Top five risk drivers | Asia Pacific - Strategic Outlook 2023

Images: Getty Images (Sam Yeh; I-Hwa Cheng; Ezra Acayan; Kazuhiro Nogi; Nhax Nguyen)

THE GLOBAL UNRAVELLING

STRATEGIC OUTLOOK 2023

Asia Pacific | Top five risk drivers

5

The proliferation of social media and rising digital activism are likely to exacerbate new risks across several countries in Asia. This includes a more prominent role mis-information plays in political processes such as elections but also heightens risks around digital surveillance and online censorship. This is particularly likely to impact Vietnam, Cambodia, Hong Kong, China and the Philippines. We anticipate that this will push up unrest and regime instability risks around electoral periods, and lead to state agencies risks becoming more pronounced too.

Online mis- and
dis-information

4

Relations between North and South Korea are likely to worsen further in 2023, sustaining instability risks across North East Asia. Economic pressure on Pyongyang will probably lead to the North acting more erratically as it seeks sanctions relief and international recognition as a nuclear state. The new South Korean president is more US-aligned, further increasing the likelihood of deadlock and assertive responses from Seoul. We anticipate that Pyongyang will conduct further ICBM tests and engage in military skirmishes, commencing a short-term security crisis.

Relations on the Korean peninsula

3

Military buildup in the South China Sea and around the Pacific Islands is likely to be a driver of interstate conflict risk. The US is likely to expand its Freedom of Navigation Operations in the South China Sea in response to China’s island-building strategy and expansion of ties with the Solomon Islands and other Pacific states. The US and China have an interest in avoiding outright military conflict. But their actions increase the likelihood of a naval accident or other unintentional escalations.

Militarisation

2

Asia is the linchpin for global supply chains. And geopolitical tensions and Covid-19 restrictions are likely to contribute to delays and disruptions to supply chains in the region in 2023. We are likely to see a diversification of supply chains into other manufacturing hubs in the region, including Vietnam, Indonesia, Malaysia and Thailand. A multitude of pressures on businesses with supply chains in China is leading to a once-in-a-generation relocation of supply chains.

Supply chain disruptions

1

Chinese military exercises and diplomatic activity targeting Taiwan is likely to increase during 2023. We assess that Beijing is likely to continue to try to undermine the resolve of Taiwan to resist unification with China. So it will use military exercises, propaganda and diplomatic activity to isolate the country. Such activity will probably increase around flashpoints including US arms sales, foreign diplomatic visits and especially at the end of the year in the lead up to Taiwan and US presidential elections in 2024.

China & Taiwan

Indicators

Governments have to use dwindling foreign reserves to afford basic food and fuel imports.
No agreement with IMF and external debtors on future bailouts.
Significantly high inflation and currency depreciation
Governments introducing austerity measures.
Shortages of imported goods including food, medicines and fuel.