Asia Observatory

ASIA OBSERVATORY

BAO-37/2019(41)

September 09 - 15, 2019

Bosphorus Center for Asian Studies

Ankara 2019

2019 © All Rights Reserved. No part of this piece may be reproduced, copied or transmitted in any form or by any means, electronic or printed, without the permission of BAAM. The views expressed in this piece are the author's own and do not necessarily reflect our stance or policy.

2019 © Tüm Hakları Saklıdır. BAAM’ın izni alınmadan kısmen veya tamamen elektronik veya basılı olarak çoğaltılamaz, dağıtılamaz ve yayınlanamaz. Yazıda belirtilen görüşler yazara aittir ve BAAM’ın görüşlerini yansıtmak zorunda değildir.

Internet: www.bogaziciasya.com

E-Mail: [email protected]

Twitter: @bogaziciasya_en - @bogaziciasya

Bosphorus Center for Asian Studies

Bosphorus Center for Asian Studies (BAAM), founded in April 2018 in Ankara, is an independent think tank operating as an initiative of the Bosphorus Association for Social Research (BOSAR). In addition to Ankara and Istanbul, there are a total of 20 researchers who make contributions from different countries. BAAM is conducting research on the Asian region, mainly the Far East. Major areas of our studies include Asian Politics, Belt and Road Initiative, Great Power Competition, Foreign Policy of China, Political Economy of Asia Pacific Region, and the Turkey- Asia relations.

The reports, briefings, opinions, translations and special news prepared by BAAM researchers are published on bogaziciasya.com and the weekly Asian Observatory bulletin which is shared with related individuals and organizations via Internet.

Among the languages that the researchers in the team are able to read and write are French, Italian, Japanese and Amharic as well as English and Chinese. In this way, local resources can be used in research and a wide perspective is provided. The multi-lingual and heterogeneous structure brings together rich perspectives through in-team exchanges.

Our studies are also published by SETAV, Bosphorus Migration Studies, The New Turkey E- Magazine, Journal of Dunya, Yildirim Beyazit University Center for Migration Research and Theory in Turkey, and by the Istituto Affari Internazionali in Italy.

From the Editor

The impact of the trade war between China and the United States is now being felt fully. China's total trade volume with the US declined by 9% to $ 340 billion in the first eight months of the year. The decrease in China / US trade in China's overall trade volume reduces Washington's leverage on the Chinese policies. This is another aspect of the problem. The solution of the problem is important for both states as well as for the whole world.

However, we also witness very different reflections of the problem. For example, demonstrations in Hong Kong or China's attempts to play a new role in the Middle East, especially in Iran, cannot be considered separate from the US-China trade war. Both states are staging new initiatives to force the other to get a concession on trade, especially where the other is vulnerable. This makes partners and allies of both states worry.

It will not be too assertive to say that the relations between the US and China will become even more interesting in 2020. Because the US presidential election in 2020 is very important for Trump. If Trump wants to consolidate nationalist voters using populist and nationalist rhetoric and pursue a harsh policy against China, it will be inevitable the official start of a second Cold War.

The Asia Observatory, as usual, contains many analyzes, news and commentaries to make sure you catch the busy Asian agenda this week as well as every week. Wish you have a good read…

Haşim TÜRKER, Ph.D. Academic Coordinator @BAAM

Editorial Board

Mehmet Enes Beşer (Director)

Haşim Türker, Ph.D. (Academic Coordinator, Senior Researcher)

Nazmul İslam (Senior Researcher)

Mustafa Aydoğan (Researcher)

Ebru Alagöz (Researcher)

Kübra Merve Topgül (Researcher)

Burcu Alkan (Researcher)

Mert Karakadılar (Researcher)

Safiye Ergun (Researcher)

Nesibe Gül Kılıç (Researcher)

Can Atasoy (Researcher)

Kübranur Korkmaz (Researcher)

TABLE OF CONTENTS

Guest Author ...... 7

Headlines of the Week ...... 10

Great Power Competition ...... 12 Changing Security and Power Dynamics in East Asia ...... 12 The U.S.-China Cold War Is a Myth ...... 13 Preventing Cold War II...... 13 Belt and Road ...... 14 27 new projects under CPEC expected to start by the end of 2019 ...... 14 The trade war has changed US-China ties forever, so Beijing is building bridges to the EU through the belt and road ...... 14 Political Economy...... 15 China’s trade with the US falls 9% in first eight months ...... 15 AIIB and Amundi Launch Innovative USD 500-Million Climate Bond Portfolio to Mobilize Climate Action ...... 15 A Blow to US… China to Invest $280bn in Iran Sectors Targeted by Sanctions ...... 16 Chinese Policy ...... 17 China’s President Is in Trouble...... 17 Can Hong Kong maintain its status amid protests despite Beijing’s push to turn Shenzhen into a financial hub? ...... 17 How China Disrupts the Middle East ...... 18 Miscellaneous ...... 19 European Union and Central Asia: New Partnership in Action ...... 19

Guest Author

Free and Open Indo Pasific: A New Regional Approach and A New Initiative of Networkization?

Serpil ÇOLAK1

Free and Open Indo-Pacific (FOIP) Initiative is a strategic policy which has a ultimate purpose of linking/combining two oceans (Indian and Pacific Oceans) and two continents (Asia and Africa) as a humanitarian and commercial network is being leading by United States of America (USA) and Japan and officially unveiled in 2016. While USA and Japan who are amongst of the major actors of Indo-Pacific Region call this strategic approach as “networking” in their foreign policies, “networkization (网络话)” is being used by People’s Republic of China (PRC)’s academic circles and both those terms refer to an approach which aims to link each Indo-Pacific country with each other also with USA within a commercial and security network. This strategic approach is being compared with Belt and Road Initiative (BRI), which was announced by PRC’s President Xi Jinxing in 2013, and both initiative is being considered in conflict of target not only for Indian Ocean Region (IOR) but also to set a commercial network for the countries of the region. However, some academic and political circles of the stakeholder – USA, Japan, India, Australia- countries criticize FOIP strategy for being too late to counterbalance PRC with such a project which remains an amorphous concept and has been elucidated limited practical implication in this strategically key Indian Ocean environ. This analysis will attempt to look these aforementioned initiatives out of three major actors; PRC, USA, India and will conclude how they approach to IOR and those initiatives.

Before all else, the meaning and scope of Indo-Pacific term needs to be mentioned. The use of the term of Indo-Pacific dates back to colonial expansion period of South and East Asia by Western countries and the term was used to look/evaluate Pacific Region through IOR by giving India a central position. IOR encompasses Southeast Asia and Oceania, South Asia, East and Sub-Saharan Africa, Red Sea and African Horn, Middle East and the Gulf. This huge IOR; encloses half of the BRI and comprises of the Silk Road’s marine route. With BRI, China strives for the historical Silk Road to get back into circulation in world trade system. Likewise, USA published the new “National Security Strategy” on December 2017 and replaced the secular trend of “Asia-Pacific” term with a strategic “Free and Open Indo-Pacific” term in this report and updated the Pacific

1 PhD Candidate, Çanakkale Onsekiz Mart University

Command to “Indo-Pacific Command” which now became one of the three USA Areas of Operational Responsibility (AORs) on IOR. Those strategic policy shifts indicates how IOR in general Indo-Pacific in particular carries weight for USA. For India who focusses on addressing her economic growth initiated Security and Growth for all the Region policy framework which is a combination of “Act/Look East and the Think West” policies.

On Japan’s part who initiates the FOIP with USA, the term of Indo-Pacific was unveiled by Japan’s Prime Minister Shinzo Abe on August, 2007 in a speech he delivered at the Indian Parliament. The speech to laid bare Japan’s vision which reminded Japan’s conventional “Broader Asia (拡大アシア) approach to build a region on common values such as freedom, democracy and human rights. Indo-Pacific term replaced with Asia- Pacific term which is being used in official documents relating political/strategic approaches of Japan. That change of approach is concurrent with USA as a strategic move and also is the essence of the FOIP.

If to review the FOIP Strategy and the statements of USA, Japan political circles in detail, one can find a particular emphasis on “free and open” approach towards this marine environ. There are, as well, some studies and statements as a reply to these “free and open” approach and stress that, why the words of “free and open” applied to the IOR which have been –as all sea routes- free and open by laws (Freedom of Navigation) and accepted by all parties. Then why the emphasis on free and open is needed now? To answer this question there is a need to investigate the relation of both USA and PRC’s with the seas. USA has a fundamental approach named “Command of the Sea” which means to rule/hold domination over all seas as a political and theoretical understanding of her national security. So “Command of the Sea” is the essence of the American National Security. “Command of the Sea” principle secures national security and trade by maritime reign.

When to analyze PRC’s side, one can conclude that China’s dependence on oil and overseas trade can offer the reason why PRC puts a high priority to develop BRI project on IOR. But this analysis wants to highlight that the main reason for the competition over IOR is to dominate historical trade routes/web for who reigns the IOR trade can be the most powerful actor of the region and can escalate to the global power status. Because USA is well aware of what lead the historical shift of Western powers to dominate the Indo-Pacific Region in 19th century. So PRC acknowledges as central state of East Asia and witnesser of colonial expansion period how regional order changed after Britain and USA had started to lead the trade compare to only meditate in between region before. If, China, can escalate her own status from a partner/participator who trades in the region to an actor who determines the rules of the game – as Britain and USA did before- can have a chance to be the center of the world economic system. That, for most of the actors in the region -USA, Japan, India etc.- is not something to place at risk. And USA is being criticized because of the FOIP is initiated to only contain PRC. USA

8 wants and does containment towards PRC because the aforementioned IOR was the marine route of the historical Silk Road as a complementary and supplementary part and those complementary territorial and marine trade routes together was the source of the wealth of the region and keep the region as the center of the world economic system till the 19th century. To control the territorial part of the Silk Road is not something to be achievable for any single actor. But “the dual operating marine/territorial network” which made the region wealthy can be intervened only by the marine part. For this reason the true meaning of the “free and open” approach is an Indo-Pacific free from any actor who competes for reign. To put this another way, to keep the status in quo in the Indo-Pacific.

In conclusion, the Indian Ocean Region which next to the North East Asia starts with South East Asia and extending to Europe was a huge market that was connected and operated in a network structure. China was the manufacture base of this huge market. First Britain then USA started to rule this market with the decline of the region in the 19th century. But recently PRC, made a strong comeback with BRI to rule this huge market again. For this reason on the marine part of the Silk Road, PRC started to build “Strategic Strong Points” between first military base in Djibouti (2017) and artificial islands of South China Sea to build a network that connects all important cities, ports and islands of the IOR. Those strategic strong points encompass all the marine route of the Silk Road. On the other side, USA struggles to strengthen its decreasing power with FOIP strategy which targets the most achievable part of the network market/Silk Road. But, PRC with the advantage of her historical centrality of the region and increasing power is far ahead of being counterbalanced by USA and projects such as FOIP. For these initiatives, there is one key actor: India. And India who is in FOIP initiative was the strongest and wealthiest actor after China in that historical system and a complementary link of the network market is an important country for BRI to succeed. For the present, PRC sides with Pakistan that is the linking part of the marine and territorial components of the BRI but PRC cannot ignore and escape to cooperate with India for BRI to reach its full potential.

Headlines of the Week

China’s trade with the US falls 9% in first eight months

The US was China's third largest trade partner in the first eight months, accounting for 12 percent of China's total foreign trade volume.

The declining proportion of China/US trade in China's overall trade volume tells the diminishing leverage Washington could impact China's economy.

Source: Global Times

A Blow to US… China to Invest $280bn in Iran Sectors Targeted by Sanctions

China is planning to invest $280 billion in Iran’s oil, gas, and petrochemical sectors that are being affected by US sanctions, according to Petroleum Economist magazine.

According to the source, this agreement grants China a total discount of around 32 per cent on all oil, gas, and petrochemical products from Iran.

This plan also emerged during the course of China’s “One Belt, One Road” initiative, in which Beijing intends to take advantage of the low-cost labour force available in Iran, to establish factories to be supervised by Chinese prominent companies.

In return, the new agreement enables Tehran to strengthen its partnership with Beijing, a permanent member of the UN Security Council, and raise the level of production in three of its largest oil and gas fields, in addition to China’s approval to increase the volume of oil imports from Iran.

Source: Middle East Monitor

Great Power Competition

Changing Security and Power Dynamics in East Asia

Japan has been shaken out of its complacency by the rise of an increasingly muscular and revisionist China vying for regional hegemony. But America’s apparent willingness, as part of a deal aimed at forestalling the rise of a new long-range missile threat, to accept a North Korea armed with short- to medium-range missiles is giving Japan the jitters. Not surprisingly, this American stance unnerves Japan, which is central to U.S. forward deployment in Asia, but feels increasingly vulnerable to growing Chinese and North Korean missile capabilities. North Korea’s new missile systems represent a potent threat to America’s main allies in East Asia, Japan and South Korea. But by shrugging off Pyongyang’s recent tests, including describing them as “smaller ones” that were neither ICBMs nor involved nuclear detonations, Trump has displayed remarkable insensitivity to Japanese and South Korean concerns. The main lesson for Japan from Trump’s focus on addressing only U.S. security interests is to directly engage Pyongyang by leveraging its own economic power. To shore up its security, Tokyo could also consider mutual defense arrangements with other friendly powers, including a nuclear-armed India. Pacifism remains deeply embedded in Japanese society, in part because of the painful legacy of Japan’s prewar militarism. But the key issue at stake today is not whether Japan should remain pacifist but whether it can afford to stay passive in a rapidly changing security environment. China would like Japan to continue relying on the U.S. for protection, because the alternative is the rise of Japan as an independent military power. Trump’s North Korea approach, however, will only encourage Japan to enhance its military capacity to forestall the emergence of a destabilizing power imbalance in East Asia.

(China-US Focus: Article)

The U.S.-China Cold War Is a Myth

In recent years, the notion of an emerging second Cold War, this time between the United States and China, has gained credence. As early as 1995, China scholar David Shambaugh warned of deteriorating relations in an article titled, “The United States and China: A New Cold War?” Last year, Cold War analyst Graham Allison, the Douglas Dillon professor of government at the Harvard Kennedy School, warned of a “new cold war,” and articles published in the Economist, Foreign Policy, the Washington Post, and across the mainstream media have built on this narrative. But the Cold War paradigm is not the best way to understand today’s strategic landscape.

Today’s international security environment is far more tranquil than that of the Cold War. Unlike the devastation of the wars in Syria and Yemen, along with the humanitarian crisis associated with massive displacement, U.S.-China competition has so far been nonviolent, occurring predominantly along economic and technological axes. Compare this to the Cold War, when the United States waged a proxy war against the Soviet Union in Afghanistan, and U.S. troops fought and died in Korea and Vietnam.

(Foreign Policy: Article)

Preventing Cold War II

When world leaders gather in New York later this month for the annual United Nations General Assembly meetings, they will have much to discuss besides climate change and sustainable development. In particular, the escalating superpower rivalry between the United States and China poses a growing risk to the world. The UN must therefore make helping to avoid another Cold War central to its mission today.

(Project Syndicate: Opinion)

Belt and Road

27 new projects under CPEC expected to start by the end of 2019

A total of 27 new projects under the China-Pakistan Economic Corridor (CPEC) are expected to start by the end of the year, according to a Memorandum of Understanding (MoU) about the development of new phase under CPEC, reported yidaiyilu.com.gv recently. The projects are involved with areas such as agricultural, industrial and education will be included in the new projects, which is an effort that will further enrich and expand the content and areas of the second-phase development of CPEC.

(Belt and Road Portal: News)

The trade war has changed US-China ties forever, so Beijing is building bridges to the EU through the belt and road

Spheres of influence – political, ideological and economic – are nothing new but the sheer size of the United States and Chinese economies (the world's biggest and second biggest) and of their spheres of influence implies a new kind of East-West divide from here on.

How will all this fall out? China needs overseas markets more than the US does. Above all it needs wealthy and sophisticated capital and consumer goods markets if the country's industrial and technological revolution is to continue. There is, for now, only one place to look for those outside the US, and that is in Europe.

(SCMP: Opinion)

Political Economy

China’s trade with the US falls 9% in first eight months

China's total trade volume with the US fell 9 percent to 2.42 trillion yuan ($340 billion), while trade surplus expanded 7.7 percent to 1.33 trillion yuan from January to August amid the escalating trade war. The US was China's third largest trade partner in the first eight months, accounting for 12 percent of China's total foreign trade volume. The declining proportion of China/US trade in China's overall trade volume tells the diminishing leverage Washington could impact China's economy.

(Global Times: News)

AIIB and Amundi Launch Innovative USD 500-Million Climate Bond Portfolio to Mobilize Climate Action

The Asian Infrastructure Investment Bank (AIIB) and Amundi, Europe’s largest asset manager, have announced a USD500-million Asia Climate Bond Portfolio which aims to accelerate climate action in the Bank’s members and address the underdevelopment of the climate bond market. Through a managed fixed income portfolio of an initial USD500-million, the joint project expects to mobilize another USD500-million from climate change-focused institutional investors. A portion of the investment proceeds will be allocated to market education, engagement and issuer support.

(AIIB: News)

A Blow to US… China to Invest $280bn in Iran Sectors Targeted by Sanctions

China is planning to invest $280 billion in Iran’s oil, gas, and petrochemical sectors that are being affected by US sanctions, according to Petroleum Economist magazine.

According to the source, this agreement grants China a total discount of around 32 per cent on all oil, gas, and petrochemical products from Iran.

(Middle East Monitor: News)

Chinese Policy

China’s President Is in Trouble

When Chinese President Xi Jinping came to power in China, he was seen as a decisive leader who could dominate Chinese institutions and guide China to a position of greatness. His enormous power was solidified with the removal of presidential term limits, while the anti-corruption purges initiated at his behest have reshaped the Communist Party. A range of significant, if not yet existential, problems have emerged since Xi took office. The most important are economic. Since 2008, the Chinese economy has been struggling, and Xi’s first task was to try to stabilize it. There were many dimensions to China’s economic problems, but the core was that China was heavily dependent on exports.

(Geopolicitalfutures: News)

Can Hong Kong maintain its status amid protests despite Beijing’s push to turn Shenzhen into a financial hub?

Under Beijing’s directive, Shenzhen will transform into a model “socialism with Chinese characteristics” city built on a modern economic system that will lead the nation’s “high- quality development”. It will also become the model for a legal city that “creates a stable, fair, transparent, and predictable international and legalised business environment”. The Chinese academic said Shenzhen’s new status could also be read as Beijing’s search for the next development model to address mounting pressures within the country and from abroad to keep its economy humming and society stable. Shenzhen is forecast to be one of the 10 largest city economies in the world by 2035, with a gross domestic product reaching US$800 billion based on 2015 prices, according to Oxford Economics.

(South China Morning Post: Article)

How China Disrupts the Middle East

As Vladimir Putin's declining Russia flaunts its power in the Middle East, Xi Jinping's ascending China eludes the attention it deserves. But the Communist Party of China has begun investing money and gaining influence in ways that have vast – and worrisome – implications.

In the Middle East, this has meant that the Chinese government's ambitions have grown in the past five years from merely buying energy and selling arms to a far deeper involvement. Symbolic of this transformation, annual Chinese investment in the region a decade ago amounted to $1 billion; at just a single forum recently, it pledged $23 billion in loans and development aid. In August, it sent a $1 billion cash infusion to Turkey alone.

(Middle East Forum: News)

Miscellaneous

European Union and Central Asia: New Partnership in Action

The European Union (EU) has been engaged with the five countries in Central Asia from the very moment they gained their independence in the early 1990s. During that period the EU, as the biggest donor in the region, played an important role in supporting sovereignty and independence of the partner countries in Central Asia, helping them to build their new socio-economic systems, create a legislative basis and development programmes and strategies for sustainable development. I dare say that also thanks to this contribution, the region managed to preserve a large degree of stability in a situation when it was facing many formidable challenges, both inherited and new ones. The EU very much welcomes the contribution of Kazakh partners on all levels, including government, parliament, civil society, researchers and the private sector, in shaping the new Strategy. The Ministry of Foreign Affairs paper on the Kazakh view on the new Strategy presented in June 2018 highlighted the importance for a synergy of regional and bilateral approaches.

(Astana Times: Opinion)