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Asean summits would be even less meaningful than they are but for the leaders of Japan, China, South Korea, Australia and India, whose presence far surpasses the main event. And so it was for the one just concluded in the Thai resort city of Hua Hin.


For Wen Jiabao, Yukio Hatoyama, Kevin Rudd & Co to make noises about Asian unity while actually trying to compete with each other for Southeast Asian goodwill makes for bigger international headlines than lightweights like Philippine President Gloria Arroyo and Prime Ministers Abhisit Vejjajiva of Thailand and Lee Hsien Loong of Singapore could ever muster.


But this time in Hua Hin, the usual Asian cooperation platitudes were almost immediately overshadowed by none other than Haruhiko Kuroda, the president of the Asian Development Bank. He bluntly noted the absence of cooperation on the one immediate economic issue of the time – currency values. The lack, he said, is leading to protectionism within the region. This is not a future threat but a current reality.


The meetings agreed on the obvious – that there are scant prospects for basing trade growth any longer on the American consumer. Thus, in the future all must rely much more on each other and much less on selling to an indebted and ageing West. But how to go about that is another matter. Asean meetings seem to have become a field for competition between different versions of how to expand regional cooperation.


Needless to say the initiatives coming from the non-Asean members are mostly self-serving. At Hua Hin both Japan and Australia served up plans based on the 16 – the Asean 10, China, Japan, South Korea, Australia, New Zealand and India.


However, all were necessarily vague about two aspects in particular: what role the United States, still the most important ally for both Japan and Australia, would play. And how India, which is far behind in the process of freer trade, would fit in. China, meanwhile, declined comment on these proposals but quietly proceeded to try to enhance its bilateral influence.


Putting about ideas for a European Union-style trade bloc looks good in the headlines but is so far divorced from the reality of Asia and the rest of the world that even its Japanese proponents reckon it would take 20 years to reach the goal.


Such long distance dreams were brought down to earth by Kuroda. He urged East Asian countries to "start a serious effort to cooperate" on currency issues to limit the exchange rate fluctuations that are causing trade tensions in the region. The clear implication was that nothing is being done.


This quite clearly points the finger at China which has kept its currency firmly pegged to the flaccid US dollar while most significant currencies in the region have been rising, a natural response to their external positions and more-or-less floating currencies. The commodity exporters may not need to worry too much about this but those with manufacturing exports, or even domestic markets to protect against Chinese predatory pricing, are beginning to suffer and will suffer much more in the future if China is allowed to set it own rules.


The Chinese dismiss the Kuroda-type argument as the bleating of a Japanese figure reflecting worries about the strength of the yen on its own moribund economy. Japan indeed still runs a big trade surplus and cannot complain too much given that its currency has risen less than the euro.


But China clearly has no interest in changing its policy to suit its neighbors any more than changing it at the behest of the US. Indeed, only the threat of US retaliation with sweeping trade sanctions seems likely to change Beijing’s mind. After all, its cheap yuan policy is more aimed at gaining advantage at the expense of its Asian neighbors who compete in western markets. It knows US demand will remain weak, which is all the more reason it will use its currency peg and state subsidies to increase its market share there and in Europe.


The Asean-plus-3 group has in the past made modest progress in developing cooperation between central banks under the so-called Chiang Mai Initiative. Earlier this year, lengthy talks culminated in an agreement for a currency pool, mainly subscribed by China and Japan, to lend to countries whose currencies were under speculative attack. However, the Chiang Mai Initiative is essentially about fighting the last war – the 1997/98 crisis when lack of foreign reserves made small- and medium-sized Asian economies vulnerable to market panics.


Now these countries mostly have more than enough reserves of their own. Today’s issue is not reserves but relative currency values and the use of undervalued fixed exchange rates to gain market share at a time of global trade stagnation.


The 16 assembled at Hua Hin were mostly happy to ignore current realities in favor of grandiose visions. And the Asean members in particular remain so in awe of China that their assembled leaders proved incapable of recognizing their own self-interests for fear of causing offense.


Asia Sentinel
27 October 2009