How the power struggle between China, India and Japan
will shape our next decade
By Bill Emmott
China plus India plus Japan equals opportunity, tension and danger. That is the formula for the new Asia, which is finding itself in an unprecedented situation in two respects: one, that this is the first time when Asia has had three great regional powers, rather than just one dominant inside or outside power; secondly, that this is the first time since Genghis Khan when the major countries of Asia have treated the continent as one single economic, political and strategic entity, stretching from Tehran to Tokyo.
The opportunity in Asia is of course an economic one. Although the common notion that economic power has long been shifting to the east is something of a myth-America's share of world GDP was actually higher in 2006 than it had been in 1990, while Asia's share had risen by less than two percentage points-the myth is at last about to become more of a reality thanks to the revaluation of Asian currencies against the dollar, and the arrival of India as another giant country capable of growing at 10% per year.
Nevertheless the opportunity is an ever-changing one. If you are accustomed to the idea of China as a cheap-labour, cheap currency manufacturer prepared to pollute the planet with gay abandon, think again: China today looks ever more as Japan did in 1970, when a sharp currency revaluation and the 1973 oil shock raised Japanese industry's costs and forced it upmarket, while public protests about Japan's filthy environment forced its government to act at last. Japan in the 1970s moved from the age of the motorcycle and steel mill to that of the compact car and the microchip, and something similar looks likely to happen to China now.
If you are accustomed to the idea of India just as the world's back office, offering outsourcing and IT services in Tom Friedman's "flat world", you need to think again about India too. In the past three years, private investment has soared, in real estate, telecoms, manufacturing and infrastructure, making India's economic structure at last look similar to East Asia's earlier developers such as Japan, South Korea and China. Manufacturing is now growing faster than services, a trend underlined by the emergence of the Tata Nano, the world's cheapest car, in January 2008. With infrastructure at last being built, it will soon be India's turn to compete as the world's low-cost manufacturer.
Japan has since its financial crash in 1990 been in a deflationary economic stagnation. Now, just when its economy had been recovering at last, it is facing the cost pressures of an ageing population and shrinking workforce. Its politics, which looked more promising under Prime Minister Koizumi in 2001-06, are again in a state of paralysis. Rivals argues, however, that this state, while serious, is unlikely to be permanent. The international pressure of China and the domestic pressure of huge public debts are likely to bring a resumption of structural reform and a corporate chase for productivity growth. Although Japan will never again be a high-growth super-achiever, it is likely to have a better decade from 2008-18 than the 15 years 1993-2008.
The tension in Asia arises from the fact that both China and India think that they should be the leading power of the region, and that Japan feels threatened by China's rise especially. With three great powers, Asia is entering a period of balance-of-power politics reminiscent of 19th century Europe. The United States is already playing a balance-of-power game, seeking to strengthen its relationship with India (through a defence pact and a nuclear deal) and to encourage Japan to do the same. The interests of the great powers are increasingly overlapping, with China's expanding across the Indian Ocean as it seeks resources and allies in Africa and with India's expanding eastwards as it seeks markets, allies and strategic protection. It is not at all inevitable that this will lead to conflict, as was the case at the end of the 19th century. But tension will rise. Managing it will be one of the most important tasks of the 21st century.
The danger arises in part simply because of that tension. Military budgets are being expanded in all three countries, and all are building up their space programmes. Even more than that, however, it arises because Asia is home to so many potential flashpoints. The great powers, including the United States, may not seek a head-on confrontation but the danger is that one of these flashpoints could provoke one, drawing others in. The most dangerous flashpoints are the Korean peninsula, Pakistan, the East China Sea, Taiwan, and the Sino-Indian border which is also a border with Tibet.
Rivals finishes with nine recommendations for how governments and companies should respond to the opportunity, tension and danger. They cover such topics as the nuclear non-proliferation regime, membership of the G8, the transparency of China's governance, Japan's problem with history, India's relations with its South Asian neighbours, and America's policy towards Asia as a whole.