The United Kingdom’s ‘tilt’ toward the Indo-Pacific

Author: Jürgen Haacke, LSE The United Kingdom will soon become ASEAN’s 11th full dialogue partner after the grouping decided to accept the ASEAN Secretariat’s recommendation to confer dialogue-partner status in April 2021. The decision closely followed UK Foreign Secretary Dominic Raab’s visit to Southeast Asia in early April 2021 and tireless efforts by UK officials […] The post The United Kingdom’s ‘tilt’ toward the Indo-Pacific first appeared on East Asia Forum.

The United Kingdom’s ‘tilt’ toward the Indo-Pacific

Author: Jürgen Haacke, LSE

The United Kingdom will soon become ASEAN’s 11th full dialogue partner after the grouping decided to accept the ASEAN Secretariat’s recommendation to confer dialogue-partner status in April 2021. The decision closely followed UK Foreign Secretary Dominic Raab’s visit to Southeast Asia in early April 2021 and tireless efforts by UK officials to outline the multifaceted rationale for reinforcing its engagement with Southeast Asia.

The United Kingdom established several new major posts to give substance to its post-Brexit referendum narrative of ‘Global Britain’ and its engagement with Southeast Asia. This includes the Singapore-based British Defence Staff and the Trade Commissioner for the Asia Pacific in 2018 as well as a resident UK Ambassador to ASEAN in November 2019. All of these posts have provided focal points for deeper cooperation and strategic communication.

ASEAN’s decision was not a foregone conclusion, as the bloc had in place a longstanding moratorium on new dialogue partners. In 2020, there was speculation that a positive decision on the United Kingdom’s application might be opposed from within the organisation. ASEAN has also been preoccupied with Myanmar’s military coup in February.

Yet the outcome was perhaps a matter of time given the strength of the UK case. Before exiting the European Union, the United Kingdom already entertained a dialogue partnership with ASEAN, albeit one mediated by its EU membership. Beyond its historical ties with the region, its residual military presence in Brunei, and its membership of the Five Power Defence Arrangements, the United Kingdom had also acceded to ASEAN’s Treaty of Amity and Cooperation in 2012 when then prime minister David Cameron announced that the country would end its ‘benign neglect’ of the region.

Between August 2020 and April 2021, an Economic Dialogue and two open-ended Troika virtual meetings between ASEAN foreign ministers and the UK foreign secretary were organised. The Troika meeting in April concentrated on COVID-19 and other areas of cooperation, including climate change adaptation, enhancing ASEAN–UK supply chains and deepening technological ties.

London has also worked on deepening individual economic and security ties with ASEAN member states. UK Foreign Secretary Raab visited Jakarta in April 2021 to attend the Third Partnership Forum, signing a memorandum of understanding on establishing a joint economic and trade committee with Indonesia to address market access barriers.

Once the United Kingdom is a full dialogue partner, its multilateral regional engagement is set to increase further as it stands to join forums such as the ASEAN Regional Forum and the ASEAN Defence Ministers Meeting Plus. Britain could also hope to become a member of the East Asia Summit.The United Kingdom may also eye a trade agreement with ASEAN, identified as a ‘high priority’ by UK officials. In the more immediate future, the United Kingdom’s focus is to win accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

Given differences in diplomatic culture, how the United Kingdom and ASEAN states will address political developments within Southeast Asia could define the partnership in important ways. As London’s strong response to developments in Myanmar indicates, the United Kingdom did not hold back on its values agenda as ASEAN reviewed its application for dialogue partner status. With democracy in Southeast Asia regressing in recent years, it is not obvious how the United Kingdom’s emphasis on the need to reinforce and protect open societies and economies will be fully shared across the ASEAN region.

The current re-engagement with Southeast Asia is part and parcel of a wider rebalancing of UK foreign policy and security. As Dominic Raab argued, the UK government’s ‘vision for a truly Global Britain will tilt … to the Indo-Pacific region’. The government’s Integrated Review of Security, Defence, Development and Foreign Policy identified China as a ‘systemic competitor’. In this context, the United Kingdom is interested in maintaining major aspects of the existing order and ‘shaping the open international order of the future’.

Defence engagement is a major aspect of the United Kingdom’s ‘tilt’. The aircraft carrier HMS Queen Elizabeth is currently leading a carrier strike group to the Indo-Pacific, marking a new era of British maritime power.  As expressed in the recent UK Defence Command Paper, Britain  aims to achieve ‘a more proactive, forward deployed, persistent presence’ in the Indo-Pacific region. This will initially involve deploying two offshore patrol vessels to this region from 2021. A littoral response group is expected to operate in the Indo-Pacific from 2023.

UK diplomacy will need to balance its interest in deepening commitment with ASEAN while at the same time working more closely with security partners and allies in the Indo-Pacific that espouse a somewhat sceptical view of the grouping’s collective ability and willingness to stand up to China and defend key elements of the existing rules-based international order.

Attaining ASEAN dialogue partner status post-Brexit constituted one of the United Kingdom’s major diplomatic objectives in the context of its ‘Global Britain’ ambitions. ASEAN’s acceptance has boosted London’s relations with Southeast Asia significantly, making for an important pillar of the country’s ‘tilt’ toward the Indo-Pacific.

Jürgen Haacke is Associate Professor in International Relations and former Director of the Saw Swee Hock Southeast Asia Centre at the London School of Economics and Political Science.

The post The United Kingdom’s ‘tilt’ toward the Indo-Pacific first appeared on East Asia Forum.
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China Pushes Back Against Threat of Inflation

Government presses industries to absorb higher commodity costs.

China Pushes Back Against Threat of Inflation

China's government has suffered a setback in its campaign against inflation as consumer prices accelerated last month despite pressure on producers to keep commodity costs down.

On June 9, the National Bureau of Statistics (NBS) reported that the consumer price index (CPI) for May rose 1.3 percent from a year earlier, quickening from the 0.9-percent pace the month before.

The increase was a sign that the government has had only partial success in keeping the surge in commodity prices from spilling over from production into the consumer market.

While consumer price growth remained relatively mild, the producer price index (PPI) soared 9 percent in May after climbing 6.8 percent in April.

The May mark was the highest monthly jump in factory gate prices since September 2008, reflecting a run-up in costs for commodities including oil, iron ore, copper and coal, the NBS said.

The bureau sought to downplay the PPI increase, arguing that one-third of the May rise was due to a "carryover effect" from April's results, so that only 6 percentage points of the May figure was actually "new."

But the month-to-month gain in the PPI more than doubled in May from April to 1.6 percent, suggesting continued pressure from commodity costs.

The CPI reading continued to benefit from lower pork prices, although overall food prices rose 0.3 percent after April's 0.7-percent decline.

Plunging pork prices prevented an even greater increase in the CPI. Weak demand and fears of the African swine fever have combined to push hog prices down by over 50 percent since January, the South China Morning Post said. From late May to early June, hog prices dropped 11.2 percent, the NBS said.

The growing gap between the PPI and CPI figures appeared to reflect the government's pressure on producers to absorb higher costs.

The National Development and Reform Commission (NDRC), the top planning agency, called for improving the government's "price control mechanism" to limit the impact on consumers from price hikes for essential goods.

On Thursday, the NDRC said it would release supplies of copper, aluminum and zinc from state reserves to "ensure stable prices" of non-ferrous metals.

While price controls may limit CPI increases in the near- term, they are likely to erode producer profits, setting the stage for shortages, more price pressures and slower economic growth.

Ten days earlier, the NBS recorded a slight drop in the official purchasing managers' index (PMI) for manufacturing in May to a reading of 51 from 51.1 in April. A mark above 50 indicates economic expansion while readings below 50 signal contraction.

In March, the PMI reading for manufacturing was a stronger 51.9, the highest level so far this year.

Slowed growth

Economic indicators released this week showed signs of a slower growth pace.

Industrial output in May rose 8.8 percent from a year earlier, edging down for the third month in a row. Reuters reported. Retail sales advanced 12.4 percent, missing a consensus analysts' forecast, CNBC reported.

Inflation pressures may pose a challenge for China's full economic recovery this year. The International Monetary Fund has forecast growth of 8.4 percent while the government has set a more conservative target of "above 6 percent."

"While Chinese factories gained a larger share in global exports last year, economists say they are struggling to keep up with surging raw-materials costs. These have pinched profit margins, forcing some manufacturers to lift prices and others to temporarily halt production," The Wall Street Journal reported on May 26.

China has pointed to rising prices abroad as the source of its problems.

Last week, the U.S. Labor Department reported that CPI in the United States also rose 5 percent in May from a year before. But reactions from U.S. regulators have differed from those in China, where the government has threatened to intervene in the market with various forms of price controls.

U.S. officials have voiced confidence in market forces and the nation's recovery from the COVID crisis.

"Today's data on inflation is the latest indicator that things are both moving in the right direction and that we have supply-chain hiccups," said Heather Boushey of the White Council of Economic Advisers in a tweet reported on June 10 by The Washington Post.

After a two-day meeting this week, the U.S. Federal Reserve left near-zero benchmark interest rates unchanged but signaled that plans for increases could be moved up to 2023 from 2024 to keep recovery-driven inflation in check.

By contrast, Premier Li Keqiang took a tough stand against price hikes last month following executive meetings of the cabinet-level State Council as the government threatened a crackdown.

On May 19, a government statement pressured commodity traders and industrial consumers with harsh penalties if prices continued to rise.

"The regulation of the futures and spot markets will be better coordinated and targeted measures will be taken when appropriate to screen abnormal transactions and malicious speculation. Irregularities such as making monopolistic deals, spreading false information, price gouging and hoarding will be dealt with to the full extent of the law and brought to light," the official China Daily said.

On June 4, Bloomberg News reported that Chinese officials "have unleashed a near-constant barrage of rhetoric and administrative measures to rein in the commodities surge."

"Officials have raised transaction fees, changed tax rules, censored industry research, urged producers to sell inventories, cajoled trading firms to cut bullish wagers, vowed to clamp down on 'malicious' speculators and more," Bloomberg said.

Some analysts' have minimized the impact of higher prices on the economy, forecasting that the spikes will be short- lived.

Economists at Morgan Stanley estimated that the PPI would peak at around 8 percent in May or June but decline to 4 percent in the second half of the year, the Morning Post reported on May 27. According to the NBS report, the PPI peak estimate has already been exceeded.

While producer price growth may diminish, it is unclear how successful the government will be in keeping the pressures from spilling over into consumer prices.

In the power sector, analysts will be watching to see how the government responds to a jump in coal prices after the China Taiyuan coal transaction price index rose nearly 14 percent in May.

Last week, Bloomberg reported that the government has considered imposing a cap on prices that coal mines would be allowed to charge.

The government has also sent inspectors to major coal ports to "crack down on illicit hoarding," Reuters reported.

Electricity rates

Over the past three years, the government has cut electricity rates for businesses to pump up profits and economic growth, forcing generating companies and the State Grid to absorb the costs.

The government may be faced with similar forces as it decides how to pay for higher-priced coal during the peak period for power demand this summer. Five provinces have issued warnings about potential shortages, Platts Commodity News said.

Hong Kong manufacturers have experienced "blackouts in several regions" with peak demand at record levels for three weeks, the Morning Post reported on June 3.

"This has caused power rationing for two days a week in some areas, forcing owners to keep factories running at weekends or resort to diesel generators to maintain production," the paper said.

The price squeeze on coal comes at a sensitive time as the country celebrates the centennial of the Communist Party of China (CPC) on July 1.

"Given the imminent celebration of the 100th anniversary of the CPC, I don't see them passing on full costs to the end users," said Philip Andrews-Speed, a principal senior fellow at the National University of Singapore's Energy Studies Institute.

The government has stressed its concern for the impact of price hikes on small and medium-sized enterprises (SMEs) with assurances that it will take unspecified measures to support individual businesses.

On June 1, Wang Jiangping, vice minister of industry and information technology, said the government would "step up price monitoring," suggesting that further scrutiny would discourage increases.

Last month, an official of the People's Bank of China (PBOC) told a press conference that the central bank had supported a 32.5-percent increase in "inclusive" loans for micro and small enterprises as of the end of April, the official Xinhua news agency reported.

In recent weeks, the PBOC also appeared to be sending mixed signals on whether exchange rates could be used to ease the effects of higher commodity costs.

On May 21, Bloomberg reported that a PBOC official had urged appreciation of the yuan to mitigate rising prices of commodity imports.

"As an important consumer of commodities globally, China is inevitably impacted by international market prices through imports," said Lyu Jinzhong, director research and statistics at the central bank's Shanghai branch, in the PBOC magazine China Finance.

But on May 27, the PBOC released a statement denying that it would move the value of the yuan renminbi (RMB) either way to benefit importers or exporters.

"Exchange rates cannot be used as a tool to spur exports, nor should they be leveraged to offset price hikes for bulk commodities," the official Xinhua news agency quoted the bank as saying.

On May 30, a former PBOC official called the recent rise of the yuan "unsustainable" and unsuitable as a destination for speculative inflows of "hot money."

China "should prevent a large inflow of short-term capital, which will push up the RMB exchange rate, weaken the competitiveness of export enterprises and disrupt the independent implementation of China's financial market and monetary policy," Sheng Songcheng, former PBOC director of surveys and statistics told Xinhua.

The bank's statements appear to be aimed at assuring that China will not be subject to charges of currency manipulation for favoring exchange rate policies to protect its economy against high commodity costs.

Source : Radio Free Asia More   

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