Potential Threats to Regional Stability in Asia

Thank you to IISS for organising this Sherpas' Meeting. First, let me bid all a very warm welcome to this inaugural Sherpas' Meeting. We are still within the Chinese New Year festivities, so let me wish all of you a Happy Chinese New Year. As you know, it is the Year of the Water Snake, and there are particular attributes to the Water Snake. Let me cite some for you: wisdom, intuition and charm.

As John (Chipman) said, this is the 12th year of the Shangri-La Dialogue, and I would say the Shangri-La Dialogue has established itself as the foremost defence and security conference in the Asia-Pacific. Last year, 29 ministerial-level delegates participated from 28 countries. And in my course of meeting defence ministers and senior officials around the world, they tell me that the SLD has become a "must-attend" annual event because it provides them a very useful platform to meet and discuss key security issues. Here, the IISS deserves full recognition for its efforts and the very adroit way of handling and organising the Shangri-La Dialogue and ensuring its success.

But the Shangri-La Dialogue goes beyond mere dialogue. It has also delivered important outcomes. Let me cite one concrete example in recent years. This was is the "Eyes in the Sky" initiative - a proposal raised by Malaysian Prime Minister, then Defence Minister Najib Razak, at the 2005 Shangri-La Dialogue. He had proposed joint maritime patrols and this was accepted by ministers of the Littoral States. That is the reason why we have combined air patrols over the Malacca Strait by Indonesia, Malaysia and Singapore. As a result, the incidence of piracy attacks in the Malacca Strait came down sharply and Lloyd's removed the Malacca Strait from its list of war-risk zones in 2006, and downgraded the insurance premiums of shippers for the region. So as sherpas, I hope that you can steer the Shangri-La Dialogue to deliver more of such outcomes.

This morning, I thought it would be useful, and I know that I am addressing very senior security experts, to address some of the key issues and have titled my talk quite simply "Potential Threats to Regional Stability in Asia". Let me first sketch the backdrop.

Rising Asia

All things considered, Asia, and I am including Australasia here, has done relatively well over the last two decades, compared to the Western Hemisphere. Between 1990 and 2010, growth in GDP per capita averaged nearly 7% per year for Asia compared to 1 to 2% for Europe and the US. So it does not come as a surprise that most leaders - business or government leaders that I meet - agree that Asia is the part of the world to have been in during this period.

What accounted for the strong growth and good fortune of this region compared to the rest of the world? Indeed, economic growth has lifted many boats. For China alone, its per capita GDP has increased almost 18-fold since 1950, and over 600 million people have been lifted out of poverty since China initiated market reforms in 1978. Most would agree that the seeds of the recent harvests were sown much earlier, after WWII when new institutions and structures were created - the UN, the IMF, the World Bank and GATT - some institutions which laid the foundations for the financial and trading systems that enabled globalisation to flourish greatly. This global system facilitated the flow of goods, capital and talent over the last 50 years. In this, the US played a critical role in providing the global security umbrella that allowed this region to prosper economically. Here, I would like to quote former Indonesian Defence Minister Dr Juwono Sudarsono. He said, "America's 'forward presence'... provided vital 'strategic assurance', guaranteeing regional and financial growth. America’s dominance over the global commons was the critical pillar enabling all East Asian export-based strategies, augmenting Japan, South Korea, Taiwan and China to develop their trade, finance, investment and banking reach."Asia's growth engines received a tremendous boost when Deng Xiao Ping lifted the Bamboo Curtain for China, particularly with the introduction of Special Economic Zones in Chinese coastal cities in the 1980s. India, marginalised economically by the Cold War, entered the global trading system through reforms pushed by Prime Minister Manmohan Singh, who was then their Finance Minister. ASEAN Member States, despite great birthing pains, emerged from their colonial pasts towards independence and are now on a firmer footing. In fact the economic outlook for Southeast Asia as a whole remains rosy, with the OECD’s latest forecast projecting an average of 5.5% growth over the next five years.

Asia's growth is a much needed engine to sustain global growth. The question we all want to ask is: Can this be sustained in the future? I think the answer is probably, but there are potential threats to regional stability and growth that I would like you, as security experts and senior officials, to think about and help solve.

Potential Threats to Regional Stability

Many of you would be well versed with the known challenges that worry us all. So, I choose not to dwell on them but they would include the current tensions in the South China Sea and East China Sea, and on the Korean Peninsula. Suffice to say, North Korea continues to play a dangerous game of brinksmanship with its missile launches and nuclear tests. Singapore is gravely concerned about North Korea’s most recent nuclear test, which is a clear breach of the relevant UN Security Council resolutions and threatens to destabilise the entire region.

But apart from these known issues, there are less obvious but I think no less impactful security challenges arising from fundamental shifts in the geo-political landscape. As some have called them - the Known Unknowns and the Unknown Unknowns. So I will choose to dwell on some of these.

Shifting Dependencies in a Multipolar World

First, how do we accommodate the interests of both rising powers like China and India and that of US, a resident power in Asia? More importantly, how do we maintain stability, as economic weights and dependencies shift? Indeed, global trade patterns have been fundamentally altered over the last two decades. Let me give you some figures. Prior to China’s accession to the WTO in 2001, China was not amongst ASEAN's top three trading partners, which were then the US, Japan and the EU in that order. China is now ASEAN's largest trading partner, as well as that of Australia, Japan and South Korea. The rate of ascent and the scale of this shift in trade patterns are telling. Between ASEAN and China, two-way trade increased nearly ten-fold from about US$30 billion in 2000 to about US$300 billion in 2011. In contrast, the increase in two-way trade between ASEAN and the US for the same time frame was just 50%. Some project that China will become the world's largest trading nation by 2030, with nearly 17% of global trade. India’s share of world trade is also expected to rise to 5.3% by then, or the third largest in the world. Another tsunami is coming. In about 10 years' time, China alone expects to have nearly 200 million college and university graduates. Then, four out of every 10 university graduates in 2020 will come from just two countries globally; China and India will account for four out of every 10 university and college graduates. This will have a profound effect on the flow of trade and talent across borders, not only in the region but globally.

How will this rebalancing in trade flows and inter-dependencies affect security relations between countries and regional groupings? John Kerry, the newly appointed US Secretary of State, said recently, "Foreign policy is economic policy" - he is right. History shows that global influence, military power included, can only be sustained through economic might. As trade patterns change, state-to-state relations will follow.

State-to-state dynamics aside, economic growth has already resulted in defence spending rising sharply in Asia in recent years. By some estimates, China's total defence spending has increased by almost 300%, from about US$23 billion in year 2000 to about US$90 billion in 2011. India's total defence spending is estimated to have increased from about US$25 billion in year 2000 to US$37 billion in 2011. Overall, IISS projects Asia's defence spending to surpass Europe's in nominal terms in 2012. This on-going military modernisation in China, Japan, South Korea, India and ASEAN states must be situated within a stable regional security architecture if tensions and conflicts are to be avoided.
Hillary Clinton and Xi Jinping have stated that the Pacific is big enough to accommodate both powers. That is a decent start but more certainly needs to be done. Strategic competition between the US and China is the reality, but this does not exclude and indeed dictates better cooperation between them for regional and global stability.

The US-China bilateral relationship must widen its areas of mutual interest to achieve better cooperation and accommodation. The Strategic and Economic Dialogue has made progress, but more needs to be done. There needs to be an upsize in programmes and practical outcomes in fields of trade, commerce, cultural exchanges, people-to-people interactions and military collaboration. I am glad that Secretary Kerry acknowledges this - he said during his Senate confirmation hearing that strengthening the US-China relationship was crucial, and also expressed hope that China would recognise the need to broaden the bilateral relationship. He also expressed caution about an over-militarisation of the US' footprint in the region, noting that "we have the US has] to be thoughtful about how we it would] go forward."
The US and China can build confidence and capacity in multilateral settings. For example, the ASEAN Defence Ministers’ Meeting (ADMM)-Plus will be conducting its first 18-nation exercise in Brunei this year, based on the themes of Humanitarian Assistance and Disaster Relief (HADR), and Military Medicine. This will be an ambitious exercise, with full asset involvement and troops on the ground. ASEAN is heartened by the positive response thus far. Participating member nations have committed planners, medical and engineering teams, search and rescue teams, as well as a good number of ships and aircraft. This exercise will build military-to-military relations among countries.

Stress on Local Governments - Greater Divides and the Rise of the Middle Class

The second source of potential instability that I see stems from local governments. The impact and stress due to deeper socio-demographic trends that I believe are global. Two significant trends stand out: greater polarisation and the rise of the middle class.

We are witnessing greater polarisation within and across countries. Take for instance the wealth divide. Experts surveyed by the World Economic Forum for its Global Risks 2013 report ranked severe income disparity as the leading risk factor over the next 10 years. The figures bear them out. Between 2006 and 2011, income inequality as measured by the Gini coefficient has risen in most countries. Paradoxically but understandably, countries that have done well through globalisation and emerged from the middle income trap are seeing their citizens eschew more migration and liberalisation when their wages did not rise pari passu with economic growth.

The stark age divide between countries will also play out over the next two decades. Rapidly ageing societies like Japan, Singapore, and even China may find it harder to compete against countries like Indonesia, Philippines and Vietnam, which are poised to reap their demographic dividends.

As before, differences between and within states continue - whether arising from communalism, religious extremism or ideology. The outbreak of conflict between the Rakhine Buddhist and Rohingya Muslim communities in western Myanmar, as well as the episodic clashes between Muslims and Christians in Indonesia's Maluku Islands are some examples. Even within people of the same faith, divides have widened. The push for a more austere and fundamental Islamic lifestyle or Islamists Governments in other parts of the world will have knock-on effects on Muslim populations here. For instance, there are Islamic political parties in the region that have increasingly advocated for the implementation of strict Islamic hudud criminal laws, and in doing so, generated much controversy, even within their Muslim population. We also need to remind ourselves that the threat of extremist terrorism still exists. The goal of militant Islamic groups in the region like the Jemaah Islamiyah and its spiritual leader Abu Bakar Bashir, and its offshoots remains the establishment of an Islamic caliphate in the region. Recently, we have also witnessed the resurgence of nationalism as another factor of greater divides. We see it manifested more clearly in the spikes in tensions over the past year arising from the South China Sea and East China Sea disputes. And already, it has taken its economic toll. According to some assessments, the East China Sea dispute took its toll on Japan's exports to China. China does stand to lose from second-round effects. As the world’s leading manufacturer, most goods are produced with Chinese labour and materials, including many Japanese products.

I talk about the rising middle class. With economic growth, the rise of the middle class in Asian countries will impact local politics as they have in more developed democracies elsewhere. Countries with more centrally planned economies will have to adapt the most to the rising demands of their electorate. As Professor Lester Thurow observed in his book, The Future of Capitalism, "ideology is moving toward a radical form of short-term individual consumption maximisation at precisely a time when economic success will depend upon the willingness and ability to make long-term social investments". The IMF too has warned that budgetary processes that are too focused on the short term will "result in insufficient attention being given to long-term spending pressures". On the other hand, the planned railway from Kunming in China to Kyaukpyu in Myanmar, estimated to cost about US$20 billion, is an example of how a strong centrally planned economy can plan long term for their strategic interests. The railway line is expected to follow the route of a gas pipeline that China is already building between Kunming and Kyaukpyu.

Greater divides within and across countries and the inability of local governments to act quickly or plan for the longer term can impact regional stability.

Problems Too Big for One to Solve

Finally, the Asia-Pacific region will have to confront transnational and non-traditional challenges - problems too big for any one of us to solve. Climate change and natural disasters are prime examples. The Pacific Ring of Fire exposes countries such as Indonesia, Japan and the Philippines to high earthquake and tsunami risks, often with devastating effects. Indeed, the March 2011 earthquake and tsunami in Japan was estimated to have caused damages amounting to an estimated US$213 billion, approximately 4% of Japan's GDP. Other non-traditional security threats to which Asia-Pacific countries are vulnerable range from maritime piracy to global pandemics to food, water and energy security.

Way Forward - Constructive Dialogue and Practical Cooperation

I have broadly sketched out three fundamental trends which will affect and produce the Known Unknowns and the Unknown Unknowns. I think as senior defence officials, many of us will ask the question that follows: Will we need to refresh or renew existing frameworks to respond to these fundamental shifts in trade and security inter-dependencies as well as focus on transnational issues such as climate change, food, water and energy security? Most of us here would say yes - to both regional and global frameworks for governance. To optimise collaboration and decision-making between countries, effective regional and global frameworks should be anchored by three main principles.

First, they should be open and inclusive. Countries, big or small, should have a say. This is why Singapore founded the Forum of Small States at the UN in 1992, to strengthen the collective voice of small states. Singapore also supports efforts to strengthen and reform existing multilateral institutions including the UN and IMF, and new groupings such as the G-20. However, the reach must be extended to include other countries. For this reason, Singapore promoted the role for the Global Governance Group, or 3G, which helps to provide a linkage between the G-20 and the UN.

Second, the rule of law must be the bedrock of global governance. We must adhere to the rule of international law, and international dispute resolution mechanisms like the International Court of Justice.

Finally, in order for international institutions to be credible, they must deliver real results.

Regional platforms and institutions play a key role by bringing countries together for open and constructive dialogue and collective action on common security issues. But beyond dialogue, we also need to ensure that effective outcomes can be achieved. When the ten ASEAN Member States and eight key extra-regional partners established the ADMM-Plus in 2010, we wanted to maintain a strong focus on practical cooperation. To this end, we formed the Experts' Working Groups (EWGs) to facilitate cooperation in these areas: counter-terrorism, maritime security, HADR, peacekeeping operations and military medicine. Since then, we have made good progress. Other than ASEAN platforms, "Track 1.5" platforms, such as this meeting and the Shangri-La Dialogue, have also played a significant and complementary role in strengthening the regional security architecture.

Conclusion

Let me conclude. Regional stability in Asia has brought prosperity, growth and progress to countries in this region. For this virtuous state to continue, we need better frameworks that promote open and inclusive dialogue, respect for the rule of law and a focus on delivering results. I have shared with you my concerns and worries for the future. I wish you all a fruitful Sherpa Meeting. Thank you very much.