In everyday life, we see and feel the events and relations between countries all around the world and participate in international relations regardless of our will and intention. We live in an era of constant change, rapid transformations and everywhere around us the process of globalization and regional interstate cooperation is taking place rapidly and international donor organizations are actively promoting collaboration in every corner of the world by providing aid and loan assistance.
The Globalization and free trade have become the defining trend in international relations around the world. For the countries, the globalization brings many advantages; however its borderless character brings no way to avoid a lot of bad consequences, in which financial crisis gets the highest concern.
It is undoubtedly explicit that the ongoing financial crisis is spreading all over the world devastating big economies like dominoes as they are inseparably attached to each other. In the meantime, as some scholars argue, the event is causing a historic milestone declining Western domination and causing an enormous challenge for its current political pattern.
Practically, there are no nations in the world which left outside of this devastating cutback and millions of people being laid off as a result of rapidly falling GDPs as well as a sharp plunge of stock market and corporate profit. Its impact has affected not only economies, but also families and individuals. A lot of people say that the main cause of the crisis was the collapse of housing price bubble and the subprime mortgage market in the United States which resulted from a huge amount of cheap money (increase of money supply) into the housing sector due to low interest rate set by Federal Reserve Fund. However, the cause was rather a failure of the system itself. The system, which has been guiding us since 1960s, has failed to prevent the economic disorder which we are experiencing now.
Thus, the objective of this essay is to analyze the effect of the Global financial crisis to the Asian regional politics and its response to the crisis. It will talk about how the current crisis is affecting governments to formulate its policy, whether they remain attached to the prevailing economic orthodox which has been praised for the last 30 years by the West as an only way to reach the economic prosperity.
Therefore, in order assess the effect of the crisis to the regional politics I will first explain what has been going in the Western neoliberal economic doctrine and how it will likely affect the Southeast Asian region. Then will present the case of China who is one of the main leaders not only in the region but also in today's global economy.
Before talking about the neoliberal economic orthodoxy, let me try to explain the relationship between politics and the economic theory. Why there must be the relationship? By putting it simply, politics is about a process by which government formulate the policy to govern the country. It is the theory and practice of the government, especially activities related with ruling, with obtaining legislative or executive power, or with forming and running government organizations.
Thus, politics need an economic theory, in order to justify their decision and formulated policy and to follow its formulated path to reach the development of the nation' economy. Therefore, in order to investigate the impact of the global financial crisis on regional/or national politics it is essential to talk about economy and the economic theory which has been adapted by those economies. Obviously, the success of any government and ruling party greatly depends on the choice of the particular economic doctrine.
“The teachers now have some problems” - Wang Qishan, Vice Premier of China
As a result of collapse of the housing bubble, housing prices had fallen sharply, the value of mortgage securitized loan had dropped, big financial institutions bankrupted, millions of people lost their jobs, loss in multitrillion dollars were reported. Fearing the huge loss of the financial institution caused shut down the credit flow and they would no longer lend. This credit freeze has brought the global financial system to devastate.
The Southeast Asia is an extremely diverse landmass as it contains all kinds of politics such as Constitutional monarchies, absolute monarchies, one-party states, federal states, dependent territories, liberal democracies and military dictatorships. Much of the political climate in Asia today is affected by colonialism and imperialism of the past with some states retaining close links with their former colonial governors while others involved in bitter independence struggles the consequences of which continue to be felt.
The situation today is still mixed, with hostilities in parts of Asia such as the continuing tensions over Kashmir and between the People's Republic of China and the Republic of India. There are also moves towards greater co-operation and communication within the region with Association of Southeast Asian Nations (ASEAN) a notable example.
Despite the fact that the crisis is causing some economic difficulties in the region, it seems that its effects on the region likely to be confined with less sufferings comparing to Western countries. However, it is not easy to foresee major altering effects, and the domestic political patterns that currently dominate the region are likely to remain untouched.
As a result declining market for export products massive amount of people has been laid off. This huge number of unemployment will obviously further worsen the poverty situation in the region. Thus, more will be expected from governments in difficult times. Therefore, it is essential to be better governance, a greater focus on targeted social support programs.
Some scholars argue that due to the crisis's unbearable effects on economies; especially export oriented sectors, major transformation of ‘East Asian model' is unavoidable and the blame for ‘Washington consensus' which had been highly praised for last 10 years, is intensifying. At the same, this process is hardening attitudes towards globalization. This not the pleasant time of moment especially for the leaders of the Southeast Asia as they were lectured by the West on the need for pursuing neoliberal economic doctrine which was highly praised by the West. Ironically, the crisis that have hit us, originated from the Western countries.
However, it does not mean that the countries should run from Globalization and avoid international collaboration. Rather we must adapt a better regulating policy to manage bad and good sides of the globalization and encourage internationally coordinated efforts towards a fairer and better regulated global order.
However, it is difficult to ignore potential benefits, which can be accumulated from open trade and investment policies, while thinking about new forms of financial regulation and prudential supervision at home as well as new international regulatory order as on going global crisis requires a coordinated global response.
Regarding the ASEAN which is highly regarded as one of the most important cooperation organization in the region, it has been explicitly silent during the current crisis.
However, the region's leaders have not yet formulated a concept for coming years. It still remains to be seen whether ASEAN as a regional cooperation organization will be permanently disappear by its inactiveness. A decade ago, when the Southeast Asian were hit by Asian financial crisis originated from Thailand, ASEAN was not in a position to recommend any help arrangements. Moreover, there is no significant emergency back up arrangements within its framework.
China is able to maintain moderately strong economic growth through the crisis, and to stop from major competitive exchange rate depreciations and its effect will be to change the regional, and possibly global, strategic architecture once and for all.
The Japanese economy, which had had a major impact on Southeast Asian economies to accelerate their industrial sectors, is causing reconsideration due to its prolonged slowness since 1990s. As well as U.S. model, especially its neoliberal economic doctrine is putting itself in question whether it is a valid strategy to pursue. In both cases, the reconsideration will be not only in economic realm, also along with diplomatic and geo-strategic fields. Here obviously China is likely to play a major role.
Now, let's see how China is dealing in the current financial crisis.
China is suffering less from the global crises comparing to the West. The country is relatively isolated from the global crises and did not have so much toxic assets as European and US financial institutions did. Its foreign exchange reserves are approaching 2 trillion USD, making it the world's strongest country in terms of liquidity.
But it is experiencing some economic pain such as real estate slowdown, export decline, unemployment and slower economic growth rate. Its export industries have suffered the most and as a result some difficult economic and social challenges taking place in the coastal export oriented provinces.
The Chinese ruling party is mostly concerned with the possible potential for social instability as the crisis has significantly damaged its export oriented industries. Moreover, as the party is getting more aware of the country's economic dependence on the global economy, it strives to rebalance the economy based on domestic consumption.
For the central Party apparatus and the senior leadership, the economic crisis is being seen as both a threat and an opportunity, with the sense of crisis tending to dominate. The rapid drop in GDP growth is of serious concern to a leadership whose legitimacy depends largely on continuing to deliver economic and social development, and whose strategy for dealing with challenges has been heavily dependent on easing people out of social and economic problems. The way the financial crisis has unfolded, and in particular the massive hit to Chinese exports, raises questions about the current Chinese development model (see below). There is also a serious concern about social instability As well as challenges, the economic crisis also brings opportunities. As seen by the central party-state, these opportunities have arisen firstly in the international arena as Beijing promoted its views more strongly in a number of fora (such as the IMF and G20), and also domestically. The Centre has pushed through increased subsidies to rural communities and taken forward another round of infrastructure development (such as railways) which could enhance long-term domestic growth prospects and address current bottlenecks. The concerns about social instability present a challenge for the security forces, whilst at the same time strengthening their hand politically as their work has moved to centre stage.The cut in growth provides challenges in creating jobs,reduces provincial government revenue, and makes the implementation of centrally-mandated social programmes, such as those in education, health and social welfare, more difficult. On the other hand, the major stimulus package gives local officials (like their central counterparts) opportunities for investment in growth and to improve their infrastructure; it also opens up space for graft, which is likely to increase in spite of the anti-corruption drive which has accompanied the package Profits at many state-owned companies have been hard hit, with some suffering the impact not just of falling demand The chances of any major state-owned company going bankrupt is very small,the government's position towards the state sector seems to reflect a wider policy assumption: that this sector remains central to the type of Party-guided development the leadership envisages for the PRC. This supports an important conclusion of this paper - that the crisis marks a strengthening of the state relative to other actors.
The arrest of Gome Chair Huang Guangyu and other corruption investigations show that private companies are not immune to political pressure at this time. From a broader political perspective, the Party appears to have little to fear from private entrepreneurs who remain largely supportive of the current system even if they are at the same time somewhat constrained by it.This general political attitude, which might be characterized as ‘conservative',is largely reflected across the urban white collar workforce The urban poor and rural migrant workers have been amongst some of the hardest hit by the crisis, with factory closures and lower demand across the economy increasing unemployment. This potentially increases the risk of social instability among lower classes.Firstly, the crisis has brought to the fore and strengthened (in relative terms) the state's role in development and managing the economy.
. This is likely to reduce the pace and scope of any future economic reforms which might lessen the influence of state-owned companies. For example, it is likely that the authorities will continue to emphasise strategic national industries and sectors, take a conservative approach to M&A (both domestic and international), and limit price liberalization or further deregulation in theseareas. Since the 1990s neo-liberal-influenced approaches to development) have gained substantial ground in China, although their wings have been clipped this decade by the more ‘people-focussed' approach of Party General Secretary Hu Jintao and Premier Wen Jiabao. The economic crisis is likely to shift the centre of gravity in the formulation of China's future development
model, giving greater priority to social issues and less influence to the voices of those who suggest that further market reform is the best way to resolve the social and developmental problems China faces. This also covers attempts to stimulate domestic demand and reduce dependence on exports the immediate emphasis on reviving the economy appears to be coming at the expense of some- of the broader social goals of sustainable development and a harmonious society which have characterized the leadership's approach since at least 2002.Secondary to this, it is likely that both corruption and bad debts will increase as a result of stimulus measures.
Fourthly, for many people the crisis has weakened the authority of western approaches to reform as well as damaged the reputation of the US. The impact of this should not be overstated, but it is likely to lead both to a greater belief in the feasibility of China pursuing its own approaches to development issues and to stronger nationalism particularly in economic areas fifthly, there is the issue of where power lies within the Chinese system.Here, this refers to the relative power of different parts of the party-state and of leaders or factions within it. On the basis of evidence so far, there are signs of the following shifts within the system:
The authority of Wen Jiabao's government has been boosted, both domestically and overseas, with the increased role of the state and government under Wen's leadership quietening talks heard pre-crisis about the government's limited control over the economy.The balance between centre and provinces is a constant question in Chinese politics. The economic crisis has strengthened the centre whose financial and policy support has been helpful, if not necessary,in reviving many of the regional economies.(iv) The central administration responsible for dealing with the financial industries has been extremely powerful over recent years, and still appears to retain substantial latitude within the system. Nonetheless their relative influence is likely to have declined with the obvious challenges met by the international financial sector. Zhou Xiaochuan's call for SDRs as a new global reserve currency could be seen as an attempt to dip into nationalist sentiment at home in a bid for wider political support, as well as a statement to international audiences on
the US dollar. Conversely, the parts of the machine responsible for rural areas or social policy are likely, over the medium term, to find their weight increased as a result of the greater shift to social policy) Finally, fears of social unrest have strengthened the importance of the Party's internal security apparatus. The military will also be taking advantage of the more general moves by Beijing to increase China'sinternational clout, including through further modernization.5 Previous economic and social crises have had a significant impact on China's development path and its political makeup: for example, the 1989 protests which saw the rise of political conservatives, followed by the 1992 return to the path of reform; or the 1997-98 Asian financial crisis, which allowed China,to present itself as a responsible and benign regional player. The current crisis will not only see an increase in China's relative weight in international councils, especially economic ones, but coincides with increasing nationalist
confidence to confront domestic challenges. In the short-term, it is likely that there will be a more prominent role for the state, accompanied by a cautious and (where possible) more self-reliant approach to development. With the next major leadership transition in 2012 approaching, delivering results athome will continue to dominate the Party's agenda.
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