Update Country Report Maldives 18 Mar 2022

• The ability of the US to focus on the Indo-Pacific will be affected by Russia's war in Ukraine, but assuming that the conflict does not escalate further, the region will remain central to US's long-term security and economic strategy.
• China will secure some near-term strategic benefits in Asia from a more distracted US. However, with the crisis also likely to deepen regional concerns about its influence and hasten balancing actions, these gains are far from clear-cut.
• The Ukraine crisis adds another layer to an increasingly complex geopolitical environment in Asia, with widening political and economic divergence between China and the US set to challenge regional governments and international firms.

EIU has written on how the Ukraine crisis is set to have an important impact on geopolitics in Europe, but also beyond. In Asia, the main concern will be how it shapes the approach of China and the US in the region and in their own bilateral relations. We see a more complex and bifurcated geopolitical environment, and a rise in defence spending.

US focus on the Indo-Pacific will soften in the near term

One likely consequence of the crisis is that the US will be less able to deliver in the near term on its Indo-Pacific strategy, which is designed to finally bring about the "pivot" in US military and diplomatic resources to Asia first promised in the late 2000s. The challenge posed to the international order by Russian actions, and the potential threat it represents to NATO, will require an ongoing and robust US response. Already, it has pledged significant military aid and assistance to Ukraine and Europe.

This does not necessarily mean a reduction in the US diplomatic or defence footprint in Asia, but will probably affect current plans to expand it. Already, for example, a planned meeting between the US president, Joe Biden, and Association of South-East Asian Nations (ASEAN) leaders in late March has been postponed. US efforts to bring forward this year a proposed economic framework for Asia are likely to be affected.

Whether US distraction from its goals in the Indo-Pacific will persist in the long term will depend on the duration and development of the war in Ukraine. There is little doubt that the US views China as posing the main threat to its global primacy, and that its national security and economic interests in the Indo-Pacific have been steadily elevated over those elsewhere. It has a commitment to Taiwan's security, for example, that while officially ambiguous is still much stronger than that to Ukraine. Nevertheless, US strategic goals in Asia could still be overridden if NATO members were drawn directly into conflict with Russia.

There are some strategic gains for China in Asia...

In the near term, a more distracted US provides some benefits for China in its own neighbourhood, as its rising influence will be subject to less contestation. Militarily, most US operations in Asia ought to be unaffected, given that they are conducted from regional military bases designed to function independently and largely use naval assets unlikely to be required in Europe. However, events in Ukraine could still make freedom-of-navigation operations in the region or joint military exercises with partners less urgent, or affect plans such as deciding how to transfer nuclear submarine technology to Australia under the AUKUS pact. Economically, US absence would give more room to China to shape the trade and investment rules of the region, as it has been attempting to do through its support of mega-regional trade deals.

In this context, some countries may come to the view that it is wiser to "bandwagon" with China and accept it as a de facto regional hegemon in the hope of securing benefits, such as under the Belt and Road Initiative. In an admittedly unlikely scenario where the US becomes severely militarily stretched, it could even hamper its ability to project power in the region and honour defence commitments. For China, this would reduce the risk associated with an effort to annex Taiwan, or enforcement of its sovereignty claims in the East and South China Seas. The broad sanctions that the US and others have introduced on Russia have also provided China with an illustrative example from which it can learn and prepare.

...But these gains are far from clear-cut

Despite this fact, the strategic benefits for China in Asia are not clear-cut. Russia's invasion of a smaller, independent neighbour will re-emphasise for many in Asia concerns about Chinese intentions in the region, especially if China was to abandon its ambiguous stance on the crisis to align decisively with Russia. Many could seek stronger ties with the US to balance against China, and raise their own defence spending. US allies such as Japan and South Korea may push for access to US missile and nuclear technology, as Australia has done, and indicate a firmer willingness to assist with the defence of Taiwan. For Taiwan, the Ukraine crisis is also likely to prompt consideration of its preparedness to preserve its status-making China's ultimate goal of unification more challenging.

Countries that have aimed for neutrality in terms of the US-China relationship may lean more towards a US position. Singapore, for example, has been critical of Russia and unusually joined sanctions, and called on China to exercise its influence over the country. While India has refused to condemn Russia for its actions, it would not be against a broader effort to pressure China, including through the Quad diplomatic grouping.

Moreover, if the NATO solidarity on display in response to the crisis persists, European powers could also become more involved in Asia. France, Germany and the UK already have Indo-Pacific strategies similar to that of the US and, while their attention will be focused on events closer to home for the time being, this could change-especially if they view the threat posed by Russia as linked with China. Germany has already announced a significant rise in defence spending, breaking with past practice.

The emergence of a concert of mainly democratic powers united around the idea of limiting China's regional influence could easily offset benefits for the country stemming from a period of US distraction. Indeed, the US may find it easier to project influence, through its allies and partners, regardless of whether it is in a position to increase resources. This group of countries would hold more economic weight than any that China could comfortably include in its own coalition, such as a war-weary Russia or North Korea. The mixed strategic benefits of the conflict explain the diplomatic tightrope that China has been walking so far through the crisis.

A more complex, bifurcated regional geopolitical environment

Risks associated with major regional flashpoints could also be exacerbated. If the Ukraine war constrains the ability of the US to act as a global policeman, opportunistic actors could sense a chance to further their agendas. North Korea's nuclear weapons programme will be an important risk to watch in Asia, with inter-Korean ties set to become more strained following the election of a more hawkish South Korean president. Long-standing territorial conflicts, like that between India and Pakistan, could be more vulnerable to escalation. Monitoring of non-traditional security threats, such as terrorism, could also be affected.

Overall, the Ukraine conflict adds another layer of complexity to the geopolitical environment in Asia. Higher defence spending will reduce the share of government budgets available for social and economic development needs. We expect US allies, such as Australia, Japan and South Korea, to step up their actions especially. A trend towards political and economic bifurcation was already evident before Russia's invasion, as tensions between China and the US have deepened, and there is a good chance that they will be accelerated by recent events (if not occur overnight). This will affect the unity of regional bodies, such as ASEAN, and create ongoing operating challenges for international firms operating across multiple markets, as regulatory divergence becomes more marked.