Driving commercial and political engagement between Asia, the Middle East and Europe
Driving commercial and political engagement between Asia, the Middle East and Europe
Driving commercial and political engagement between Asia, the Middle East and Europe
New deals with India and early success with ASEAN highlight the opportunities for the UK as it refocuses on Asia, writes Lord Green, Chairman of Asia House.
One of the key takeaways of the UK government’s ‘Integrated Review’, published in March, was a renewed focus on Asia within British foreign policy thinking. ‘The Indo-Pacific will be of increasing geopolitical and economic importance, with multiple regional powers with significant weight and influence, both alone and together,’ the review stated.
For us at Asia House, this of course came as no surprise. For years, we have been highlighting the growing importance of Asia as the world’s economic centre of gravity shifts towards the region. The Integrated Review’s conclusions affirm our mission to drive engagement between Asia, the Middle East and Europe – a mission that has taken on greater moment given the geopolitical tensions currently on the rise.
Those tensions have, in part, pushed UK defence policy more firmly towards Asia, in what Whitehall has branded an ‘Indo-Pacific Tilt.’ This shift is notable in both its strategic implications and its rhetoric. The phrase encompasses a wide geographical area and brings India, quite deliberately, into the regional strategic sphere. It is also a phrase unpopular in Beijing, given the connotations of containment: the Indo-Pacific region could be perceived as enveloping China’s flanks. Yet while the adoption of the Indo-Pacific label could reflect a shift in the UK’s stance, the review also stresses that the UK is pursuing a ‘positive trade and investment relationship with China.’
Indeed, the Indo-Pacific Tilt is not just a geo-strategic rebalancing. Trade and investment will be essential to the UK’s engagement strategy in the region. And it is here where perhaps the greater opportunities lie.
It is notable that Prime Minister Boris Johnson’s first major diplomatic visit scheduled since the UK officially left the European Union was to India – a visit that was converted to a virtual summit in light of the current COVID19 crisis. Johnson recently described India as ‘an increasingly indispensable partner for the United Kingdom’, and the world’s largest democracy is clearly envisaged as a key security partner amid rising geopolitical tensions in Asia.
But it is primarily through economic channels that the UK is seeking to deepen ties with India. On 4 May, during the virtual summit between Johnson and Indian Prime Minister Narendra Modi, a raft of deals worth £1 billion were announced. A pathway to double bilateral trade by 2030 and work towards a UK-India free trade agreement was also unveiled.
The Integrated Review also envisages the UK having a more active presence in the Indo-Pacific. Here, there is a key opportunity emerging in the UK’s evolving relationship with Japan.
If Britain does want to become a bigger player in Asia, its partnership with Japan offers an exciting opportunity to make a positive impact in the region. According to an Asia House report published in March, Tokyo and London are extremely well placed to cooperate on one of Asia’s most pressing challenges – the yawning infrastructure gap, recently valued at US$26 trillion by the Asian Development Bank. The age-old challenge here is infrastructure financing, with capital and risk levels deterring investors. However, the establishment of strong legal frameworks and investment structures – a key strength of the City of London – combined with London and Tokyo’s deep finance pools could revolutionise Asia’s infrastructure investment landscape. The UK can offer capital and an investor base, expertise in the world’s leading speciality risk insurance market, and bespoke advisory services to support infrastructure financing. Japan has complementary expertise and, crucially, extensive experience in Asian markets, being the largest infrastructure investor in Southeast Asia – a fact that is often overlooked.
But perhaps it is climate change where the UK and Japan can have the most profound and important impact. London and Tokyo can lead the charge by doubling down on their financial services strengths, building a connected powerhouse for global green finance. Japan’s green finance activities have rocketed in recent years, with US$17 billion in cumulative issuances in 2019. It now ranks second in the Asia-Pacific for green finance. In the UK, the London Stock Exchange was the world’s first to introduce a dedicated green bond segment, which is now home to the first certified green bonds out of China, India, and the Middle East. By exploiting these synergies, the UK and Japan could position themselves as world leaders in sustainable finance – with COP26 presenting a particular opportunity to drive commitments on green finance and establish the rules of the game moving forward.
Somewhat buried in the notes of the Association of Southeast Asian Nations (ASEAN) ministerial meetings last month was an agreement for the bloc to move forward with the UK’s request to attain ASEAN Dialogue Partner status. Given the moratorium on new partners, accepting the UK’s request sends a clear and encouraging message. The UK’s decision to open a new mission to ASEAN in 2020 demonstrated the importance with which London holds the dynamic, exciting and ambitious markets of Southeast Asia, and Dialogue Partner status would serve to strengthen ties with the region.
While there are geopolitical forces at play here – ASEAN is likely to become increasingly central to international affairs, making greater influence within the region key to Britain’s interests – there are also obvious economic factors. Southeast Asia’s large and young populations are driving growth in innovative sectors that will likely define the global economy in the years ahead.
Perhaps the most innovative of all the UK’s post-Brexit moves in Asia is its application to accede to the Comprehensive and Progressive Agreement for Trans Pacific Partnership (CPTPP). Occasionally mentioned in passing in the Integrated Review, accession to the CPTPP could actually do more than anything else to cement the UK as a key player in Asia, locking it in to some of the most dynamic economies in the world. In this respect, the application to join CPTPP is a truly creative piece of policymaking that once again highlights trade as the central driver of UK engagement with Asia. While the UK must wait to gain approval from CPTPP members, the signs are positive. Asked during an Asia House conference earlier this year about the proposal, Japanese Ambassador to the UK, Hajime Hayashi, said Japan “welcomes the UK’s formal request for accession,” and that although member states will have to be consulted, “Japan – as it takes up the presidency of the CPTPP Commission this year – is ready to play its part.”
It is clear, then, that the UK is prioritising Asia in its ‘Global Britain’ agenda, and that the aims of the Indo-Pacific Tilt are as much about commerce and investment as they are about geopolitics. For businesses already engaging with Asia, or those seeking growth within its dynamic markets, this can only be a good thing. But success will require ongoing commercial and political commitment to the region – a mission to which Asia House, now in its 25th year, has long been committed.
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