While events in Paris and San Bernardino refocused the international community’s attention on terrorism, it was largely business as usual in Asia, with the normal round of multilateral meetings – the Association of East Asian Nations (ASEAN) Summit, US-ASEAN Summit, East Asia Summit (EAS), and ASEAN Defense Ministers Meeting Plus (ADMM+) in Kuala Lumpur, plus the Asia-Pacific Economic Cooperation (APEC) Leaders Meeting in Manila – going largely unnoticed. A few other summits did attract attention, including the first “Plus Three” (Japan-Korea-China) Summit in three years (which included the first direct one-on-one summit between ROK President Park and Japan Prime Minister Abe) in Seoul and the “non-summit” between Mr. Xi Jinping and Mr. Ma Ying-Jeou who just happen to be the presidents, respectively, of the People’s Republic of China and Republic of China, in Singapore. Chinese actions (and US reactions) in the South China Sea continued to dominate the news, while hopes that Kim Jong-Un was on the brink of behaving were quickly dashed as the new year began. All eyes remain on the Chinese economy and the impact the continuing slowdown there may have on global growth, even as the US pushes forward on the finally completed (but not yet Congressionally-approved) Trans-Pacific Partnership.

ASEAN/East Asia Summits: proclamations as usual

The annual series of ASEAN Summits – beginning with the ASEAN leaders proclaiming the official formation of an ASEAN Community, followed by a number of ASEAN Plus One sessions, and culminating in the EAS involving the ASEAN 10, plus Australia, China, India, Japan, New Zealand, Russia, South Korea, and the US – brought President Obama to Asia for the ninth time as president.

The ASEAN leaders, on Nov 20, patted themselves on the back while signing the 2015 Kuala Lumpur Declaration on the Establishment of the ASEAN Community, thus meeting their self-proclaimed 2015 deadline – the “landmark achievement” officially went into effect on Dec. 31, 2015. During the signing ceremony, witnessed by UN Secretary General Ban Ki-moon, Malaysian Prime Minister Najib Razak declared that “Our ASEAN way has guided us and will continue to be our compass as we seek to realize a politically cohesive, economically integrated, socially responsible and a truly people-oriented, people-centered rules-based ASEAN.” Most observers argued, however, that this was largely a case of form over substance, especially when it comes to economic integration.  While many tariff barriers have been eliminated, many politically sensitive sectors, such as agriculture, auto production and steel, remain protected; much work remains for its most important pillar – the ASEAN Economic Community (AEC) – to achieve its primary goal of allowing freer movement of skilled workers, trade, and capital for the region’s more than 600 million people.

During the third US-ASEAN Summit on Nov. 21, President Obama met the heads of state of the 10 ASEAN nations for “a frank and constructive discussion on strengthening ASEAN-United States relations as well as a productive exchange of views on regional and global issues of common concern.” The Chairman’s Statement highlighted Washington’s continued support for a “politically cohesive, economically integrated and socially responsible, and a truly people-oriented, people-centered ASEAN Community” and for “ASEAN’s central role in the evolving rules-based regional architecture through ASEAN-led processes.” It also applauded the launching of the “forward-looking and comprehensive” ASEAN-US Strategic Partnership while welcoming the “commitment of ASEAN Member States and China in ensuring the full and effective implementation of the Declaration on the Conduct of Parties in the South China Sea (DOC) in its entirety” while calling for the early establishment of an “effective Code of Conduct in the South China Sea (COC)” and a resolution of disputes “through peaceful means, in accordance with international law.” It also recognized the conclusion of the TPP, which it saw as complementing the AEC – four ASEAN members (Brunei Darussalam, Malaysia, Singapore, and Vietnam) are TPP charter members.

For his part, President Obama commended ASEAN’s “vital role in advancing a rules-based order for the Asia Pacific” and for working to ensure that all nations uphold international law and norms, including the peaceful resolution of disputes, freedom of navigation and freedom of over-flight, while elevating the relationship to a “strategic partnership.” He also invited the ASEAN leaders to meet with him in the US. That meeting will take place at Sunnylands in Rancho Mirage, California on Feb. 15–16, with a declared aim to build upon “the deeper partnership that the United States has forged with ASEAN since 2009,” noting that the meeting will “further advance” the Obama administration’s rebalance to Asia and the Pacific. The context and location will no doubt be interpreted as an unfriendly gesture by the Chinese – Sunnylands was the location for Obama’s famous “shirt-sleeved summit” with President Xi in 2013.

On Nov. 22, Prime Minister Najib chaired the 10^th EAS. The Chairman’s Statement identified the following EAS priorities: energy, education, finance, global health (including pandemics), environment and disaster management, and ASEAN connectivity. As in past years, it “reaffirmed the importance of maintaining peace, stability, security and upholding freedom of navigation in and over-flight above the South China Sea” while taking note of “serious concerns expressed by some Leaders over recent and on-going developments in the area, which have resulted in the erosion of trust and confidence amongst parties, and may undermine peace, security and stability in the region.”

In this regard, it supported the “full and effective implementation” of the DOC and “expeditious establishment of an effective COC.” It also “registered deep concern” over Pyongyang’s May 2015 ballistic missile launch while supporting the “complete and verifiable denuclearisation of the Korean Peninsula in a peaceful manner.”

ADMM+: much ado about something

The flurry of mid-November ASEAN summits was preceded by the third ADMM+ on Nov. 4, which garnered a certain amount of press coverage, not for what was said or accomplished, but by the failure to issue a joint statement. The reason was familiar and expected: many participants (the US very much included) wanted the joint statement to reference security concerns in the South China Sea; one participant in particular (guess who, reportedly supported in its position by Russia) was adamantly opposed. The others decided it was better to not have a joint statement than to have one which omitted the major security issue of the day.

This does not mean the issue went unmentioned; by all accounts it was hotly debated. As with the ASEAN meetings, the ADDM+ Chairman’s Statement – which is not a consensus document – also urged the “effective implementation” of the DOC and the “early conclusion” of a COC. It further noted that “some countries also expressed concerns on the escalation of tensions in the Korean Peninsula and pushed for peaceful conflict resolution through diplomatic means.”

US Defense Secretary Ashton Carter, in his prepared remarks at the meeting, applauded ASEAN as “both a source of rules and a steward of the rules-based regional order” and pledged to “work to build our partners’ maritime capacity and capabilities, so we can face shared challenges, together.” He noted that “many of the participants here remain concerned about the South China Sea. While the United States takes no position on sovereignty claims to land features in the South China Sea, we do have an interest and an obligation – as do others – to uphold international law and standards” while further asserting that “freedom of navigation and the free flow of commerce are not new concepts; they are not theoretical or aspirational goals; in this part of the world, these rules have worked for decades to promote peace and prosperity.” Carter also expressed Washington’s support for “existing diplomatic and legal processes, such as . . .the Law of the Seas Tribunal,” an obvious reference to the ruling a few days by the Permanent Court of Arbitration that it has jurisdiction over the case Manila filed against China’s nine-dashed line claim to sovereignty over the whole of the South China Sea.

What is new, Carter asserted, is “the intensive and aggressive reclamation of features in the South China Sea. Make no mistake: these new facts will not change what we’ve always done. The United States will continue to fly, sail, and operate wherever international law allows.” The sailing of the USS Lassen, a guided-missile destroyer, within 12 miles of the Chinese reclaimed (or more accurately, fabricated) Subi Reef in the disputed Spratly Islands on Oct. 27 underscored this point. Australia, Japan, and South Korea have joined Washington in proclaiming the importance of freedom of navigation (FON) under international rules, which do not recognize territorial claims based on low tide elevations. Obama’s critics have complained that more such FON operations are needed and that the US Navy needs to clearly distinguish between FON operations and “innocent passage” to send a stronger message to Beijing. But it’s clear Beijing has already gotten the message and that FON operations will continue against areas claimed by China and by others, on the Navy’s timetable, not the critics. (Personally, we believe that US sailors deserve to spend the Christmas holidays in port; there will be plenty of time and opportunity for messaging in the New Year.)

Pyongyang’s exaggerated claims (or are they?)

At the ADDM+, Secretary Carter also noted “the need to seek a Korean Peninsula at peace and free of nuclear weapons.” His message, echoed in the EAS Statement, was lost on Kim Jong Un, who created quite a stir in early December when he boasted that “Our great President Kim Il Sung has turned today’s DPRK into the powerful nuclear state that can make the loud blasting sound of the atomic bomb and the hydrogen bomb for the self-defense of the country’s autonomy and dignity.” (For the record, it was his father, Kim Jong Il, and not his grandfather, who brought the DPRK into the nuclear age, but all credit always goes to the “Eternal President.”) While it is always risky to underestimate Pyongyang’s nuclear prowess – a similar debate has been underway regarding its ability (or lack thereof) to miniaturize a warhead – most experts dismissed this claim as yet another highly unlikely and unsubstantiated assertion.

Kim also made headlines two months earlier when he presided over a huge military parade marking the 70th anniversary of the ruling Korean Workers’ Party. The parade was described as a “highly orchestrated event included goose-stepping soldiers, convoys of rocket launchers and missiles, and fighter jets roaring overhead.”  In a long speech before the parade, his first public address in three years, the “Great Successor” boasted: “We have stood up against the American imperialists, and we are ready for any kind of war against the United States,” adding “We can firmly declare that we can fight and win against the U.S. anywhere.”

Much has been made of the presence of Liu Yunshan, the fifth-ranking member in the Chinese Communist Party Standing Committee, at Kim’s side during the parade. While somewhat overshadowed by the more prominent image of South Korea President Park’s presence at President Xi’s side during China’s even grander parade commemorating the 70^th anniversary of the ending of World War II a month earlier, it still was seen as a significant warming of the seemingly troubled relationship between the two communist neighbors. When the long-anticipated DPRK long-range missile test/satellite launch did not take place in October, most analysts saw this as the quid-pro-quo for the high-level Chinese visit. Feeding speculation that Beijing had persuaded Pyongyang to tone things down was the absence of any reference to nuclear weapons in Kim Jong-Un’s New Year’s Day address. That euphoric feeling, to the degree it existed, only lasted six days and ended with a bang, as Pyongyang boasted of a successful test of a hydrogen bomb “conducted in a safe and perfect manner had no adverse impact on the ecological environment.” Beijing joined Washington, Seoul, and the rest of the civilized world in condemning this latest violation of a number of UNSC resolutions; the coming months will show just how angry Beijing really is as the UNSC debates next steps.

APEC: something for everyone

Prior to the ASEAN-centered events, President Obama was in Manila for his fifth APEC Leaders’ Meeting (out of seven opportunities; since APEC’s creation in 1993, ironically, only George W. Bush among US presidents had a perfect attendance record). We are APEC skeptics: apart from the original complaint – the group consists of “four adjectives in search of a noun” – the annual leaders meeting tends to be a showy affair (mercifully, the fashion photo has been abandoned), more symbol than substance. This year’s meeting, in Manila Nov. 18-19, was no exception. Coming on the heels of terror attacks in Paris and Beirut, much of the discussion of an “economic meeting” focused instead on security concerns. The leaders “strongly condemned all acts, methods and practices of terrorism in all their forms and manifestations,” and the attendees pledged that they would not “allow terrorism to threaten the fundamental values that underpin our free and open economies.”

That boilerplate rhetoric could not mask the divergence of views between those who feel the most important way to deal with this problem is tougher law enforcement and military efforts and those who think the focus should be economic growth that deprives such groups of traction and followers. Thus, in the banal sentiments invariably churned out in such gatherings, the leaders agreed that “Economic growth, prosperity, and opportunity are among the most powerful tools to address the root causes of terrorism and radicalization.” Yet, “global growth is uneven and continues to fall short of expectation,” and poverty “continues to be a reality for millions … in our region.” Here, as in other issues, the debate featured the US and China facing off, with the US pushing the hard power, law, and military response while China argued for tackling “root causes.” As is often the case in APEC, the final declaration was a catch-all document that offered something for everyone.

TPP: now comes the hard part

A sharp contrast to the “squishy APEC” offering was the conclusion of the Trans-Pacific Partnership trade deal, an agreement reached in October in Atlanta after seven years of negotiations and numerous missed deadlines. TPP has two purposes:  producing a “gold standard” trade agreement to counter the low-value bilateral and regional deals that have been struck in recent years, and ensuring that the “Asia Pacific” remains a viable economic unit. Both goals are an implicit repudiation of the other ongoing Asian economic negotiation, the Regional Comprehensive Economic Partnership (RCEP), even though they are not mutually exclusive. Agreeing on the TPP was a real accomplishment, given the participants, their diversified interests, and the range of issues included. The challenge now is national ratification. There are few countries where that can be taken as a given. In the US, election-year politics will delay serious debate; Senate Majority Leader Mitch McConnell has said that he won’t schedule a vote before the November ballot.  Most of the candidates have complained about the deal, and called for renegotiation of parts. That should be a nonstarter – if the October deal wasn’t final for the US, then other countries will want modifications as well and that would make the October document anything but final. (Still, other “concluded” deals, such as the Korea-US Free Trade Agreement, have been modified.) These apprehensions notwithstanding, TPP members took advantage of their combined presence at the APEC Leaders Meeting in Manila to have their first TPP Summit to highlight their success (thus far).

Putting history behind?

Perhaps the most eventful multilateral meeting was the China-Japan-South Korea trilateral summit that was held in Seoul in November, the first such sit-down in three years. The three leaders – Chinese Premier Li Keqiang, Japanese Prime Minister Abe Shinzo, and ROK President Park Geun-hye – agreed to resume annual meetings and produced a declaration with a grab-bag of issues: 18 points on economic and social cooperation, 10 on sustainable development, 14 on “enhancing trust and understanding among the peoples,” and eight points addressing security and political issues, most of which concerned promises to coordinate before multilateral meetings. Of some significance was the backing of a trilateral free trade agreement and the call on North Korea to return to diplomatic negotiations over its nuclear weapon program. Since those two initiatives were always priorities, it is hard to say that the trilateral meeting provided any new momentum. Nevertheless, the fact that the three leaders were able to meet suggests that history concerns have been diminished and the three governments are trying to get back to business as usual. The statement declared that “trilateral cooperation has been completely restored on the occasion of this Summit.” We shall see.

The most significant outcome was the side meeting between President Park and Prime Minister Abe (covered in detail in the Japan-Korea summary). This opened the door for the historic grand bargain on comfort women which, while far from satisfying everyone, is the first tangible progress on this issue in years and opened to door for closer cooperation between America’s two Northeast Asia allies.

A (premature?) vote of confidence in the RMB

After months of anticipation, the International Monetary Fund (IMF) agreed to include the renminbi (RMB) or yuan, in its basket of reserve currencies. The decision reflects the growing role that the RMB is playing in international finance; it is also intended to push China to continue reform and opening its economy. IMF Managing Director Christine Lagarde called the November decision “an important milestone in the integration of the Chinese economy into the global financial system” and “recognition of the progress that the Chinese authorities have made in the past years in reforming China’s monetary and financial systems.”

Beijing has pressed for inclusion of the RMB in the IMF basket of reserve currencies, both in recognition of its growing international status and as a way of reducing the world’s reliance on the dollar (and diminishing the resulting US influence). China sees the IMF policy as a sign that the Fund is ready to adapt to reflect new geoeconomic realities. Failure to reform IMF voting rights was part of the reason China proposed the new Asian Infrastructure Investment Bank. (Mercifully, the US Congress in mid-December finally approved the long-sought quota and governance reforms.)

There has been debate, however, over whether the RMB met the two criteria for inclusion in the basket: it must be widely used and it must be freely available. The first would seem obvious given the scale of Chinese trade: the RMB was used for 24 percent of China’s current account transactions in the first nine months of 2015, about RMB 5.5 trillion. But Beijing’s tight grip on national finance, exchange rates in particular, threatened the second. Nevertheless, staff economists concluded and the IMF executive board agreed that China met the two requirements.

That second factor is a partial explanation for the Chinese decision last summer to allow the RMB to move more freely against the dollar, a move that produced an immediate plunge in the value of the currency against the dollar and charges that Beijing was engaging in currency manipulation to boost a slowing economy. Many Westerners don’t like market forces when they work against their national interests, but they should accept this particular weakening as part of the case for continuing liberalization in China.

Reform could be dangerous, however, especially given the many uncertainties in China produced by a slowing economy, the anti-corruption campaign, reports of bubbles, market manipulation, and outright fraud.  The RMB has continued to slide against the dollar since the authorities decided to loosen the currency’s bounds last summer, but a freefall would be equally dangerous, generating inflation in China, along with complaints of currency manipulation. China’s economy is likely to continue to weaken as a result of diminishing international demand, excess capacity, and mounting debt for government units and parts of the finance sector. Most damaging, however is a perception that China’s economic decision makers are foundering under multiple assaults, a charge that has taken on increasing weight as the Shenzhen and Shanghai stock markets were forced to suspend trading as share prices plummeted. The installation of “circuit breakers” failed and seemed to accelerate the declines. The People’s Bank of China has been forced to intervene heavily in currency markets – its reserves reportedly decreased by half a trillion dollars in 2015 – to prevent the RMB from plummeting.

China’s troubles managed to overwhelm the Federal Reserve’s December decision to raise interest rates from near zero to a range of 0.25 – 0.50 percent.  There were fears that such a move would force a skittish global economy to stumble: the US economy is doing reasonably well, they argued, but inflation risks were low and the rest of the global outlook was uncertain.  At the same time, however, there were equally real concerns that the near zero interest rate, in combination with the Fed’s quantitative easing policy, was flooding emerging markets with cash. Fed members wanted a return to normalcy, among other things to signal their faith in the US recovery. The move also meant that if the US economy stumbled, they would have one of their usual tools – interest rate cuts – to help cope. Most observers credit Fed Chairman Janet Yellen with providing enough advance warning – without explicitly saying what was happening – to minimize any damage.

Elections past and pending

On Nov. 8, international attention focused on Myanmar as that country held elections, which the National League for Democracy (NLD) won in a landslide: the party took 86 percent of the seats in the Assembly of the Union (235 in the House of Representatives and 135 in the House of Nationalities), a supermajority that should ensure that its candidates are named president and first vice president. The NLD victory was expected. Far less certain was the military government’s response to that win. By all accounts, however, the military is prepared to accept defeat. The big question now is what sort of accommodation will be worked out with Aung Sun Suu Kyi, the leader of the NLD who is constitutionally banned from being president (because she has foreign relatives – a clause that was written specifically to disqualify her). Reportedly, negotiations are underway that will allow Suu Kyi to be the power behind the president. Thus far, the democratic transition is proceeding, but there is no guarantee that it will be friction free as the impact of changes begins to impact the military’s political and economic interests.

In the next quarter, the electoral focus will be Taiwan’s presidential ballot, scheduled for Jan. 16. As we get ready to publish this issue (and voters head to the urns), Democratic Progressive Party (DPP) candidate Tsai Ing-wen is favored to win. Her victory will certainly upset Beijing but China must have been preparing for this outcome for months: the KMT has been in disarray and Tsai’s lead in the polls has never been challenged. Some view the historic meeting between Xi Jinping and Ma Ying-jeou in Singapore on Nov. 7 to have been an attempt to influence that ballot, but we give the Chinese credit for more sophistication. That was far too crude a gesture to move Taiwanese voters. Rather, the meeting seems more like an attempt to burnish Ma’s legacy than it was to boost KMT support. All eyes will remain on Taiwan if the DPP wins and as Tsai struggles to reconcile her (and her party’s) ambitions for greater autonomy and international space with China’s demand for acceptance of the 1992 consensus and the one-China framework.

Other elections will demand attention in the year to come: the US presidential campaign promises to be a spectacle (in every sense of the word).  Meanwhile, the domestic and international dynamics identified above will continue to shape and shake regional politics. It promises to be a busy year.