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The changing face of Asian regional governance

Australian policymakers need to acquaint themselves with the changing nature of regional governance in Asia.

The growing competition between Japan and China over regional primacy is changing the face of Asian regional governance — but not necessarily in predictable ways.

While observers have focused on Asia’s baffling array of regional institutions to discern which regional power is dominant, the real story in Asia is one of emerging regulatory networks.

These regional regulatory networks (unlike Asia’s largely ineffectual multilateral institutions) are issue-specific, problem-solving mechanisms that involve national, subnational and regional agencies, even private firms.

This process of regionalisation has its roots in the region’s increasing economic integration, both internally and globally. Asian firms, including state-owned companies, are now organised on a regional scale like never before, giving Asian governments a stake in how other states are governed domestically.

Specifically, the deep economic crisis of 1997-8, although affecting regional states unevenly, has demonstrated the extent to which Asian states are potentially exposed to financial and economic instability within and outside the region, and the importance of ameliorating the risk of financial meltdown by acting in a coordinated fashion. This lesson has been reinforced by the current crisis affecting mostly North America and Europe.

This quiet transformation in Asian politics has been further catalysed by the perceived worsening of a range of ‘non-traditional’, transnational security issues, such as infectious disease, environmental degradation, organised crime and terrorism, creating a growing impetus for greater cooperation.

Japanese and Chinese governmental agencies have played a pivotal role in establishing, funding and providing broad direction to regional governance networks.

While Japanese and Chinese authorities have cooperated reasonably well in some cases, arguably this “regulatory regionalism” in Asia is becoming a new arena for rivalry and competition between the two governments.

Take for example, the Chiang Mai Initiative Multilaterialisation (CMIM) – a regional liquidity pool of $240 billion designed to contain rapid devaluation of national currencies – premised upon a regional surveillance mechanism. This mechanism requires the cooperation of various national agencies, such as central banks and financial regulators, which are expected to share information with the regional information mechanism and peers, as well as evaluate other countries.

The CMIM was created following Japan’s failing attempt to set up an Asian Monetary Fund in the wake of the Asian crisis, which was heavily resisted by the United States. The Chiang Mai Initiative, which in 2010 became the CMIM, was subsequently developed as a kind of compromise.

Japan and China have been the two biggest contributors of funds to the CMIM. Controversially, under US and International Monetary Fund pressure, 80% (now 70) of the funds released by the CMIM in case of rapid currency devaluation are linked to states’ compliance with IMF policy prescriptions, a provision initially supported by both Japanese and Chinese governments.

In 2011, however, the Chinese government sought to substantially reduce the proportion of funds linked to IMF prescriptions, gaining considerable support from many states in the region, including South Korea. It was unsuccessful in this eventually, due to Japanese, American and IMF pressure. But this attempt indicates a rising Chinese proclivity to use alternative regulatory standards as a way of constructing a competing Asian regional order.

Another notable example, which demonstrates the growing complexity of Asian regional governance, is that of the Asian Development Bank. Until recently, the ADB was essentially viewed by most as a Japanese instrument in the region. The Japanese and American governments have been the ADB’s equal-first shareholders and donors since inception in 1966.

More recently, however, the ADB has gained considerable attention from Chinese policymakers. Recent Chinese contributions made China simultaneously the ADB’s third-biggest donor and recipient of development funding. In response, Japan has become particularly keen to use the ADB as a means of attaining greater regional economic integration.

But looking closely at China’s role in the ADB’s large-scale Greater Mekong Subregion project, it is clear that the national governments of Japan and China are only nodes in a wider network they do not necessarily control.

The Yunnan provincial government, as well as companies based in Kunming, the provincial capital, have played a crucial role in shaping the nature of Chinese involvement in the GMS, cultivating independent relationships with local and national authorities, as well as with private firms, in neighbouring Southeast Asian states. These Yunnan-based state agencies and firms, including state-owned companies linked with the provincial government, are just as antagonistic towards other Chinese governmental agencies and private firms as they are towards competitors from other countries.

These developments in Asian politics mean that is essential for Australian policymakers to acquaint themselves with the changing face of Asian regional governance and look beyond formal institutions to the rise of regulatory regionalism. The blurring of international and domestic politics that this shift entails means it is important for the Australian government to draw on a wider pool of expertise when contemplating policy action in Asia than that associated with traditional foreign policymaking.

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