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Northeast Asia’s Leaders Move to Reduce Tensions

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Underlying tensions, including the unresolved territorial and history disputes, modernization programs and doctrinal shifts, and mounting nationalist sentiments within each country will continue to undermine efforts to put the regional order on a more stable footing. Two major flashpoints remain volatile.

In Washington, D.C. and in capitals across Asia, the approach of the 70th anniversary of the end of World War II was viewed with some trepidation. Would national commemorations of the war’s end weaken the tense relationships between Japan and its two major neighbors, China and South Korea? Would Japanese Prime Minister Shinzo Abe, a conservative who in the past has downplayed wartime atrocities, use the anniversary to undercut apologies made by his predecessors or would he use the occasion to promote reconciliation in the region?

As it happened, the 70th anniversary passed largely without incident. While Abe’s anniversary statement was not as apologetic as statements issued by earlier prime ministers on the 50th and 60th anniversaries of World War II – and included a problematic narrative of Imperial Japan’s road to war – the prime minister nevertheless managed to preserve the growing thaw in Japan’s relationships with China and South Korea. Abe is now expected to meet with South Korean President Park Geun-hye and either Chinese President Xi Jinping or Premier Li Keqiang in late 2015, which will be the first trilateral leaders’ summit since 2012.

The trilateral summit will be a major step forward in stabilizing Northeast Asia, which has been plagued by longstanding disputes over contested islands and historical memory for the past five years. The lull in the region’s disputes will likely continue into 2016, as Tokyo, Seoul, and Beijing grapple with economic and political challenges that, for the immediate future, will lead all three governments to prioritize regional stability over contestation.

However, sources of underlying tension, including the unresolved territorial and historical disputes, military modernization programs and doctrinal shifts, and mounting nationalist sentiment within each country, will continue to undermine efforts to put the regional order on a more stable footing. Meanwhile, ongoing instability in North Korea and the prospect of a change of government in Taiwan in 2016 suggest that the region’s two major flashpoints remain volatile, with the potential of exacerbating tensions between Northeast Asia’s great powers and drawing the United States into a regional conflict.

Troubles at Home Lead to Cooperation

As Tokyo, Seoul, and Beijing hammer out the details for their forthcoming trilateral summit, the three governments face similar predicaments. In China, not only has its leading stock indices fallen precipitously after reaching record highs in June 2015, but its economy appears to be slowing considerably. Chinese authorities have scrambled to respond both to the market crash and, more importantly, the real economy, cutting interest rates, devaluing the renminbi, and providing fiscal stimulus in order to boost growth. If growth slows sharply – the so-called “hard landing” scenario – the Chinese Communist Party could face a domestic legitimacy crisis.

China’s struggles have had ripple effects on its neighbors and trading partners. The impact on South Korea, which sends a quarter of its exports to China, more than any other country, has been particularly acute: in August 2015, South Korea’s exports fell 14.7 percent, driven in large part by falling demand in China. Even before August, South Korea’s economy had been struggling, prompting forecasters to lower their expectations for growth and forcing the Bank of Korea to cut its key interest rate to a record low of 1.5 percent. Should China’s growth continue to slow, it will put additional pressure on Seoul to combat slowing growth and could erode President Park’s approval ratings.

Japan, a larger economy less dependent on exports, is relatively more insulated from China’s slowdown than South Korea but is still vulnerable. China’s slowdown comes at a time when the Abe government has already been struggling to jumpstart Japan’s economy after its post-tax hike recession in 2014. With wages and consumption stagnant and price inflation slowing to nearly 0 percent in July 2015, the Abe government’s “Abenomics” program, its three-pronged program to overcome deflation, boost Japan’s growth potential, and solve Japan’s fiscal challenge, has become increasingly reliant on exporters enjoying healthy profits thanks to a weaker yen. If the Chinese economy struggles, it will not only harm the balance sheets of Japanese exporters, but it could also reduce the flow of Chinese tourists to Japan and, more indirectly, could prompt central banks like the Bank of Korea to pursue looser monetary policy, weakening their currencies against the yen and depriving Japanese exporters of the advantage they have enjoyed since the Bank of Japan launched its quantitative-and-qualitative easing (QQE) program in 2013.

In short, the three governments each face threats to growth in the near term that do not have easy solutions and which officials are divided over how to resolve. While in theory this could lead all three governments to rely on nationalistic saber rattling, elevating regional tensions, in practice Tokyo, Beijing, and Seoul have opted for diplomacy as the economic outlook has darkened. The three countries have held a series of working- and ministerial-level bilateral and trilateral meetings over the course of 2015, indicating a serious commitment on the part of all three governments to maintain forward momentum in stabilizing the region that has weathered concerns about Abe’s statement; a dispute between Japan and South Korea over Japan’s application to have UNESCO recognize sites related to Japan’s industrial revolution (that also happened to employ Korean forced laborers); a Sino-Japanese dispute over Chinese drilling activities in the East China Sea; and underlying fears in all countries regarding the others’ military capabilities and intentions. It is therefore likely that trilateral cooperation will continue after the leaders’ summit. It is not clear whether trilateral and bilateral talks will produce concrete results in establishing mechanisms for communication during crises in maritime disputes, managing or deescalating territorial disputes, or jumpstarting negotiations for a China-Japan-South Korea free trade agreement (FTA), but regular communication between the three governments will expand the potential for coordination.

Underlying Sources of Conflict Remain

But even as the three governments find opportunities to talk, Northeast Asia remains volatile. The reason, of course, is the rise of China. Even if China’s growth slows, China will remain the region’s economic heavyweight. Beijing will continue to seek to convert its economic strength into military power – China’s defense spending shows no signs of slowing – and political influence through projects like the Asian Infrastructure Investment Bank (AIIB) and the “One Belt, One Road” initiative. China’s rise does not mean that war is inevitable, but it has forced every country in Asia to recalibrate its economic and security strategies to account for China’s growing military might and economic power.

Japan feels this pressure more acutely than most. Long dependent on the United States for its security, Tokyo increasingly finds that it cannot, and does not want to, rely solely on the U.S. to come to its assistance in the event of a conflict, particularly over disputed islands in the East China Sea. Confronted with an increased level of Chinese naval and air force activity in the East China Sea and in the waters surrounding Japan, the Japanese government, first under Prime Minister Yoshihiko Noda (2011-2012) and now under Prime Minister Abe, has undertaken a series of steps intended to bolster Japan’s defense capabilities. Over the past four years, Japan’s Self-Defense Forces (SDF) have increasingly focused on defending Japan’s outlying islands in the East China Sea.

The Abe government has increased defense spending every year since taking office in December 2012 and is looking to pass Japan’s largest postwar defense budget in 2016. The Abe government has eased restrictions on arms exports, enabling Japanese companies to cooperate with defense manufacturers in other countries, potentially reducing costs. And over the course of two years, the Abe government has reinterpreted Japan’s constitution to allow the SDF to assist allied forces that come under attack (the exercise of the right of collective self-defense), worked closely with the U.S. government to update the U.S.-Japan Defense Guidelines for Cooperation, and has guided legislation governing the SDF’s activities to reflect the new constitutional interpretation through the Japanese Diet.

While restrictions remain on the SDF’s activities – it is highly unlikely that the SDF will take a front-line combat role anywhere overseas – the aforementioned changes amount to a decisive shift in how Japan will respond to crises in Asia and abroad (in the Persian Gulf, for example). These changes are not necessarily destabilizing, not least because Japan will continue to depend heavily on the U.S. for its security and many of these changes are intended to strengthen the U.S.-Japan alliance’s deterrent capabilities, but they do suggest that Japan is ever so gradually adjusting its security policies in response to China’s military modernization program.

Despite being a neighbor of China on the Asian mainland, South Korea’s response to China’s military buildup has been more muted than that of Japan, not least because North Korea remains the primary focus of South Korea’s defense policies. However, South Koreans are sensitive to the long-term threat China’s military could pose, particularly if China were to aid North Korea in a conflict. But China’s rise still has forced South Korea to adapt, mainly by seeking to balance its relationship with China and its longstanding alliance with the U.S. At the same time, territorial and historical issues have stymied efforts to strengthen Japan-South Korea and Japan-South Korea-U.S. defense cooperation, though in December 2014 Japan and South Korea signed a General Security of Military Information Agreement (GSOMIA) after a long delay, an important precursor to closer defense cooperation.

Although closer Japan-South Korea defense cooperation, particularly at sea, would enable the U.S. to rely more on its democratic allies in Northeast Asia to deter China and North Korea and deploy its capabilities elsewhere, public distrust between Japan and South Korea will likely continue to hinder bilateral cooperation. This distrust will continue to complicate U.S. contingency planning and will therefore serve as a source of instability in the region for the foreseeable future, diplomatic progress notwithstanding.

Finally, the future of U.S. engagement in Northeast Asia is far from settled. The Obama administration’s “rebalance to Asia” strategy has shored up the U.S. military presence in the region, but U.S. allies, especially Japan, will periodically wonder whether the U.S. is willing to invest the resources and the money to defend its allies in the event of a crisis. China’s investment in anti-access/area denial capabilities (A2/AD), which are intended to limit the ability of the U.S. and other countries to access China’s littoral waters during a crisis, could also lead allies to question the reliability of U.S. security guarantees in the future.

In short, China’s rise and its military modernization have set in motion a complex process whereby all of China’s neighbors are forced to review their defense policies and alliance relationships, bolster their military capabilities, and prepare for the possibility of armed conflict with China. More robust communication and interaction between militaries – particularly Japan’s and China’s – could reduce some of the risks of conflict by providing clarity regarding each country’s strategic intentions, but no amount of diplomacy will ease the fundamental concerns about China’s military felt throughout East Asia.


In the near term, the tensions surrounding China’s rise are manageable. However, stability in Northeast Asia could be undermined by events in Taiwan and North Korea, which have been the region’s two major flashpoints for nearly seventy years. Despite the Sino-Japanese dispute over the Senkaku/Diaoyu islands in the East China Sea, the Taiwan Strait and the Korean Peninsula remain the most potent triggers of armed conflict in East Asia.

The risk in Taiwan is that eight years of stable cross-Strait relations could come to an end in 2016. Kuomintang President Ma Ying-jeou, while promising to maintain the status quo (no independence or reunification), focused on deepening economic and political ties with China. Taiwan will hold a presidential election on January 16, 2016 and voters, concerned that Ma and the Kuomintang have made Taiwan too dependent on China, appear ready to elect Tsai Ing-wen, the pro-independence Democratic Progressive Party (DPP) candidate, as president. If elected, Tsai would undoubtedly be constrained by the intensive economic links forged under Ma, but a change of government in Taiwan could nevertheless result in greater instability in cross-Strait relations, which could in turn complicate China’s relationships with the U.S. and Japan. Despite the rapprochement under Ma, China still considers Taiwan as a “core national interest” and would resist any move towards more formal independence.

Meanwhile, although South and North Korea moved to deescalate tensions in August 2015, the potential for conflict on the Korean Peninsula remains. The instability of Supreme Leader Kim Jong-un’s regime could lead to attacks like the 2010 sinking of the South Korean naval vessel Cheonan and the shelling of South Korea’s Yeongyeong Island, and the regime will undoubtedly continue to develop its nuclear and ballistic missile arsenals. Indeed, it may have been the Kim regime’s instability that led to the crisis that precipitated the August agreement, as North Korea was particularly interested in securing a pledge from South Korea to halt loudspeaker broadcasts into North Korea that challenged Kim’s legitimacy. It may be unlikely that these provocations escalate to outright war, but given that a Korean crisis could pit the U.S. and China against each other and sow dissent between the U.S. and its Northeast Asian allies, the Korean Peninsula will remain the region’s most dangerous flashpoint for the foreseeable future.


Perhaps the lesson learned from the thaw between Japan, China, and South Korea over the course of 2015 is that despite the many pressures that complicate their relations – territorial disputes, arms races, arguments over history, alliance commitments in the region’s flashpoints, nationalistic public opinion – Northeast Asia’s leaders continue to see the value in maintaining stable, constructive ties with each other. This does not exclude the possibility of conflict, but these factors do not lead necessarily to conflict either. For the time being, Tokyo, Seoul, and Beijing continue to believe that finding ways to preserve the peace and prosperity of the region is a worthwhile endeavor.

The views and opinions in these articles are solely of the authors and do not necessarily reflect those of Teneo. They are offered to stimulate thought and discussion and not as legal, financial, accounting, tax or other professional advice or counsel.

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