Navigating change and uncertainty in the Asia-Pacific

TOKYO — In a wide-ranging speech in Tokyo on Thursday (Sept 29), Prime Minister Lee Hsien Loong spoke of the challenging conditions in the Asia Pacific as countries try to navigate difficult internal conditions as well as major geographical shifts, particularly those triggered by the rise of China. These are his prepared remarks, in full, at the special session of the Nikkei Conference on the Future of Asia.

“Mr Tsuneo Kita, Chairman and Group CEO

Mr Naotoshi Okada, President and CEO
Distinguished Guests, Ladies and Gentlemen
 
I am very happy to address this special session of the Nikkei Conference.  I last spoke at the Conference two years ago, on its 20th anniversary.  This occasion is special, because we are celebrating 50 years of diplomatic relations between Singapore and Japan.  My visit reflects Japan’s deep and enduring relationship with Singapore and with the region.

Setting the Context

We are meeting at a time of great change and uncertainty.  Seven years after the Global Financial Crisis, many economies are still under-performing. Wages are stagnant. Workers are anxious about jobs. Protectionist, anti-immigrant, anti-globalisation sentiments are prevalent. Extremist protest parties on both the left and right are putting governments under pressure. The EU faces fundamental problems ranging from refugees to Euroscepticism and Brexit, while the US is in the midst of a troubled and untypical Presidential election.  Terrorism is a problem for many countries.

Compared to the rest of the world, Asia is not doing badly.  The region is dynamic, and offers many opportunities, from serving the growing middle class populations to building badly needed infrastructure. But of course Asia too has its own issues.  Rapid change brings its own problems, plus each country has its own preoccupations, whether these are political, economic, or security.

The biggest change in Asia, and the world, is the rise of China.  China’s GDP grew at an average of more than 10 per cent per year for over 30 years, growing more than 25 times. Its external trade has become huge. China is now the biggest trading partner of almost every ASEAN country, and also of Japan.  China’s outbound direct investment is growing rapidly, and by last year (2015) its outbound Foreign Direct Investment exceeded its Foreign Direct Investment (inbound).  China’s rise has had an impact on everyone, and I would like to make three points on China.

One, China’s rise has been, overall, a huge plus for the world. China is stable, prospering and increasingly integrated into the global economy. Hundreds of millions of Chinese have been lifted out of poverty. Consumers worldwide have benefited from affordable and high quality exports from China: clothes, smartphones, home appliances, and much more. Companies everywhere eye the huge China market, hoping to sell everything from aeroplanes to life insurance and healthcare. China’s success, and its growing inter-dependence with other countries, has contributed greatly to the prosperity of Asia, and the world.

Secondly, China’s rise requires every country to make major adjustments. China itself, smaller countries around the world and the other powers. This calls for restraint and wisdom from all sides.

China itself has to adjust to its new role in the world, and take on new responsibilities as an emerging major power.  China has started to do some of this, as shown by China’s growing contributions to UN peacekeeping operations, and their early ratification of the Paris Agree­ment on climate change.

At the same time, China should be mindful of the natural unease and apprehension that its rapid rise elicits in its neighbours and other powers. It should act in such a way as to demonstrate that it is committed to building win-win relationships with other countries, and that while it seeks to revise existing frameworks and rules, it is not about to overturn the established international order which it has itself benefited from. 

As for smaller countries, they will have to take the policies and interests of an emerging major player more into our calculations.  However, we can also benefit from new opportu­nities for trade and economic cooperation with China, for example through projects of the Asian Infrastructure Investment Bank and the “One Belt, One Road” initiatives, which address Asia’s need for better infrastructure and connectivity.

On the part of the other major powers, they should accommodate the legiti­mate interests of a growing China. China wants more influence over global developments, like other major powers. It will increase its contributions to international cooperation, in accordance with its capabilities, resources and interests, and in the hope of having more say at institutions such as the UN, IMF and World Bank. These aspirations need to be recognised, and given due weight and consideration by the other powers.

Such a major shift in the strategic balance will not happen effort­lessly. We have to expect frictions and disputes from time to time, especially between neighbours, because each country has its own national interests.  It is thus not surprising that China is involved in territorial and maritime disputes in the South China Sea and the East China Sea. But all sides have a vested interest in reaching a new and workable balance, and in minimising conflict. For if countries fail to work together, we are not just losing opportunities to prosper together, but are also putting at serious risk all that we have achieved so far.

Ultimately, a stable external environment is eminently in China’s interest. China’s prosperity depends on other countries too. Despite its size, China is not self-sufficient, and cannot be. On its own, minus access to world markets, foreign technology and MNC investments, China will be much poorer off.  Furthermore, external peace and stability will allow China to focus on its domestic challenges, which are considerable.

Thirdly, on China, we should recognise that China’s emergence has not been, and will not be, completely smooth. There are serious internal challenges, and successive challenges will only become even more complex and difficult to overcome. China’s economic base has greatly expanded, but now that the economy is at a higher level, the pace of growth has inevitably slowed. Its present challenges are pressing: the low wage, export-driven model of growth is reaching its limits; the environmental impact has become enormous; there are growing demands to improve public services; and the population is rapidly ageing. Tackling these requires China to address fundamental issues of economic restructuring, social reform, political evolution. And all these involve difficult trade-offs and risks.

Therefore we cannot extrapolate from the last 30 years of China’s transformation, and assume another 30 years of equally spectacular change. Instead we should see China as a country with a very successful economy, but one which also has its share of challenges and constraints, like everyone else.  Its outlook is promising, but its path to continued success is not linear.

Chinese leaders have realistically acknowledged that China has entered a “new norm”. They are clearly mindful of the challenges ahead, but appear determined and confident to tackle the structural, social and economic changes that China needs to achieve its growth objectives.

We certainly hope that China will succeed. This is because a stable and prosperous China conscious of its weight and responsibilities, moving forward on a path of “Peaceful Development”, will greatly benefit the Asia-Pacific, and bode well for the world.

Japan

Against this strategic backdrop and these changes in Asia, I believe Japan also has an important role to play.

For many decades, Japan has promoted peace, stability and development in the region and made valuable contributions. But changes in Japan and the region mean that Japan must evolve in order to keep on doing this. Let me make three comments, speaking as an outsider who wishes Japan well and admires Japan.

First, I hope that Japan succeeds in reinvigorating its economy. Domesti­cally, Japan has deep-seated economic challenges. PM Abe is tackling them with his three arrows, of which the third – structural reforms – is the most important. The structural reforms are underway, including reforms in your foreign labour policy, reforms to encourage women to enter the workforce, and to liberalise and modernise your agricultural sector.  I urge Japan to take bolder moves, because more needs to be done. An economically vigorous Japan is a precondition for sustaining an active role in the Asia-Pacific.

Japan needs not only domestic reforms, but also to maintain an outward orientation, engaging with the world.  In a globalised world, countries succeed not just through their own capabilities, but by understanding other countries and cultures, interacting with them, and absorbing talent and ideas from others. This is the great strength of the US.  Japan is, however, a much more homo­geneous society than the US. It also does not have the advantage that the US enjoys, of the rest of the world speaking the same language as itself.  Therefore, Japan needs to make a greater effort to expose its people to the world, especially the young.

One avenue is for Japan to send your young people abroad, to study in top universities overseas.  Ivy League colleges in the US used to take in more Japanese students.  But in recent decades, the number of Japanese students has gone down, whereas the number of Korean and Chinese students has gone up. Now, there are more Korean than Japanese students studying in Ivy League colleges, although Korea has less than half the population of Japan. There probably are reasons for this. There must be. But if more young Japanese can be exposed to study abroad with the best and brightest from around the world, and then come back and be integrated back into Japanese society and economy, bringing with them different perspec­tives and approaches, this can only enrich and invigorate Japan. Indeed, this is what Japan did in the Meiji Restoration.

Another avenue to strengthen Japan’s outward orientation is through free trade. This is one reason the Trans-Pacific Partnership (TPP) is such an important initiative for Japan. PM Abe made a bold and decisive move to join the TPP.  He sent a clear signal that Japan intends to maintain an outward orientation. The TPP will also help Japan to bring about needed domestic change, and make the economy more competitive, including in sensitive areas.

The TPP still needs to be ratified by its members, including by the US and Japan. Singapore was one of the four original founders of the TPP’s predecessor, the P4 together with Chile, Brunei, New Zealand. We have consistently encouraged and supported Japan joining the TPP negotiations.  Japan’s Diet will soon be debating TPP ratifi­cation, in fact these few days. We naturally hope that the TPP clears the Diet, whatever happens in the US. Japan’s decision carries weight, being the second largest economy in the TPP-12 and the third largest in the world.  We should also welcome China to join the TPP eventually, because the TPP is not just aimed at the 12 current members but a pathway to free trade in the Asia Pacific.

Secondly, I hope Japan will have stable and peaceful relations with its neighbours and big powers, in particular with China and the US.

Stable and peaceful relations with neighbours are not something that Japan can achieve alone. It takes two hands to clap. All parties have to work together towards such a win-win outcome. Therefore, I am glad that Japan has made progress with ROK on the issue of comfort women. 

With China, Japan’s relationship is more complicated, because the wounds of war have not completely healed.  Three years ago in Shenyang, China, I visited the 9.18 Historical Museum. The 9.18 is the Shenyang Incident or the Mukden Incident marked the beginning of the Sino-Japanese War. I wanted to see how the museum portrayed this tragic historical episode. At the end of the tour, my hosts invited me to pen my thoughts in the guestbook. I wrote “和平无价” – “peace is priceless”.

We are fortunate that Northeast Asia has been at peace (or at least has not been at war) since the Korean War ended more than 60 years ago. But if the peace is shaken, either because territorial disputes escalate out of control, or because tensions on the Korean peninsula destabilise the region, it will be big trouble. All the issues at stake in the various disputes will not be worth the price of war.

Till today, China and Japan still have differences, including over the Senkakus/Diaoyu islands.  But I hope both countries will work together to manage the disputes and also to pursue opportunities, and not see the relationship as a zero-sum game.

The Japan-China relationship is simultaneously competitive and cooperative. It will require effort and accommodation on both sides. Therefore, I welcome the recent meeting between President Xi Jinping and Prime Minister Abe at G20 Summit in Hangzhou. Direct communication is the first step towards mutual under­standing and resolution of differences. If both China and Japan work hard at it and avoid mishaps, both will save themselves a lot of problems, and the region will heave an enormous collective sigh of relief.

With the US, I hope that Japan will maintain your strong links. The US-Japan Security Alliance has played an important role since the war. The Alliance continues to be a cornerstone of regional stability, because it anchors the US in the region, and restrains countries in Northeast Asia from escalating their disputes. The US nuclear umbrella helps Japan to maintain its long-standing policy against nuclear weapons. It also mitigates the risk that Japan may be forced to respond to the DPRK’s militarisation and nuclear programme, with unforeseeable and dangerous consequences.

But a military alliance does not exist independent of the overall relationship. For the US Japan Security Alliance to endure, there must also be shared and growing economic interest and partnership between the US and Japan. That is why the TPP is strategically important. It will deepen US engagement with Japan and the region. In turn, America’s continued interest in Asia will enhance Asia’s security and stability, and provide the basis for all countries in the region to grow in peace.

If Japan can maintain good relations with your neighbours and the powers, it will make it easier to advance Mr Abe’s Proactive Contribution to Peace policy and also Japan’s Legislation for Peace and Security, within the US-Japan Security Alliance.  Singapore supports these initiatives, which call for an inclusive and rules-based regional architecture, and will enable Japan to play a larger role in regional affairs.

Thirdly, we hope Japan will continue to play an active and constructive role in Asia, especially Southeast Asia, as it started doing in the 1960s and 1970s. In 1977, Prime Minister Fukuda stated the Fukuda Doctrine, committing Japan to peace, and to cooperating as an equal partner of the  ASEAN group and its member countries. This was at a crucial moment in ASEAN’s development. The Vietnam War had just ended, and for many ASEAN countries, the future looked very uncertain. Japan’s economy was then growing vigorously. Your companies were becoming world leaders in many different fields – finance, electronics, cars, ship-building, heavy engineering. The Fukuda Doctrine and Japanese foreign direct invest­ments made a tremendous impact on Asia. Japan led the flying geese of the Newly Industrialised Economies (i.e. Singapore, ROK, Hong Kong and Taiwan) to grow rapidly. Cetainly in Singapore, Japanese in Singapore and the Japanese linkage made a tremendous difference to us.

But after 1990, as Japan experienced protracted economic troubles, your attention understandably turned to domestic matters. Nevertheless, you have maintained your relationship with ASEAN and Asia-Pacific. You participated in security and regional forums, provided aid to less-developed countries, and expanded your trade links.

Today, Japan remains an important player with great influence. You have a full agenda of cooperation with ASEAN. You have an ASEAN-Japan Comprehensive Economic Partnership, the goods chapter is implemented, Trade and Services and the Movement of Natural Persons are chapters which have already been negotiated, although not yet signed. Japan is also participating in the Master Plan on ASEAN Connectivity, and contributing substantial financing for infrastructure – US$200b – under the “Partnership for Quality Infrastructure”.

I hope you will further develop your ties with ASEAN and the region. The TPP and the RCEP will promote economic integration.  A liberal ASEAN Japan Air Services Agreement will benefit business and tourism. The East Asia Summit and APEC forums will foster an open and inclusive regional architecture. I hope Japan will engage actively in all of these areas.

Conclusion

The Asia-Pacific is entering a period where we must navigate both major geopolitical shifts and difficult internal conditions. Countries can only succeed in this challenging environment by strengthening our cooperation, and not by turning inwards.

This is even more important for key players like Japan, who influence the tone for the region. Japan has played an important and positive role for decades, promoting regional peace, stability and development. I hope you will continue to play this constructive role and keep on promoting regional peace, stability and development for many years to come.

Thank you