Asia is in a state of flux:
- BRI: China’s Belt and Road Initiative (BRI) is reshaping the region’s geography, with roads and railways traversing Eurasia and new ports dotting the Indian Ocean basin.
- Militarisation of the South China Sea: Beijing’s militarisation of the South China Sea continues, despite negotiations towards a code of conduct.
- Japan has found itself in an unexpected leadership position, resuscitating the Trans-Pacific Partnership (TPP) and concluding a trade agreement with the European Union.
- Tokyo is now contemplating constitutional revisions that would enable it to play a more overt military role.
Countries economically diversifying away from China:
- Japan, South Korea, Taiwan, and Australia have all unveiled strategies to diversify their economic interdependence, away from mainland China and towards Southeast Asia and India.
- Trade war:
- The most recent reason for this diversification away from China is the ongoing trade and tariff war between the U.S. and China.
- Countering China’s misuse of strengths:
- A longer-term concern is Beijing’s use of its economic muscle for political purposes.
- It has done so when suspending rare earth metal exports to Japan in 2010 or punishing a major South Korean corporation for Seoul’s decision to install a missile defence system in 2017.
- Lack of access and reciprocity from China:
- China’s limited market growth potential and questions of access and reciprocity are additional considerations.
How are they diversifying away from China:
- Japan’s Free and Open Indo-Pacific strategy is meant to diversify investments to more promising markets in Southeast Asia, India, and Africa.
- South Korean President Moon Jae-in has unveiled a New Southern Policy.
- While the policy is focussed on Southeast Asia, it also makes India Korea’s key partner for cooperation.
- Taiwan, a G20-sized economy whose political status is disputed, has announced a New Southbound Policy with significant accompanying investments in India by Taiwanese electronics manufacturers.
- Australia’s government has commissioned an ambitious India Economic Strategy with the goal of making India its third-largest investment destination and export destination by 2035.
Way ahead – India can potentially be a great investment destination:
- Political concerns are increasingly informing economic preferences.
- Politically, therefore, the stars are aligning in Asia for the acceleration of India’s economic growth.
- Investors, increasingly backed by their governments, are increasingly focussed on the Indian market.
But many hurdles remain:
- There remain many hurdles, including more protectionist sentiments taking root, legacy of poorly-negotiated trade deals, general election around the corner, and uneven economic liberalisation.
- As a result, the likelihood of India taking full advantage of these opportunities remains slim.
GS Paper II: International Relations