The Rise of Asia

The Rise of Asia

Kerry Lynn S. Nankivell

The story of the past four decades in East Asia is one of a continent’s maritime reawakening. This first took on a purely commercial form, eventually evolving into a military one. This is a story of historic successes, ones that have led to a broad, deep and sustained increase in human economic development on both sides of the Pacific. The economic rise of Asia, based on export-led development and directed investment in commercial sea power, has been a net positive regional stability. True, managing a stronger, more active maritime Asia has already presented new challenges, but that fact often overshadows the historical antecedents of today’s maritime Asia. On this occasion of FORUM’s 40th anniversary, it’s appropriate to revisit the story of Asia’s evolution. Doing so reminds us that the current state of maritime affairs in the region is the logical outcome of the most impressive growth of commercial sea power in human history — and that translating this success into more, not less, regional stability, will be a leading challenge in the decades to come.

East Asia: 1974

In 1974, Asia was on the verge of an economic revolution founded on sea power, though this was hard to recognize at the time. China was limping out of the twin social disasters of the Great Leap Forward, a campaign intended to transform China from an agrarian to a modern society, and the Cultural Revolution, a radical movement led by Mao Zedong in the mid-1960s to early 1970s. Vietnam remained strangled by a deadly civil war wrapped in regional Cold War dynamics. Singapore, newly separated from Malaysia, struggled against corruption in its quest for development. South Korea had started to pull out of the condition of national poverty that the civil war had engendered, but it retained an economy about the size of New Zealand’s to support a population several times larger.

Amid these challenges, an innovation had already been introduced to East Asia that would change its economic trajectory and eventually transform its societies. The origin of this transformation was a simple box of corrugated steel, 6 meters long and 2.4 meters wide. The proliferation of the standardized shipping container and, more specifically, the early and large capital investments made in the port facilities required to service them, catapulted key Asian countries into the global economy. This process would take several decades, the implications of which were largely unforeseen.

Today, East Asia is the global leader in the container shipping industry. The latest report from the United Nations Commission on Trade and Development confirms that East Asia has nearly cornered the market in container port operation: Eight of the world’s 10 largest container ports rose in East Asia, six of them in mainland China alone. In 1974, however, only a handful of actors were involved in container shipping in Asia. First among them, the U.S. Department of Defense (DOD) had begun to use shipping containers to support its operations in Vietnam. At that time, the DOD contracted with Sealand Shipping to capitalize on the savings that modular shipping offered for large scale movement of goods. Buoyed by large contracts (and Asian access) courtesy of the DOD, by the early 1970s Sealand Shipping regularly moved these new “trailerships” from Oakland and Los Angeles in California to Cam Ranh Bay and Da Nang in Vietnam, via Yokohama, Japan, or Hong Kong.

Asia’s maritime revolution had begun. The market that Sealand Shipping opened in Asia was soon exploited and expanded by several port operators and shipping lines. The International Standards Organization (ISO) established a universal container size in 1970. With a standard length and width set for “the box,” a system of truly intermodal, globally interoperable containerized shipping quickly took shape. A standard container size acted as a powerful incentive for port operators to supply loading and off-loading services to any and all vessels calling at port, minimizing cargo handling and thereby maximizing profit margins for any entrepreneurs manufacturing goods in Asia for sale in developed markets. Within 15 years, what had been introduced to Asia as a foreign technology facilitating a foreign war had become an exciting new industry in which Asia would eventually thrive.

Why Containerization?

The lowly container is not always recognized as a game-changing technology. Compared to the Internet, satellites, iPads or 3-D printing, the box doesn’t seem to compare. Containerization, however, changed the way that all of the world’s economies source and trade goods internationally because it made long-distance trade economical.

Container shippers recognize that it is not distance that determines the profitability of trade, but logistics. Prior to containerization, goods traveling from one side of the Pacific to the other often visited almost two-dozen ports in a single journey. Each port call required loading and unloading by hundreds of longshoremen working tediously by hand. The process meant that a ship traveling from Shanghai to Los Angeles might spend twice as much time in port than it did at sea. In an industry where time is money, this method of transport put firm limits on the benefits of long-distance trade by sea.

Containerized shipping has changed this scenario by shrinking the logistical footprint of long-distance trade and correspondingly boosting the bottom lines of shipping firms. The increase in profitability has meant a boom in the volume of seaborne cargo in recent decades and in the overall volume of international trade. A recent study conducted by economists at Lund University in Sweden estimates that, controlling for other factors, containerization alone has increased international trade by 700 percent since the 1970s — far outstripping the effects of any free trade agreement or multilateral regulatory organization.

Even as the benefits of containerization have spread globally, Asia has benefited disproportionately. Singapore is a case in point. In 1974, Singapore was a poor, underdeveloped country with a gross domestic product per capita equivalent to roughly U.S. $6,000 in today’s currency. Despite its strategic location and trading history, its adjacent waterways saw little in the way of trading traffic at that time. In the 1980s, under Lee Kwan Yew’s stewardship, Singapore invested heavily in port services while having little to export itself. Lack of its own natural or human resources didn’t prevent Singapore from eventually becoming the region’s cargo handling hub, a position it reached in the mid-1990s alongside Hong Kong. By becoming the world’s largest cargo handler by 2014, Singapore grew its economy by a factor of seven and catapulted its overall global strategic value.

Of course, Singapore’s success was dependent on the concurrent growth of “Factory Asia.” These early container hubs in Hong Kong; Taiwan; Singapore; and Busan, South Korea, were catalysts of economic growth that connected Asian manufacturing in many East Asian countries with Western customers, not just the areas in which they were located. For the first time, the reduced costs of shipping connected cheap Asian labor with developed markets in a way that made economic sense. As evidence of the advanced globalization that containerization made possible, the “Made in Taiwan” label proliferated in the United States and Europe. Eventually, the trend expanded to include “Made in China,” and later, “Bangladesh,” “Indonesia,” “Thailand” and others.

Today, the dominance of the Asia Pacific in containerized trade is deep and broad. Not only are the world’s largest containerized cargo handlers overwhelmingly concentrated in East Asia but also increasingly, those that aren’t located in Asia are run by Asian companies. As industry leaders, firms in China and Singapore have picked up large port contracts all around the world, including Panama, Egypt, Iceland, Greece, Nigeria, Bangladesh, Tanzania and Sri Lanka. Moreover, China controls 20 percent of the world’s container fleet by tonnage, and in 2009, overtook South Korea as the world’s busiest ship builder (though South Korea and to a lesser extent, Japan, retain the high-end market). China and South Korea are also leading the industry in new management techniques based on “coopetition,” in which port operators work together (sometimes across borders) to create a single “logistics hub” to further streamline shipping. These trends suggest the overall continued domination of East Asia in global trade, not just as a source of cheaply manufactured goods but also as the primary handlers of manufactured goods worldwide.

The Flag Follows Trade

In the colonial world, it was often said that trade followed the flag. Naval vessels opened up opportunities for trade through campaigns of submission. In the modern world, it appears that the opposite is true: The flag follows trade. That is, once national economies surpass a critical dependence on sea lanes, naval strategy becomes focused on facilitating stability if not exercising some control of those routes. Such a trend is already clearly evident in the Gulf of Aden, where naval vessels from a range of states operating far from home, including South Korea and Canada, are engaged in anti-piracy operations to safeguard international trade. Today, seaborne trade is the lifeblood of national economies, container hubs are the new strategic choke points, and shipping routes concentrated in the Indo Asia Pacific are the new economic arteries. This economic revolution centered on commercial sea power has given natural rise to a change in strategic dynamics in the region.

In 1974, Asian powers were based on powerful armies, not competent navies. With the obvious exception of Japan, in 1974, there was hardly an Asian country that was capable of, or interested in, deploying sea power at any distance from shore. But with an increasing stake in the security of Asia’s sea lanes, it shouldn’t be any wonder that the first decade of this century has seen a concurrent and complementary rise in naval budgets and an overall widening and deepening of regional capabilities. Seeking to safeguard the economic gains of the sea lanes, countries including South Korea, China, Singapore, Russia, Malaysia, and Vietnam now all place a premium on the development of credible sea power.

The situation today has evolved a long way since even 2004, when U.S. Pacific Command (PACOM) Commander Adm. Thomas Fargo suggested that extraregional powers might be needed to ensure security for global trade in the Malacca Strait. Indeed, Fargo briefed the U.S. Congress in March 2004 that, in the context of the War on Terror, the U.S. Navy was needed to “gain an awareness of the maritime domain” in Malacca and “build and synchronize interagency and international capacity.” At the time, most U.S. analysts queried the region’s curious lack of interest in sea lane security and naval modernization, especially in archipelagic Southeast Asia.

Flash forward 10 years and the picture is quite the opposite. Private consultancy AMI International projects that U.S. $62 billion will be spent in Asia on submarine development and acquisition alone by 2031. Japan’s Maritime Self Defense Force and navies in Australia, South Korea, China and India are all moving up-market, putting to sea the largest vessels ever operated by their respective services, armed with all the concurrent capabilities that such vessels imply. Complementary assets in other domains, from shore to space, are being developed, providing powerful new surveillance, communication, deterrence and sea denial capabilities to navies across the region. Today, the worry in Asia is not a lack of capacity, but the increased risk of accidents that such densely deployed advanced capabilities statistically carry. The ungoverned spaces that Fargo worried about in 2004 are no longer of primary concern.

New World Order at Sea?

In many ways, the current state of naval affairs in the Indo Asia Pacific shows a picture of success. No doubt, most strategists in 1974 would judge the world of 2015 favorably: Today’s trading, investing and integrating Asia is the clear and explicit improvement that much of post-World War II U.S. foreign policy in Asia strives to achieve. In the space of a single generation, almost a dozen regional countries have successfully gone from being underdeveloped, underequipped and underexposed to global norms to being heavily invested stakeholders in the global maritime system. Many more are firmly headed down that path. Indeed, this is a good news story.

The contemporary context, however, presents new policy challenges for the United States, its allies and partner nations and their maritime services. In the past 40 years, PACOM’s role has been to fill the void wherever necessary in maritime East Asia. Today, that void has shrunk considerably, and in some places has disappeared altogether. While ungoverned spaces in the maritime domain are of less concern, spaces that are claimed (and defended) by too many operationally credible Asian powers at the same time will bring new concerns.

The current situation in the East and Yellow seas, where a group of uninhabited islands is the focus of a territorial dispute, illustrates this point. The U.S. Navy and Marine Corps have worked to help develop the capacity of the Japanese Maritime Self Defense Forces and the Republic of Korea Navy in particular, while the U.S.-facilitated post-World War II political order in Northeast Asia has arguably given the People’s Liberation Army Navy the umbrella of regional stability necessary to allow Beijing to focus on long-term investments for its maritime services. Both have paid off immensely for all three Asian nations.

Capacity-building efforts have also succeeded in their support to the region’s maritime and related law enforcement agencies. At ports, programs such as the Container Security Initiative in 2005 and the Department of Energy’s Megaports Initiative in 2006 continue to be implemented and to decrease the threat of illegally trafficked weapons of mass destruction in the region’s ports and beyond. At sea, the North Pacific Coast Guards Forum (NPCGF), which pulls together coast guards from the United States, Japan, South Korea, China, Russia and Canada every year for discussions and table-top exercises, is one of the most operationally successful organizations of its kind. All told, piracy in Northeast Asia is no longer a major worry, and regional fisheries protection arrangements stand in good stead.

The same capabilities that protect these seas against threats arising from ungoverned spaces, however, are increasingly employed in state-on-state encounters in ways that are destabilizing to the region. With ongoing and entrenched maritime and territorial disputes in various combinations around the East and Yellow seas (including Japan-China, Japan-South Korea, Japan-Russia, South Korea-North Korea, South Korea-China, not to mention Taiwan’s claims and the status of Taiwan itself), these assets that are so useful in good management of the seas are also cause for concern when they are employed to unilaterally change the prevailing status quo between neighbors.

The Chinese Coast Guard, for example, made incursions into the territorial seas of the Senkaku Islands more than four dozen times in the first half of 2014, sailing close to these Japanese-administered islands every time. Beijing’s prolific use of its Coast Guard to advance its maritime and territorial claims is not puzzling and might have been anticipated as the logical outcome of an overall regional increase in coastal security capabilities. By the same logic, it is only a matter of time before Japan will press its own maritime power into service to robustly defend its challenged authority.

This brings us to our second conclusion, one that is perhaps more challenging: The mature capabilities now found across the region, from the North Pacific to the South China Sea in particular, are set within a new and untested regional maritime environment. Strong unilateral enforcement operations, whether legally justified or not, undercut traditional diplomacy in territorial and maritime disputes in the region, as well as the force of the rule of law in these cases. Instead, we seem to be facing, time and again, operational confrontations that put a premium on using crisis diplomacy and finding nonescalatory opportunities for operational demonstrations of resolve against unilateral changes to the status quo.

But this growing strength masks the region’s weak and untested political-legal infrastructure for responding to moderate operational confrontations. The Philippines and China, for example, despite the longstanding nature of their overlapping claims in the South China Sea, have no incidents-at-sea arrangement or standard agreement about how to proceed in unintended encounters in disputed waters. The Association of Southeast Asian Nations, the sponsor of the Declaration of the Code of Conduct, has no institutional mechanism to immediately constrain the parties. The United States and other interested extraregional players too often find themselves uncertain of how to respond in a way that will neither escalate tensions nor underplay legitimate concerns about sea lane security and the rule of law.

This state of affairs, in which increasingly capable maritime forces are overlaid on a regional maritime architecture that is newly created and in many places paper-thin, runs counter to the fundamentals of U.S. maritime interests. This dynamic appears in the South China Sea, as well as in the East and Yellow Seas, and the same situation could emerge in the Indian Ocean, too. In this sense, the present condition of maritime Asia is not a stable end-state, but only a promising point along an overall upward trajectory.

The work that is left undone toward a truly mature maritime Asia presents big questions for U.S. policy and like-minded friends and allies. At its broadest and most basic level, the rule set for the oceans that the U.S. has used for decades is not as firmly entrenched in Asia as is required to maintain stability. The U.N. Convention on the Law of the Sea mostly protects the freedom of navigation for all states over the security interests of a particular coastal authority. Maintaining this rule set is important for the United States and for all nations that enjoy and exploit the mobility of the oceans. Some work will be required to shore up that rule set in Asia for the future. Moreover, much of American foreign and defense policy assumes that open, integrated markets and responsive governments guided by public opinion are the best insurance against major power war. Nor should any inhabitant of this new maritime Asia assume easy partnership with any foreign navy. In a more crowded, capable maritime Asia, all partnerships will require work.

Whether Asia’s maritime awakening during the past four decades represents a change for the better in international affairs, it is beyond doubt that Asia has changed irrevocably. A new and strong maritime Asia is an assured fact of modern life and a net success for the region and the United States. The U.S., its allies and partner nations and their maritime services, however, have their work cut out for them in managing the logical results.