June 4, 2015 12:00 am JST

Political rifts could stymie Asia's economic ambitions

YASUHIRO GOTO, Nikkei senior staff writer

Asia will see the birth of two regional organizations this year that will shape its economic future: the ASEAN Economic Community, which aims to forge a common market among the members of the Association of Southeast Asian Nations, and the China-led Asian Infrastructure Investment Bank.

     But while these new multilateral bodies have the potential to spark growth in Asia, strategic tensions between countries in the region, particularly in the South China Sea, threaten to undermine their work.

Power of teamwork

The AEC and the AIIB differ in function and structure, but they both aim to foster growth across Asia. The importance of the AEC and AIIB was clear from the many speakers who mentioned them at the 21st International Conference on The Future of Asia.

     Since the start of the century, China has been the major engine of growth in Asia, followed by Thailand and other big ASEAN members. Now growth is accelerating in India, Vietnam, the Philippines and elsewhere. In Asia as a whole, however, gaps in economic development have widened between countries. Within individual countries, economic disparities are growing between urban and rural areas, and between wealthy and poor districts in cities.

     These disparities must be addressed in Asia as a whole. The AEC and the AIIB could be a great help to countries that are lagging behind. The elimination of tariffs and the lowering of other barriers will lift trade within the region and draw investment to countries with ample low-cost labor. The AEC can also give impetus to trade liberalization in other regional groups such as the South Asian Association for Regional Cooperation.

     The AIIB, for its part, can go a long way toward improving roads, harbors and power stations, the lack of which has impeded growth in many countries.

     Japan has decided not to join the AIIB for now, but does not want to remain aloof from the infrastructure-building drive. Speaking at a dinner during The Future of Asia conference, Prime Minister Shinzo Abe said Japan will join with the Asian Development Bank to provide $110 billion to finance projects in Asia. The funding program, spurred by the impending arrival of the AIIB, is expected to provide the least developed Asian economies opportunities to develop.

Pitfalls of politics

But widening political rifts in Asia could swallow all these hopeful signs. China's pushiness in the South China Sea has fueled deep distrust toward Beijing in Vietnam and the Philippines, which have territorial disputes with China, and in Asia as a whole.

     Areas that are seen as prizes in a strategic contest between countries naturally have trouble attracting foreign investment or building infrastructure. As they work to lay the physical groundwork for economic growth, Asian countries must therefore create a diplomatic framework for resolving disputes.

     China's stellar-growth days are behind it. And other big regional economies such as Thailand and Indonesia are slowing. If growth is to accelerate in Asia as a whole, it is essential to bolster the least developed economies and to mend rifts in the region. The countries of Asia must create forums for broad and candid dialogue.

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