“Death by China” may just be the least subtle book ever written about the perceived fallout from Beijing’s policies. The 2011 work takes on new relevance now that one of its co-authors, Peter Navarro, is advising a Trump administration girding for confrontation in Asia.
It’s no mystery that U.S. President-elect Donald Trump is gearing up for economic battle with China’s leaders. He’s vowed to kill the U.S.-led Trans-Pacific Partnership, hinted at changing the “one-China” policy toward Taiwan and telegraphed security and environmental skirmishes to come. Uncertainty surrounding the Trump White House is but one of five major political risks facing Asia investors in 2017. Here’s a glimpse of what’s to come.
Asian stability gets trumped: It’s the politics, stupid. In the year ahead, investors will find themselves experiencing the flip side of James Carville’s “it’s the economy, stupid” manta. They’ll be less shocked by growth, inflation or trade data than erratic governing maneuvers, scandals and power grabs. Nowhere will that be truer than Washington, where Trump is tearing up rule books on China, Japan, North Korea and elsewhere in the most dynamic region.
Trump’s shock election may seem the corollary to Brexit and Rodrigo Duterte’s triumph in the Philippines, but it’s an abrupt game-changer for Asia. The best antidote is strengthening domestic fundamentals, building up defenses to sudden market chaos and operating nimbly. That means having ample foreign exchange reserves on hand, tightening bank regulations, employing capital controls and accelerating policies to reduce inequality driving the populist uprisings shaking world markets.
China’s leadership intrigue: When Communist Party bigwigs gather every five years to pick the next leaders, suspense isn’t normally part of the story. That was, until Xi Jinping, the most influential president in generations, hinted at holding on to the reins.
One possibility: Xi delays the naming of a successor in 2017 for fear of losing control. Another: Xi stays on longer than the typical 10-year term. Investors may applaud option No. 1, as it suggests Xi’s anti-corruption drive will intensify.
Option No. 2, essentially naming himself emperor, would dampen hopes for greater transparency and democracy. As growth slows and Trump pushes a trade-war agenda fueled by the fact-challenged musings of Navarro and a cast of conspiracy theorists — China created climate change! — Xi may drum up nationalism and become more assertive in the South China Sea to distract from reform failures. As Xi is learning from Russian President Vladimir Putin, hawkish politics can keep you popular in a slowing economy.
Who’s next in Australia? For all its enviable strengthens — like going 20-plus years without a recession — Australian politics has turned dangerously Japanese. In his nearly eight years in office, President Barack Obama got to know five Australian governments.
In decades past, long-serving leaders like Bob Hawke (1983-1991) and Paul Keating (1991-1996) opened the financial industry, floated the currency, built a national pension scheme and lowered trade tariffs. John Howard (1997-2007) passed a goods-and-services tax. Since then, the nation has seen a Japan-like revolving door of leaders that has allowed little time for upgrades to boost competitiveness and living standards.
In office since September 2015, Prime Minister Malcolm Turnbull’s support rates are perilously low. That raises questions about when those doors might swing anew and who might be guiding a geopolitically vital Group of 20 nation, say, five months from now.
Islam unnerves Indonesia: The nation with the biggest Muslim population is also a democratic exemplar. President Joko Widodo, known as Jokowi, recently found his reformist mojo to attack the “kleptocracy” label Indonesia wore for decades. He’s accelerated efforts to privatize state-owned enterprises that rent-seeking officials use as slush funds, improve infrastructure, woo foreign investment and encourage businesspeople to bring billions of dollars home to deploy domestically.
That’s in jeopardy as massive protests — some bigger than 200,000 — seek to unseat Jakarta’s Christian Gov. Basuki Tjahaja Purnama, a Jokowi ally who stands accused of blasphemy for referring to a Quran verse. Many observers see it as a proxy battle against Jokowi’s cleanup efforts, and it’s proving worrisomely effective. Fears of creeping Islamization have increased in recent years, threatening Indonesia’s political and economic trajectory. 2017 could be a year of living dangerously for Jakarta.
Kim Jong Un’s tantrums: The extent to which the U.S. election shook the world was seen in French President Francois Hollande’s talk of a “period of uncertainty,” Putin’s unbridled giddiness and Prime Minister Shinzo Abe sprinting to Trump Tower. One country remained oddly silent and tantalizingly unmoved: North Korea. While its state-run media wanted a Trump White House, the coming reality of one has Kim holding his tongue and picking his moment. The last 12 months saw an extraordinary number of provocations — nuclear tests, missile demonstrations, threatening statements. Now Kim faces an untested U.S. leader who’s not only talked of using nukes, but suggested Tokyo and Seoul develop their own.
There’s also a power vacuum to the South as scandal-plagued Park Geun-hye steps down, perhaps in April. Will Kim pipe down or troll a Trump team loaded with hawks, some peddling death-by-China and other conspiracy theories? Buckle your seat belts!
William Pesek is executive editor of Barron’s Asia. www.barronsasia.com
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