Meeting the Challenges

The last few months of 2012 brought leadership changes in China, Japan and South Korea — three important trading partners for Thailand and Asean — so their implications are worth examining.

China’s leadership change in November, with Xi Jinping taking over as president from Hu Jintao, was part of a long-expected handover within the ruling elite, and isn’t expected to lead to any significant change in direction for the country’s economic policy. For example, the country’s 12th five-year plan, for 2011 to 2015, was already in place.

Japan’s leadership change has been more significant. The Liberal Democratic Party, led by Shinzo Abe, reversed the crushing defeat it suffered three years ago at the hands of the Democratic Party Japan. With a comfortable parliamentary majority (in coalition with the much smaller New Komeito Party), the new government should have no trouble implementing its economic stimulus policies in an attempt to overcome deflation and kick-start an ailing economy.

With so much attention being paid to China’s rise as the next global superpower, it’s sometimes easy to overlook the fact that Japan is still the third-largest economy in the world, and Thailand’s largest single-nation trading partner. What happens in Japan is still of great importance to us.

A long-term weakening of the yen is likely, given Mr Abe’s expansionary policies, which will make Thai exports to Japan more expensive. The good news is that sectors reliant on imports from Japan will benefit from a weaker yen, as Japanese goods and raw materials will be cheaper. And if Japan’s economy regains its strength, then this will benefit regional trade and investment.

Over the past three years Japan has suffered many setbacks, including the natural disaster of an earthquake/tsunami and the resulting nuclear crisis in Fukushima. Its people have also suffered from a lack of confidence due to its protracted period of economic stagnation.

There are also simmering territorial disputes between Japan and China which need to be resolved. Mr Abe would make perhaps his greatest contributions to the continued health of Asean and the wider region if he can help settle these conflicts. The good news is that it was a previous LDP government that reached out and established diplomatic relations with China in the first place.

South Korea’s new leader, Park Geun Hye, heads the Saenuri Party, which was returned to power in December’s elections after a campaign dominated by domestic economic and welfare issues. It should be business as usual between Thailand and South Korea, with the commitment to more than double bilateral trade to US$30 billion by 2016 — agreed a few weeks before the election — unaffected.

Looking ahead, Malaysia — Thailand’s fourth-biggest single-nation trading partner — is scheduled to hold elections no later than April. Pundits are predicting a close-run affair between the ruling National Front Coalition and the opposition People’s Alliance Coalition. Domestic issues such as corruption, economic development and political reforms are expected to feature during the campaign.

For Thailand, the result is unlikely to have any significant implications on either bilateral trade or multilateral free-trade agreements involving Malaysia. This will hold even in the unlikely event that the moderate Islamic party, which is one of the PAC’s three major partners, gets to nominate the new prime minister.