EXECUTIVE SUMMARY

1. • In February 2013, leaders of Indonesia's two major political parties (Prosperous Justice Party and Democratic Party) were detained on graft suspicions; following a string of other arrests of high-profile party politicians for the same allegations.

2. • Following the arrests, polls placed PKS's popularity in seventh among the 10 competing parties, while PD has significantly declined from its big win in 2009 to fourth place. Polls also suggest that PD is now perceived as the most corrupt party in the country.

3. • PD serves as a strong warning against relying too much on leadership charisma and the failure to establish solid party machinery. On the other hand, PKS as a well-organised party still suffers from disunity and the challenge of maintaining a solid Islamic outlook that is non-discriminative.

4. • Since image matters for elections, parties seen as the least corrupt and can function the best should survive better. However, party politics have led parties to corrupt practices. High costs of party politics which lead to corruption can be suppressed by greater transparency for their fund-generating activities.

INTRODUCTION

In February 2013, leaders of Indonesia's two major political parties were detained on graft suspicions. The arrests of Partai Keadilan Sejahtera's (PKS, Prosperous Justice Party) president Luthfi Hasan Ishaaq, and Partai Demokrat's (PD, Democratic Party) chairman Anas Urbaningrum have jeopardized their respective parties’ electoral prospects. While Luthfi has been arrested for suspicions over special favours for certain beef importers, Anas—previously linked to other corruption cases—has allegedly received a luxury car as a bribe for fixing a government construction contract for the Hambalang sports centre project.

The arrests followed a string of other high profile party politicians who are facing corruption charges. Indonesia's Corruption Eradication Commission (Komisi Pemberantasan Korupsi, KPK) have previously detained Andi Mallarangeng (former Sports and Youth Affairs Minister), and jailed Angelina Sondakh (PD's deputy secretary general) and Muhammad Nazaruddin (PD's former treasurer). Late last year, the Jakarta Corruption Court has also sentenced Wa Ode Nurhayati, a former member of the House of Representatives budgetary committee from the Partai Amanat Nasional (National Mandate Party).

EXECUTIVE SUMMARY

1. • In discussing a code of conduct for the South China Sea, some facts have to be taken into account and certain issues addressed. For example:

2. 1. How to overcome the obstacles, pertaining to the area of application of the proposed code, that caused the downgrading of the initially proposed code of conduct to the eventual “Declaration on the Conduct of Parties in the South China Sea” in November 2002;

3. 2. Whether the proposed code is to be negotiated bilaterally or in an international or ASEAN-centred forum;

4. 3. Whether or not ASEAN member-states should consult among themselves, and at what stage China should be involved;

5. 4. How early is early when ASEAN repeatedly calls for the “early conclusion” of a code of conduct;

6. 5. The interests of non-claimants in regional peace and stability, the prevalence of the rule of law, and freedom and safety of navigation and overflight;

7. 6. The national interest as against the rule of international law. • Since neither ASEAN nor the ASEAN-China senior officials consultations is an adjudicating body, sovereignty and other legal issues cannot be resolved anytime soon. The most that can be achieved is that the national interest can be peacefully pursued, but not at the expense of those of others.

INTRODUCTION

On 20 July 2012, foreign ministers of the Member States of the Association of Southeast Asian Nations (ASEAN) called for “the early conclusion of a Regional Code of Conduct in the South China Sea”. The statement that the Cambodian foreign minister, as chairman of the 9 July ASEAN Ministerial Meeting, issued on behalf of his colleagues also invoked past ASEAN agreements pertaining to the rule of international law, self-restraint, the non-use of force, and the peaceful resolution of disputes. Based entirely on an Indonesian draft cleared with all ASEAN member-states, the statement laid down what were veritably the positions of ASEAN countries, claimants and non-claimants alike, on the South China Sea and their interests in it.

In thinking about or discussing or deciding upon a proposed Code of Conduct for the South China Sea, some facts ought to be taken into consideration and certain issues have to be resolved — or fudged over — or, in any case, addressed.

EXECUTIVE SUMMARY

1. • Over the last decade, Chinese engineering contractors have successfully expanded their operations in Vietnam to a dominant position, turning the country into the largest market for Chinese engineering contractors in Southeast Asia.

2. • The success of Chinese contractors can be attributed to a number of factors, including the conditions attached to China's concessional loans and preferential export buyer's credits and Chinese contractors’ strategies to exploit loopholes in Vietnam's legal regulations.

3. • The dominance of Chinese contractors has presented some significant problems for Vietnam, such as the poor quality and delayed completion of a number of key infrastructure projects, the expanding trade deficit vis-à-vis China, and the illegal use of Chinese laborers in the country.

4. • These problems have elicited negative reactions from the Vietnamese public and policy makers. These include concerns about the country's national security, the resentment against the presence of Chinese laborers, and the widespread negative perception of Chinese goods and services in general and Chinese contractors in particular. Legislators have also taken move to fix legal loopholes that have facilitated the rise of Chinese contractors.

INTRODUCTION

Ministry of Commerce (2010), Chinese engineering companies were by the end of 2009 involved in projects worth US$15.42 billion, turning the Vietnamese market into their largest in Southeast Asia. Various Vietnamese sources also confirm that these contractors are strongly outcompeting contractors from Japan, South Korea, and Western countries. On occasion, Chinese contractors have accounted for up to 90 per cent of EPC (Engineering/Procurement/ Construction) contracts for thermal power plants in Vietnam (Nhat Minh, 2012).

This interesting phenomenon begs several questions. First, given their relative lack of international experience, how did the Chinese engineering contractors manage to achieve their extraordinary success in Vietnam, and is it sustainable? Second, does this condition present special problems for the Vietnamese? And finally, what implications does this hold for Vietnam's economic and political relations with China?

CAUSES

There are two major reasons for the spectacular rise of Chinese engineering contractors in Vietnam: First, the conditions attached to Chinese concessional loans and preferential export buyer's credits for Vietnam; and second, the “flexible” business strategies of these contractors.

EXECUTIVE SUMMARY

1. • In November 2008, China National Petroleum Corporation (CNPC) and the Myanmar Ministry of Energy signed an agreement to build a US$2.3 billion crude oil pipeline and a US$2 billion natural gas pipe-line. The construction is scheduled to be completed this May.

2. • The pipeline project opens a lucrative fourth route for China's oil and nature gas imports, and alleviates the shortage in Myanmar's energy needs.

3. • Beyond its energy strategic value, the oil and gas pipelines will also create other spillover opportunities for economic cooperation and integration between China and Myanmar, and Southeast Asia.

4. • ASEAN member states adopted the ASEAN Memorandum of Understanding on the Trans-ASEAN Gas Pipeline (TAGP) in 2002. Given the ambitious magnitude of the TAGP and the China- Myanmar pipelines, it is possible that the network may be extended into China and beyond.

5. • To what extent this project will strengthen China-Myanmar bilateral relations remains to be seen.

INTRODUCTION

In November 2008, China National Petroleum Corporation (CNPC) and the Myanmar Ministry of Energy signed an agreement to build a US$2.3 billion crude oil pipeline and a US$2 billion natural gas pipeline. Construction started on 31 October 2009 and is scheduled to be completed this May. The dual pipelines will run from Kyaukphu to Muse in Myanmar before entering China at the border city of Ruili in Yunnan Province. In addition to ensuring energy security, the project serves a broader objective of strengthening bilateral relations by deepening regional eco-nomic integration through mutual cooperation.

Analysts are divided on the efficacy of such infrastructure projects in promoting regional economic integration and strengthening bilateral relations. This is especially pertinent when supply countries are experiencing risks and uncertainty associated with structural political transition. Projects such as the China-Myanmar pipelines can generate conflict and local resentment — parties to the project have different interests and motivations, land-use compensation issues abound, and mechanisms exist to encourage both parties to seek a greater share.53 However, energy can also foster shared interests.54 Physical infrastructure such as pipelines are likely to have a lasting impact on interstate relations and create greater incentives for cooperation over time.55

EXECUTIVE SUMMARY

1. • US-China relations have deteriorated from about 2010. From the US perspective, a pattern of Chinese assertiveness in the South China Sea and its stance on North Korea's military provocations against South Korea in 2010 created dangerous tensions and challenged important US interests, including its treaty obligations to allies.

2. • The US response has been two-track: its “pivot” to Asia and intensified efforts to engage China in high level dialogues to improve relations and reduce the chances of miscalculation by either party.

3. • The changing power equation in parts of the Western Pacific will make it difficult in the future for the US to prevail in the “direct defence” (that is without extending the conflict to mainland China) of territories of its allies and friends. The US response to this prospect has been to develop long-range strike capabilities which will enable it to escalate the conflict to mainland China; strengthen alliances and help build the military capabilities of friends and allies; and, again, high-level engagement with China to reduce the dangers of miscalculation.

4. • Intensive on-going Sino-US dialogues are a good development and could help manage the relationship. However any breakthrough is unlikely because each side's perceived vital interests collide against those of the other.

5. • Over the longer-term, the Western Pacific is heading towards multi- polarity, even though the US is expected to remain the strongest military power in the next few decades.

6. • How the South China Sea issue develops and how it will affect US-China relations will have vital implications for Southeast Asian security.

INTRODUCTION

US-China relations have had their ups and downs since the end of the Cold War, with periodic attempts to develop better understanding and cooperation. However, relations deteriorated around 2010 with Washington, and possibly also Beijing, feeling let down by the behavior of other side.

What caused this downturn in relations? From the US perspective, China was engaged in a new and dangerous level of Chinese assertiveness at a time when it was also becoming militarily and financially stronger. Beijing's actions in the South China Sea, suggestions that it might regard the Sea as a core interest, and resulting concerns among US allies and friends led the US to intervene in the issue at the July 2010 ASEAN Regional Forum (ARF) in Hanoi and thereafter.

EXECUTIVE SUMMARY

1. • ASEAN and six other nations (Australia, China, India, Japan, Korea and New Zealand) are launching the RCEP negotiations in Brunei in early May 2013, with the likelihood of completion by the end of 2015.

2. • Currently, the five ASEAN+1 FTAs in existence are significantly different from each other. The RCEP is expected to be a high-quality FTA holding significant improvements over these FTAs.

3. • There are eight areas for RCEP negotiations — trade in goods, trade in services, investment, economic and technical cooperation, intellectual property, competition, dispute settlement, and other issues.

4. • The RCEP, if successfully negotiated, is likely to generate a GDP of US$26.2 trillion (32 per cent of the world), effecting about 3.5 billion people (48 per cent of the world population).

5. • It will further entrench ASEAN Centrality and demonstrate ASEAN's capability to bring together its own ten members and external partners for economic growth, development and harmonisation.

INTRODUCTION

Significantly, ASEAN adopted the Regional Comprehensive Economic Partnership (RCEP) framework in November 2011. This will join its ten members with six nations — Australia, China, India, Japan, Korea and New Zealand — that are currently enjoying five separate FTAs with ASEAN as a whole. Since then, three ASEANPlus Working Groups have been set up on trade in goods, services, and investment. During the November 2012 Summit, the Leaders of ASEAN+6 endorsed principles that stipulate that RCEP will be a modern, comprehensive, high-quality and mutually beneficial FTA. It will aim for significant improvements over the existing ASEAN+1 FTAs and will give due consideration to the differing levels of development among members. The Guiding Principles also list eight negotiation areas — trade in goods, trade in services, investment, economic and technical cooperation, intellectual property, competition, dispute settlement, and other issues. The Leaders decided to launch negotiations in May 2013 in Brunei, with the likelihood of completion by the end of 2015.

EXECUTIVE SUMMARY

1. • China and Malaysia have jointly established the Malaysia-China Kuantan Industrial Park (MCKIP) and Qinzhou Industrial Park (QIP) to further boost bilateral trade and investment.

2. • Investment promoters see Malaysia as a country for China to reach markets with-in country-of-origin rules; and the state of Pahang where the MCKIP is planned will likely be selected as the gateway for bringing investment and jobs into the Malaysia Eastern Corridor, which covers an economically lagging area on the peninsula.

3. • Sources indicate that the industrial park projects are linked to two significant land deals. The first may relate to the QIP land swap arrangement for land in the Binhai township. The second, at the MCKIP, is said to include the conversion of some state-controlled land for the use of the industrial park.

4. • Country data indicates a large imbalance in FDI flows with the broad conclusion that Malaysia OFDI flows to China exceeds the reverse by a factor of five to eight times or even more. However these statistics may still misrepresent the picture since many Malaysian tycoons use Hong Kong as a base for their investments into China.

5. • To begin to correct this imbalance, Malaysia will quickly need to draw in China OFDI equivalent at least to what it has received in recent years from Germany. Such a rapid transformation in Malaysia- China investment outcomes is unlikely without more significant investment drivers in place.

6. • The relatively small size of the MCKIP (just over a tenth of the size of its twin project in Qinzhou) is suggestive of a continued imbalance in Malaysia-China foreign investments.

INTRODUCTION

China and Malaysia have established two joint industrial parks to further boost bilateral trade and investment. These are government-to-government promoted initiatives, and notably the third such bilateral effort by China after the Suzhou and Tianjin projects with Singapore. The Malaysia-China Kuantan Industrial Park (MCKIP), to be built on 1,500 acres, is located in the less developed Malaysia Eastern Corridor. Announced on 5 February 2013 at a ground-breaking ceremony attended by Jia Qinglin, chairman of China's top advisory body, and Malaysian Prime Minister Najib Razak, this industrial park is the twin project of the 13,600- acre Qinzhou Industrial Park (QIP) being built in Guangxi Province, also a less developed region of China.

EXECUTIVE SUMMARY

1. • The principle of “one man, one vote” was never entirely adopted in Malaysia and disproportionate weightage to favour rural areas was in-corporated into the electoral system from the beginning. The ruling Barisan Nasional (BN) has since used the apportionment of seats and the demarcation of constituency boundaries to reinforce its advantage.

2. • In the recent 13th General Elections, BN's mal-apportionment and ger-rymandering strategies over decades resulted for the first time in the opposition Pakatan Rakyat winning the popular vote yet failing to gain control of parliament.

3. • Since 1972, electoral delineation rules have allowed for rural weight-age without clear limitations. The erosion of Malay electoral support in the 1999 election further led BN to use constituency re-delineation in 2002 to pre-empt future Malay vote swings against it and to take advantage of the opposition parties’ inability to overcome ethnic vote-pooling.

4. • However, with the emergence of an opposition multi-ethnic coalition Pakatan Rakyat (PR) that can also gain from ethnic vote-pooling, mixed constituencies ceased to be BN strongholds. Since 2008, the ethnic voting trend favours PR.

INTRODUCTION

The principle of “one man, one vote” was never entirely adopted in Malaysia and disproportionate “weightage” to favour rural areas was incorporated into the electoral system from the beginning. In a first-past-the-post system, “the manner in which the…total electorate is divided into electoral constituencies is crucially important in determining outcomes” (Lim 2003, p. 26). Excessive use by Barisan Nasional (BN) of the apportionment of seats and the demarcation of constituency boundaries to reinforce its advantage has invariably devalued the “one man, one vote” principle.

In the 13th General Election held on 5th May 2013, the opposition coalition Pakatan Rakyat (PR)39 won 50.85 per cent of the popular vote but only 89 parliament seats or 40.09 per cent of the total (Table 1). In contrast, though winning only 46.87 per cent of the popular vote, BN won 133 federal seats and retained control over parliament with 59.91 per cent of the seats. PR's loss despite winning the popular vote can arguably be attributed to BN's long-term use of electoral delineation to create unequal-sized constituencies.

EXECUTIVE SUMMARY

1. • The APEC Model of originates from APEC 2010 Japan year, when sustainable growth was given due recognition as one of the five growth attributes important for member economies to develop.

2. • The green growth initiative assumes that increases in production (agricultural and industrial) as well as rising levels of consumption exert great pressure on the environment.

3. • The key deliverables in the APEC model of green growth are an improvement in energy efficiency; a reduction in tariff barriers for environmental goods and services; and the promotion of the low-carbon sector in member economies.

4. • While the lack of a legally binding structure has often been perceived to have weakened APEC's ability to carry out reforms, in another sense, it has provided strength from its inclusiveness, and this has helped to cultivate a spirit of cooperation among member economies

5. • Potentially, the “APEC way” may ultimately prove to be an effective approach to control greenhouse gas emissions, given how internationally binding talks have so far failed (for example, the Doha Development Agenda), and given the uncertainty of the present climate change talks.

INTRODUCTION

Indonesia assumes the chairmanship of the Asia Pacific Economic Communities (APEC) in 2013, adopting the theme of “Resilient Asia-Pacific: The Engine of Global Growth” in the process. Its three proposed priorities — pressing forward on the Bogor Goals, promoting sustainable growth with equity, and improving connectivity — clearly embrace some ongoing long-term goals propounded by the organisation, such as capital market development, food security, and cutting supply chain costs.

The APEC model of green growth fits into the second priority. This model originates from APEC 2010 Japan year, when sustainable growth was given due recognition as one of the five growth attributes important for member economies to develop.143 The organization also realised that it should help establish low-carbon societies, for which some measures for green growth were proposed. Subsequently in 2011 and 2012, the US and Russia continued where Japan had left off, further adding ‘meat’ to the model.

EXECUTIVE SUMMARY

1. • A functioning federal system offers important social, economic, and political benefits. For this reason, over the past three decades many countries have constructed or strengthened lower tiers of government and decentralized operational and revenue-raising responsibilities.

2. • However, Malaysia is an exception to this trend, as it has an established federal system, with a central government, thirteen state counterparts, and a long history of effective sub-national government. And, rather than strengthening its federal system, the country has, over the past fifty years, enacted a far-reaching centralization drive. This has been enabled by: links between the ruling coalition and the bureaucracy; a long-running dominance of this coalition at both federal and state levels; and a lack of constitutional safeguards.

3. • This drive has often gone unnoticed, as it has manifested itself in a variety of ways, influenced by national policy frameworks in place at the time, the specific responsibility or revenue source sought by the federal government, and underlying legislation. These ‘centralizing tactics’ include: outright appropriation of state government responsibilities; altering incentive structures; privatizing state government- owned assets; and ‘organizational duplication’.

4. • Recent political developments have, however, put these centralizing processes on hold. Since 2008, a significant number of state governments have been governed by the Opposition, converting this previously shrinking political ‘space’ into an area of contestation. State governments of both coalitions now compete with each other to provide new and better services to their constituents. This competition can slow down centralization processes, help separate state and federal issues, and also increase the democratic space for Malaysia's citizenry.

INTRODUCTION

Over the past thirty years, a “Silent Revolution” has taken place across the globe, as countries decentralize, devolve, or delegate power and responsibility from the national to the subnational level.

In so empowering provincial, state, and local governments, citizens have benefited from policy innovations in areas such as public transport, e-tendering, and solid waste management. In addition to providing a closer connection between citizens and public servants, these empowered political entities provide more accessible and diverse settings for training tomorrow's leaders. And by parcelling out power to different locations, it is prevented from coalescing into one location which can then be appropriated by powerful interest groups.

EXECUTIVE SUMMARY

1. • According to the 2010 Census, Singapore had a population of 5.08 million, with 3.77 million residents and 1.31 million nonresidents. Based these figures, as well as fertility rates remaining constant at 1.31 and no migration after 2010, the resident population will grow from 3.77 million to 3.84 million in 2020, after which it will decline to 3.13 million in 2050.

2. • The resident labour force will expand from some 1.98 million in 2010 to a high of 2.00 million in 2015. Thereafter, it will shrink to a low of 1.45 million in 2050. This will exacerbate the shortage of local labour, necessitating further reliance on foreigners to work in industries already suffering from chronic labour shortages.

3. • One consequence of an ageing population is the need and availability of social support for the elderly. A related issue is the need to adjust and expand the healthcare system to meet the increasing needs of the elderly. A greater share of public resources, such as medical personnel, physical facilities, and finance, will be channelled towards this end.

4. • The admission of newcomers from varied geographical, ethnic and religious backgrounds has posed some problems in constructing a united and harmonious society. In order to confront this issue, the government has established the National Integration Committee in 2009 to promote the greater integration of new immigrants.

5. • Nevertheless, the possible impact of the inflow of foreigners on the ethnic composition of the resident population is a sensitive issue. The recent influx of Indians, mainly professional northern Indians, has tipped the balance somewhat at the expense of the Chinese proportion, and more so the Malay proportion.

6. • While the dominant Chinese community does not seem concerned publicly, the Malays have spoken out about their falling proportion. In his National Day Rally held in November 2010, Prime Minister Lee Hsien Loong reassured the Malay community that the existing mix of the population will be maintained.

INTRODUCTION

The total population of Singapore enumerated in the Census of Population conducted in June 2010 amounted to 5.08 million, with 3.77 million residents and 1.31 million non-residents.

EXECUTIVE SUMMARY

1. • Asia is witnessing two different approaches to trade liberalisation — the Regional Comprehensive Economic Partnership (RCEP) and the Trans-Pacific Partnership (TPP). While TPP and RCEP have quite similar objectives of trade liberalisation and economic integration, there are differences too.

2. • RCEP, driven by ASEAN, is a FTA between ASEAN and ASEAN's FTA partners - Australia-New Zealand, China, South Korea, Japan and India. It is envisaged to be a high-quality and mutually-beneficial economic partnership agreement that will broaden and deepen the current FTA engagements. TPP, on the other hand, is a USled process pushed forward as a “WTO-plus approach”. Around eleven countries (New Zealand, Singapore, Brunei, Chile, the US, Canada, Australia, Peru, Malaysia, Vietnam, Mexico) are negotiating TPP. China or India are not included.

3. • RCEP is likely to be more accommodative to the development differences of the member countries. On the other hand, TPP is said to have more demanding set of commitments — intellectual property rights, labour standards, competition policy, investment rules, the environment and the role of state-owned enterprises. As TPP comprises of members at different levels of economic development, reaching a consensus on the optimal standards will be difficult.

4. • Both have perceived benefits for the Asia and the Pacific region, and are expected to support the international production network. They are likely to address “behind the border” issues or trade facilitation measures, with more specific assistance to SMEs. RCEP and TPP are expected to promote domestic reforms in line with regional goals. It is possible that agreement between a small group of countries like RCEP and TPP may to take care of some of the concerns of the “noodle bowl” effect of overlapping smaller FTAs and an over-arching set of free trade principles may be achievable.

5. • There may be some concern over competition between TPP and RCEP as the regional pacts have similar objectives over trade liberalisation and economic integration. TPP and RCEP may also come into conflict due to the rivalry between the US and China. Besides, any competition between these two agreements may lead to division among ASEAN members, which may undermine ASEAN's centrality in the region.

EXECUTIVE SUMMARY

1. • The only change in government following Malaysia's 13th General Elections was in the state of Kedah. Nevertheless, some fundamentals in the country's political structure were altered for good, and these are best understood through a historical perspective.

2. • All the political parties in Malaysia formed before independence and which are still relevant, are communal parties.

3. • Be that as it may, three inter-related dimensions have always formed the backdrop for Malaysian political discourses—ethnocentrism, multiracialism and socialism. Since the 1980s, Islam as a parameter for political mobilization has also become significant, and is best understood within the country's general inter-ethnic balancing act.

4. • The history of UMNO and its allies has been one of internal conflicts despite the discourse on communal unity. Nevertheless, its dominance continues to rise within the ruling coalition, at the cost of other major member parties.

5. • The latest split, which occurred in 1998, saw Anwar Ibrahim becoming the major opposition leader, and greatly configured Malaysian politics for the following 15 years. This also ignited a revival of social activism, especially after 2007.

6. • The transition from the Mahathir period after 2003 compounded the political equation further. Abdullah Badawi's attempts failed badly. With Najib taking power in 2009, a four-year period of de facto campaigning began, which polarized the country further.

7. • Najib's next challenge is to survive the UMNO party elections later this year, which he is likely to do.

8. • The huge mal-apportionment in constituency size which made BN's victory possible, will be a major issue. Policy competition between the two coalitions which began in 2008 will continue.

HISTORICAL LINES OF CONFLICT

The 13th General Elections held on May 5th this year did not bring about the change in government at the federal level which the opposition had hoped for. The only change in government to occur was in fact in Kedah, where the Pakatan Rakyat (PR) lost the second of the five states that it had won on March 8, 2008.

However, despite such disappointments, the PR as a whole continued making inroads into new key areas that were once off-limits to the opposition.

EXECUTIVE SUMMARY

1. • Between 2003 and 2011, ASEAN saw an increase of China's inward investment from US$0.12 billion to $5.9 billion, with total accumulation being $22.1 billion by the end of 2011, and ASEAN's share in China's total OFDI rose from 4.1% to 7.9%.

2. • The expansion of China's OFDI in South East Asia may have been due to the deepening economic integration fostered by ASEAN countries; ASEAN's rising ability to attract FDI; the implementation of the China-ASEAN Investment Agreement, as well as China's domestic industrial restructuring and its rising labor costs.

3. • One of the most reported motivations for Chinese OFDI in the international media and in some academic writings is China's hunger and need to secure natural resources to fuel its rapid economic growth. Yet, Chinese OFDI in Southeast Asia shows that the importance of seeking market opportunities and regional labor-division is greater than the importance of obtaining overseas resources.

4. • For CLMV (Cambodia, Lao, Myanmar and Vietnam), Chinese OFDI is more appreciated as this export-oriented FDI tends to generate more employment, facilitates, and better access to the global economy via export spillovers.

5. • From regional perspective, China's FDI in Southeast Asia, especially in energy sectors will enhance energy cooperation between China and ASEAN countries. There is great potential and room for Chinese investment flowing to those sectors like clean energy, low-carbon technologies and energy efficiency.

INTRODUCTION

In the early 1990s when China started increasing its OFDI (outward foreign direct investment), ASEAN countries were receiving only around 3% of their northern neighbour's total investments. That has changed dramatically since then.

According to statistics made available by China's Ministry of Commerce, Chinese investments in ASEAN jumped from US$0.12 billion to $5.9 billion between 2003 and 2011, with total accumulation reaching $22.1 billion by the end of 2011. ASEAN's share in China's total investments overseas almost doubled, rising from 4.1% to 7.9%. This has been a recent development though. Compared to the previous year, China's OFDI in ASEAN for 2011 increased by 34.1%. This can be relevantly compared to increment levels for that same year for other major trading partners—EU ($7.6 billion) increased by 26.8%, the US ($1.8 billion) by 38.5%, and Russia ($7.2 billion) by 26.1%.

EXECUTIVE SUMMARY

1. • Although Southeast Asia has experienced the fast pace of economic development and exhibited exceptional economic performance, it has increasingly become apparent that the benefits of growth in the region are by and large unevenly distributed.

2. • Southeast Asia, to date, achieves substantial progress in terms of boosting income per capita and, thus, poverty reduction, notwithstanding unending economic uncertainties in the U.S. and euro zone.

3. • However, the buoyant picture has mostly been plagued by remarkable rises in income inequality.

4. • There are at least three main structural drivers of rising inequality in the region. These include economic growth, trade openness and liberalization, and financial market development.

5. • A set of policy options that allow the region to thrive on inclusive growth, include enhancing and equalizing access to education, incorporating inclusion and equity into economic strategies, improving governance and institutional quality, and rebalancing public spending on social protection.

INTRODUCTION

Although the economies in Southeast Asia have exhibited exceptional performance, development between the countries is largely uneven, and the emerging disparities pose critical challenges to inclusive and sustainable growth. There are quite a number of reasons for this which necessitates a new phase of policies and reforms that enhances inclusive growth.

First, disparities necessitate redistributive policies and interventions which fundamentally distort resource allocation and may practically entail inefficiencies in terms of poor administration and corruption. Second, inequality constitutes a root cause of socio-political instability and violence, which have become evident in many parts of Asia. Unrest arising from disparities is therefore detrimental to the growth trajectory of a country. Third, concentration of wealth and economic resources to small groups is eventually translated into inadequate market size and small aggregate demands that undermine the competitiveness of an economy. Finally, inequality entails misallocation of investment because rising inequality necessitates substantial social investment, especially in human capital and institutional infrastructure, ultimately hampering economic growth.

EXECUTIVE SUMMARY

1. • The social activism that has been on the rise in Malaysia in recent years differs in many aspects from earlier times, making it difficult for the government to accept wholeheartedly, let alone manipulate successfully.

2. • In the first decades of independence, internal tensions were expressed in terms of ethnic differences. With the implementation of the comprehensive New Economic Policy, class discourses were subsumed under racial contradictions. This situation was worsened with the addition of Islamic terminology to strengthen Malay Muslim demands, and exacerbated the non-Malay brain drain out of the country

3. • Between 1990 and 1998, developmentalism and Malay-centrism cum Islamization functioned as intertwined pillars for Malaysian nation-building.

4. • The Reformasi Movement born in 1998 signalled a groundswell of dissent which culminated into demands for fair elections, rule of law and effective and good governance. Most importantly, it attempts rather successfully in clothing its pet issues in non-racial terms.

5. • The Bersih Movement for open and clean elections electrified large segments of the urban population throughout the country, drawing civil society and opposition parties to form an integrated opposition to the government.

6. • The deep movement for reforms in Malaysia is expected to continue since the factors causing changes include powerful external ones such as the regionalisation of the economy, of jobs, of schooling and of capital.

INTRODUCTION

Malaysia's Parliament has to be dissolved by the end of April 2013, following which Malaysians must go to the polls within 60 days. Nothing significant about that, except that this 13th general election is a critical one which will decide how the country's politics will develop in the coming decade.

A two-party system is now in place, thanks to the spectacular results of the 12th general election five years ago which brought opposition parties to power at the state-level. Of the many reasons ventured for this shift, the one that cannot be ignored is the impressive rise in social activism. A strong sense of empowerment has come to the fore, which the ruling coalition continues to have a difficult time managing.

EXECUTIVE SUMMARY

1. • Amendment of the Thai constitution of 2007, a charter drafted under the supervision of the putschists who seized state power in Thailand in September 2006, numbered among the promises made by Yinglak Shinawatra and her Phuea Thai party in their campaign for the July 2011 general elections.

2. • To date, however, the Yinglak government has proved unable to fulfil that promise.

3. • In 2012, Thailand's Constitutional Court thwarted its initial effort to amend the charter. This year, the government has launched a second effort, once more under the close scrutiny of that court. The ongoing struggle over constitutional amendment in Thailand reflects the paradoxes of Thai constitutionalism.

4. • Those paradoxes suggest that the framing of a durable constitution for Thailand must await the resolution of fundamental questions about the country's political order.

INTRODUCTION

In January 2001, telecommunications tycoon Thaksin Shinawatra led his Thai Rak Thai (TRT) party to a decisive victory over the Democrat Party in polls for the lower house of the Thai parliament. At least two distinguishing features marked these polls. First, they were the inaugural general elections held under Thailand's putatively reformist constitution of 1997. In an attempt to introduce and give institutional integrity to a new order for Thai parliamentary democracy, that constitution had created a series of independent bodies. These bodies included Thailand's first Constitutional Court.

The 1997 constitution also introduced for the first time elections for the upper house of Thailand's parliament, the senate. A second feature also distinguished Thailand's 2001 elections: TRT campaigned on the basis of a series of specific policy proposals, including several relating to local development funds and lowcost access to health care. A third significant departure duly followed TRT's electoral victory: in power, the party actually moved to act on its campaign promises. Fulfilment of such promises became what would prove a lasting hallmark of Thaksinite government in Thailand.

This 1997 constitution was abrogated following the September 2006 coup d’état which ousted Thaksin from his premiership. In 2007 the military appointed the National Legislative Assembly to draft a new constitution which was subsequently approved through a referendum in 2007.

EXECUTIVE SUMMARY

1. • As tensions have ratcheted up in the South China Sea over the past several years, Japan has expressed growing concern at negative developments and the lack of progress in implementing effective conflict management mechanisms.

2. • Japan is not a claimant, but as a major maritime trading nation it is a significant stakeholder in the dispute.

3. • Tokyo is alarmed at China's increasingly assertive posture in the maritime domain, and views the disputes in the South and East China Seas as linked.

4. • Japan has two major concerns over the South China Sea. First, that instability has the potential to disrupt the free flow of maritime trade on which the country's economic prosperity depends. Second, that if China is able to persuade or coerce other Asian nations into accepting its claimed “historic rights” in the South China Sea, existing international legal norms would be undermined.

5. • To mitigate its concerns, Japan is pursuing a number of strategies: it raises the problem at regional security forums; it tries to encourage ASEAN unity on issues of maritime security; it discusses the problem bilaterally with Southeast Asian countries and provides capacity building support to selected claimants (principally the Philippines); and it seeks closer ties with other external stakeholders which share its concerns.

INTRODUCTION

In a speech that was due to be delivered in Jakarta on 18 January—but postponed due to the hostage crisis in Algeria—Prime Minister Shinzo Abe stressed the vital importance of Asia's maritime domain to Japan:

That Abe chose to focus on maritime security during his first overseas trip since assuming office on 26 December 2012 is unsurprising for two reasons.

EXECUTIVE SUMMARY

1. • The Seventh Plenum of the Communist Party of Vietnam (CPV) was notable for the tensions between the Secretary-General and the Central Committee of the Party.

2. • The Central Committee gained more clout by securing more statutory power. The increase in its power and influence that began in 2001 seems to have reached a new peak in 2013.

3. • However the CPV as a whole has become weaker as the factions in the party become stronger and more disparate.

4. • There was a break up, albeit partially, in the practice of democratic centralism within the CPV which could be a healthy development.

5. • The Foreign Minister is still not a member of the Politburo even though the rules of the Communist Party of Vietnam dictate that he be so.

6. • The Politburo of the CPV is now seeking to rebuild internal unity, trust, and solidarity within the party, and to regain the trust of the Vietnamese people who have shown increasing dissatisfaction with growing corruption.

INTRODUCTION

The Seventh Plenum of the Eleventh Congress9 of the CPV held in early May 2013 was an incredibly important event for the CPV leadership in Hanoi. The Party had intended to use the Plenum to take the first steps in leadership planning towards the next Congress expected to be held in early 2016, and to try to make progress in the fight against corruption, ‘decadence of cadres’, and ‘social evils’. But the results of the votes for additional members to the Politburo and Secretariat took the Plenum onto an unexpected path.

The CPV's Central Committee of 175 members turned down proposals from the Secretary-General of the CPV, Nguyen Phu Trong, and declined to vote for admitting the Head of the Commission on Internal Affairs and Head of the Commission on Economic Affairs (both bodies were re-instated by him after being abolished in 2006) into the Politburo.10 It thus reduced the power of both the Politburo and Secretariat to fight corruption and supervise the government's economic policy — the two key areas that will determine the legitimacy, and perhaps the very survival, of the CPV.