Political risk

During a three-day summit over the weekend (December 13-15) leaders of Japan and the 10-member Association of Southeast Asian Nations (ASEAN) pledged to boost economic and security ties. But they also issued a joint statement where they "agreed to enhance cooperation in ensuring freedom of overflight and civil aviation safety."

While China wasn't mentioned, the statement was seen as a rejection of China's recently declared air defense zone which includes the disputed Senkaku/Diaoyu islands. Beijing has territorial disputes not only with Japan but also with four members of the economic bloc. In a DW interview, the chief Asia economist of the analytics firm IHS, Rajiv Biswas, says the disputes pose a major risk to regional political stability in Asia as well as to the Asian regional economy due to the large volume of trade flows.

DW: What was achieved during the three-day Japan-ASEAN summit in Tokyo?

Rajiv Biswas: The Japan-ASEAN summit was held to commemorate the 40th anniversary of Japan-ASEAN ties and continue building closer ties. Among the significant economic outcomes were large aid commitments by Japan to ASEAN, including 2 trillion Yen (20 billion USD) in official development assistance to the members of the association over the next five years. Of this, 300 billion Yen were pledged to strengthen the ASEAN disaster management framework and establish a disaster prevention workforce.

From the political perspective, a key political outcome for Japanese Prime Minister Shinzo Abe was the Japanese-ASEAN agreement on freedom of overflight and civil aviation safety. Given the recent background of the Chinese creation of an air defense identification zone (ADIZ) in the East China Sea, the Japanese-ASEAN agreement is a signal of both Japanese and Southeast Asian concerns about rising Chinese military strength and territorial claims along its borders.

What did the gathering offer Tokyo in the midst of rising tensions with China over disputed islands in the East China Sea?

Japan has been trying to build bilateral ties with ASEAN nations to strengthen its position in its territorial dispute. During the summit, Japan made significant progress in strengthening its bilateral security co-operation ties with Vietnam, which also has struggled in recent years over territorial disputes with China over sovereign claims in the South China Sea.

Japan also boosted its economic ties with Myanmar through a bilateral investment agreement signed during the summit, which gives Japanese firms enhanced protection for their investments into Myanmar by granting them domestic investor status. This is expected to accelerate the rapidly growing investment inflows by Japanese firms into Myanmar.

Remarks made by Japan's Premier Abe during the weekend calling for China to rescind its air zone were denounced by Beijing as "slanderous." How is the state of relations between Beijing and Tokyo at the moment?

Bilateral political relations between China and Japan have soured considerably since 2012 due to the escalation in the dispute over the sovereignty of the Senkaku/Diaoyu island chain. China's recent step to create an ADIZ over the East China Sea has further escalated bilateral tensions, since it covers the disputed islands.

The political relationship between China and Japan remains tense, with Chinese military aircraft and coastguard vessels continuing to challenge Japan's sovereign claims over the disputed islands by movements in the area.

This bilateral dispute between the world's second and third largest economies, both key regional military powers, has become one of Asia's key political risks and potential flashpoints for 2014. This poses significant risks to regional political stability in Asia as well as to the Asian regional economy due to the large volume of bilateral trade flows. It is therefore crucial that a peaceful approach to a resolution of these territorial disputes is found.

Are the territorial disputes between China and some Southeast Asian nations likely to render ASEAN nations more receptive to Japanese overtures and charm offensive?

A number of ASEAN nations have had lingering territorial disputes with China over disputed sovereign claims in the South China Sea, notably the Philippines and Vietnam. Both countries have already been strengthening their political and economic dialogue with Japan, including at the latest Japan-ASEAN Summit.

Other ASEAN nations have varying positions, with some having no significant territorial disputes with China and therefore taking a more cautious stance to maintain their good political and economic relations with both China and Japan.

Do ASEAN nations now run the risk of irritating China, whose vast economy is vital to the region?

Most ASEAN nations have taken a very diplomatic stance in managing their relations with both China and Japan. Both China and Japan are very large trade and investment partners for most ASEAN nations, and therefore most of them do not wish to harm their bilateral relations with either nation.

China's economic influence in ASEAN has grown rapidly during the last decade, with bilateral trade between China and ASEAN growing at an annual rate of around 20 percent. Many ASEAN nations have called for a regional security dialogue among ASEAN and other major East Asian countries, notably China and Japan, which will provide a forum for peaceful resolution of regional disputes.

How important are these bilateral economic agreements?

The bilateral economic agreements concluded during the Japan-ASEAN Summit do represent a strengthening of Japan's economic ties with a number of ASEAN nations. However, they need to be seen in the context of a broader pattern of regional trade and investment ties across the Asian region in recent years, with many bilateral free trade agreements as well as bilateral economic partnership agreements having also been concluded with China.

Rajiv Biswas is senior director and chief Asia economist at IHS, a global information and analytics firm. He is responsible for coordination of economic analyses and forecasts for the Asia-Pacific region.

The interview was conducted by Gabriel Domínguez.