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Friday
Nov232012

Economic Nationalism in Asia

by Kit Dawnay

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Nationalism (rarely low) is up in Asia.  Disputes over islands, fisheries, oilfields, visits to shrines and even national dances are the current mainstay of regional press coverage. 

Manifestations of patriotism in Asia are nothing new, and have long sat along a continuum varying from acceptance to extreme resistance. The nastier forms of nationalism demand attention, though.

One notable example has been anger expressed in Chinese streets at Japan’s purchase of the Senkaku/Diaoyu Islands in September 2012. This violent nationalism derives in part from China’s Patriotic Education Campaign, introduced in the wake of the Tiananmen massacre, and at times its adherents show a fascist tinge. 

Of similar concern is the stance espoused by Japan’s more nationalist politicians.  Worrying, then, is that extreme rhetoric will rise as the 16 December elections in Japan draw near, raising the risk of tensions, perhaps even an accidental conflict between two of Asia’s great powers. 

Less violent expressions of nationalism, such as those defined through economic regulation, are also on the increase. They appear less egregious. It is not easy to identify when economic regulation shifts from being a reasonable, if burdensome, regulatory tool to something prejudicial. But as any investor would attest, the distinction is crucial.

Two current examples have arisen, in Mongolia and Indonesia. 

In Mongolia, people have gained little from a resources boom; they still live in “gers” (traditional tents) and scrape a living. Accordingly, politicians claim a desire to apportion some mining company earnings to the people, an ostensibly laudable aim. A tax increase for mining businesses, a new strategic investment law, and efforts to force major companies, such as Turquoise Hill, a subsidiary of mining giant Rio Tinto, to renegotiate contracts, all seem justified, then.

Similarly in Indonesia, a mining boom has encouraged politicians to pass laws obliging companies to build smelters near plants, thereby adding to local jobs, and to hand their interests to an Indonesian counterparty ten years after investment. The government has also restricted certain foodstuffs, and is channelling imports through particular ports, ostensibly so as to build local capacity and improve social conditions.  

However, a nefarious motive often underlies these noble ends. In Indonesia, many measures favour the interests of powerful businesses, such as those controlled by the Bakrie family or by presidential hopeful Prabowo Subianto. Similarly, in Mongolia, nationalist ministers often turn out to be involved in the sector in question. Vested interests thus subvert measures, orchestrate their introduction, or rely on them to assist in seizing assets.  Either way, unless states are careful, the rules come to favour only local robber barons.

A related fear is that economic nationalism can be self-defeating. Take coal. It is demand for coal in China that has led to much investment and has emboldened Ulaanbataar. Mongolia became China’s biggest supplier of coal in 2011 (sending in some 43% of its imports), and expanded production from about 10 million tonnes in 2008 to nearly 20 million tonnes in 2011. Its industry, moreover, is still nascent.   

Shifting policy to take account of demand seemed wise, even if it is actually quite risky. The first difficulty is that Ulaanbataar’s tough stance towards investors relies on the assumption that China’s fast growth will continue as before, a belief increasingly questioned. Indeed, the US Conference Board’s Global Economic Outlook published projections in November 2012 that Chinese GDP will grow only 6.9% in 2013, falling to 5.5% from 2014 to 2018.  The lack of demand in China’s export markets, such as the European Union and the US, shows little sign of picking up. 

A second, longer term concern is the shale gas revolution, which may ease pressure on energy markets. The US is now a major gas supplier. Russia is also claiming huge shale reserves, as have Canada and China. Coal, and, thereby Mongolia, may be the loser. Should prices fall, Ulaanbataar’s longer term prognosis may appear based on a top of the market calculation, and the country may be misguidedly risking its relationship with the investor community.

For their flaws, though, these nationalisms have a purpose. They tie individuals and groups together, and unify territories disparate in language, geography and culture. But at what stage do they become self-defeating? Is it when they are hijacked by corrupt oligarchs to further their interests, or is it when they provoke a war?

Nationalism is not organic, after all. It is built by governments or groups with particular agendas, and is usually defined in opposition to something or somewhere. And, as Doctor Johnson would have it, it remains the refuge of scoundrels – in Asia today, as in Georgian England.  

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About the Author: Kit Dawnay is an independent political and foreign affairs analyst based in Hong Kong. He can be contacted at kit_dawnay@yahoo.com.

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