In every Shangri-La Dialogue, three issues are always on the agenda: the balance of power, regional cooperation and terrorism. Fifty years ago, in 1965, it was the height of the Cold War. The two major camps in the world, led by the US and the Soviet Union, defined the strategic landscape. While there were non-aligned countries, like India and Indonesia, these two main opposing camps faced off against each other. In Asia, the conflict manifested itself in the Vietnam War and the Korean Peninsula.

China was not a major influence in the region or the world. It was a poor, backward country. Its foreign trade was negligible. China would soon be engulfed in the Cultural Revolution and turn completely inwards. Many Southeast Asian countries saw China as a security threat, because it supported insurgent communist movements that sought to overthrow governments by armed force.

Japan was an important partner of the US, with the US-Japan Security Alliance. Japan was not an independent player in security terms, because of the history of the War. It was, however, a major economic power, enjoying rapid growth from the 1960s to the 1980s. Its dynamic economy energized the whole region, and especially helped the “flying geese” of Newly Industrialized Economies (NIEs) – South Korea, Taiwan, Hong Kong and Singapore – to take off.

Today, it is a different strategic landscape. The Cold War is long over. The Soviet Union has dissolved. Russia continues to participate in the region, but its focus is Europe and its “Near Abroad,” which is Eurasia. The key players in Asia are the US and China.

The US remains the dominant Pacific power. The Pacific Command and the US 7th Fleet are a powerful force in being, and a key factor for peace and stability in the region. America’s core interest has not changed: a stable Asia that is open to do business with all countries, and a regional order that enables all major powers to engage constructively in Asia. The US has played a benign role in Asia since the War. Its presence is welcomed by the many regional countries which have benefited from it, including Singapore.

But the strategic balance in Asia is shifting. China has become the second biggest economy in the world. It is now the largest or second largest trading partner of nearly every country in the Asia-Pacific – South Korea, Japan, Australia, including Singapore, and even the US. China’s interdependence with the external world has grown, whether for resources, markets, technology, or investments. So has its interest in making friends and influencing outcomes, and its skill in doing so.

Meanwhile, China is building up and modernizing its armed forces. President Xi Jinping has declared that China will be a maritime power. It already has one aircraft carrier and is building a second one. Last week China concluded its first-ever joint naval exercise with the Russians in the Mediterranean Sea.

So far, China’s rise has been peaceful, within the established international order. The key to this continuing is the US-China relationship.

The US-China relationship is fundamentally different from the US-Soviet relationship of old. It is not a zero-sum game. There are elements of competition, but many interdependencies and opportunities for mutual benefit. ... We are glad that successive US Administrations and Chinese leaderships have engaged, worked together and managed the problems that have come up, despite nationalistic pressures on both sides and inevitable tensions from time to time.

So when both the US and China say that the broad Pacific Ocean is “vast enough” to embrace both China and the United States, we read that as a good sign. Realistically speaking, however, competition between major powers is unavoidable. The question is what form this competition will take.

One model of competition is where major powers strengthen their influence within a set of international rules and norms. We see that in how 5 China is actively deepening cooperation and making friends all over Asia, through the 2+7 cooperation framework with ASEAN, the One Road One Belt, and the Maritime Silk Road initiatives.

The Asian Infrastructure Investment Bank (AIIB) is one of China’s major projects. It clearly will enhance China’s influence in the world, but it also meets a real and urgent need for infrastructure development and capital in the region. And it is a way China can participate constructively in the international order together with other countries. That is why Singapore gave its support very early to the AIIB idea, and why many more countries have since welcomed it and joined as Prospective Founding Members, not only Asian countries, but also Britain, France, Germany, Italy, Australia and others.

But there is another model for competition, where win-win arrangements are harder to reach, and unhappy outcomes harder to avoid. Take the territorial and maritime disputes in the East China Sea and South China Sea. These disputes have heated up significantly in the last few years. There is daily buzzing of ships and aircraft around the Senkaku/Diaoyudao islands, and the testing of boundaries by both China and Japan. In the South China Sea, claimant states are taking unilateral actions in the disputed areas, drilling for oil and gas, reclaiming land, setting up outposts, and reinforcing their military presence.

Actions provoke reactions. The US is responding to Chinese activities with increased over-flights and sailings near the disputed territories, to signal that it will not accept unilateral assertions of sovereignty in the South China Sea. Each country feels compelled to react to what others have done, in order to protect its own interests.

Non-claimant countries cannot take sides on the merits of the rival claims. But they do have a stake in the maritime disputes, and in particular how they are handled. Every Asian country stands to lose if regional security and stability are threatened. Major sea and air lines of communications pass through the South China Sea. Every state whose trade passes through the South China Sea, or whose ships and aircraft use the South China Sea, has an interest in ensuring freedom of navigation and over-flight. This includes Singapore, for whom the South China Sea is a vital life line.

No country can renounce its claims, or sometimes even concede that a dispute exists, without paying a high political cost. But the consequence is that all sides harden their positions, and disputes become harder to disentangle. These maritime disputes are thus most unlikely to be solved anytime soon. But they can and should be managed and contained. If the present dynamic continues, it must lead to more tensions and bad outcomes.

China and ASEAN should conclude a Code of Conduct on the South China Sea as soon as possible, so as to break the vicious cycle and not let the disputes sour the broader relationship. If all parties adhere to international law, including UNCLOS, that is the best outcome. On the other hand, if a physical clash occurs, which escalates into wider tension or conflict, either by design or more likely by accident, that would be very bad. But even if we avoid a physical clash, if the outcome is determined on the basis of might is right, it will set a bad precedent. It may not lead immediately to a hot conflict, but it will be an unhappier and less sustainable position. In the long run, a stable regional order cannot be maintained by just by superior force. It requires consent and legitimacy in the international community.

By Lee Hsien Loong

Singapore

Lee Hsien Loong is prime minister of Singapore. This column has been excerpted from his May 29 keynote speech before the Shangri-La Dialogue, an inter-governmental security forum held annually by the International Institute for Strategic Studies and attended by defense ministers, permanent heads of ministries and military chiefs of 28 Asia-Pacific states.