Why ASEAN is so imporant to the China-Vietnam tensions

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Oct. 30 2019, Updated 11:35 a.m. ET

ASEAN

The Association of Southeast Asian Nations (or ASEAN) is a political and economic organization of ten countries located in Southeast Asia. If ASEAN were a single entity, it would rank as the eighth largest economy in the world. The ASEAN countries together have a population of approximately 600 million people, which is 8.8% of the world’s population.

 

The ASEAN six majors are the six largest economies in the area, many times larger than the remaining four ASEAN countries. These majors are Indonesia, Thailand, Malaysia, Singapore, Philippines, and Vietnam. ASEAN covers a sea area about three times larger than its land counterpart.

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The Global X FTSE ASEAN 40 ETF (ASEA), which tracks the performance of the 40 largest companies in the five ASEAN regions (Indonesia, Philippines, Singapore, Malaysia, and Thailand) is popular among investors interested in gaining from the ASEAN growth. The iShares JP Morgan USD Emerging Markets Bond Fund (EMB) and The Wisdom Tree Emerging Market Local Debt Fund (ELD) are actively managed ETFs offering exposure to the debt of a dozen developed and emerging Asia-Pacific countries.

Like they say, “A calm sea never made a skillful sailor,” and the South China Sea is facing stormy weather these days.

China and Vietnam

According to the Treaty of Amity and Cooperation in Southeast Asia adopted by ASEAN’s member states, members have agreed to show mutual respect for the independence, sovereignty, equality, territorial integrity, and national identity of all member nations, along with:

  • The peaceful settlement of differences or disputes
  • The renunciation of the threat or use of force

China is testing ASEAN’s solidarity with Vietnam on these pledges amid violent protests that have erupted in Vietnam against the deployment of a Chinese oil rig to disputed waters. It’s also evaluating how much U.S. support Vietnam can rely upon under these circumstances.

The test is to evaluate the Obama Administration’s Asian policy, which seeks to balance the desire for good relations with China with the need to support smaller countries in the region. However, China views the United States’ so-called rebalance of Asia as a potential threat, believing its focus in the region encourages China’s smaller neighbors to stand up to the country.

Moreover, in a call on May 14, Chinese Foreign Minister Wang Yi briefed his counterpart, Marty Natalegawa, from Indonesia on the situation with Vietnam and said he hoped the ten-member Association of Southeast Asian Nations could “clearly understand the basic facts of the incident.” China’s request to Indonesia to mediate in the conflict seems to be an attempt to show how divided ASEAN is. However, Indonesia has taken no side on the sovereignty disputes in the South China Sea.

To find out what’s happening in the South China Sea and the importance of the area for companies like Nike (NKE) and Wal-Mart (WMT), read on to the next part of this series.

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