Southeast Asia is the center of attention for Asia-focused investors here on Friday with the ASEAN regional forum bringing together the foreign ministers from most major Asian nations, and more, in Jakarta today.
Multinationals and investors with a global focus are increasingly interested in Southeast Asia as an alternative to or an expansion from investment into China. Indonesia is hosting the meeting because for this year it holds the presidency of ASEAN, the Association of Southeast Asian Nations.
The grouping has expanded beyond Southeast Asia's borders into the East Asia Summit, which today brings together the foreign ministers of the 10 ASEAN nations as well as the United States, China, Russia, Japan, India, Australia, South Korea and New Zealand. The foreign ministers are meeting in advance of the full summit with world leaders in September.
U.S. Secretary of State Antony Blinken already met on Thursday with his Chinese counterpart, Wang Yi, at a time that geopolitical tensions between the two nations are very high but diplomatic ties show signs of strengthening. Neither side gave much in the way of concrete detail as to what was discussed at the meeting, but the State Department says it is "part of ongoing efforts to maintain open channels of communication" to clarify U.S. interests.
China had cut off all ministerial-level contact with the United States after the imposition of U.S. trade tariffs in 2018, followed by a U.S. declaration that China's actions in Xinjiang constitute genocideand the imposition of sanctions on Chinese companies and officials. While the administration of U.S. President Joe Biden has been toughening the rules on the export of high-end chip technology to China, Biden's team has also been furiously attempting to build bridges on the diplomatic side.
It is keen to characterize the Sino-American tensions as healthy economic competition while stating the new chip rules are necessary for national security in order to prevent U.S.-made or U.S.-designed chips from making their way into the Chinese military-industrial complex. And on the diplomatic side, both China and the United States want to portray themselves as responsible superpowers working for the betterment of the world.
However, their world views are quite different. That's why Blinken is eager to push "our vision for a free, open and rules-based international order," whereas China would like to upend the existing "hegemony" of Western democracies, implementing its own autocratic, centralized system in which the Chinese Communist Party reigns supreme. Within China, the party sets whatever rules it wants.
Internationally, China has shown a brazen willingness to ignore the rules, whether that's with its island building in the South China Sea or by violating the handover agreement with Great Britain that promised to introduce democracy in Hong Kong. Its Nine Dash Line claim to much of the Pacific infringes on the marine borders and territory claimed by most Southeast Asian nations and is sure to be a topic of concern at the forum. It even has led to the banning of the movie "Barbie" in Vietnam, as I described last week.
Those tensions were surely behind the thinking of Indonesian Foreign Minister Retno Marsudi when she kicked off proceedings. "The Indo-Pacific is not a battleground," she said today, noting that East Asia will be the biggest contributor to global growth over the next 30 years. "The region must remain stable."
She added that "mistrust and uncertainties" still plague the region. With the backdrop of tensions between East and West, some would say the Indo-Pacific is experiencing a "Cold War in hot places," she said.
Pointedly, the Indonesian foreign minister called for "respect for international law in the South China Sea." The Permanent Court for Arbitration in The Hague ruled in 2016 that China's claim to almost 90% of the South China Sea as well as the roughly US$5 trillion in oil and gas reserves beneath it has "no legal basis." China didn't participate and ignores that verdict.
On Thursday, Blinken stressed to Wang the "importance of maintaining peace and stability across the Taiwan Strait." The United States maintains a position of deliberate vagueness over the status of self-governed Taiwan, but President Biden has said U.S. forces would come to Taiwan's defense should China ever invade.
Blinken has had a pretty eclectic travel schedule, hopping from Britain to Lithuania to Indonesia in the last week. This marks the second time he has met with Wang in the last two months, after Blinken's trip to Beijing in June, when he also met with President Xi Jinping.
The Chinese description of Thursday's meeting says Wang met with Blinken "at the request of the latter," and demanded that the United States "stop suppressing China in economy, trade, science and technology," as well as lifting the "illegal and unwarranted sanctions against China." However, the Chinese top leadership is under pressure to stimulate the flagging Chinese economy, so they're willing to come to the table in the hopes of boosting trade and foreign direct investment.
It has been a mixed year so far for Southeast Asian stocks. Japan's Nikkei 225 is rampant, up 26% after today's flat close, and is leading the way for developed markets. But the emerging markets in ASEAN are little changed in 2023, with Indonesian stocks indicative, the Jakarta market up just 0.3%. Philippines stocks are up 0.9%, the best showing, but Singapore's Straits Times is basically flat on a 0.1% loss.
Malaysian stocks are down 6.6%, hampered by the poor performance of state-owned enterprises. But Thai stocks are the poorest performers, down 9.2%.
The Thai underperformance is explained by the political situation there, which I wrote on Wednesday. Sure enough, enough senators abstained or simply didn't show up for Thursday's vote to ensure that the top vote getter in May's nationwide election, the Move Forward Party leader Pita Limjaroenrat, couldn't capture enough votes to get elected as prime minister. He was the only candidate.
It's likely there will be another vote next week. Pita, who came up short by 51 votes out of 749 members of parliament, vows to fight on but faces staunch resistance from the 250-member Senate of Thailand, whose members are elected by the military. Pita's party promises changes to the law banning insults to the monarchy, setting him against the military and political establishment.
