China’s Power in Asia Falls as U.S. Regains Authority, Lowy Says

(Bloomberg) -- China's influence in Asia receded in the second year of the pandemic as the country turned more inward, while the U.S. expanded its power in the region through better diplomacy, according to an Australian research group.

China's measure of power fell as the country wrestled with structural weaknesses in its demographics and financial system and become more isolationist, the Sydney-based Lowy Institute said in its Asia Power Index for 2021, which ranks 26 nations and territories. The index measures power using 131 indicators including economic clout, defense capability, cultural and diplomatic influence, and projected future resources.

Comparatively, the U.S. gained more influence in Asia this year due to President Joe Biden's administration brokering better diplomatic relationships and a speedy recovery from the pandemic with the help of vaccinations, said Herve Lemahieu, the study's research chief and director of Lowy's Asian Power and Diplomacy Program.

“There's been a bit of a flip in assessments of the U.S. and China's future prospects across a range of measures — military, economic and demographic,”  Lemahieu said in an interview with Bloomberg News. “And that suggests that the U.S. will remain or has the ability to remain competitive as equal to China or as the primary superpower for much longer than we anticipated.”

The top 10 countries for overall power in the Asia-Pacific region are the U.S., China, Japan, India, Russia, Australia, South Korea, Singapore, Indonesia and Thailand, the study said. The ranking this year reflected the longer term impact of the pandemic, with the overall power of most countries falling compared to last year in the index.

Although China improved on resilience indicators as it shifted more toward domestic production and consumption, Beijing's  more isolationist turn also meant it lost ground on influence. An assessment of the country's future resources added the most downward pressure on China's power, as the need  to tackle its rapidly aging population and a heavy domestic debt load became apparent, the study said.

It's unclear how the spreading omicron coronavirus strain is going to change the prospects for the region and the balance of power, but the variant underscores the importance that vaccination has played in this year's rankings, Lemahieu said.

This year's Power Index for the first time included indicators for vaccine diplomacy — measured by vaccinations donated, which helped boost the U.S.'s measure of cultural influence. That made up for the U.S.'s loss in points in economic clout as Biden has declined to re-enter the 11-nation Comprehensive and Progressive Agreement for Trans-Pacific Partnership, which his predecessor Donald Trump exited in 2017. 

Still, even with China's economy likely to set to overtake the U.S., its own set of domestic challenges make it “unlikely China will ever be as dominant as the United States once was” in Asia, according to the Lowy Institute.

The top ranks of Lowy's Asia Power Index remained mostly unchanged, with the exception of Indonesia, which climbed two spots to No. 9 and edged Malaysia out of the top group.

Despite Indonesia's higher death numbers from Covid-19, its ranking improved due to a stable political environment, President Joko Widodo's emergence as an influential statesman in Southeast Asia and economic fundamentals that are less affected by the pandemic, Lemahieu said.

“It goes to show that's not as straightforward, it's not always a clear-cut correlation between death toll and the hits that accrues on a country's power and influence,” he said.

©2021 Bloomberg L.P.