2017 Preview: Southeast Asia is set to embrace more volatility

2017 Preview: Southeast Asia is set to embrace more volatility
25 Flares 25 Flares ×

Southeast Asia in 2016 has been marked by busy political agendas, challenges by ethnic tensions, religious conflicts, and regional stability marred by external developments, most notably the US presidential election. As the region embraces for more volatility in 2017, we take a look at some of the key trends and events that happened over the last 12 months, and how they might continue to shape 2017.

A disengaged US administration

Trump has promised to abandon the high profile trade agreement Trans-Pacific Partnership (TPP), which Brunei, Malaysia, Singapore, and Vietnam are members of. The death of TPP could well mark the beginning of a slow death of globalisation and free trade. While the TPP is just one of the many global and regional trade treaties that the US is not a part of, the country has greatly upheld its liberal values and a retreat from such a high profile treaty is hardly conducive to the free flow of capital and goods. Many of the Southeast Asian TPP members had hoped that the TPP would help them to carry out reforms such as liberalisations and regulations, but have been let down by Trump’s election victory.

Abandoning TPP is just the beginning. A quick look at Trump’s cabinet provides a glimpse into what his Chinese foreign policy might look like. Trump never spares his anti-China sentiment and has on numerous occasions referred to China as a currency manipulator and threatened to impose up to 40 percent tax on Chinese imports to the US.  Chinese e-commerce giant Alibaba had its taste of anti-China hostility from the US in December 2016, when the company was put back on the counterfeit blacklist, a move perceived as a political act by the company.

As China becomes more assertive and demonstrates its military will to protect its core interests, Trump is likely to run into a trade war with China, especially as the Middle Kingdom is preparing for its 19th Party Congress in late November. Chinese president Xi Jinping, who enjoys historic national popularity, is looking to further consolidate his power, and will want to maintain stability domestically and avoid disruption to the Chinese economy. However, Xi is also equally ready to flex his muscles if there are harsh trade restrictions on Chinese goods from the US. A trade war between the two largest economies in the world is detrimental to the global economy on a number of levels.

Trump has vowed to make America great again, which inevitably means the incoming administration will be giving less attention to affairs abroad, and its role as a security provider will be contracted. While Obama’s administration has discussed greater security burden sharing among various countries, it was meant within the context of collective security. However, Trump does not share that view. His presidency will see the US taking less responsibility in terms of peace and stability in Southeast Asia, meaning that the region will be forced to take on a greater security role and increase its defence budget, leaving less funding for critical infrastructure investment.

China: Stabiliser or stirrer?

The US’s withdrawal from multilateralism and free trade paves the way for China to set global trade rules and norms. Southeast Asian countries will also enhance their security cooperation with China amid an increased security burden.

2017 will be a year of opportunity for China to take on a more security-oriented role in Southeast Asia, while traditionally having been focused on providing economic support. China has intensified its security cooperation with many Southeast Asian countries, including signing a coast guard cooperation agreement with the Philippines, the first significant defence deal on navy vessels with Malaysia, and building military production facilities with Thailand. This will ultimately strengthen China’s ever increasing influential role, and will give it leverage to shape the security framework within the region.

While previous US administrations have wanted China to take on more global responsibilities including security, deepening security cooperations with Southeast Asian countries with a diminishing US presence may not be the most stable scenario, given that many Southeast Asian countries have territorial disputes with China. Further up north, Japan is worrisome of the threat from the rising power.  

Regional integration will continue into 2017

The ASEAN Economic Community was officially launched in January 2016, as the first step of the ten member states to deepen security and political integration, but efforts were undermined by the busy political calendars of member states. Events that have occurred include Myanmar’s power transition, the presidential election in the Philippines, the cabinet reshuffle in Indonesia, the demise of Thai king Bhumibol and his death in October, and no sign of easing of the 1mbd scandals in Malaysia. This trend will continue into 2017, with Jakarta set for gubernatorial elections in February and possible general elections in Malaysia and Thailand in late 2017. Another cabinet reshuffle in Indonesia is also likely in the next 12 months if the current cabinet fails to improve its World Bank Ease of Doing Business ranking.

International development, such as the territorial dispute of the South China Sea between China and several Southeast Asian countries, the US presidential election outcome and the spreading of protectionism spreading from the West, and the death of the TPP also overshadowed regional integration.

On a positive note, Philippines president Duterte is going to assume the chairmanship of ASEAN in 2017. With the Philippines having a long-term pro-ASEAN stance and seeking closer relations with neighbouring countries, AEC might see some progress under his leadership.

A potential shift of terror act strategies

The threat of the Islamic State and insurgency continue to be a top threat to Southeast Asia’s security in 2017. The region began 2016 with a series of bomb and gun attacks in Indonesia, which has shown signs of switching attack strategies from targeting security forces to foreign tourists.

Similar observations were seen in Thailand. In August 2016, a number of bombings from Thailand’s insurgent groups took place beyond Thailand’s traditional conflict zone, wounding several foreign visitors.

Against this backdrop is the fragmentation of terrorist groups in the Middle East, which are being dispersed to other regions and countries. Malaysia and Indonesia are particularly prone to the ongoing threat from the Islamic State. Southeast Asian countries face equal uncertainties and a lack of ability to track the return of foreign fighters. In 2017, the risk of terrorist acts targeting tourists will increase, but remain small scale.  

In short, 2017 promises to be a year of high volatility. Against the background of the US’s retreat to globalisation, uncertainties of how China’s security involvement in the region will impact regional stability, the battle between China and the US, and domestic ethnic tensions and religions conflicts will all increase the opportunity for political risk.

About Author

Qingzhen Chen

Qingzhen is a GRI Senior Analyst and a research analyst for an international information company. Her research focuses on China and the Asia Pacific. Previously she was a market researcher for PwC. She has gained regional knowledge from internships with the UNDP, China Policy, and the Royal United Services Institute. She holds a BA in Politics and East European Studies and an MSc in Security Studies from University College London.