US-China relations enter a dangerous phase; The global environment for Asia – CAA Weekly

Key highlights from the CAA Weekly Table

  • Global economy: Signs of an uptick in the global capex cycle bode well for export-oriented Asian economies while deflationary pressures continue to ease.
  • Global geopolitics: Claimant countries are entrenching their military positions in the East and South China Sea even as US-China tensions rise.
  • Asian economies: The cyclical recovery currently underway in China is coming at the expense of long-term stability. India’s cash crunch has dampened economic activity, putting pressure on fiscal and monetary policy to shore up growth. In Singapore, stronger export growth could offset the lacklustre domestic economy in the coming year.
  • Asian politics: President Jokowi has skilfully prevented his rivals’ efforts to exploit Islamic extremism to undermine him. In the Philippines, President Duterte remains highly popular as his predecessors did in the early stage of their terms but this can change quickly.

US-China relations enter a more dangerous phase

  • China carried out a brilliant manoeuvre by boldly seizing a US naval vessel from under the nose of the US then swiftly agreeing to return the vessel to the US, albeit on its own terms.
  • The US does not take lightly to being humiliated and is likely to respond with stepped up surveillance activities in the region.
  • While some countries like Malaysia and the Philippines may continue to edge closer to China, other Asian powers who have differences with China such as Japan, South Korea, India and Vietnam are more likely to seek ways of containing a rising Chinese threat than cave in to China. One obvious way is enhanced security ties with the US.
  • China is likely to step up measures to gain more influence in East Asia by rewarding those countries who cooperate with China such as Malaysia and the Philippines, while penalizing those nations who have been wary of them such as Singapore. The situation will remain volatile and there are likely to be more incidents from time to time as China tests the US and carefully pushes the envelope further.

Five drivers of the global environment for Asia

  • The world in which Asian economies operate will be shaped by five key themes: Stronger global growth, higher import intensity, improved inflationary expectations, more financial turbulence and heightened political stresses.
  • Our best guess is that while many unpleasant things could happen, the worst risks can be contained.
  • We analyse the implications of these global drivers and domestic forces on Asia.

 

 

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19-Dec-2016


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