2018 Global Risk Forecast - Asia

Trade relations between China and the U.S. are likely to deteriorate in 2018 as U.S. lawmakers from both major parties call for tougher measures against Chinese investments and trade practices. One such effort is the Foreign Investment Risk Review Modernization Act (Firrma) introduced in November 2017. If enacted, this bill will significantly tighten the U.S. foreign investment review process, with China widely viewed not least in Beijing  as the principal target.

  asia world map 

 An investigation under section 301 of the 1974 U.S. Trade Act into Chinese infringement of U.S. intellectual property laws will further strain Sino-U.S. ties. If the investigators find that China has transgressed, and the U.S. imposes punitive measures against Beijing, the latter is likely to retaliate against the U.S. sectors it considers most vulnerable to such actions. These could include the automotive, aircraft and agricultural industries, although the cost of such actions is likely to be higher to China than to the United States. Also read: A U.S. probe into China's intellectual infringement raises trade risk Beijing's major reclamation and infrastructure projects among the contested atolls and islets of the South China Sea show no sign of slackening. The U.S. has largely refrained from escalating the issue beyond rhetoric, dismissing the construction as a 19th century response to a 21st century military challenge. While the danger is that Beijing will view this restraint as a sign of weakness, it is unlikely to escalate into any major conflict in 2018. The People's Liberation Army lacks experience in any major counter-insurgency or interstate conflict in almost 40 years, in marked contrast to the deep operational experience gained by their U.S. counterparts.

Beijing's major reclamation and infrastructure projects among the contested atolls and islets of the South China Sea show no sign of slackening

  Any heightening of trade and diplomatic hostilities with the U.S. is likely to prompt China to improve, and possibly deepen, economic ties with neighbouring Japan and South Korea. This process appeared to be underway in late 2017 with significant improvements in relations between Beijing and Seoul. This followed a year-long stand-off after South Korea permitted the U.S. to deploy its Thaad anti-missile defence system on South Korean soil, which China saw as upsetting the military balance. South Korea's president appears to have prioritised economic over security issues, reflecting the fact that China is South Korea's largest trading partner. Any move by South Korea to downgrade its defence ties with the U.S. would further confirm this trend. Also read: South Korea seeks to maintain ties with China over deployment of U.S. anti-missile system However, North Korea's continued belligerence is set to remain the principal driver determining the security environment on the Korean peninsula, and more broadly across East Asia. China, Japan and South Korea's often contradictory security priorities and agenda, coupled with U.S. President Donald J. Trump's personalised and seemingly incoherent approach to the North Korean issue, could easily erode any gains made on the trade front. Also read: North Korea'' the real threat to East Asian commerce South-East Asia - A bad year for democrats The two decades since much of the region was roiled by the 1997 Asian financial crisis have seen previously stable countries undermined or unsettled by political, religious, social and generational stresses and tensions while nations then viewed as economically irrelevant or hopelessly corrupt have gained in stature and potential. However, much of the region now faces deep and potentially highly destabilising structural shifts to their present economic base, with no obvious indication as to how they can adapt and thrive.

Much of the region now faces deep and potentially highly destabilising structural shifts to their present economic base, with no obvious indication as to how they can adapt and thrive

  South-East Asian economies are heavily dependent on manufacturing and agriculture to provide employment and social stability. Much of the region's workforce is engaged in low-end, labour-intensive sectors, such as electronic assembly and textile, clothing and footwear (TCF). According to a 2016 International Labour Organization report, nearly 70 per cent of Southeast Asia's 9.2 million TCF jobs are threatened by automation over the next 20 years. The ILO's timeframe is almost certainly far too conservative, given the speed with which technology is already disrupting traditional employments patterns. A key, perhaps defining, task, for governments will be to manage this transformational change while ensuring social, political and economic stability. Some of the countries in the region are opting for a return to autocracy and the abandonment of liberal democracy; the latter they increasingly view as a foreign import and at odds with nationalist or religious sentiments. Also read: Rags to rags: The impact of automation on Asia's textile, clothing and footwear industries This opinion will be highlighted in a series of elections due to be held this year in countries where democratic values are either under pressure or have effectively been erased. While Malaysia and Indonesia are certain to hold their respective general and regional elections during 2018, polls due in Cambodia and Thailand are either unlikely to take place or will prove meaningless in terms of producing a credible result. Polls in Malaysia (likely to be between January and March) and Indonesia (27 June) are likely to be held in accordance with international standards. Nevertheless, the election campaigns are likely to increase intercommunal and inter-faith tensions between the Malay Muslim majority and minority ethnic and religious groups. One such minority which is likely to be in the crosshairs is the Chinese community in both countries. In recent years, there has been a resurgence of anti-Chinese sentiment in South-East Asia, linked to the rise of China as a global power... Read the full 2018 Global Risk Forecast here