Report

Executive Summary: 2024 Geopolitical Risk Report for East Asia

The geopolitical landscape in East Asia remains highly volatile and fraught with risks in 2024. Escalating tensions between China and the United States, have cast a long shadow over the region. However, one should not be too overly captivated by banner headlines of conflict and gloom. It’s imperative to focus on enduring macro-trends within the region that will remain resilient even in the face of conflict.

China’s Deleveraging Efforts: Steady and Successful

The Chinese real estate crisis that came to a head in 2022-2023 exposed the vulnerabilities of over-leveraged property developers and the broader economic risks posed by the sector’s excessive debt levels. However, China has many deleveraged risks and put the housing market on a stabilization path. In so doing, it has successfully carried out a process that avoided the problems of the 2008 financial crisis. This has cleared the way for a switch to productive investment that will have significant implications for regional growth in the next decades.

Geopolitics of Artificial Intelligence

As we predicted, the US has stepped up restrictions on outbound investments to China, particularly in the fields of semiconductors, quantum computing, and artificial intelligence. This move is part of a broader strategy to curb Beijing’s technological advancements in areas that could potentially threaten national security.

Western media and policy analysts point to some recent successes but we predict these are only superficial developments.  The United States’ shift towards protectionism, particularly in high-tech sectors, will ultimately undermine its own long-term economic development and technological leadership. Furthermore, as the U.S. restricts technology transfers, China will likely accelerate efforts to develop indigenous technologies. This will lead to China achieving technological self-sufficiency in critical areas. Our report explores how the need for self-reliance is fostering a more robust and diverse innovation landscape within China. 

AI Power Competition: Holistic integration v Isolated advancement

We also explore how the relative prospects of china and US to become AI powers will ultimately be shaped by understanding of the technology rooted in different philosophies of governance. 

The notion that competitive advantage can be achieved primarily through exclusive possession of advanced technology such as high performance semiconductors or proprietary algorithms is inconsistent with the nature of AI technology and its potential for societal transformation. This perspective, which the US seems to cling to, overlooks the broader implications of AI and how its efficacy necessitates widespread adoption and integration across all sectors of society. 

AI’s true potential lies in its ability to transform entire systems and whole of society processes, rather than providing isolated technological advantages. The idea of gaining an edge through exclusive hardware or algorithms fails to recognize that AI’s power comes from its widespread application and integration into various aspects of daily life, business, and governance.  A society and governance system that embraces AI across multiple sectors can create powerful network effects, where each application of AI enhances the overall ecosystem. Our report ends that China’s approach to AI development and implementation involves the kind of coordinated efforts between society, government, industry, and academia that will best realise AI potential in the coming decades. Furthermore, China’s ability to engage in long-term strategic planning and sustained investment in AI across multiple industrial sectors aligns well with long term growth prospects. This contrasts with what we find to be the more short-term and disarticulated approach seen in the United States.

Implications of the Middle East Conflict for East Asia

The recent escalation of conflict in the Middle East, particularly the Israel-Hamas war, has significant implications for East Asia’s geopolitical landscape and economic stability.

East Asian countries, heavily dependent on Middle Eastern oil and gas, face potential energy supply disruptions and price volatility. This could impact economic growth and inflation rates across the region, particularly affecting major energy importers like China, Japan, and South Korea.

Our report examines how the conflict may divert US attention and resources away from its “pivot to Asia” strategy. We also consider how recent instability directly challenges the feasibility of implementing a large-scale infrastructure project like the Indian-Middle East Corridor IMEC, which requires long-term peace and cooperation among participating countries. Israel was a key participant in the IMEC project, serving as a crucial link between the Middle East and Europe. The ongoing conflict has made Israel’s participation highly problematic, potentially forcing a reconfiguration of the entire project route or putting it on indefinite hold.

Conclusions

Based on our analysis of the current geopolitical landscape and emerging trends, we conclude that 2024 is likely to be a pivotal year in the shifting balance of power between the United States and China, particularly in East Asia. Our assessment points to the following key outcomes:

1. Failure of US containment strategy: The United States’ efforts to contain China’s technological and economic advancement through restrictive policies are likely to prove ineffective. These measures may instead accelerate China’s drive towards self-sufficiency and indigenous innovation.
2. China’s technological resilience: Despite facing challenges in areas like semiconductor access, China is expected to make significant strides in critical technologies such as AI, quantum computing, and advanced manufacturing. This progress will likely erode the US technological edge.
3. Expansion of Chinese influence: As the US grapples with multiple global crises, including the Middle East conflict, China is poised to expand its diplomatic and economic influence, particularly through initiatives like the Belt and Road and its engagement in the Middle East.
4. Economic rebound: Having navigated through recent economic challenges, including the real estate sector crisis, China is expected to demonstrate economic resilience and potentially outperform many Western economies still struggling with inflation and slow growth.
5. Regional leadership: China’s approach to regional issues, including its handling of North Korea and its stance on the South China Sea, may gain more traction among East Asian nations, potentially weakening US alliances in the region.
6. AI society advancement: China’s whole-of-society approach to AI integration is likely to yield significant advantages, potentially outpacing the US in practical AI applications across various sectors.
7. Geopolitical realignments: The ongoing conflict in the Middle East and its impact on projects like IMEC may create opportunities for China to strengthen its position as a stable partner for economic and infrastructure development in the region.

In conclusion, while challenges remain, 2024 is expected to be a year where China begins to step more confidently into its role as a global leader, having overcome many of the problems it faced in previous years. The US strategy of containment is likely to face significant setbacks, necessitating a reevaluation of its approach to engaging with China and maintaining influence in East Asia. This shift may mark the beginning of a new era in global geopolitics, with China playing an increasingly central role in shaping international affairs.

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