Hedging their bets? : how the global financial crisis altered strategies and partnerships in ASEAN

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Master Thesis of Political Economy:

The New Protectionism and the End of Multilateral Cooperation

Hedging Their Bets?

How the Global Financial Crisis altered strategies and

partnerships in ASEAN

Zachary Surber 12238317 Word Count: 18.830

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Abstract

Following the Global Financial Crisis (GFC), Southeast Asia has seen the decline of the United States and the rise of China, both in economic and security relevance. While there is a wealth of literature on the conflictual relationship between the two great powers, there remains minimal research on the alignment choices made by states in the Association of Southeast Asian Nations (ASEAN). Their position as a regional force of stability and nonalignment makes them a good candidate for exploring the consequences of this power shift and the implications of future power relations, particularly as more economies reach increasingly symmetrical levels of development. This paper uses the continuum of power rejection and acceptance outlined in Kuik (2016b) to explore if ASEAN has become more aligned with China as a result of the GFC. To illustrate the interests behind these strategies, a state level analysis is performed using the typologies of Sino-ASEAN relations provided by Chen and Yang (2013). Findings ultimately confirm that ASEAN has moved to a more power-acceptant stance with China. The reason indicated in this analysis is that China has become too important economically for ASEAN to jeopardize friendly relations with, and alternative balancing powers like the United States have not significantly challenged this relationship outside of indirect security relationships.

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There is still much to be understood about the shifting interests and concerns of small, newly developed states and how they react to changes in the global constellations of power. The rise of China represents the biggest change to global leadership since the end of the Cold War, and much of the extant literature concerns itself with answering if, and when, China will fully counterbalance the United States (Paul 2005). There is little research, however, on the alignment choices made by the smaller states on the periphery through which these leaders project their power. Nor are the reasons behind these choices yet fully understood (Kuik 2016b). Useful predictions for the future can be made in Southeast Asia, which is a region of quickly developing states whose primary concerns are of stability, growth, and independence (Kang 2003, Acharya 2004). The Global Financial Crisis (GFC) was a pivotal moment for this region, as I argue it marks a tipping point for rising Chinese dominance vis a vis American decline.

Though it has been over a decade since its onset, the full impact of the GFC remains a subject worthy of continued investigation. In particular, it has highlighted fragilities in the global economic system supported by the United States, worrying growing economies whose markets are reliant on consistent export demand and capital flows. More concerning, the GFC has shown itself to be a “crisis also of politics, representation, legitimacy and democracy” (Payne 2010, p 729), particularly regarding the fact that the crisis was poorly managed by existing international regulatory agencies which gave little representation to the emerging economies of the Global South (Eichengreen 2010). This has directly led to perceptions in the Global South that these institutions, and the United States by extension, failed to recognize and respond to their needs, questioning the value of accepting American hegemony (Kuik 2016b).

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The crisis has thus been a watershed moment for the emerging economies of the Global South, not least of which being the BRICS economies. Dimitriou et al (2013) show that these economies successfully decoupled themselves from the Global North during the early stages of the crisis, finding no evidence of a contagion effect. Yarovaya et al (2016) support this, finding that “spillovers between emerging and developed markets are weaker than between developed markets”, and that Asian markets were especially insulated (idem, p 113). Similarly, Freund (2011) shows that these economies maintained high demand for trade and capital flows throughout the crisis without a need for financial support, showing resilience against shocks originating from the Global North.

The implication of a growing class of independent emerging economies is that there is a distinct possibility of an increasing level of multipolarization in the global economy, delinking these states from forms of dependency on the Global North. Robert Zoellick (2010), giving a speech during his tenure as president of the World Bank, remarked with excitement that “some developing countries are emerging as economic powers; others are moving towards becoming additional poles of growth.” More specifically, he argues that the emerging economies may provide an alternative to the historical dominance of the Global North. Others, however, point to the potentially destabilizing nature of rivalries between poles, if not a full move to a ‘nonsystem’ (Dailami and Masson 2009). The rise of China could be eliciting responses of either excitement, caution, or both from the impacted states.

The Association of Southeast Asian Nations (ASEAN) is an ideal case to examine changing attitudes toward an emerging China as a potential cause of a multipolar global system. Early ASEAN had been influenced by the Japanese “Fukuda Doctrine”, which emphasizes a rejection of military power, consensus based decision making, and equality in power (Hwee 2006, p 260). More recently, the region has become noteworthy as an illustration of the

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competing influences of China and the United States, where ASEAN strikes a balance between the two. Researchers have noted this apparent ‘hedging’ behavior of ASEAN economies towards a rising China since the 1990s, i.e. a sort of mutually contradictory set of strategies of balancing and bandwagoning based on the perceived security threat and economic opportunity of increased engagement (Beeson 2003, Chen and Yang 2013, Kuik 2016b). On a more basic level, the situation may be understood as “United States as the preponderant superpower, with China as the regional great power, and India, Japan, and South Korea as second-tier regional powers.” (Goh 2007, p. 827).

This reading of the power constellation in Southeast Asia notably downplays the role of powers outside of the Sino-American competitive relationship. The significance of Japan has diminished since the 21st century, primarily due to its perceived ambivalence and its inability or unwillingness to take a more prominent leadership role with ASEAN (Ba 2003). Likewise, while ASEAN had historically played a major role in managing Sino-Japanese tensions in the late 20th century, the last decade has instead seen a sharp decline in the influence of Japan vis a vis that of China (Yuzawa 2018). This has motivated many academics such as Goh (2007) to consider Japan to be a secondary power, and its role has thus been limited to that of one of many countervailing economic partners for ASEAN, rather than a direct balance on Chinese influence (Kuik 2016b, p 513). The primary guarantor of ASEAN hedging strategies, especially in security but also for the economy, remains the United States (Beeson 2003, Kuik 2016b).

ASEAN therefore may be understood as engaging with China and the US on a selective basis, factoring in risk and gains when choosing with whom to engage, and to what extent. If the Global North is indeed waning at best, and causing global instabilities at worst, it seems logical that ASEAN may be considering China to be a relatively stronger economic partner, and the USA less so. Likewise, if China engages with ASEAN to resolve, downplay, or cooperate to limit

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security concerns (similar to the Fukuda Doctrine), they may begin to see China as a diminishing threat (Kuik 2016b). This may be happening now in the South China Sea, as Brunei and China have come to an agreement over disputed maritime territory, prompting softer stances from Malaysia, Vietnam, and the Philippines (Jennings 2018).

The literature on hedging behaviors is still young, and unfortunately suffers from imprecise or inconsistent definitions (Acharya 2004). Therefore, this paper will primarily use the theory of Kuik (2016) which visualizes hedging behaviors as being on a spectrum of alignment from power rejecting (balancing) and power accepting (bandwagoning) attitudes toward China and the United States (this is further elaborated in Section 3.2). The implication of this theory is that ASEAN is, in aggregate, somewhere on this spectrum, moving dynamically as interests change. Chen and Yang (2013) typify these interests of ASEAN states toward China by examining the security risks (power rejecting) and economic opportunities (power accepting), implying that recalculations of any could shift their hedging strategy.

Walt (1987, p 101) notes that balancing is motivated by _threat, rather than aggregate power which instead correlates to the intensity of balancing behavior. A shadow of the future threat from China is clearly seen in many ASEAN state attitudes, such as Indonesia which remains relatively ambivalent in security but still sees China as its greatest potential threat (Roy 2005). A direct threat, however, is currently occurring in the South China Sea over Vietnamese and Philippine (and, to a lesser extent, Malaysian and Bruneian) claimed territory (Forbes 2001, Roach 2014). As noted by Walt (1987), the best strategy for China to employ in this case is political cooperation with ASEAN due to its power asymmetry which has broadly been the case in the 2002 Declaration on the Code of Conduct (ASEAN 2012). While China has since softened its behavior over these claims, they have not reduced them and the threat of conflict persists (Roy 2005).

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Beyond the concerns of international relations, this set of emerging countries likewise has many internal reasons which make them an ideal case study. Chen and Yang (2013) note the importance of elites when evaluating national strategies, emphasizing the strong role of the elite class but also acknowledging their alignment of personal and national interest. China’s selective liberalization (Kennedy 2005) may be more attractive to elites in ASEAN states whose developmental policies emphasize a stronger state in the economy. Specifically, East and Southeast Asian economies have developed an economic framework dubbed ‘Embedded Mercantilism’, analogous to ‘Embedded Liberalism’, defined as a mixture of “crony capitalism and economic openness” (Jayasuriya 2001, p 91). Thus, stronger economic alignment with a growing China (and other emerging economies) may provide a balance against the “overbearing and insensitive behavior” of US influence (Beeson 2003, p 255) and allow ASEAN states to align themselves with economies who match their less liberal norms (Nölke et al 2015). China in particular represents an investment partner whose practice of _guanxi, or more personalist and family-based transactions, fits much better with Southeast Asian (and, generally, non-Western) norms (Yeung 1998). Likewise, Kang, in his influential 2003 paper, claims that elites see Chinese dominance as having historical precedent and would ensure stability, explaining why these states and their elites find themselves comfortably engaging with China. Others are less sanguine, noting instead that this policy is more of a means of economic self interest, only possible by free-riding on US economic and security guarantees (Acharya 2004). Similarly, domestic elites find themselves aligning primarily with national interests and therefore mediating economic opportunities with perceived security threats from China, and thus are unlikely to bandwagon with China purely because of perceptions of weakness in the United States (Chen and Yang 2013).

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1.2 The Relevance

China has been adopting a strategy of strong economic engagement with ASEAN, and the group has reciprocated. This is surprising for a few reasons, not least of which being the fact that China “should be provoking balancing behavior, merely because its overall size and projected rate of growth are so high” (Kang 2003, p 64). However, China has become an increasingly integral member since its invitation to ASEAN summits in 1993. This invitation to China was specifically given by the Mahathir Mohamad government, then Prime Minister of Malaysia (who reassumed office in 2018), who emphasized the potential for mutual benefits of cooperation with their large neighbor, echoed by Thailand and Singapore (Kuik 2016b). Since reassuming office, he has reiterated this strategy, claiming in a recent interview that he would “side with rich China over fickle US” (_{Jaipragas 2019). The recent election in Indonesia is} similarly expected to result in greater economic linkages with China, despite ongoing territorial disputes (_{Jennings 2019).}

The relationship had become formal in 1999 after the Asian Financial Crisis (AFC) as part of the ASEAN Plus Three (APT) cooperation (along with South Korea and Japan) and “the need to mutually cooperate in overcoming the crisis” (ASEAN Secretariat 2018, p 1). This relationship has been a direct motivator for China to soften its attitudes toward territorial disputes, notably in the South China Sea (Roy 2005). The APT had greatly increased in significance following the Chiang-Mai Initiative (CMI), initiated by China and Japan in response to the AFC. It has since been argued to be a major step for regional integration (Yoshimatsu and Trinidad 2010, Desai and Vreeland 2011), a “contrast to the perception of the United States, which was blamed for not doing enough for its Southeast Asian allies and friends” (Kuik 2016b). The US dominated Bretton Woods Institutions (BWI) have likewise been noted for their mishandling of the AFC (Radelet et al 1998), which in tandem with insufficient US direct

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intervention resulted directly in the deepening of the APT. This is especially important considering that Japan’s calls for an Asian Monetary Fund (AMF) were blocked by the United States (Desai and Vreeland 2011, p 116), further diminishing Japan’s image. The proposal and its retraction gave China an impetus to step in as a financial guarantor, furthering its influence, especially vis a vis Japan and the United States (Yuzawa 2018, p 6). Given the great power framework offered by Goh (2007), a deepening of the APT should be seen more specifically as a deepening of the ASEAN-China partnership. Therefore, there is a strong argument that crises, particularly those arriving from the Global North, may inspire an increased China pivot in ASEAN strategy.

As China continues to engage, the case may be the opposite for the USA. One glaring example of this retrenchment has been the withdrawal from the Trans Pacific Partnership (TPP) in 2017 following the election of Donald Trump ( _{United States Trade Representative 2017).} While this free trade area would only cover a handful of ASEAN members, it nonetheless signals low credibility of future US economic engagement in the region. This has been accompanied by sharp drops in US foreign direct investment (FDI) in the region, which fell from $18.8bn to $5.4bn in 2017, a _{71% decrease, even as total FDI inflow rose (ASEAN Secretariat} and United Nations Conference on Trade and Development 2018_{, p 5).}

Even more recently, the United States and China escalated their trade conflict, with the US announcing an increase to tariffs on goods from China from 10% to 25% ( _{USTR 2019).} China in turn has responded with tit-for-tat tariffs. ASEAN economies are expected to face immediate negative direct and indirect effects from the conflict due to shrinking demand from both partners as GDP contracts. That said, after accounting for redirection effects, these economies are likely to see a net gain due to increased investment from China (Tham et al 2019, Abiad et al 2018). However, it nevertheless impacts the role of the United States as a

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benign preponderant power in the region as it heightens its conflict with China (Goh 2007), particularly regarding its aggressive attempts to close the Balance-of-Payments gap and remove itself as a global export sink, which has proven to be an unstable model (Freund 2011). The ability of ASEAN to remain on the sidelines of the United States-China rivalry therefore appears to be diminishing. Mahathir Mohamad’s concerns of a “fickle US” ( _{Jaipragas 2019)} seem fairly substantiated, particularly regarding the shadow of a future crisis.

1.3 The Puzzle

ASEAN states are typically characterized by their pragmatism and reactive nature rather than any specific ideological or cultural preferences (Beeson 2003, Goh 2007). Likewise, the vast majority of their behavior is informed by their perceptions of risks and opportunities regarding their great power partners: China and the United States (Chen 2013). Therefore, financial crises act as opportunities for ASEAN states to adjust their dealings with both powers, necessitating breaks from status quo behavior and providing realizations of exposure to instability. Particularly, dissatisfaction with previous dependence on the United States could inspire greater economic bandwagoning behavior with a revisionist ascending state like China, due to emerging states prioritizing economic concerns over security (Schweller 1994). It would be logical to assume that major changes would occur in Southeast Asia’s economic constellation following a major crisis which precipitated from one of the region’s greatest economic partners.

With that said, greater economic reliance on China should pressure these states to reaffirm their economic links with the United States to avoid greater dependency on a single economic partner (Goh 2007). Likewise, ASEAN states have achieved great success by applying hedging strategies to remain between the spheres of influence of China and the United

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States, and such behavior makes a major economic realignment unlikely (Acharya 2004). If these states are showing such a realignment, it would have major implications for the future of the region, and of China’s potential influence on the global periphery vis a vis the United States. Specifically, it would imply a reorientation of views towards China: greater economic opportunity, diminishing threat, or both (Chen and Yang 2013). It may also occur if balancing strategies in tandem with the United States become too costly due to risk or destabilization and motivate a more power-accepting realignment toward China (Schweller 1994).

Such a realignment may be the case. Just as the “War on Terror” policy changed security perceptions among ASEAN states (Beeson 2003), the GFC and more recent elements of aggressive trade policy could encourage a more pro-China stance from these economies. The flurry of trade agreements with China following the GFC might suggest as much ( _ASEAN External Economic Relations Division 2012_{). Therefore, financial crises, much like security} crises, may be a contributing factor to long term realignment in the region to one of greater Chinese influence. Goh (2007) almost poses this herself, noting that China’s rise in East Asia is more of an economic, rather than security or political effect; likewise, she notes that acceptance of China could be motivated by concerns over the position of the US in the region.

1.4 The Research Question

The question that this paper will attempt to answer is therefore: _{Did the GFC change} ASEAN behavior to that of a more power acceptant stance? Specifically, this paper will examine trends in ASEAN trade to see if there has been a significant pivot toward relative dependency on China, a move from relative dependency on the United States, or both. In this case, both would imply an increase in power-acceptance, which is defined as allowances for greater relative dependency on China. Therefore, positive findings in increased absolute dependency

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on China would imply that new forms of dependency and relationships are likely to form and deepen after financial crises. In this case, ASEAN provides a useful trajectory for the future of emerging economies worldwide (Desai and Vreeland 2011). Positive findings for decreased absolute dependency on the United States would likewise suggest a weakening of the unipolar American-dominated economic structure, primarily due to dependency on the United States being seen as increasingly risky as in Kuik (2016), and especially similar to Beeson’s (2003) suggestions regarding security policy.

2.0 Literature Review Overview

First, a gap in the literature must be identified. Until relatively recently, literature on ASEAN has focused on analyses of its sustainability as a cooperation of recently liberated postcolonial states, and its strategies of minimizing dependency despite large internal asymmetries (Irvine 1982, Gungwu 1982). Since the AFC, however, perceptions of ASEAN economic unity are now relatively sanguine, and economic literature has become primarily focused on the logics of continued integration (Stubbs 2002, Krapohl 2017). The security based international political economy (IPE) literature, on the other hand, is primarily concerned with the security-based ‘hedging’ strategies employed by ASEAN states regarding China and the United States (Acharya 2004, Roy 2005, Chen and Yang 2013); these analyses generally only acknowledge economic concerns which govern this behavior, without considering it a major driving factor. This gap may be especially apparent given that, as noted T.V. Paul (2005, p 47), emerging states “have forgone military balancing primarily because they do not fear losing their sovereignty and existential security”, and therefore could be argued that ongoing territorial tensions may be of less significance in current ASEAN strategy. While ASEAN was created out of a need to avoid security dependency, it has since acted as a means of avoiding similar

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economic dependencies (Goh 2007). Thus, addressing the gap between current IPE ASEAN security literature and economic interests could be useful in explaining ASEAN strategies.

Despite a dearth in examinations of external economic ASEAN interests, there are quite a few predictions of what impact the rise and opening of China has had and will have on the economies of ASEAN. These generally acknowledge the positive opportunities that engagement with China brings, but balance this optimism with varying degrees of pessimism of the risks provided by increased competition and dependence. Likewise, IPE literature provides many analyses of ASEAN responses towards a rising China, though primarily focused on security and political concerns; unlike the aforementioned economic literature, there is some degree of analysis of ASEAN response to the behavior of the United States.

2.1 Economic Gains and Risks from China

China’s recent accession to being among the largest economies in the world makes it an undeniably important economic partner for trade; even more so for its close neighbors in ASEAN. The literature on this is divided, however, on whether this is a positive impact for these economies between opportunity and competition. Of the positive literature, Liberal ideas such as the ‘Flying Geese Paradigm,’ popularized by Akamatsu (1962) are the most influential. It essentially argues that there is a time lag between industrialization periods in the region, with Japan as the frontrunner, allowing newly industrialized powers to quickly gain comparative advantage by fitting itself into existing global value chains. China is believed to be in be lagging behind ASEAN economies, providing them with cheap labor-intensive goods to be processed into higher value industrial goods, such as in electronics (Kwan 2002). Kang (2003, p 64) likewise promotes this sanguine view of East Asian economic cooperation, arguing that “China should be provoking balancing behavior [from ASEAN], merely because its overall size and

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projected rate of growth are so high”, and has instead been welcomed as a powerful regional leader for economic coordination. The positive role of a China-engaged APT is likewise espoused by Stubbs (2002 and 2014) where he argues that concerns of intra-Asian competition has been relatively unwarranted, particularly considering China’s role in restimulating market activity during the GFC (idem 2014, p 535). Zoellick (2010) is similarly sanguine about a strong China acting as a potential pole of growth, noting especially that smaller emerging states should be engaging more with China (and similar economies) for better growth prospects. Yoshimatsu (2006) is especially optimistic about China’s economic role in APT, and with Trinidad (2010) argues that it is taking a similar role to the US had with the Marshall Plan in Europe. Park’s (2009) empirical findings support these outlooks, noting that stronger East Asian cooperation would lead to positive gains for all members.

There are still reservations about China’s impact, however. Kasahara’s (2004) critical analysis of the ‘Flying Geese Paradigm’ finds that the scheme “may not present fairly justifiable costs and benefits to the region’s economies” (ibid, p 23) and instead argues that China could outcompete its neighbors. Chen and Yang (2013) take this further, arguing in their typology of the region that Vietnam, Thailand, Indonesia, Laos, and the Philippines are expected to be negatively impacted by Chinese engagement (ibid, p 275). Goh (2007) points out that, along with competition for investment, Chinese and ASEAN exports tend to be competitive, rather than complementary, due to their similar stages of development and dependency on the Global North. Roy (2005) espouses similar views, noting that “producers in the less developed ASEAN economies will suffer losses when the barriers to Chinese exports are lowered” (ibid, p 311). This appears to be in contradiction with the typologies set by Chen and Yang (2013) who argue that the relatively less developed Myanmar and Cambodia can expect gains with China while some richer economies will lose out, noting that ASEAN engagement patterns are motivated

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more strongly by the shadow of future gains rather than immediate losses. Another important consideration is that most pessimistic conclusions of China’s economic impact are primarily written prior to the GFC, before China’s notable role as an import market for the region was established.

2.2 Security and Political Responses of ASEAN

The main body of research of ASEAN responses to an increasingly influential China are primarily concerned with how willing these states are to treat China as a leader or a threat. Kang (2003), naturally, argues that China is careful to show that “it has neither revisionist nor imperial aims” (ibid, p 68) and that ASEAN states have responded in kind. Yoshimatsu and Trinidad (2010) argue that China’s diplomatic tensions with Japan have created a situation of cooperation with ASEAN as both countries vie for regional influence. Stubbs (2002 and 2014) argues that China is more sympathetic to the norms and goals of ASEAN states compared to the United States (and Global North more generally) having itself been colonized and economically dependent, and integration into the APT therefore brings a stronger element of weight to global political concerns. These norm inconsistencies are further developed by Beeson (2003), who provides a strong IPE argument that if the US engages in behaviors that would undermine stability in the region, a “more inclusive calculus of the region's strategic interests may emerge” (ibid, p 256) as ASEAN states realign with China, whose norms are likely to be preferable. Harris (2000), Guerrieri (2010), Desai and Vreeland (2011), and Payne (2010) note the relative failings of global institutions, such as those of Bretton Woods (BWI), in providing the necessary economic stability, and that solutions to this should come at the regional level, which is conceivably the kind of activity that APT integration is providing. These papers imply that ASEAN’s hedging strategy might be gradually moving to greater levels of

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bandwagoning with China without the associated balancing behavior of deepening partnerships with the United States, and in some cases this may be accompanied with decreased engagement.

ASEAN is still, however, marked by its concerns of China’s increasing power. Kuik (2016) in particular argues that instability is a _{driver for ASEAN to maintain hedging behavior,} rather than an opportunity for them to realign their partner preferences, specifically because their hedging strategies were developed during the turbulent political landscape of the Cold War. Chen and Yang (2013) similarly argue that China’s territorial ambitions put it in direct conflict with Singapore, Indonesia, Vietnam, Malaysia, and the Philippines, and it is therefore unlikely that ASEAN would risk eschewing partnership with the United States. Likewise, Acharya (2004) directly refutes Kang’s (2003) optimism of Chinese-induced East Asian peace, specifically noting that ASEAN would not necessarily willingly submit to a hierarchical order. Grimes (2011a, 2011b, 2015) encourages further hesitancy in proclaiming a deeper China-ASEAN relationship, noting the “mutual suspicion” (idem 2015, p 145) within the region and the fact that initiatives in the APT, such as the CMI, are predicated on maintaining ties to the BWI and other Global North dominated institutions.

3.0 Theoretical Framework Overview

This paper will use the theory of hedging, primarily as a continuum of strategies as described by Kuik (2016b), to explore whether ASEAN is moving into a more power-acceptant position with regard to China. The essence of hedging is a mixed strategy approach employed by states, primarily small states, which employ both bandwagoning (ie: a power-acceptant, dependent, or engaged interaction) and balancing (ie: a dominance-denial or dependence-avoidant interaction) strategies in their relationships with larger powers (ibid).

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Liberal theorists argue that bandwagoning strategies lead to “complex interdependence” which can successfully manage asymmetrical power relationships (Keohane and Nye 2012), such as engaging China through the APT framework. Realists in turn argue that the threat of a nearby militarized China should result in regional actors choosing to “form alliances in response” to avoid conflict (Walt 1987, p 148), which has been the raison d'être of ASEAN since the Cold War (Acharya 2001, p 5). These two elements of hedging are rightly described as “mutually counteracting” (Kuik 2016, p 500), meaning that it is most accurate to treat them as concurrent strategy options rather than mutually exclusive (Kang 2003, p 83). As noted earlier, ASEAN is a useful case in analyzing shifts in interactions with China because the hedging strategy of these economies has been to avoid dependence with any great powers (Acharya 2004). To understand these concepts, definitions are needed. This section will first detail the dependence which informs ASEAN strategy and define ‘hedging’ in the context of avoiding dependence. Further, this paper will develop the theory of ‘hedging’ by including the ‘balance of interests’ theory provided by Schweller (1994), which provides greater insight into why ASEAN may be changing strategy proactively over interests, particularly in the economic realm, rather than simply reactive to the power constellations of East Asia.

3.1 Dependence

Since the mid-20th century, a great deal of attention has been brought to the issue of dependence of the Global South on the North. The initial Dependency Theory advocated for the escape of the South from the globalized capitalist model via _{Import Substitution Industrialization}, a practice of heavy protectionism to spur economic development, which proved ultimately unsuccessful (Cohn 2016). Alternative to Dependency Theory is the World System Theory developed by Immanuel Wallerstein (1987) which recognizes that states in different phases of

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development do not follow any explicit dichotomy. The middle economies, now typically called newly industrialized economies, act as a global stabilizing force, consistent with Freund’s (2011) findings of GFC recovery. This leads to pressure, however, and these states were predicted to lead global socialist revolutions against the unequal capitalist system (Chirot 2015). However, the successes of export economies in the global system has led all successive mainstream theories to take globalization for granted, and no longer suggest seriously the idea of removal from international trade and finance (James 1997). Krugman makes the point rather bluntly that “every successful example of economies development this past century... has taken place via globalization” (Krugman 1999). This is especially true for East Asian states, whose rapid growth in the last half century is based on their Export-Led Growth model (Khalafalla and Webb 2001).

More mainstream debates of dependence surround the nature of the gains which a state may receive. Liberalists view international trade as a “positive-sum game” and argue that increased participation will lead to greater development, regardless of the relative distribution of gains (Cohn 2016, pp 93-95). Realists, meanwhile, point out the concerns of the Global South in their _relative gains, specifically noting the ability for developing states to “engage in collective action because they lack power individually” (idem, pp 69-70). These collective action groupings, particularly Regional International Organizations, offer an ‘escape’ for economies in the South from marginalization on the global market (Krapohl 2017).

3.1.1 Reducing dependence by Bandwagoning _and Balancing

An important finding by scholars of regionalism has been that economies in the Global South integrate primarily due to _external, rather than internal, concerns. As argued by Krapohl (2017), the free trade agreements (FTAs) set up by ASEAN, as well as MERCOSUR and SADC, were designed primarily to “attract extra-regional investments” and “enter interregional

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trade negotiations”, rather than as a means of spurring increased intraregional trade (pp 40-41). This is broadly consistent with Krugman’s (1991) finding that global welfare has a U-shaped relationship with trading blocs. The primary reason for this is due to market power, where a small number of large blocs leads to greater trade diversion; alternatively, many smaller blocs would not have the market power to enforce greater protectionism, and would therefore lessen the effect of this diversion (idem, pp 11, 24). Therefore, reducing dependence within the globalized economy may take the form of increased trade integration within the Global South. To take a Liberal approach to this phenomenon, collective action on the part of the Global South may induce trade deals which “consider the special needs of the South” (Cohn 2016, p 94) and thus maximize the potential absolute gains that the members may receive. The Realist approach, alternatively, may emphasize the change in relative gains which economies in the South receive by collective bargaining, particularly when it allows members greater power in trade negotiations with the North (idem, pp 70-71).

The approaches both show that decreasing dependence is important for welfare in the Global South, though they differ on the importance of absolute versus relative gains as its impetus. These may be understood as the difference between _{bandwagoning and balancing}. Paul et al (2004) provide an informative typology of international policy options, including the two examined in this paper, ‘External Balancing’ and ‘Bandwagoning’:

Policy Definition

External Balancing

Strengthen oneself and one's allies

through trade; exclude enemies.

Internal Balancing

Strengthen oneself through economic

development; exclude all others.

Bandwagoning

Develop ties to dominant power; wait for

future.

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power, in short run.

Appeasement

Make concessions while building oneself

up for the long run.

Adapted from Paul et al (2004) [Emphasis added]

In ‘Bandwagoning’, as in the Liberal approach, integration in the Global South may lead to greater trade with the North as they are more able to negotiate ideal terms, with negotiations assumed to be positive-sum. In ‘Balancing’, the economies of the South are more able to increase their _{relative gains in their trade with the North, regardless of the absolute changes in} trade.

3.1.2 Liberal Perspectives of dependence in East Asia

The Liberal school is generally unconcerned with the negative elements of dependence. Keohane and Nye (2012) particularly espouse the idea that interdependence is positive-sum, and even large asymmetries in this relationship are relatively benign, whether it be dependence on the United States or a rising power like China. Similarly, interdependence prevents conflict between actors as the opportunity costs of interrupted trade flows may outweigh potential gains by coercion (idem), even in the context of territorial dispute (Ravindran 2012). Orthodox Liberalists similarly argue in Modernization Theory that dependence caused by bandwagoning with the Global North allows for the transfer of norms to the Global South which are conducive to development, especially the “negative freedom” of less state-centric economic policy (Cohn 2016, pp 77, 93). Of important consideration of this idea is the fact that APT institutions are drawn from, and subject to, existing norms of trade liberalization encouraged by institutions like the BWI and WTO (Harris 2000). Therefore, a deepening of the APT is predicted to be part of this increased integration and norm transfer into the Global South, and the interdependence effect will maintain and increase cooperation in the region (Yoshimatsu and Trinidad 2010).

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With that said, other Liberal scholars note the relative inequalities that this policy line can cause (Cohn 2016, pp 94-95) and therefore the willingness of emerging states to allow dependence with a revisionist rising power. Schweller (1994, p 88) notes that “dissatisfied powers, motivated by profit more than security, will bandwagon with an ascending revisionist state”, China being the obvious choice for ASEAN economies. Kang (2003, p 83) particularly follows this line of thought, arguing that ASEAN states will bandwagon with China as it is a natural leader for the region. TV Paul (2005) notes that criticisms of interdependence with a revisionist power were predicated on the idea that the new power would cause security concerns; this would overrule potential economic gains from bandwagoning. However, this fear failed to materialize with the rise of China as it became clear that this would not be a direct threat to their sovereignty. Kang (2003, p 73) makes a clear case for this in his “Realism’s Japan Problem” by noting the decision of Japan to not remilitarize itself despite a strong economy and revisionist neighbor, echoing this idea of “complex interdependence” (Keohane and Nye 2012), and predicts a similar reaction from ASEAN states. Thus, Liberalist theories provide strong arguments for ASEAN to maintain (inter)dependence with the United States, China, or both.

3.1.3 Realist Perspectives of dependence in East Asia

The Realist perspective, on the other hand, sees North-South relations as issues of relative power distribution, rather than the passive positive-sum games that Liberalists argue. Their perspectives rarely include economics. This is especially true of Machiavelli, who argued that the importance of military buildup far outweighed economic development, a perspective that was revived and generally influenced most Realist thought since World War II, which also tended to ignore or downplay the ‘low politics’ of the economy (Cohn 2016). However, as noted

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earlier, modern Realist thought recognizes that emerging states are less concerned with security buildup as they no longer “fear losing their sovereignty and existential security” (Paul 2005, p 47). Japan is a particular example of this thought, as dependence on the US is not a threat to its stability, and its neighbors (especially China) would see militarized neighbors as a greater threat than a distant preponderant hegemon (Glaser 2011, p 86). More specifically, Acharya (2004, p 152) emphasizes “that states balance against threats and not simply against power”, which is a major insight into why China’s neighbors are neither wholly united in a containment effort nor acquiescing to its supposed leadership role.

For emerging states, whose Cold War experience makes them less willing to fall into security dependence, achieving this inherent stability has been through nonalignment and limited External Balancing behavior (Kuik 2016b). This perspective explains many of the concerns of ASEAN states that asymmetrical interdependence would cause. Acharya (2004) in particular is a major critic of Kang’s (2003) Liberal optimism, arguing that the level of ASEAN cooperation with China is more out of economic self-interest and lack of confidence in the United States than a willingness to defer to China’s leadership (Acharya 2004, pp 151-152). Instead, interactions between ASEAN and China appear to be made with intent to limit hierarchy and make consensus-based decisions, which he argues is due to these states’ desire to maintain their “hard-earned sovereignty” (idem, p 159). Additionally, Kuik (2016, p 509) argues that China willingly submitted to these interests in order to ensure that it “created an image of a responsible power”, rather than risk alienating its regional neighbors, who already find themselves somewhat threatened by territorial disputes. Roy (2005, p 320) notes that ASEAN states have responded in kind, emphasizing “their desire to avoid a "self-fulfilling prophecy" of turning China into an enemy by treating it as an enemy”. Alternatively, he implies that soft power

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has become more powerful than direct security interactions in achieving influence over neighbors (idem, p 307).

Economic dependence likewise elicits concerns of the potential for sanctioning, ie: any set of economic actions which “necessarily involve the ‘coercion’ of a target government” (Nili 2016, p 639). The intent of this coercion can take many forms, but the most relevant for Sino-ASEAN relations is what Hufbauer et al (1985, p 49) call “Modest Policy Change.” This coercion is usually specific to a dispute, explicitly bilateral in interest, and has minimal correlation with the depth of bilateral cooperation (idem, pp 50-51). In this context, sanctions may be seen during small disputes between ASEAN members and China, which is most likely to occur over access in the South China Sea (Ravindran 2012). Cox and Drury (2006, p 715) find empirical evidence of the United States being a major user of sanctions globally due to its position “as a bloc leader and superpower,” implying that China may adopt a similar stance as it projects power into the region. They also find that sanctions have been employed by the United States in order to elicit compliance from allies (idem, p718), which again would imply that China could use this tool to ensure compliance in established cooperative Sino-ASEAN behavior. Therefore, ASEAN reactions may take the form of compliance (bandwagoning) or refusal (balancing) depending on the concessions pursued.

3.2 Hedging as a Continuum of Strategies

ASEAN is seemingly engaging in both Bandwagoning and External Balancing at once, which Denny Roy (2005) argues is a form of strategy called “hedging”; specifically he argues that this is a strategy of “keeping open more than one strategic option against the possibility of a future security threat” (idem, p 306). It is, quite literally, the same phenomenon of an investor ‘hedging’ their investments during times of unpredictability, as described in economic theory

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(Kuik and Lee 2008). Kuik (2016, p 500) extends this theory into a _{spectrum of power} acceptance and rejection_{, in which specific and concurrent ASEAN strategies fall into the} categories of “risk-contingency” and “returns-maximizing” transactions. The full spectrum may be seen in Figure 3.2 below:

Figure 3.2: Spectrum of Hedging Behavior (Kuik 2016, p 502)

With regard to China, ASEAN states have adopted all forms of hedging behavior without straying into the full scale forms of either Balancing or Bandwagoning. Kuik (2016, p 512) 1 argues that there are two major reasons for this: “First, the Chinese threat might be growing for

1_{One exception to this is the Philippines, which engaged in Direct Balancing in 2010 in seeking explicit} commitments of security with the United States (Kuik 2016b). See section 5.1.2 for more details.

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some countries, but it is not (yet) imminent. Second, China is a principal source of economic opportunities to all”. This exemplifies the “mutually counteracting transactions of ‘returns-maximizing’ and ‘risk-contingency’ options” (idem, p 500) that ASEAN engages in. More directly, Acharya (2004, p 152) notes that ASEAN behavior is not “bandwagoning because it does not involve abandoning the military option vis-a-vis China”. The clear implication here is that ASEAN may choose to move away from its power rejection strategies given sufficient incentives to do so, particularly if perceptions of a security threat dissipate. Equally, if the United States proves itself incapable as a partner in External Balancing strategy, it would leave ASEAN states few options as Internal Balancing is not an option for these smaller states (Acharya 2004, p 152). Therefore, ASEAN strategy should be assumed to be at a point along this spectrum, and moves toward a more Power Acceptant or Power Rejectant stance should be seen as a move along this spectrum.

3.3 Hedging Typology

An important consideration is the fact that ASEAN hedging strategy is neither static nor uniform among its member states (Kuik 2008, p 171). Goh (2007, p 827) broadly separates them by maritime (Singapore, Malaysia, Indonesia, and the Philippines) and the continental2 CLMV (Cambodia, Laos, Myanmar, and Vietnam). While she herself admits this dichotomy is simplistic, its use is nonetheless constrained by the lack of depth, particularly regarding minimal recognition of Vietnam’s intense security concerns with China. Chen and Yang (2013), noting the importance of state level examinations, develop this dichotomy to provide a typology of ASEAN states regarding perceptions their perceptions of China. They are grouped by security as either High Threat (HT) or Low Threat (LT), mostly due to concerns over the South China

2_{Brunei is not mentioned, likely because its behavior is more similar to that of the smaller continental} states rather than that of its maritime neighbors

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Sea, and by economy as Positive Economic Expectation (PE) and Negative Economic Expectation (NE), due to expected competition or cooperation with China. They summarize these typology types as predicting the extent to which each state will “desire” engagement with China, seen in Figure 3.3.1 below:

Figure 3.3.1: Spectrum of Response to China (Chen and Yang 2013, p 275)

What is crucial to their theory is that they show that, in the absence of threat, ASEAN states will bandwagon with China. This malleability in strategy is key for understanding how shifts in responses may occur.

Their case study examines LT-PE, HT-PE, and HT-NE combinations, divided in figure 3.3.2, to predict that LT-PE states will be more prone to power-acceptance hedging while HT

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states (PE or NE) will prefer power rejection. Their conclusion implies that the effect of HT is stronger than PE, but note that responses are dynamic, and shifts along the hedging continuum are likely (idem, p 284). Crucially, their economic expectation accounts for the ‘shadow of the future’ effects of increased competition for export markets and FDI vis-a-vis potential market penetration effects (ibid, p 274), which are prone to shift rapidly as noted in more recent studies of trade creation effects (Abiad et al 2018, Tham et al 2019). Therefore, while security concerns are relatively static as long as conflict in the South China Sea remains to exist, economic shifts are harder to measure but could be having a strong effect on ASEAN strategies.

LT HT

PE Brunei, Cambodia, Myanmar Malaysia, Singapore

NE Laos, Thailand Indonesia, Philippines,

Vietnam

Figure 3.3.2: Sino-ASEAN relationship perception typologies (Chen and Yang 2013 p 275)

3.4 - Threat

The continental/maritime dichotomy that Goh (2007) provides is particularly useful in describing the security concerns which ASEAN states face. While China has many land territorial claims, disputes with ASEAN members are exclusively in the South China Sea, shown in figure 3.3.1. This is strongly connected to China’s economic growth, which “exacerbated concerns about the country’s potentially aggressive ascendance.” (ibid, pp 809-810). This is especially true of the extension of claims that China made in the 1990s. The 2002 Declaration on the Code of Conduct was signed with the explicit goal to “promote peace and stability [over the South China Sea] in the region and agree to work, on the basis of consensus, towards the eventual attainment of this objective” (ASEAN 2012). While these political commitments work to improve perceptions that China is open to cooperation and is making fewer moves to enforce

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claims, the maritime states, and especially the Philippines and Vietnam, remain unconvinced of Chinese benignity (Goh 2007, pp 811, 814).

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Beyond the role that the South China Sea plays in security, China being a rich and armed state plays a general role in the security concerns of ASEAN states (Kuik 2016, p 511). Roy (2005) identifies some common themes in this regard. For Thailand, Indonesia, Malaysia, and Singapore, the role of China is that of a nearby power which constitutes a potential, though not current, security threat (ibid, 312-313, 317-318). Their attitudes remain relatively neutral, informed by their reluctance to return to colonial dependencies; this, however, has not stopped their efforts to balance against the _{perception of a future threat from their north, as Acharya} (2004) points out that states do not merely balance against power. Similarly, they have more recently reduced cooperation with the United States due to the War on Terror policy, which is highly unpopular with their Muslim populations (Roy 2005, p 316). Generally speaking, however, the trend among these states has been to ensure stability and status quo rather than address security concerns or interests (Chen and Yang 2013, p 282).

The small continental states of Myanmar, Laos, and Cambodia, plus Brunei, are3 4 arguably the friendliest toward China, and to some extent they may be seen as de facto client-states in security cooperation (Chen and Yang 2013, p 281; Roy 2005, p 319). Generally speaking, they do not view China as a substantial threat to their sovereignty and see their relationship as a means of accessing beneficial outcomes. This has not stopped internal concerns over what this close relationship would mean, however, in the event of increased Chinese revisionism, and have thus deepened and pursued other alliances in and out of ASEAN (Roy 2005, p 319). In sum, however, these states may broadly be understood as finding minimal potential threat from China, though not to an extent that they automatically bandwagon.

3_{Roy (2005) omits comparable examinations of Cambodia and Laos, but a trend can reasonably be} assumed among all three

4_{Brunei claims a small portion of the South China Sea which China also weakly claims, however the} overlap has not caused significant security concerns (Roach 2014)

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Vietnam and the Philippines represent the most cautious attitudes toward China. Their maritime claims overlap more greatly than other ASEAN members. Their elites tend to be more distrustful of engagement with China, largely sustained by flares in conflict over their rival claims (Roy 2005, Hong 2013). Like all other ASEAN members, they have avoided explicitly coordinating with the United States as a means to balance China. However, they have adopted deep cooperation with the American military over issues such as combating drug trafficking and antiterrorism (Roy 2005, De Castro 2009), providing an implicit balance against China.

3.5 Bringing in Revisionism to Hedging

What has been alluded to thus far, but not addressed directly, is the potential desire for ASEAN states to align with China _{despite concerns associated with asymmetrical} interdependence. Schweller (1994) provides a competing ideology to the balance-of-power theory with his balance-of-interest theory, where states are motivated by more than just existential security concerns. Despite predating most of the literature of hedging behavior, he nonetheless comes to the similar conclusion that “The question of whether balancing is more common than bandwagoning is a misleading one. They are not opposite behaviors” (idem, p 106). He measures this interest as a function of utility gained from revisionism versus the status quo on a spectrum of behaviors that result from this calculation, shown in Figure 3.4 below.

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Figure 3.5.1: Balance of Power spectrum (Schweller 1994, p 100)

In this case, _{n = (revision) - (status quo)} , where n is the total utility gained from the sum of the behaviors (idem, pp 99-100). Applying the similar logics of hedging from Kuik (2016), it could thus be assumed that ‘status quo’ behaviors are similar to that of ‘power rejection’ of the revisionist state (ie: China), while ‘revisionist’ behavior would be similar to that of ‘power acceptance’. Of note is that if n = 0, states are still biased toward status quo behaviors; this is largely supported by contemporary literature on hedging behavior, as uncertainty is a primary driver of hedging behavior (Kuik 2016b).

Making further links to hedging behavior, it could be assumed that ASEAN states are currently in a state of ‘Lamb’ behavior. For one, ASEAN lacks the capability to internally balance against potential threats, so ‘Lion’ behavior is essentially impossible (Acharya 2004). The same logic would apply to ‘Wolf’ behavior. Likewise, ASEAN has shown clear hesitancy toward adopting a deferential stance to the rise of China’s power, and thus far do not directly challenge the status quo (Acharya 2004, Roy 2005, Goh 2007, Kuik 2016b). In Kuik’s (2016, p 502) hedging continuum, ‘Lamb’ behavior is likely similar to the so-called ‘Economic Hedge’ or ‘Neutrality Point’.

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The question of to what extent China is an economic revisionist power has been the subject of debate for at least the last decade. Stephen (2014) notes the relative unwillingness of China to effectively challenge the Washington Consensus based institutions. Hopewell (2015) especially highlights China’s go-it-alone behavior in the WTO where it neither directly challenges its norms nor goes beyond the sidelines to directly support other Global South powers. Kennedy (2005) effectively describes the ‘selective liberalization’ of China’s behavior regarding protectionism. All of these point to a power which is primarily free-riding, or is at least buck-passing on the status quo. Therefore, ASEAN hesitancy in moving towards a ‘Jackal’ behavior may be as much a measure of their own perception of the status quo as it is China’s.

Thus far, ASEAN and APT appear to fit into the status quo side of the spectrum. Harris (2000, p 501) notes explicitly that their institutions are a “support, not substitute for, the global multilateral institutions” which promote embedded liberalism. Moreover, while opponents of this economic policy exist within ASEAN, all members in the region have generally gone along with this trend (ibid). Likewise, China’s role has been to avoid perceptions of major aggression and revisionism, and in tandem with liberal powers like Japan have gradually developed this practice with ASEAN (Yoshimatsu and Trinidad 2010). Finally, as part of their hedging strategy, ASEAN states have been careful to only engage China insofar as to reap economic benefit without risking significant dependence (Goh 2007, Kuik 2016b), and therefore it is important to note the lack of willingness thus far to align themselves with China politically (Acharya 2004, Roy 2005).

Recall that ASEAN strategy is neither static nor passive; these states develop a strategy dynamically based on their perceptions of risk and return (Goh 2007). It is reasonable to assume that a revisionist China would offer a valuable opportunity for these states to align with a power whose norms are more similar to their own. Nölke et al (2015) provide a typology of variances of capitalisms, noting specifically that China (as well as Brazil and India) represent the

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rise of a so-called ‘State-Permeated Market Economy’ (SME), which emphasizes the strong role of the state and domestic elites in the coordination of the economy. A table showing a selection of their descriptions of this economy type is below.

Figure 3.5.2: Varieties of Capitalism (Nölke et al 2015, p 546)

Beeson (2003, p 258) notes that in ASEAN states “the state has of necessity been a more prominent actor” due to a lack of institutions needed for either a ‘Liberal Market Economy’ or a ‘Coordinated Market Economy’, which fit more comfortably in the paradigm of embedded liberalism. Nölke et al (2015) therefore predict that the rise of China will spur the potential for revisionist behavior. Thus, the World System Theory predictions of revolutions do not necessarily have to be anti-market in nature (Chirot 2015), and it is possible that a form of

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illiberal capitalism promoted by the semi-periphery is challenging established embedded-liberal norms.

Likewise, as China produces incentives for ASEAN to adopt a more revisionist stance, the United States can have similar impacts on measures of acceptance of the status quo. Beeson (2003) in particular argues that the United States is a major factor in constraining how ASEAN manages its relationship with China, with Kuik (2016) providing convincing arguments that the United States is proving increasingly less reliable on its commitments to ASEAN. This, along with perceptions of increasingly aggressive behavior, may be why the United States is increasingly seen as less stabilizing than would be expected of a benign preponderant power (Goh 2007). Therefore, there is a case that the United States could drive ASEAN into a more power-acceptive/revisionist stance with China.

4.0 Hypotheses and Methods 4.1 Hypotheses

The question that this paper explores is “ _{Did Southeast Asia become more economically} multipolar following the GFC, and if so, has it remained that way?” Interpreting this question from the theories described above, this is essentially an exploration of whether or not ASEAN strategy has moved along the hedging continuum described by Kuik (2016) into a more power-acceptive economic stance towards China. There are two parts to this analysis: first, if ASEAN has accepted and sustained increased economic dependency on China after the GFC; and second, whether or not ASEAN has started to decrease its external balancing strategies toward China, particularly its balancing strategies which involve the United States. Thus, the hypotheses are as follows:

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Hypothesis 1: ASEAN states have accepted increasingly power-acceptant (bandwagoning) strategies toward China since the GFC

This analysis of possible bandwagoning behavior does not fully capture potential shifts in ASEAN strategy, however, as each member is independent in their measures of risk and opportunity. Therefore, it may be useful to deepen the analysis by applying the typology offered by Chen and Yang (2013). Therefore:

Hypothesis 1a: This change in bandwagoning will be greatest in LT-PE states, middling in HT-PE states, and lowest in HT-NE states

Following this, an independent analysis of ASEAN’s traditional balancing partners will be assessed, particularly that of the United States. To reiterate, balancing behavior is largely independent of bandwagoning (Acharya 2004, Goh 2007, Kuik 2016b), and positive findings of Hypothesis 1 do not necessarily correlate with balancing. Thus:

Hypothesis 2: Since the GFC, ASEAN states have decreased their United States based power-rejectant (balancing) strategies toward China

This hypothesis essentially assesses whether or not ASEAN has decreased trade dependency with the United States. Similar to the previous hypothesis, it may be useful to assess this using the same typology:

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Hypothesis 2a: This change in balancing will be greatest in LT-PE states, middling in HT-PE states, and lowest in HT-NE states

Positive findings in both Hypotheses 1 and 2 would strongly suggest that Southeast Asia has indeed adopted a more power-acceptant stance toward China since the GFC. However, any combination of these are possible, with different interpretations offered. Regarding Hypotheses 1a and 2a, positive findings would confirm the assumptions of Chen and Yang (2013) in that, regardless of opportunities that a rising China provides, security concerns remain a constraint on power-acceptant hedging behavior, as argued by Beeson (2003). Negative or ambiguous findings, by contrast, would imply that there has been a shift in the relative weight of interests, threat perceptions, or both.

4.2 Methods

To analyze if there has been a movement in ASEAN strategy, this paper will employ two strategies. First there will be a case study of three specific ASEAN members, similar to Chen and Yang (2013), where economic and security interactions will be examined against the typology offered. These states will be Cambodia, the Philippines, and Malaysia to represent LT-PE, HT-NE, and HT-PE states, respectively. The studies will describe interactions with China and make conclusions on where on Kuik’s spectrum of power acceptance or rejection these states are in aggregate strategy choice. The cases will then attempt to infer a general pattern among each typology since the GFC. Results from these examinations will then be compared to findings of increasing trade volumes with China, vis a vis traditional balancing partners, to infer whether ASEAN is, in aggregate, moving toward a power-acceptant stance toward China.

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4.2.1 Case Study Details

The studies of the three cases (Cambodia, the Philippines, and Malaysia) will be examined using the comparative method (Gerring 2007). Their interactions with China will be compared to each other, with respect to the predictions laid out by Chen and Yang (2013), of their individual aggregate balancing or bandwagoning behaviors. Observations made will be of notable events related to security and economic concerns in their relations with China, such as direct conflict over territory in the South China Sea or deepened bilateral economic partnership initiatives.

The reasoning behind choosing these three cases is fairly substantiated. Importantly, all three have access to, and economically rely on, the South China Sea, which puts them in focus in both economic and security concerns for all powers involved (Pheakdey 2012, Lai 2019, Ahmad and Mohd 2017). The major differences between the three are therefore primarily limited to their specific interests and interactions with China, which are described and categorized by Kuik (2016). This “across space” approach (King et al 1994, pp 218-221) therefore is appropriate for measuring variation between them. Representing LT-PE, HT-NE, and HT-PE states will likewise allow for an examination of the ‘most-likely’ cases for the assumptions made by Chen and Yang (2013) in what outcomes may be expected. However, the LT-NE states, Thailand and Laos, are not explored in the study as the authors, as with Goh (2007) whose predictions they derive from, make few attempts to predict their behavior. The absence of both economic and defensive interests in China likewise implies a degree of passivity that is not appropriate for this study.

Concerns of selection bias are warranted, but accounted for. Regarding LT-PE states, Cambodia is chosen not just for availability of data, as this is not a valid reason unto itself (King et al 1994, pp 132-133), but for its specific position within Southeast Asia. Myanmar is relatively

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distant and can offer little in terms of power projection into the South China Sea, limiting easily comparable strategic interests. Its trade flows are likewise impacted by its petroleum exports, which account for over 25% of its export makeup (OEC 2017). Similar industrial patterns otherwise make Cambodia a good stand in. Similarly, Brunei is a fully petroleum export dependent state, which accounts for over 90% of its exports (idem), allowing it to act more passively in ASEAN institutions and in its relationship with China despite overlapping maritime claims (Ross and Voeten 2016). Petroleum exports likewise limit its practicality in examining trade dependence as its economy is wholly dissimilar to the typical Export Led Growth industrialization model that is typical among ASEAN states. Cambodia is therefore the most appropriate of the three to represent LT-PE states as it is the most easily compared to other ASEAN members, and is also the ‘most-likely’ case for testing predictions of behavior.

The Philippines is likewise chosen deliberately. Indonesia lacks overlapping territorial claims in the South China Sea, and is primarily threatened by China only by proximity rather than a direct conflict of interests (Roy 2005). Vietnam has notable territorial friction in the South China Sea, but has a complex history of conflict with both China and the United States which limits the extent to which it is willing to engage in balancing or bandwagoning strategies in a way that is difficult to compare with other ASEAN states. The Philippines, however, has no endogenous limitations to its interactions with either the United States or China, and is an explicit ally of the former while has likewise pursued intense cooperative relations with the latter. Therefore it is the most appropriate of the three to compare to other ASEAN states with regard to its behavior.

HT-PE states, predicted to be between the other groups, represent the most interesting potential cases, as they have the greatest ability to test variation. The economies of each are somewhat similar, being highly trade dependent and scoring highly in economic complexity

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(OEC 2018). Singapore, however is more difficult to compare to the rest of ASEAN due to its position as a re-export market with few impediments to access (Krapohl 2017). Similar to Indonesia, it also lacks overlapping territorial claims in the South China Sea, and only sees China as a threat due to proximity and size (Roy 2005). Malaysia is therefore more appropriate as a case due to its economic and security interests, which align more appropriately to the other cases chosen.

5.0 Analysis 5.1 Case Studies

The case study will begin with Cambodia to introduce some basic elements of observed dependency of ASEAN states on China. The notable lack of security concerns it has with China vis a vis the other cases explored makes it a useful example of how state behavior may shift given an increasingly dependent relationship with China. An analysis of the Philippines will follow, providing an example of how ASEAN states may react to China in the absence of dependencies, as it the only ASEAN state to engage in direct balancing strategies since the GFC (Kuik 2016b). These cases will then be compared to Malaysia, whose case is more middling, which will shed some insights on how strategies have shifted since the GFC.

5.1.1 Case Study: Cambodia

Trade and investment between China and Cambodia has been growing rapidly since the GFC. Of all ASEAN states, it has seen the largest rate of growth in bilateral trade from its northern neighbor (Siphat 2015). The majority of this trade has primarily been in one direction, though, as comparative exports to China have barely increased over this period, and primarily focus on low value agricultural products such as rice and fish (Pheakdey 2012). The result has

Hedging their bets? : how the global financial crisis altered strategies and partnerships in ASEAN