011, available at http:// www.economist.com/node/21530121; (Why) Should America Abandon Taiwan?, D. Twining, The Foreign Policy, 24 February 2012, available at http://shadow.foreignpolicy.com/posts/2012/01/10/why_should_america_abandon_taiwan; US, China, Taiwan, A Bitter Irony, T. Westerman, International News Analysis Today, 21 June 2011, available at http://www.inatoday.com/chinabitter6152011.htm. 27 Ibid.

b1401_Ch-09.indd 160

8/28/2012 8:03:24 PM

b1401

East Asia: Developments and Challenges

US-Taiwan Relations under Ma Ying-Jeou 161

commitment to Taiwan. Accordingly, the last thing to do is to ruffle Sino-American ties by insisting on a set of commitments rooted in outdated cold-war ideology with consideration of a strategic environment that no longer exists. Washington has denied such calls for “abandoning Taiwan”.28 Besides, there are also opinions that at present, Taiwan is strategically important as a litmus test of what China will become.29 An alternative view to US-Taiwan ties has emerged in Washington, stating that China’s interactions with Taiwan can serve as a benchmark to Chinese claims of “peaceful development” and “co-existence with the United States without hegemonic competition (yong bu zheng ba)”. Only if the Taiwan Strait issue is resolved in a flexible and conceptually creative way that is sensitive to Taiwanese concerns will China’s claim to peaceful development be credible. Otherwise, if China adopts a rigid stance and utilises forceful tactics while ignoring public sensitivities, it will send a different message to the world. Opinions like this stress upon the United States’ interests in China’s peaceful and constructive rise and its contributions to achieving more fruitful global governance. Following this logic, the United States should consider adopting a more active role and stepping in at the appropriate time.30 Holders of such views consider such changes to be justifiable within the current policy framework and warranted by changing sentiments within the mainland and Taiwan. Greater involvement may be pursued by moderating, re-shaping, or influencing contending positions that remain major obstacles to greater stability.31 In this aspect, a previous occasion lends support to the aforementioned opinions. 28

Some in the academia assert that rather than considering the United States’ abandonment of Taiwan, Washington needs to be concerned if the Ma Administration chooses to make inroads into closer integration with the Mainland, which inevitably leads Taiwan away from the United States. In other words, Taiwan is abandoning the United States. Supra, note 9. 29 Supra, note 9. 30 Supra, note 24. 31 Supra, note 24.

b1401_Ch-09.indd 161

8/28/2012 8:03:24 PM

b1401

162

East Asia: Developments and Challenges

H.-Y. Katherine Tseng

US officials said that during the Chen administration (20002008), the mainland suggested co-management by China and the United States over Taiwan issues.32 Beijing hoped that Washington would pressure Chen into shelving plans for an island-wide referendum and that it would refrain from sending the “wrong signals” to encourage independence aspirations on the island. On the other hand, Taipei proposed to re-evaluate and strengthen the TRA. Furthermore, Taipei sought US support for Chen’s constitutional reform and for more routine and visible US-Taiwan official interactions. Hence, opinions emerged, urging the United States to grab this opportunity as the time was ripe to intervene more actively in cross-strait issues. A closer examination reveals that such views appear to be lacking in a comprehensive understanding of the United States’ overall strategic considerations. The United States’ greater involvement will be confronted by changing US assurances to Taipei (to avoid taking a mediating role) and by persistent objections from Beijing (to avoid “interfering” in China’s internal affairs).33 Furthermore, US involvement on previous occasions contained significant limitations, in which both sides’ requirements were based on their own interests. Such one-sided action would ferment, rather than ease the rising tension. Instead, it is suggested that the United States would be willing to help if the two sides reach a consensus on the kind of help warranted.34

IMPLICATIONS While it seems that the United States is unlikely to change its longstanding Taiwan policy anytime soon, vociferous opinions have emerged in Washington that another Taiwan policy review is required. These opinions are justified in view of the changing sentiments in cross-strait relations and democratic political systems that have developed on the island. Only one such review had been conducted, the 1993-1994 Taiwan Policy Review undertaken during the Clinton 32

Supra, note 24. Supra, note 24 and 3. 34 Supra, note 24 and 3. 33

b1401_Ch-09.indd 162

8/28/2012 8:03:24 PM

b1401

East Asia: Developments and Challenges

US-Taiwan Relations under Ma Ying-Jeou 163

administration when the United States and Taiwan ceased formal bilateral relations since 1979.35 In spite of the bilateral exchanges at various levels, the Obama administration seems to have adopted a relatively low-key approach, showing disinterest to certain issues regarding Taiwan. Such coldness, or deliberate vagueness, could arguably be exemplified by Hillary Clinton’s avoidance to the question posed by the Senate Foreign Relations Committee asking if the administration would be holding another Taiwan Policy Review.36 Nevertheless, smaller efforts have taken place when a series of reviews were initiated by Admiral Robert Willard, Commander of the Pacific Commander (PACOM) in Honolulu, Hawaii, via “Strategic Focus Groups” in January 2010 on approaches to be adopted for the Mainland and Taiwan.37 On the part of Taipei, it would be in its interest to be sensitive to such issues in its search for creative resolutions without rocking the boat. Heading the list is the issue of Taiwan’s sovereignty, which lies also at the core of future political and security relations with the mainland. Recent political developments on the island indicate that a stronger identity, recognising “Taiwanese” and de-characterising “Chinese”, has gained greater momentum, along with the denial of being an ambiguous non-entity. However, rather than asserting a sovereign status which risks irritating the Mainland, the island may need to re-think the concept of “sovereignty”.38 Besides, there is also a need for Taiwan to reform its political system to better reflect public opinion by making good policy choices. Ma’s victory may provide short term stability for the island, before it sees more restive vocal complaints rising from the disproportionate distribution of opportunities in 2013 and beyond. In particular, the Ma administration will also do well to look into the difficulties faced by Taiwan-based small and medium enterprises as a result of the global economic downturn and greater competition from Chinese 35

Supra, note 24 and 3. China/Taiwan: Evolutions of the “One China” Policy, Congressional Research Service Reports, 24 June 2011, available at www.crs.gov, at p. 28. 37 Ibid, note 36, at p. 28. 38 Supra, note 9. 36

b1401_Ch-09.indd 163

8/28/2012 8:03:24 PM

b1401

164

East Asia: Developments and Challenges

H.-Y. Katherine Tseng

industries. The resurgence of the opposition force, the DPP, in the 2012 elections signifies the people’s dissatisfaction with the government, hinting a possible swing in presidency in 2016. This possibility has prompted Beijing to push forward negotiations into politically sensitive scenarios. Beijing may want to ensure that Taipei is securely on the course towards ultimate unification during Ma’s second term.39 As such, the island will need a comprehensive strategy, taking into account various dimensions while simultaneously striking a balance among economic, political and security interests. US-Taiwan economic exchanges, on the other hand, have been somewhat stalled by the deadlock in beef disputes. Multinational pharmaceutical manufacturers lack the incentive to launch innovative medicinal products in the Taiwanese market, due to low prices.40 For the financial industry, Taiwan’s Financial Supervisory Commission is asking foreign bank branches and subsidiaries to submit plans to encourage the outsourcing of services to local firms instead of those overseas in a bid to create more local jobs.41 Problems also exist in the protection of intellectual property rights. Taiwan has made vast improvement in this respect. However, a new problem relating to proprietary information flowing to the Mainland through employees hired by Chinese and Taiwanese enterprises doing business there has surfaced.42 The light penalties imposed by the Trade Secrets Law have failed to deter the leakage of information. There is no doubt that US strategic interests on the island will continue. Yet, continued improvement in cross-strait relations, along with the booming economic benefits and the still-invisible yet deep cultural attractions between the Mainland and the island, may eventually lead to an ultimate re-examination and the genuine pursuit of more meaningful “peace and stability across the strait”. 39

It is estimated that these may take place, while quietly, through 2012, and become a more disturbing issue in 2013 and beyond. Supra, note 19. 40 Supra, note 15. 41 Supra, note 15. 42 Supra, note 15.

b1401_Ch-09.indd 164

8/28/2012 8:03:24 PM

b1401

East Asia: Developments and Challenges

Chapter

10 Fifteen Years After Hong Kong’s Handover: Is this City Dying? KWONG Kin-ming and YEW Chiew Ping

ABSTRACT More than a decade after its handover, Hong Kong remains the world’s top international financial hub. At the same time, however, there is pervasive social discontent over the society’s widening rich-poor gap, rocketing housing prices, and the perceived collusion between the government and business interests, whose political and economic power are entrenched in the existing system. Not only have these seemingly chronic problems undermined Hongkongers’ trust in their government, they have also weakened confidence in the “one country, two systems” model of governance. Amidst fears of “Mainlandisation” — changes undermining Hong Kong’s core values and its autonomy — Hongkongers’ pent-up frustration erupted over a slew of incidents from end 2011 to early 2012, which brought their simmering resentment against mainlanders to the surface. 165

b1401_Ch-10.indd 165

8/28/2012 8:03:36 PM

b1401

166

East Asia: Developments and Challenges

K.-M. Kwong and C.P. Yew

The new Chief Executive (CE) elected in March 2012 has several unenviable tasks during his tenure. Apart from tackling the widening wealth gap and housing problem, he may have to implement and oversee universal suffrage for the CE election and Legislative Council (LegCo) election during his term. He may also have to look into the legislation of Article 23, a political “hot potato” which had forced Tung to step down and Tsang to sidestep the issue during his term. The outcome of the September 2012 LegCo election, therefore, has great significance for Hong Kong in the years ahead. If the pandemocrats suffer a rout in the elections, then the path to legislate Article 23 will be more smooth sailing; implementation of universal suffrage may also be delayed. In the long term, the defeat of the pandemocrats in the coming LegCo election will be detrimental to the upholding of Hong Kong’s core values.

SLOW BOILING THE FROG In 1995, Fortune magazine published an article titled “The Death of Hong Kong”, spelling the doom of the metropolis as an international financial hub. Looking into his crystal ball, the author prognosticates the city’s future after the handover: “as Hong Kong becomes a captive colony of Beijing and increasingly begins to resemble just another mainland city, governed by corruption and political connections rather than the even-handed rule of law, it seems destined to become a global backwater.”1 Since the controversial article was published, many, on hindsight, acknowledged that it had greatly exaggerated Hong Kong’s demise under Chinese rule. Today, Hong Kong is still a flourishing international financial centre with robust links to Mainland China and remains the latter’s gateway to the global economy. In December 2011, World Economic Report ranked Hong Kong as the world’s most developed financial market, overtaking the United States and the UK for the first time. Yet these affirmations and accolades have never 1

Louis Kraar and Joe McGowan, “The Death of Hong Kong,” Fortune, 26 June 1995, available at http://money.cnn.com/magazines/fortune/fortune_archive/ 1995/06/26/203948/index.htm, accessed 16 January 2012.

b1401_Ch-10.indd 166

8/28/2012 8:03:36 PM

b1401

East Asia: Developments and Challenges

Fifteen Years After Hong Kong’s Handover: Is this City Dying? 167

removed the nagging suspicion that all is not right in Hong Kong under the “one country, two systems”. Sceptics countered Beijing’s assurance of “no change for 50 years” in Hong Kong with the analogy of “slow boiling the frog” — the unwitting frog, sitting snugly in warm water, shall have its fate sealed once the water reaches its boiling point. This sense that Hong Kong is dying a slow death had also been featured in popular culture. At the end of 2011, an unconventional Television Broadcasts Limited (TVB) drama banned in the Mainland for its political undertones again raised the spectre that the city is moribund. Hongkongers’ reflection on their city’s decline had taken place amidst pervasive social discontent over the society’s widening rich-poor gap, rocketing housing prices, and the perceived collusion between the government and business interests, whose political and economic power are entrenched in the existing system. Not only have these seemingly chronic problems undermined Hongkongers’ trust in their government, they have also weakened confidence in the “one country, two systems” model of governance (see Figure 1), which puts Hong Kong at the bidding of Beijing such that Hongkongers have little say over policies that matter to them.

A LAME DUCK GOVERNMENT The year 2011 witnessed three important developments on the domestic front in Hong Kong. Together, these developments have either eroded the legitimacy of Donald Tsang Yam-kuen, Hong Kong’s second CE and his government, or taxed his government’s capacity to govern. The first important development was the U-turns in important policy decisions in the face of more vocal public opinion. These policy U-turns were most evident in the Budget announced in February and in the CE’s Policy Address in October. Second, the government’s tougher stance on scraping by-elections, managing protests and overseeing press freedom have stoked concerns about the fate of Hong Kong’s core values. Third, social attitudes appear to be changing although it is still unclear whether the shift is to the right or the left.

b1401_Ch-10.indd 167

8/28/2012 8:03:36 PM

b1401

168

East Asia: Developments and Challenges

K.-M. Kwong and C.P. Yew Fig. 1. People’s confidence in “one country, two systems”.

Source: Hong Kong University Public Opinion Programme (HKUPOP).

Amid these key developments, Tsang’s popularity ratings dipped to a record low in the 74th month of his term (August 2011). As Figure 2 shows, there were two periods after the 42nd month of his term during which Tsang’s popularity fell below that of his predecessor Tung Chee-hwa. Nearing the end of his term, Tsang’s approval rating had been hovering at below 50%. Though the two CEs had completely different backgrounds and governing styles, they both encountered a governing conundrum near the end of their term, resulting in a lame duck government. Tung Chee-hwa (1997–2005) was ambitious on long-term planning and initiated waves of reforms. Yet the landmark 1 July demonstration in 2003 during which 500,000 protestors took to the streets dealt a heavy blow to Tung’s administration and he had to step down in 2005 without completing his second term. Possibly taking lessons from Tung’s experience, Donald Tsang (2005–2012) focussed more on pressing social issues rather than

b1401_Ch-10.indd 168

8/28/2012 8:03:36 PM

b1401

East Asia: Developments and Challenges

Fifteen Years After Hong Kong’s Handover: Is this City Dying? 169 Fig. 2. Comparative ratings of Chris Patten, Tung Chee-hwa and Donald Tsang.

Source: HKUPOP.

long-term ones. This approach did help Tsang garner relatively strong support in his early days. However, the honeymoon period did not last. Tsang’s second term was marred by a widening rich-poor gap and rocketing property prices that squeezed the middle-class and gave rise to the term “property hegemony”. The governing conundrum in Hong Kong prompted Chinese Premier Wen Jiabao to urge Tsang in 2010 to address the “deeprooted contradictions” arising from misgivings over whom the Hong Kong government is accountable to. The general public is of the view that the government has tilted towards the privileged class and that their views are not being taken seriously. On livelihood issues and the safeguarding of Hong Kong’s core values, they think the government has not been accountable to Hongkongers. According to a survey on the ‘Public Attitudes towards the Harmonious Society in Hong Kong’ conducted by the Hong Kong

b1401_Ch-10.indd 169

8/28/2012 8:03:38 PM

b1401

170

East Asia: Developments and Challenges

K.-M. Kwong and C.P. Yew

Institute of Asia-Pacific Studies (HKIAPS) from 2006 to 2010, there was a sharp rise in Hongkongers who perceived “contradictions between government and people” and “contradictions between tycoons and people” as factors undermining the society’s harmony. Figure 3 charts the level of public satisfaction on governance and livelihood issues in 2011 through two indices: “integrated public sentiment index” and “rating of anger” from the Hong Kong University Public Opinion Programme (HKUPOP). In the survey, the normal score for the public sentiment index is 100. This means the latest score of 85.5 on the graph belongs to the lowest 15%, an indication of the government’s low popularity. In this context, the third CE, who will be elected in March 2012, and his administration will likely face similar challenges. As the lack of popular mandate has given rise to extraordinarily high expectations of government performance, the society will possibly continue to drive Fig. 3. POP-NOW public sentiment index survey.

Source: HKUPOP.

b1401_Ch-10.indd 170

8/28/2012 8:03:39 PM

b1401

East Asia: Developments and Challenges

Fifteen Years After Hong Kong’s Handover: Is this City Dying? 171

the government on policy making. Universal suffrage has become necessary for resolving the governing conundrum by clearing public mistrust on the government. However, where and how social dynamics will drive government policy is yet to be known until the LegCo election in 2012, given that there has been no consensus on how social attitudes are changing. It is also unclear at this juncture whether this changing social dynamic will work to the advantage or disadvantage of the pro-establishment party.

POLICY U-TURNS: ORIGINS, PROCESS AND OUTCOMES A major setback for the Tsang’s government was its U-turns on key policy decisions. These policy U-turns indicate the government’s inability to convince the public to accept its decisions. Worse, they reflect the government’s lack of authority to uphold its decisions in the face of growing public sentiments. A vicious cycle of diminishing authority ensued in a governing conundrum as the public, emboldened by the government’s back-pedalling, made more demands to induce further policy U-turns. The reversal of the Budget in March 2011 was dramatic. In the Budget speech delivered on 23 February, Financial Secretary John Tsang declined to give cash handouts and tax rebates to citizens so as not to stimulate inflation and to uphold the principle of “financial prudence”. This triggered strong public outcry against the government for not using the HK$3.9 billion surplus “wisely” to help the needy. Despite an earlier remark from a government source to the media that popularity was the least important consideration in formulating budget matters, Tsang succumbed to social pressure just a week after the Budget speech. He revised the Budget by granting HK$40 billion handouts, with HK$36 billion direct cash handouts, turning the HK$3.9 billion surplus to HK$8.5 billion deficit. This is the first direct cash handouts in Hong Kong’s fiscal history.2 2

The U-turn was likely made in a hurry. How and when the handouts would be distributed had yet to be spelled out. Even overseas migrants (reportedly amounting

b1401_Ch-10.indd 171

8/28/2012 8:03:39 PM

b1401

172

East Asia: Developments and Challenges

K.-M. Kwong and C.P. Yew

The policy U-turn was, reportedly, a decision not made by John Tsang but by CE Donald Tsang. There were concerns that the infuriated middle class and grass-roots, civil servants and teachers, riding on the momentum of the “Jasmine Revolution”, might bring about a repeat of the 1 July demonstration in 2003. Given that a series of elections in late 2011 and 2012 are at stake, the handouts were clearly intended to allay public discontent. Public discontent remained high, despite the announced handouts. Public dissatisfaction with the Budget first rose from 35% on 23 February, the day that the Budget was delivered, to 53% in late February before the revision, the highest since the handover, and then dropped back to 45% in mid-March, still 10% higher than the initial dissatisfaction rate, according to HKUPOP. The “Bauhinia Revolution” protest on 6 March after the revision also drew about 10,000 participants. Unhappiness with Tsang’s administration was also manifested in the legislature. In the LegCo, the government failed to secure enough votes on the provisional funding bill on 9 March 2011, the first time in seven years. The bill was only passed after a resubmission. In October, another key policy U-turn was made. Tsang announced in his policy address that the House Ownership Scheme (HOS) would be revived. A few years prior to this, the public had been urging the government to resume the HOS after property prices rocketed, but to no avail. Even Wang Guang-ya, director of Hong Kong and Macau Affairs Office of China’s State Council, had singled out housing as a pressing issue during his visit to Hong Kong in June 2011. Yet, Tsang had rebutted then that “housing was not an issue” because “half of the population is living in subsidised housing already”.3 Tsang’s administration changed its stance on reviving the HOS only right before the release of the 2011 Policy Address despite societal pressure. On 12 October, two days after delivering the policy to about 500,000) are entitled to the handouts, leading some to question why the Mainlanders were left out in the handouts. This in turn led to groups making hate speech on the Mainlanders in an attempt to rule out their eligibility. 3 Tsang’s words when interviewed by “Newsline” in Australia in the same month.

b1401_Ch-10.indd 172

8/28/2012 8:03:40 PM

b1401

East Asia: Developments and Challenges

Fifteen Years After Hong Kong’s Handover: Is this City Dying? 173

address, Donald Tsang acknowledged that he should have suggested the revival plan six months earlier. While the government’s authority was undermined by these policy U-turns, senior government officials were found to have contravened government regulations. In June 2011, when the government expressed its determination to tighten control on illegal structures in homes, a scandal involving illegal structures in the homes of high ranking government officials, including the CE, snowballed. Suen Ming-Yeung, Secretary of Education Bureau, was even found to have ignored the warning notice for five years. The public condemned the government’s connivance of its own wrongdoings and were watching if the tightening controls had been applied to these officials’ homes. In spite of its weakened authority, the government still made a forceful attempt at scraping by-elections through a replacement mechanism bill in May 2011. The bill suggested giving a vacated seat to the candidate on the next-best-placed ticket in the general ballot to replace current by-elections. The government claimed that this was to prevent future abuses of by-elections, resulting in the wastage of public resources and compromising the LegCo’s integrity. The government stressed the urgency of passing the bill in two months so as to apply it to the upcoming elections in late 2011 and 2012, insisting that consultation was unnecessary. However, serious flaws were discovered in terms of the bill’s logic and substantiating evidence.4 This touched many Hongkongers’ nerves. 4

This whole idea originated from the “referendum” initiated by five pan-democrats in January 2010 before the political reform bill was passed in June in that year. Five of them were from Civic Party and League of Social Democrats. They resigned and planned to use the by-election as a “de facto referendum” for the public to apply pressure on the pace of democratisation. The “referendum” was criticized and boycotted by the Beijing and Hong Kong governments. Despite the low turnout of 17%, 570,000 ballots in the “referendum” were still perceived by some as a considerably large-scale “vote protest”, which accordingly resulted in the historical negotiation on the political reform package between the Democratic Party and Beijing’s liaison office in Hong Kong in May 2010. Given the “referendum” potential political impact, some interpreted the government’s rush for passing the bill as a move to block any “referendum” moves in the future.

b1401_Ch-10.indd 173

8/28/2012 8:03:40 PM

b1401

174

East Asia: Developments and Challenges

K.-M. Kwong and C.P. Yew

The bill, depriving the citizens’ right to choose, was perceived as undermining Hong Kong’s core values including freedom of speech, fairness and respect for individuals’ rights. It raised concerns that, once passed, the bill would provide a back door for legislating Article 23.5 This prompted waves of opposition. The Bar Association issued four warnings that the proposed mechanism was unconstitutional. Academics and professionals petitioned against the bill. The 1 July protest drew 200,000 participants, the third largest turnout since the handover. The government again retreated from its original stance after the public outcry, making two major policy U-turns. Stephen Lam SuiLung, Secretary for Constitutional Affairs, made the first reversal on 28 June 2011 by exempting cases with vacancies made by legislators’ death and resignation due to illnesses. A few days after the 1 July protest, the second reversal was made. On 4 July, the bill voting of 13 July was cancelled. A two-month consultation period with four options was launched. However, whether these options conform to the Basic Law remains unclear. Social attitude on this issue was generally clear. A survey conducted by HKUPOP between 26 June and 28 June found that a majority — particularly the young and the educated — opposed the government’s plan to scrap by-elections. Support for by-elections in different circumstances ranged from just under 60% to almost 66% in the survey. Another survey conducted by HKIAPS from 28 June to 6 July 2011 found greater objection to the government’s proposal, with 53% against and 40% in favour. Controversies over the bill had a more significant impact. It ignited discontent with the government’s performance over the years which motivated many to join the 1 July march. Among the 218,000 protestors, a figure claimed by the organiser, 31% were first-timers, 5

Article 23 of the Basic Law is to prevent treason, secession, sedition, subversion against the Central People’s Government. Worries over its legislation were that the freedom of association, protest and speech enjoyed will be significantly undermined as a result. It triggered the 1 July protest of 500, 000 participants. Two months thereafter, the government withdrew the legislation.

b1401_Ch-10.indd 174

8/28/2012 8:03:40 PM

b1401

East Asia: Developments and Challenges

Fifteen Years After Hong Kong’s Handover: Is this City Dying? 175 Fig. 4. People’s dissatisfaction with current political and livelihood conditions. 70

Percentage

60

46.6

50 40

39.3

30 20

63.2 59.5

57

25.3 25.5 15.3

10 0

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993 1992

Dissatisfaction with political condition

Dissatisfaction with livelihood condition

Source: HKUPOP.

compared with only 10% in 2007. A HKUPOP survey shows that 58% were dissatisfied with livelihood issues — the biggest proportion since 1992, a year in which public grievances ran high as the stock market slumped — whereas only 16% were satisfied. Figure 4 outlines the trends of dissatisfaction. Despite the anger triggered, in October, Stephen Lam Sui-lung was still promoted to Chief Secretary when Henry Tang Ying-yen resigned to prepare for the CE election. Prior to that, as constitutional and mainland affairs minister, Lam was consistently ranked as among the least popular of the top government officials.

SOCIAL DYNAMICS AND PRESSURES The policy U-turns reflect the government’s concern with social unrest especially when it will have grave implications for political stability in the event that the public’s grievances are not properly addressed. On the other hand, there is an apparent strong sense of insecurity felt by the public towards the government — Hongkongers are sceptical that the government is truly serving the interests of the society. On livelihood issues, people seldom see the government’s proposals as adequate and are always demanding for more. On political issues, like the plan to scrap by-elections, the society often refuses to give in without some resistance.

b1401_Ch-10.indd 175

8/28/2012 8:03:40 PM

b1401

176

East Asia: Developments and Challenges

K.-M. Kwong and C.P. Yew

A structural explanation for this underlying mistrust is that the power of the CE does not derive from universal suffrage in Hong Kong, but from the Election Committee (EC). The election is normally described as “small circle” election in which Beijing casts its influence on the voting results. The CE therefore lacks a popular mandate. A persistent concern is that the CE is accountable only to his power source — business interests affiliated to Beijing that wield significant voting power in the EC and the central government — rather than Hongkongers. The government’s underperformance and lack of a public mandate have weakened its authority considerably, leading to government policies that are gradually being driven by public opinion polls. In contrast, the LegCo, which is partly made up of directly elected seats and thus backed by a stronger public mandate, has strong veto power to block government bills. The society is increasingly uneasy with the disproportionately large political influence of tycoons, especially that of property developers. Even though their numbers are small, they play a decisive role in local politics. They have plural votes for the LegCo’s Functional Constituencies (FC) and in the EC. The government’s reliance on land sales for revenue confers substantial bargaining power to developers on development issues such as urban renewal which affects the lives of the ordinary people. The tycoons’ political influence extends to the central government as well. In September 2010, Hu Jintao extended a one-on-one meeting with property magnate Li Ka-Shing rather than the CE, stirring up discussions on whether Hong Kong has become “Li’s family city”. This unease further translates into hostility towards the rich. Collusion between the government and the business sector in the name of laissez faire is seen as contributing to Hong Kong’s income gap, the biggest in the world. This sentiment was fanned by a local research report which revealed that political connections obtained through joining the EC do improve a firm’s performance measured by return on equity and market-to-book ratio. The book Land and the Ruling Class in Hong Kong published in July 2010, criticising past and present governments for favouring major developers with

b1401_Ch-10.indd 176

8/28/2012 8:03:40 PM

b1401

East Asia: Developments and Challenges

Fifteen Years After Hong Kong’s Handover: Is this City Dying? 177

high-land-price policies, turned the call to “end property hegemony” into a catch phrase. This resentment translates into challenges to government’s “economy first” approach. Hongkongers are also concerned that their government is but a rubber-stamp of Beijing. This concern harks back to the 1989 Tiananmen massacre, a key event that has reinforced Hongkongers’ sense of identity and a sense of “us” (Hongkongers) versus “them” (the Mainlanders). Their sympathy towards the students and apprehension over the Chinese Communist Party (CCP) triggered an exodus before the 1997 handover. The discourse on Hong Kong’s core values, developed in 2004, is grounded in this mentality. Candidates for the CE election campaigns in March 2012 were frequently asked about their stance on the Tiananmen incident wherein their response had significant impact on their popularity. Hongkongers have not forgotten the June 4 incident since the handover. Instead, the memory of 4 June has been passed on to a younger generation. As such, more people have been attending the annual candlelit memorial. In three consecutive years from 2009 to 2011, participant numbers reached 150,000 or more. In the past decade, the 4 June incident had also been frequently mentioned in two local Chinese newspapers, Ming Pao and Apple Daily (see Table 1).6 Hongkongers’ alarm over “Mainlandisation” — changes undermining Hong Kong’s core values and its autonomy under “one Table 1. Frequency of mentioning 4 June incident in newspapers Year

2002

2003

2004

2005

2006

No. of articles

200

261

472

413

287

Year

2007

2008

2009

2010

2011

No. of articles

395

248

999

450

367

6

The frequency counting is based on how often the two key words about the 4 June incident were used in the two local Chinese newspapers through a news search engine, WiseNews. Counting for 2011 figure is up till November. Authors’ computation; Lü Dale, Wu Junxiong, Ma Jiewei, Xianggang, sheng huo, wen hua, Xianggang: Niujin da xue chu ban she, 2011, p.185.

b1401_Ch-10.indd 177

8/28/2012 8:03:40 PM

b1401

178

East Asia: Developments and Challenges

K.-M. Kwong and C.P. Yew

country, two systems” — is not unfounded. As early as 2004, over 300 professionals, concerned that Hong Kong’s core values were being eroded under Chinese rule, issued a declaration in the press to uphold the values of human rights, rule of law, democracy, freedom and others. The undermining of these core values, however, does not seem to have abated. If anything, the curtailment of various freedoms and rule of law seems more pronounced in today’s Hong Kong. During Chinese Vice Premier Li Keqiang’s visit to Hong Kong in August 2011, only some of Li’s activities were open to reporting by the local media; some reporters were blocked by unidentified security guards; and two students wearing T-shirts with 4 June slogan were confined by the police at the Hong Kong University campus where Li was paying a visit. Hong Kong plunged 20 places to number 54th in the Press Freedom Index 2011–2012. According to Reporters Without Borders, Hong Kong (54th) saw a sharp deterioration in press freedom in 2011 and its ranking fell sharply. Arrests, assaults and harassment worsened working conditions for journalists to an extent not seen previously, a sign of a worrying change in government policy.

Other incidents abound. The police also set more boundaries for the 4 June candlelit memorial and 1 July protest in 2011. In August, Hong Kong’s top court, Court of Final Appeal, ruled that the Democratic Republic of Congo could not be sued in the Special Administrative Region (SAR), deferring to the Standing Committee of National People’s Congress’s interpretation of the Basic Law. Contradicting its established common law system, the ruling was seen to undermine Hong Kong’s judicial independence. In October, when the policy address was delivered, journalists complained that security guards were impolite to reporters and repeatedly blocked cameramen from taking pictures during the proceedings. In November, the government-owned Radio Television Hong Kong (RTHK) made a controversial decision to fire radio hosts, among which was one whose political views were persistently attacked by local pro-Beijing leftists.

b1401_Ch-10.indd 178

8/28/2012 8:03:40 PM

b1401

East Asia: Developments and Challenges

Fifteen Years After Hong Kong’s Handover: Is this City Dying? 179

The degree of fairness and autonomy in Hong Kong appears to be shrinking too. Fears of vote rigging for District Council (DC) election on 6 November 2010 arose when a significant number of dubious voter registrations were uncovered by the media after the election. The Liaison Office of the Central People’s Government in Hong Kong was accused of intervening in the DC election. In December, one elected District Councillor was found to be a previous staff of the Liaison Office. Fears actually emerged as early as in January 2011. The Action Plan for the Bay Area of the Pearl River Estuary, co-studied by Guangdong, Hong Kong and Macau governments, was criticised as “annexing” Hong Kong to Guangdong and thus bringing a de facto end to the SAR’s high degree of autonomy. Upon public demand, the government extended its consultation with the public. It is amidst such fears of “Mainlandisation” that Hongkongers’ pent-up frustration erupted over a slew of incidents from end 2011 to early 2012, which brought their simmering resentment against mainlanders to the surface and intensified the feeling of “us versus them” (see Table 2). Hongkongers’ rising native consciousness is corroborated by a Hong Kong University poll which asked more than 1,000 respondents to rank the strength of their identity on a scale of zero to 10. Respondents’ identity as “Hong Kong citizens” records a 10-year high at 8.23 points while their identity as “Chinese citizen” has an average score of 7.01, a 12-year low (see Figure 5). In addition, the proportion of respondents identifying themselves as “Hong Kong citizens” outnumbers that of “Chinese citizens” by 20–30%. Only 17% identify themselves as “Chinese citizens, also a new low since 2000.

POLITICAL ORIENTATIONS: SHIFTING LEFT OR RIGHT? With policy making largely driven by public opinion, there has been no consensus on how society attitudes are changing. Three different perspectives prevail: political orientations are either shifting towards the left, towards the right, or have always been slanted to the right.

b1401_Ch-10.indd 179

8/28/2012 8:03:40 PM

b1401

180

East Asia: Developments and Challenges

K.-M. Kwong and C.P. Yew Table 2.

Chronology of events 29 Dec 2011

Hao Tiechuan of the Liaison Office of the Central People’s Government in Hong Kong criticised a Hong Kong University (HKU) survey on Hongkongers’ identity

4 Jan 2012

D&G forbade Hongkongers from taking pictures at its storefront while allowing mainland tourists to do so

5 Jan 2012

Hong Kong’s Hospital Authority released figures on the number of mainland pregnant women delivering babies in Hong Kong’s public hospital

6 Jan 2012

Netizens debated over Chen Yun’s book, Hong Kong as a City-State

8 Jan 2012

How babies born to mainland parents strained Hong Kong’s medical system made headline news Hundreds of Hongkongers gathered to protest at the D&G shop

15 Jan 2012

A video clip showing Hongkongers quarrelling with mainlanders on the Hong Kong MTR went viral

16 Jan 2012

Hundreds of Hong Kong pregnant women protested against government policy allowing the Mainlanders to give birth in Hong Kong

19 Jan 2012

Beijing University’s Kong Qingdong lashed out at Hongkongers over the MTR incident on a mainland TV programme

24 Jan 2012

Hong Kong’s press freedom ranking plunged to 54th according to Reporters without Borders

28 Jan 2012

Three Hong Kong scholars were censured by pro-Beijing newspaper Ta Kung Pao over the HKU survey

1 Feb 2012

A group of Hongkongers ran an advertisement in Apple Daily slamming the Mainlanders and urging the government to amend the Basic Law to stop the Mainlanders from delivering babies in Hong Kong

12 Feb 2012

Netizens protested in objection to a scheme that allows mainland tourists driving private cars to tour Hong Kong from March 2012

Source : Compiled by the authors.

b1401_Ch-10.indd 180

8/28/2012 8:03:40 PM

b1401

East Asia: Developments and Challenges

Fifteen Years After Hong Kong’s Handover: Is this City Dying? 181 Fig. 5. Strength of identity.

Source: HKUPOP.

An image of political orientations taking a leftward shift has been projected by recent social initiatives on welfare protection with an emphasis on equality and distributive justice for citizens and resonating with the discourse on core values, especially for the underprivileged such as low-paid workers. After the minimum wage law was legislated in 2010, different social bodies kept up their advocacy for other forms of protection. Some leftist bodies such as Left 21 and Land Justice League were formed. Activists in the latter successfully pushed the demolishment of Tsoi Yuen Village with about 150 households to the heart of the Guangzhou-Shenzhen-Hong Kong express railway controversies in early 2010. The demolishment became one major factor fanning oppositions to the project. These controversies stirred up protests and fierce debates, giving the government a hard time on gaining passage for the bill in the LegCo. Besides, in December 2011, a new left wing — Labour Party — also emerged.

b1401_Ch-10.indd 181

8/28/2012 8:03:40 PM

b1401

182

East Asia: Developments and Challenges

K.-M. Kwong and C.P. Yew

Other observers perceive society as shifting to the right, citing evidence of the championing of narrow self-interests while core values, such as respect for the rule of law and human rights, are either relegated to secondary importance or dismissed. First, the Civic Party was condemned for its involvement in two Judicial Review (JR) cases on Hong Kong-Zhuhai-Macau Bridge construction work and Filipino helpers’ right of abode.7 Although JR applications are carefully screened by courts, many Hongkongers are unhappy with the Party for what they perceive as an abuse of the legal process and the wastage of public funds. They are also of the view that the granting of abode to domestic helpers may lead to the overcrowding and overloading of Hong Kong’s welfare system. Second, discrimination against “foreigners” had reared its ugly head. After the Budget reversal in March 2011, there was fierce opposition to giving cash handouts to the newly arrived Mainlanders. In hate speeches on Facebook, the Mainlanders were labelled as “locusts” and “free-riders.” Hongkong-Mainland conflicts intensified in early January 2012 over a series of incidents listed in Table 2. In October 2011, another Facebook group, Caring Hong Kong Power, protested outside the Civic Party’s headquarters. The group attacked the party for putting the “minority” needs of Filipino maids before the broader “public interest”. They called for a party “whose heart only goes to Hongkongers”. Lastly, despite a higher voter turnout in November’s District Council election, the “6:4 golden ratio”, under which pan-democrats had always captured 60% of the votes while the pro-establishment 7

For JR on maids’ right of abode in Hong Kong, a legal challenge, with help from a Civic Party lawyer, was made to the contending law that still disqualifies maids from applying for citizenship even after they have met the seven-year stay in Hong Kong. The worry is whether the qualified maids would raise the costs of welfare and medical benefits. For JR on the bridge construction, also with the help of a Civic Party lawyer, a legal challenge was made to the government for not taking into consideration the project’s impact on the environment. The government’s argument that the delay in the project due to this legal challenge has resulted in sharply higher construction costs and temporarily disrupted the creation of construction jobs has fanned opposition to the Civic Party.

b1401_Ch-10.indd 182

8/28/2012 8:03:41 PM

b1401

East Asia: Developments and Challenges

Fifteen Years After Hong Kong’s Handover: Is this City Dying? 183 Fig. 6. Vote share trends in district council elections.

Source: South China Morning Post.

parties took 40% of the votes, was broken. As Figure 6 shows, the pro-establishment camp continued to get higher vote shares than the pan-democrats. This was attributed to the former’s strength in the provision of community services. Some of their support came from new migrants from mainland China who were reliant on community service networks provided by the pro-establishment groups. It is estimated that more than 200,000 new arrivals from the Mainland have become eligible voters since 2003. The pan-democrats’ strategy of getting support through fighting for democracy, justice and posing checks and balances to safeguard Hong Kong’s core values was thus said to be losing efficacy in the face of the pro-establishment camp’s superiority in working the grounds. Results of the DC Election prompted reflections on the historical 1 July 2003 protest, usually seen as a critical juncture for the rise of Hong Kong’s civil society. Some wondered if the demonstration has been misinterpreted or romanticised: people joined the protest out of anger that their self-interests were harmed (For example, in 2003 some suffered from negative equity when housing prices fell). This means that Hongkongers have always been economic animals, validating the perception that they were always perceived as such before the handover. Nonetheless, it is too early to draw a conclusion. In spite of the economic materialism of Hongkongers, the society has not cast values aside. More people had attended the 4 June candlelit memorial in

b1401_Ch-10.indd 183

8/28/2012 8:03:41 PM

b1401

184

East Asia: Developments and Challenges

K.-M. Kwong and C.P. Yew

recent years, and there was vehement opposition to the government’s plan to abolish by-elections. Even though the Civic Party was severely smeared by its involvement in the two JR cases, its success rate in this year’s DC election only dropped slightly compared with the previous one. This, to a certain extent, implies that values upheld by the Civic Party in the JR cases still received considerable level of support in the society. This means even though resentment towards non-Hongkongers suggests that the society is somehow tilting rightward whether this implies it will prioritise self-interests over values, thereby undermining the pan-democrats’ political power and Hong Kong’s democratisation, is yet to be known. It is premature to draw a conclusion based on the outcome of the recent DC Elections. As a pre-election survey shows, voters were clear about the functional differences between the DC and LegCo: the former is for local affairs while the latter is for posing checks and balances on the government. Results of the 2012 LegCo election will tell if this distinction translates into different outcomes for the two elections, or if political orientations are indeed shifting rightward.

2012 AND BEYOND: CHALLENGES AHEAD After going through almost two CE leaderships, Hong Kong seems nowhere near to resolving the lack of public confidence in the government. The cases of policy U-turns cited earlier demonstrate public distrust of the government’s purported aim of serving the Hong Kong people. The public has also become more vocal and critical of the government despite the Tsang government’s success in legislating the minimum wage and raising Hong Kong’s Gross Domestic Product (GDP) per capita by 22% over the past four years. In 2011, people’s dissatisfaction with current political and livelihood conditions have peaked since 1992. Even though 15 years have passed since the 1997 handover, mutual understanding and affinity between the people in China and Hong Kong do not seem to have made much progress. A historically high proportion of people have since the handover identified

b1401_Ch-10.indd 184

8/28/2012 8:03:41 PM

b1401

East Asia: Developments and Challenges

Fifteen Years After Hong Kong’s Handover: Is this City Dying? 185

themselves as Hongkongers rather than Chinese citizens in June 2011. More significantly, public confidence in the “one country, two systems” model had dipped to the 2004 level. To date, two candidates from the pro-establishment camp have confirmed they are running for the CE election. Leung Chun-ying, purportedly the more popular candidate among Hongkongers, secured a lower number of votes in the EC than his political rival Henry Tang Ying-yen. Tang is backed by the commercial sector but his close ties to businesses render him unpopular among Hongkongers. The next CE has several unenviable tasks during his tenure. Apart from tackling the widening wealth gap and housing problem, he may have to implement and oversee universal suffrage for the CE election and LegCo election during his term. According to the Standing Committee of the National People’s Congress (NPCSC), “the election of the fifth Chief Executive of the Hong Kong Special Administrative Region in the year 2017 may be implemented by the method of universal suffrage; that after the CE is selected by universal suffrage, the election of the Legislative Council of the Hong Kong Administrative Region may be implemented by the method of electing all the members by universal suffrage”.8 While the transition of the CE election to universal suffrage seems more straightforward — the CE electorate may be turned into a nominating committee — reforming the LegCo is a thorny issue. Incumbent legislators of the FCs are unlikely to relinquish power willingly, making the abolishment of FCs a near impossibility. The other option is to broaden the electoral base of the FCs, perhaps in the footsteps of the five new District Councillor seats that will be elected by 3.2 million voters for the first time in September 2012. The new CE may also have to look into the legislation of Article 23, a political “hot potato” which had forced Tung to step 8

Refer to “Decision of the Standing Committee of the National People’s Congress on Issues Relating to the Methods for Selecting the Chief Executive of the Hong Kong Special Administrative Region and for Forming the Legislative Council of the Hong Kong Special Administrative Region in the Year 2012 and on Issues Relating to Universal Suffrage”.

b1401_Ch-10.indd 185

8/28/2012 8:03:41 PM

b1401

186

East Asia: Developments and Challenges

K.-M. Kwong and C.P. Yew

down and Tsang to sidestep the issue during his term. Article 23 stipulates that the Hong Kong “shall enact laws on its own to prohibit any acts which are harmful to national security.” The National Security (Legislative Provisions) Bill drafted in response to Article 23, however, was withdrawn in 2003 after the massive protest against its enactment. In order for the National Security Bill to gain passage, there must be a majority vote in the LegCo, i.e. more than 35 votes are required in the expanded LegCo with 70 seats. Currently, in the 60-seat LegCo, pan-democrats hold 19 seats in the Geographical Constituencies and four seats in FCs. This gives the camp veto power over important bills which require a two-thirds majority to gain passage. But what if the pan-democrats fail to capture enough seats and lose this veto-power through the September election? The outcome of the 2012 LegCo election, therefore, has great significance for Hong Kong in the years ahead. Beijing is likely to keep a close watch on the election and its outcome that will signal if there is a window of opportunity to be seized. If the pan-democrats suffer a rout in the election, then the path to legislating Article 23 will be more smooth-sailing; implementation of universal suffrage may also be delayed. Over the long term, the defeat of the pan-democrats in the coming LegCo election will be detrimental to the upholding of Hong Kong’s core values. Hong Kong could not have achieved what it has today without its core values embodied in its institutions: rule of law, press freedom, freedom of assembly and so on; its success lies precisely in it being distinct from other Chinese cities. Any attempt to make Hong Kong into yet another Chinese city will only backfire and evoke a stronger assertion of Hong Kong identity, or worse, deepen xenophobia against the Mainlanders. Beijing and the Hong Kong government will need to tread carefully to avoid a confluence of factors that had galvanised half a million Hongkongers to take to the streets in 2003. While universal suffrage may go some way to allay public anxiety of the government’s alleged collusion with businesses and its image as Beijing’s rubber stamp, it may not be sufficient to improve governance in Hong Kong. The new CE and his team still need to address a series

b1401_Ch-10.indd 186

8/28/2012 8:03:41 PM

b1401

East Asia: Developments and Challenges

Fifteen Years After Hong Kong’s Handover: Is this City Dying? 187

of structural issues. First, the boundaries between market and government may need to be redrawn, given emerging resentment towards the rich; second, the government has to find better means to incorporate public views in policy making to avoid further policy U-turns. A possible way may be to rope in political parties and thinktanks which have risen in number in recent years; third, cooperation between principal officials and the civil service team has to be smoothened out to enhance the responsiveness of policies. In the foreseeable future, the society will continue to play a key role in driving government policies, more so if they remain uneasy with the influence of businesses and central government in local politics. The results of the forthcoming LegCo election, to some extent, will serve as an indicator of where and how precisely social dynamics are heading.

b1401_Ch-10.indd 187

8/28/2012 8:03:41 PM

b1401

East Asia: Developments and Challenges

This page intentionally left blank

b1401_Ch-10.indd 188

8/28/2012 8:03:41 PM

b1401

East Asia: Developments and Challenges

Index

1 July protest 174 1992 Consensus 132, 153 1993–1994 Taiwan Policy Review 162 2011 Japanese Diplomatic Bluebook 87

Chief Executive 166 China 98, 106 China-ASEAN 60 China-ASEAN maritime 60 China-EU 53 China-Japan ties 57 China policy 116, 159 China-US relations 50, 51, 64 China-US relationship 51, 53 China-US ties 50, 64 Chinese Communist Party (CCP) 21, 177 Chinese leadership 10 Civic Party 184 co-existence with the United States without hegemonic competition 161 corruption 10, 11, 21, 128 Court of Final Appeal 178

anti-China sentiments 2, 50, 64 arms sale 157 Article 23 174 Association of Southeast Asian Nations (ASEAN) 140 Beijing 106 bilateral alliance 101 Bo Xilai 11 Budget 172 Caring Hong Kong Power 182 Chen Shui-bian 121 Cheonan 107 189

b1401_Index.indd 189

8/28/2012 8:03:00 PM

b1401

190

East Asia: Developments and Challenges

Index

cross-strait 117 exchanges 152 relations 61, 117 ties 61 currency manipulator 2 deceleration 34 Democratic Party of Japan (DPJ) 75 democratic socialism 21 denuclearisation 6, 98, 103 domestic consumption 31 domestic demand 37, 38 Donald Tsang 172 DPP 116 economic 10, 22, 111, 117, 130 growth 29–31, 34, 36–38, 40 Economic Cooperation Framework Agreement (ECFA) 137, 143–145, 149 economy 110, 130 Election Committee 176 elections 116 ethnic 19 EU relationship 53 foreign policy challenge 49 Free Trade Agreement (FTA) 102, 133, 143, 145, 146 Fukushima number one nuclear plant 74, 76 Futenma 85 Genzei Nippon 80 government 18 Gross domestic product (GDP) 134, 148

b1401_Index.indd 190

growth 33, 36, 40 deceleration 34 prospects 29 hard 33 landing 29, 33 or soft landing 33 Hashimoto Toru 80 Hatoyama Yukio 76 HKUPOP 172 Hong Kong and Macau Affairs Office of China’s State Council 172 Hong Kong-Zhuhai-Macau Bridge 182 House Ownership Scheme 172 Hu Jintao 13 Ichikawa Yasuo 86 importation of US beef 156 independence 123 inflation 10, 29–34, 40 inflationary 30, 31 inflationary pressures 22 Information and Communication Technology (ICT) products 137 Inoguchi Takashi 77 intra-party democracy 21 investment in China 138, 140 June 4

177

Kan Naoto 76 Kawamura Takashi 80 Kim Jong-il 98, 105, 108 Kim Jong-un 98, 108 KMT 116, 134, 143, 145 Koizumi Junichiro 77

8/28/2012 8:03:00 PM

b1401

East Asia: Developments and Challenges

Index

Koshiishi Azuma 80 leadership succession 50 transition 3, 23, 30 Legislative Council 166 Liberal Democratic Party 79 local 122 Mainlandisation 165, 177 Ma Ying-jeou 121 METI 75 microblogs 18 military 103 Ministry of Economic Affairs (MOEA) 135, 137 Nakaima Hirokazu 85 National Institute of Population and Social Security Research 90 nationalism 21, 123 nationalistic 127 neo-Confucianism 21 NISA 76 Noda Yoshihiko 76 nuclear 97–99, 101, 103, 104 disarmament 100, 102 programmes 111 village 75 Omura Hideaki 80 one country, two systems 7 Operation Tomodachi 86 Osaka Ishin no Kai 80 Ozawa Ichiro 76, 82 Peace and Prosperity 98, 100 peaceful development 161 Politburo 11, 13 political 11, 121

b1401_Index.indd 191

191

princeling 22 property hegemony 169 protests 18 Pyongyang 104, 105 Radio Television Hong Kong 178 Rason free trade zone 106 renminbi exchange rate 46, 48, 160 rule of law 166 security 103, 109 Seoul 107 Six-Party Talks 108 slowdown 29, 30 small and medium enterprises (SMEs) 138, 149 social injustice 21 social problems 12 social unrest 10 Softbank’s Son Masayoshi 77 soft landing 33 Soong, James 127 South China Sea (SCS) 51, 57, 60, 61, 68, 88 disputes 50 issue 61 South Korea 99 strategic liability 158 succession 104 Sunshine 98, 100 Taiwan 138, 140 investment in China 138 outward investment 138, 142 Relations Act 153 sovereignty 163

8/28/2012 8:03:00 PM

b1401

192

East Asia: Developments and Challenges

Index

Tanaka Satoshi 86 TEPCO 75 Tiananmen massacre 177 trade 99, 105, 106 bilateral 106 border 105 Trade and Investment Framework Agreement 156 Trans-Pacific Partnership (TPP) 52, 84 agreement 5, 50, 64 Triple Disasters 4, 73 Tsai Ing-wen 116 Tsang, John 172 tsunami 74

b1401_Index.indd 192

unemployment 119, 130 United States 98, 106, 118 universal suffrage 176 unrest 17 US’ Taiwan policy 159 Wang Guang-ya 172 Wang Lijun 12 Washington 106 weapons 109 Wen Jiabao 13, 169 widening rich-poor gap 7 Xi Jinping 22

8/28/2012 8:03:00 PM