Two regional meetings in Southeast Asia over the summer – the Shangri-La Dialogue in Singapore and the ASEAN Regional Forum in Bangkok – revealed growing angst among Southeast Asian leaders over narrowing political space in which to balance relations in the context of US-China competition. More broadly, the relevance of ASEAN in these polarizing times has come into question and subregional arrangements, such as the Ayeyawady-Chaopraya-Mekong Economic Cooperation Strategy (ACMECS) are emerging. Recent incidents point to growing Chinese assertiveness in the South China Sea. A reported agreement with Cambodia to build a strategic outpost on the Gulf of Thailand has drawn sharp criticism from Washington. But it is unclear how able or willing Southeast Asian governments are to push back since they view China as a critical economic partner. As several Southeast Asian leaders contemplate retirement, economic security is a common element in the legacies they envision.

Bipolar blues: choosing not to choose

The Shangri-La Dialogue has always been, to some extent, a contest between Washington and Beijing, but that rivalry was usually kept below the surface.  To Southeast Asian leaders, the competition was all too apparent at the 2019 Dialogue.  The anxiety that has grown over US-China tensions was a first order of business when Singaporean Prime Minister Lee Hsien-Loong delivered the keynote speech that laid out two bald truths: China’s rise has irreversibly altered the region’s economy and its strategic environment, and a new Cold War will not end with the collapse of one of the adversaries as the last one did.   This, he said, would suggest that both sides should abandon their zero-sum approach and cooperate on formulating new rules for cooperation.  Lee’s diagnosis was a lack of “strategic trust.”

Lee also called out each country for what he viewed as obstructionism.  Beijing, he said, must prove that it is genuinely moving toward a rules-based view of foreign relations rather than relying upon easy rhetoric. He questioned whether China had really abandoned its transactional and mercantilist approach.   Lee criticized Washington for excluding Beijing from setting terms for the evolving world order. Moreover, he said, the US has turned its back on multilateral institutions and, specifically, has lost faith in the World Trade Organization (WTO).  Southeast Asians have long maintained that it is neither necessary nor wise to choose between the United States and China in regional affairs, but Lee allowed that this paradigm may be a luxury they can no longer afford.

Singapore Prime Minister Lee Hsien-Loong delivers the keynote address at the 2019 Shangri-La Dialogue. Photo: Office of the Prime Minister

Both Washington and Beijing routinely insist that they do not ask smaller nations in the region to side with them, but their actions and rhetoric increasingly belie that claim. At the ASEAN Regional Forum (ARF) in Bangkok in August, Secretary of State Mike Pompeo and other senior US officials were outspoken in their criticisms of China, sometimes breaking precedent from previous US positions.  In the face of Southeast Asian complaints that US-China trade tensions threaten economic stability in the region, Pompeo blamed Beijing for the dislocation, insisting that Washington had only shined a light on domestic Chinese problems and that China must adjust to a “new normal of slower growth.”

Washington also took a more negative approach at the ARF to efforts between ASEAN and China to forge a code of conduct on the South China Sea.  Previous administrations had expressed support for a code – in principle – but cautioned that it would be of little use without binding mechanisms for enforcement.  At a press opportunity, US officials questioned the basic value of a separate code and urged ASEAN to rely instead on the UN Convention on the Law of the Sea (UNCLOS), despite the fact that the US has not acceded to the UNCLOS treaty.

Apart from current tensions between Washington and Beijing, Southeast Asian leaders continue to be disturbed by the implied challenge to ASEAN’s role as a regional convener – so-called “ASEAN centrality” – posed by the introduction of the Indo-Pacific as a regional framework.   The Department of Defense Indo-Pacific Strategy Paper furthered suspicions that the Indo-Pacific concept was largely intended to contain China, since China (and Russia) were specifically identified as security threats.

An early draft of the ASEAN white paper on the Indo-Pacific, later named the ASEAN Outlook on the Indo-Pacific, made specific reference to an anti-China angle, but that language was dropped when Singapore refused to clear the paper.  The Outlook, released in Bangkok in August, took a more affirmative, if plaintive, approach by insisting that “ASEAN centrality” must be preserved.  As a result, regional powers had no objection to including that phrase in their public statements at the ARF; Secretary Pompeo used “ASEAN” and “Indo-Pacific” interchangeably, which pleased some ASEAN members (Singapore and Thailand), while irritating others (Indonesia).  But the ARF itself raised the possibility that ASEAN was losing some of its convening power: for the first time in several years, North Korea did not send its foreign minister to participate.

Having made their point with the Outlook paper, ASEAN leaders will likely temper any further objections to the Indo-Pacific concept.  They are increasingly inclined to view it as a rhetorical reinvention of the Obama administration’s “pivot” to Asia that they assume will yield to yet another branding attempt if the 2020 US elections bring a change in White House.  In addition, they observe that the Indo-Pacific paradigm is incomplete; it does not adequately explain India’s role in the new regional order – indeed, both the DOD Indo-Pacific Strategy Paper and the ASEAN Outlook pay little, if any, attention to India.

The Cambodia challenge

In his Shangri-La keynote, Prime Minister Lee did not specify which power Southeast Asians would choose if they were forced to do so, but growing security concerns about China present new openings for the United States. The PLA Navy’s attempts to interfere in Vietnam’s oil and gas exploration efforts in Vietnam’s Exclusive Economic Zone (EEZ) in recent months inspired two strong statements from the State Department, which broke precedent by publicly siding with Hanoi over Beijing.  Vietnam will chair ASEAN in 2020, and will encourage Washington to maintain this higher level of attention to South China Sea issues, as it did in 2010 when it was successful in persuading then-Secretary of State Hilary Clinton to call out China in her remarks at the ARF meeting.  The sinking of a Filipino fishing vessel by a Chinese trawler near Reed Bank in early June raised further alarm in the region.  On a different plane, a dramatically low water level in the Mekong River this summer, which is believed to be caused by China’s withholding water upstream, has heightened concern about water security in mainland Southeast Asia, including Thailand, which successfully eschews involvement in South China Sea issues.

The quantum leap in China’s strategic ambitions in Southeast Asia is the reported agreement with Cambodia to repurpose Ream Naval Base near Sihanoukville as a facility for exclusive Chinese use.  On Aug. 15, Gen. Joel Vowell, an official at the US Indo-Pacific Command, said publicly that China and Cambodia would commence work on the base in 2020. US officials had drawn attention to this possibility since late 2018 – Vice President Mike Pence addressed the issue in a letter to Cambodian Prime Minister Hun Sen – but Vowell’s announcement was the first definitive statement from the US government about an agreement that would provide China with a strategic outpost on the Gulf of Thailand.  Included in this plan is the development of a Chinese airport in Koh Kong province, 70 km from the Ream base.

A naval base at Ream would provide China with ready access to the South China Sea and hold down the eastern end of China’s aspirational “string of pearls,” a line of prospective Chinese-held ports in South and Southeast Asia that would enable the PLA Navy to protect Chinese trade and project power in those regions.  More immediately, it would be the first concrete result of China’s campaign to strengthen security relations with the Southeast Asian nations.

An agreement to develop a Chinese-controlled naval base in Cambodia is arguably a logical step in the bilateral relationship. Beijing has provided Hun Sen with political cover as he has maneuvered to retain power through repressive means. In return, Phnom Penh has often acted as Beijing’s agent in ASEAN on matters related to maritime security.   Equally if not more important, is China’s role in the Cambodian economy. Although the US is Cambodia’s largest trading partner, China is by far its largest investor, accounting for 70% of foreign direct investment.

Beijing is also Phnom Penh’s largest aid donor.  For two decades after the 1993 UN-led elections, donor aid accounted for roughly half the budget of the central government, but that has dwindled in recent years. In 2016, when the World Bank upgraded Cambodia to the status of a lower-middle-income country, which made it ineligible for certain kinds of foreign assistance, donor aid comprised 40% of the national budget; by 2018, it had fallen to 20%.  Maintaining Cambodia’s economic growth rate, currently 7%, is now dependent on development of its private sector.

The Southeast Asian countries with claims in the South China Sea – particularly Vietnam and the Philippines – would oppose a Chinese base in Cambodia, as would Thailand, which still has unresolved overlapping energy claims with Cambodia in the Gulf of Thailand.  However, it is not a given that other ASEAN states – or even ASEAN collectively – can dissuade Cambodia from its agreement with China.

Given its role as a trading partner and an aid donor, the United States may have more leverage on this issue. However, democracy and human rights issues are an obvious sticking point. US-Cambodian relations have deteriorated since Hun Sen’s attempt to eradicate political opposition – particularly the Cambodia National Rescue Party (CNRP) – in 2017, in advance of general elections.  Cambodia suspended joint military exercises following criticism from Washington, and in late 2018 Phnom Penh flatly turned down an offer from the US to help repair training facilities at Ream. Moreover, on July 15, the US House of Representatives passed the Cambodia Democracy Act of 2019, which would impose sanctions on Cambodian officials associated with the 2017 crackdown.  The Senate has yet to act on the bill, but Majority Leader Mitch McConnell is a longstanding champion of the Cambodian political opposition and the prospects for its approval in that chamber are good.

External pressure on Hun Sen on the port issue has resulted in denials from both Beijing and Phnom Penh of intentions to build a Chinese naval outpost.  US officials believe that work on Ream and the Koh Kong airport will continue nevertheless, as dual facilities that can serve both military and commercial purposes.

A Cambodian Navy sailor salutes on a Chinese naval patrol boat during a handover ceremony at a Cambodian naval base at Ream, November 7, 2007. Photo: Reuters

Economic issues

Although the uncertainty and dislocation of the US-China trade dispute unsettles Southeast Asia as a whole, some individual countries have benefitted economically while others are losing ground.  One of the most disadvantaged is Singapore, whose second-quarter GDP for 2019 fell by 3.3%.  Although economists attribute this to a variety of factors, foremost is the China-US trade war, which has disrupted world supply chains. Because of its importance to international trade, Singapore is viewed as an indicator of global growth, and its economic reversal has raised alarm in the region.

On the other end of the spectrum, Vietnam risks being a victim of its own success in the US-China trade dispute. As one of the most preferred targets for investment relocation from China, Vietnam’s trade surplus with the US is rising as the new largesse increases exports to the US.  In 2019, trade with the US has accounted for 26% of GDP, up from 20% in 2018.   The trade surplus is up 39% over the same period.  In June, President Trump accused Vietnam of being a worse trade predator than China, and threatened to levy new tariffs on Vietnamese imports.  In a letter to the Senate Finance Committee in July, US Trade Representative Robert Lighthizer wrote that Washington has informed Hanoi that it must reduce its trade surplus.

In contrast to China, Vietnam has taken a conciliatory approach to threats from Washington. In late June, Prime Minister Nguyen Xuan Phuc promised to increase Vietnamese purchases of liquified natural gas (LNG), in a meeting with Trump on the margins of the G20 meeting in Osaka.  Phuc has also directed officials to increase efforts to stem Chinese transshipment of goods to the US through Vietnam.  In the meantime, Hanoi is opening new trade relationships to diversify its trade and reduce risk – it recently signed a free trade agreement with the European Union that would eliminate duties on nearly all Vietnamese goods entering the EU.

Regional or subregional?

However nervous Southeast Asian countries may be about China’s strategic ambitions and however disconcerted they are by the US-China trade war, they continue to view China as a critical, although not exclusive, partner for infrastructure development.  The wealthier and more developed economies of Southeast Asia are wary of falling into Chinese “debt traps” – as Sri Lanka has done, and as they fear Laos and Cambodia will– and believe they have the leverage to negotiate more favorable terms with Beijing and the ability to refuse or cancel deals with China if they cannot obtain those terms.

Malaysian Prime Minister Mahathir Mohamad helped spark this trend in May when he persuaded Beijing to cut the price of the Malaysia East Coast Rail Link project by one-third.  Indonesian President Joko Widodo has built on this to propose that Beijing establish a separate fund for Indonesia in the Belt and Road Initiative, with a consistent interest rate across the board and adherence to standards of transparency and environmental impact for all projects.  A potential $9 billion in Indonesian funds is at stake in Indonesian-Chinese cooperation on infrastructure projects over the next decade.  The ball is in Jakarta’s court to provide Beijing with a draft agreement.  China is likely to drag its heels in response, to avoid creating a precedent for other countries.

Beijing’s willingness to standardize its loan and other policies and allow greater transparency in its infrastructure projects would place Washington in a dilemma.  On the one hand, the US is critical of China for its lack of transparency in its investment practices; on the other hand, such a move on Beijing’s part would draw more partners into its projects and help China realize the strategic aims of the Belt and Road Initiative.

Thai Prime Minister Prayut Chan-o-cha has taken a somewhat different approach and has reprised a Thaksin-era plan to give Thailand greater influence on infrastructure development on mainland Southeast Asia through the Ayeyawady-Chao Phraya-Mekong Economic Cooperation Strategy (ACMECS).   Established in 2003, the subregional initiative encompasses all of mainland Southeast Asia by reference to its three main rivers.  ACMECS will fund infrastructure projects, and Thailand contributed the first seed capital of $200 million in June.  The United States, Japan, and Australia have pledged to join the initiative with similar contributions.

In reviving ACMECS, Prayut hopes to take the edge off of great power competition over the Mekong, and to compensate for the assumption that the US will be a less reliable partner in the next few years. Although Secretary of State Pompeo claimed at the ARF that there is “more to come” with the Lower Mekong Initiative (LMI), there is a widespread perception in Southeast Asia that China’s Lancang-Mekong framework is outpacing the LMI. More generally, Thailand is hoping for a stronger shield against Chinese intrusion into mainland Southeast Asia.  In recent months Prayut appears to have soured on the Kunming-to-Bangkok rail link, although this could be a negotiating strategy with Beijing.

Even if it succeeds, ACMECS will be a junior player in regional infrastructure at best, and has no possibility of countering – much less eclipsing – larger ones such as the Asian Infrastructure Investment Bank or the Asian Development Bank, or individual countries such as Japan or South Korea.   However, Prayut intends to infuse infrastructure development on mainland Southeast Asia with more local perspective and more local control.

Incumbents look to their legacies

Two elections this spring – general elections in Indonesia (April 17) and midterm polls in the Philippines (May 13) – produced strong victories for incumbents.  As President Joko Widodo (Jokowi) looks to his second term, and as President Rodrigo Duterte enters the second half of his six-year term, both are considering policy shifts that will help to determine their legacies.

In a speech in West Java on July 14, Jokowi left little doubt that he will double down on economic policy in his second term, although the emphasis will shift.  In the second term, which will run until 2024, his administration will give slightly more attention to developing human resources – to increase Indonesia’s economic competitiveness – although infrastructure development will remain a priority.  Another high-profile objective is the removal of obstacles that hinder investment.  Jakarta has long been under pressure from foreign investors who complain about bureaucratic obstacles to FDI.  As an early gesture, Jokowi has promised to speed up the process for licensing fees.

The July 14 speech touched only lightly on foreign affairs, and there is little doubt that Jokowi intends to revert to his original focus on domestic policy over foreign affairs.  He will not be able to do this completely since Indonesia (along with Malaysia and Vietnam) are increasingly challenged by Chinese naval assertiveness in their EEZs.   Moreover, the ASEAN chair will rotate to Indonesia in 2023.  Lastly, counter-terrorism in the face of a growing Islamic State presence and activity in Southeast Asia will keep Indonesian ties to the US and Australia on the front burner for the duration of Jokowi’s second term.

A traffic jam in Jakarta, one reason the Indonesian government has announced it will relocate the country’s capital to Borneo. Photo: Getty Images

Jokowi’s signature initiative, one he intends to have well on its way to completion by his last year in office, is to relocate Indonesia’s capital from Jakarta to Borneo in East Kalimantan.  Although Jakarta will remain an important commercial center, Jokowi intends to construct a new base for the central government – at the cost of $33 billion – by 2024. His decision, announced Aug. 26, is based on Jakarta’s increasing dysfunction – with notorious traffic jams and rising pollution – but also its vulnerability to rising seas: the capital is already 40% below sea level and is considered to be the fastest-sinking city in the world.

Public reaction is predictably mixed, with environmentalists claiming that the government will create a new environmental disaster in Borneo.  In geostrategic terms, however, the move would place the Indonesian capital closer to both Malaysia and Brunei which Jokowi believes could improve coordination with Indonesia’s neighbors.

Midterm elections in the Philippines, which were broadly considered to be a referendum on the administration of President Duterte, gave him an unexpected degree of support. Duterte went into the midterms with an 81% approval rating, a popularity level that was borne out at the polls.   Pro-Duterte candidates swept all 12 Senate seats and three-quarters of the House seats.  Duterte’s supporters are expected to have a super-majority (3/4 of the vote) in each chamber of Congress.   Also, Duterte’s daughter Sara was re-elected as mayor of Davao City in Mindanao and Ronald “Bato” del Rosa, the police chief who helped to engineer Duterte’s campaign against drug dealers was elected to the Senate. Pro-Duterte candidates claimed a majority in provincial and local elections as well.  Duterte believes his anti-drug campaign was responsible for his resounding support in midterm elections, but public opinion surveys indicate it was due primarily to the Philippines’ robust economic growth.

There will likely be considerable continuity in the second half of Duterte’s term: (1) continuation of the anti-drug campaign; (2) renewed pursuit of infrastructure projects with China; (3) a relationship with Washington that is still testy, and could become more so over the issue of Chinese companies developing facilities around Subic Bay; and (4) attempts to strengthen autonomy arrangements, particularly in Mindanao, which is Duterte’s strongest base. Duterte will also use the next three years to build support to avoid prosecution for extra-judicial killings related to the drug campaign or other reprisals when he leaves office in 2022 and to build a role for his family in the Philippines’ political oligarchy, most likely through his daughter.

Looking ahead

The tenor of US relations with Southeast Asia for the remainder of 2019 will depend in large part on US-China trade negotiations. Talks are scheduled to resume in October, but efforts to resolve trade tensions have been unsteady.  In its remaining months as ASEAN chair, Bangkok will endeavor to persuade President Trump to attend the East Asia Summit (EAS) in the fall.  Thailand and the United States will co-chair a major regional business forum on the margins of the EAS, which increases the chance that he will participate.  A visit from Trump would also underscore the return of normal US-Thailand relations, since the completion of elections this year enabled Washington to lift the remaining sanctions applied after the 2014 coup.

With David Stilwell’s confirmation as assistant secretary of state for East Asian and Pacific affairs, and the confirmation of Mark Esper as secretary of defense, Washington is poised to raise its diplomatic profile in Southeast Asia, despite the fact that there is still no US ambassador to ASEAN.  If Secretary of State Pompeo leaves his position to run for the open Senate seat in Kansas, as he is believed to be considering, that could slow diplomatic momentum for the remainder of the current presidential term.