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Articles & Commentaries

2021/39 “The Belt and Road Initiative in Southeast Asia after COVID-19: China’s Energy and Infrastructure Investments in Myanmar” by Kaho Yu

 

This picture taken on February 8, 2020, shows a part of the first rail line linking China to Laos, a key part of Beijing’s ‘Belt and Road’ project across the Mekong, in Luang Prabang. From an artificial island in Sri Lanka to a bridge in Bangladesh and hydropower projects in Nepal and Indonesia, China’s trillion-dollar Belt and Road plan is stuttering under the effects of the deadly coronavirus. Photo: Aidan JONES, AFP.

EXECUTIVE SUMMARY

  • Regardless of its eventual scale, the Belt and Road Initiative (BRI) will likely remain a cornerstone of China’s foreign and economic policies, with an increased strategic focus on Southeast Asia. Energy and transport infrastructure investments will remain its key priority.
  • The ASEAN market has become more important to China’s BRI since the onset of the COVID-19 pandemic. Regional policymakers should take on a gatekeeper role and step up third-party scrutiny of BRI investments, as unsustainable ones will undermine economic recovery.
  • Considering the divergences in environmental, social and governance (ESG) risks as well as security risks in Southeast Asia, smaller infrastructure projects will likely be more commercially viable than megaprojects.
  • Increasing investment under the BRI could increase Southeast Asia’s economic reliance on China, and reshape existing alliance patterns in the region.

* Kaho Yu is Principal Analyst, Asia Risks & Energy, Verisk Maplecroft based in Singapore.

INTRODUCTION

Since its launch in 2013, China’s Belt and Road Initiative (BRI) has stirred intense international debate over its political-economic impacts and a wide range of associated risks. Chinese spending on the initiative has slowed since 2018, and lockdowns during the COVID-19 pandemic have further worsened the already-significant delays in BRI infrastructure projects, amid geopolitical tensions. Regardless of its eventual scale, the BRI will likely remain a cornerstone of China’s foreign and economic policies, with an increased strategic focus on Southeast Asia. Post-COVID economic pressures and the demand for infrastructure investment will drive ASEAN member states to work more closely with China. The question here is whether the parties involved can work together to achieve a win-win result.

GROWING INFRASTRUCTURE AND INVESTMENT GAP

Infrastructure investment is crucial to the economic growth and development of ASEAN member states. According to the Asian Development Bank (ADB), US$3 trillion of climate-adjusted investments will be needed from 2016 to 2030 to maintain the current development momentum in Southeast Asia.[1] Although these investment needs vary by sector, energy[2] is the largest, accounting for 56 per cent of the total projected investment need, followed by transport’s 32 per cent. However, it is difficult for existing financial institutions, including the World Bank and the ADB, to fill this funding gap.[3] ADB data indicate that there is an annual investment need of US$210 billion, but infrastructure spending in the region was only US$55 billion in 2018. This gap is set to increase due to the ripple effect of COVID-19 on Southeast Asian economies.

In general, to meet their growth objectives, ASEAN member states will have to attract more infrastructure investment, especially in their energy sectors.[4] However, according to the Brookings Institute, traditional Western investments in Southeast Asia are either not keeping up with the region’s needs or are turning away from infrastructure.[5] Although the barriers to investment in Southeast Asian infrastructure are the result of many factors, the most prominent ones are environmental, social and governance (ESG) risks.

This gap leaves room for more BRI investment in Southeast Asia. These outward BRI investments are also important in addressing a wide range of challenges faced by China, including slumping economic growth, domestic overcapacity and overproduction, the relatively backward development of western China, and the political instability and security of ‘neighbourhood’ regions near China.[6]

THE GROWING ROLE OF ASEAN IN THE BRI

China’s economic ties with ASEAN member states have remained solid, even as COVID-19 continues to batter global trade and investment. In 2020, China’s trade surplus recorded a 27% increase from 2019. Chart 1 shows that ASEAN has replaced the EU as China’s top trading partner in 2020. Changes in trade patterns indicate that China has been leaning increasingly on the ASEAN market amid the pandemic disruption and increased geopolitical tensions.

As shown in Chart 2, BRI investments[7] in Southeast Asia grew from US$16.8 billion in 2014 to US$29.3 billion in 2019, accounting for 27.6 per cent of all BRI investments worldwide. In these six years, construction contracts made up 46.2 per cent of BRI investments in Southeast Asia. Energy and resource[8] is the largest sector, accounting for 42.9 per cent, followed by transport’s 31.7 per cent. Despite a sharp drop in total BRI investments in 2020, Southeast Asia (US$16.9 billion) became the BRI’s largest investment destination, accounting for 36 per cent of the total investment (see Chart 3).

Investment data show that, similar to trade patterns, the Southeast Asian market has become more important to BRI investment,[9] especially since the pandemic. China has diverted its investment initiatives to Southeast Asia as a result of COVID disruptions in the West, and growing geopolitical tensions. Both China and ASEAN member states have encountered severe business disruption across all sectors, and are desperate to resume business activities to mitigate the economic impact of COVID-19. While Southeast Asia appears to be a more friendly market destination for China under the current geopolitical environment, China likewise, through its early industrial resumption, has emerged as a strong economic partner during the pandemic. Therefore, both ASEAN and China have emphasised China-ASEAN economic cooperation as a means to spur their economic recovery.

A large part of BRI investment in Southeast Asia focuses on building supply chain infrastructure, such as Power Construction Corporation’s gas-fired power plants in Myanmar[10] and Zhejiang Huayou’s nickel and cobalt projects in Indonesia.[11] With these projects, China may export any excess capacity overseas and import any necessary resources for its industrial base. Energy and resource cooperation is closely linked throughout the BRI, given the potential for large-scale energy projects to bring about infrastructure opportunities and industrial access.

RISKS ASSOCIATED WITH MEGAPROJECTS: A CASE STUDY OF THE CHINA-MYANMAR ECONOMIC CORRIDOR

China has been ambitious in expanding its BRI footprint in Southeast Asia, even during the COVID pandemic. This ambition is exemplified by the China-Myanmar Economic Corridor (CMEC). China and Myanmar first signed the CMEC agreement as part of the BRI in 2017. This agreement encompasses a number of infrastructure projects that strategically connect the oil trade from the Indian Ocean to China’s Yunnan province via Myanmar. Key infrastructure investments in the CMEC include a deep-water port, several large-scale energy and transport projects, and the Kyaukphyu Special Economic Zone (SEZ).

After securing the CMEC agreement in 2017, both parties have been engaged in negotiations over the implementation of the abovementioned megaprojects. However, there has been limited progress due to concerns over the projects’ commercial viability. In 2020, which marked the 70th anniversary of China-Myanmar diplomatic relations, both sides signed another 33 bilateral agreements during Chinese President Xi Jinping’s state visit to Myanmar in January to facilitate the implementation of the CMEC. In particular, these agreements cover the development of a deep seaport at the Kyaukphyu SEZ, the Muse-Mandalay electric railway and the New Yangon City project.

In spite of the business disruption brought about by the COVID crisis, China has continued to urge the Myanmar government, via presidential calls and high-ranking official visits, to speed up the implementation of planned CMEC projects.[12] China has sent a strong political signal that it is still keen to push the CMEC forward.

The 2021 Myanmar coup has further complicated the business environment in the country, placing Chinese projects directly at risk and threatens Beijing’s economic interests in the country. The civil unrest, anti-China sentiments and Myanmar’s attempt to reduce China’s influence have dragged Chinese projects into the centre of the domestic political dispute. A number of Chinese business in Myanmar are reportedly suspended and pulling out non-essential staff.[13] It also remains unclear if the military government will honour or re-negotiate the Chinese projects and agreements previously approved by Suu Kyi’s administration. However, once the political turmoil settles down, China will likely resume efforts to integrate Myanmar into its economic orbit. The current political uncertainty will certainly lead to business disruption, but Myanmar will likely remain a long-term destination for Chinese investment, particularly in the energy, mining and infrastructure sectors.

In general, Beijing expects BRI investment in Myanmar to contribute to energy security, market creation and stability in its ‘neighbourhood’. Beijing maintains that an economic slowdown in its ‘neighbourhood’ would result in social instability and security threats, which could in turn threaten the political stability of Chinese border provinces such as Yunnan. However, from a Myanmar perspective, other than the above political risks, there are longer-term uncertainties about the commercial viability and ESG risks of the proposed megaprojects.

Kyaukphyu SEZ deep seaport: The SEZ seaport has been the coastal energy terminus of the China-Myanmar oil and gas pipelines running into China’s Yunnan province since 2013. Its development is in line with Beijing’s long-term energy security goal of gaining access to the Indian Ocean via Myanmar and reducing reliance on the Strait of Malacca for oil and gas imports. However, since the China-Myanmar oil and gas pipelines have a limited capacity of approximately 160 million barrels of oil and 12 billion cubic metres of gas per year, it is considered merely as a contingency plan.

Besides, the lack of energy policy reform in Myanmar has also created uncertainty for the profitability of Chinese oil and gas projects in the country. The fiscal terms of Myanmar’s current production sharing contract model were introduced when oil prices were high, and these terms are no longer favourable to investors in a low-oil-price environment. More industry incentives are needed for investors to commit to energy projects in costly and risky deep waters. The Myanmar government is currently attempting to reform its oil and gas regime to attract investment, and a successful renegotiation of Woodside’s fiscal terms in late 2019 represented an early positive signal.[14] However, the proposed reform of the tax-heavy fiscal framework in 2020 and the opaque production sharing contract model in the current oil and gas law remains noncomprehensive and hinders further foreign investment. Under the current political circumstances, it will be difficult for Myanmar to carry out energy reform or to revise its fiscal terms to attract upstream investors.

Muse-Mandalay electric railway: The railway is a megaproject under the CMEC, designed to facilitate the transport of goods between China’s Yunnan province and Myanmar’s Kyaukphyu SEZ. Since the signing of the CMEC agreement in 2017, China and Myanmar have been engaged in negotiations over the terms of the Muse-Mandalay electric railway. Concerns over the megaproject’s commercial viability, however, remains a key obstacle. The proposed railway passes through highly volatile areas in Northern Shan State in Myanmar. Hence, any implementation of the project will face security and social risks unless the conflict in the area is resolved beforehand.

In June 2020, Myanmar Railways said that the government was receiving help from a third-party consultancy firm to scrutinise the Muse-Mandalay electric railway feasibility study. By seeking third-party review, the Myanmar government is demonstrating that it does not necessarily have to push ahead with Chinese megaprojects without properly assessing the social and security risks that could undermine the project’s commercial viability.

New Yangon City project:  The New Yangon City project aims to build a brand new smart city for a population of 1.2 million people in southern Myanmar by 2050. As part of the CMEC, the US$1.5 billion project was proposed by China Communication Construction Company (CCCC) in 2018. During Xi’s state visit in January 2020, both sides inked a letter of intent on the development of the megacity project.

In September 2020, the Myanmar government hired a third-party German consultancy firm to step up scrutiny of the project. This included carrying out a ‘Swiss challenge’ tendering process, which would have brought other international firms into the megacity project to challenge CCCC’s bid. The Chinese developer was recently blacklisted by the United States for its operations in the South China Sea and previously sanctioned by the World Bank from 2011 to 2017 for fraud. This stricter scrutiny of Chinese investment thus demonstrates Myanmar’s desire to mitigate the risks associated with the megaproject, avoid having one single company dominate the project, and prevent itself from incurring unsustainable debt obligations. Moreover, any new sanctions would make it harder for responsible companies adhering to international best practice to keep operating in Myanmar due to reputational and ESG consideration.

IMPLICATIONS FOR ECONOMIC RECOVERY AND GEOPOLITICS

While the BRI appears to be an economic panacea for COVID-19, the Myanmar case demonstrates that potential ESG risks associated with unsustainable megaprojects could be a long-term concern. While key decisions on megaprojects are typically made on the basis of national priorities, costs and benefits are asymmetric among countries in the BRI.[15] Although it is claimed that BRI projects are based on the common good (or what has been commonly described as “building a community of shared interests”) and have net socio-economic benefits, these projects could be favourable from the BRI’s perspective but not from an individual country’s perspective. In some cases, an infrastructure investment project could be favourable from a particular country’s perspective but might only achieve limited socio-economic benefits beyond that country’s borders.

A 2015 report from the Brookings Institute pointed out that Chinese investments are equally distributed between good and poor ESG regions, whereas Western investments usually avoid the latter.[16] Although Chinese investors target countries which Western countries find difficult to invest in, these investors may not always be capable of handling such projects. There will be a surge in FDI in the early stage of such BRI investments, but the deficit will worsen over the long run if such projects lack sustainability. Considering the divergences in ESG and security risks, BRI projects in ASEAN that involve cross-border or multinational issues could be exposed to delays or disputes. Although the completion of BRI projects will plug investment gaps in Southeast Asia, unsustainable ones will impose extra burdens on economic recovery. From this perspective, smaller infrastructure projects will likely have higher commercial viability than megaprojects, thus contributing more to spur economic recovery in Southeast Asia.

There are international debates about whether the BRI will play a complementary role alongside Western investment in Southeast Asia or replace the existing economic institutions.[17]  It is unavoidable that BRI investments will compete with existing ones by taking up market share. The BRI has also brought its combined commercial strategies and developmental policies to Southeast Asia. Chinese financing terms – such as low interest rates, flexible requirements and syndicated loans – are more attractive than those of Western investors and competitors. If Chinese lenders offer more competitive and permissive loans than those offered by the existing multilateral lending system, then developing countries that wish to avoid the restrictions of Western lenders may turn to China. Over time, increasing investment under the BRI has the potential to increase the Southeast Asian economic reliance on China and reshape the existing alliance pattern in the region.

ISEAS Perspective 2021/39, 6 April 2021.


ENDNOTES

[1] Here, ‘BRI investments’ refers to a combination of investments and construction contracts.

[2] This project is a 135MW gas to power plant by Sinohydro (a brand of Power Construction Corporation of China) and Supreme Trading. The investment size is US$180 million. It was approved by the Myanmar government in January 2018.

[3] This project is a nickel and cobalt processing plant in the Morowali Industrial Park by Zhejiang Huayou , China’s top cobalt maker. The investment size is US$1,240 million. Construction and development work on the project was scheduled for 2020 but has experienced delay due to the pandemic.

[4] For example, in late May 2020, Myanmar President U Win Myint and Chinese President Xi Jinping arranged a phone conversation to discuss coordination during COVID-19. During the call, Xi expressed hope that Myanmar would speed up the implementation of infrastructure projects in the China-Myanmar Economic Corridor (CMEC) first agreed to in 2017. Similarly, on 2 September 2020, Yang Jiechi, a Politburo member and director of the Central Foreign Affairs Commission of China, visited Myanmar and urged the start of delayed Belt and Road Initiative projects before the national election, despite the steady rise of anti-Chinese sentiment in the country.

[5] Zheng, W. (2021) ‘China tells state firms in Myanmar to evacuate non-essential staff’. South China Morning Post, 16 March.

[6] According to Woodside’s local partner, the Myanmar government offered more favourable fiscal terms to Woodside in its production sharing contracts.

[7] Parameswaran, P. (2017) ‘The real trouble with China’s Belt and Road’. The Diplomat, 11 May. Available at: https://thediplomat.com/2017/05/the-real-trouble-with-chinas-belt-and-road/ (Accessed 1 January 2018).

[8] Chen, W., Dollar, D., and Tang, H. (2015) ‘Why is China investing in Africa? Evidence from the firm level’. Report, Brookings Institute.

[9] Dollar, D. (2016) ‘China as a global investor’. Working paper 4, Brookings Institute; Legault, G.-F. (2015) ‘AIIB melding, not moulding global governance’. East Asia Forum. Available at: http://www.eastasiaforum.org/2015/11/18/aiib-melding-not-moulding-global-governance/ (Accessed 1 January 2018).

[10] Here, ‘BRI investments’ refers to a combination of investments and construction contracts.

[11] Oil and gas, renewables, power, etc.

[12] ADB (2017) ‘Meeting Asia’s infrastructure needs’. Available at: https://www.adb.org/publications/asia-infrastructure-needs.

[13] Oil and gas, renewables, power, etc.

[14] AIIB (2017b) ‘Energy sector strategy: sustainable energy for Asia’, Asian Infrastructure Investment Bank

[15] Energy investment not only includes resource trade but always involves huge levels of spending on different forms of infrastructure such as pipelines, grids, solar panels, power plants and refineries, as well as ports and roads connecting remote fields.

[16] Dollar, D. (2020) China and the West competing over infrastructure in Southeast Asia, Brookings Institute.

[17] Hornby, L. (2016) ‘China seeks foreign investors for One Belt, One Road push’, Financial Times, 25 May; Pavlićević, D. (2015) ‘China, the EU and One Belt, One Road strategy’, China Brief, 15: 15. Available at: http://www.jamestown.org/programs/chinabrief/single/?tx_ttnews%5Btt_news%5D=44235&cHash=9dbc08472c19ecd691307c4c1905eb0c#.V9-58CTuCXs (Accessed 18 January 2018).

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2021/38 “Digital Media: An Emerging Barometer of Public Opinion in Malaysia” by Pauline Pooi Yin Leong

 

While Facebook still dominates the digital landscape, younger Malaysians prefer other social media sites such as Twitter and Reddit. Mr Syed Saddiq Abdul Rahman pictured here (centre in yellow) on September 2019. He was Minister for Youth and Sports till 24 February 2020. Photo: Adek Berry, AFP.

EXECUTIVE SUMMARY

  • Digital media is an integral part of politics in Malaysia, having become an essential communication channel for both the government and the opposition, especially during the COVID-19 pandemic.
  • Mobile phone Internet users reached near saturation point at 98.7% in 2020. The top online activity is communicating via text, while social networking is the second most frequent. With the majority of the population being digitally connected, social media can be a barometer of public opinion.
  • Politicians in Malaysia are becoming more aware that their online reputation has an impact on their political fortune, and that they need to be sophisticated and savvy when crafting a positive image on social media.
  • The Malaysian Election Commission (EC) has recently announced that the Undi18 bill which lowers the voting age to 18 will only be implemented after 1 September 2022, and not in 2021 as scheduled, due to the COVID-19 pandemic.
  • This has led to a backlash from the Undi18 movement as well as the Malaysian United Democratic Alliance (MUDA), which plan to sue the Malaysian government to compel the EC to enforce Undi18.

* Pauline Pooi Yin Leong is Associate Professor with the Department of Communication, School of Arts, Sunway University, Malaysia. Her research interests are in political communication, digital media, freedom of speech and journalism.

INTRODUCTION

Ever since digital media entered the Malaysian landscape in 1996 as part of the government’s initiative to tap into the online economy, they have played a key role in the country’s democratic journey by enabling civil society and opposition parties to circumvent the government’s control of traditional media. Digital media provide an alternative platform for Malaysians to obtain information that differs from the official narrative; it also became the major sphere for public discussion.

In the late 1990s, the Internet was less interactive, and those who had online access, such as the late M.G.G. Pillay, would surf the World Wide Web for the latest news from international media such as Reuters and disseminate information through e-mail lists such as Berita Malaysia, Sangkancil and Bunga Raya. Those who received these emails would download and distribute the news via printed copies, compact discs (CDs) and Digital Video Discs (DVDs) to those who did not have an online connection. Usenet groups such as soc.culture.malaysia existed for news aficionados, but the impact was limited as public opinion was still controlled by the traditional media – newspapers, television, and radio. The advent of blogging in the mid-2000s became a game changer as citizens discovered this new avenue to voice their opinions publicly. The rise of socio-political bloggers such as Haris Ibrahim, Rocky’s Bru and Zorro Unmasked helped to turn the tide of public opinion against the establishment. In fact, Jeff Ooi, a prominent socio-political blogger during his heyday, contested in the 2008 general election and won a Parliamentary seat.

Realising the influence of online media, politicians from the incumbent Barisan Nasional (BN) jumped on the digital bandwagon by creating their own websites, blogs, and social media accounts. With its financial largesse, BN was able to employ teams of “cyber-troopers” to improve its online narrative to counteract the opposition’s dominance on the Internet. The 2013 general election saw both BN and the opposition battling for public support on social media such as Facebook and Twitter.  This intensified in 2018 as more Malaysians became connected to the information superhighway through their mobile phones, and particularly through WhatsApp.

DIGITAL MEDIA IN MALAYSIA TODAY

Today, digital media is an integral part of politics in Malaysia. It has become an essential communication channel for both the government and the opposition, especially during the COVID-19 pandemic. Social media is the platform where politicians and their parties issue press releases and livestream their press conferences. It has also become a barometer of public opinion as it facilitates reactions from Netizens about current socio-political issues. While Facebook still dominates the digital landscape, younger Malaysians prefer other social media sites such as Twitter and Reddit. In fact, the Malaysian Twitter community calls itself Twitterjaya, a play on Putrajaya, which is the seat of government in Malaysia. Syahredzan Johan, a prominent lawyer who joined Twitter in 2009, witnessed how it grew from “just another way of expression of individual status to a bona fide medium for discourse”. He added, “The social aspects of Twitter have evolved into a socio-political gauge of national sentiments”.[1]

According to the 2020 Internet Users Survey conducted by the Malaysian Communications and Multimedia Commission, 50 per cent of the population spend between five and 12 hours online to communicate via text, voice or video, and social networking sites. Mobile phone Internet users have reached near saturation point at 98.7% in 2020, up from 93.1% in 2018. Communicating via text is the top online activity at 98.1%, an increase from 96.5% in 2018, while social networking is the second most frequent, rising from 85.6% in 2018 to 93.3% in 2020. The survey also found that reading online publications such as newspapers, magazines or e-books has become more popular, increasing from 56.3% in 2018 to 68.3% in 2020.[2] Thus, it is not surprising that Malaysia’s mainstream media today is digital, while traditional media – print, radio, and television – have been relegated to the position of “legacy media”, and are considered as mature media established by the elite corporate “old guards”. The one-way communication and passivity of legacy media, as compared to digital media’s interactivity, makes it less popular and less profitable.

With a large majority of the population digitally connected, social media has become a barometer of public opinion. In fact, public uproar over certain government initiatives and policies have resulted in reversals and apologies. For example, during the COVID-19 Movement Control Order (MCO) in 2020, the Women, Family and Community Development Ministry published a series of posters on Facebook and Instagram, advising married women on how to manage their households and avoid domestic arguments, such as dressing well, not nagging, and—mimicking the voice of Doraemon, a Japanese cartoon cat—speaking coyly with a feminine laugh.[3] Public flack over the ministry’s statements, especially on social media, led it to subsequently apologise and delete the posts. The Higher Education Minister also received public criticisms for suggesting a TikTok competition to persuade Malaysian youths to stay at home.[4] Netizens pointed out that the minister should have instead focused on the welfare of undergraduate students during the MCO and their online learning issues.

Poignantly, university student Veveonah Mosibin created a YouTube video about her experience spending 24 hours on a tree in her village in the interior of rural Sabah in order to obtain sufficiently good Internet connection to take her online exams.[5] Her video became viral and received widespread support from Netizens, reaching more than 200,000 views and 2,000 comments. However, Deputy Communications and Multimedia Minister Zahidi Zainul Abidin and Kudat Member of Parliament (MP) Abdul Rahim Bakri, claimed that Veveonah was lying, and that the video was made to publicise her YouTube channel. Her university confirmed that she did take the exams. The deputy minister apologised for his remarks, claiming that he had received “inaccurate information”[6] while the Kudat MP, who is also deputy finance minister, deleted his Facebook post after being criticised by social media users for picking on a young student instead of focusing on improving Internet connection in Sabah.[7] This incident, which occurred just before the Sabah state election, was a cause of concern for the federal government which feared its negative impact on public opinion in Sabah. Science, Technology, and Innovation Minister Khairy Jamaluddin apologised to Veveonah on behalf of the government, while Prime Minister Muhyiddin Yassin flew into Sabah and invited Veveonah and her parents for dinner, in an attempt to contain negative fallout from the episode.

ONLINE REPUTATION AND DIGITAL PRESENCE

Politicians in Malaysia today are aware that their online reputation has an impact on their political fortune. Crafting a positive image on social media is now vital to their future. For example, the appointment of Tan Sri Muhyiddin Yassin by the Malaysian King as the country’s eighth prime minister on 1 March 2020 came under a cloud of protests as he was centrally associated with the “Sheraton Move” that saw more than 30 MPs defecting from the then Pakatan Harapan (PH) government, causing its collapse. Social media users vented their frustrations online with the hashtag “#NotMyPM” trending on Twitter with more than 47,000 tweets. Twitter user Ms Sharifah Hani Yasmin said, “A government not voted in by its own citizens. One day, the rakyat (citizens) will rise. #NotMyPM”. However, there were those who disagreed with the hashtag which they felt was disrespectful to the Malaysian King, while Muhyiddin’s supporters congratulated him on his appointment.[8] Realising the damage to his political reputation, Muhyiddin rebranded himself as “abah” (father in Malay) relying on his easy-going paternal demeanour during press conferences, when he marked his 100th day in office.[9] 

Other ministers linked to the Sheraton Move also attempted to reinvent themselves. For example, @JatIkhwan tweeted a picture of Datuk Zuraida Kamaruddin, Minister of Housing and Local Government, saying that he greeted her when he personally bumped into her cycling around a lake in Putrajaya without her entourage. After Twitter users questioned the tweet’s authenticity, @JatIkhwan admitted that he was paid to tweet using a given template, and he had not met the minister in person.[10] Women, Family, and Community Development Minister Datuk Seri Rina Mohd Harun’s recent 2021 Hari Raya fashion photo shoot at her ministerial office to showcase her transformative weight loss also did not sit well with Twitterjaya. Netizens criticised her for focusing more on her personal achievements than her role to assist women and children affected by the COVID-19 pandemic. Datin Paduka Che Asmah Ibrahim, ex-chief executive officer of the National Welfare Foundation released a post on Facebook, stating that it was highly inappropriate for the minister to use her office space for the photoshoot, especially during the crisis.[11] 

Online political communication requires sophistication and subtlety, as shown by experienced ministers such as Science, Technology, and Innovation Minister Khairy Jamaluddin. When he suffered minor injuries after hitting a pothole while cycling in Banting, Selangor, the newly elected president of the Negeri Sembilan Cycling Association tweeted, “Pothole, ditch, KJ. 2020 keeps giving”, together with pictures of his bruised face and the accident area. Many Twitter users commiserated with him, sharing their own personal experiences of being similarly injured. The Kuala Langat district’s Public Works Department (PWD), which is responsible for road conditions in Banting, apologised and immediately filled up the pothole. Critics, however, decried the department’s double standards, stating that it should also apologise to other road users who have been similarly injured.[12] In response to the criticisms, Khairy said that the PWD should not just pay attention to the issue because of his status, but should take pro-active measures to address it. He mooted the idea of a special online complaints portal for potholes, and said he would discuss this with the Works Ministry as soon as possible.[13] Khairy’s ability to deflect criticisms and turn matters into positive publicity shows his finesse and ability in navigating the possible “potholes” in the online environment. Clearly, politicians of the future need to be sufficiently savvy on social media if they are to construct a positive image of themselves.

YOUNG VOTERS IN THE NEXT GENERAL ELECTION

Malaysian politicians have a special reason to be concerned about how they are perceived on digital media. In the next general election, the 15th, a significant number of young digitally savvy first-time voters is expected, following the passing of the Undi18 bill, which lowers the voting age to 18. This significant development was due to the efforts of former Youth and Sports Minister Syed Saddiq, who approached Members of Parliament from both sides of the political divide to garner support for the bill. Supporters applaud this move, noting that this was part of PH’s manifesto and that 90 per cent of democracies in the world have already lowered the vote age to below 21.[14] Sceptics, however, are concerned that youths have insufficient knowledge about socio-political issues and governance to be able to vote wisely.[15]

Political parties are unable to predict how these youths are likely to vote. This means that the next general election, which has to be held by September 2023, is anybody’s game. Mastery of digital media is a given if one is to gain a competitive advantage. Currently, the bill, which includes automatic voter registration, is yet to be in force and is awaiting parliamentary gazetting. During the state of Emergency proclaimed on 11 January and effective until 1 August 2021, parliament is suspended. The Malaysian Election Commission (EC) has recently announced that Undi18 will only be implemented after 1 September 2022, and not in 2021 as scheduled, due to the COVID-19 pandemic. It said that it is “committed to implementing the Undi18 and automatic voter registrations that were approved in Parliament for the 15th General Election in 2023” but needed to time to re-evaluate constraints, obstacles, and issues that affected the initial planning and preparations.[16]

This postponement received backlash from the Undi18 movement as well as the Malaysian United Democratic Alliance (MUDA), led by Syed Saddiq. Both organisations plan to sue the Malaysian government to compel the EC to enforce Undi18.[17] [18] Subsequently, some 100 youth and opposition lawmakers protested outside Parliament, some bearing banners stating “Mana undi kami?” (Where is our vote? in Malay). Nur Rifayah, 18, who spoke at the protest, said that the EC’s decision will cause 1.2 million youths aged between 18 and 20 to lose their right to vote, if the 15th general election is held at the end of 2021.[19] The police said that they plan to investigate 11 individuals over the protest and record their statements.[20] Prime Minister Muhyiddin Yassin, however, denied allegations that PN is afraid of the youth vote and said that the Perikatan Nasional-led (PN) government should not be blamed for this, adding that it was just being realistic about the implementation.[21] This development, which limits the number of young first-time voters in the next general election, may become a flashpoint during campaigning. There might also be possible consequences in the following 16th general election as today’s youths will then become eligible to vote.  

CONCLUSION

Meanwhile, concerns are growing over the clamping down of free speech on digital media. This is in the wake of the recent Federal Court judgement to fine Malaysiakini RM500,000 for contempt of court due to five comments posted by readers on its website. In its defence, Malaysiakini stated it was unaware of the offensive comments as its filter did not detect any of the “suspected words”, and that its editorial team immediately reviewed and removed the comments the same day after it was alerted by the police.[22] Malaysiakini’s editor-in-chief Steven Gan expressed his fears that the judgement could result in a “tremendous chilling effect on discussions of issues of public interest” in Malaysia and affect freedom of speech and expression.[23]

While public opinion on digital media may not necessarily represent the full spectrum and diversity of views in Malaysia, it is to a significant extent a barometer of the sentiments of the politically aware citizens who are monitoring social issues. These articulate members of the online community may not exemplify the majority, but their discussions may gain sufficient traction and may influence the direction of mass public opinion. For example, a Twitter campaign #KitaMintaLima (We Ask for Five) urged the Malaysian King to grant five specific requests from the people to combat the economic and public health issues that emerged due to the COVID-19 pandemic. These requests were compiled from Netizens’ comments on an Istana Negara Facebook post, which showed the Malaysian monarch granting Prime Minister Muhyiddin an audience for a pre-Cabinet meeting. If the five requests could not be fulfilled, then the campaign poster urged for a change of government.[24] More than 48,000 tweets with the hashtag were posted, which made it one of Twitter’s top Trending Topics in Malaysia.

Although some critics are sceptical of social media campaigns due to clicktivism or slacktivism, there is always the possibility that such ideas, which emerge online, can ignite the imagination of the masses and fan the flames and lead to offline ground activism. Politicians from both sides of the divide are conscious of this possibility, and hence actively monitor current trends on digital media as a barometer of public opinion.

ISEAS Perspective 2021/38, 1 April 2021.

ENDNOTES

[1] Syahredzan, J. (2013, 12 August). The Twitterjayas @twt_malaysia, Opinion. The Star Online. Retrieved from https://www.thestar.com.my/opinion/online-exclusive/a-humble-submission/2013/08/12/twitterjaya-forever

[2] Malaysian Communications and Multimedia Commission. (2020). Internet Users Survey. Retrieved from Cyberjaya: https://www.mcmc.gov.my/skmmgovmy/media/General/pdf/IUS-2020-Report.pdf

[3] Low, Z. (2020, 31 March). ‘Talk like Doraemon’: Malaysian ministry issues tips for wives during COVID-19 movement control order. ChannelNewsAsia. Retrieved from https://www.channelnewsasia.com/news/asia/coronavirus-malaysia-ministry-tips-wives-nagging-doraemon-mco-12593708

[4] Tan, T. (2020, 9 April). Higher Education Minister slammed over proposed TikTok competition. The Star Online. Retrieved from https://www.thestar.com.my/news/nation/2020/04/09/higher-education-minister-slammed-over-proposed-tiktok-competition

[5] Mariah, D. (2020, 17 June). UMS student’s tree hut video goes viral. The Borneo Post. Retrieved from https://www.theborneopost.com/2020/06/17/ums-students-tree-hut-video-goes-viral

[6] FMT Reporters. (2020, 4 September). Sabah student ‘hurt and sad’ over claims she made video to get more YouTube views. Free Malaysia Today. Retrieved from https://www.freemalaysiatoday.com/category/nation/2020/09/04/sabah-student-hurt-and-sad-over-claims-she-made-video-to-get-more-youtube-views

[7] Chan, D. (2020, 8 September). Deputy finance minister takes down FB post on Veveonah. The New Straits Times Online. Retrieved from https://www.nst.com.my/news/politics/2020/09/622798/deputy-finance-minister-takes-down-fb-post-veveonah

[8] Ng, E. (2020, 2 March). #NotMyPM trends on Twitter; others rally round Muhyiddin. The Straits Times.

[9] Bernama. (2020, 10 June). Malaysia in deft hands of ‘abah Muhyiddin’. New Straits Times. Retrieved from https://www.nst.com.my/news/nation/2020/06/599413/malaysia-deft-hands-abah-muhyiddin

[10] Erna, M. (2020, 25 November). Are Malaysian politicians so unpopular they’re buying self-aggrandising tweets? Malay Mail. Retrieved from https://www.malaymail.com/news/opinion/2020/11/25/are-malaysian-politicians-so-unpopular-theyre-buying-self-aggrandising-twee/1925844

[11] Dorall, A. (2021, 15 February). Women & Family Minister Rina Harun Hosts Fashion Shoot In Minister’s Office, Catches Flack From Malaysians. The Rakyat Post. Retrieved from https://www.therakyatpost.com/2021/02/15/women-family-minister-rina-harun-hosts-fashion-shoot-in-ministers-office-catches-flack-from-malaysians

[12] The Straits Times. (2020, 28 December). Malaysia’s Minister Khairy Jamaluddin injures from fall after bicycle hits pothole. The Straits Times. Retrieved from https://www.straitstimes.com/asia/se-asia/malaysias-minister-khairy-jamaluddin-injured-from-fall-after-bicycle-hits-pothole

[13] The Star Online. (2020, 28 December 2020). Khairy moots online complaints portal to tackle potholes in the country. The Star Online. Retrieved from https://www.thestar.com.my/news/nation/2020/12/28/khairy-moots-online-complaints-portal-to-tackle-potholes-in-the-country

[14] Arinah, N. (2019, 24 August). Reflecting on Syed Saddiq’s work behind Undi18. Malaysiakini. Retrieved from https://www.malaysiakini.com/news/489272

[15] Musleh, D. (2019, 12 July). Is ‘Undi 18’ a wise step? Malaysiakini. Retrieved from https://www.malaysiakini.com/letters/483560

[16] Loheswar, R. (2021, 25 March). EC defers Undi18, automatic voter registration to next year. The Malay Mail Retrieved from https://www.malaymail.com/news/malaysia/2021/03/25/ec-defers-undi18-automatic-voter-registration-to-next-year/1960986

[17] Sulhi, K. (2021, 26 March). Undi18 to take legal action against govt on deferment of young voters registration. The Edge Markets. Retrieved from https://www.theedgemarkets.com/article/undi18-take-legal-action-against-govt-deferment-young-voters-registration

[18] Tan, T. (2021, 25 March). Muda to sue govt over Undi18 delay. The Star Online. Retrieved from https://www.thestar.com.my/news/nation/2021/03/25/muda-to-sue-govt-over-undi18-delay

[19] Ashman, A. (2021, 27 March). ‘Where is our vote?’ Youths sit for 18 minutes in front of Parliament to protest the delay of Undi18. The Malay Mail. Retrieved from https://www.malaymail.com/news/malaysia/2021/03/27/where-is-our-vote-youths-sit-for-18-minutes-in-front-of-parliament-to-prote/1961533

[20] Camoens, A. (2021, 29 March). Cops to record statements of 11 over Undi18 demonstration outside Parliament. The Star Online. Retrieved from https://www.thestar.com.my/news/nation/2021/03/29/cops-to-record-statements-of-11-over-undi18-demonstration-outside-parliament

[21] Fahmi, Y. (2021, 27 March). PN not afraid of Undi18, just being realistic, says Muhyiddin. Free Malaysia Today. Retrieved from https://www.freemalaysiatoday.com/category/nation/2021/03/27/pn-not-afraid-of-undi18-just-being-realistic-says-muhyiddin

[22] Lim, I. (2021, 19 February). Malaysiakini fined RM500,000 for contempt of court over readers’ comments on the judiciary. The Malay Mail Online. Retrieved from https://www.malaymail.com/news/malaysia/2021/02/19/malaysiakini-fined-rm500000-for-contempt-of-court-over-readers-comments-on/1951022

[23] Lim, I. (2021, 19 February). Malaysiakini seeks public donation to pay RM500,000 fine Wednesday, editor speaks of ‘chilling effect’. The Malay Mail Online. Retrieved from https://www.malaymail.com/news/malaysia/2021/02/19/malaysiakini-seeks-public-donation-to-pay-rm500k-fine-wednesday-editor-spea/1951052

[24] FMT Reporters. (2021, 6 February). #KitaMintaLima trends on Twitter with 5 requests to the King. Free Malaysia Today. Retrieved from https://www.freemalaysiatoday.com/category/nation/2021/02/06/kitamintalima-trends-on-twitter-with-5-requests-to-the-king

ISEAS Perspective is published electronically by: ISEAS – Yusof Ishak Institute   30 Heng Mui Keng Terrace Singapore 119614 Main Tel: (65) 6778 0955 Main Fax: (65) 6778 1735   Get Involved with ISEAS. Please click here: /supportISEAS – Yusof Ishak Institute accepts no responsibility for facts presented and views expressed.   Responsibility rests exclusively with the individual author or authors. No part of this publication may be reproduced in any form without permission.   © Copyright is held by the author or authors of each article.Editorial Chairman: Choi Shing Kwok  
Editorial Advisor: Tan Chin Tiong  
Managing Editor: Ooi Kee Beng  
Editors: William Choong, Malcolm Cook, Lee Poh Onn, and Ng Kah Meng  
Comments are welcome and may be sent to the author(s).

2021/37 “Harvesting Rural Votes in Malaysia: The Importance of Agriculture” by Geoffrey K. Pakiam and Cassey Lee

 

Despite agriculture’s relative decline, the sector exerts a disproportionate influence on Malaysian politics due to malapportionment in the distribution of parliamentary seats. In this picture, a worker sprays pesticide in a paddy field in Sekinchan, a small town on the west coast of Malaysia, on April 18, 2018. Photo: Mohd RASFAN, AFP.

EXECUTIVE SUMMARY

  • Agriculture’s role in the Malaysian economy has been steadily diminishing, both in terms of relative output and employment.
  • Despite agriculture’s relative decline, the sector exerts a disproportionate influence on Malaysian politics due to malapportionment in the distribution of parliamentary seats.  
  • Agricultural policymaking in Malaysia is diffused and overlapping. Three key ministries are involved, focusing on the improvement of livelihoods through structural transformations.
  • Recent political instability has led to expectations of a new general election once the Covid-19 pandemic is under control. Agriculture is expected to feature prominently in future election manifestos.
  • Prevailing tendencies towards Malay-centric politics make it hard for policymakers to overcome longstanding challenges facing Malaysia’s agricultural sector.

* Geoffrey K. Pakiam is Fellow at the ISEAS – Yusof Ishak Institute and Cassey Lee is Senior Fellow and Coordinator of the Regional Economic Studies Programme. [1]

INTRODUCTION

The role of agriculture in the Malaysian economy has been declining steadily over the years. Today, agriculture’s share of the country’s GDP and employment is around 7% and 10%, respectively (Figure 1).[2]  As a result, there is lingering concern for the long-term viability of some agricultural mainstays and their links with insecure livelihoods in rural areas.  Despite agriculture’s relative decline, the sector exerts a disproportionate influence on Malaysian politics due to the malapportionment of parliamentary seats.  This is reflected in the prominent role of agriculture in the election manifestos of political parties as well as fiscal allocations in support of the sector. This paper examines the political significance of agriculture, the current state of policymaking regarding the sector and political aspirations for the sector.

THE POLITICAL RELEVANCE OF AGRICULTURE

Agriculture’s continued political relevance in Malaysia is grounded in several overlapping factors, namely rising food costs, food insecurity and rural politics.

Food Prices and Insecurity

Cost of living concerns are widely believed to be one of the key drivers behind recent voter unhappiness with incumbent ruling coalitions.[3] While the costs of education, transport, healthcare, housing, and recreation all affect living standards, food costs are particularly important. Food’s essential everyday nature and the high proportion of household budgets devoted to food expenditures amongst poorer households mean that increases in food prices have a disproportionately negative effect on lower-income groups.[4] Since at least 2015, food prices in Malaysia have generally risen faster than the general consumer price index, particularly in urban areas (Figure 2). These increases compound an already problematic situation of ongoing household food insecurity: in 2016, one out of five children in Malaysia was officially classified as malnourished.[5]

Food insecurity is a complex, multifaceted phenomenon. A lack of locally produced and affordable healthy food in Malaysia contributes to the challenge.[6] The bulk of farm production subsidies to food farmers are still heavily skewed towards paddy cultivation, reducing incentives for Malay farmers in states like Kedah to diversify into higher-earning crops such as fruits and vegetables.[7] The federal bias towards paddy cultivation is based on decades of policymaking machinery built alongside an outdated assumption that sufficient locally farmed rice equates to sufficient food security, and an even older stereotype that hapless Malay peasant farmers need protection from avaricious non-Malay middlemen.[8]

Current demographics reinforce the perception that farming remains largely a Malay pursuit. The latest official figures breaking down agricultural employment by ethnicity indicate that Bumiputeras formed 56% of the labour force in 2019, followed by non-citizens (32%), Chinese (9%), Indians (2%), and ‘Others’ (1%). Non-citizens, however, do not have voting rights in Malaysia. Once foreigners are removed from the equation, the Bumiputera share of agriculture increases dramatically to 83%.[9] While many Bumiputera today are no longer farmers, most farmers are Bumiputeras. Thus, the votes of Bumiputera farmers play an important role in Malaysian politics.

Rural Politics

Agriculture’s decline in economic importance has been remarkably uneven between individual states. In Johor, Perak, Kedah, Kelantan, Pahang, Perlis, Sabah, and Sarawak, the agricultural contribution to state GDP remains well above the national average (Figure 3). All eight states are currently governed by state administrations associated with Perikatan Nasional (PN). Kelantan and Kedah are held by Parti Islam Se-Malaysia (PAS) while Pahang, Perlis, and Johor are led by Chief Ministers from UMNO. Meanwhile, Sabah and Sarawak are led by state leaders under Perikatan Nasional. Except for Sabah and Sarawak, these states tend to be overrepresented by Malay-majority rural constituencies.

The interplay between these factors can be seen in Malaysia’s 14th general election (GE14) held in 2018. There was a negative correlation between population density (a measure of urbanisation) and the share of votes going to the two major Bumiputera-centric political parties Barisan Nasional (BN) and PAS (Figure 4).  In general, it appears that the more rural a parliamentary constituency is (lower population density), the higher the vote share for PAS and UMNO. Given the importance of the agriculture sector in rural areas, this correlation implies that agriculture remains an important talking point for the political classes during election season, particularly in the more rural areas.

THE POLITICAL ECONOMY OF AGRICULTURE POLICY-MAKING

The importance of agriculture and rural development is reflected in budgetary allocations and agriculture policy-making. Development expenditure allocations to the agriculture sector in the five-year Malaysia’s development plans have declined over the years from a high of 31% in the First Malaysia Plan (1966-1970) to around 6% in the Ninth Malaysia Plan (2006-2010).  Though no official figures on allocations in the eleventh and twelfth Malaysia plans, the annual Federal budget allocation to agriculture has remained substantial. For example, in the 2020 Budget, allocations to ministries related to agriculture and rural development amounted to close to RM14 billion (ranked sixth across the different ministries). 

The importance of agriculture is also manifested in the governing institutions for agricultural policy-making, which mediate between political interests and rural voters. In Malaysia, a smorgasbord of organisations is responsible for agricultural policymaking. At the federal level, the Ministry of Agriculture and Food Industries (MAFI) deals primarily with the governance of perishables: domestic food crops, livestock, and fish. Political appointees who end up helming this ministry typically represent rural constituencies with strong ties to smallholder agriculture.

Between May 2018 and February 2020, under the Pakatan Harapan (PH) government, the ministry was led by Salahuddin Ayub (PH-Parti Amanah Negara), who remains member of parliament for Pulai, West Johor. After the collapse of the PH government, from March 2020 onwards, Ronald Kiandee (PPBM), now under the new ruling Perikatan Nasional (PN) coalition, became the new minister. Kiandee is currently member of parliament for Beluran, which is part of the Sandakan Division in Sabah. His appointment was likely based on a need for Sabah politicians to have more say in Malaysian policymaking, as well as long-standing plans to give more attention to Sabah’s food production potential, including paddy cultivation.

Another ministry, the Ministry of Plantation Industries and Commodities (MPIC), deals with ‘industrial’ commodities, namely products that typically undergo heavy processing into invisible ingredients: palm oil, cocoa, as well as inedibles like rubber and timber.  From May 2018 to February 2020, Teresa Kok, MP for Seputeh (Kuala Lumpur) led the organisation. Following the power shift to PN, Mohd Khairuddin bin Aman Razali of PAS took over. He represents a much more rural constituency, that of Kuala Nerus (Trengganu). As a member of PAS’ Central Working Committee, where he has held the portfolios of Economic Development and Property and Entrepreneur Development since 2013, Khairuddin is already a fairly senior member of the political establishment despite being only 46 years of age.[10]

Besides these two ministries, the Prime Minister’s Department currently has direct oversight of a major agricultural interest group, namely at least 120,000 settler households under the Federal Land Development Authority (FELDA). FELDA settler schemes are present in at least 53 parliamentary constituencies today. As recipients of long-term federal support, FELDA schemes were long considered ‘vote banks’ for Barisan Nasional, but recent elections have proven otherwise. By GE14, 21 FELDA-occupied Peninsular seats had been secured by parties under the PH alliance, and six went to PAS.[11] Painfully aware of this shift away from Barisan (and UMNO), the current PN coalition has asked Minister in the Prime Minister’s Department (Economy) Seri Mustapa Mohamed (PPBM) to lead a task force geared towards rejuvenating FELDA and addressing settler indebtedness and stagnant incomes. ‘Tok Pa’, as he is popularly known, has done stints as Minister for Agriculture as well as for Trade and Industry, and is widely respected as a capable technocrat. As an illustration of the importance of FELDA, a sum of RM400 million was allocated in the 2021 Budget to write off FELDA settlers’ interest payments on existing debts.

A host of specialised agencies deal with the nuances of individual crops, localities and service delivery objectives (Table 1). Both MAFI and MPIC play coordinating roles, overseeing the work of bodies dedicated to crop research and development, crop marketing, farmer collective representation, and irrigation projects, amongst others. At the level of states, individual Departments of Agriculture are responsible for implementing extension services and development programmes. Most land ownership matters also remain the prerogative of state administrators, including plots designated for FELDA schemes.

Notwithstanding the variety of interests involved, Malaysia’s most recent policy goals for domestic agriculture can be distilled into two major concerns: better jobs and better trade. Although average rural household incomes have risen significantly in nominal terms since 2009, the official gap between rural and urban incomes began to widen from 2014 onwards (Figure 5). Pakatan Harapan picked up on this growing income disparity and campaigned to improve the livelihoods of all farmers in the leadup to GE14. Malaysia’s steadily deteriorating agriproduct trade position is also cause for concern. While the country does produce a significant amount of food domestically, the balance must be imported. In the past, the economy was heavily dependent on palm oil exports to generate an overall agricultural trade surplus. The MPIC and its affiliated agency the Malaysian Palm Oil Board were consequently saddled with the main responsibility for increasing agro-exports.

However, as Figure 6 indicates, Malaysia’s palm oil exports have been falling in value over the past decade, while food imports have been increasing in value, whittling away Malaysia’s trade surplus. Given stagnant rural incomes, policymakers and politicians alike have adopted increasingly agro-populist positions, seeking to boost local food crop production through a barrage of promised measures.  The PN government allocated RM1.7 billion in the 2021 Budget to farmers and fishermen. This assistance ranges from price subsidies and incentives to direct income support in the form of living allowances.

ELECTIONS AND THE FUTURE OF AGRICULTURE

The current political instability in Malaysia is expected to lead to a general election (GE15) in the near future. In late November 2020, Prime Minister Muhyiddin Yassin suggested that the GE15 would take place after the Covid-19 pandemic was brought under control. Agriculture-related issues are likely to cast a long shadow over the election manifestos in this election.  Key issues that will be raised are likely to be the same ones that have appeared in the political manifestos in GE14. 

For example, in its GE14 campaign manifesto, Pakatan Harapan advocated improvements in agricultural outcomes in five major areas: (1) food security (2) agricultural productivity (3) improving farm incomes (4) overhauling paddy farming (5) reforming FELDA (see Appendix 1). Despite the best intentions of PH, many of these promises ultimately suffered from the same flaws that afflicted many other portions of its manifesto: overly ambitious goals, and insufficient time after elections to fulfil even the less ambitious measures.

Regarding food security, for example, the PH manifesto vowed to improve Malaysia’s profile by ‘guarantee[ing] food self-sufficiency even in times of crisis’.[12] While appealing to food nationalism and cost-of-living sentiments amongst consumers and farmers, this promise was grossly unrealistic from the outset. After coming to power in May 2018, the new PH-led administration increased the self-sufficiency level target for rice, Malaysia’s staple grain, from 70% to 75% (the revised target had not been set since the 1990s). Production failed to reach the new target in 2019, only reaching 69%.[13]

Attempts to modernise agriculture in general also suffered from mismatched political goals and policy horizons. Under Salahuddin Ayub (PH-Parti Amanah Negara), the Ministry of Agriculture and Food Industries underwent a strategic policy review in 2018 to map out new goals for 2019-2020. These objectives and discussion points were presented in a new policy framework entitled Prioriti dan Strategi 2019-2020.[14] Both Pakatan and MAFI had long-term interests in boosting farm incomes by introducing new sources of private investment, deploying labour-saving technologies in the field, and building capacity in farm entrepreneurship. Many initiatives were actually based on earlier strategies launched by the Ministry during its 2011-2020 ten-year plan.[15] Nevertheless, the goals of the policy document were circumscribed by Pakatan’s fall from power in February 2020.

Regardless of which political coalition is in power in 2021, the momentum to try and modernise domestic food cropping will continue within the Malaysian civil service. The next National Agrofood Policy paper is due to be launched in 2021, covering the next ten years up to 2030. What is less clear is how politicised and ethnocentric the document’s strategies and guidelines will be.

FINAL REMARKS

Notwithstanding the advances made in previous decades, there remains much room for improving agricultural livelihoods in Malaysia. Food crop farming remains heavily dependent on low-income labour, migrants or otherwise. The civil service has a long-term outlook for agricultural development, but the political conditions under which strategic documents are periodically formulated are not always helpful. Other things being equal, increasing the oft-lamented productivity of Malaysia’s paddy sector would ultimately mean shifting many Bumiputera farmers away from rice into more lucrative crops and non-farm work. For such shifts and others to be sustainable and competitive, a recalibration of Malaysia’s political settlement is needed, one that allows for long-term planning in the interests of all Malaysians.

ISEAS Perspective 2021/37, 30 March 2021.

ENDNOTES

[1] We are grateful to Jayant Menon and our Malaysia Studies Programme colleagues, all of whom offered helpful comments on earlier versions of this paper. The usual caveats apply.

[2] In 2018, the main contributing crops were oil palms (38% of agriculture’s GDP), food and cash crops (25%), livestock (15%), fishing (12%), forestry (7%) and rubber (3%). Source: Department of Statistics, Malaysia (DOSM). “Selected Agricultural Indicators, Malaysia, 2019”, (https://www.dosm.gov.my/v1/index.php?r=column/cthemeByCat&cat=72&bul_id=SEUxMEE3VFdBcDJhdUhPZVUxa2pKdz09&menu_id=Z0VTZGU1UHBUT1VJMFlpaXRRR0xpdz09)

[3] Yeah Kim Leng. “Economic Dynamics and the GE-14 Surprise.” In The Defeat of Barisan Nasional: Missed Signs or Late Surge?, edited by Francis E. Hutchinson and Hwok-Aun Lee. Singapore: ISEAS – Yusof Ishak Institute, 2019, pp. 97-99.

[4] Julia Chan. “How Much Do Minimum Wage Earners Spend on Groceries? Study Shows 40pc is ‘Average’.” Malay Mail, 17 January 2019.

[5] Wan Manan Wan Muda. “The Hunger-Obesity Paradox in Malaysia”, ISEAS Perspective 68/2020 (24 June 2020).

[6] Wan Manan Wan Muda, Jomo Kwame Sundaram, and Tan Zhai Gen. Addressing Malnutrition in Malaysia.  Kuala Lumpur: Khazanah Research Institute, 2019, pp. 67-68.

[7] Jomo Kwame Sundaram and Ashraf Shaharudin. “Pertanian Makanan di Malaysia Harus Diperbaiki.” Sinar Harian, 4 January 2020.

[8] Fatimah Mohamed Arshad, Bustanal Arifin, and Tey Yeong Sheng. Effectiveness of State Trading Enterprises in Achieving Food Security: Case Studies from BERNAS in Malaysia and BULOG in Indonesia.  Kuala Lumpur: IDEAS, 2019; John Overton. Colonial Green Revolution? Food, Irrigation and the State in Colonial Malaya.  Wallingford: CAB International, 1994; Lim Teck Ghee. Peasants and Their Agricultural Economy in Colonial Malaya, 1874-1941.  Kuala Lumpur: Oxford University Press, 1977.

[9] DOSM. Labour Force Survey Report, 2019. Putrajaya: DOSM, 2020.

[10] Khairuddin also gained notoriety in August 2020 for having broken Covid-19 home quarantine rules multiple times since the previous month, not least in order to attend parliament to help preserve Prime Minister Muhyiddin’s slim two-seat majority under PN. He was meted a relatively light fine of RM1,000 for his transgressions.

[11] Geoffrey K. Pakiam. “The Making and Breaking of Malaysia’s FELDA Vote Bank.” In The Defeat of Barisan Nasional: Missed Signs or Late Surge?, edited by Francis E. Hutchinson and Hwok-Aun Lee. Singapore: ISEAS – Yusof Ishak Institute, 2019, pp. 209-234.

[12] Pakatan Harapan. Buku Harapan: Rebuilding Our Nation, Fulfilling Our Hopes. Petaling Jaya: Pakatan Harapan, 2018, p. 32.

[13] DOSM. Supply and Utilization Accounts, Selected Agricultural Commodities, Malaysia, 2015-2019. (https://www.dosm.gov.my/v1/index.php?r=column/cthemeByCat&cat=164&bul_id=OTM1TDMzS1IvYm5mU1JiU1Fwekt3UT09&menu_id=Z0VTZGU1UHBUT1VJMFlpaXRRR0xpdz09)\

[14] Kementerian Pertanian dan Industri Asas Tani Malaysia. Prioriti dan Strategi 2019-2020. Putrajaya: Kementerian Pertanian dan Industri Asas Tani Malaysia, 2019.

[15] Kementerian Pertanian dan Industri Asas Tani Malaysia. Dasar Agromakanan Negara 2011-2020.  Kuala Lumpur: Percetakan Watan Sdn. Bhd., 2011.


ISEAS Perspective is published electronically by: ISEAS – Yusof Ishak Institute   30 Heng Mui Keng Terrace Singapore 119614 Main Tel: (65) 6778 0955 Main Fax: (65) 6778 1735   Get Involved with ISEAS. Please click here: /supportISEAS – Yusof Ishak Institute accepts no responsibility for facts presented and views expressed.   Responsibility rests exclusively with the individual author or authors. No part of this publication may be reproduced in any form without permission.   © Copyright is held by the author or authors of each article.Editorial Chairman: Choi Shing Kwok  
Editorial Advisor: Tan Chin Tiong  
Managing Editor: Ooi Kee Beng  
Editors: William Choong, Malcolm Cook, Lee Poh Onn, and Ng Kah Meng  
Comments are welcome and may be sent to the author(s).

“Gaps and Opportunities in ASEAN’s Climate Governance” by Sharon Seah and Melinda Martinus

 

2021/36 “Malaysia’s New Economic Policy and the 30% Bumiputera Equity Target: Time for a Revisit and a Reset” by Lee Hwok Aun

 

People walk and take pictures along the Saloma Link Bridge in Kuala Lumpur, Malaysia, on December 19, 2020. Malaysia’s New Economic Policy (NEP) turns 50 this year. Photo: Mohd RASFAN, AFP.

EXECUTIVE SUMMARY

  • Malaysia’s New Economic Policy (NEP), which turns 50 this year, is most intimately associated with the 30% Bumiputera equity ownership target.
  • Drafts of the forthcoming Shared Prosperity Vision 2030 have restated this target as the perennial under-achievement justifying continuation of pro-Bumiputera policies. However, the equity target needs to be revisited, and the Bumiputera enterprise agenda reset, on three grounds.
  • First, the NEP originally articulated a broader vision of Bumiputera economic partnership but became narrowly focused on 30% equity ownership. The current Bumiputera agenda emphasises active control and entrepreneurship. The singular macro target was incongruous from the start, and outdated in light of current policy priorities.
  • Second, the equity target is empirically problematic. The NEP originally set Bumiputera individual and trust agency sub-targets; the individual portion has long been surpassed. The data are also clouded by the combined effects of including foreign ownership and excluding Malaysian government ownership, which warrant a rigorous reconsideration.
  • Third, continual fixation with macro equity ownership detracts from more important attention to Bumiputera enterprise development, especially SMEs. The time is ripe for Malaysia to dispense with one catch-all goal, and to reformulate a set of objectives and targets, with Bumiputera SME development at the centre.

* Lee Hwok Aun is Senior Fellow and Co-coordinator of the Malaysia Studies Programme at the ISEAS-Yusof Ishak Institute. The author thanks Francis Hutchinson, Cassey Lee, Muhammed Abdul Khalid, Shankaran Nambiar, Ong Kian Ming and Tham Siew Yean for helpful comments on an earlier draft. The usual disclaimer applies.

INTRODUCTION

The New Economic Policy (NEP) has scripted Malaysia’s development for 50 years, with the 30% Bumiputera equity target as the main protagonist. The NEP’s imprint remains deep; its legacy endures long beyond the initial 1971-1990 timeline. While followed by a raft of other long-term plans, the NEP reigns supreme, its successors consigned to historical footnotes. The draft of the Shared Prosperity Vision (SPV) 2030, Malaysia’s next grand plan, makes the most substantive reference to the NEP, while cursorily acknowledging the National Development Plan (1991-2000) and the National Vision Policy (2001-2010). Bumiputeras have steadily progressed toward policy targets in education and employment, but the persistence of Bumiputera equity holdings below the 30% threshold, according to the official estimations, is continuously reiterated as the NEP’s defining – but elusive – quest (Lee 2019).

Perpetuation of this target is problematic, from historical, empirical and strategic perspectives. In 1971, the NEP originally aspired to a complex mix(?) of Bumiputera development objectives, but 30% equity ownership was placed on a pedestal from the mid-1970s. This has allowed quick gains and political patronage to prevail over longer gestation pursuits focused on building capability and competitiveness. In recent years, policy emphasis has principally shifted toward productivity-driven, bottom-up Bumiputera enterprise development, deepening the disconnect between these broad priorities and the narrow 30% target. Empirical flaws also mar the target setting and progress monitoring processes. A sub-target within the overall 30% has been surpassed, without acknowledgement. The official accounts, which include foreign ownership and opaque nominee companies while excluding Malaysian government ownership, have continuously provided a partial picture that demands more clarity and completeness. From strategic standpoints, persisting with a single macro equity target detracts from the more crucial attention needed in dynamic and competitive Bumiputera enterprise. This calls for a thorough policy revisit of priorities and targets, and a reset that coherently and effectively aligns policy actions with those priorities and targets.

(MIS)PLACED ON A PEDESTAL

A closer look at the original policy documents reveals subtle but distinct ways that a narrow 30% Bumiputera equity ownership target got placed on a pedestal, despite its incongruence with Malaysia’s broader development vision. The New Economic Policy was unveiled in two stages, as chapters within the Second Malaysia Plan of 1971 and the Third Malaysia Plan of 1976. The first chapter of the Second Malaysia Plan, entitled “The New Development Strategy” and comprising just nine pages, set out the NEP’s overarching, two-pronged strategy: first, eradication of poverty regardless of race; second, acceleration of social restructuring to reduce and eventually eliminate the identification of race with economic function. The NEP’s sweeping scope encompassed economic growth, job generation, industrialization and urbanization, infrastructure and rural development, and regional disparities.

The NEP was more invested in the second prong, having established that racial and ethnic inequalities needed utmost attention in the aftermath of the 13 May 1969 riots. The policy emphasised Bumiputeras’ elevation to professional and managerial positions and the modern sectors of the economy to, “above all, ensure the creation of a [Bumiputera] commercial and industrial community”. The economic goal on the distant horizon, articulated in the Second Malaysia Plan and reiterated in the Mid-term Review of the Second Malaysia Plan, was for the Bumiputeras,[1] “within one generation”, to be “full partners in the economic life of the nation” (Malaysia 1971: 6; Malaysia 1973: 1). However, the articulation of this long-term objective would shift in the ensuing years.

The full-fledged version of the NEP was presented in 1976, as Chapter 4 of the Third Malaysia Plan, entitled the “Outline Perspective Plan, 1971-90”. This document, subsequently known as the First Outline Perspective Plan (OPP1), took 40 pages to exposit “the socio-economic framework within which the objectives of the [NEP] are being pursued” (Malaysia 1976: 51). The OPP1 laid out the empirical basis for the NEP, furnishing data that showed stark socioeconomic inequalities, specifically the myriad ways in which Bumiputeras were lagging.

Interestingly, but perhaps too subtly to be noticed, the “within one generation” objective for the Bumiputeras, hitherto expressed as full economic partnership, was reduced to 30% equity ownership. Bumiputera participation in commerce and industry undeniably entailed increasing their share of equity ownership from the abysmal 2% measured in 1970. The OPP1 thus resolved that Bumiputeras would own 30% of equity, alongside 40% in non-Bumiputera hands and 30% foreign. The OPP also set the precedent of excluding government ownership – at the time only 0.5% of total equity – from the calculations (Malaysia 1976, Malaysia 1971).

Various reasons can explain the gravitation to one macro equity target. According to Faaland, Parkinson and Saniman (1990), internal policy deliberations had produced specific targets, but these were omitted at the NEP’s 1971 inception due to political resistance to a forceful redistribution agenda. On the other hand, the vested interests of Malay elites who stood to profit speedily from equity redistribution, likely exerted mounting pressure in the early 1970s. More aggressive measures to restructure ownership were reportedly parried by the personal interventions of Finance Minister Tan Siew Sin (Heng 1997). His retirement from politics in 1974, due to ill health, opened the gates for passage of the Industrial Coordination Act 1975, which mandated manufacturing firms below a certain size threshold to allocate 30% of equity to Bumiputera investors.

The government was evidently invested in the process, having expended resources to map out equity holdings by ethnicity and nationality. Adducing evidence of staggering Bumiputera exclusion would bolster the government’s leverage in its engagement with the corporate sector and practically, ownership data could, with effort, be collected. In contrast, the means to measure other data pertinent to enterprise development, such as the scale and productivity of Bumiputera firms, were more limited – and perhaps Bumiputera participation was simply too miniscule for more granular data collection to be worthwhile.

Whatever the balance of causes, the outcome was momentous: The equity target became the NEP’s driving force, particularly in the Bumiputera Commercial and Industrial Community agenda, instead of an integrated set of objectives. In 1989, towards the conclusion of the NEP’s original 1971-1990 timeline, debates centred on whether or not to extend quotas – and whether or not to keep to 30% or to raise it to a more proportionate level (Means 1990).

One line of defence for the target was how it provided a policy anchor and focal point. From the 1970s through to the 1997-98 Asian financial crisis, various interventions were aligned in focusing on equity transfers and applying the 30% threshold. Manufacturing licenses and foreign investment imposed 30% Bumiputera equity allocations (with various exemptions), as did public listing, while privatisation of state-owned enterprises sought majority Bumiputera ownership with government control. But this defence has crumbled. Those past projects centred on equity transfers largely failed to cultivate Bumiputera enterprise, and in the past decade and a half, most ethnic equity requirements have been phased out, or the cut-offs are now considerably lower than 30%.[2]

NUMBERS GAME

Bumiputera equity ownership, when set on a pedestal, inevitably becomes a numbers game. Some problematic aspects warrant attention, from the perspective of policy monitoring and empirical measurement. First, the NEP’s bifurcation of individual and institutional components within the 30% overall target became omitted from policy discourse, and seems to have been forgotten without any reckoning. Second, the inclusion of foreign ownership in the target-setting and progress tracking, alongside omission of Malaysian government ownership, paints a misleading picture of national ownership. Additionally, the presence of nominee companies, which mask identities, undermine transparency and veracity of the official equity ownership statistics.

The original NEP 30% consisted of sub-targets: (a) 7.4% individual ownership, including personal accounts with the pilgrim’s savings fund, co-operatives and unit trust schemes; (b) 22.6% held by entities representing Bumiputera “interests”, such as state economic development corporations (SEDCs) and Majlis Amanah Rakyat (MARA, Council of Trust for the People) (Malaysia 1976).[3] The latter category was renamed “trust agencies” from the early 1980s (Malaysia 1981), and with expansion of unit trust funds, the former classification was broadened to “Bumiputera individuals and institutions” from the early 1990s.[4] Malaysia’s planning framework, in distinguishing Bumiputera individuals and trust agencies, envisaged institutions playing a major role as vehicles of Bumiputera ownership, and successive Malaysia Plans maintained these categories in tabulating the NEP’s progress. However, over time, policy documents and popular discourses omitted the distinction, implicitly merging them into one 30% target, to the point that no acknowledgement was made when Bumiputera individual ownership touched 10.1% in 1985, thereby surpassing the targeted 7.4%. Table 1 shows a further increase to 14.2% in 1990, while trust agencies accounted for 5.1%.

The expansion of financial institutions stewarding Bumiputera equity ownership, most saliently Amanah Saham Bumiputera founded in 1990, warranted a revisit of the 7.4%-22.6% split, but such considerations were never broached. Evaluations of the NEP’s progress in promoting individual ownership, therefore, remain bound to the original 7.4% individual sub-target. However, the undifferentiated Bumiputera total, which hovered at 19-23% from 1990 to 2011 before dropping to 16% in 2015 – hence never coming close to the 30% threshold – has been unceasingly, and misleadingly, invoked to justify continual interventions to promote Bumiputera individual equity ownership, most saliently the mass privatisation of the late 1980s until the 1997 Asian Financial Crisis (Figure 1). Since 2010, the individual and trust agency distinction ceased, without explanation. In 2015, the Eleventh Malaysia Planmodified the target to a new notion of 30% Bumiputera corporate equity ownership “with effective control”, also without furnishing details (Malaysia 2015).[5]

Serious empirical issues also arise from the inclusion of foreign ownership together with omission of Malaysian government ownership. The 30% threshold derived from the NEP’s resolve to reduce foreign ownership from an unacceptably high 63% to 30%. The dominance of foreign capital was deemed an unjust and stifling colonial legacy, and substantial redistribution over the NEP’s 20-year timeframe did transfer from foreign hands to Malaysian, especially Bumiputera, interests.

However, the continuous inclusion of foreign ownership in the statistics – alongside the omission of Malaysian government ownership – detracts from a fuller engagement with issues surrounding national interest and sovereignty which underpinned the NEP’s equity redistribution agenda. Curiously, the increase in foreign ownership to 45% in 2015 barely registers as a concern in Malaysia’s policy documents. This may reflect the government’s commitment to the decades-long openness to foreign capital, but it is also probable that the government can confidently report high foreign ownership because those numbers do not reflect reality, in light of the immense government ownership excluded in these computations. The practice may have been reasonable in 1971, when government held a miniscule 0.5% of corporate equity, but is untenable when government-linked companies, in which government-linked companies hold controlling stakes, reportedly accounting for 40% of publicly listed shares. The case for including government ownership gained prominence in the mid-2000s with CPPS’ (2006) incorporation of government ownership to provide an alternative estimate of ethnic ownership – with 70% of government shareholding assigned as “representing” Bumiputera interest. This inquiry found that Bumiputera equity ownership has exceeded 30%. This finding, among others, fuelled debate over the continuity of preferential policies.[6]

These debates helpfully highlighted alternative modes of calculating equity ownership that yield different results but do not conclusively override the official account maintaining that Bumiputera ownership falls under 30%. In fact, these discourses, by continually revolving around the equity target and polarising opinion, perpetuate a policy impasse. Moreover, the underlying premise of the debate – that touching the 30% triggers the NEP’s dissolution – pays insufficient attention to broad-based development of dynamic, Bumiputera-controlled enterprise that are key to NEP’s ultimate goals.

While equity ownership should be taken off the pedestal, it remains worthwhile to conduct a more complete and credible mapping exercise. This presents an added benefit of extricating Malaysia from high-stakes and intractable debate over the numbers. Policy justification rides too much on equity ownership falling below 30%; likewise, many opponents place too much stock in proving Bumiputera ownership exceeds 30%.

More constructive approaches can be explored, incorporating government ownership primarily to provide a more credible picture of national ownership – and to correct the current portrait of ownership which assigns 45% to foreign interests. Another issue in the official figures concerns the presence of nominee companies, believed to be proxies that veil actual ownership. It will be beneficial for the ownership of these opaque holdings to be unmasked (Jomo 2004). Such efforts, however difficult, will complement initiatives to provide better information, such as estimations of Bumiputera control of publicly listed equity.

TIME FOR RESET

The empirical inquiry above opens pathways for Malaysia to move on from the narrow focus on equity. What should take its place remains to be determined, but some guidelines can be sketched out.

Emphatically, there is no longer a need for a singular target to provide sweeping policy rationales or to serve as a catch-all indicator of progress. Multiple policy priorities, each having specific contexts and constraints, will add purpose and precision, through identifying a set of objectives and targets, and aligning action plans and progress monitoring in alignment with those objectives and targets. A single Bumiputera equity number is too disconnected from preferential procurement, SME loans, and most Bumiputera enterprise development to be a relevant and effective policy target for these myriad programmes.

Shortcomings in Bumiputera enterprise ownership and participation should be identified specifically – and targets set accordingly. There is a strong case for placing utmost priority on growth and expansion of Bumiputera-owned micro, small and medium enterprise (MSME). The shortfall of Bumiputera participation, and concentration at the micro end of the spectrum, are clear shortfalls. In 2015, Bumiputera-owned SMEs accounted for only 38% of total Malaysian-owned SMEs (Teraju 2017). The concentration of Bumiputera MSMEs is at the micro end of the spectrum. Among Bumiputera-owned MSMEs, 88% were classified as micro, 11% small, and only 1% medium, compared to non-Bumiputera MSMEs: 69% micro, 28% small, 3% medium.[7] Prioritising growth and expansion in these areas, with focus on active ownership and direct control, potentially generates and sustains productive outcomes, if infused with political will to the extent that the 30% equity has been for the past five decades.

Equity ownership can be retained on the policy script – but the estimation method and data must strive for greater completeness, rigour and transparency. The Eleventh Malaysia Plan added an emphasis to equity ownership, by specifying 30% equity ownership with effective control. What this means, though, is unclear. The strategic paper informing this portion of the Plan suggests that this 30% refers to the market value of Bumiputera-controlled companies per total capitalisation of publicly listed companies (EPU 2015). The emphasis on control and active ownership are welcome, but the ambiguity in this modified 30% target, which also does not clarify whether foreign and Malaysian government ownership are included, demands fuller explanation.

CONCLUDING THOUGHTS

The NEP’s vision of Bumiputera enterprise development, and the community’s full economic partnership, was never adequately encapsulated in the form of 30% equity ownership, but that target has perched on a pedestal for half a century. That driving goal, in turn, biased the system toward acquisition, profiteering, and short-term gains. The shortcomings of various programmes are too obvious to be denied. Most equity requirements formerly in place have also been terminated or reduced. However, the Shared Prosperity Vision 2030 recycles the 30% Bumiputera equity target as the main premise for continuing the NEP in the coming decades (Ministry of Economic Affairs 2019: 4-01).[8]

Moreover, Malaysia’s Bumiputera policies have lately emphasised the need to cultivate independent and dynamic enterprises, especially SMEs. Indeed, the Shared Prosperity Vision 2030 also aspires for Bumiputera SMEs to raise their contribution to GDP from 9% to 20% (Ministry of Economic Affairs 2019). Some reset seems to be under way. To complete the process, the spotlight must fade out on equity ownership as the overarching policy rationale and target, while Bumiputera SME development takes centre stage.

The single macro equity target is, therefore, not only incongruous, but also outdated. Malaysia will do better to give the issue a thoughtful revisit, and a thorough reset. 

ISEAS Perspective 2021/36, 25 March 2021.

REFERENCES

CPPS. 2006. Corporate equity distribution: past trends and future policy. Kuala Lumpur: Centre for Public Policy Studies.

EPU. 2015. Enhancing Bumiputera Economic Community (BEC) Opportunities to Increase Wealth Ownership. Strategy Paper 3 for the Eleventh Malaysia Plan. Putrajaya: Economic Planning Unit.

Heng, Pek Koon. 1997. The New Economic Policy and the Chinese Community in Peninsular Malaysia. The Developing Economies XXXV-3: 262-292.

Jomo K.S. 2004. The New Economic Policy and Interethnic Relations in Malaysia. Identities, Conflict and Cohesion Programme Paper No. 7, UNRISD, Geneva.

Lee, Hwok-Aun. 2017. Malaysia’s Bumiputera preferential regime and transformation agenda: Modified programmes, unchanged system. Trends in Southeast Asia 2017 No. 22. Singapore: ISEAS.

Lee, Hwok-Aun. 2019. Malaysia’s Shared Prosperity Vision needs a rethink to make a breakthrough. ISEAS Perspective 2019 No. 107. Singapore: ISEAS.

M. Fazilah Abu Samad. 2002. Bumiputeras in the Corporate Sector: Three Decades of Performance, 1970-2000. CEDER Research Reports Series, No. 1.

Malaysia. 1971. Second Malaysia Plan, 1971-76. Kuala Lumpur: Government of Malaysia.

Malaysia. 1973. Mid-term Review of the Second Malaysia Plan. Kuala Lumpur: Government of Malaysia.

Malaysia. 1976. Third Malaysia Plan, 1976-80. Kuala Lumpur: Government of Malaysia.

Malaysia. 1986. Fifth Malaysia Plan, 1986-90. Kuala Lumpur: Government of Malaysia.

Malaysia. 1996. Seventh Malaysia Plan, 1996-2000. Kuala Lumpur: Government of Malaysia.

Malaysia. 2000. Eighth Malaysia Plan, 2001-05. Putrajaya: Government of Malaysia.

Malaysia. 2005. Ninth Malaysia Plan, 2011-15. Putrajaya: Government of Malaysia.

Malaysia. 2015. Eleventh Malaysia Plan, 2016-2020. Putrajaya: Government of Malaysia.

Means, Gordon. 1990. “Malaysia in 1989: Forging a Plan for the Future.” Southeast Asian Affairs 1990. Singapore: ISEAS, pp 183-203.

Ministry of Economic Affairs. 2019. Shared Prosperity Vision 2030. Putrajaya: Ministry of Economic Affairs. Teraju. 2017. Bumiputera Economic Transformation Roadmap 2.0. Mutiara Damansara, Selangor: Unit Peneraju Agenda Bumiputera (Teraju)


ENDNOTES

[1] The strategic paper reported that, in 2014, Bumiputera-controlled companies accounted for 17% of publicly listed companies, based on market value (EPU 2015). This method departs from the overall ethnic equity ownership statistics which reference par value. Such apparent discrepancies underscore the need for a comprehensive review.

[2] CPPS (2006), as well as M. Fazilah (2002), estimated Bumiputera equity ownership by focusing on publicly listed shares and referencing market value, as opposed to par value in the official statistics.

[3] Bumiputera SME figures are from Teraju (2017); non-Bumiputera SME figures are calculated by the author, based on Teraju (2017) and 2016 Economic Census statistics reported by SME Corp (https://www.smecorp.gov.my/index.php/en/policies/2020-02-11-08-01-24/sme-statistics).

[4] The Shared Prosperity Vision 2030 draft argues: “The NEP has restored confidence and understanding among ethnic groups and created various opportunities for economic participation. Among the successes of the NEP are reducing hardcore poverty, increasing household income, restructuring of society and reducing ethnic group identification based on economic activities and enhancing political stability. Nonetheless, the target of at least 30% Bumiputera equity ownership has not been met.” (Ministry of Economic Affairs 2019: 4-01).

[5] The Second Malaysia Plan referred more specifically to Malays and indigenous peoples, a semantic practice that continued until the Fourth Plan. For consistency, this article applies the term Bumiputera in all references to the planning documents, although the term only became standardised from the Fifth Malaysia Plan (1986) onwards.

[6] Bumiputera equity mandates have effectively ceased since the late 1990s in manufacturing. In 2009, such rules were also phased out in most service sectors, and public listing requirements were also amended. For new listings on the Malaysian bourse’s main market, 12.5% of shares need to be set aside for Bumiputera investors.

[7] Institutions channelling private Malay funds notably included Amanah Saham MARA and Muslim pilgrimage fund Lembaga Urusan dan Tabung Haji. Entities representing Bumiputera interests included MARA (excluding Amanah Saham MARA), PERNAS, UDA, SEDCs, Bank Bumiputera and Bank Pembangunan” (Malaysia 1976: 86).

[8] The definitions have remained fairly consistent. Tellingly, institutional ownership with personal accounts, such as Amanah Saham Bumiputera (ASB), counts toward individual equity ownership, while shareholdings that distinctly represent Bumiputera interests in a collective sense, including funds under Permodalan Nasional Berhad (which also manages ASB), fall in the trust agencies category (Malaysia 1996).

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2021/35 “Malaysia’s Rubber Glove Industry – The Good, the Bad and the Ugly” by Francis E. Hutchinson and Pritish Bhattacharya

 

A worker inspects disposable gloves at the Top Glove factory production line in Shah Alam on the outskirts of Kuala Lumpur on August 26, 2020. – Top Glove, a Malaysian-based company is one of the world’s largest rubber glove manufacturer. (Photo by Mohd RASFAN / AFP)

EXECUTIVE SUMMARY

  • Malaysia’s rubber glove industry is riding a huge surge in demand arising from COVID-19, spawning a crop of new producers and minting new billionaires in the process.
  • This is good news for the country, as the sector’s growth helps offset contractions elsewhere, generates much-needed jobs, and capitalises on Malaysia’s resource base and comparative advantage. It is also likely that demand for the commodity will be steady for a good while.
  • Although the rubber glove sector’s stellar performance has garnered many headlines, heightened international attention has also shed light on the industry’s darker side – generating criticism from labour organizations and civil society groups.
  • It is undeniable that specific industry players need to improve standards, as key players have faced allegations of exploiting workers and housing them in insalubrious conditions. However, there are also underlying structural reasons that contribute to this situation.
  • The rubber glove sector is part of a national economy that relies heavily on low-cost and unskilled labour, and is governed by organisations that do not consistently surveil and enforce regulations.
  • Lead-times for orders are short, competition on price is high, and COVID-19 has increased the stakes. Customers, many based in the United States and Europe, are not beyond pressuring Malaysian firms to meet deadlines.
  • Successfully addressing these issues will require concerted efforts at the firm, sector and national level, as well as a greater awareness among consumers in end markets.

* Francis E. Hutchinson is Senior Fellow and Coordinator of the Malaysia Studies Programme, and Pritish Bhattacharya is Research Officer in the Regional Economic Studies Programme at the ISEAS – Yusof Ishak Institute. This is the second of two Perspectives that look at Malaysia’s rubber glove sector. The first Perspective (2020/138) highlighted the factors that contributed to the industry’s unprecedented growth in 2020.

INTRODUCTION

The ongoing COVID-19 pandemic and resultant Movement Control Order (MCO) have dealt a severe blow to Malaysia’s economy. While the country’s Finance Ministry previously predicted that the national GDP would shrink by about 4.5 per cent in 2020, new data reveal that the actual contraction was much sharper, at 5.8 per cent.[1]

Likewise, according to forecasts made by analysts at Bank Negara Malaysia last year, the country could expect rapid recovery rates of up to 8 per cent in 2021. But the perpetually extending restrictions have also darkened the outlook. Indeed, the latest estimate by the World Bank is that the Malaysian economy will grow by at most 6.7 per cent this year.[2]

The economic gloom that has wrapped the country – and the world – since last year, however, has been partially brightened by the dazzling performance of Malaysia’s rubber glove sector. Although the country is the world’s leading producer of rubber gloves, frantic demand for personal protective equipment has turbo-charged the sector’s growth rate.

In 2019, the Malaysian Rubber Glove Manufacturers Association (MARGMA) predicted that the global demand for rubber gloves would rise at a modest rate of 12 per cent, reaching a total of 300 billion pieces by the end of 2020. But as the virus outbreak metastasised from one country to another, these estimates were quickly revised. According to the latest figures, the demand leapt to about 360 billion pieces last year, pushing the annual growth rate to close to 20 per cent. Of the total output, Malaysia supplied about two-thirds, or 240 billion gloves. The estimated worldwide demand for this year stands at a massive 420 billion.[3]

According to Persistence Market Research, this upsurge in demand has resulted in a tenfold increase in the average selling price of nitrile gloves – the most sought-after variant of disposable medical gloves. Before the pandemic broke out, consumers had to shell out around $3 for a pack of 100 nitrile gloves; the price has now risen to as high as $32.[4]

The rubber glove sector’s stellar performance has generated much interest in Malaysia and elsewhere. On one hand, a bevy of new producers has entered the industry from sectors as varied as real estate, palm oil, and IT. On the other, heightened scrutiny has shed light on a range of less savoury practices. In particular, a number of industry majors have attracted attention over allegedly violating workers’ rights and pursuing profits at their expense – even in a time of plenty.

While valid, there are several structural features that contribute to this. Some relate to the rubber glove sector itself, and others are linked to the wider policy environment in which it operates. These issues draw attention to the need for firm owners and policy-makers in Malaysia, as well as consumers and governments in client countries, to look at the sector and at production practices more holistically.

THE GOOD

As was the case last year, demand for medical gloves is expected to grow at unprecedented rates this year. MARGMA’s projections for 2021 indicate a growth rate of 15-20 per cent, with global demand set to hit 420 billion glove pieces by year-end, thanks to the still climbing number of community-spread cases and discovery of new, more infectious strains of the virus. The trend is not expected to change even as more countries ramp up their vaccination programmes. In fact, large-scale vaccine deployment will drive the demand further because examination gloves are needed to inject vaccines.

Beyond sunny prospects, the sector has several other key advantages. It capitalises on a commodity that Malaysia produces abundantly – rubber. The availability of the main raw material, along with considerable investments over time in improving production processes, has allowed the country to assert an unassailable lead in the sector. This, in turn, has given rise to a large eco-system of established players and supplier firms that collectively allow the sector to perform more efficiently.[5] 

However, there is stiff competition from other glove producing countries, particularly China and Thailand – the world’s largest natural rubber producer. But MARGMA expects Malaysia to retain its principal position on account of the country’s export-oriented manufacturing landscape, aided by good infrastructure, a favourable business environment, and business-friendly policies. Plus, in both the competing countries, combined labour and energy costs are considerably higher than in Malaysia.[6]

Furthermore, the rubber glove sector has enjoyed consistent support from the government. Seen as a key pillar of the economy, the rubber sector, including the glove industry, is one of Malaysia’s 12 National Key Economic Areas (NKEAs). This priority status entails a range of government support and incentives. For example, to promote upstream activities, the government offers the rubber sector subsidised gas prices – a particularly helpful form of aid, given that gas cost accounts for 10-15 per cent of glove production expenditure.[7]

Likewise, the Rubber Industry Smallholders Development Authority (RISDA) invests heavily in the sector’s greenfield planting and replanting programmes. When it comes to the midstream segment, initiatives taken by the Malaysia Rubber Board (MRB) to foster sustainable public-private R&D cooperation have led to continuous technological upgrading in the form of improved dipping lines and robust quality management systems.[8] And, to stimulate downstream activities, Malaysia has eliminated import duties on all forms of natural rubber –raw as well as processed.[9]

The massive hikes in sales volumes, combined with jumps in selling prices, low material costs, availability of cheap labour, better production efficiency, and state support, have resulted in an exponential growth in earnings of the country’s dominant glove manufacturers.In fact, the net worth of each of the founders of Malaysia’s Big Four glove companies – Top Glove Corp Bhd, Hartalega Holdings Bhd, Kossan Rubber Industries Bhd, and Supermax Corp Bhd – has now crossed the highly coveted billion-dollar threshold.

Beyond the industry’s largest players enjoying skyrocketing share prices, embarking on a production expansion spree, and enjoying their increased profits,[10] smaller players in the sector have also chosen to ramp up manufacturing capabilities. So striking are the profit margins that even firms in sectors as disconnected as real estate and IT have decided to venture into glove production.[11]

According to MARGMA’s estimates, Malaysia’s rubber glove industry employed around 71,800 individuals in 2019. Citizens accounted for 39 per cent of the workforce (28,000) and foreign migrants formed the remaining 61 per cent (43,800). Given the increased global demand, glove makers are now facing serious manpower shortages. The industry urgently needs to grow its workforce by around 32 per cent, or 25,000 workers. But swift hiring has been challenging in light of the government’s freeze on recruiting overseas workers. To mitigate the situation, firms are expanding automation and proactively hiring Malaysians, despite higher wages. This is a welcome source of demand for labour, given that the national unemployment level escalated from 3.4 per cent in 2019 to 4.2 per cent in March 2020.[12]

THE BAD?

The supernormal profits enjoyed by the glove manufacturers almost immediately drew the Malaysian government’s attention, with a number of elected officials demanding that a one-off “windfall tax” be imposed on the biggest companies. The most vocal proponents of the move argued that such a tax, in addition to the existing corporate tax (which had already jumped 400 per cent to RM2.4 billion in 2020), was justified because the firms had a moral and legal responsibility to “return” money to the public by paying this tax to the government.[13]

MARGMA promptly decried the proposal. The windfall tax would not only deter the glove companies’ expansion plans to meet the growing demand, but also limit the reinvestment of profits into operations to finance diversification and automation initiatives. This could easily risk Malaysia losing its dominant position to other countries that are already scaling up production. It can also be argued that, if an additional tax is levied on an industry during times of extraordinary prosperity, the government must also be ready to rescue its major players when adversity strikes. 

After weighing both sides of the argument, the government halted its plan to impose the new tax. The rationale offered to the press was that introducing a profit levy would be perceived negatively not only by investors but also by civil society groups. Additionally, in Malaysia, a bonus profit tax has never been imposed on finished goods – on account of the difficulty in determining a uniform market price threshold, especially for products such as rubber gloves, which have different types, standards, specifications, and grades according to the respective countries marketed.[14] Consequently, when the 2021 Budget was tabled, glove makers were spared the additional tax. Instead, it was decided that the Big Four companies would jointly donate RM400 million to the state to help bear some of the costs of vaccines and medical equipment.[15]

While the debate on the sector’s adequate contribution to the country at large appeared fairly balanced, what was undeniably negative was the controversy surrounding its chief players, particularly Top Glove. This firm single-handedly accounts for a quarter of the world’s glove output and has benefited immeasurably from the current high levels of demand.

Top Glove was one of the early winners of the health crisis. Thanks to the unparalleled growth in glove sales, the company broke multiple profit records. In its latest financial quarter (ending on 30 November 2020), the firm recorded its highest net profit of RM2.38 billion. On a year-on-year basis, its net profit has risen 20 times from a year ago. Even before the pandemic, Top Glove had been on an expansionary trajectory for over two years, growing its capacity from 60.5 billion glove pieces in August 2018 to 70.1 billion pieces in November 2019. Riding on the recent success, the glove maker now plans to increase annual capacity by 30 per cent by the end of 2021 to 91.4 billion pieces.[16]

However, in November last year, news broke that several thousand employees – mostly foreign workers – at one of the company’s manufacturing complexes had tested positive for the coronavirus. Within days, multiple worker dormitories were designated as major COVID clusters and the government swiftly imposed several weeks of enhanced MCO (EMCO).

The outbreak also prompted the government to open as many as 19 investigations into six Top Glove subsidiaries. This followed simultaneous enforcement operations carried out by the Human Resources Ministry. Workers involved in the cluster were issued Home Surveillance Order (HSO) for 14 days and made to wear wristbands for surveillance and daily health check-ups. All costs for the workers’ COVID-19 screening, quarantine facilities and related food, transport and accommodation were to be borne by Top Glove. By the end of the year, more than 5,000 foreign workers at Top Glove were reported infected.[17] Fewer but frequent cases were also reported in production facilities owned by the other three Big Four firms, suggesting that the problem was not localised to a single company.[18]

Official investigations revealed that the primary factor behind the rapid emergence of multiple mega clusters across the glove sector were the appalling living conditions of the workers. Migrant dormitories were overcrowded, unsanitary, and poorly ventilated – and this was before the pandemic struck. The gravity of the situation is conveyed by comments made by the Director-General of the Peninsular Malaysia Labour Department (JTKSM), an agency under the Human Resources Ministry:

“The main offence was that the employers failed to apply for accommodation certification from the Labour Department under Section 24D of the Workers’ Minimum Standards of Housing and Amenities Act 1990. This had led to other offences including congested accommodations and dormitories, which were uncomfortable and poorly ventilated. In addition, the buildings used to accommodate the workers did not comply with local authorities’ by-laws. JTKSM will take the next step to refer the investigation papers already opened so that all these offences can be investigated under the Act. Each violation under the Act carries an RM50,000 fine as well as potential jail time.”[19]

Poor housing arrangements are not the only worrisome issue facing the glove sector. Top Glove was also thrust into the global spotlight in July last year, when the US Customs and Border Protection (CBP) announced a ban on imports from two of its subsidiaries over forced labour concerns. In its 2020 List of Goods Produced by Child Labour or Forced Labour report, the US Department of Labour (USDOL) accused Top Glove of: 1) frequently subjecting workers to high recruitment fees; 2) forcing them to work overtime; 3) making them work in dangerous conditions; and 4) threatening them with penalties, withholding of wages and passports, and movement restrictions.[20] Initially, Top Glove refuted the claims altogether, affirming zero tolerance for the violation of workers’ rights. However, unable to satisfactorily address the issues on time, the company was forced to pay RM136 million to the migrant workers as remediation for recruitment fees.[21] Improving other aspects of employee welfare, however, was described as a “work in progress” by Top Glove’s management.[22]

THE UGLY

All of these issues have drawn attention to the wider policy environment, and its associated dysfunctions.

Systematic overreliance on unskilled labour. Malaysia has long relied on inexpensive foreign labour from poorer economies. According to official figures published by the Ministry of Human Resources, in 2019, around 18 per cent of Malaysia’s workforce was composed of migrant workers.[23] However, if undocumented foreign workers are taken into account, this number can reach anywhere from 25 to 40 per cent.[24]

The problem is further compounded by the often-neglected fact that migrant and citizen workers are not perfect substitutes, with the level of education being the main distinguishing characteristic. Between 2010 and 2019, the majority of the migrant workers who entered Malaysia’s labour market had at most a secondary education, whereas the proportion of tertiary-educated citizens in the workforce increased significantly.[25] This explains not only the disparity in the nature of jobs taken up by most overseas workers and Malaysians, but also the difficulty faced by the rubber glove industry in filling vacant positions with locals.

Poor implementation of regulations and changing policy positions. The problems plaguing the industry are far from new. Allegations of poor working and housing conditions of glove sector employees first surfaced a couple of years ago. In 2018, two independent exposés – by the Thomson Reuters Foundation[26] and the Guardian[27] – revealed that migrant workers at Top Glove often worked under conditions that met several of the International Labour Organisation’s criteria for “modern slavery and forced labour”. Although the Malaysian government first responded by unreservedly backing the glove maker’s track record,[28] it flipped its stance after Top Glove admitted breaching labour laws.[29]

The inconsistent nature of the government’s policy stand on migrant workers in the glove sector was also seen when the USDOL allegations first came up. Although Malaysia’s Human Resources Ministry initially claimed that the import ban on Top Glove was “unfair and baseless”,[30] it recently switched its description of the workers’ living quarters to “deplorable”,[31] and gazetted an emergency ordinance compelling glove manufacturing companies to provide lodging with adequate living space and amenities for migrant workers to control the spread of the virus.[32]

High Demand. While the number of COVID-infected patients has been growing, vaccination programmes around the world are also picking up steam. Consequently, production timelines are getting more demanding, with pressure sometimes coming from unexpected quarters.

In March last year, the US Embassy in Malaysia retweeted an image with the caption “Through the production of medical gloves and other medical products, the world relies on Malaysia in the fight against COVID-19”.[33] Coincidentally, the tweet was posted just days after the US had lifted six-month-long import sanctions on Malaysian glove maker WRP Asia Pacific Sdn Bhd. Around the same time, the EU Ambassador to Malaysia urged local glove makers to “get creative” to ensure 24/7 production to meet the region’s pressing demand for personal protective equipment.[34]

Despite growing concerns that forced labour practices might still be rife at Malaysian glove companies, the demand for disposable gloves shows no signs of abating in other parts of the world either.

The Canadian government recently announced that it was investigating allegations of worker abuse in glove factories in Malaysia following the publication of the CBC’s Marketplace report. Demand, however, is unlikely to fall. The Canada Border Services Agency commented that it had “not applied the tariff prohibition against goods for production by forced labour. Establishing that goods have been produced by forced labour requires significant research and analysis and supporting information.”[35]

In Australia, too, an ABC investigation found significant evidence of labour exploitation in Malaysia’s glove production facilities. A spokesperson for the Australian Border Force was reported to have said “the government is concerned by allegations of modern slavery relating to the manufacture of personal protective equipment, including rubber gloves.” But unlike the US, Australia does not require importers to prove there is no forced labour in their supply chain.[36]

The UK government has also continued to source medical gloves from Malaysia, despite acknowledging a Home Office report that concluded “corruption is endemic in the recruitment systems of Malaysia and migrant worker source countries, and touches every part of the recruitment supply chain”.[37]

While the demand for gloves will continue to surge, the same cannot be said about supply. MARGMA recently stated that the global shortage of rubber gloves will last beyond 2023. Glove dipping is a time-consuming process, and production facilities cannot be expanded overnight. Unforeseen challenges such as the COVID outbreak at glove manufacturing factories and shipping container shortages have further exacerbated the situation. Today, the lead time for orders is estimated to be around six to eight months, with demand from desperate governments driving up average selling prices.    

CONCLUSION

Malaysia’s rubber glove sector is a source of employment, foreign exchange, and profits for the economy in a testing time. Burgeoning demand and rising prices have helped established firms grow and encouraged new entrants into the sector. Looking ahead, the sector’s expansion is assured, at least in the short run, thanks to steady demand, buoyed in part, by vaccination drives kicking in.

However, not all the new-found attention has been positive. The sector’s huge profits in an otherwise bleak environment led to calls for a windfall tax. Labour and civil society groups called for some of the profits to be shared more widely, particularly given the considerable state support the sector receives. In the end, while the sector was not taxed, the industry leaders agreed to voluntarily contribute to the vaccine rollout.

More damaging than this were revelations that labour practices by several of the sector’s leading players have been far from acceptable. While not characteristic of the rubber glove sector as a whole, scathing allegations regarding certain firms have been raised numerous times and predate the COVID-19 pandemic. A combination of international attention and the potential for higher infection rates spurred the authorities to act.

This, in turn, raises issues in Malaysia’s wider institutional context, from regulations governing the recruitment, housing and treatment of foreign workers to appropriate oversight and inspection of workplaces and accommodation facilities. Client governments are not exempt of responsibility, with calls for improvements in the sector being issued concurrently with calls for reduced production times and increased production levels. COVID-19 has shown very clearly that the separation between worker welfare and wider societal health is not clear-cut, and that they are indeed very much interlinked.

ISEAS Perspective 2021/35, 23 March 2021.


ENDNOTES

[1] World Bank (2020), Malaysia Economic Monitor https://openknowledge.worldbank.org/bitstream/handle/10986/34929/155096.pdf   (accessed 15 February 2021)

[2] Ibid.

[3] Nikkei Asia , 17 February 2021  https://asia.nikkei.com/Business/Health-Care/Thai-medical-glove-maker-invests-1.6bn-to-triple-capacity-by-2026 (accessed 17 February 2021)

[4] Persistence Market Research (2020), Nitrile Gloves Market   https://www.persistencemarketresearch.com/market-research/nitrile-gloves-market.asp (accessed 28 February 2021)

[5] For a detailed analysis of the factors that have aided the sector’s growth, see Francis E. Hutchinson and Pritish Bhattacharya (2020), Malaysia’s Rubber Glove Industry – A Silver Lining Amidst Dark Clouds , ISEAS Perspective (2020/138) /wp-content/uploads/2020/11/ISEAS_Perspective_2020_138.pdf (accessed 29 January 2021)

[6] ASEAN Briefing , 30 September 2019 https://www.aseanbriefing.com/news/aseans-manufacturing-productivity-really-equivalent-china-1990s/ (accessed 8 March 2021)

[7] The Malaysian Reserve , 16 July 2019 https://themalaysianreserve.com/2019/07/16/glove-makers-fall-on-higher-gas-price/ (accessed 14 February 2021)

[8] Kawano M. (2019) Changing Resource-Based Manufacturing Industry: The Case of the Rubber Industry in Malaysia and Thailand. In: Tsunekawa K., Todo Y. (eds) Emerging States at Crossroads. Emerging-Economy State and International Policy Studies . Springer, Singapore https://doi.org/10.1007/978-981-13-2859-6_7

[9] Ministry of International Trade and Industry (MITI) (2015) Rubber Products   https://www.miti.gov.my/index.php/pages/view/463 (accessed 18 February 2021)

[10] For instance, Stanley Thai, the founder of Supermax, recently purchased a 3,438 sq ft luxury condominium in Sunny Isles Beach in Florida for an undisclosed sum. The Edge , 23 February 2021 https://www.theedgemarkets.com/article/supermax-founder-stanley-thai-buys-luxury-us-condominium (accessed 24 February 2021)

[11] An example of this is Aspen, a Penang based real estate developer, which entered the rubber glove sector in 2020. EdgeProp , 16 October 2020 https://www.edgeprop.my/content/1750036/aspen-group-putting-high-hopes-glove-making (accessed 16 February 2021)

[12] Government of Malaysia (2020), Economic Outlook 2021 http://belanjawan2021.treasury.gov.my/pdf/economy/2021/economic-outlook-2021.pdf (accessed 19 February 2021)

[13] Yahoo News , 23 November 2020 https://malaysia.news.yahoo.com/syed-saddiq-insists-malaysia-glove-140842790.html (accessed 1 March 2021)

[14] The Edge Markets , 23 December 2020 https://www.theedgemarkets.com/article/govt-has-no-plans-levy-windfall-profit-tax-rubber-glove-companies (accessed 1 March 2021)

[15] The Malaysian Reserve , 9 November 2020 https://themalaysianreserve.com/2020/11/09/rm400m-is-one-off-donation-not-a-windfall-tax-substitution/ (accessed 28 February 2021)

[16] Nikkei Asia , 31 January 2020 https://asia.nikkei.com/Spotlight/Coronavirus/Malaysia-s-Top-Glove-sees-orders-from-China-double-on-coronavirus (accessed 1 January 2021)

[17] Reuters , 16 January 2021 https://www.reuters.com/article/us-health-coronavirus-top-glove-idUSKBN29L0DS (accessed 29 January 2021)

[18] The Edge Markets , 14 December 2020 https://www.theedgemarkets.com/article/hartalega-says-35-its-8772-employees-tested-positive-covid19 ; The Straits Times , 10 February 2021 https://www.straitstimes.com/asia/se-asia/malaysia-glove-maker-supermax-halts-plant-operations-on-covid-19-cases ; and Free Malaysia Today , 22 December 2020 https://www.freemalaysiatoday.com/category/nation/2020/12/22/kossan-rubber-says-990-covid-19-cases-detected-at-klang-plant/ (accessed 1 March 2021)

[19] Channel NewsAsia , 1 December 2020 https://www.channelnewsasia.com/news/asia/covid-19-malaysia-investigate-top-glove-workers-dormitories-13675260 (accessed 2 March 2021)

[20] US Department of Labour (2020), 2020 List of Goods Produced by Child Labour or Forced Labour https://www.dol.gov/sites/dolgov/files/ILAB/child_labor_reports/tda2019/2020_TVPRA_List_Online_Final.pdf (accessed 15 February 2021)

[21] Reuters , 6 October 2020, https://www.reuters.com/article/top-glove-corp-labour-idINL4N2GX22A (accessed 20 February 2021)

[22] South China Morning Post , 25 January 2021 https://www.scmp.com/week-asia/politics/article/3118877/coronavirus-boom-malaysias-rubber-glove-industry-loses-shine (accessed 25 January 2021)

[23] Ministry of Human Resources (MOHR) (2019) National Employment Returns (NER) 2019 . Malaysia: Institute of Labour Market Institution and Analysis (ILMIA)

[24] For a deep dive into the challenges involved in the computation of migrant worker statistics in Malaysia, see Lee Hwok-Aun and Khor Yu Leng (2018), Counting Migrant Workers in Malaysia: A Needlessly Persisting Conundrum , ISEAS Perspective (2018/25) /wp-content/uploads/pdfs/ISEAS_Perspective_2018_25@50.pdf (accessed 4 March 2021)

[25] Tan Theng Theng, Nazihah Muhamad Noor and Jarud Romadan Khalidi (2020), Covid-19: We Must Protect Foreign Workers , Khazanah Research Institute Discussion Paper (8/20) http://krinstitute.org/assets/contentMS/img/template/editor/20200713_Discussion%20Paper_Covid-19_We%20Must%20Protect%20Foreign%20Workers_Rev.pdf (accessed 20 February 2021)

[26] Reuters , 10 December 2018, https://www.reuters.com/article/us-malaysia-migrants-rights-idUSKBN1O917J (accessed 5 January 2021)

[27] The Guardian , 9 December 2018 https://www.theguardian.com/global-development/2018/dec/09/nhs-rubber-gloves-made-in-malaysian-factories-accused-of-forced-labour (accessed 5 January 2021)

[28] The Straits Times , 10 December 2018 https://www.straitstimes.com/asia/se-asia/malaysias-minister-says-not-true-top-glove-overworks-its-foreign-workers (accessed 1 March 2021)

[29] Reuters , 10 December 2018 https://www.reuters.com/article/us-malaysia-migrants-rights-idUSKBN1O917J (accessed 5 January 2021)

[30] South China Morning Post , 21 July 2020 https://www.scmp.com/week-asia/politics/article/3094136/malaysia-takes-swing-us-ban-rubber-glove-maker-top-glove (accessed 1 March 2021)

[31] The Star , 25 November 2020 https://www.thestar.com.my/news/nation/2020/11/25/nothing-spared-in-glove-factory-probe (accessed 8 March 2021)

[32] The Straits Times , 18 February 2021 https://www.straitstimes.com/asia/se-asia/malaysia-enforces-requirement-for-improved-worker-accommodation-to-rein-in-covid-19 (accessed 2 March 2021)

[33] Twitter , U.S. Embassy in KL (@usembassykl), 27 March 2020 https://twitter.com/usembassykl/status/1243344412135972866 (accessed 16 February 2021)

[34] The Telegraph , 17 April 2020 https://www.telegraph.co.uk/global-health/science-and-disease/dont-forget-people-behind-ppe-migrant-workersmeeting-surge/ (accessed 1 March 2021)

[35] CBC , 15 January 2021 https://www.cbc.ca/news/world/marketplace-overseas-personal-protective-equipment-manufacturing-working-conditions-1.5873213 (accessed 1 March 2021)

[36] ABC , 20 July 2020 https://www.abc.net.au/news/2020-07-20/gloves-malaysia-forced-labour-us-detention-order-australia/12292708 (accessed 29 January 2021)

[37] The Independent , 12 December 2020 https://www.independent.co.uk/news/health/coronavirus-ppe-malaysia-gloves-uk-b1766743.html (accessed 4 February 2021)

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2021/34 “Upstream Dams Threaten the Economy and the Security of the Mekong Region” by Murray Hiebert

 

This photo taken on February 8, 2020 shows fishermen laying their nets on the Mekong River near Luang Prabang close to the site of an approved Laos dam site. Environmentalists have criticised Laos for pressing ahead with plans for another “destructive dam” on the Mekong River, a waterway already strangled by hydropower schemes. Photo: Aidan JONES, AFP.

EXECUTIVE SUMMARY

  • China’s 11 hydropower dams built on the upper Mekong River held back massive quantities of water over the last two years, causing crop failure and depleting fish catches, and threatening the livelihoods of the 60 million people living downstream: a) Recent storage of massive amounts of water behind these dams has starved Tonle Sap Lake of water and devastated Cambodia’s most fertile fish-spawning area; b) China’s upstream dams hold back water and silt which threaten the Mekong Delta, Vietnam’s most fertile rice-producing region with inundation by saltwater from the South China Sea.
  • China has financed half of Laos’ 60 dams on Mekong tributaries and two more on the mainstream. This has helped push the landlocked country’s debt levels to about $17 billion in 2019, nearly equivalent to the country’s annual GDP. In 2020, difficulties servicing this debt caused the Lao government to turn over a giant chunk of its electricity distribution company to a Chinese state-owned power grid firm.
  • Beijing has long pressed to send large cargo vessels down the Mekong deep into Lao and Thai territory. To make this work would require blowing up massive rocks in the river, which Thai environmentalists have objected to. Bangkok initially put China’s project proposal on hold, but later cancelled it out of concern that it would give Beijing too much strategic and economic influence deep into mainland Southeast Asia.

* Guest writer, Murray Hiebert, is the author of Under Beijing’s Shadow: Southeast Asia’s China Challenge, published in August 2020, from which this article is adapted. He is Senior Associate at the Center for Strategic and International Studies in Washington, DC.

INTRODUCTION

The drought that struck during the 2019 rainy season, when the Mekong River hit its lowest levels in half a century, ravaged the livelihoods of farmers and fishers living along the lower Mekong countries of Laos, Thailand, Cambodia and Vietnam. Initially, it was widely thought that the sharply reduced levels of water were primarily due to unusually low rainfall caused by an El Nino weather system.

Only in April 2020 did these nations learn the key cause of drought when a U.S. research company released satellite images that showed dams on the upper reaches of the Mekong in China holding back large quantities of water at a time when its southern neighbors were facing devastating shortages.[1] China had said that it was encountering low levels of rain itself when in fact it was blessed with higher-than-normal levels of water upstream along the 4,300-kilometre river.

China denied the findings of the Eyes on the Earth and seemingly did little, if anything, to release water from the reservoirs of its dams, resulting in a second devastating drought in the lower Mekong in 2020. This two-year drought, which resulted at times in the river’s water level being three meters lower than normal at the river gauge in Thailand nearest to China’s border, wreaked havoc on the livelihoods of the 60 million people living along or near the lower Mekong.

Beijing’s financing and constructing of dams in Laos have also had an economic impact. The debt burden of Laos’ state-owned utility Electricite du Laos (EDL) in 2020 reached about $8 billion, nearly 50 percent of Laos’ GDP.[2] The sharp decrease of government revenue in the wake of the Covid-19 pandemic made it more difficult to service the company’s debt, prompting Laos to spin off part of EDL into a new entity in which a Chinese power grid firm took a giant stake.[3] This marked the first known case in Southeast Asia in which a country fell into a “debt trap” with China and had to turn over a stake in a key company to service the country’s loans.

Since the Mekong is so vital to economic life in mainland Southeast Asia and western China, analysts have begun viewing the river as the possible next hot spot between Beijing and its southern neighbours, much like the South China Sea has become. This has prompted the United States to call out some of China’s actions and join Japan and Australia in providing various types of aid and capacity building to the lower Mekong nations.

THE ENVIRONMENTAL IMPACT

China has built 11 hydropower dams on its section of the world’s 12th longest river that have the combined capacity to store as much water as the Chesapeake Bay in the United States, or about 18 trillion gallons of water.[4] Nine others are on the drawing board. Chinese conglomerates are also in various stages of planning to finance and/or construct about half of 11 dams planned for the mainstream of the river in Laos and Cambodia. The dams in these two countries will have an even bigger impact than those in China because the Mekong in these countries provides roughly four-fifths of the water and sediment downstream.

The dams built or funded by China are creating apprehension downstream. They will not only impact the water flow, but also restrict the movement of fish and diminish the flow of sediment which farmers and fishers depend on along the lower Mekong. During the dry season, more than 40 percent of the water in the Mekong comes from melting glaciers and water runoff in China’s portion of the river which begins in the snow-covered mountains of Tibet.[5]

Water from China is vital to rice production in the downstream countries of Laos, Thailand, Cambodia and Vietnam, especially during times of limited rainfall. This is particularly true in southern Vietnam’s Mekong Delta, which grows half the country’s rice and nearly three quarters of its fruits and vegetables. Freshwater from China helps this low-lying region against invasion of saltwater from the South China Sea. Rice production in Thailand and Vietnam, two of the world’s largest exporters, fell sharply in 2019 and 2020.[6]

Sediment carried by the river, about half of which comes from China, has also long been critical for protecting the Mekong Delta against intrusion by the sea. But much of the silt is now blocked by the dams, which do not have effective sediment flushing systems. The quantity of suspended sediment dropped to 10 metric tons in 2009 from 60 metric tons in 2003 in Chiang Saen in northern Thailand[7] and is expected to block some 96 percent of all sediment if all the dams currently proposed are built.[8] The loss of sediment is also starving the banks along the river and the Mekong region of the nutrients needed for crop production, causing billions of dollars in losses.[9]

China’s dams also block fish migration between the upper and lower regions of the river, which hampers spawning and causes a sharp drop in fish stocks downstream. This decline of fish movement will cause losses to China’s southern neighbours of over $16 billion in the years until 2042.[10]

LAOS IN A “DEBT TRAP?”

Laos has built 60 hydropower dams on the Mekong’s tributaries and two on the mainstream to fire up the landlocked and mountainous nation’s economy. Vientiane is planning up to eight more on the mainstream despite complaints by Thailand and Vietnam about the environmental impact to their countries. Most of the Lao-produced electricity is exported to Thailand, where demand has dropped sharply in the wake of the pandemic.

China has financed and/or built about half the dams along the Mekong and its tributaries. The Export-Import Bank of China and China Development Bank have provided billions of dollars in loans for the dams in Laos, and companies such as Sinohydro Corporation and Power China Resources have constructed many of the barrages.

Vientiane’s plans for hydropower dams have created tensions with its neighbours downstream. Before building the $3.5 billion Xayaburi Dam, Laos’ first on the mainstream, the government in 2011 promised to consult with its neighbours under a process set up by the Mekong River Commission, an inter-government organisation designed to promote sustainable development and joint management of the river. But the next year, Laos signed a contract with a Thai firm and began construction, despite objections from Vietnam.[11]

A similar situation developed around the Don Sahong Dam near the Cambodian border. Laos had agreed with its neighbours to perform an impact study before starting construction, but two months later Vientiane announced that construction would begin. Thailand, Cambodia and Vietnam requested more time to complete the study, but Laos pushed ahead with construction.

A number of Lao plans for dams began facing strong opposition from civil society organisations and villagers in Thailand, which is purchasing much of the electricity Laos is producing. These groups protested the impact of the dams on the migration of fish and the flow of sediment downstream. The Thai government has deferred a decision to sign a power purchase agreement for the output of the planned Pak Beng Dam on realising that it had overestimated the nation’s electricity needs until 2036.[12]

Laos is determined to press ahead, even though its external debt – much of it related to loans from China for dams – is becoming unsustainable. Laos’ foreign obligations by 2019 had reached nearly $17 billion, slightly less than the country’s GDP, of which a little over $10 billion were public and publicly guaranteed debt. China accounted for nearly half of all Lao external debt.[13] The debt of EDL, which played a vital role in many of the hydropower projects, stood at roughly $8 billion, over 40 percent of GDP.[14]

In September 2020, Laos created a new company out of EDL, calling it EDL Transmission Company (EDL-T), which would be responsible for the country’s domestic electricity transmission grid. It then turned over a roughly 90 percent stake in the new company to a Chinese state-owned firm, China Southern Power Grid Co. Ltd. How much the firm paid for its stake has not been made public nor is it clear if the newly formed company will take on some of the Lao government debt. EDL officials insist that the transaction has not resulted in a loss of sovereignty because, they say, the Chinese firm is a professionally run utility company.[15]

The following month, EDL, still facing debt repayment pressures, sold roughly a quarter of its shares on the Lao Securities Exchange in EDL-Generation Public Company to a prominent Lao construction firm active in the energy sector.[16] The Lao government reportedly is considering selling a separate stake in the Nam Ngum 3 hydropower project to other investors, possibly including China Southern Power, a company from Thailand and another from Laos.[17]

FISH MIGRATION THREATENED

About half of Cambodia’s population makes its living farming on the floodplains created by the Mekong and its tributary the Tonle Sap, or fishing along the two rivers.[18] When the yearly monsoon rains begin around May massive quantities of water flow up the Tonle Sap and expand by roughly fivefold the dry-season size of Tonle Sap Lake. As the rains subside towards the end of the year, Tonle Sap River reverses course and drains the lake’s water back into the Mekong.

This annual cycle plays a critical role in the migration and spawning of fish, a process that has been severely impacted by the recent droughts and the holding back of water behind China’s upstream dams. Fishers along the Tonle Sap, the world’s largest inland source of fish which supplies around three-quarters of the country’s protein, reported that their catches in 2019 were down some 80 percent or more.[19]

China is also a major investor in and builder of dams in Cambodia. The Lower Sesan 2 Dam, in which a Chinese company holds a majority stake, is projected to have an outsized impact on the environment. A U.S. environment organisation that did a study of the dam for the Cambodian government concluded that it is “the most destructive dam in the Mekong River basin.”[20] The dam, inaugurated in 2018, is expected to block the migration of fish, on which millions depend for their livelihoods.

Nearly 80,000 people living above the Lower Sesan 2 dam are expected to lose access to migratory fish on which they rely for their livelihoods.[21] But a larger population will be hit by losses of protein and sources of income because the dam will block the movement of fish between the Sesan and Srepok tributaries of the Mekong and the Tonle Sap to spawn.[22]

A 2012 study by the U.S. National Academy of Sciences found that over a million tons of freshwater fish were caught each year in the floodplains of Cambodia and Vietnam. The authors estimated that the population of fish would drop by 9.3 percent due to the Lower Sesan 2 Dam. They found that the Mekong had some 900 species of fish, over 100 of which would be affected by the dam blocking their migration patterns.[23]

Another dam, the Sambor, which was designed by China Southern Power Grid Co., would be even more “devastating” to migratory fish, according to a 2017 study by the U.S. National Heritage Institute. The authors reported that it would create a barrier that would make it impossible for fish to move from Tonle Sap Lake to spawning grounds upstream. The dam would block 60 percent of the suspended sediments that provide the food needed to sustain fish, and as many as 80 long-range migratory fish species would be “endangered” by the dam.[24]

THAILAND LIMITS CHINA’S SECURITY INFLUENCE

Decades ago, after Thailand abandoned building hydropower dams at home under pressure from civil society, it began looking to Laos to fill the energy void. Thai companies gave the Lao credit to build dams and its construction firms helped design and build many of them. But Bangkok began withdrawing support for Lao dams after one collapsed in southern Laos. Under pressure from civil society, Thailand delayed signing an agreement to buy electricity from the planned Pak Beng Dam after realizing that officials had overestimated the country’s power needs, and because the costs of producing wind and solar power had dropped sharply.

Beijing has long pressed to send large cargo vessels carrying up to 500 tons of goods down the Mekong from southern China at least as far south as Luang Prabang in Laos. But that would require dynamiting some gigantic rocks and dredging the river near Chiang Saen, which Thai environmentalists have vigorously opposed because it would affect the ecology of the river and harm food security for people along the river. Thai officials put the project on hold in 2017 and three years later cancelled it totally.[25]

After drug dealers killed 13 sailors during an attack on two cargo vessels in the Thai section of the Mekong a decade ago, China has been sending armed Chinese police boats down the Mekong through Myanmar and Laos about once a month. These boats travel to the Thai section of the river where they are met by Thai patrol boats before returning to China.[26] Beijing has pressed Bangkok to allow the Chinese patrol boats to go further but the Thais have pushed back out of concern that this would allow China to extent its economic and strategic reach deep into mainland Southeast Asia.

DAMS IMPERIL VIETNAM’S FERTILE MEKONG DELTA

The Mekong Delta in southern Vietnam, where about 22 million people live, supports some of the world’s richest farming areas. The low-lying plain, roughly the size of Denmark was created by mountains of silt from the river, some of which came from the Himalayas. The delta produces three rice crops a year, which has turned Vietnam into a major rice exporter. But the delta is barely above sea level and is vulnerable to the incursion of saltwater.

Because of the delta’s unique features, it is in a very vulnerable situation. The dams that the Chinese, Lao and Cambodians are building upstream block water, hold back silt and obstruct the movement of fish. The downstream countries have traditionally gotten about 40 percent of their water from the Chinese section of the river during the dry season and 18 percent during the rainy season, but those percentages have been reduced sharply by the dams upstream.[27]

Beyond 2020, the sediment that reaches the Mekong Delta in Vietnam is estimated to be only about one-third of the level in 2007.[28] The dams also block fish migration and are expected to cause a drop in fisheries income in the countries south of China of up to $22.6 billion over 24 years, according to a 2018 study.[29]

CONCLUSION

The physical, ecological and economic future of the Mekong is under threat from upstream dams. For the Mekong to remain healthy and survive will require that China and its Southeast Asian neighbours find ways to share the river’s water, fish and silt. This will also ensure that the Mekong does not become a security flashpoint like the South China Sea has become.

Beijing can help ease the threat of drought downstream by providing more information about how much water it is storing behind its dams and agreeing to release more water during the rainy season. This water is needed for farming downstream, but also to save the Tonle Sap’s fishing industry, and keep the Mekong Delta from being submerged under saltwater.

The international community, including the United States and Japan, can help landlocked Laos figure out how to build its economic future without constructing more costly, environmentally damaging hydropower dams. If Laos looked to solar and wind farms, its Thai and Vietnamese neighbours would be more inclined to buy more electricity from it to help drive their economies.

ISEAS Perspective 2021/34, 22 March 2021.


ENDNOTES

[1] Kay Johnson, Chinese Dams Held Back Mekong Waters During Drought, Study Finds, Reuters, 13 April 2020, https://www.reuters.com/article/us-mekong-river/chinese-dams-held-back-mekong-waters-during-drought-study-finds-idUSKCN21V0U7.

[2] John Reed, Laos Faces Sovereign Default As Forex Reserves Dip Below $1 Billion, Financial Times, 3 September 2020, https://www.ft.com/content/dc3f5981-4fd9-4e3a-9824-5b9ddf70735e.

[3] Keith Zhao and Kay Johnson, Taking Power – Chinese Firm to Run Laos Electric Grid Amid Default Warnings, Reuters, 15 September 2020, https://www.reuters.com/article/china-laos/exclusive-taking-power-chinese-firm-to-run-laos-electric-grid-amid-default-warnings-idUSKBN25V15G.

[4] Brian Eyler, How China Turned Off the Tap on the Mekong River, Stimson Center, 13 April 2020, https://www.stimson.org/2020/new-evidence-how-china-turned-off-the-mekong-tap; Facts & Figures: Chesapeake Bay Program, https://www.chesapeake.net/discover/facts.

[5] Eyler, How China Turned Off the Tap on the Mekong River.

[6] Tomoya Onishi and Marimi Kishimoto, Rice Prices Hit 6-year High as Thailand and Vietnam Face Drought, NikkeiAsia, 31 March 2020, https://asia.nikkei.com/Business/Markets/Commodities/Rice-prices-hit-6-year-high-as-Thailand-and-Vietnam-face-drought.

[7] T. Piman and S. Manish, Case Study on Sediment in the Mekong River Basin: Current State and Future Trends, Stockholm Environment Institute, 4 November 2017, https://www.sei.org/publications/sediment-mekong-river.

[8] Mekong River Commission, The Council Study: The Study on Sustainable Management and Development of the Mekong River Including Impacts of Mainstream Hydropower Projects (Phnom Penh: Mekong River Commission, 2017), p. 7, https://mrmekong.org/assets/Publications/Council-Study/Council-study-Reports-discipline/180207-Macroeconomic-Assessment-Report-final-5-MG-2.pdf.

[9] Flood and Drought, Mekong River Commission, https://www.mrmekong.org/topics/floo-and-drought (accessed August 20, 2019).

[10] Mekong River Commission, The Council Study, p 7.

[11] MRC Vietnam Condemns Thai Company’s Contract to Build Xayaburi Dam, Thanh Nien News, 24 April 2012, http://www.thanhniennews.com/politics/mrc-vietnam-condemns-thai-companys-contract-to-build-xayaburi-dam-7641.html.

[12] Thailand Delays Decision on Power Purchase from Pak Beng Dam, Open Development Mekong, 13 March 2018, https://opendevelopmentmekong.net/news/thailand-delays-decision-on-power-purchase-from-pak-beng-dam.

[13] World Bank Group, Lao PDR Economic Monitor: Building a Resilient Health System, June 2020, http://pubdocs.worldbank.org/en/962271591369090988/Lao-Economic-Monitor-June-2020-final.pdf, p 26.

[14] Keith Barney and Kanya Souksakoun, Credit Crunch: Chinese Infrastructure Lending and Lao Sovereign Debt, Asia Pacific Policy Studies, 2021;1–20, https://onlinelibrary.wiley.com/doi/full/10.1002/app5.318.

[15] Zhao and Johnson, Taking Power – Chinese Firm to Run Laos Electric Grid Amid Default Warnings.

[16] Barney and Souksakoun, Credit Crunch: Chinese Infrastructure Lending and Lao Sovereign Debt, p 10.

[17] Barney and Souksakoun, Credit Crunch: Chinese Infrastructure Lending and Lao Sovereign Debt, p 11.

[18] Brian Eyler, Last Days of the Mighty Mekong, Zed Books, 2019, p 220.

[19] Shashank Bengali, ‘No Fish’: How Dams and Climate Change Are Choking Asia’s Great Lake, Los Angeles Times, 20 January 2020, https://www.latimes.com/world-nation/story/2020-01-20/how-climate-change-and-dams-threaten-one-of-the-worlds-great-lakes.

[20] National Heritage Institute, Cambodia (Sambor), December 2017, https://n-h-i.org/programs/restoring-natural-functions-in-developed-river-basins/mekong-river-basin/cambodia-sambor.

[21] Soth Koemseun, Lower Sesan II Dam Opens, Phnom Penh Post, 18 December 2018, https://www.phnompenhpost.com/national/lower-sesan-ii-dam-opens.

[22] Phak Seangly and Daphne Chen, Seasan Dam Goes Online, while PM Dismisses Environmental Concerns, 26 September 2017, https://www.phnompenhpost.com/national/sesan-dam-goes-online-while-pm-dismisses-environmental-concerns.

[23] Guy Ziv, Eric Baran, So Nam, Ignacio Rodriguez-Iturbe and Simon A. Levin, Trading-off Fish Biodiversity, Food Security, and Hydropower in the Mekong River Basin, Proceedings of the National Academy of Sciences of the United States of America, 10 April 2012, https://www.pnas.org/content/109/15/5609.

[24] National Heritage Institute, Cambodia (Sambor), December 2017.

[25] Andrew Stone, Chinese Firm Fails to Convince Locals Over Mekong Blasting, The Third Pole, 29 January 2019, https://www.thethirdpole.net/en/regional-cooperation/mekong-blasting.

[26] Michael Sullivan, China Reshapes The Vital Mekong River to Power Its Expansion, National Public Radio, 6 October 2018, https://www.npr.org/2018/10/06/639280566/china-reshapes-the-vital-mekong-river-to-power-its-expansion.

[27] Mekong: Climate Change Adaptation Strategy and Action Plan, Mekong River Commission, November 2017, p 19, http://mrcmekong.org/assets/Publications/MASAP-book-28-Aug 18.pdf; Peter T. Adamson, Ian D. Rutherford, Murray C. Pell and Iwona A. Conlan, The Hydrology of the Mekong River, The Mekong River, pp 53-76, 2009, https://www.researchgate.net/publication/279971517_The_Hydrology_of_the_Mekong_River.

[28] Short Technical Note: Mekong Sediment From the Mekong River Commission Study, p. 8, https://www.mrcmekong.org/assets/Publications/Mekong-sediment-from-the-MRC-Council-Study-Technical-notedocx.pdf.

[29] The Council Study: The Study on the Sustainable Management and Development of the Mekong River Basin, Including Impacts of Mainstream Hydropower Projects (Final Report), Mekong River Commission, December 2017, https://www.mrcmekong.org/assets/Publications/Council-Study/Macro-economic-assessment-report_Council-Study.pdf. see also https://www.researchgate.net/publication/279971517_The_Hydrology_of_the_Mekong_River.

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2021/33 “Russia’s Defence Diplomacy in Southeast Asia: A Tenuous Lead in Arms Sales but Lagging in Other Areas” by Ian Storey

 

Although Russia has been increasing its defence diplomacy activities in Southeast Asia, its military cooperation with the region remains overwhelmingly focused on arms sales. Here, Russian President, Vladimir Putin, speaks at a meeting of the Federal Security Service (FSB) Board in Moscow on February 24, 2021. Photo: Alexei Druzhinin, Sputnik, AFP.

EXECUTIVE SUMMARY

  • Although Russia has been increasing its defence diplomacy activities in Southeast Asia, its military cooperation with the region remains overwhelmingly focused on arms sales. 
  • Russia is at risk of losing its position as the number one arms seller to Southeast Asia due to increased competition from American, European and Asian defence companies, as well as the threat of US sanctions against countries that buy Russian weapons.
  • Vietnam and Myanmar will remain Russia’s two most important defence customers in Southeast Asia. Attempts by Russia to sell arms to US allies Thailand and the Philippines have met with limited success.
  • Russian navy port calls to Southeast Asia and combined military exercises with regional armed forces are infrequent and small-scale compared to those of the United States and China.
  • Russia has used its membership in the ASEAN Defence Ministers’ Meeting Plus to try to limit the expansion of Western influence in this defence diplomacy forum.

* Ian Storey is Senior Fellow and Co-editor of Contemporary Southeast Asia at ISEAS – Yusof Ishak Institute. Acknowledgements: The author would like to thank Richard Bitzinger, Collin Koh and Olli Pekka Suorsa at the S. Rajaratnam School of International Studies (RSIS), Singapore, for their helpful comments on an earlier draft of this paper.

INTRODUCTION

In the era of Great Power competition, defence diplomacy has become an increasingly important tool of statecraft.

Defence diplomacy serves a variety of purposes, including attempts to expand political, economic and military influence in another country and counteract the influence of a competitor; understanding another country’s security perspectives and military capabilities; and strengthening defence cooperation with, and offering capacity-building support to, friends, partners and allies.

Defence diplomacy activities include arms sales, combined military exercises, educational exchanges, naval port calls, strategic dialogues, and participation in peacekeeping and humanitarian and disaster relief operations.

As part of President Vladimir Putin’s Asia-focused “turn to the east” policy, Russia has been expanding its defence diplomacy activities in Southeast Asia since 2010. However, Russia’s military cooperation with the region remains overwhelmingly focused on arms sales. Moreover, although Russia is the biggest seller of arms to Southeast Asia, its sales are declining due to increased competition from other countries and the threat of US sanctions on governments that buy Russian weaponry. Russia’s other defence diplomacy pursuits, such as combined exercises and port calls, remain infrequent and small-scale compared to those of the United States and  China. 

RUSSIA’S GLOBAL ARMS EXPORTS AND SOUTHEAST ASIA

Overseas defence sales play a critical role in achieving the Kremlin’s Great Power aspirations.[1] The foreign currency Moscow earns from the sale of military equipment helps fund research and development into new technologies, provides employment for over a million people and helps Russia project influence abroad.

Russia is the second biggest player in the global arms market behind the United States. However, whereas America’s share of the market is rising, Russia’s is declining. Between 2010 and 2019, America’s global arms exports rose from US$43.2 billion (31% of the global market) to US$53 billion (36% of the global market), an increase of 23%.[2] During the same period, Russia’s defence sales fell from US$36.8 billion (31% of the global market) to US$30.1 billion (27% of the global market), a decrease of 18%.[3]

Several reasons account for the decline in Russia’s defence exports.

First, Russian defence enterprises face strong competition from US and European arms vendors, and increasingly from relative newcomers to the global arms trade, such as China and South Korea. China is a particular source of frustration for Russia because some of its arms exports are copied or retro-engineered from military equipment originally purchased from Russia.[4] Moreover, because China views defence sales as a tool to acquire political influence rather than generate money, it is willing to undercut Russia on price.

Second, some of Russia’s most important traditional customers – especially China and India – are committed to developing their domestic arms industries to reduce dependence on foreign suppliers in order to achieve a higher level of self-sufficiency. While China has recently purchased SU-35 fighter jets and S-400 air defence systems from Russia, it is far less reliant on Russia’s defence industry to modernize the People’s Liberation Army (PLA) than it was in the 1990s and 2000s. And while New Delhi is still Moscow’s biggest customer (see Table 1), Russian arms sales to India fell by 47% between 2010-14 and 2015-19 (US arms sales to India dropped 51% during the same period).[5]

Source: Data compiled from the Stockholm International Peace Research Institute (SIPRI), https://www.sipri.org/databases/armstransfers

The third reason is US sanctions, or the threat thereof. In August 2017, then US President Donald Trump signed into law the Countering America’s Adversaries Through Sanctions Act (CAATSA). CAATSA is designed to “counter [Russian] aggression” by imposing sanctions on countries or persons that have commercial dealings with Russia’s military-industrial complex. However, since it came into force, Washington has invoked CAATSA sparingly. In September 2018, the US imposed sanctions on the Chinese military for buying SU-35 fighter jets and S-400s from Russia.[6] In response to complaints from the US Defense Department that CAATSA could be used to penalize US allies and partners, subsequent legislation allowed the US President to ask Congress for a waiver on national security grounds so long as he could demonstrate that the country buying Russian arms was committed to reducing arms purchases from Moscow, or was cooperating with the US on matters “critical to United States strategic interests”.[7] Nevertheless, in December 2020, the US imposed sanctions on its NATO ally Turkey for purchasing S-400s.[8] Early indications that President Joe Biden may pursue a tougher line against Russia than his predecessor suggests the new administration may enforce CAATSA more vigorously. As discussed below, the threat of US sanctions appears to have had an impact on Russian efforts to sell military equipment to Southeast Asian countries.  

Southeast Asia in Russia’s Global Arms Exports

While Russia may be the world’s second largest arms exporter, in Southeast Asia it is number one. Over the past 20 years, Russia has sold US$10.7 billion worth of defence equipment to regional states, compared with US defence exports of US$7.9 billion (see Table 2).

Source: Data compiled from the Stockholm International Peace Research Institute (SIPRI), https://www.sipri.org/databases/armstransfers

Many regional states view Russia as a valued source of defence equipment for several reasons.

First, Russia can provide a full range of military equipment, from high-end technologically advanced fighter jets and submarines, to low-end military vehicles and small arms. 

Second, Russian defence systems are cheaper than their US equivalents, and Moscow is often willing to accept payment using a combination of hard currency and barter trade, including commodities.

Third, unlike the US and European countries, Russia does not make defence sales contingent on the human rights record of the receiving country. Russia has never imposed an arms embargo on any ASEAN member state.

Nevertheless, as with its share of the global arms trade, Russia’s defence sales to Southeast Asia have been declining. In 2015-19, Russia’s arms exports to the region accounted for 8.8% (US$2.7 billion) of its global sales, down from 12.7% (US$4.7 billion) in 2010-14.[9] The most important reason is fierce competition from the United States, Europe, China and South Korea, as well as the threat of US sanctions. Although the data is not yet available for 2020, the impact of the COVID-19 pandemic is likely to have had a negative impact on Russian arms sales as economic contraction has forced some Southeast Asian countries to cut their defence budgets.

In terms of regional purchases of Russian arms, Southeast Asian countries can be divided into three main groups: long-standing customers (Vietnam, Malaysia, Myanmar, Indonesia and Laos); new and potentially new customers (Thailand, the Philippines and Cambodia); and low potential countries (Singapore and Brunei). A country breakdown of Russian arms exports to Southeast Asia over the past 20 years can be seen in Table 3.

Source: the Stockholm International Peace Research Institute (SIPRI), https://www.sipri.org/databases/armstransfers

Vietnam

Vietnam has a decades-long defence relationship with Russia dating back to the Vietnam War. Following the end of the Cold War, there was a brief lull in Vietnam-Russia defence cooperation as the two countries worked out new payment arrangements for Moscow’s military assistance. However, from 1995 onwards, Russia once again quickly established itself as Vietnam’s most important source of arms imports. Between 1995 and 2019, Vietnam imported US$7.38 billion worth of Russian weaponry—84% of its total arms imports (approximately 5% of Russia’s total global defence exports).[10] Over the past 20 years, 61% of Russia’s defence exports to Southeast Asia have gone to Vietnam (see Table 3).

As tensions between Vietnam and China in the South China Sea escalated from the mid-1990s, Russia became instrumental in the modernisation of Vietnam’s armed forces. In the 2000s, Russia supplied Vietnam’s air force with 11 SU-27 and 35 SU-30 fighter aircraft, and its navy with four frigates, 12 corvettes, six missiles patrol boats and, most significantly, six Kilo-class submarines.[11] In 2016, Vietnam signed a contract with Russia for 64 T-90 main battle tanks and deliveries were completed by 2019.[12] In January 2020, Vietnam agreed to purchase 12 Yak-130 combat training aircraft for US$350 million. The contract was seen as an indication that Vietnam plans to purchase SU-35 fighter aircraft or possibly even Russia’s 5th generation SU-57 combat jet in the near future.[13]

Moscow’s military assistance has helped transform the Vietnamese military into one of Southeast Asia’s most modern and capable armed forces, providing Hanoi with a limited but potent deterrent against China in the South China Sea. Beijing is unhappy with Russian arms sales to Vietnam, but regards them as preferable to US arms sales. Russia’s growing strategic alignment with China is likely to encourage Vietnam to diversify its arms imports but there will be limitations. Vietnam will be dependent on Russia for munitions, spare parts, maintenance and upgrades for at least the next two decades. And although the United States lifted its arms embargo on Vietnam in 2016, Hanoi is unlikely to place major defence orders with US companies any time soon because US arms are more expensive than Russian equipment and cannot easily be integrated with Vietnam’s existing weaponry from Russia. Moreover, the US Congress is unlikely to approve major weapons sales to Vietnam in view of the country’s human rights record. It remains to be seen whether the Biden administration will threaten to impose CAATSA sanctions on Vietnam or issue a waiver. Given Vietnam’s important strategic location in Southeast Asia, and growing US-Vietnam military cooperation in response to China’s increasing assertiveness in the South China Sea, it would not be in Washington’s interest to use CAATSA against Hanoi. As such, Russia is likely to remain Vietnam’s most important defence partner for the foreseeable future. 

Malaysia

As part of the country’s defence diversification policy, Malaysia purchased a number of fighter aircraft from Russia following the end of the Cold War. In 1994 it bought 10 MiG-29s and in 2003, 18 SU-30s. The MiG-29s are no longer in service, and due to maintenance problems less than half the SU-30s are operational.[14]

Under Prime Minister Najib Razak, Malaysia sought to acquire a new fleet of fighter aircraft under the Multi-Role Combat Aircraft (MRCA) acquisition programme. Malaysia looked at a number of options including America’s F-18, France’s Rafale, Sweden’s Gripen, Europe’s Typhoon and Russia’s SU-30 and SU-35. As it had done in 2003, Russia said it was willing to accept part payment for any new fighters in palm oil.[15] Russia also offered to sell Mi-17 military transport helicopters, T-90 tanks and armoured fighting vehicles, and explore the establishment of joint production and licensing facilities in Malaysia.[16]

However, in 2018, Najib’s successor, Prime Minister Mahathir Mohamad, shelved the MRCA and other procurement projects due to the country’s severe economic problems. Instead, a joint Malaysia-Russia company was established to extend the life of the SU-30s by another 10-15 years.[17] The MRCA has been replaced with the Light Combat Aircraft (LCA) acquisition programme, and Russia’s Yak-130 is a contender.[18]

Myanmar

During the 1990s, China became the largest supplier of arms to Myanmar, including tanks, artillery, armoured personnel carriers, trucks, fighter aircraft, helicopters and naval ships worth an estimated US$1.6 billion.[19] In the early 2000s, however, the Myanmar armed forces (Tatmadaw) began to source more of its arms imports from Russia, both because it was disappointed with the quality of Chinese equipment and in an effort to reduce dependence on China.

Since 2000, Myanmar has purchased from Russia 30 MiG-29s, 12 Yak-130s, 25 Mi-17 transport and Mi-35 attack helicopters, and eight Pechora-2M anti-aircraft missile systems. In January 2018, Myanmar signed a US$204 million contract to buy six SU-30s.[20] Myanmar was reportedly interested in buying submarines from Russia in 2013, but in 2020, India gifted the Myanmar Navy a Russian-built Kilo-class submarine.[21] However, as the Myanmar Navy familiarizes itself with the Russian-built vessel, future sales of submarines from Russia are a possibility.

Over the past two decades, Russia has been the second largest supplier of arms to Myanmar after China. Between 2000 and 2019, Myanmar bought US$1.7 billion worth of arms from China and US$1.44 billion from Russia.[22]

Defence cooperation between the two countries looks set to strengthen since Senior General Min Aung Hlaingousted the democratically elected government on 1 February 2021. Appointed commander-in-chief in 2011, Min Aung Hlaing has pursued closer defence ties with Russia and has visited the country six times.[23] Several weeks prior to the coup, Russian Defence Minister General Sergei Shoigu visited Myanmar, and, in a sign of the growing importance of military cooperation between the two countries, signed a contract to supply Pantsir-S1 surface-to-air missiles and Orlan-10E surveillance drones to the Tatmadaw.[24] During Shoigu’s visit, Senior General Min Aung Hlaing praised Russia as a “loyal friend” which had “always supported Myanmar in difficult moments, especially in the last four years”. So long as the Tatmadaw remains at the apex of power, Russia looks set to increase its defence sales to Myanmar. 

Indonesia

Under President Sukarno (1945-67), the Soviet Union transferred to Indonesia a significant quantity of arms including fighter jets, submarines and destroyers.[25] Subsequently, however, President Suharto’s pro-Western New Order regime (1966-98) mainly looked to the United States and Europe to meet its defence needs. After the fall of Suharto in 1998, Indonesia sought to diversify its arms imports following the imposition of a US arms embargo against the country due to human rights violations in East Timor. Between 2003 and 2012, Russia supplied Indonesia with five SU-27 and 11 SU-30 fighter jets, and 18 Mi-17 and three Mi-35 helicopters.[26]

In February 2018, Indonesia’s then defence minister, Ryamizad Ryacudu, signed an agreement with Russia to buy 11 SU-35 fighter aircraft for US$1.14 billion, half of which would be paid for in commodities including palm oil and rubber.[27] The first SU-35s were expected to be delivered in August 2018. However, three years on, Russia has yet to transfer a single aircraft. According to media reports published in March 2020, the United States had threatened to impose CAATSA sanctions on Indonesia if the deal went through, and instead offered to sell Indonesia US-built F-16s.[28] A few days after the reports were published, Deputy Defence Minister Sakti Wahyu Trenggono admitted the deal with Russia was facing unspecified “obstacles”.[29] In addition to the threat of US sanctions, the COVID-19 pandemic has forced Indonesia to cut its defence budget, putting at risk the defence department’s force modernisation plans.[30]

On two occasions in 2020, Defence Minister Prabowo Subianto visited Russia to discuss the fighter deal and possible joint arms production arrangements.[31] The outcome of those talks is unclear. In July 2020, Russia’s ambassador to Indonesia, Lyudmila Vorobieva, denied that the sale had been cancelled.[32] However, that the SU-35 deal was in serious doubt was lent credence when Prabowo visited four countries in October 2020 to look at alternative aircraft: F-16s or even F-35s from the United States; 15 second-hand Typhoon Eurofighters from Austria; Rafales from France; and an indigenously built fighter in Turkey.[33] At the time of writing, Indonesia’s SU-35 deal was still in limbo and unlikely to go ahead.

Laos and Cambodia

Laos is a long-standing customer of Russia’s defence industry. However, due to its small defence budget, sales have been minimal. Between 2000 and 2019, Russia’s arms sales to Laos amounted to only US$102 million (see Table 3). Over the past several years, Russia has transferred an undisclosed number of T-72 tanks, BRDM-2M armoured vehicles, Mi-17 transport helicopters and Yak-130 aircraft to Laos.[34] In part payment, Russia received a batch of World War Two-era T-34 tanks (for use in Russian military parades) and been granted mining concessions.[35]

Cambodia’s most important defence partner is China. Since Prime Minister Hun Sen consolidated power in 1997, China has donated a wide variety of defence equipment to Cambodia including uniforms, small arms and trucks, and provided soft loans for the purchase of 15 naval patrol boats. In 2018, Russia offered to supply the Cambodian military with Mi-17 helicopters but a contract has yet to be signed.[36]

Thailand and the Philippines

Problems in the US-Thailand and US-Philippine alliances have been viewed by Moscow as opportunities to increase its defence sales to Bangkok and Manila. However, Russia has had little success thus far.

As shown in Table 3, Russia’s defence exports to Thailand over the past 15 years have amounted to a mere US$73 million (mainly helicopters and military commercial jets).[37] Russia offered to sell Kilos-class submarines and T-90 tanks to Thailand but was undercut by China on price. In 2015, Thailand’s military junta invited countries to bid for the supply of two submarines within a budget of US$1.03 billion. Two years later, Bangkok accepted China’s unbeatable offer to supply three S-26T diesel-electric submarines for the price of two.[38] In 2015, the Thai military also sought bids for a new main battle tank and the competition was narrowed down to Russia’s T-90 and China’s VT-4. As the VT-4s were priced lower than the T-90s, China won the contract for 48 VT-4s at a cost of US$280 million.[39] Since the military coup in 2014, China has become the leading supplier of military equipment to Thailand.[40]

Since President Rodrigo Duterte took office in 2016, US-Philippine defence relations have come under strain. Duterte has pledged to pursue an “independent foreign policy” by reducing the Philippines’ perceived dependence on the United States and strengthening relations with “non-traditional partners” such as China and Russia. Accordingly, Duterte has sought to improve defence ties with Russia which were practically non-existent before he took office.

Moscow has been keen to cash in on Duterte’s enthusiasm. When Putin met Duterte at the APEC summit in 2016, he offered to sell the Philippines a wide range of military equipment, from submarines to small arms.[41] In 2018, Russia opened a defence attache office at its embassy in Manila to facilitate talks on military sales. Since then, however, Russia has made little headway, largely because the Philippine military has a strong preference for US equipment and as well as from South Korea.

The threat of US sanctions has also made the Philippines cautious. Although Manila has been in talks with Russia for the supply of 16 Mi-17 helicopters, Defence Secretary Delfin Lorenzana has indicated that CAATSA might “derail” the planned acquisition.[42] Instead, Lorenzana said the Philippines was looking to purchase US-designed (but Polish manufactured) Sikorsky S-70i Black Hawk helicopters.

Russia’s offer to sell submarines to the Philippines has also failed to gain traction. In 2019, Russian Ambassador Igor Khovaev said Moscow was ready to supply the Philippine Navy with submarines at “very competitive prices”.[43] However, CAATSA appears to have been a factor in Manila’s calculations and in 2020 the French defence company Naval Group revealed it was in “intense discussions” with the Philippines for the sale of two Scorpene-class submarines.[44]

Singapore and Brunei

Neither Singapore nor Brunei have purchased defence equipment from Russia since President Putin took office in 2000. They are unlikely to do so in the future, given their preference for Western defence equipment. 

PORT CALLS

During the Cold War, warships from the large Vladivostok-headquartered Soviet Pacific Fleet regularly transited through and visited ports in Southeast Asia. Moscow’s naval presence in the region was greatly facilitated by the establishment of a Soviet naval base at Cam Ranh Bay in Vietnam in the 1980s. With the collapse of the USSR, however, the Pacific Fleet atrophied, Moscow closed its base at Cam Ranh, and port calls to Southeast Asia decreased substantially.

Under President Putin, defence spending has increased and the Russian armed forces have undergone significant modernisation. Although the Northern Fleet has been prioritised, the Pacific Fleet has also received some new warships. Accordingly, since 2014 there has been an uptick in Russian Navy port calls to Southeast Asia (see Table 4).

Source: Olli Pekka Suorsa, S. Rajaratnam School of International Studies, Singapore

As during the Cold War, Russia’s naval presence in the region has been facilitated by its close relationship with Vietnam. In 2014, Hanoi agreed to give Russian warships and aircraft increased access to Cam Ranh port.[45]

Russian Navy port calls have usually coincided with regular three-month naval deployments to the Indo-Pacific, and naval symposiums and trade fares.[46] During port calls, the Russian Navy has occasionally conducted combined exercises with its Southeast Asian counterparts.

COMBINED MILITARY EXERCISES

For decades the United States has conducted hundreds of bilateral military exercises with Southeast Asian countries on an annual basis (though the number fell in 2020 due to the pandemic).

China’s PLA only started holding bilateral exercises with regional states in 2005, but since then the frequency and scope of those drills have gradually increased. Between 2005 and early 2021, the PLA participated in 36 combined bilateral exercises with the armed forces of Southeast Asian countries.[47]

In contrast to both the US and China, exercises between the Russian armed forces and its Southeast Asian counterparts have been few and far between. In November 2018, Russia held its first exercise with Brunei: a naval search and rescue drill in the South China Sea.[48] Despite its longstanding defence relationship with Vietnam, it was not until December 2019 that the Russian Navy held an exercise with the Vietnamese Navy (a submarine rescue exercise).[49] In the same month, Russia held its very first exercise with the Laotian armed forces: the 9-day “Laros 2019” drills involving 500 soldiers from each side in Laos.[50] A second exercise with Laos, “Laros 2020”, was scheduled to take place in Russia in the second half of 2020 but was cancelled, presumably due to the pandemic.[51] In 2019 and 2020, the Russian Navy conducted basic passage exercises with its counterparts from the Philippines, Thailand and Indonesia.[52] In September 2020, the Tatmadaw contributed a small number of personnel to the Kavkaz-2020 Russian-led multilateral exercises in southern Russia.[53]

Philippine and Russian defence officials are currently negotiating a military cooperation agreement that would provide a legal framework for regular exercises to take place.[54]

In November 2019, Russia’s then prime minister, Dmitry Medvedev, proposed a maritime exercise with ASEAN of the kind the organisation’s member states’ navies had conducted with China in October 2018 and the United States in September 2019.[55] However, due to the pandemic, an ASEAN-Russia naval exercise has yet to take place.

EDUCATIONAL EXCHANGES

Statistics on the number of Southeast Asian military personnel studying at Russian military educational institutions are hard to come by. However, media reports occasionally provide glimpses into the number of students from regional armed forces studying in Russia. Unsurprisingly, the largest number of students from Southeast Asia come from Russia’s biggest arms customers. For example, during a visit to Myanmar in January 2018, Deputy Defence Minister Alexander Fomin revealed that 600 Tatmadaw personnel were studying in Russia.[56] Although no figures are available, large numbers of students from Vietnam and Indonesia study at Russian defence academies. In early 2020, Thailand and Russia signed an agreement for members of the Royal Thai Armed Forces to undertake courses as Russian military academies.[57]

ADMM-PLUS

Russia has been able to advance its defence diplomacy in Southeast Asia through its participation in the ASEAN Defence Ministers’ Meeting Plus (ADMM-Plus) of which it was a founding member in 2010. Between 2014 and 2016, Russia and Thailand co-chaired the ADMM-Plus’ Expert Working Group (EWG) on military medicine, during which the ASEAN Center of Military Medicine (ACMM) was established in Bangkok.[58] From 2020 to 2023, Russia and Vietnam will co-chair the EWG on counter-terrorism.[59] Russia has participated in the various ADMM-Plus table top and field exercises since 2012. Recently, however, it has attempted to limit the expansion of Western influence in the various ASEAN-led forums by trying to veto the applications of the United Kingdom, France, Canada and the European Union for observer status to the ADMM-Plus’ EWGs.[60] Russia has been supported in this endeavour by China.

CONCLUSION

For the past 20 years, Russia has been the largest supplier of arms to Southeast Asia. However, in recent years the value of its defence sales has dropped due to greater competition from other countries as well as the threat of US sanctions. Should Russia be able to increase sales of fighter aircraft and submarines to Southeast Asia – especially to Vietnam and Myanmar – it might be able to retain its lead. However, in other areas of military cooperation such as military exercises and port visits, Russia lags far behind the United States and China and is likely to fall even further behind as Sino-US rivalry escalates.

ISEAS Perspective 2021/33, 18 March 2021.

______________________________________________

ENDNOTES

[1] Andrey Frolov, “Defence Technologies and Industrial Base” in Defence Industries in Russia and China: Players and Strategies edited by Richard A. Bitzinger and Nicu Popescu (Paris: EU Institute for Security Studies, 2017), p. 9.

[2] Stockholm International Peace Research Institute (SIPRI), https://www.sipri.org/databases/armstransfers

[3] Ibid.

[4] Dimitri Simes, “Russia up in arms over Chinese theft of military technology”, Nikkei Asia, 20 December 2019, https://asia.nikkei.com/Politics/International-relations/Russia-up-in-arms-over-Chinese-theft-of-military-technology

[5] Pieter D. Wezeman, Aude Fleurant, Alexandra Kuimova, Diego Lopes Da Silva, Nan Tian and Siemon T. Wezeman, Trends in International Arms Transfers, 2019 (Stockholm: Stockholm International Peace Research Institute, March 2020), https://www.sipri.org/sites/default/files/2020-03/fs_2003_at_2019.pdf

[6] Lesley Wroughton and Patricia Zengerle, “U.S. sanctions China for buying Russian fighter jets, missiles”, Reuters, 21 September 2018, https://www.reuters.com/article/us-usa-russia-sanctions/u-s-sanctions-china-for-buying-russian-fighter-jets-missiles-idUSKCN1M02TP

[7] John McCain National Defense Authorization Act for Fiscal Year 2019 (13 August 2018), https://www.congress.gov/bill/115th-congress/house-bill/5515/text

[8] Humeyra Pamuk and Tuvan Gumrukcu, “U.S. sanctions NATO ally Turkey over purchase of Russian defense system”, Reuters, 15 December 2020, https://www.reuters.com/article/uk-usa-turkey-sanctions/u-s-sanctions-nato-ally-turkey-over-purchase-of-russian-defense-system-idUKKBN28O2S9

[9] Data compiled from the Stockholm International Peace Research Institute (SIPRI), https://www.sipri.org/databases/armstransfers

[10] Ibid.

[11] Ibid.

[12] Samuel Cranny-Evans, “Russia completes delivery of T-90S/SK tanks to Vietnam”, Janes.com, 28 March 2019, https://www.janes.com/defence-news/news-detail/russia-completes-delivery-of-t-90ssk-tanks-to-vietnam

[13] “Vietnam Orders $350M Combat Training Jets From Russia – Vedomosti”, The Moscow Times, 29 January 2020, https://www.themoscowtimes.com/2020/01/29/vietnam-orders-350m-combat-training-jets-from-russia-vedomosti-a69074; “Vietnam To Become 1st Country To Get Russian SU-57 5th Generation Fighter Jets”, Eurasian Times, 8 January 2019, https://eurasiantimes.com/vietnam-to-become-1st-country-to-get-russian-su-57-5th-fighter-jets

[14] Mike Yeo, “Plagued by defence budget curbs – the Royal Malaysian Air Force in crisis”, CNA, 2 April 2019, https://www.channelnewsasia.com/news/commentary/rmaf-defence-budget-curbs-royal-malaysian-air-force-fighter-jets-11400902

[15] “Su-30MKM Life Extension May Put off Malaysian MRCA Procurement”, DefenseWorld.Net, 3 April 2019, http://defenseworld.net/news/24552/Su_30MKM_Life_Extension_May_Put_off_Malaysian_MRCA_Procurement

[16] “Russian company ready to discuss joint and licensed production facilities in Malaysia”, The Sun Daily, 19 April 2016, https://www.thesundaily.my/archive/1770597-JSARCH361972

[17]  “Su-30MKM Life Extension May Put off Malaysian MRCA Procurement”, DefenseWorld.Net, 3 April 2019, https://www.defenseworld.net/news/24552/Su_30MKM_Life_Extension_May_Put_off_Malaysian_MRCA_Procurement#.YCDU6mgzZPZ

[18] “Royal Malaysian Air Force to Acquire New Light Combat Aircraft”, Asian Defence Journal, 19 December 2020, https://adj.com.my/2020/12/19/royal-malaysian-air-force-to-acquire-new-light-combat-aircraft

[19] Data compiled from the Stockholm International Peace Research Institute (SIPRI), https://www.sipri.org/databases/armstransfers

[20] Mike Yeo, “Russia’s Flanker jet sales prosper with Myanmar buy”, Defense News, 23 January 2018, https://www.defensenews.com/global/asia-pacific/2018/01/23/russias-flanker-jet-sales-prosper-with-myanmar-buy. Due to the COVID-19 pandemic, delivery has been put back from 2020.

[21] Htet Naing Zaw, “Burma Army Reveals Ambition to Own Submarine”, The Irrawaddy, 3 May 2017, https://www.irrawaddy.com/news/burma/burma-army-reveals-ambition-to-own-submarine.html; Rajat Pandit, “With an eye on China, India hands over submarine to Myanmar”, Times of India, 16 October 2020, https://timesofindia.indiatimes.com/india/with-an-eye-on-china-india-hands-over-submarine-to-myanmar/articleshow/78689336.cms

[22] Data compiled from the Stockholm International Peace Research Institute (SIPRI), https://www.sipri.org/databases/armstransfers

[23] “Myanmar embraces Russian arms to offset China’s influence”, Nikkei Asia, 9 February 2021, https://asia.nikkei.com/Spotlight/Myanmar-Coup/Myanmar-embraces-Russian-arms-to-offset-China-s-influence

[24] “Myanmar Military Rolls Out Red Carpet for Russian Defence Minister”, The Irrawaddy, 25 January 2021, https://www.irrawaddy.com/opinion/analysis/myanmar-military-rolls-red-carpet-russian-defense-minister.html

[25] Alexey Muraviev and Colin Brown, “Strategic Realignment or Déjà vu? Russia-Indonesia Defence Cooperation in the Twenty-First Century”, SDSC Working Paper No. 411 (December 2018), p.4, https://www.files.ethz.ch/isn/94948/wp_sdsc_411.pdf

[26] “Russia fails to move Sukhoi deal”, Jakarta Post, 1 July 2020.

[27] Ibid.

[28] “Trump threat spurred Indonesia to drop Russia, China arms deals”, Jakarta Post, 13 March 2020.

[29] Jon Grevatt, “Indonesia points to F-35 ambitions”, Janes.com, 18 March 2020, https://www.janes.com/defence-news/news-detail/update-indonesia-points-to-f-35-ambitions

[30] Marchio Irfan Gorbiano, “Defense budget could be casualty of COVID-19”, Jakarta Post, 6 July 2020, https://www.thejakartapost.com/news/2020/07/05/defense-budget-could-be-casualty-of-covid-19.html

[31] Marchio Irfan Gorbiano, “As Prabowo visits Russia again, little headway on Sukhoi”, Jakarta Post, 1 July 2020, https://www.thejakartapost.com/news/2020/07/01/as-prabowo-visits-russia-again-little-headway-on-sukhoi.html

[32] Ibid.

[33] Koya Jibiki and Shotaro Tani, “Indonesia’s Prabowo trots globe to cut fighter jet deal”, Nikkei Asia, 11 November 2020, https://asia.nikkei.com/Business/Aerospace-Defense/Indonesia-s-Prabowo-trots-globe-to-cut-fighter-jet-deal

[34] “Laos receives another batch of T-72B1 tanks, armored vehicles, upgraded airfield from Russia”, Asia Pacific Defense Journal, 29 January 2020, https://www.asiapacificdefensejournal.com/2020/01/laos-receives-another-batch-of-t-72b1.html

[35] Prashanth Parameswaran, “What’s in the New Russian Battle Tanks Deal for Laos?”, The Diplomat, 3 January 2019, https://thediplomat.com/2019/01/whats-in-the-new-russian-battle-tanks-deal-for-laos

[36] Kuon Narim, “Russia to showcase latest military helicopter”, Khmer Times, 19 November 2018, https://www.khmertimeskh.com/551728/russia-to-showcase-latest-civilian-helicopter

[37] Joseph Thomas, “Why Is Thailand Buying Russian Helicopters? Are They Better than ‘Made in America’?”, New Eastern Outlook, 16 November 2019, https://journal-neo.org/2019/11/16/why-thailand-is-buying-russian-helicopters Wassana Nanuam, “First two Russian-built Superjets arrive”, Bangkok Post, 1 September 2016.

[38] Ian Storey, “Thailand’s Military Relations with China: Moving from Strength to Strength”, Perspective #43/2019 (27 May 2019), /images/pdf/ISEAS_Perspective_2019_43.pdf

[39] Ibid.

[40] Ibid. [41] “Putin offered good deal for guns-Duterte”, Philippine Daily Inquirer, 25 November 2016, https://globalnation.inquirer.net/150087/putin-offered-good-deal-guns-duterte

[41] “Putin offered good deal for guns-Duterte”, Philippine Daily Inquirer, 25 November 2016, https://globalnation.inquirer.net/150087/putin-offered-good-deal-guns-duterte

[42] Frances Mangosing, “US sanctions could kill PH plan to get heavy-lift choppers from Russia”, Philippine Daily Inquirer, 17 December 2020, https://globalnation.inquirer.net/192739/us-sanctions-could-kill-ph-plan-to-get-heavy-lift-choppers-from-russia

[43] J.C. Gotinga, “Russia eyes joint weapons production with the Philippines – envoy”, Rappler.com, 22 October 2019, https://www.rappler.com/nation/envoy-says-russia-eyes-joint-weapons-production-philippines

[44] Yannick Smaldore, “Euronaval: Naval Group Confirms Negotiations With The Philippines For Submarine Sale”, Naval News, 19 October 2020, https://www.navalnews.com/event-news/euronaval-2020/2020/10/euronaval-naval-group-confirms-negotiations-with-the-philippines-for-submarine-sale

[45] “Russia, Vietnam agree on simplified Cam Ranh port entry for Russian warships”, TASS, 27 November 2014, https://tass.com/world/763988

[46] I am indebted to Olli Pekka Suorsa at the S. Rajaratnam School of International Studies, Singapore, for this information.

[47] Since 2005, China has conducted 14 bilateral military exercises with Thailand, six with Singapore, five with Cambodia, three with Malaysia, three with Laos, two with Indonesia, one with Brunei and one with Myanmar. Information based on various media reports collected by the author.

[48] “The joint Russian-Vietnamese exercise to assist a submarine in distress will be held in the port of Cam Ranh”, Russian Ministry of Defence, 5 December 2019, https://eng.mil.ru/en/news_page/country/more.htm?id=12265198

[49] Vu Anh, “Russia, Vietnam to hold joint rescue drills in South China Sea”, 21 November 2019, VN Express, https://e.vnexpress.net/news/news/russia-vietnam-to-hold-joint-rescue-drills-in-south-china-sea-4015209.html

[50] “Laros 2019 joint Russian- Laotian exercise”, Russian Ministry of Defence, 10 December 2019, http://eng.mil.ru/en/mission/practice/more.htm?id=12265960

[51] “This year Selenga and Laros international exercises will be held at the military training grounds in Buryatia and Primorye”, Russian Ministry of Defence, 20 July 2020, https://eng.mil.ru/en/news_page/country/more.htm?id=12302964

[52] Prashanth Parameswaran, “New Navy Visit Highlights Russia-Philippines Military Ties”, The Diplomat, 8 January 2019, https://thediplomat.com/2019/01/new-navy-visit-highlights-russia-philippines-military-ties; “Pacific Fleet and Royal Thai Navy holds joint drills in Sea of Japan”, Russian Ministry of Defence, 19 April 2019, http://eng.mil.ru/en/structure/okruga/east/news/more.htm?id=12226405; “Pacific Fleet detachment completes visit to Indonesia”, Russian Ministry of Defence, 17 December 2020, http://eng.mil.ru/en/structure/forces/navy/news/more.htm?id=12330569.

[53] “About 80,000 people to be involved in Kavkaz-2020 military drill”, TASS, 14 September 2020, https://tass.com/defense/1200337

[54] Raissa Robles, “After Philippines scraps US defence pact, Rodrigo Duterte eyes Russian arms”, South China Morning Post, 12 February 2020, https://www.scmp.com/week-asia/politics/article/3050323/duterte-eyes-russian-arms-after-scrapping-us-defence-pact

[55] “Russias PM does not rule out Russia-ASEAN joint naval exercises”, TASS, 3 November 2020, https://tass.com/defense/1086730

[56] Oliver Slow, “Amid Continued Criticism, Myanmar Still Spending Big on Military”, VOA.com, 1 February 2018, https://www.voanews.com/east-asia-pacific/amid-continued-criticism-myanmar-still-spending-big-military

[57] “Thai cadets will study at Russian military universities”, Russkiy Mir, 16 January 2020, https://russkiymir.ru/en/news/267622

[58] Kaewkamol Pitakdumrongkit, “Co-Chairing the ASEAN Defence Ministers’ Meeting-Plus: The Case of the ASEAN Center of Military Medicine (ACMM)”, RSIS Policy Report (March 2020), https://www.rsis.edu.sg/wp-content/uploads/2020/03/PR200309_Co-chairing-the-ASEAN-Defence-Ministers-Meeting_v2.pdf

[59] “Defence cooperation – pillar of Vietnam-Russia relations”, Nahn Dahn, 7 February 2020, https://en.nhandan.org.vn/politics/item/8383902-defence-cooperation-%E2%80%93-pillar-of-vietnam-russia-relations.html

[60] Author’s discussions with Singapore-based Western diplomats in 2019 and 2020.

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2021/32 “Southeast Asia-Japan Ties after Abe and Trump” by Victor Teo

 

Japan’s Prime Minister Yoshihide Suga (R) speaks next to a monitor displaying the virtual meeting with U.S. President Joe Biden (top L), Australia’s Prime Minister Scott Morrison (bottom L) and India’s Prime Minister Narendra Modi during the virtual Quadrilateral Security Dialogue (Quad) meeting, at his official residence in Tokyo on March 12, 2021. Tokyo may lobby certain Southeast Asian countries to join the Quad. Photo: Kiyoshi Ota, POOL, AFP.

EXECUTIVE SUMMARY

  • Prime Minister Suga Yoshihide’s priorities are to combat Covid-19, realign Japan’s supply chains and address the pandemic’s economic fallout. Support for his leadership in the 2021 general elections is contingent on his performance in these areas.
  • With Washington now having an experienced foreign policy and national security team in place, Suga is unlikely to play the same influential role in the US-Japan alliance as Abe did during the Obama and Trump years.
  • Abe’s domestic legacy, along with Japan’s challenging external environment, suggests that Suga is almost certain to continue along his predecessor’s neo-conservative path towards Japan becoming a “normal” state.
  • Tokyo can be expected to intensify its engagement with Southeast Asia, reaffirming the “silent” leadership role it has played in the region, both within and outside the rubric of the US-Japan alliance.
  • Japan will want continued access to Southeast Asia for raw materials, labour, markets, and alternative supply chain locales. Additionally, it will seek to assist the region in building quality infrastructure, fighting the pandemic, and providing an alternative to China’s economic enticements.
  • Tokyo may lobby certain Southeast Asian countries to join the Quad.

* Victor Teo is Project Research Fellow at the Beyond The Cold War Project housed at the University of Cambridge Centre for Research in the Arts, Humanities and Social Sciences. He was Visiting Senior Fellow under the Wang Gungwu Visiting Fellows Programme at ISEAS – Yusof Ishak Institute from 1 September 2020 to 31 December 2020.

INTRODUCTION

Many observers perceive that there will be more continuities than breaks in Japan’s foreign policy under Prime Minister Suga Yoshihide. While largely inheriting the fruits of Abe’s foreign policy achievements, Suga is at the same time constrained by the perimeters of the practices and systemic constraints Abe instituted. Suga’s immediate priorities are to combat the Covid-19 epidemic, realign Japan’s supply chains and cope with the economic fallout from the pandemic. The success of these tasks will determine the level of support for his leadership in the general elections to be held on or before 22 October 2021. As at January 2021 Suga’s approval/disapproval ratings had dropped to 39%/49% respectively in a Yomiuri poll as the pandemic worsened in Japan.[1] Southeast Asia should therefore anticipate some adjustments in Japan’s foreign relations, particularly in tone and rhetoric, and at the same time expect Tokyo’s fundamental concerns and policy trajectory to remain relatively constant.

SHINZO ABE’S LEGACY ON JAPAN POLITICS AND FOREIGN POLICY

Of the 32 Japanese prime ministers[2] since the Second World War, Abe has the distinction of being the longest-serving individual. His unprecedented long political reign enabled him to make a distinctive impact on both Japan’s domestic politics and foreign policy.[3] He arguably achieved an unprecedented consolidation of power[4] in the Kantei (Prime Minister’s office),[5] and successfully shifted Japanese foreign policy towards one premised on neo-realist realpolitik considerations.[6] His achievements mark a watershed departure from postwar Japan foreign policy, with scholars attributing the changes as the “Abe Doctrine”.[7]  The Kantei  Suga inherits is therefore one that has been “turbo-charged” due to his predecessor’s overwhelming success.

Abe’s political longevity has the following domestic characteristics: a political brand-name[8] with a clear conservative policy agenda that appealed to traditional Japanese nationalism[9] as well as a forward looking agenda[10] that the Japanese could identify with and support; shrewd political machinations that reduced traditional pork-barrel factional politics and increased the power of the LDP Party President in electoral politics; and promotion of neo-conservatism through narratives of hope and vision[11] and through the language of democracy. Externally, the North Korea threat[12] and China’s rise have been the most important geopolitical developments that facilitated Abe’s political platform, enabling the prime minister to rein in three important traditional sources of power within the Japanese political ecosystem, i.e. the Japanese media;[13] the bureaucracy;[14] and the fractious Liberal Democratic Party,[15] with more conservative support.[16] Although some commentators have lauded him as a champion for a liberal international order,[17] Abe’s efforts to “normalise” Japan comes at the cost of eroding the institutions that had come to define Japan as a peaceful state in the post-war era.

“NORMALISATION” OF JAPAN’S SECURITY POSTURE UNDER SUGA YOSHIHIDE

Suga has promised to carry on Abe’s work and steer Japan in the same conservative direction as his predecessor. In continuing the narratives and policy adjustments that ensure that Japan stays the course of achieving the “Beautiful Japan” Abe envisaged, Suga will have to keep pandering to the neo-conservative constituency to rally support in the general elections that are to be held by October 2021. For starters, Suga’s national security strategy will need to continue Abe’s legacy in three key areas: (1) Eroding pacifism through the rehabilitation of the use of military force and through remilitarisation; (2) Adapting US-Japan alliance to serve Japan’s needs; and (3) Revising the Constitution.

The erosion of pacifism[18] seeks to socialise Japanese society to the use of military force. For Japan to remilitarise and to undertake a more pro-active (as opposed to reactive/passive) defence posture, and to reacquire the sovereign right to use force like any normal state, it needs to overcome the post-war pacifist norms that have come to define Japan as a nation since 1945.[19] There are two aspects to this. The first involves changing the hearts and minds of ordinary Japanese on the necessity for this transformation. Abe has done an extremely good job in persuading the public of how dangerous the world they live in is and of the need for Japan to remilitarise. The second part is to legalise policy changes that are needed to effect such a normalisation, with Constitutional revision as the ultimate goal.

Today, advocates for remilitarisation can be divided into three broad categories.[20] There are those who seek remilitarisation in order to strengthen the US-Japan alliance (Alliance Supremacists); then there are those who believe that Japan needs a strong military to thrive in the global community (the UN Believers); and finally, there are those who believe that remilitarisation is necessary to ensure Japan’s survival in a new and dangerous world (New Realists). Most, if not all, advocate doing this within the rubric of US-Japan alliance.

Suga will no doubt continue Abe’s legacy in trying to adapt the US-Japan alliance in such a way as to suit Japan’s goals. The key question is whether Japan can continue to do so as an equal partner to the US and not be relegated to junior partner status in the alliance. When he was Chief Cabinet Secretary (2012 till 2020), Suga assisted Abe with a number of initiatives to ensure that Japan could function more effectively as an alliance partner. These included upgrading the Japan Self-Defence Forces (JSDF) to ministry status in 2007;[21] establishing in December 2013 a National Security Council with streamlined bureaucratic and intelligence capabilities; and introducing several legislations to deploy the JSDF to support US-Japan overseas operations, thereby cementing Japan’s right to Collective Defence.[22] Japan’s latest effort is aimed at enhancing the US-Japan alliance by bringing in new partners such as India[23] and Australia[24] to form the Quad dialogue. Suga is likely to continue Abe’s legacy through the institution of Quad plus, possibly by bringing in Southeast Asian partners. 

Without the pandemic, Suga would very likely be already trying to amend the Constitution,[25] which the neo-Conservatives have been pushing for. The Japanese public has been lukewarm so far to their efforts to amend or abolish the Article 9 war-renouncing clause.[26] Regardless of the pushback,[27] Abe himself has expressed regrets that he was unable to meet his goal of amending Article 9 by 2020.[28] A Constitutional amendment first requires two-thirds of the Diet’s votes for the proposed amendments to be approved before it can be put to a referendum.[29] The Diet has been debating a Constitutional Amendment law since 2018, with fierce opposition from left-wing parties such as the Communist Party of Japan. The Covid-19 epidemic has all but stopped the deliberations, but it is likely that the Constitutional amendment law will be voted on sometime in 2021.[30] If this happens, the substance of the actual Constitutional amendment will be discussed during the Suga administration, assuming he is still in power then. Suga is well aware of the difficulty of revising the Constitution, and his appointment of Nobuo Kishi[31] as defense minister is therefore a political masterstroke in more ways than one.[32] At the very least, it is an expression of reverence for his predecessor’s conservative nationalism, political strategy and realpolitik maneuvers, even though it has been widely acknowledged that Suga is not as ideological and nationalistic as Abe.[33]

As Suga has the support of the factions[34] and former Prime Minister Abe,[35] his chances of re-election look good initially with a 74% popularity rating in September 2020. The approval rating for his government on 16th January 2021 fell to around 33% before climbing 5% to 38% a month later in polls conducted by Mainichi Shimbun, the Japanese daily. The failure of Abenomics[36] means that there are lingering doubts whether Suga is the correct long-term choice for Japan. His relative lack of broad-based support within the LDP also works against him. With the deterioration of the socio-economic situation in Japan being attributed fully to the pandemic, the crisis may have given the LDP (and Suga) a respite as the nation looks to a steady hand to guide it through the crisis. If popular support for the LDP falls, or if the current pandemic and economic crisis worsen,[37] he is likely to face a leadership challenge.

Under the Obama and Trump administrations, Japan had played a more active and dominant role in the US-Japan alliance. First, for most of the Obama period, Japan “held the fort” in Southeast Asia while the United States was distracted by the War on Terror.[38] Second, Abe became the intellectual architect[39] of important initiatives within the alliance. Third, because of Abe’s ability to manage the mercurial Trump, he was popularly known as the “Trump whisperer.”[40] To many observers, Abe was the senior statesman in the US-Japan alliance.[41] There was also a perception then that Tokyo had silently replaced the United States as the dominant and reliable power in Southeast Asia. However, with a strong and experienced foreign policy and national security team currently in Washington, the United States is likely to resume the dominant partner role in the US-Japan alliance.

Within Japan, there are those who regard a Democratic administration as likely to be weak on China, and they have reacted to Biden’s win with dismay.[42] The Biden administration does not have much leeway to reverse Trump’s position on China, given how the domestic mood has changed against China. This means that Sino-US tensions will probably remain high, and this would impact on Japan’s own recovery as well. Tokyo has drawn important lessons from its interactions with Trump’s America, and there are indications that Japan may take measures to ensure that it is equipped to deal with the president that United States has, as opposed to the one they want.[43] In this regard, Suga’s government is likely to maintain Abe’s legacy of undertaking a series of pro-active and independent diplomatic and defense initiatives outside of the US-Japan alliance to hedge Japan’s position. Southeast Asia will therefore become more important to Japan in this regard.

IMPLICATIONS FOR JAPAN’S RELATIONS WITH SOUTHEAST ASIA

Japan’s relations with Southeast Asia improved significantly with the introduction of the Fukuda doctrine.[44] Tokyo strengthened its economic linkages[45] and extended Overseas Development Assistance (ODA) to help the Southeast Asian countries grow and prosper.[46] In the post-Cold War world, Japan further expanded its influence by undertaking peacekeeping[47] and peacebuilding operations[48] and stepping up ODA to the region. Under Abe’s stewardship, Southeast Asia became more important to Japan[49] as a political lobby and strategic counterweight[50] to China, particularly in the maritime domain.[51] Suga regards Southeast Asia in the same manner. Like Abe,[52] Suga’s first diplomatic trip as prime minister was to Vietnam and Indonesia, and not to the United States. Japan seeks to strengthen its ties with Southeast Asia to bolster its own security, a realisation underscored by Covid-19 when global supply chains and the flow of critical goods were disrupted due to over-reliance on the Chinese market.

Going forward, Tokyo will seek to further reduce its asymmetric reliance on the Chinese economy. On the one hand, Japan will “delink”[53] its cutting-edge high-tech industries, especially those with dual-use applications, from the Chinese market. On the other hand, it will leverage on China’s growth by strengthening cooperation in non-sensitive sectors. These include producing chemicals, equipment and components for products assembled in China.[54]  With Japan’s two main strategic partners, the United States and India, still mired by the pandemic and the intensifying economic malaise, maintaining access to the Chinese market is now even more important for Tokyo.

Southeast Asia will be a key plank in Tokyo’s market diversification strategy. Even before the pandemic, factories were already adopting a “China + 1” strategy to diversify their risks and reduce dependence on China’s supply chain. Tokyo’s effort to set aside JP¥243.5 billion (US$2.2 billion) in 2020 to help Japanese firms relocate from China to ASEAN countries such as Vietnam, Thailand and the Philippines have borne some fruit.[55] This is on top of the JP¥57.4 billion (US$541 billion) fund that Japan set aside for companies to move out of China to Japan or Southeast Asia.[56] By end 2020, 37 out of 81 Japanese firms had received their government’s subsidies and relocated their factories from China to Vietnam. Thailand was the second popular option, with 19 firms.[57] In 2020, Japan was the sixth largest investor in Vietnam with US$786 million in investment, with 57% of Japanese firms there indicating that they have intention of expanding their operations.[58]

By cultivating closer economic ties with Southeast Asia, Japan strengthens its access to raw materials and labour, and is able to build more resilient supply chains. Conversely, Southeast Asia benefits from the greater employment opportunities and the technologies that Japanese companies bring, thereby boosting their economic growth prospects. Suga has expressed Japan’s interest to engage in a wide variety of bilateral cooperative projects in the region going forward – but the realisation of this is contingent on Japan’s own financial situation after the pandemic.

Most Southeast Asian countries, minus Singapore, Thailand and Brunei, have continued to benefit from Japan’s ODA throughout the pandemic (see Appendix). Other than long-standing items of ODA cooperation in areas such as building infrastructure and economic corridors, Tokyo has been quick to institute pandemic-related aid. Japan’s Covid-19 assistance ranges from extending funding to help the region acquire medical supplies (testing kits) and equipment for its hospitals and training its personnel to fight infectious diseases, to providing financial assistance to local companies to weather the negative impact of Covid-19. The biggest funding packages went to the Philippines, Indonesia, Myanmar and Cambodia.

Unlike China, Japan does not employ vaccine diplomacy in Southeast Asia. This is due to two main reasons. The first is that the Covid rates in Japan were largely contained for most part of 2020. Hence, there was no sufficiently large pool of candidates for the testing of vaccines. The second, and perhaps a more important reason, is that the Japanese are inherently suspicious of vaccines. This is due to past lawsuits related to the side effects of vaccines against the Japanese government.[59] Hence, the government has been extremely cautious in approving the use of vaccines. For instance, even though there were announcements as early as in August 2020 that the anti-viral flu drug “Avigan” developed by Japan’s Fujifilm Holdings would begin clinical trials in The Philippines as a possible Covid-19 treatment drug,[60] the company’s global ambitions were thwarted after government officials deferred approval of the Avigan treatment as a Covid-19 drug in December 2020.[61] In February 2021, Japan finally started to receive the first doses of overseas vaccine, only after Suga bypassed the bureaucracy to secure supplies directly from the drug maker.[62]

In the security realm, Japan has stepped up efforts to persuade Southeast Asian nations of the importance of its conception of a “Free and Open Indo-Pacific” (FOIP) throughout 2020. Tokyo emphasised the importance of the FOIP concept not only to the maritime Southeast Asian states, but also the mainland Southeast Asian countries.[63] Most recently, Japan expressed its concerns over rumors’ surrounding Cambodia’s intention to host a Chinese naval presence in the country.[64]

Beyond maintaining a proactive diplomatic posture, Japan recalibrated its ODA strategy to help selected claimant states improve their maritime capabilities to better monitor China’s activities and defend their respective legal claims in the South China Sea. Japan concluded its first arms export deal in 2020 after the ban on such exports was lifted in 2014 when Mitsubishi Electric announced that it would be supplying early warning radar systems worth JP¥10 billion (US$94.5 million) to The Philippines.[65] Japan is negotiating for items such as planes and vessels to be exported to Vietnam, Indonesia and the Philippines. To reinforce its Free and Open Indo-Pacific strategy, Japan appears to be trying to lobby Southeast Asian states such as Vietnam and The Philippines to become partners of the Quad in the form of a Quad Plus arrangement.[66] This might come through an invitation for an informal dialogue or even an option to join an exercise; the Quad itself is expected to evolve from an informal organization into something formal.

Japan still faces formidable challenges in Southeast Asia. While Japan and Southeast Asia appear to be drawing closer due to their common concerns over China, it does not mean that their common interests will propel them to act in unison against China. In general, the preference of Southeast Asian countries is to be friends with the major and middle powers. Even though they may view Japan more favourably, Tokyo might also find it difficult to sustain the increasing amount of ODA needed, particularly if China’s economic might increases and the needs of the regional countries surge after the pandemic. It is also possible that Japan will enter into another period of revolving door prime ministerships if Suga fails to hold onto power.

Japan’s sustained engagement of Southeast Asia over the last few years was only possible because of Abe’s long reign. The jury is still out on whether Suga will be able to hold onto power and correspondingly deliver the depth of commitment and consistency we saw over the past decade in Japan-Southeast Asia relations.

ISEAS Perspective 2021/32, 17 March 2021.


ENDNOTES

[1] “Japan PM Suga’s approval sinks further on Covid19 pandemic response”, The Straits Times, 18 January 2021, https://www.straitstimes.com/asia/east-asia/japan-pm-sugas-approval-sinks-further-on-covid-19-pandemic-response.

[2] This number excludes “caretaker” prime ministers who were essentially administrator place-holders in between elections. Prime Ministers who left office before returning for a second term are counted once.

[3] Only a few prime ministers can genuinely claim to have an impact on Japan’s foreign policy in a big way: Yoshida Shigeru (introduction of the Yoshida doctrine), Kishi Nobusuke (the revision of US-Japan Security Alliance) Fukuda Takeo (introduction of the Fukuda doctrine) and Koizumi Junichiro (assertive diplomacy that foreshadows Abe’s neo-conservatism).

[4] Kingston, Jeff, “In Japan under Shinzo Abe, more power to the PM, but to what end ?”, The Japan Times, 23 September 2017, https://www.japantimes.co.jp/opinion/2017/09/23/commentary/japan-shinzo-abe-power-pm-end.

[5] The shifting of the centre of power towards the Prime Minister’s office began during Junichiro Koizumi’s tenure when Abe Shinzo was the Chief Cabinet Secretary from October 2005 to September 2006; also see Shinoda, Tomohito, Koizumi Diplomacy, Japan’s Kantei Approach to Foreign and Defense Affairs (Seattle & Washington, University of Washington Press, 12 February 2007). 

[6] Auslin, Michael, Japan’s New Realism: Abe Gets Tough, Foreign Affairs, March/April 2016, pp. 125-134; Envall, David, The “Abe Doctrine”: Japan’s New Regional Realism, International Relations of the Asia-Pacific, vol. 20: 1, 2020: 31-59.

[7] Hughes, Christopher, An “Abe Doctrine” as Japan’s Grand Strategy: New Dynamism or Dead-End? In The Asia-Pacific Journal: Japan Focus, vol. 13, 30: 4, https://apjjf.org/-Christopher-W.-Hughes/4832/article.html.

[8] Jain, Purnendra, Political Dynasties Dominate Japan’s Democracy, Australia and the Region Commentary, vol. 6: 3, March 2018, https://ajrc.crawford.anu.edu.au/department-news/12278/political-dynasties-dominate-japans-democracy.; also see Fackler, Martin, “Japan’s Political Dynasties Come Under fire but prove Resilient”, The New York Times, 14 March 2009, https://www.nytimes.com/2009/03/15/world/asia/15japan.html and Scartonzzi, Cesare, “Hereditary Politics in Japan: A Family Business”, The Diplomat, 9 February 2017, https://thediplomat.com/2017/02/hereditary-politics-in-japan-a-family-business.

[9] Surak, Kristin, “Shinzo Abe and the rise of Japanese nationalism”, New Statesman, 15 May 2019, https://www.newstatesman.com/world/asia/2019/05/shinzo-abe-and-rise-japanese-nationalism.

[10] Koll, Jesper, Abe’s Lesson in Stability and Pragmatism, The Japan Times, 13 September 2019, https://www.japantimes.co.jp/opinion/2019/09/13/commentary/japan-commentary/abes-lesson-stability-pragmatism.

[11] Abe’s most powerful rhetoric is premised upon the “restoration” of Japan to its glory days of the 1970s and 1980s by suggesting the “lost decades” of the 1990s are over, and emphasizing the importance of identity politics including rehabilitating Japan’s wartime past; attacking and sidelining critics and political opponents for “shaming” Japan; and shifting the national discourse to one where the spotlight is on the grandiose future for the Japan that lies ahead.

[12] Hughes, Christopher, “Super-Sizing” the DPRK Threat: Japan’s Evolving Military Posture and North Korea”, Asian Survey (2009), vol. 49,  no. 2, pp 291-311, https://doi.org/10.1525/as.2009.49.2.291.

[13] When he was Koizumi’s Chief Cabinet Secretary, Abe was very attuned to the importance of a savvy media strategy for the government. As prime minister, Abe worked hard to challenge the traditional media whom he perceived to have “bullied” him during his first term. In his second term, he worked assiduously on a comprehensive social media strategy to appeal directly to Conservative voters who perceived that the traditional press had been unfair to Abe.  He has not hesitated to control or intimidate the traditional media by calling them out, enacting reforms or making legislative changes. Abe abolished rotating interviews with different broadcasters, and only granted interviews to those that favoured him. TV news anchors who criticised him were removed, and broadcasters who were found to “unfairly” criticised him were shut down.  See Osaki, Tomohiro, “In Trump-esque fashion, Abe on offensive against Japan’s established media”, The Japan Times, 3 May 2018, https://www.japantimes.co.jp/news/2018/05/03/national/trump-esque-fashion-abe-offensive-japans-established-media. Also see Fackler, Martin, The Silencing of Japan’s Free Press, Foreign Policy, 27 May 2016, https://foreignpolicy.com/2016/05/27/the-silencing-of-japans-free-press-shinzo-abe-media.

[14] Abe was able to reduce the power of the bureaucracy by appointing “representatives” from important ministries as liaison officers to the Kantei. The expansion of the staff of the Chief Cabinet Secretary office was instrumental in shifting important executive decision-making functions to the Kantei. Abe also instituted regular meetings with his key staff to promote smooth communication, and ensured that his agenda was kept simple and focused – a lesson learnt from his first term. He implemented systematic planning and exercised care in personnel arrangement. These reforms ensured his political longevity and accorded him time and space to push for his platform; also see Pugliese, Giulio, “Kantei diplomacy? Japan’s hybrid leadership in foreign and security polity”, The Pacific Review, 2017, vol. 30: 2, pp. 152-168.

[15] Under his tenure, Abe reformed the electoral rules to ensure that lower house elections were more party-centred, and strengthened the power of the party leadership to endorse political candidates and allocate funds. This considerably weakened the candidates, factions and by extension the Genro (party elders), thus allowing the prime minister to make personnel choices with less hindrance. See Tekenaka, Harukata “Reforms and Results: A Look at Abe’s Staying Power as Prime Minister”, 26 December 2018, https://www.nippon.com/en/in-depth/a06201.

[16] Abe managed to increase the number candidates who shared a common ideology in the legislature and executive branches from the Nippon Kaigi. The wholesale adaptation of liberal discourse disguised the number of right-wingers that were (and still are) actually in the government. On the influence of Nippon Kaigi, see McNeill, David, “Growing influence of Japan Conference reflects resent at Tokyo’s postwar settlement with Washington”, The Japan Times, 15 August 2015, https://www.japantimes.co.jp/news/2015/08/15/national/politics-diplomacy/growing-influence-japan-conference-reflects-resentment-tokyos-postwar-settlement-washington.

[17] Solis, Mireya, “Libera Order Undone? Japan’s leadership role after Prime Minister Abe”, Brookings, 14 October 2020, https://www.brookings.edu/events/liberal-order-undone-japans-leadership-role-after-prime-minister-abe.

[18] Soble, Jonathan, Japan’s Leader Has Little Use for Hiroshima’s Lessons of Pacifism, The New York Times, 26 May 2016,  https://www.nytimes.com/2016/05/27/world/asia/japan-obama-abe-constitution.html.

[19] Katzenstein, Peter, The Culture of National Security: Norms and Identity in World Politics (New York: Columbia University Press, 1996).

[20] Sugawa, Kyoshi, “Time to Pop the Cork: Three Scenarios to Refine Japanese Use of Force”, Brookings Institute Working Paper Series, https://www.brookings.edu/research/time-to-pop-the-cork-three-scenarios-to-refine-japanese-use-of-force.

[21] Lies, Elaine, “Japan’s Defense Agency Upgraded to Ministry”, Reuters, 21 January 2007, https://www.reuters.com/article/us-japan-defence-idUST20364020070109.

[22] Spitzer, Kirk, “Japan Ends Ban on Military Self-Defence”, Time, 1 July 2014, https://time.com/2946076/japan-ends-ban-on-military-self-defense.

[23] See Abe’s speech outlining his vision for Japan India cooperation in his “The Confluence of Two Seas” Speech by Shinzo Abe, 22 August 2007, https://www.mofa.go.jp/region/asia-paci/pmv0708/speech-2.html

[24] Shinzo Abe, “Asia’s Democratic Security Diamond”, 27 December 2012, https://www.project-syndicate.org/onpoint/a-strategic-alliance-for-japan-and-india-by-shinzo-abe.

[25] Rich, Motoko, Shinzo Abe announces plan to revise Japan’s Pacifist Constitution, 3 May 2017, https://www.nytimes.com/2017/05/03/world/asia/japan-constitution-shinzo-abe-military.html.

[26] The LDP has since 2017 convened committees to look at proposals to amend the Constitution in four main areas: (1) revisions to mention the SDF; (2) to enhance free education;(3) to better deal with national emergency situations, and (4) to end a controversial measure to treat two prefectures as one electoral district as a way to address vote weight disparities created by population differences. This took place after Abe successfully passed Japan’s security legislation in 2016. “LDP to focus on 4 areas in crafting Constitution amendment proposal”, Kyodo News Agency, 6 June 2017, https://english.kyodonews.net/news/2017/06/4a0a597af02a-update1-ldp-to-focus-on-4-areas-in-crafting-constitution-amendment-proposal.html.

[27] While the challenging external environment facing Japan has facilitated the neo-Conservative agenda, Abe’s and Suga’s efforts to eradicate resistance and tame the domestic debate have often been met with resistance, particularly from the Japanese media. For instance, Abe has long sought to challenge and suppress the traditional media (such as Asahi Shimbun) for “hurting” the image of Japan by failing to remain “neutral” in terms of highlighting “only one aspect of a polarizing issue”[referring to the comfort women issue] or for focusing on scandals linked to him. Likewise, Suga as Chief Cabinet Secretary has had a combative relationship with the press. Japan has dropped from 22nd to 66th position in the Reporters without Borders Press Freedom Index. Suga is not viewed as a favourable candidate to improve press freedom. See “A media adversary’s long battle with Japan’s new Prime Minister Suga Yoshihide”, Global Voices, 27 September 2020,  https://globalvoices.org/2020/09/27/a-media-adversarys-long-battle-with-japans-new-prime-minister-suga-yoshihide; Japan’s Press freedom saw a sharp drop; Global Journalist Blog, 14 February 2013, https://globaljournalist.org/2013/02/japans-press-freedom-saw-a-sharp-drop; also see Sekiguchi, Toko, “Japan Slips in Press Freedom Ranking”, The Wall Street Journal, 13 February 2015, https://www-wsj-com.ezp.lib.cam.ac.uk/articles/BL-JRTB-19218 .

[28] “Abe laments missing goal of amending Japan’s Constitution by 2020”, The Japan Times, 3 May 2020,  https://www.japantimes.co.jp/news/2020/05/03/national/politics-diplomacy/japan-shinzo-abe-amending-constitution-2020 .

[29] Nishimura, Rintard, “Now’s not the time to debate constitutional revisionism”, The Japan Times, 13 May 2020, https://www.japantimes.co.jp/opinion/2020/05/13/commentary/japan-commentary/nows-not-time-debate-constitutional-revision.

[30] This law essentially covers topics such as revisions allowing the establishment of polling stations in commercial facilities when holding a referendum on constitutional revision, making it easier to vote. “Japan parties agree to vote on amendments to national referendum law early next year”, The Japan News, 2December 2020, https://the-japan-news.com/news/article/0006970225 .

[31] Nubuo Kishi is actually the younger brother of Shinzo Abe, but was given away for adoption to his maternal uncle’s family. The younger Kishi grew up with his grandfather Nobusuke Kishi who was purportedly close to Chiang Kai-shek, but remained out of politics for the first part of his career. Kishi is quintessentially a neo-Conservative, pro-Taiwan, and advocates military first-strike capabilities and Constitutional amendments. His appointment reassures neo-Conservatives, rallies political support for Suga, pays homage to former PM Kishi and Abe, and perhaps even allows Suga to continue to govern whilst diluting Abe’s influence.  See “Nobuo Kishi, Abe’s younger brother, seeks to carve out new role as Japan’s defense chief” The Japan Times, 17 September 2020, https://www.japantimes.co.jp/news/2020/09/17/national/politics-diplomacy/nobuo-kishi-defense-chief-abe.

[32] As Chief Cabinet Secretary, Suga was widely seen to be the more pragmatic and less ideological than Abe, and close to pro-China LDP Sec-General Nikai. As prime minister, Suga will need to dispel the impression that he is pro-China. Given that Suga himself does not come from a political dynasty or enjoy broad-based support in the party, and that any potential prime minister would need to court the support of the Conservative forces, his appointment of Kishi is intended to galvanise political support and reassure those constituencies. Besides, if the constitutional revision fails to materialise, it would be difficult for Suga to be blamed if Kishi was involved. There is also the possibility that in appointing his brother, Abe might be required to keep a distance from policy making for proprietary reasons, thus giving Suga more political latitude.

[33] The Suga administration is also likely to strive for a Peace Treaty with Russia and continue to try to repatriate the Japanese hostages from the DPRK, although they might be on the backburner given current circumstances. Abe has indicated that these two objectives along with Constitutional revision were important goals he was not able to achieve before leaving office.

[34] Eric Johnston, Two LDP factions face uncertain future after losing race to Suga, The Japan Times, 28 October 2020, https://www.japantimes.co.jp/news/2020/10/28/national/politics-diplomacy/japan-losing-ldp-factions-future.

[35]  “Election win would extend Suga’s reign, says ex-boss Abe “ Kyodo News Agency, 12 Nov 2020, https://www.japantimes.co.jp/news/2020/10/28/national/politics-diplomacy/japan-losing-ldp-factions-future https://english.kyodonews.net/news/2020/11/9362d2a369ce-election-win-would-extend-sugas-reign-says-ex-boss-abe.html.

[36] Clark, Gregory, “Problems with Abenomics”, The Japan Times, 28 February 2014, https://www.japantimes.co.jp/opinion/2014/02/28/commentary/world-commentary/problems-with-abenomics.

[37] Robert Harding, Japan after Abe: Suga aims to consolidate power, Financial Times, 15 September 2020, https://www.ft.com/content/692fef7a-41c4-4599-bc6a-9678e04e3a57.

[38] Khong, Yuen Foong, “Who will replace the US in Southeast Asia?”, East Asia Forum, 6 September 2017, https://www.eastasiaforum.org/2017/09/06/who-will-replace-the-us-in-southeast-asia.

[39] In Abe’s first term, he came up with the idea of values-based diplomacy and he further proposed an “arc of democracy” that links Japan to “like-minded states” in Southeast Asia, India and even Russia, excluding China. See “Japan’s Values-oriented diplomacy”, The New York Times, 21 March 2007, https://www.nytimes.com/2007/03/21/opinion/21iht-edfouse.4978402.html; This idea of an “arc of democracy” evolved to become the basis of the Quad. Shinzo Abe was also instrumental helping India move closer to the United States in order for the vision to materialise.

[40] Glosserman, Brad, “What Abe Leaves Behind for Japan and the World”, 29 August 2014, https://www.japantimes.co.jp/opinion/2020/08/29/commentary/japan-commentary/shinzo-abe-japan-achievements.

[41] Teo, Victor, “Recalibrating Japan’s Foreign Policy” in Japan’s Arduous Rejuvenation as a Global Power: Democratic Resilience and the US-China Challenge, (London, New York and Singapore, Palgrave Macmillan), pp. 195-223.

[42] For instance, Haruo Kitamura said on national TV, “From FDR to Truman to Obama, nothing great happens to Japan under a Democratic president … At least Trump brought up the North Korean abductees at the U.N”, just as Taro Kimura commented: “We will be in big trouble when Biden wins, because he will suck up to China”. Quoted in Sposato, William, “Some in Japan are already missing Trump”, Foreign Policy, 5 November 2020, https://foreignpolicy.com/2020/11/05/japan-conservatives-biden-trump.

[43] Nakayama, Toshihiro, “US Foreign Policy Following Biden’s Win: Japan’s Response and the Changes to Expect”, Nippon, 16 November 2020, https://www.nippon.com/en/in-depth/d00651.

[44] Yano, Toru. “The Fukuda Doctrine” and its Implications for Southeast Asia: A Japanese Perspective” Southeast Asian Affairs, 1978, 60-64, http://www.jstor.org.ezp.lib.cam.ac.uk/stable/27908336.

[45] Rudner, Martin, Japanese Official Developmental Assistance to Southeast Asia, Modern Asian Studies, vol. 23, no. 1 (1989), pp. 73-116.

[46] Sudo, Sueo. “The Road to Becoming a Regional Leader: Japanese Attempts in Southeast Asia, 1975-1980.” Pacific Affairs, vol. 61, no. 1, 1988, pp. 27–50. https://www-jstor-org.ezp.lib.cam.ac.uk/stable/2758071.

[47] Lam, Peng-er, “Japan’s Search for a Political role in Southeast Asia”, Southeast Asian Affairs, 1996, pp. 40-45.

[48] Lam, Peng-er, “Japan’s Peace-Building Diplomacy: Seeking a more active political role” (London and New York: Routledge, 2009).

[49] Arase, David, “Japan’s Strategic Balancing Act in Southeast Asia”, Perspective Issue 2019, No. 94, 12 November 2019, /images/pdf/ISEAS_Perspective_2019_94.pdf.

[50] Aizawa, Nobuhiro, “Resolved: Japan Is Well-positioned to Counterbalance China in Southeast Asia”, CSIS Debating Japan vol. 3, no. 5, 1 July 2020,  https://www.csis.org/analysis/resolved-japan-well-positioned-counterbalance-china-southeast-asia.

[51] Milford, Paul, “Japan’s approach to Maritime Security in the South China Sea”, Asian Survey vol. 55, no. 3 (May/June 2015), pp. 525-547; https://online-ucpress-edu.ezp.lib.cam.ac.uk/as/article/55/3/525/24805/Japan-s-Approach-to-Maritime-Security-in-the-South.

[52] In 2012, after he was elected for the second time, Abe chose to visit the Southeast Asian countries of Vietnam, Indonesia and Thailand in his first trip abroad as prime minister. In his first term, Abe chose to first visit the United States. See Bhuhindar Singh, “Abe’s First Overseas Trip: Why Southeast Asia?”, 14 January 2013,  https://www.rsis.edu.sg/rsis-publication/idss/1896-abes-first-overseas-trip-why.

[53] “Japanese Business Rethink High Tech Deals with China”, Nikkei Asia 3 September 2020,  https://asia.nikkei.com/Politics/International-relations/US-China-tensions/Japanese-business-rethinks-high-tech-deals-with-China.

[54] “Japan exports fall 15% in August as coronavirus pandemic pummels trade” Business Standard, 16 September 2020, https://www.business-standard.com/article/international/japan-exports-fall-15-in-august-as-coronavirus-pandemic-pummels-trade-120091600369_1.html.

[55] Shin Oya, Establishing Resistance to Overseas Influence, The Japan Times, 27 September 2020, https://www.japantimes.co.jp/opinion/2020/09/27/commentary/world-commentary/establishing-resistance-overseas-influence.

[56] “Japan to spend over $500 million for Japanese companies to exit China, 87 companies lined up”, The Daily Haunt News, 20 July 2020, https://m.dailyhunt.in/news/africa/english/udayavani+english-epaper-udayaeng/japan+to+spend+over+500+million+for+japanese+companies+to+exit+china+87+companies+lined+up-newsid-n200152100.

[57]  “More Japanese firms opt for Vietnam after China”, VNExpress, 22 December 2020, https://e.vnexpress.net/news/business/companies/more-japanese-firms-opt-for-vietnam-after-china-4210051.html.

[58] Nguyen Quy, “57 percent of Japanese firms in Vietnam plan to expand”, The Vietnam Express, 9 February 2021 https://e.vnexpress.net/news/business/economy/57-pct-of-japanese-firms-in-vietnam-plan-to-expand-4233140.html.

[59] Lisa Du and Grace Huang, “Japan’s Bitter Vaccine history creates hurdle in Covid19 Fight”, The Japan Times, 23 December 2020, https://www.japantimes.co.jp/news/2020/12/23/national/japan-vaccine-history-coronavirus.

[60] Claire Jiao, “Philippines to Begin Clinical Trials for Japan’s Virus Drug”, Bloomberg, 12 August 2020, https://www.bloomberg.com/news/articles/2020-08-12/philippines-set-to-begin-clinical-trials-for-japan-s-virus-drug.

[61]  “Fujifilm’s Avigan hopes hit after Japan puts COVID drug on hold”, Nikkei Asia, 22 December 2020, https://asia.nikkei.com/Business/Pharmaceuticals/Fujifilm-s-Avigan-hopes-hit-after-Japan-puts-COVID-drug-on-hold.

[62] Shunsege  Shigeta, “How Japan’s PM bypassed health ministry to secure Pfizer vaccine” Nikkei Asia, 5 January 2021, https://asia.nikkei.com/Spotlight/Coronavirus/How-Japan-s-PM-bypassed-health-ministry-to-secure-Pfizer-vaccine.

[63] In 2018, Foreign Minister Kono for instance contextualized his plans to help Myanmar strive for democracy, progress in the peace process, and economic development under Japan’s “Free and Open India-Pacific Strategy”. See Kono Toro, “Japan will support the peace building efforts in Myanmar to the best of its abilities: Mr. Toro Kono”, The Global New Light Myanmar News, 13 Jan 2018,https://www.mofa.go.jp/mofaj/files/000324784.pdf

[64]  “US, Japan ‘Watch In Horror’ As China On Verge On Developing Another Military Base In The SCS?”, The Eurasian Times, 17 Feb 2021, https://eurasiantimes.com/us-japan-watch-in-horror-as-china-on-verge-on-developing-another-critical-naval-base-in-scs.

[65] Daishi Abe, “Philippines radar deal marks Japan’s first arms export”, Nikkei Asia, 29 August 2020, https://asia.nikkei.com/Business/Aerospace-Defense/Philippines-radar-deal-marks-Japan-s-first-arms-export.

[66] SD Pradhan, “Japanese PM’s Visit to Vietnam: An Assessment”, The Times of India, 19 October 2020; https://timesofindia.indiatimes.com/blogs/ChanakyaCode/japanese-pms-visit-to-vietnam-an-assessment.

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2021/31 “Vietnam-Japan Relations: Growing Importance in Each Other’s Eyes” by Huynh Tam Sang

 


Japan’s Prime Minister Suga’s visit further accelerates Japan’s strategy of looking at Vietnam as an “attractive alternate destination for Japanese companies exiting China”, which has been in the works for some time. Here, Japan’s Prime Minister Yoshihide Suga (3rd L) and his Vietnamese counterpart Nguyen Xuan Phuc (2nd R) visit the late President Ho Chi Minh’s Stilt House in Hanoi on October 19, 2020. Photo: Minh HOANG, POOL, AFP.

EXECUTIVE SUMMARY

  • Japan’s economic and security concerns are becoming increasingly intertwined with those of Southeast Asia.
  • Tokyo sees Vietnam as the gateway for projecting its influence in Southeast Asia, especially after Vietnam’s reputation improved due to its promotion of ASEAN centrality during its 2020 term as ASEAN chair.
  • In the Sino-Japan struggle for economic leadership in Southeast Asia, China currently has the upper hand. Japan can buttress its role in the region by strengthening economic ties with Vietnam and other ASEAN member states.
  • Japan seeks to bolster its security and defence relationship with Vietnam, and does not rule out the possibility of Vietnam joining the Indo-Pacific ‘Quadrilateral’ arrangement.
  • In turn, Vietnam can be expected to work more with Japan to further consolidate its omni-directional foreign policy, especially at a time when Japan is directing more of its attention to Southeast Asia.

* Guest writer, Huynh Tam Sang, is Lecturer at the Faculty of International Relations and Research Fellow of Center for International Studies, University of Social Sciences and Humanities in Ho Chi Minh City, Vietnam. He is also a member of the International Relations Studies Research Group, Ho Chi Minh City University of Foreign Languages and Information Technology.

INTRODUCTION

During his December 2013 visits to Vietnam, Thailand and Indonesia, former Japanese Prime Minister Shinzo Abe, said that strengthening Japan’s relations with the countries of ASEAN is “indispensable for the peace and prosperity of the region while also being in  Japan’s national interests”.[1] Seven years later, Suga’s overseas debut in Vietnam and Indonesia in October 2020 as prime minister reiterated Japan’s ambition to strengthen ties with Southeast Asia in general and with Vietnam in particular.

Even before Covid-19 struck, Japan had been striving to lessen its economic dependence on China. The pandemic accelerated this process with Japan enhancing economic cooperation with Vietnam and diversifying its supply chains there.[2] This should bolster Japan’s economic presence in Vietnam and facilitate Tokyo’s deeper economic engagement with Southeast Asia. At the same time, Japan is also keen to strengthen defence ties with Vietnam.

On its part, Vietnam is eager to boost ties with Japan in a reaffirmation of its omni-directional foreign policy. To some extent, it is also concerned with the rising tensions between the United States and China, especially the impact on smaller countries such as Vietnam. In addition, Japan’s and Vietnam’s territorial and maritime disputes with China and their complex interactions with Beijing have contributed significantly to rising anxiety in Tokyo and Hanoi about living “in a new Sino-centric order”.[3]

JAPAN FORGING ECONOMIC TIES WITH VIETNAM

Japan has been strengthening its economic ties with Vietnam over the years. In fact, it was the first G7 country to recognise Vietnam’s market economy status in 2011. The Vietnam-Japan Economic Partnership Agreement (VJEPA) signed in December 2008 (and which came into effect in October 2009) provides a framework to promote trade and investment between the two countries.[4] The ASEAN-Japan Comprehensive Economic Partnership (AJCEP) between Japan and the five ASEAN members (Laos, Myanmar, Singapore, Thailand, and Vietnam) implemented in December 2008 and amended in August 2020 further expands the areas of cooperation between Japan and ASEAN.[5] These two frameworks created favorable conditions for forging Vietnam-Japan’s economic ties.

Apart from the above institutional arrangements, Japan and Vietnam have benefitted from the complementary and non-competitive structure of their two economies.[6] Among the 136 nations and territories investing in Vietnam, Japan is the biggest official development assistance (ODA) provider, at nearly US$24 billion in 2019; the second-biggest investor with US$1.73 billion in the first three quarters of 2020; and the fourth largest commercial partner with US$28.6 billion in two-way trade turnover between January and September 2020. As of September 2020, Japan had invested in about 4,600 FDI projects in Vietnam, with a total registered capital of about US$60 billion.[7]

Bilateral economic ties were given a boost during Suga’s visit. The two countries agreed to resume two-way commercial flights early and implement a “business track” that would allow short-term business travels of executives and workers without a mandatory 14-day quarantine.[8] Suga further expressed Japan’s support for Vietnam’s effort to develop an e-government system,[9] reaffirming Japan’s earlier offer in January 2020 to share its experience and provide information technology equipment worth 500 million yen in ODA to develop such a system.[10]

Suga’s visit further accelerates Japan’s strategy of looking at Vietnam as an “attractive alternate destination for Japanese companies exiting China”, which has been in the works for some time.[11] Amid the economic turmoil caused by Covid-19, Japan had earlier earmarked 23.5 billion yen as a stimulus package for its companies seeking to shift production to Southeast Asian countries.[12] Due to its effective containment of Covid-19,[13] cheap labour and stable politics, Vietnam has emerged as one of the biggest beneficiaries of the US-China trade war, especially as businesses look to relocate their operations.[14] In his meeting with Suga, Vietnamese Prime Minister Nguyen Xuan Phuc expressed Vietnam’s readiness to support Japanese investments, with a plan to accommodate its real estate and human resource needs.[15]

In a 2019 online survey, conducted by NNA Japan Co., Japanese firms valued Vietnam as the most preferred destination in Asia to invest in 2020 due to its potential, such as “a growing market and large supply of skilled, low-cost labor”, and its proximity to China.[16] According to another 2019 survey by Japan External Trade Organisation on Japanese companies investing in Asia and Oceania, 63.9 percent of Japanese enterprises doing business in Vietnam are committed to augmenting their businesses in the next one to two years, the highest rate in ASEAN and the third in the Asia-Oceania region.[17]

Vietnam’s GDP growth was estimated at 2.12% for the first 9-month period of 2020, “the lowest 9-month growth rate in the past ten years” due to the pandemic.[18] This growth rate is still commendable since most other ASEAN countries are grappling with negative growth. Japanese firms faring pretty well or being less hurt from Covid-19 could consider pumping more capital into Vietnam to capitalise on the country’s relatively strong economic fundamentals.[19] During Suga’s visit to Vietnam, Tokyo Gas Co., Marubeni Corp. and PetroVietnam Power Corp. signed two memoranda of understanding (MoU) to develop gas-fired power projects in Quang Ninh Province and Can Tho City.[20] The first MOU by Tokyo Gas Co., Marubeni Corp. and PetroVietnam Power Corp. involves building a US$1.9-billion-plant for imported liquefied natural gas and is scheduled for commercial operation in 2026-2027. The second MOU involves Marubeni building a US$1.3billion gas-fired power plant, which is expected to be completed in the fourth quarter of 2021 and be ready for trading operations in December 2025.[21] These two plants, when ready, would help augment Vietnam’s increasing energy needs and to some extent make up for Hanoi’s current “declining gas production and offshore exploration challenges in the South China Sea amid territorial disagreements with Beijing”.[22]

Once the biggest foreign investor in Vietnam (in 2018), Japan sank to fourth place in the first nine months of 2020, overtaken by Singapore, South Korea and China, respectively.[23] The slow decision-making process of Japanese executives accounted for the delay in the Japanese companies’ outreach to Vietnam. Japan’s fall behind more “agile rivals” such a South Korea and China has been due to the phenomenon of local Japanese representative offices having minimal authority in making big decisions, and the travel restrictions in place as a result of Covid-19 slowing down decision-making further.[24] A possible solution to expedite Japanese investment into Vietnam is for the Japanese government to provide more effective support.[25] On their part, Japanese companies must speed up its decision-making processes to seize the opportunities that Suga’s visit underscore.

On Vietnam’s part, it needs to proactively come up with favourable policies, notably in the fields of infrastructure and human resources, to attract relevant investments to help upgrade and restructure its economy.[26] Currently, Vietnam relies heavily on overseas materials, as its industry mainly deals with processing and assembly processes. Its local enterprises are eager for “advanced governance experience and technologies of foreign partners from developed nations” to raise the quality of its exports.[27] Vietnam can do more to capture Japanese FDI shifting out from China. Such inflows can provide Vietnam with modern technology and technique to elevate the level of its economic development.

AGAINST THE BACKDROP OF CHINA’S RISE


Since 2012, the Japan-Vietnam defence and security relationship has improved due to China’s increased belligerence in the East and South China Seas. A shared concern on China’s territorial ambitions has prompted Vietnam to adopt a soft balancing strategy against China, with Japan emerging as one of its “best and most powerful friends in Asia”.[28] Meanwhile, Japan has embarked on a “more self-reliant course in defense and diplomacy”[29] by promoting a more vigorous outreach to expand its strategic networks with Southeast Asian countries, with Vietnam as an anchor.

In August 2013, Vietnam and Japan held their second Defence Policy Dialogue in Tokyo,[30] which was much more significant than the first one in 2012 since it led to both sides agreeing to hold their vice-ministerial level meeting on an annual basis.[31] At the same meeting, the two countries underscored the importance of international law, specifically the United Nations Convention on the Law of the Sea (UNCLOS), in resolving “disputes and differences on sea and island sovereignty issues” and reached an agreement on mutual support regarding marine research and capacity building.[32] Shinzo Abe had identified in January 2013 that “ensuring that the seas, which are the most vital commons to us all, are governed by laws and rules, not by might” as one of the five key principles of Japan’s diplomacy.[33]

There was also closer navy-to-navy cooperation. In July 2013, for the first time, the Kojima, a training vessel from the Japanese Coast Guard (JCG), docked at Tien Sa Port of Da Nang for a five-day visit.[34] Though Vietnam and Japan’s coast guards have maintained a cooperative relationship since 2000, the JCG visit to Da Nang was crucial since it occurred after Japan’s 2012 nationalisation of the Senkaku Islands in the East China Sea (which significantly strained Sino-Japanese relations). Since then, Japan has stepped up naval ship visits to Vietnam.[35]

In 2014, Japan transferred six used patrol vessels to Vietnam worth US$5 million, nearly two weeks after the oil rig standoff between Vietnam and China in the Paracel Islands. Given Japan’s own disputes with China over the Senkaku Islands, Japan’s offer was equivalent to an “alignment” of sorts with Vietnam.[36] In September 2015, Vietnam and Japan signed a separate deal, laying a foundation for Tokyo to sell more naval vessels to Vietnam in the future.[37]

Both countries further strengthened their defence and security ties with a deal worth $350 million in June 2017 to upgrade Vietnam’s coast guard vessels and patrol capabilities. With a shared “deep concern over the complex developments” involving Beijing in the South China Sea, Abe and his Vietnamese counterpart Nguyen Xuan Phuc affirmed then that Tokyo’s maritime material and technology transfer to Hanoi was designed to strengthen “a free and open international order based on the rule of law”.[38]

In September 2018, the docking of Japan’s Maritime Self-Defense Force submarine Kuroshio at Cam Ranh International Port while carrying out its first submarine drill in the South China Sea was significant for a number of reasons.[39] First, Japan’s first submarine visit to Vietnam indicated Tokyo’s intention for firmer defence cooperation with Hanoi. Second, it portrayed a sort of informal security alignment between the two like-minded states, with Vietnam viewing Japan as a strategic partner in its “omnidirectional foreign policy”, and Japan viewing Hanoi as a “key node in its greater engagement of Southeast Asia and as part of its own Indo-Pacific strategy”.[40]

In October 2019, the Japanese Defence Minister Takeshi Iwaya and his Vietnamese counterpart, Ngo Xuan Lich, signed another “defence cooperation and exchange” memorandum that “prescribed regular vice-ministerial level talks” and facilitated more Japanese ports-of-call in Vietnam.[41] In March 2020, Japan agreed to transfer military shipbuilding technology to Vietnam, continue high-level defence contacts, and strengthen ties between the Vietnamese Army and Japan’s Ground Self-Defense Force.[42]

In July 2020, the Japan International Cooperation Agency inked a loan agreement with the Vietnamese government to provide Vietnam with six coast guard patrol boats worth $345 million.[43] The project was “the first maritime patrol ship deal” between Tokyo and Hanoi,[44] pledged by Abe in 2016,[45] and will “provide the Vietnam Coast Guard with financing to procure vessels, supporting an improvement in maritime rescue operations and maritime law enforcement”.[46]

During his October 2020 visit, Suga went further to promise in principle to transfer defence gear and technology to Vietnam, including patrol planes and radar.[47] Suga described this as a “big step in the field of security for both countries”,[48] especially in improving Vietnam’s surveillance capabilities. This also benefits Japan. Since its embargo on arms exports[49] was lifted in 2014,[50] it has been seeking to promote its indigenous military weaponry and naval assets production to overseas markets due to its small domestic market,[51] a thrust clearly stated in its 2020 Defense White Paper.[52]

Seeking to identify with Vietnam’s concerns about Chinese behaviour,[53] Suga said in his remarks at the Vietnam-Japan University[54] that “Japan is strongly opposed to any actions that escalate tensions in the South China Sea” and that Japan has been “consistently supporting the preservation of the rule of law in the seas”.[55] Suga echoed the position adopted by Abe in his 2013 Vietnam visit, who had similarly stressed that both countries “would oppose changing the status quo with force in the South China Sea and that the rule of law, including related international laws, was essential”.[56] However, Suga apparently went further by stressing Japan’s opposition to actions that “escalate tensions” in the regional waters. His criticism of against-the-law actions was regarded as a “veiled attack” against China.[57] Even though China was not specifically mentioned, it was clear that Beijing was the “elephant in the room” and that Vietnam is “crucial to achieving Japan’s vision for the Free and Open Indo-Pacific (FOIP) initiative”.[58]

VIETNAM AS A POTENTIAL QUAD-PLUS MEMBER?

Apart from Vietnam being regarded as the “cornerstone” of Japan’s efforts to realise a Free and Open Indo-Pacific,[59] there are indications that Japan is open to the idea of Vietnam being part of an expanded Quadrilateral grouping beyond the original four of Australia, India, Japan and the United States.

In response to a media query on whether the Quad should include other members, the Japanese Minister for Foreign Affairs Motegi Toshimitsu said in October 2020 that Japan’s FOIP framework allows “participation by all countries that share basic values such as freedom, democracy, the rule of law, and freedom of navigation”, while adding that the ASEAN Outlook on the Indo-Pacific (AOIP) appears to share the same values and concepts.[60] In other words, Japan seems open to the participation of countries such as Vietnam as long as they subscribe to certain basic values and shared rules.

The United States seems to share Japan’s thinking as well. Just before the second Quad ministerial-level meeting in Tokyo in October 2020 (less than two weeks before Suga’s Vietnam visit), then US Secretary of State Mike Pompeo discussed the possibility of institutionalising the Quad network. Once this was done, Pompeo suggested that other countries could become part of this network at “the appropriate time”.

Given Vietnam’s strategic importance in the American efforts to counter China, as evinced by the visits of Pompeo and US National Security Adviser Robert O’Brien to the country in October and November 2020 respectively, it is very likely that the United States will seek Vietnam’s involvement should a Quad-Plus arrangement materialise.

On Vietnam’s part, there is a new-found sense of confidence given the leadership’s commendable efforts in containing the spread of Covid-19 and maintaining economic growth despite the global slowdown.[61] Hanoi appears to welcome more engagement with the United States and Japan, amid growing concerns over China’s assertiveness in the region. In particular, Vietnam stated in its 2019 Defense White Paper that it is “ready to participate in security and defense cooperation mechanisms suitable to its capabilities and interests, including security and defense mechanisms in the Indo-Pacific region”.[62] Vietnam seems to be dangling the possibility of joining a regional security framework to increase its leverage against China.

However, Vietnam has refrained from committing to any specific grouping as it is not in Hanoi’s interests to be seen as ganging up with other countries against China. In the same 2019 Defense White Paper, Vietnam reaffirmed its policy of not entering into any military alliance, avoiding any alliances with other countries to counter another country, and barring foreign military bases in Vietnam.[63] While trying to avoid antagonising China, Vietnam is conveying an implicit message that it may be compelled to embrace a Quad-Plus framework if Chinese actions were to leave Hanoi with little maneuvering space.

CONCLUSION

Suga has largely followed in the footsteps of his predecessor Shinzo Abe to strengthen ties with Southeast Asia, with particular attention on Vietnam. This desire to forge closer and deeper ties with Vietnam is likely to be hastened by broader geostrategic trends, especially the US-China competition. The diversification of Japanese supply chains from China to Southeast Asia would also pave the way for closer economic cooperation between Japan and Vietnam.[64] This will help Japan consolidate and enhance its defence and security ties with Vietnam, although both countries have been careful not to position these moves as being directed against any third country.

ISEAS Perspective 2021/31, 16 March 2021.


ENDNOTES

[1] Prime Minister of Japan and His Cabinet, “Policy Speech by Prime Minister Shinzo Abe to the 183rd Session of the Diet,” 28 January 2013, https://japan.kantei.go.jp/96_abe/statement/201301/28syosin_e.html

[2] Hau Dinh and Mari Yamaguchi, “Japan, Vietnam agree to boost defense ties, resume flights,” AP News, 19 October 2020, https://apnews.com/article/global-trade-yoshihide-suga-south-china-sea-hanoi-asia-0eaf782e0b27aab73cad46d6cb353e37

[3] Hanh Nguyen, “Post-Abe, Vietnam-Japan Relations Have Nowhere to Go But Up,” The Diplomat, 11 September 2020, https://thediplomat.com/2020/09/post-abe-vietnam-japan-relations-have-nowhere-to-go-but-up/

[4] See “Vietnam-Japan Economic Partnership Agreement (VJEPA),” Vietnam Chamber of Commerce and Industry (VCCI), 2 December 2015, https://wtocenter.vn/chuyen-de/12772-full-text-of-vietnam-japan-economic-partnership-agreement-vjepa

[5] See Trinh Nguyen, “Protocol Amending AJCEP Comes Into Effect: What It Means for Investors in Vietnam,” Vietnam Briefing, 17 August 2020, https://www.vietnam-briefing.com/news/protocol-amending-ajcep-in-effect-what-it-means-for-investors-vietnam.html/

[6] Japan is Vietnam’s large importer of seafood, textiles and garments, leather and footwear, and processed foods, while Vietnam benefits from Japan’s machinery, equipment and materials for production. Nguyen Hoa, “Vietnam eyes Japan market potential for its exports,” Vietnam Economic News, 15 March 2018, http://ven.vn/vietnam-eyes-japan-market-potential-for-its-exports-31269.html

[7] Viet Anh, “New Japanese PM Suga to arrive in Vietnam Sunday,” VN Express, 16 October 2020, https://e.vnexpress.net/news/news/new-japanese-pm-suga-to-arrive-in-vietnam-sunday-4177847.html

[8] Việt Nam News, “VN, Japan agree on quarantine-free procedures for short-term entries,” 21 October 2020, https://vietnamnews.vn/politics-laws/803710/vn-japan-agree-on-quarantine-free-procedures-for-short-term-entries.html

[9] Ngoc Thuy, “Vietnam, Japan to boost cooperation in innovation,” Hanoi Times, 20 October 2020, http://hanoitimes.vn/vietnam-japan-to-boost-cooperation-in-innovation-314564.html

[10] Nippon, “Japan, Vietnam Agree to Boost 5G Cooperation, 9 January 2020, https://www.nippon.com/en/news/yjj2020010901250/japan-vietnam-agree-to-boost-5g-cooperation.html

[11] Jagannath Panda, “[Asia’s Next Page] Evolving Focus: Japan Sees Vietnam’s Role in a Free and Open Indo-Pacific,” Japan Forward, 26 October 2020, https://japan-forward.com/asias-next-page-evolving-focus-japan-sees-vietnams-role-in-a-free-and-open-indo-pacific/

[12] Isabel Reynolds and Emi Urabe, “Japan to Fund Firms to Shift Production Out of China,” Bloomberg, 8 April 2020, https://www.bloomberg.com/news/articles/2020-04-08/japan-to-fund-firms-to-shift-production-out-of-china

[13] Era Dabla-Norris, Anne-Marie Gulde-Wolf, and Francois Painchaud, “Vietnam’s Success in Containing COVID-19 Offers Roadmap for Other Developing Countries,” International Monetary Fund, 29 June 2020, https://www.imf.org/en/News/Articles/2020/06/29/na062920-vietnams-success-in-containing-covid19-offers-roadmap-for-other-developing-countries

[14] Charlotte Gifford, “Top 5 countries poised to become the world’s next manufacturing hub,” World Finance, 21 September 2020, https://www.worldfinance.com/home/top-5/top-5-countries-poised-to-become-the-worlds-next-manufacturing-hub

[15] Kyodo News, “Japan, Vietnam leaders affirm defense, economic cooperation,” 19 October 2020, https://english.kyodonews.net/news/2020/10/f8536e95c87d-update2-japan-vietnam-leaders-affirm-cooperation-in-s-china-sea.html

[16] NNA Business News, “Vietnam most promising Asian investment destination in 2020: survey,” 9 January 2020, https://english.nna.jp/articles/3703

[17] Japan External Trade Organization, “2019 JETRO Survey on Business Conditions of Japanese Companies in Asia and Oceania,” 21 November 2019, https://www.jetro.go.jp/ext_images/en/reports/survey/pdf/rp_firms_asia_oceania2019.pdf

[18] Ngoc Thuy, “IMF trims Vietnam GDP growth forecast to 1.6% in 2020,” Hanoi Times, 14 October 2020, http://hanoitimes.vn/imf-trims-vietnam-gdp-growth-forecast-to-16-in-2020-314508.html

[19] Tomoya Onishi, “Japan and Vietnam agree to accelerate business reopenings,” Nikkei Asia, 18 October 2020, https://asia.nikkei.com/Politics/International-relations/Japan-and-Vietnam-agree-to-accelerate-business-reopenings

[20] Michael Marray, “Japanese companies sign up for Vietnam gas-fired power projects,” The Asset, 28 October 2020, https://www.theasset.com/article/42031/japanese-companies-sign-up-for-vietnam-gas-fired-power-projects

[21] Chí Hiếu, “Nhiệt điện Ô Môn 2 sẽ có giá bán điện lên tới hơn 2.500 đồng/kWh?”, Thanh Nien, 2 November 2020, https://thanhnien.vn/tai-chinh-kinh-doanh/nhiet-dien-o-mon-2-se-co-gia-ban-dien-len-toi-hon-2500-dongkwh-1299250.html

[22] Eric Yep and Vietnam Newsdesk, “Analysis: Vietnam’s gas-fired power projects see flurry of interest from US LNG exporters,” S&P Global , 27 August 2020, https://www.spglobal.com/platts/en/market-insights/latest-news/natural-gas/082720-analysis-vietnams-gas-fired-power-projects-see-flurry-of-interest-from-us-lng-exporters

[23] Cục đầu tư nước ngoài, “Tình hình Đầu tư nước ngoài 9 tháng năm 2020,” 28 October 2020, https://dautunuocngoai.gov.vn/tinbai/6387/Tinh-hinh-Dau-tu-nuoc-ngoai-9-thang-nam-2020

[24] Tomoya Onishi, “Japan’s investment in Vietnam plummets while Suga seeks closer ties,” Nikkei Asia , 22 October 2020, https://asia.nikkei.com/Business/Business-trends/Japan-s-investment-in-Vietnam-plummets-while-Suga-seeks-closer-ties

[25] The Japanese government would do well to conduct regular dialogues with Japanese businesses and key stakeholders to listen to their opinions and identify the difficulties facing their current economic operations in Vietnam. Recommendations from these parties would provide a good basis for the government to devise initiatives and solutions, to improve the administrative procedures and policy-making process, so as to boost Japanese business activities in Vietnam during this hardship.

[26] Trần Văn Thọ, “Một Đông Du mới,” VN Express , 21 October 2020, https://vnexpress.net/mot-dong-du-moi-4178892.html

[27 Vietnam Plus, “Processing – major contributor to Vietnam’s economy,” 24 December 2018, https://en.vietnamplus.vn/processing-major-contributor-to-vietnams-economy/144083.vnp

[28] Nguyen Manh Hung, “Shared concerns about China bring Vietnam and Japan closer,” East Asia Forum , 2 June 2016, https://www.eastasiaforum.org/2016/06/02/shared-concerns-about-china-bring-vietnam-and-japan-closer/

[29] Urs Schoetti, “Japan’s new outreach in Asia,” Geopolitical Intelligence Services , 18 January 2019, https://www.gisreportsonline.com/japans-new-outreach-in-asia,defense,2774.html

[30] The first Defense Policy Dialogue between Japan and Vietnam at deputy ministerial level was held in 2012. Both sides agreed to a wide-ranging MOU on defense cooperation, including “defense exchanges at ministerial, chief of staff and service chief level; naval goodwill visits; annual defense policy dialogue at the deputy defense minister level; cooperation in military aviation and air defense; and personnel training including scholarships for defense personnel to study and train in Japan”. Quang Minh, “Infographics: Highlights of Viet Nam-Japan relations,” Online Newspaper of the Government of Vietnam , 21 October 2019, http://news.chinhphu.vn/Home/Infographics-Highlights-of-Viet-NamJapan-relations/201910/37786.vgp ; Carl Thayer, “Vietnam’s Extensive Strategic Partnership with Japan,” The Diplomat , 14 October 2014, https://thediplomat.com/2014/10/vietnams-extensive-strategic-partnership-with-japan/

[31] Bjørn Elias Mikalsen Grønning, “Japan’s security cooperation with the Philippines and Vietnam,” The Pacific Review , Vol. 31, No. 4, 2018, pp. 533-552.

[32] Nhân dân Online, “Vietnam, Japan hold second defence policy dialogue,” 10 August 2013, https://en.nhandan.org.vn/politics/item/1924602-vietnam-japan-hold-second-defence-policy-dialogue.html

[33] Prime Minister of Japan and His Cabinet, “The Bounty of the Open Seas: Five New Principles for Japanese Diplomacy,” 18 January 2013, http://japan.kantei.go.jp/96_abe/statement/201301/18speech_e.html

[34] Thanh Nien News, “Japanese training vessel arrives in Vietnam,” 30 July 2013, http://www.thanhniennews.com/society/japanese-training-vessel-arrives-in-vietnam-1704.html

[35] Notable examples of Japanese naval ship visits to Vietnam include: two guided-missile destroyers Ariake and Setogiri’s visit to Cam Ranh Bay in April 2016, submarine Kuroshio at Cam Ranh Port (Khanh Hoa province) in September 2018, minesweepers JS Bungo and JS Takashima at Tien Sa Port (Da Nang city) in December 2019. Prashanth Parameswaran, “Japanese Destroyers Visit Vietnam’s Cam Ranh Bay in Historic Move,” The Diplomat , 13 April 2016, https://thediplomat.com/2016/04/japanese-destroyers-visit-vietnams-cam-ranh-bay-in-historic-move/ ; Prashanth Parameswaran, “Why Japan’s first submarine visit to Vietnam matters,” The Diplomat , 19 September 2018, https://thediplomat.com/2018/09/why-japans-first-submarine-visit-to-vietnam-matters/; Vietnam Plus, “Japan Maritime Self-Defense Force’s minesweepers visit Da Nang,” 12 December 2019, https://en.vietnamplus.vn/japan-maritime-selfdefense-forces-minesweepers-visit-da-nang/165329.vnp

[36] BBC News, “Japan gives Vietnam six navy ships amid regional tension,” 1 August 2014, https://www.bbc.com/news/world-asia-28599397

[37] Tra Mi, “Japan Donates 2 More Patrol Boats to Vietnam Amid S. China Sea Tensions,” VOA News , 3 November 2015, https://www.voanews.com/east-asia/japan-donates-2-more-patrol-boats-vietnam-amid-s-china-sea-tensions

[38] Mari Yamaguchi, “Japan, Vietnam to Bolster Maritime Security Cooperation,” World Politics Review , 6 June 2017, https://www.worldpoliticsreview.com/articles/22373/japan-vietnam-to-bolster-maritime-security-cooperation

[39]  “Japan carries out first submarine exercise in disputed South China Sea,” The Defense Post , 17 September 2018, https://www.thedefensepost.com/2018/09/17/japan-submarine-exercise-south-china-sea/

[40] Prasanth Parameswaran, “Why Japan’s first submarine visit to Vietnam matters,” The Japan Times , 21 September 2018, https://www.japantimes.co.jp/opinion/2018/09/21/commentary/japan-commentary/japans-first-submarine-visit-vietnam-matters/

[41] Ralph Jennings, “Japan, Vietnam Teaming up to Resist China Expansion,” VOA News , 9 May 2019, https://www.voanews.com/east-asia-pacific/japan-vietnam-teaming-resist-china-expansion

[42] Hoang Thuy, “Japan to transfer military shipbuilding technology to Vietnam,” VN Express , 3 March 2020, https://e.vnexpress.net/news/news/japan-to-transfer-military-shipbuilding-technology-to-vietnam-4063193.html

[43] According to Naval News , construction of the vessels will begin in 2021, with the delivery to the Vietnam Coast Guard (VCR) expected in October 2025. There has been no announcement regarding the class of vessels selected by the VCG, but “the Aso-class, a class of 79 meters patrol vessels in use by the Japan International Cooperation Agency” seems to be a probable model. Xavier Vavasseur, “Japan To Build Six Patrol Vessels For Vietnam’s Coast Guard,” Naval News , 8 August 2020, https://www.navalnews.com/naval-news/2020/08/japan-to-build-six-patrol-ships-for-vietnams-coast-guard/

[44] The Japan Times, “Japan and Vietnam ink first maritime patrol ship deal as South China Sea row heats up,” 11 August 2020, https://www.japantimes.co.jp/news/2020/08/11/national/japan-vietnam-patrol-ships-south-china-sea/

[45] Ankit Panda, “Japan Pledges 6 New Patrol Boats for Vietnam Coast Guard,” The Diplomat , 17 January 2017, https://thediplomat.com/2017/01/japan-pledges-6-new-patrol-boats-for-vietnam-coast-guard/

[46] Japan International Cooperation Agency, “Signing of Japanese ODA Loan Agreement with Viet Nam: Strengthening the maritime security and safety capability of the Vietnam Coast Guard,” 30 July 2020, https://www.jica.go.jp/english/news/press/2020/20200730_31_en.html

[47] Isabel Reynolds, “Vietnam lands defence deal with Japan amid China tension,” The Sydney Morning Herald , 19 October 2020, https://www.smh.com.au/world/asia/vietnam-lands-defence-deal-with-japan-amid-china-tension-20201019-p566kp.html

[48] However, the details for such a transfer remain to be worked out. Suga’s spokesman Yoshida Tomoyuki responded to reporters’ questions at a press conference in Hanoi on 19 October 2020 by saying: “Japan is ready to support Vietnam to strengthen its defense capacity,” and further clarified: “what technology to be transferred depends on Vietnam’s demand in the maritime sector, but Japan maintains the principle of ensuring that technology transfer complies with peaceful purposes and should not be shifted to a third country”. Tiền Phong, “Việt – Nhật đang đàm phán thoả thuận chuyển giao công nghệ quốc phòng,” 19 October 2020, https://www.tienphong.vn/the-gioi/viet-nhat-dang-dam-phan-thoa-thuan-chuyen-giao-cong-nghe-quoc-phong-1737600.tpo ; Người Lao động, “Người phát ngôn Thủ tướng Nhật Bản nói về hợp tác quốc phòng với Việt Nam,” 20 October 2020, https://nld.com.vn/thoi-su/nguoi-phat-ngon-thu-tuong-nhat-ban-noi-ve-hop-tac-quoc-phong-voi-viet-nam-20201020124153097.htm ; Khanh Vu, Kiyoshi Takenaka, “On Suga’s overseas debut, Japan, Vietnam agree broadly on defence transfer,” Reuters , 19 October 2020, https://uk.reuters.com/article/uk-japan-southeastasia-vietnam-defence/japan-vietnam-reach-broad-agreement-on-transfer-of-defence-gear-idUKKBN2740BZ

[49] See “Japan’s Policies on the Control of Arms Exports,” Ministry of Foreign Affairs of Japan , https://www.mofa.go.jp/policy/un/disarmament/policy/index.html

[50] Hiroyuki Sugai, “Japan’s future defense equipment policy,” Brookings , October 2016, https://www.brookings.edu/wp-content/uploads/2016/10/201610_japan_future_defense_hiroyuki_sugai.pdf

[51] See Gurjit Singh, “Japan’s Defence White Paper 2020: An enhanced role emerging?,” Observer Research Foundation , 27 July 2020, https://www.orfonline.org/expert-speak/japans-defence-white-paper-2020-an-enhanced-role-emerging/

[52] Defense Ministry, “Japanese Defense White paper 2020,” 14 July 2020, https://www.mod.go.jp/e/publ/w_paper/wp2020/DOJ2020_EN_Full.pdf

[53] China’s growing intimidating behaviour towards Vietnam in the South China Sea have heightened the “China threat” mentality, with a psychological spectrum ranging from dislike, vigilance, to aversion, among the Vietnamese population and abroad. Tran Cong Truc, “Vietnam-China Border Management, Cooperation And Struggle,” Vietnam Times , 10 August 2020, https://vietnamtimes.org.vn/vietnam-china-border-management-cooperation-and-struggle-23270.html

[54] The Vietnam-Japan University (VJU) was established in 2014 and became the 7th member university under the Vietnam National University (VNU). The total investment of VJU was US$365 million, comprising US$200 million ODA loan from the Japanese government, US$ 100 million sponsored by Japanese enterprises, and the remaining US$65 million from the Vietnamese government. In an attempt to become “a leading prestigious university in Asia by 2035,” VJU has adopted a pragmatic research university model with training programmes oriented towards providing human resources for sustainable development and adding “more values to Japanese investments in Vietnam”. VJU, while considered to be a symbol of the “comprehensive strategic partnership” between Vietnam and Japan, is also expected to “become a hub in attracting Japanese companies who wish to deploy or outsource R&D activities in Vietnam”. By visiting and speaking at VJU, Suga sought to promote more robust Japan-ASEAN ties. On Suga’s visit to VJU, VNU President Nguyen Kim Son said: “The Japanese Prime Minister’s visit to VNU VJU today shows his special attention to students, young people and intellectuals – the key factors to the Japanese miracle and also a driving force to create a breakthrough in the future strategic relationship between our two nations”. “Japanese Prime Minister Suga Yoshihide has a meeting with students of VNU Vietnam – Japan University,” Vietnam National University , 29 October 2020, http://www.vnu.edu.vn/ttsk/?C2422/N27112/Japanese-Prime-Minister-Suga-Yoshihide-has-a-meeting-with-students-of-VNU-Vietnam—Japan-University.htm ; “History of the Vietnam-Japan University,” Vietnam Japan University , http://vju.ac.vn/about-us/su-kien-quan-trong-ste5.html ; “Vietnam-Japan University,” Devex , https://www.devex.com/organizations/vietnam-japan-university-vju-143938 ; Đình Nam, “Động thổ xây dựng Đại học Việt-Nhật,” Báo điện tử Chính phủ , December 20, 2014, http://baochinhphu.vn/Tin-noi-bat/Dong-tho-xay-dung-Dai-hoc-VietNhat/216340.vgp

[55] “Building together the future of Indo-Pacific: Speech by the Prime Minister at the Vietnam-Japan University,” Cabinet Public Relations Office , 19 October 2020, https://japan.kantei.go.jp/99_suga/statement/202010/_00002.html

[56]  “Prime Minister Shinzo Abe’s Visit to Viet Nam (Overview),” Cabinet Public Relations Office , 17 January 2013, https://www.mofa.go.jp/region/asia-paci/pmv_1301/vietnam.html

[57] The Jakarta Post, “Southeast Asia first,” 20 October 2020, https://www.thejakartapost.com/academia/2020/10/20/southeast-asia-first.html

[58] The Japan Times, “Suga in Vietnam: Talking about China without naming it,” 20 October 2020, https://www.japantimes.co.jp/opinion/2020/10/20/commentary/japan-commentary/yoshihide-suga-vietnam-china/

[59] The Japan Times, “Suga and Vietnamese PM meet, with focus on economic and defense cooperation,” 19 October 2020, https://www.japantimes.co.jp/news/2020/10/19/national/politics-diplomacy/vietnam-japan-yoshihide-suga/

[60] Ministry of Foreign Affairs of Japan, “Press Conference by Foreign Minister MOTEGI Toshimitsu,” 6 October 2020, https://www.mofa.go.jp/press/kaiken/kaiken4e_000852.html

[61] According to Australia-based think tank Lowy Institute, Vietnam’s comprehensive power ranked 12th out of 26 countries and territories in the Asia-Pacific region. The country’s uptick on the 2020 power index has been attributed to its diplomatic influence, with its reputation strengthened by the proper handling of Covid-19, improvement in defence networks, economic capability, cultural influence, and future resources. Vietnam was listed in the group of “biggest gains” (with Australia and Taiwan) and praised as “a middle power in Asia”. “Vietnam,” Lowy Institute Asia Power Index 2020 Edition , https://power.lowyinstitute.org/countries/vietnam/

[62] Ministry of National Defence, 2019 Viet Nam National Defence , National Publishing House, 2019, p. 29.

[63] Vietnam’s “four-nos” defence policy includes the traditional three-nos, i.e. no military alliance, no affiliation with any country to counter another, and no foreign military base in Vietnam. It added a fourth of “no force or threatening to use force in international relations.” Linh Pham, “Vietnam releases defense white paper, reaffirming no military alliance,” Hanoi Times , 26 November 2019, http://hanoitimes.vn/vietnam-releases-defense-white-paper-reaffirming-no-military-alliance-300279.html

[64] Daishi Abe, “Japan promises to diversify supply chains across ASEAN,” Nikkei Asia , 20 October 2020, https://asia.nikkei.com/Politics/International-relations/Japan-promises-to-diversify-supply-chains-across-ASEAN

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