History and Influences on South East Asia

History and Influences on South East Asia CHAPTER 1 INTRODUCTION If there were only two men in the world, how would they get on? They would help one another, harm one another, flatter one another, slander one another, fight one another, make it up, they could neither live together nor do without one another Philosophical Dictionary, 1764 Increasing role of China in South Asia has attracted the attention of the policy framers as well as scholars. Its foreign policy towards Southeast Asia has varied from indifference to hostility, but Chinese interest in the region has persisted since 1949. While India occupies a vital position in the Chinese calculation, there are discernible variations in Chinese policy towards other states in the region. The behaviour of Southeast Asian states towards China has also varied. Notwithstanding the persistence of the Indian factor in their perceptions, we observe different response to Chinese behaviour and policy in these states. Chinese foreign policy is undergoing a metamorphosis never seen in the history of the Peoples Republic (PRC). The country has enjoyed a more secure place in the world than before, yet it has remained dissatisfied with its international status. Chinas quest for international legitimacy and a positive image is tested by its pursuit of security interests and the power politics logic of its own and other states. Chinese foreign policy strategy has equally stressed the need to protect its national interest in a threatening world and the struggle to remold the international environment in line with its preferences. Clearly PRC foreign policy is complicated, dynamic, and consequential. China has managed to become a rising star in the international arena, both politically and economically. The bipolar world order lasting for nearly half a century came eventually to an abrupt end in the closing months of the 1980s as a result of dramatic changes in Eastern Europe and the so-called post cold w ar era began in the final decade of this century. China has some motivations in the Southeast Asia one of these is China is in pursuit of hegemony[1] in the region, another possibility is primarily defensive an attempt to neutralize the region while China focuses on internal priorities and the third possibility is to have a cooperative structure. India is seeking an expanded role in the international Geo-political arena which includes Asia and Southeast Asia. Indias growing economy ,common energy security interests, national interest, and power projection makes India China a Peer competitor. Beijings current goal in southeast Asia is to maintain a stable environment around its periphery to assure others that China is not threat, and to encourage economic ties that contribute to Chinas economic modernization and thus regime stability. The foreign policy instruments that Beijing has employed to secure its goals are constituent throughout most of Southeast Asia, but the priorities assigned to different strategic goals vary depending on Chinas interest in different part of the region. CHAPTER II METHODOLOGY STATEMENT OF THE PROBLEM To examine the current politico-economic influences in South east Asia and recommend measures for India to significantly expand its politico-economic strategic influence in the South East Asian region with a view to counterbalance the overwhelming Chinese politico – economic dominance in the South East Asian Region.. Justification of the Study The most significant strategic development after the Cold War, is probably the sudden growth in Chinas economic potential and consequent national power. A rapid rise in power of a major country in the past has usually led to tension in the region, conflict with the neighbours and eventually a war. To make an assessment of Chinas posture well into the future is fraught with number of uncertainties. Equally, a projection of that role in the next century would, of necessity, demand an intimate acquaintance with how the Chinese have been involved in their dealings with this part of the world in the past. Above all, how that relationship has evolved, to the present day environment. Idea shall be to restrict the paper and sketch out important events in the near past, which have shaped the present and loom larger than the hoary past on the future that is yet in the limbo. The basic intention in writing this dissertation is To examine the current politico-economic influences in South east As ia and recommend measures for India to significantly expand its politico-economic strategic influence in the South East Asian region with a view to counterbalance the overwhelming Chinese politico – economic dominance in the South East Asian . A direct question has been addressed whether or not China restricts India from emerging as a global player. Scope Axiomatically any meaningful discussion of Chinas role in Southeast Asia would imply an understanding of its relations with the Indian subcontinent as a whole. Of the worlds great powers, China is geographically the closest to the Southeast Asian countries. It has common borders with Myanmar, Thailand, Laos, Vietnam, Caombodia. There is significant cultural similarities far reaching political and strategic repercussions over the past couple of centuries, and has propelled the worlds most populous regions into interaction in a wide variety of ways. From a simple geographical perspective, qualitative changes in the Chinas foreign policy should be expected if China grows from a medium-sized power to superpower. At its present rate of economic growth, Chinas productive capabilities and total wealth will soon outstrip those of the other Asian powers. As a weaker power, Chinas dependence on the favour of its neighbours has been comparatively high. But increased relative capabilities make i t feasible for a rising great power to exert greater control over its surroundings. If the opportunity arises to establish a dominant role in the region, China can be expected to seize it. Thus the scope of this paper has been restricted to Chinese dominance in the Southeast Asian region, which will pose vexing problems for India . An attempt has been made to analyse, how India can focus and counterbalance the overwhelming Chinese politico – economic dominance in the South East Asian. Organisation of Dissertation. The study is proposed to be dealt in the following sequence: Modern History strat influences in South East Asia. Political Economy of South East Asia. Chinese political and economical strategy in South East Asia. Indian political and economical strategy in South East Asia. Comparative Analysis of Indian Chinese politico-economic strategies in SE Asia. Recommended response of India to expand its influence in the region. CHAPTER III MODERN HISTORY AND STRATEGIC INFLUENCES IN SOUTHEAST ASIA The post-Cold War world is seeing in some areas a resurgence of nationalism and in others a greater emphasis on regionalism. These two tendencies will overlap. In Southeast Asia national and ethnic differences were significantly blunted by European colonialism and in some cases have been further submerged in the post-colonial period of new nation states. But what is new in Southeast Asia is the development of voluntary (as distinct from externally mandated) cooperation on a sub-regional or regional level. Most recently there is the assertion of an Asian identity, shared by Southeast Asians, which is sharply distinguished from Western value systems, social norms and economic models. It is too early to say how far that will be taken or how much it will influence the political and social development of Southeast Asia. The very important differences between and indeed even within the Southeast Asian countries induces some skepticism in academic circles about the existence of Asian values [2] etc. But there is no doubt that there is a perception in the region of some essential shared values or priorities, and a rejection of what are seen as Western individualistic and libertarian values. An embryonic sense of shared interests transcending ethnic or national groups emerged in colonial times between independence movements, student movements and other groups, including notably the various Marxist-inspired or communist movements in the region. But until after the Pacific War there was little connection across the region. The colonial empires were very separate and governed on different principles. It is a common observation nowadays that Australia, on the fringe of the region, only recently and belatedly become aware of and involved with its Southeast Asian neighbors. That is true, though with some qualifications. There was peripheral contact in the north even before the Europeans colonized Australia. But in the colonial era there was no steady development of contact or interest. The shifting patterns of alliance politics in Europe affected such contacts as there were between the colonial administrations in Southeast Asia and Australia, and indeed between the Southeast A sian colonial administrations themselves. Australia was not unique, or even unusual, in having little contact with its neighbors and in having its external links directed principally along the lines laid down by the metropolitan power. What are now the independent nations of Southeast Asia also had little contact with each other during the European colonial period. Just as the lines of communication and trade ran from Melbourne and Sydney to London, so did those between the French, Dutch, and other British colonies and the respective metropolitan powers in Europe. Right up to the Pacific War there was little or no communication between, for example, what are now Indonesia, Vietnam, Malaysia, and the Philippines. The links ran from Manila to the United States, from Batavia to the Netherlands, from Hanoi to France, and so on. It was the remarkable Japanese campaign which began at the end of 1941 which precipitated or accelerated the radical changes which took place between 1945 and the end of the Vietnam war. The sheer speed and success of the Japanese successes against numerically superior defending forces in Southeast Asia made a strong impression on opinion in the erstwhile colonies. The Japanese failed to capitalize on that in the sense that after early political successes in encouraging nationalist and pro-Japanese movements the appeal to shared Asian interests lost plausibility in the face of Japanese policies and actions which were exploitative or worse. Although Japan lost the war and left wounds in the region which are still not healed, the war precipitated the end of the moribund European colonial era, and accelerated the creation of independent states largely within borders established by the colonial empires. For some years trade and other economic links remained predominantly in the old colon ial grooves but with the economic supremacy of the United States and then with Japan embarked on decades of the highest rates of economic growth the world had yet seen, those patterns diversified. In the region the United States and Japan became the two most important outside powers and that was reflected inter alia by their leading roles in the setting up of the Asian Development Bank in 1966. By that time Australia[3] too had perforce diversified its trade away from Britain which had made it clear that it would seek its future economic arrangements in Europe and the Commonwealth arrangements which had supported much of Australias traditional export industry were phased out. Australia turned to Japan and others for new markets (a trade agreement with Japan had already been made in 1957). Australias development assistance programme had from the beginning concentrated on Southeast Asia and become and increasingly important instrument for involving this country with the region, especially as significant numbers of students from the region came to our universities and other institutions under the Colombo Plan and successor programmes.The failure of the attempted coup in Indonesia, the Gestapu of 30 September 1965, and the subsequent establishment of the New Order government there opened the way to overcome the regional or sub-regional strains produced by President Sukarnos eff orts to crush the newly-constructed Malaysia, as well as other tensions created or exacerbated by the Sukarno policies. In this climate ASEAN, the Association of South East Asian Nations, was established in 1967 and set out on its long and successful course of gradually building a sense of common interest and regional association among the six (originally five) members. ASEAN recently embarked on the development of AFTA, the ASEAN Free Trade Agreement. ASEAN has become the key institution in Southeast Asia not only because of its success in developing a sense of community among its very disparate members, and in finding a road for them to closer economic cooperation. It has also become the forum for discussion with the main world powers on a wide range of matters. This has come about through an annual mechanism of post-Ministerial consultations held after ASEANs own internal consultations through which ASEAN member governments, at Foreign Minister level, meet with their counterparts. These counterparts, termed dialogue partners, currently are Australia, Canada, the European Union, Japan, the Republic of Korea, New Zealand and the United States. In 1994 discussions on regional security were further developed with the establishment of the ASEAN Regional Forum (ARF) which groups ASEAN and its dialogue partners with Russia, China, Vietnam, Laos and Papua New Guinea. Looking at the recent evolution of Southeast Asia perhaps the most sig nificant thing has been the change that has occurred since the ending of the Cold War and the collapse of communism. Until relatively recently the centrally planned economy model had much attraction for many developing countries and there was up to the beginning of the eighties quite widespread aversion to capitalism and to the liberal market model as exemplified by the Western industrialized countries. Now virtually all of Southeast Asia is committed to market economics, albeit with more governmental political control than in the Western countries. There is a virtual unanimity about the commitment to economic development based on relatively open markets, private ownership and competition. With that has come a period of unprecedented economic growth. The major economies of Southeast Asia are all growing at rates previously thought unattainable for a sustained period. There are of course some uncertainties about the future; but there are few who doubt that Southeast Asia will early i n the twenty-first century be a major centre of economic power and influence. Southeast Asia has traditionally been a site of great power competition for regional dominance, due to its strategic location as a bridge between continental and maritime East Asia. To manage this competition and to enhance their own sub regional autonomy, the member states of the Association of Southeast Asian Nations (ASEAN) engaged in a number of regional institution building initiatives during the early 1990s. This institutionalism agenda led to speculation that ASEAN could become the hub of a nascent regional security community following the 1997 Asian financial crisis, however, the prospect that ASEAN could act as an autonomous entity to mitigate Sino-U.S. geopolitical pressures seemed increasingly tenuous. Weakened by political and economic instability, intra-regional disputes and a simultaneous expansion of its membership, ASEAN has come to question its own identity. This has only further undermined ASEAN-led regional security initiatives such as the ASEAN Regional Forum (ARF ). More frequently, Southeast Asian states have favored bilateralism and have looked to external powers to realize their security interests. These changing sub regional dynamics have, in turn, prompted renewed efforts by China and the United States to cultivate influence within Southeast Asia. Chinas attempts to gain support for its new security concept and US efforts to secure additional access and infrastructure agreements along the East Asian littoral are illustrative. To some extent, Sino-U.S. geopolitical competition has been modified by strategic cooperation resulting from the war on terror. China still remains wary of U.S. attempts to engage Southeast Asia in countering global terrorism. These trends have, in turn, compelled analysts to reconceptualize the Southeast Asian security landscape in a balance of power context. It is clear continental Southeast Asian states have aligned with China and maritime Southeast Asian states have aligned with the United States. The geographi c position of China and the United States, and the evolution of their interests and military capabilities accordingly, make it unlikely that either country would seek to project power into the others respective sphere. Southeast Asian states maintain a position of equidistance between the great powers. She attributes this to the ASEAN states general distrust of great powers and their desire to maintain the delicate Sino-U.S. regional balance. CHAPTER IV POLITICAL ECONOMY OF SOUTH EAST ASIA China sleeps, when she wakes, the World will tremble Napoleon The South east Asian countries over the past four decades has transformed itself from a region with enormous economic and political problems to one blessed with relative peace and prosperity. In particular the five ASEAN economies, namely, Indonesia, Malaysia, the Philippines, Singapore and Thailand , grew strongly in the 1960s with an average rate of 6 percent. This buoyant economic performance continued in the 1970s with 7.3 percent as they benefited from the massive inflows of the foreign exchange earnings due to sharp increase in the world price of primary commodities, including two oil shocks which benefited some of the members the same period. In the 1980s the region slowed down to an average growth rate of 6.1 percent. Regional economies experienced recessionary conditions due to high interest rate policy of the US Federal Reserve Bank, the consequent debt crisis in the region, the recession in the ASEANs major trading and investment partners, and the fall in the world prices of the primary commodities. But there was also a positive trend of influx of export- oriented foreign direct investment from Japan and the NIEs following the strong appreciation of their currencies. The recovery from 1991 to 1996 was followed by an economic contraction in 1997-98 due to the crisis which began in Thailand in July 1997 and spread to other parts of the region. In 1999-2000, the ASEAN economies staged a dramatic recovery with Singapore and Malaysia leading, things again turned sour with the September 11 attacks and the lackluster performance of the export sector. There was again a decrease in the economic growth due to the SARS, Iraq cri sis and terrorist related attacks, slump in the electronic market and collapse of the WTO talks in Cancun. The global economy is most rapid in emerging Asia where GDP accelerated to 7.2 percent in 2003, accounting for about 50 per cent of world growth. Looking forward, growth is projected to remain high at 7.4 per cent in 2004 and 7.0 per cent in 2005. The IMF stated that while domestic demand growth has increased significantly in emerging Asia, the regional current account surpluses remain very large, with exports supported by the rebound in the information technology (IT) sector as well as depreciating exchange rates. In the ASEAN-4, Thailand has shown the strongest expansion at 6.7 per cent in 2003, and is expected to remain high at 7 per cent in 2004 and 6.7 per cent in 2005. Cyclical considerations and high levels of public debt necessitate fiscal prudence for Thai authorities. The Malaysian economy is also recovering strongly and is expected to continue with inflation and unemployment remaining at low levels. However, the main policy priorities are the implementation of the announced fiscal consolidation to achieve a balanced budget by the year 2006 and greater exchange rate flexibility accompanied with suitable macroeconomic policies. Indonesias modest growth continues to be driven by private consumption, and has been accompanied with lower inflation. The Indonesian government should continue to implement its planned fiscal consolidation. Moreover, it needs to sustain banking, legal and judicial reforms in order to provide a better investment climate conducive to higher growth. As for the Philippines, uncertainties remain high even after the May 2, 2004 presidential elections. The main concerns of the Philippine government include increasing the tax revenues, restructuring the power sector, strengthening the banking sector, and improving the business system. Following the SARS crisis, the Singapore economy recovered in 2003 with supportive macroeconomic policies. To enhance its medium-term competitiveness and growth prospects, the IMF recommends a deepening and acceleration of reforms including further divestment of government  ­linked companies Issues and Challenges for Southeast Asian/ASEAN Domestic policy issues and challenges. On the domestic front, the growth prospects for ASEAN are very much dependent on various factors including the ability of their respective governments to provide economic, political and social stability, implement economic reforms, and diversify their economies. ASEAN policy makers thus face the following challenges: Sound macroeconomic environment. Following the 1997/98 economic crisis, government budget deficits relative to GDP have broadly increased and this is of serious concern for ASEAN governments, particularly for Malaysia and the Philippines. Price instability has become a serious concern for Indonesia and the Philippines. Exchange rates in Indonesia, Laos, the Philippines and Myanmar have weakened significantly. Moreover, the rising levels of foreign debt in the Philippines and Indonesia could create additional uncertainties. In terms of the current account surplus as a proportion of GDP, the six older ASEAN members have broadly shown higher levels relative to Cambodia, Laos, Myanmar and Vietnam (CLMV countries). Thus, in order to achieve a sound macroeconomic environment, ASEAN economies need to adopt a prudent fiscal policy, low inflation rates, stable exchange rates, and manageable levels of external debt and current account balance. Stable political and business environment. The political environment in some countries has been affected by military uprisings, kidnappings, bombings and other terrorist-related activities, peoples demonstrations, and elections. A 1997 survey of Japanese firms conducted by JETRO indicated that political stability is considered as the most significant determinant of Japanese investments in ASEAN. Thus Southeast Asian governments need to find ways and means towards achieving and maintaining a politically stable environment in order to encourage domestic and foreign investments. Social Harmony. ASEAN countries need to address issues such as conflicts between racial groups (e.g. the Chinese and pribumis in Indonesia, and the Chinese and bumiputras in Malaysia), between religious groups (e.g. the Muslims and Christians in Southern Philippines) and between the poor and rich. Despite all the policies and resources spent on alleviating poverty and reducing income inequality, unemployment, poverty and income inequality continue to be the major policy concerns of ASEAN governments. In reality, it is very difficult to reduce poverty and narrow the income gap given the interplay of politics, economics and industry, and the conflicting goals of the various interest groups in the economy like businesses, religious groups, the elite, farmers, small and medium entrepreneurs, etc. Thailands income gap between the rich and the poor was the widest in the world (Bangkok Post, 2S Aug 2003). In the Philippines, Gerard Clark and Marites Sison (2003) in their study titled liDo t he well-off really care about the plight of the poor? revealed that majority of the respondents suggested that some elite people cared while others did not; and those who did care did too little or acted primarily out of self-interest. In fact, there are some people in the superior group like the elite who wish the poor to remain poor because of the benefits that can be derived from their poverty. For instance, politicians often depend on the poor at elections time for support that propels them to political office. Economic Reforms. Southeast Asian governments need to continue implementing economic reforms that include market opening, trade, investment and financial liberalization. These reforms are particularly crucial for the CLMV countries as they undergo transition from centrally planned to market  ­oriented economies and for the crisis-hit countries especially Indonesia and Thailand. In the case of Indonesia, there was a lack of seriousness on the part of the political leadership to undertake economic reforms. For example, there were delays in the removal of tariff control and the privatization of state assets and enterprises, so that the process of reforms is reverting to protectionism. Furthermore, a delay in the IMFs financial assistance added to the ineffectiveness of Indonesias recovery programme. Thailand completed its 34-month Stand-By Arrangement from the IMF that formed part of an international financial package worth US$17.2 billion from multilateral and bilateral lenders. Outs tanding obligations at end-June 2002 amounted to US$6.4 billion and repayment was finally completed on July 31,2003, some two years ahead of schedule a significant achievement on the part of the Thai government. Economic Diversion. Various factors impel ASEAN economies to continue to diversify their economies: volatile and broadly declining primary commodity prices, depletion of non-renewable primary resources such as oil and gas, and the high costs of production. Following the decline in crude oil prices in the 1980s, Brunei and Indonesia have begun to diversify their economies from oil towards non-oil products and services (finance, tourism). Because of the high costs of production (e.g. high labour costs), Singapores economy has emphasised the significant contribution of the services sector (IT, education, tourism, finance). The services sector has accounted for about 60-70 per cent of Singapores GDP. Moreover, to improve the competitiveness of Singapores manufactured products and services, several cost-cutting measures have been implemented, namely, cuts in contribution rates for mandatory saving, reduction in corporate taxes, and reduction in utility charges. Long-run policies include t raining and re-training programmes for workers and greater focus on RD activities for innovations and improvement in technology. In Singapore, there are more than 600,000 workers with secondary education or lower. As such, it is extremely important that these workers upgrade their skills and learn new tasks to be more productive and to be more employable in the future. There are also other schemes such as the job re-design programmes implemented by the Singapore Productivity and Standards Board which involves changing both job content and arrangement to encourage workers to become more productive. Other ASEAN countries can learn from Singapores experiences with regard to cost-cutting measures, training and re-training programmes, and RD activities to improve productivity and competitiveness. Multi-Ethnic States. Multi-ethnicity is a dominant feature of the region and therefore stable inter-state ties and intra-state ethnic stability are closely intertwined. The region has to work toward the stability and security of strong, secular, federal multi- ethnic states if it is to remain secure and stable in the coming years. The Challenge of Democratisaton. The other key political challenge that confronts South East Asian nations is how to build stable, democratic state structures in condition of a rising tide of expectations for better life and greater liberty. Through much of Asia, the struggle between pressures for democratization against existing authoritarian state structures or oppressive socio-political conditions is a reality. Human rights abuses are common in many of the states. In Myanmar and Indonesia there is a rising pressure for political change and expansion of political rights. Militancy, insurgency and terrorism have wracked many parts of ASEAN region in the past and continue to do so even now. Only through steady democratization, decentralization and provision of caring and efficient governance can the integrity of state structures and stability be preserved. CHAPTER V Chinese political and economical strategy in South East Asia. China perceives itself as a central power on Earth. The rest of the World is an array of greater and lesser powers which neither have unified structure nor a single head Macnall Mark[4] Chinas political and economic strategy are interlinked with the security relation that China shares with the Southeast Asia as a region. China embraced the Southeast Asian regionalism and of multilateralism with Southeast Asia is part of broader decision to jettison Chinas old confrontational policy and style. Chinese leaders officials turned this approach to South east Asia on its head replacing the assertiveness that characterized pre 1997 Chinese policy with accommodation. This concerted campaign assuaged South east Asian fears but also paved the way for South east Asian and Chinese to participate in and profit from this rapidly expanding economic ties. Chinese leaders and officials smoothly employed diplomacy in innumerable meeting with South east Asian counterparts to slowly and carefully win greater influence in south east Asia. The Chinese foreign policy community made a concerted effort to represent Chinas reemergence as a regional power. It portrayed recent trends as aligne d with the economic and security interests of its southern neighbors. China convinced the neighbors that it is not a threat. China employed the same set of instruments of Chinese national security policy at both multilateral level with ASEAN and bilateral level with individual ASEAN states albeit with differing effects in the countries concerned depending on their individual circumstances. It places contentious issues temporarily to the side, places processes before product and welcomes efforts to build EAST ASIAN community. Beijing binds the South East Asean countries with a spectrum of economic, political and cultural and security proposals. As Beijing courted its southern neighbors, it supplemented diplomacy with economic ties in terms of trade and economic investment. China opened China to overseas ethnic Chinese and invited ethnic Chinese Southeast Asians to invest in China and subsequently invited Southeast Asians. Rapid increases in the Southeast Asian- China trade led to ove rcome the financial crisis. Chinas economic success has been as impressive as its diplomatic campaign, because china and Southeast Asian countries have been competitors both FDI and for developed markets in Japan,Europe and the United States. Beijing has worked assiduously tp provide Southeast Asian economies with a stake in Chinas economic expansion thus stabilizing Chinas periphery and contributing to Chinas own economic growth. Chinas turn to multilateralism diplomacy was to compliment its intense bilateral diplomacy was timely. ASEAN grew during the 1990 and accommodated new countries and also in the due course of time it had not been able to respond to the financial crisis and also the turmoil in East Timor. Chinas help to ASEAN gave a new appearance to ASEAN. Multilateral diplomacy provided a two way street for ASEAN countries and China and provided measures to forge new bonds. ASEAN also History and Influences on South East Asia History and Influences on South East Asia CHAPTER 1 INTRODUCTION If there were only two men in the world, how would they get on? They would help one another, harm one another, flatter one another, slander one another, fight one another, make it up, they could neither live together nor do without one another Philosophical Dictionary, 1764 Increasing role of China in South Asia has attracted the attention of the policy framers as well as scholars. Its foreign policy towards Southeast Asia has varied from indifference to hostility, but Chinese interest in the region has persisted since 1949. While India occupies a vital position in the Chinese calculation, there are discernible variations in Chinese policy towards other states in the region. The behaviour of Southeast Asian states towards China has also varied. Notwithstanding the persistence of the Indian factor in their perceptions, we observe different response to Chinese behaviour and policy in these states. Chinese foreign policy is undergoing a metamorphosis never seen in the history of the Peoples Republic (PRC). The country has enjoyed a more secure place in the world than before, yet it has remained dissatisfied with its international status. Chinas quest for international legitimacy and a positive image is tested by its pursuit of security interests and the power politics logic of its own and other states. Chinese foreign policy strategy has equally stressed the need to protect its national interest in a threatening world and the struggle to remold the international environment in line with its preferences. Clearly PRC foreign policy is complicated, dynamic, and consequential. China has managed to become a rising star in the international arena, both politically and economically. The bipolar world order lasting for nearly half a century came eventually to an abrupt end in the closing months of the 1980s as a result of dramatic changes in Eastern Europe and the so-called post cold w ar era began in the final decade of this century. China has some motivations in the Southeast Asia one of these is China is in pursuit of hegemony[1] in the region, another possibility is primarily defensive an attempt to neutralize the region while China focuses on internal priorities and the third possibility is to have a cooperative structure. India is seeking an expanded role in the international Geo-political arena which includes Asia and Southeast Asia. Indias growing economy ,common energy security interests, national interest, and power projection makes India China a Peer competitor. Beijings current goal in southeast Asia is to maintain a stable environment around its periphery to assure others that China is not threat, and to encourage economic ties that contribute to Chinas economic modernization and thus regime stability. The foreign policy instruments that Beijing has employed to secure its goals are constituent throughout most of Southeast Asia, but the priorities assigned to different strategic goals vary depending on Chinas interest in different part of the region. CHAPTER II METHODOLOGY STATEMENT OF THE PROBLEM To examine the current politico-economic influences in South east Asia and recommend measures for India to significantly expand its politico-economic strategic influence in the South East Asian region with a view to counterbalance the overwhelming Chinese politico – economic dominance in the South East Asian Region.. Justification of the Study The most significant strategic development after the Cold War, is probably the sudden growth in Chinas economic potential and consequent national power. A rapid rise in power of a major country in the past has usually led to tension in the region, conflict with the neighbours and eventually a war. To make an assessment of Chinas posture well into the future is fraught with number of uncertainties. Equally, a projection of that role in the next century would, of necessity, demand an intimate acquaintance with how the Chinese have been involved in their dealings with this part of the world in the past. Above all, how that relationship has evolved, to the present day environment. Idea shall be to restrict the paper and sketch out important events in the near past, which have shaped the present and loom larger than the hoary past on the future that is yet in the limbo. The basic intention in writing this dissertation is To examine the current politico-economic influences in South east As ia and recommend measures for India to significantly expand its politico-economic strategic influence in the South East Asian region with a view to counterbalance the overwhelming Chinese politico – economic dominance in the South East Asian . A direct question has been addressed whether or not China restricts India from emerging as a global player. Scope Axiomatically any meaningful discussion of Chinas role in Southeast Asia would imply an understanding of its relations with the Indian subcontinent as a whole. Of the worlds great powers, China is geographically the closest to the Southeast Asian countries. It has common borders with Myanmar, Thailand, Laos, Vietnam, Caombodia. There is significant cultural similarities far reaching political and strategic repercussions over the past couple of centuries, and has propelled the worlds most populous regions into interaction in a wide variety of ways. From a simple geographical perspective, qualitative changes in the Chinas foreign policy should be expected if China grows from a medium-sized power to superpower. At its present rate of economic growth, Chinas productive capabilities and total wealth will soon outstrip those of the other Asian powers. As a weaker power, Chinas dependence on the favour of its neighbours has been comparatively high. But increased relative capabilities make i t feasible for a rising great power to exert greater control over its surroundings. If the opportunity arises to establish a dominant role in the region, China can be expected to seize it. Thus the scope of this paper has been restricted to Chinese dominance in the Southeast Asian region, which will pose vexing problems for India . An attempt has been made to analyse, how India can focus and counterbalance the overwhelming Chinese politico – economic dominance in the South East Asian. Organisation of Dissertation. The study is proposed to be dealt in the following sequence: Modern History strat influences in South East Asia. Political Economy of South East Asia. Chinese political and economical strategy in South East Asia. Indian political and economical strategy in South East Asia. Comparative Analysis of Indian Chinese politico-economic strategies in SE Asia. Recommended response of India to expand its influence in the region. CHAPTER III MODERN HISTORY AND STRATEGIC INFLUENCES IN SOUTHEAST ASIA The post-Cold War world is seeing in some areas a resurgence of nationalism and in others a greater emphasis on regionalism. These two tendencies will overlap. In Southeast Asia national and ethnic differences were significantly blunted by European colonialism and in some cases have been further submerged in the post-colonial period of new nation states. But what is new in Southeast Asia is the development of voluntary (as distinct from externally mandated) cooperation on a sub-regional or regional level. Most recently there is the assertion of an Asian identity, shared by Southeast Asians, which is sharply distinguished from Western value systems, social norms and economic models. It is too early to say how far that will be taken or how much it will influence the political and social development of Southeast Asia. The very important differences between and indeed even within the Southeast Asian countries induces some skepticism in academic circles about the existence of Asian values [2] etc. But there is no doubt that there is a perception in the region of some essential shared values or priorities, and a rejection of what are seen as Western individualistic and libertarian values. An embryonic sense of shared interests transcending ethnic or national groups emerged in colonial times between independence movements, student movements and other groups, including notably the various Marxist-inspired or communist movements in the region. But until after the Pacific War there was little connection across the region. The colonial empires were very separate and governed on different principles. It is a common observation nowadays that Australia, on the fringe of the region, only recently and belatedly become aware of and involved with its Southeast Asian neighbors. That is true, though with some qualifications. There was peripheral contact in the north even before the Europeans colonized Australia. But in the colonial era there was no steady development of contact or interest. The shifting patterns of alliance politics in Europe affected such contacts as there were between the colonial administrations in Southeast Asia and Australia, and indeed between the Southeast A sian colonial administrations themselves. Australia was not unique, or even unusual, in having little contact with its neighbors and in having its external links directed principally along the lines laid down by the metropolitan power. What are now the independent nations of Southeast Asia also had little contact with each other during the European colonial period. Just as the lines of communication and trade ran from Melbourne and Sydney to London, so did those between the French, Dutch, and other British colonies and the respective metropolitan powers in Europe. Right up to the Pacific War there was little or no communication between, for example, what are now Indonesia, Vietnam, Malaysia, and the Philippines. The links ran from Manila to the United States, from Batavia to the Netherlands, from Hanoi to France, and so on. It was the remarkable Japanese campaign which began at the end of 1941 which precipitated or accelerated the radical changes which took place between 1945 and the end of the Vietnam war. The sheer speed and success of the Japanese successes against numerically superior defending forces in Southeast Asia made a strong impression on opinion in the erstwhile colonies. The Japanese failed to capitalize on that in the sense that after early political successes in encouraging nationalist and pro-Japanese movements the appeal to shared Asian interests lost plausibility in the face of Japanese policies and actions which were exploitative or worse. Although Japan lost the war and left wounds in the region which are still not healed, the war precipitated the end of the moribund European colonial era, and accelerated the creation of independent states largely within borders established by the colonial empires. For some years trade and other economic links remained predominantly in the old colon ial grooves but with the economic supremacy of the United States and then with Japan embarked on decades of the highest rates of economic growth the world had yet seen, those patterns diversified. In the region the United States and Japan became the two most important outside powers and that was reflected inter alia by their leading roles in the setting up of the Asian Development Bank in 1966. By that time Australia[3] too had perforce diversified its trade away from Britain which had made it clear that it would seek its future economic arrangements in Europe and the Commonwealth arrangements which had supported much of Australias traditional export industry were phased out. Australia turned to Japan and others for new markets (a trade agreement with Japan had already been made in 1957). Australias development assistance programme had from the beginning concentrated on Southeast Asia and become and increasingly important instrument for involving this country with the region, especially as significant numbers of students from the region came to our universities and other institutions under the Colombo Plan and successor programmes.The failure of the attempted coup in Indonesia, the Gestapu of 30 September 1965, and the subsequent establishment of the New Order government there opened the way to overcome the regional or sub-regional strains produced by President Sukarnos eff orts to crush the newly-constructed Malaysia, as well as other tensions created or exacerbated by the Sukarno policies. In this climate ASEAN, the Association of South East Asian Nations, was established in 1967 and set out on its long and successful course of gradually building a sense of common interest and regional association among the six (originally five) members. ASEAN recently embarked on the development of AFTA, the ASEAN Free Trade Agreement. ASEAN has become the key institution in Southeast Asia not only because of its success in developing a sense of community among its very disparate members, and in finding a road for them to closer economic cooperation. It has also become the forum for discussion with the main world powers on a wide range of matters. This has come about through an annual mechanism of post-Ministerial consultations held after ASEANs own internal consultations through which ASEAN member governments, at Foreign Minister level, meet with their counterparts. These counterparts, termed dialogue partners, currently are Australia, Canada, the European Union, Japan, the Republic of Korea, New Zealand and the United States. In 1994 discussions on regional security were further developed with the establishment of the ASEAN Regional Forum (ARF) which groups ASEAN and its dialogue partners with Russia, China, Vietnam, Laos and Papua New Guinea. Looking at the recent evolution of Southeast Asia perhaps the most sig nificant thing has been the change that has occurred since the ending of the Cold War and the collapse of communism. Until relatively recently the centrally planned economy model had much attraction for many developing countries and there was up to the beginning of the eighties quite widespread aversion to capitalism and to the liberal market model as exemplified by the Western industrialized countries. Now virtually all of Southeast Asia is committed to market economics, albeit with more governmental political control than in the Western countries. There is a virtual unanimity about the commitment to economic development based on relatively open markets, private ownership and competition. With that has come a period of unprecedented economic growth. The major economies of Southeast Asia are all growing at rates previously thought unattainable for a sustained period. There are of course some uncertainties about the future; but there are few who doubt that Southeast Asia will early i n the twenty-first century be a major centre of economic power and influence. Southeast Asia has traditionally been a site of great power competition for regional dominance, due to its strategic location as a bridge between continental and maritime East Asia. To manage this competition and to enhance their own sub regional autonomy, the member states of the Association of Southeast Asian Nations (ASEAN) engaged in a number of regional institution building initiatives during the early 1990s. This institutionalism agenda led to speculation that ASEAN could become the hub of a nascent regional security community following the 1997 Asian financial crisis, however, the prospect that ASEAN could act as an autonomous entity to mitigate Sino-U.S. geopolitical pressures seemed increasingly tenuous. Weakened by political and economic instability, intra-regional disputes and a simultaneous expansion of its membership, ASEAN has come to question its own identity. This has only further undermined ASEAN-led regional security initiatives such as the ASEAN Regional Forum (ARF ). More frequently, Southeast Asian states have favored bilateralism and have looked to external powers to realize their security interests. These changing sub regional dynamics have, in turn, prompted renewed efforts by China and the United States to cultivate influence within Southeast Asia. Chinas attempts to gain support for its new security concept and US efforts to secure additional access and infrastructure agreements along the East Asian littoral are illustrative. To some extent, Sino-U.S. geopolitical competition has been modified by strategic cooperation resulting from the war on terror. China still remains wary of U.S. attempts to engage Southeast Asia in countering global terrorism. These trends have, in turn, compelled analysts to reconceptualize the Southeast Asian security landscape in a balance of power context. It is clear continental Southeast Asian states have aligned with China and maritime Southeast Asian states have aligned with the United States. The geographi c position of China and the United States, and the evolution of their interests and military capabilities accordingly, make it unlikely that either country would seek to project power into the others respective sphere. Southeast Asian states maintain a position of equidistance between the great powers. She attributes this to the ASEAN states general distrust of great powers and their desire to maintain the delicate Sino-U.S. regional balance. CHAPTER IV POLITICAL ECONOMY OF SOUTH EAST ASIA China sleeps, when she wakes, the World will tremble Napoleon The South east Asian countries over the past four decades has transformed itself from a region with enormous economic and political problems to one blessed with relative peace and prosperity. In particular the five ASEAN economies, namely, Indonesia, Malaysia, the Philippines, Singapore and Thailand , grew strongly in the 1960s with an average rate of 6 percent. This buoyant economic performance continued in the 1970s with 7.3 percent as they benefited from the massive inflows of the foreign exchange earnings due to sharp increase in the world price of primary commodities, including two oil shocks which benefited some of the members the same period. In the 1980s the region slowed down to an average growth rate of 6.1 percent. Regional economies experienced recessionary conditions due to high interest rate policy of the US Federal Reserve Bank, the consequent debt crisis in the region, the recession in the ASEANs major trading and investment partners, and the fall in the world prices of the primary commodities. But there was also a positive trend of influx of export- oriented foreign direct investment from Japan and the NIEs following the strong appreciation of their currencies. The recovery from 1991 to 1996 was followed by an economic contraction in 1997-98 due to the crisis which began in Thailand in July 1997 and spread to other parts of the region. In 1999-2000, the ASEAN economies staged a dramatic recovery with Singapore and Malaysia leading, things again turned sour with the September 11 attacks and the lackluster performance of the export sector. There was again a decrease in the economic growth due to the SARS, Iraq cri sis and terrorist related attacks, slump in the electronic market and collapse of the WTO talks in Cancun. The global economy is most rapid in emerging Asia where GDP accelerated to 7.2 percent in 2003, accounting for about 50 per cent of world growth. Looking forward, growth is projected to remain high at 7.4 per cent in 2004 and 7.0 per cent in 2005. The IMF stated that while domestic demand growth has increased significantly in emerging Asia, the regional current account surpluses remain very large, with exports supported by the rebound in the information technology (IT) sector as well as depreciating exchange rates. In the ASEAN-4, Thailand has shown the strongest expansion at 6.7 per cent in 2003, and is expected to remain high at 7 per cent in 2004 and 6.7 per cent in 2005. Cyclical considerations and high levels of public debt necessitate fiscal prudence for Thai authorities. The Malaysian economy is also recovering strongly and is expected to continue with inflation and unemployment remaining at low levels. However, the main policy priorities are the implementation of the announced fiscal consolidation to achieve a balanced budget by the year 2006 and greater exchange rate flexibility accompanied with suitable macroeconomic policies. Indonesias modest growth continues to be driven by private consumption, and has been accompanied with lower inflation. The Indonesian government should continue to implement its planned fiscal consolidation. Moreover, it needs to sustain banking, legal and judicial reforms in order to provide a better investment climate conducive to higher growth. As for the Philippines, uncertainties remain high even after the May 2, 2004 presidential elections. The main concerns of the Philippine government include increasing the tax revenues, restructuring the power sector, strengthening the banking sector, and improving the business system. Following the SARS crisis, the Singapore economy recovered in 2003 with supportive macroeconomic policies. To enhance its medium-term competitiveness and growth prospects, the IMF recommends a deepening and acceleration of reforms including further divestment of government  ­linked companies Issues and Challenges for Southeast Asian/ASEAN Domestic policy issues and challenges. On the domestic front, the growth prospects for ASEAN are very much dependent on various factors including the ability of their respective governments to provide economic, political and social stability, implement economic reforms, and diversify their economies. ASEAN policy makers thus face the following challenges: Sound macroeconomic environment. Following the 1997/98 economic crisis, government budget deficits relative to GDP have broadly increased and this is of serious concern for ASEAN governments, particularly for Malaysia and the Philippines. Price instability has become a serious concern for Indonesia and the Philippines. Exchange rates in Indonesia, Laos, the Philippines and Myanmar have weakened significantly. Moreover, the rising levels of foreign debt in the Philippines and Indonesia could create additional uncertainties. In terms of the current account surplus as a proportion of GDP, the six older ASEAN members have broadly shown higher levels relative to Cambodia, Laos, Myanmar and Vietnam (CLMV countries). Thus, in order to achieve a sound macroeconomic environment, ASEAN economies need to adopt a prudent fiscal policy, low inflation rates, stable exchange rates, and manageable levels of external debt and current account balance. Stable political and business environment. The political environment in some countries has been affected by military uprisings, kidnappings, bombings and other terrorist-related activities, peoples demonstrations, and elections. A 1997 survey of Japanese firms conducted by JETRO indicated that political stability is considered as the most significant determinant of Japanese investments in ASEAN. Thus Southeast Asian governments need to find ways and means towards achieving and maintaining a politically stable environment in order to encourage domestic and foreign investments. Social Harmony. ASEAN countries need to address issues such as conflicts between racial groups (e.g. the Chinese and pribumis in Indonesia, and the Chinese and bumiputras in Malaysia), between religious groups (e.g. the Muslims and Christians in Southern Philippines) and between the poor and rich. Despite all the policies and resources spent on alleviating poverty and reducing income inequality, unemployment, poverty and income inequality continue to be the major policy concerns of ASEAN governments. In reality, it is very difficult to reduce poverty and narrow the income gap given the interplay of politics, economics and industry, and the conflicting goals of the various interest groups in the economy like businesses, religious groups, the elite, farmers, small and medium entrepreneurs, etc. Thailands income gap between the rich and the poor was the widest in the world (Bangkok Post, 2S Aug 2003). In the Philippines, Gerard Clark and Marites Sison (2003) in their study titled liDo t he well-off really care about the plight of the poor? revealed that majority of the respondents suggested that some elite people cared while others did not; and those who did care did too little or acted primarily out of self-interest. In fact, there are some people in the superior group like the elite who wish the poor to remain poor because of the benefits that can be derived from their poverty. For instance, politicians often depend on the poor at elections time for support that propels them to political office. Economic Reforms. Southeast Asian governments need to continue implementing economic reforms that include market opening, trade, investment and financial liberalization. These reforms are particularly crucial for the CLMV countries as they undergo transition from centrally planned to market  ­oriented economies and for the crisis-hit countries especially Indonesia and Thailand. In the case of Indonesia, there was a lack of seriousness on the part of the political leadership to undertake economic reforms. For example, there were delays in the removal of tariff control and the privatization of state assets and enterprises, so that the process of reforms is reverting to protectionism. Furthermore, a delay in the IMFs financial assistance added to the ineffectiveness of Indonesias recovery programme. Thailand completed its 34-month Stand-By Arrangement from the IMF that formed part of an international financial package worth US$17.2 billion from multilateral and bilateral lenders. Outs tanding obligations at end-June 2002 amounted to US$6.4 billion and repayment was finally completed on July 31,2003, some two years ahead of schedule a significant achievement on the part of the Thai government. Economic Diversion. Various factors impel ASEAN economies to continue to diversify their economies: volatile and broadly declining primary commodity prices, depletion of non-renewable primary resources such as oil and gas, and the high costs of production. Following the decline in crude oil prices in the 1980s, Brunei and Indonesia have begun to diversify their economies from oil towards non-oil products and services (finance, tourism). Because of the high costs of production (e.g. high labour costs), Singapores economy has emphasised the significant contribution of the services sector (IT, education, tourism, finance). The services sector has accounted for about 60-70 per cent of Singapores GDP. Moreover, to improve the competitiveness of Singapores manufactured products and services, several cost-cutting measures have been implemented, namely, cuts in contribution rates for mandatory saving, reduction in corporate taxes, and reduction in utility charges. Long-run policies include t raining and re-training programmes for workers and greater focus on RD activities for innovations and improvement in technology. In Singapore, there are more than 600,000 workers with secondary education or lower. As such, it is extremely important that these workers upgrade their skills and learn new tasks to be more productive and to be more employable in the future. There are also other schemes such as the job re-design programmes implemented by the Singapore Productivity and Standards Board which involves changing both job content and arrangement to encourage workers to become more productive. Other ASEAN countries can learn from Singapores experiences with regard to cost-cutting measures, training and re-training programmes, and RD activities to improve productivity and competitiveness. Multi-Ethnic States. Multi-ethnicity is a dominant feature of the region and therefore stable inter-state ties and intra-state ethnic stability are closely intertwined. The region has to work toward the stability and security of strong, secular, federal multi- ethnic states if it is to remain secure and stable in the coming years. The Challenge of Democratisaton. The other key political challenge that confronts South East Asian nations is how to build stable, democratic state structures in condition of a rising tide of expectations for better life and greater liberty. Through much of Asia, the struggle between pressures for democratization against existing authoritarian state structures or oppressive socio-political conditions is a reality. Human rights abuses are common in many of the states. In Myanmar and Indonesia there is a rising pressure for political change and expansion of political rights. Militancy, insurgency and terrorism have wracked many parts of ASEAN region in the past and continue to do so even now. Only through steady democratization, decentralization and provision of caring and efficient governance can the integrity of state structures and stability be preserved. CHAPTER V Chinese political and economical strategy in South East Asia. China perceives itself as a central power on Earth. The rest of the World is an array of greater and lesser powers which neither have unified structure nor a single head Macnall Mark[4] Chinas political and economic strategy are interlinked with the security relation that China shares with the Southeast Asia as a region. China embraced the Southeast Asian regionalism and of multilateralism with Southeast Asia is part of broader decision to jettison Chinas old confrontational policy and style. Chinese leaders officials turned this approach to South east Asia on its head replacing the assertiveness that characterized pre 1997 Chinese policy with accommodation. This concerted campaign assuaged South east Asian fears but also paved the way for South east Asian and Chinese to participate in and profit from this rapidly expanding economic ties. Chinese leaders and officials smoothly employed diplomacy in innumerable meeting with South east Asian counterparts to slowly and carefully win greater influence in south east Asia. The Chinese foreign policy community made a concerted effort to represent Chinas reemergence as a regional power. It portrayed recent trends as aligne d with the economic and security interests of its southern neighbors. China convinced the neighbors that it is not a threat. China employed the same set of instruments of Chinese national security policy at both multilateral level with ASEAN and bilateral level with individual ASEAN states albeit with differing effects in the countries concerned depending on their individual circumstances. It places contentious issues temporarily to the side, places processes before product and welcomes efforts to build EAST ASIAN community. Beijing binds the South East Asean countries with a spectrum of economic, political and cultural and security proposals. As Beijing courted its southern neighbors, it supplemented diplomacy with economic ties in terms of trade and economic investment. China opened China to overseas ethnic Chinese and invited ethnic Chinese Southeast Asians to invest in China and subsequently invited Southeast Asians. Rapid increases in the Southeast Asian- China trade led to ove rcome the financial crisis. Chinas economic success has been as impressive as its diplomatic campaign, because china and Southeast Asian countries have been competitors both FDI and for developed markets in Japan,Europe and the United States. Beijing has worked assiduously tp provide Southeast Asian economies with a stake in Chinas economic expansion thus stabilizing Chinas periphery and contributing to Chinas own economic growth. Chinas turn to multilateralism diplomacy was to compliment its intense bilateral diplomacy was timely. ASEAN grew during the 1990 and accommodated new countries and also in the due course of time it had not been able to respond to the financial crisis and also the turmoil in East Timor. Chinas help to ASEAN gave a new appearance to ASEAN. Multilateral diplomacy provided a two way street for ASEAN countries and China and provided measures to forge new bonds. ASEAN also