Podcast: Derisking Indo-Pacific and Southeast Asia Futures

Former trade minister and deal negotiator sheds light on the future of CPTPP, RCEP, ASEAN geoeconomics, China Plus One, sectoral deals and much, much more.

INTRODUCTION

ASEAN Wonk: Welcome to the ASEAN Wonk Podcast, where we bring you expert insights and regional perspectives on Southeast Asia and Indo Pacific geopolitics and geoeconomics. I'm your host, Dr. Prashanth Parameswaran. And if you haven't already, do subscribe to our platform at www.aseanwonk.com so you can receive all of our posts. Our guest today is Minister Han-koo Yeo, who was South Korea’s trade minister and a key advisor to former president Moon Jae-in who launched Seoul’s New Southern Policy towards Southeast Asia. He served for nearly three decades in public service. He was involved in talks over regional economic agreements including the Regional Comprehensive Economic Partnership and the Indo-Pacific Economic Framework. We start our conversation talking about the growing intersection between national security and geoeconomics in Southeast Asia and the Indo-Pacific. Tune in to the full episode as we go through subjects including China Plus One strategies, the future of the CPTPP and RCEP agreements, geoeconomic minilaterals, middle power diplomacy and the evolving agenda in institutions like APEC.

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REGIONAL MODELS IN RIGHTSIZING SECURITIZATION: BEYOND THE SMALL YARD AND HIGH FENCE

ASEAN Wonk: Welcome to the podcast Minister and let's get started. I wanted to kick off with where we are on a big picture question, which is the fact that national security is infringing more and more on traditional economic conversations. The most vivid encapsulation of this is the past U.S. administration's notion of a “small yard high fence.” That, for me, has always raised a more interesting question that applies to Southeast Asia and the Indo-Pacific: how are other regional states thinking about their own yards and fences, and where do we draw the lines? It's easier when you're talking about things like artificial intelligence or shipbuilding to say there are national security implications. But when you're talking about banning electric vehicles and other issues, it becomes a bit more complicated. Some people say it goes too far, other people say these are effectively computers on wheels. What is your sense of useful models about how we right size this balance between national security and geoeconomics? What are some examples of where we might have more of a connection and some areas where perhaps we need a little bit more of a separation, relatively speaking?

Minister Han-koo Yeo: First of all, thanks for having me. It's really great to join your excellent program. I think that question is a really timely and important one. I think one of the new trends we are witnessing in this global economy is securitization of these economic issues. Previously, economy was economy, security was security. But because of the changing nature of these foundational technologies of digital, AI, et cetera, and then this geopolitical tension and rivalry between US and China, we are seeing more and more these security issues are being interconnected or intertwined with these economic issues. As you mentioned, this “small yard, high fence,” I mean, that is in principle what the previous Biden administration was trying to achieve. But, actually, more and more in reality, we are seeing a kind of big yard, higher fence.

I think it is important to strike a right balance between these economic issues and security issues. Because right now in this era of geopolitical tensions, there is legitimate concern about the security issues because of all these digital AI technologies that have national security implications. But you don't want to overdo or overshoot to the extent that you isolate your industry from competition. And then basically this competitiveness is eroded. So I think one of the interesting comparisons is the US as well as EU approach. For example, a few months ago, the Department of Commerce in the United States tried to ban software as well as hardware related to electric vehicles from China. On the other hand, the European Union, they actually welcomed this foreign direct investment from China into European soil in electric vehicles. But then they have these privacy or digital cyber security-related regulations in play. So if we think about these two different models, I think the US model may make you feel more comfortable in the short term protecting national security and privacy. But the fact is that on competitiveness of these EVs and the battery technology, China is number one, you know? They are surpassing many of other countries. And if you just isolate yourself from this competition with Chinese EV makers, then I think, five years later, ten years later, you run the risk of really falling behind in terms of this competitiveness.

So what is the right balance between these legitimate security concerns and keeping this competitive edge by opening up? I think we should be careful not to take this all or nothing approach. I think there's a fine line between these contrasting policy goals.

SOUTHEAST ASIA’S ELECTRIC VEHICLES LANDSCAPE AND CHINA’S ROLE

ASEAN Wonk: I do want to hone in a little bit more on the EV example that you mentioned because I know you've been to China and studied the electric vehicle ecosystem closely. This is something which in Southeast Asia, as you know, Chinese EVs are accounting for the dominant share – some people say nearly a bit over seventy percent of sales from the previous year. But at the same time, if you look closely at the regional data, the EV share of overall car sales in Southeast Asia is still quite small, relatively speaking, and that has been dominated mostly by Japan historically. And so, we arrive at an issue in some of these regions like Southeast Asia which is seeing a range of approaches on how to approach EVs. You talked about the US approach, the EU approach. I think if you talk to policymakers in countries in the region, they might say the market is still developing: we don’t want to necessarily take any sudden moves. But looking at historical examples, how do you think we should think about how to manage this ecosystem? Because clearly, China has made inroads here. And it's now pushing a lot of these sales through Chinese companies in other regions of the world. Some countries welcome that. Other countries, as you've seen with VinFast in Vietnam, there are some local players there as well. Some other countries like Thailand are welcoming it but then also introducing some ways of managing it. So what are your suggestions about what the balance is in that approach on how we manage this China EV story? Because it is a pretty big story in the region.

Minister Han-koo Yeo: That's a very important and difficult question. Let me first share my experience of having visited one of the EV factories in China for Xiaomi. I think it was actually really mind-blowing. Because when I visited there, it was like an Amazon kind of warehouse, highly automatized: it looks like the automation rate is over ninety percent. And more striking is that they pulled it off in three years. I mean, they started this in early 2021 in the middle of the COVID-19 pandemic, and then they began to turn out this fancy-looking EV in I think April 2024. I think that is only possible in China because through three or four decades of this rapid industrialization, China was really able to develop a full-scale supply chain. For example, in EVs, starting from critical mineral batteries and then all these digital software or hardware components. So I think it is really unbelievable how much China achieved in such a short period of time.

So with that, does it offer challenges or opportunities to Southeast Asia? I think both. First, I think opportunities. All these developing countries want to enjoy the benefit of this energy transition and electric vehicles with much cheaper price and higher quality. And I think China is providing this public good to the Global South. But also, we learned the lesson that in this industrial era, you don't want to have overreliance on one player. We realize that overdependence on one country could cause big supply chain shocks or disruptions. Also some of these Southeast Asian countries, they have a national ambition to develop some sort of a local industrial base, whether it's a finished EV vehicle or just some parts of this supply chain. So you also want to strike a balance between importing cheap, high-quality EVs from China or any other countries, but also maintaining some of your industrial base.

So I think that's actually where the role of the government comes in. I think one of the new trends in this global economy is industrial policy, right? And many people tend to see industrial policy as equaling big checks or big financial subsidies. But I think there are many other components which require less financial resources but smart policies. For example, worker training and then linking the universities, the industrial R&D and so on. So I think there are many ways in which governments in Southeast Asian countries can actually deploy some of these smart policies to really maximize the benefits coming from these new industrial policies and the energy transition.

SECTORAL DERISKING IN PERSPECTIVE

ASEAN Wonk: That's a good point you made Minister about making sure that we're thinking about industrial policy more comprehensively. So not just giant subsidies, but thinking about other aspects like human capital, as some of the Southeast Asian countries like Vietnam are doing in areas like semiconductors. A lot of the challenges that they have are not just on the technology component, but also making sure you have the right human capital to build a whole ecosystem approach around these areas because they are quite transformative in nature. So we talked a little bit about EVs. You mentioned this balanced approach that countries should take between making sure national security considerations are addressed, and also making sure they’re sticking to economics for economic sake – notions of efficiency and competitive advantage. Are there other sectors where you think they offer good examples, either where governments need to intervene and do more, or whether governments need to step back and do less? I think shipbuilding is one that's gotten a lot of attention in the United States and more generally in the Indo-Pacific in terms of China's role there: China is now a shipbuilding giant in addition to being the world's largest navy. But are there other sectors you think where this comes to play in the Indo-Pacific? What is your sense of the sectoral distribution here in terms of risks for national security?

Minister Han-koo Yeo: I think another opportunity that I wanted to point out is that more competition coming into this ASEAN market could benefit not just consumers, but also the industrial base. Previously, the Southeast Asian market was dominated by Japanese automobiles. But with the emergence of new EVs from China, I think this Southeast Asian market is getting a bit more diverse and more competitive. And I think this is good for the producers as well as consumers. So this is one thing.

And also, you took the example of Vietnam. And I think that Vietnam is really a good example of how a country can really strategize their pathway towards being integrated into the global ecosystem and then trading system. Vietnam has been quite proactive in forging these free trade agreements, whether it's bilateral or plurilateral, right? And for example, Samsung stayed early on, even before these geopolitical tensions materialized. If you look at how that evolved for the last decade or so, at the early stage, there was no local ecosystem. But the Vietnamese government instituted some of these human talent programs and training programs, so that the government chips in and the company chips in to develop this local talent and local, small and medium enterprise development program. So I think right now, many of these parts and intermediate goods that this company used to import have been localized. So I think this is a really good opportunity for companies. First, they attract this foreign investment into a sector. But then with very smart government policies, I think they really spread this local ecosystem. And I think that's what every country wants. So that's one thing.

You mentioned which industrial sector. I think it really depends on each country. They have to really analyze what are the competitive advantages they have, whether it's natural resources or human capital or something else. I think Malaysia was also very smart, because they identified packaging as one part of this semiconductor supply chain. And the government really developed infrastructure and technology, which is very conducive to attract all these multinational companies in the semiconductor industry. So actually these intensifying US-China geopolitical tensions played as an opportunity for some of the Southeast Asian countries, including Singapore, Malaysia and Vietnam.

LIKELIHOOD OF “CHINA DOMINANCE” IN FUTURE INDO-PACIFIC GEOECONOMIC SCENARIOS

ASEAN Wonk: The point there that you made minister about comparative advantages is an important one. Malaysia within the semiconductor space has been one of the early players because of the concentration of activity in Penang. And the struggle for some of these countries that are early starters is how do you move up the value chain. Whereas for other countries like Vietnam, it is starting from a different place and the question is how do they leverage those advantages. I wanted to hone on something you mentioned earlier on China. All of these countries in Southeast Asia to various degrees think about China geoeconomically as both a challenge and an opportunity. And depending on which regime and which country, the emphasis on that will vary. One of the scenarios we often hear about is this notion that the Indo-Pacific may be geoeconomically dominated by China. It already is about nearly half of Asia's GDP essentially, so it’s quite a significant presence. I also have a bit of trouble, frankly, with this simplistic notion because there are so many different players – Japan, South Korea and others. If you were to assign a percentage to this China dominance scenario in the Indo-Pacific, what percentage would you assign the scenario actually coming to pass? How worried should we really be about the scenario coming to play in the future?