The global financial crisis that began in the summer of 1997 and spread from Thailand and Singapore to Indonesia and South Korea created a watershed in contemporary history: A systematic failure of capitalism struck precisely those economies held up as models of industrial efficiency. (Pempel)
 

China's growth promises to provide a welcome impetus to sectors such as energy and telecom, strongly affected by the current downturn. However, it will be some time before the full ramifications of China's emergence in general - and its WTO membership in particular - are properly understood. In 2002, there will be enough to keep business strategists enthralled, as the challenges posed in the regulatory and legal fields become more apparent.
The real impact on many sectors, such as automotive and health will be felt in the years to come.
 

Problem:
Japan's problems predate and transcend the mid-1997 "Asian" financial crisis, and indeed these problems have only been marginally affected by that crisis. The Japanese economy has stagnated for most of the 1990s decade, experiencing an average annual growth rate of about 1 percent, and in 1999 a negative growth rate of about 2 percent. This is a striking contrast to
Japan's record of strong and sustained growth in the previous
decade. (www.rand.com)

Japan is encountering a situation, which needs much critical thinking and planning to move ahead. Japan's crisis requires a more immediate response by businesses and the political leadership. The progressive relocation of manufacturing is in full swing, but the same cannot be said about Japan's reform efforts under the current Prime Minister. Yet, notwithstanding China's future significance, economic reforms and the resulting trajectory of Japan's economy will have a crucial bearing on the prospects for high-technology sectors. With China being involved with the WTO and the circumstances in Japan and the threat of economic implosion there, other countries are in danger of being ignored. Asia's other giant, India, is likely to be mired once more in political, economic and operational problems, but its 1bn-strong population can make an important contribution towards compensating for lower growth elsewhere, with potential brimming in the telecom and health fields. Southeast Asia is set to go down a slow, evolutionary path, although more rapid change would be warranted in countries such as Indonesia, where serious issues linger.

Political fall-out from the war against terror is unlikely to reach beyond the Indian sub-continent since there is little sign that South-East Asian countries are prone to religious radicalization. Regional co-operation, on the whole, is gaining momentum, and there are few potential hotspots in East Asia. Whilst developments in Northeast and Southeast Asia are becoming more closely interlinked, South Asia continues to be a separate entity. With political instability hanging over Pakistan, and the Kashmir conflict set to drag on in the short-to-medium term, the sub-continent does not share East Asia's hopes for a higher degree of stability in 2002. In general, however, issues of economic development and management - a prospect that both Asians and foreign investors are likely to welcome, will dominate policy debates in Asia.

Alliance patterns in the Asia-Pacific region may not have changed profoundly after the events of 11 September 2001, but the rapprochement between the US Bush administration and China means that the risk of great power conflict in the region has been reduced dramatically. However, this cannot be squarely equated with a higher degree of security. It has become an almost universally accepted adage that the terror acts of 11 September 2001 have changed the world. However, whilst there is no denying that change has also engulfed the Asia-Pacific region and will continue to do so in 2002, closer scrutiny reveals a different picture. Shifts in strategic alliances in the Asia-Pacific region emanate predominantly from one single source: a recasting of US strategic perceptions. Of course, it is true that this is not just another element of the region's geopolitics but, arguably, the single most significant factor that influences security and alliances. However, it is noticeable that while US security priorities have changed almost beyond recognition, the perceptions and assumptions underlying the security policies of most Asian countries have been altered much less.

This is not to deny or minimize the fact that individual countries within the region still confront serious economic problems, with sharply different prospects for alleviating, let alone solving them. But the collective record is both better and more promising than the ‘crisis’ rhetoric implies. (www.rand.com)

Firstly, terrorism may have gained in significance for some (although for others like the Philippines or, further afield, India, long subject to terrorist activity, this has been a preoccupation for decades), but for no country other than the US has it turned security policy upside-down. In addition, inter-state tensions, let alone warfare, have not and will not materialize in the Asia-Pacific region in connection with the terror attacks. This is largely due to geography, as the Middle East conflict is far removed in terms of physical distance (albeit still an emotionally charged topic in the majority Islamic societies of Brunei, Indonesia and Malaysia). Indian-Pakistani tensions could spill over into the Asia-Pacific arena through China, Pakistan's main ally. However, so far the Indian sub-continent has remained a geo-political entity separate from Southeast Asia and the Asia-Pacific region, with only Myanmar emerging as a potential flashpoint of competing influences.

Outlook:
As a consequence of the events on 11 September 2001, the Asia-Pacific region in 2002 faces a stark paradox. The security of individuals, as well as government and business facilities, may have decreased in many places due to the risk of terror attacks, but overall regional stability has increased because of the lower risk of diplomatic and military confrontation between the two most significant powers, China and the US. In the foreseeable future, only the emotionally charged Taiwan issue (aside from a suicidal North Korean attack, which is highly improbable) has the potential to disrupt the regional equilibrium, although in the long run the Chinese-Indian relationship is also surrounded by uneasy unpredictability.

International economic relations do not have the potential to ignite anything larger than issue-specific - and hence manageable - disputes. Trade disputes and the resentment of pressures to reform East Asian economies along the lines of the Anglo-Saxon model are hardly war catalysts; eruptions of nationalism may add some cacophony, but will remain isolated incidents. China's entry to the World Trade Organization (WTO) and Vietnam's commitment to economic reforms testify to the general agreement over economic relations that encourages us to think of economics as a uniting, rather than dividing, force in the Asia-Pacific region.

In the global context the biggest risk for stability stems from a gradual rise of diffuse grievances in some areas of the Asia-Pacific region, where religiously based radicalism combines with dissatisfaction with globalization. Whilst the majority of South-East Asian Muslims have shown little interest in militant protests, recent anti-Western sentiments make clear that multiple sources of grievances need to be addressed. A solution to the Middle East conflict would also help, but that might be most difficult to engender. Poverty and economic disenfranchisement can feed into a diffuse sense of dissatisfaction, which can be exploited by radical groups. However, if these feelings gain further currency, it is clear that the prime battlefield will not be in the Asia-Pacific region. After 11 September 2001, the Asia-Pacific region has not suffered from a drastic loss of security, and, in terms of overall stability, the region has actually gained - if not absolutely then at least relative to other regions. This insight may not reassure individuals at risk from isolated terror acts, but the strategic outlook for the Asia-Pacific region is far from gloomy.

References
Pempel; T.J: The Politics of the Asian Economic Crisis (Cornell Studies in Political Economy): Cornell University Press, ISBN: 0801486343; (October 1999).