Economic diplomacy: Pacific beats ASEAN for nervous investors

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sticky money

As the new Labor government oscillates between promoting investment in Southeast Asia to deepen security ties and trying to keep the Pacific family together in the face of Chinese challenges, recent Australian capital flows tell an interesting story.

The stock of Australian investment in Southeast Asia has fallen over the two COVID years, just as the former Morrison government and its Labor replacement decided to give this region a higher diplomatic priority and urged companies to do the same.

Meanwhile, the stock of investments in Pacific Islands Forum countries has increased during the pandemic. This is largely due to resource investment in Papua New Guinea (which is by far the largest country in the region), while investment from Fiji was flat and the rest of the region slightly down. Nonetheless, it could have been quite a positive story for Prime Minister Anthony Albanese to tell at this week’s Pacific Islands Forum, where Australia faces skepticism for hot and cold in the region amid two of the country’s banks canceling their operations.

According to the Australian Bureau of Statistics, the stock of Australian Foreign Direct Investment (FDI – generally the “stickiest” long-term investment) has increased by 53% over the two COVID years to $25 billion.

It is difficult to tell the relatively positive story of investments in the Pacific during the pandemic without drawing attention to the fact that FDI in the ASEAN region fell by 41% during the same period.

For context, although the numbers are not directly comparable, annual Pacific aid is $1.8 billion under definitions and Labor tops that up with $525 million over four years. The government’s main regional business support arm – the Australian Infrastructure Finance Facility for the Pacific (AIFFP) has $3 billion in loan capital and $500 million in grants.

However, it is difficult to tell the relatively positive story of investments in the Pacific during the pandemic without drawing attention to the fact that FDI in the ASEAN region fell by 41% during the same period. And remarkably, when the government encouraged companies to diversify into places such as Southeast Asia, away from overreliance on China, the stock of FDI in China also fell. by 41%.

So, it would appear that China’s exposure warning was heard loud and clear, but not the positive message from ASEAN that Albanese and Foreign Minister Penny Wong echoed during recent visits to South Asia. South East.

Testing of components at an electronics factory in Bac Ninh province, Vietnam, in December 2021 (ILO Asia-Pacific)

The net result is that Australian FDI in the low growth Pacific region of around 11 million people is almost the same as in the higher growth Southeast Asia ($27 billion) with 650 million people and more than double in China ($9 billion) with 1.4 billion people. Total investment in Southeast Asia and China is still much higher than in the Pacific due to the wider range of less controlled portfolio investment opportunities, but this has also declined significantly over the years. of pandemic.

Indeed, on the business side of regional engagement, Australian companies have now invested more than $2,000 per capita in the Pacific, compared to around $40 in Southeast Asia and less than $10 in China. Whether it is diversification or concentration is an interesting question. Even over ten years, despite serial trade agreements and other initiatives with ASEAN countries and China, the stock of FDI has grown more in the Pacific (admittedly still mainly in PNG) than in ASEAN or in China.

There is a good argument that resource investing in PNG does not represent the sort of flagship Australian presence that the retreating Westpac and ANZ banks once offered in the Pacific. And a more diverse Australian presence would arguably help Australia Inc’s struggle to keep up with the growing presence of Chinese companies, which explains the government’s generous support for Telstra’s purchase of Digicel Pacific, in a landmark deal. of Australia Inc concluded this week.

These figures may also hide distorting factors such as the channeling of investments to third countries and fluctuations in exchange rates.

But the COVID-era investment figures still provide an interesting window into the increasingly difficult balancing act that the Albanian government has developed the right policy approaches to build ties in two quite different neighborhood economies in the middle. of China’s expansion.

strong statesman

Amid the wave of shock and analysis following the assassination of former Japanese Prime Minister Abe Shinzo, it is perhaps unsurprising that one of his five Australian counterparts, Malcolm Turnbull, has do their own thinking.

In his memoirs A bigger pictureTurnbull presents the revival of the Trans-Pacific Partnership trade deal as a joint project with New Zealander John Key which he had to persuade Abe to join because “he (Abe) didn’t want to fall out with his new buddy from golf”. Donald Trump, who dropped the TPP in 2016.

Unlike Abe’s stewardship of a new security role for his country, his legacy of economic reform remains an unfinished story.

But this week, Turnbull said relaunching the trade deal was his “best joint project” with Abe hatched over dinner at his home in Sydney in 2017.

Abe’s place as Japan’s longest-serving prime minister and one of its most important has been duly recognized in many articles this week, from his attempts to reform Japan’s pacifist constitution to his pioneering Quad Group .

But Turnbull’s more equivocal account of the TPP’s revival only underscores that, unlike Abe’s stewardship of a new security role for his country, his legacy of economic reform remains unfinished history. This is despite the fact that when Abe returned to power in 2012, after the less than stellar short stint of 2007, he sought to emphasize the importance of economic reform as a key pillar of overall national power.

Malcolm Turnbull, left, talking with Abe Shinzo in Tokyo, 2018 (Kyodo News via Getty Images)

Former Australian Ambassador Bruce Miller, who knew Abe better than most foreign commentators, provided perhaps unintended insight into the unstable economic legacy in his own thinking. Write in the Australian Financial ReviewMiller noted that while the eponymous “Abenomics hasn’t delivered on its promises…every year its government has carried out economic reform.”

That may be the case, but it has tended to leave these reforms orphaned from politics without a steadfast sponsor in the same way that a parallel economic change agent such as former Prime Minister Paul Keating pursued the retirement. So while women’s participation in the workforce has increased under Abe’s leadership, gender differences in pay and job quality remain huge.

Abe’s biographer, Tobias Harris, has a good explanation for this, describing Abe as above all a supporter of a strong state, even when it comes to securing prosperity through economic reforms.

The irony is that the economic legacy is now in the hands of two differently placed successors.

Prime Minister Fumio Kishida has vowed to uphold Abe’s legacy since the assassination, even though until then he had spent his time in office implicitly criticizing the Abenomics outcome by calling for a new, more benevolent form of capitalism. in Japan.

Meanwhile, Bank of Japan Governor Haruhiko Kuroda, who did the heavy lifting of Abenomics with extraordinarily loose monetary policy, which became known as “going Japanese,” like other central banks followed him during the pandemic. But Kuroda now technically has victory in sight with inflation above the Abe government’s 2% target as his global peers tighten monetary policy. Whether he can unravel the Bank of Japan’s unconventional policy without sending shockwaves through global markets will say a lot about how Abenomics is perceived.

Failure of state plans

The Albanian government appears to have come to terms with the reality of potential failed state preparation on a Chinese client state with its dismissal of Timor’s long-running oil spy case.

If there was any rational economic diplomacy for the long saga of Australia bugging the cabinet room of Timor Leste during the seabed boundary negotiations in 2004, it was the idea that in the end account Australia would support the country when the oil money expired.

Just as China’s pre-election security deal in the Solomon Islands fueled the Albanian government’s diplomatic turmoil in Suva this week, the signing of China’s post-election deal in Dili appears to have bolstered the arguments in in favor of easing tensions with Timor over the espionage affair.

Considering Timor a potential bankrupt state is quite ironic these days as it has become one of the most functional democracies in Australia’s neighborhood, but the dilemma of depleting its oil revenues from here the end of the decade remains real.

While Australian commercial interests were at stake in the seabed negotiations, there was also a distinctly realistic view among key policymakers that Australia would better manage oil revenues until they were needed to fund long-term development assistance in the country.

And just as China’s pre-election security agreement in the Solomon Islands fueled the Albanian government’s diplomatic wave in Suva this week, the signing of China’s post-election agreement in Dili appears to have bolstered the case in in favor of easing tensions with Timor over the espionage affair. Attorney General Mark Dreyfus made that as clear as possible with such national security cases when he pointed out that the case was being dropped to protect both national security and ‘Australia’s relationship with our loved ones’. neighbors”.

As Andrea Fahey argued The interpreterAustralia has an opportunity to build a new relationship with a new generation of young democratic politicians in Timor Leste who are keenly aware of the need to sidestep the failed state’s nemesis with new development ideas.

But former – and possibly future – Prime Minister of Timor, Xanana Gusmao, sent an interesting signal about the depth of Australia’s memories in his country to the new Albanian government in ostensibly thanking Tanya Plibersek to make sure the oil case was dropped. Plibersek was replaced as shadow foreign minister by Penny Wong and is considered to be on the outside with Anthony Albanese, but has still played a significant role in shifting the Australian mood towards a more accommodating stance on seabed negotiations in his former opposition post in 2016.

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