Tigers at Bay

As a region, it is also more robust than either the EU or the United States, where the International Monetary Fund forecasts that growth will rise from 1.6 percent last year to 2 percent next year. In contrast, the Association of Southeast Asian Nations (ASEAN) will grow by more than double that rate (5.2 percent in 2018), and even though growth is forecast to slow in China, it will still stand at an enviable 6 percent next year. In India, it will be 7.7 percent. The sustainability of this growth is an object of study for obvious reasons. In China, the key trading partner on whom much of the region’s and the globe’s prosperity rests, concerns currently focus on finance and the state.

First, there are concerns that state-owned enterprises, with all their attend-ant nepotism and inefficiency, still dominate. While they are only a fifth of the economy by size, state players tend to distort legislation and deprive the private sector of growth opportunity in key industries such as transport and energy.

The lingering hand of the state affects finance. The Organisation for Economic Co-operation and Development estimates that corporate debt has soared from 120 percent of GDP five years ago to over 160 percent today. In most emerging markets, it stands closer to 60 percent. Two-thirds of that debt belongs to state-owned enterprises, and much of it may be subject to write-downs. Nonperforming loans have risen fourfold in the last three years, particularly “special mention loans,” offered on lenient terms.

Chinese banking statistics are opaque by Western standards, and nonperformance is thought to be underreported. But given that China’s banking system is now the biggest in the world—and that even less accurate reporting exists of a shadow banking industry living off the largesse of state investments—the potential effects of a Chinese financial meltdown can only be imagined. The “regulatory windstorm” recently unleashed by China’s banking regulator must be taken as a sign that Chinese authorities, too, are concerned about the systemic risk of defaults.

A final element of concern over China’s financial system is that its capital controls are creating too high a surplus inside the economy—last year alone, Chinese households accumulated $5 trillion—instead of allowing that money to be invested overseas. This not only deprives other economies of growth; it puts all of China’s eggs in one basket.

Second, there are fears of a housing bubble. House prices have surged by a staggering 10 percent of GDP in two years, yet entire cities’ worth of real estate goes unsold and uninhabited because of overcapacity. A housing bubble would further undermine financial stability.

Third, the rising level of inequality goes unaddressed. The Communists can claim a victory against poverty in the countryside, but this has happened thanks to China’s growth rather than redistribution. The IMF study reveals that what applies in capitalist economies largely applies under socialism as well: Less educated, older, and non-state workers have been those most hurt most by the transition from a low-skilled, rural economy to a manufacturing economy.

Fourth, President Xi Jinping has chosen to uphold the standard Chinese policy of resisting political liberalization. Freedom House has tracked a sharp uptick in authoritarianism and a move away from civil freedoms. In the last year, Beijing has imposed strict supervision standards for NGOs, increased surveillance of people through the Internet, and imprisoned human-rights lawyers and their clients for months, or years, without charging them.

Given all this, there are justifiable concerns about whether the Chinese Communist party can competently manage a transition to slower growth and an aging population, as well as address risks such as corporate over-indebtedness, a looming real-estate bubble, and environmental degradation.

Here, Michael R. Auslin undertakes the ambitious task of revealing the potential for disruption in Asia by assessing the political, economic, demographic, and defense risks of not just China, but also India, Japan, Korea (north and south), Indochina, and the large archipelagic states of the western Pacific. This is an analytical carousel on the potential for armed conflict sparked by North Korea; the appalling poverty of India, where a third of the population still lacks electricity and literacy; gender inequality throughout southeast Asia, which leaves the talents of half the population outside the economy; the combination of reform gridlock and demographic decrepitude in Japan; and the general resistance to transparency, accountability, meritocracy, and democracy through much of the region—values that, in the West, have underpinned sustained economic and social development for two centuries.

The End of the Asian Century brings a great deal of knowledge, and two decades of experience, to the layreader. For the nonexpert on Asia, it is equivalent to a concentration of lectures, complete with references. For that alone, anyone interested in the geopolitical risks of the region and the global economy will find it worthy of their time.

Its quality as an Asian panopticon is both its strength and weakness, however. The problems of Vietnam, the Philippines, and Indonesia simply don’t measure up to the magnitude of the risks in China. This lack of focus means that there is no overarching conclusion—for what conclusion can one draw from so disparate a set of nations?—and means that this study amounts to no more than the sum of its parts.

More important, The End of the Asian Century fails to prioritize its political preoccupations over the economic. The competitiveness of Asia, based as narrowly as it is on explosive population growth (followed by precipitous population drop), cheap labor, and willing buyers abroad, might truly be at risk in purely economic terms. But that is not what makes this book important to a Western reader: The real cause for concern is that the Chinese Communist party can apparently proceed unreformed—and in the process, attempt to rewrite the rules of the global economy.

The fact that despite the industry of its people, China’s growth “remains driven by the state and private business sectors and not yet by consumers,” or that “since the Tiananmen Square massacre of 1989, the party has become ever more isolated from the citizenry and is seen as corrupt, inefficient, and often brutal .  .  . distrusted and disliked by the vast majority of the population,” means that individual rights are set at zero for a large proportion of the world’s population. Other dictators in the region, and as far away as Iran and Sudan, receive material and diplomatic succor from China’s stance—people who “threaten their neighbors, oppress their people, or seek to destabilize the international order,” as Auslin puts it.

This means that China, more potently than Russia, challenges the American and European worldview and international order. Even in Europe, China has launched the “16+1” forum of former Warsaw Pact countries in a direct challenge to the European Union. Not surprisingly, American influence in the Far East is now weighed against China’s, where “smaller nations feel pressured to pick sides, when their greatest desire is to antagonize neither.” Indeed, China’s direct challenge to American power in the Pacific, now taking the tangible form of military runways on once-insignificant atolls, means that the United States will be called upon to shore up its security mantle.

Auslin omits to mention that China is flexing its soft power, too. Under the One Belt One Road initiative, launched in 2013, Beijing is to spend almost a trillion dollars building infrastructure around the world to extend the reach of its exports. This is, perhaps, the largest such spending program ever conceived, dwarfing even the Marshall Plan. And like the Marshall Plan, it will have political ramifications, cultivating markets and fostering loyalties.

There is a further effect of China’s strident defiance of the Western order. The fall of communism in Europe was oversold as a final victory for capitalism, that would in theory sow a middle class demanding democracy in former Communist states. This has not yet happened, and social scientists are divided about whether it will. The open society and international trade system America built after World War II appear to be insufficient to overthrow Evil Empires. Even worse, since the 2008 financial crisis, they appear unable to provide quality of life to this generation and equal opportunity to the next. The United States may be transitioning from the land of greatest economic and social opportunity to a country of increasingly entrenched privilege, growing inequality, and a falling labor force participation rate.

The sensible remedies Michael Auslin suggests for building leverage over authoritarian regimes in Asia are precisely the ones America cannot enact because of growing self-doubt. These would include using the Trans-Pacific Partnership to create a swirling vortex of trade among democracies—eventually, perhaps, luring China and other illiberal regimes into greater accountability and rule of law. They would also include raising the cap on H-1B visas for skilled workers to pre-9/11 levels, cultivating Western political values, and expanding State Department exchanges that target future business and political elites.

Unfortunately, these are precisely the patient, extrovert policies the Trump administration has declared void. The Trans-Pacific Partnership has gone by the board, and State Department budgets are earmarked for reduction. Many Americans seem to have forgotten that what made America great was its willingness to spend time and money building multilateral alliances that strengthened democracy and free trade.

And herein lies the greater threat: not that the combined pressures of Russia, China, and other illiberal regimes that find transatlantic hegemony has grown long in the tooth will overthrow it by force, but that American and European societies are losing confidence in the qualities that make them enviably different from China and Russia. Western societies are lured by the nationalist siren song that their liberal systems will not stand up to state capitalism and its alleged ability to make up for their waning qualities. This loss of confidence is evident in the fact that press freedom in the West has been falling for over a decade, while authoritarian leadership and nationalism are gaining currency, boosting partisanship and straining political systems to the point of distorting them.

The economic threats to Western capitalism from lack of reform in Asia are, indeed, real. But the political problems are homegrown.

John Psaropoulos writes from Athens for the Daily Beast, the Washington Post, and other publications.