Abstract
Since the mid-1980s there has been a gradual but steady rise of economic regionalism in Northeast Asia. However, the economic regionalism in Northeast Asia reveals its own dynamics and is presented in a form that is different from those in Western Europe and North America. Characterized by a “flying geese pattern” that has been developing in the region over time, the regionalism is soft and open; that is, it is uninstitutionalized and less discriminatory against other economies. This ongoing regionalism in Northeast Asia will inevitably bring profound political and economic implications for the region and beyond.
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References
Norman D. Palmer, The New Regionalism in Asia and the Pacific (Lexington, Mass.: Lexington Books, 1991), p. 12.
Geographically, Northeast Asia covers Japan, the Korean Peninsula, Russia's Far East, Mongolia, China, Taiwan, and Hong Kong. However, this article mainly deals with five major economies of importance to the subject, that is: Japan, South Korea, Taiwan, Hong Kong, and China.
Two most important developments in this respect are the reconciliation between China and Taiwan and the normalization of Sino-South Korean relations. Beginning in the late 1970s, China initiated an open-door policy and made it clear that it welcomed economic relations with Taiwan. Then starting in the mid-1980s, Taiwan began to relax its ban on commercial and cultural contacts with the mainland. Further, on May 1, 1991, the Taiwan government officially ended its hostility toward, the communist regime in the mainland by ending the period of “Mobilization for the Suppression of Communist Rebellion” after more than forty years. A semi-official liaison structure was then established to handle economic, political, security, and other issues With respect to the Sino-South Korean relationship, the two countries began to have contacts around the mid-1980s, which led to the final normalization of diplomatic relations between them in August 1992.
Calculated from IMF, Direction of Trade Statistics Yearbook, 1992 and 1995 (Washington, D.C., International Monetary Fund).
Edward K. Y. Chen, “Foreign Direct Investment in East Asia,” in Asian Development Bank (ADB) Asian Development Review: Studies of Asian and Pacific Economic Issues 11, 1, 1993, p. 24.
It is important to note that China has also heavily invested in Hong Kong for political as well as economic reasons. For more detailed discussion on Chinese FDI in Hong Kong, see Hing Lin Chan, “Chinese Investment in Hong Kong: Issues and Problems”, Asian Survey, 35, 10, October 1995, pp. 941–54; also Tseng Choosin, “Foreign Direct Investment from the People's Republic of China”, in Henri-Claude de Bettignies, ed., Business Transformation in China (London and Boston: International Thomson Business Press, 1996).
Ministry of Finance (Japan), Monthly Finance Review, various issues. Cited from Organization for Economic Cooperation and Development (OECD), International Direct Investment Statistics Yearbook 1995 (Paris: Organization for Economic Cooperation and Development), pp. 154–5.
Japan Times, January 7, 1994. Cited from Kit G. Machado, “Japanese Foreign Direct Investment in East Asia: The Expanding Division of Labor and the Future of Regionalism,” in Steve Chan, ed., Foreign Direct Investment in a Changing Global Political Economy (London: Macmillan Press Ltd., 1995), p. 49.
As the data on Northeast Asia are not available, the data on Asia as a whole are used here.
Cited from James Abegglen, Sea Change: Pacific Asia as the New World Industrial Center (New York: The Free Press, 1994), pp. 65–6.
Machado, “Japanese Foreign Direct Investment in East Asia,” p. 44.
OECD, Foreign Direct Investment Relations, 1993, p. 135.
Ibid.,OECD, Foreign Direct Investment Relations, 1993, p. 151.
Ibid.,OECD, Foreign Direct Investment Relations, 1993, p. 139.
Abegglen, Sea Change, p. 83.
Edward J. Lincoln, “Japanese Trade and Investment Issues,” in Danny Unger and Paul Blackburn, eds., Japan's Emerging Global Role (Boulder and London: Lynne Rienner Publishers, Inc., 1993), pp. 134–5.
Danny Unger, “Japan's Capital Exports: Molding East Asia,” in Unger and Blackburn, eds., p. 156.
Machado, “Japanese Foreign Direct Investment in East Asia,” pp. 46–7.
Several decades after Kaname Akamatsu's “flying geese model,” Raymond Vernon developed the product-cycle concept in his influential 1966 essay, “International Investment and International Trade in the Product Cycle” (Quarterly Journal of Economics, 80, May 1966, pp. 190–207). See also Kojima Kiyoshi, Direct Foreign Investment: A Japanese Model of Multinational Business Operations (New York: Praeger, 1978), pp. 150–1
Bruce Cumings, “The Origin and Development of the Northeast Asian Political Economy: Industrial Sectors, Product Cycle, and Political Consequences,” International Organization, 38, 1, 1984, p. 3.
Traditionally, the Hong Kong government has adopted a relatively thorough laissez-faire policy toward economic activities in the territory, including foreign trade and FDI.
The size of the Chinese market may be vividly illustrated by a simple example: if the average Chinese ate an extra egg every three days, it would take the entire grain production of Australia to feed the chickens that would have to lay those eggs. Time, 147, 8, February 19, 1996, p. 23.
Cited from Abegglen, Sea Change, pp. 30–1.
It is estimated that in South Korea there are approximately 100,000 Chinese-Koreans of Shandong descent, many of whom have become successful in business and desire to invest in their place of ancestry. Some of the Chinese Koreans originally emigrated from Dalian and other parts of Liaoning, and are interested in promoting business relations between South Korea and Liaoning. Besides, in Northeast China there are several million Korean Chinese. Xiangming Chen, “China's Growing Integration with the Asia-Pacific Economy,” in Arif Dirlik, ed., What is in a Rim? Critical Perspectives on the Pacific Region Idea (Boulder, Colo.: Westview Press, Inc., 1993), p. 107.
IMF, Direction of Trade Statistics Yearbook 1995.
According to Gareth Evans, the Chinese SEZs-like integration is clearly GATT-consistent, with government initiative spurring even greater private sector integration and with trade creation effects achieved with seemingly no trade diversion. Evans, “Regionalism and Cooperation in the Asia Pacific: The Role of Asia Pacific Economic Cooperation Governments,” in Barbara K. Bundy, Stephen D. Burns and Kimberly V. Weichel, eds., The Future of the Pacific Rim: Scenarios for Regional Cooperation (Westport, Conn.: Praeger Publishers, 1994), p. 83.
Author's respective interviews with six Japanese officials in Foreign Affairs, MITI, and EPA on October 17–18, 1994.
Author's interview with a Japanese scholar in the Institute for International Trade and Investment on October, 18, 1994.
The mounting tensions between China and Taiwan in the second half of 1995 through early 1996 are a clear indication that the existing regional ties in Northeast Asia are still so fragile to sensitive political issues. The souring cross-strait relations started with a private trip of Taiwan President Lee Teng-hui to the United States in June 1995, which Beijing sees as a sign of Taiwan's efforts to move toward, independence. Consequently, Beijing not only postponed talks with Taipei but also held a series of missle tests off Taiwan's coast and even a series of large military exercises in the Taiwan Straits in March 1996.
From the very beginning of its independence in the mid-1960s, Singapore, as a city-state, adopted an export-oriented development strategy and, together with South Korea, Taiwan, and Hong Kong, achieved economic miracles in the 1970s and 1980s. Distinct from other ASEAN economies with respect to the levels of development, Singapore is therefore grouped into Northeast Asian NIEs in the current discussion. The ASEAN, on the other hand, primarily refers to Indonesia, Malaysia, the Philippines, and Thailand, although Brunei and more recently Vietnam have become its members.
Chia Siow Yue, “Foreign Direct Investment in ASEAN Economies,” in ADB, Asian Development Review, pp. 61, 81–9.
According to Donald Chrone, Japan's deepening ties with China strained its relations with Southeast Asia, as the ASEAN was relegated to fourth place in Japan's declared hierarchy of regional interests. Chrone, The Asean: Coping with Dependence (New York: Praeger, 1983), p. 50. C. S. Yue has similar concerns about the diversion of investment, resources from Japan and Northeast Asian NIEs away from the ASEAN to China. Yue, “Foreign Direct Investment in ASEAN Economies,” p.98.
Wendy Dobson even identifies the investment from the ASEAN to China and Vietnam as another tier of a vertical economic relationship in East Asia with the ASEAN serving as an intermediate link between Asian NIEs on the one hand and China and Vietnam on the other. See Dobson, “Canada and Pacific Dynamism: An Introduction to Issues,rrd in Wendy Dobson and Frank Flatters, eds., Pacific Trade and Investment: Options for the 90s Kingston, Ont.:International and Development Studies Program, John Deutsch Institute for the Study of Economic Policy, Queen's University, 1994, p. 2.
People's Daily (Overseas Edition), January 3, 1996, p. 1.
Yue, “Foreign Direct Investment in ASEAN Economies,” p. 98.
During his visit to China in late 1990, Malaysian Prime Minister Mahathir bin Mohamad even went as far as proposing the forming of East Asia Economic Grouping (EAEG) as insurance against “economic blocs” in other regions. Although Mahathir's proposal has received a cool reaction from both governments and business community in Northeast Asia for various reasons, the fear in East Asia of the tendency toward blocism of the world economy has been clearly conveyed by this proposal.
Namkoong Young, “A Change in North Korean External Economic Policies and Prospects for Inter-Korean Economic Cooperation,” East Asian Review, 7, 3, Autumn 1995, p. 44.
In fact, there is already a sign of this development. A clear indication is that the recent UN-sponsored Tumen River Area Development Project, a plan for a multi-billion dollar trade and transport mega-complex in the Tumen River delta, has received overall support from North Korea, China, Russia, Mongolia South Korea, and Japan, although their motives, interests and priorities are not identical. For more detailed discussion on the subject, see Andrew Marton, Terry McGee and Donald G. Paterson, “Northeast Asian Economic Cooperation and the Tumen River Area Development Projet,” Pacific Affairs, 68, 1 Spring 1995.
The concept of economic cooperation among the countries of the Pacific has been discussed among scholars, business people, and government officials since the mid-1960s. These discussions have evolved around a process of research studies and periodic meetings. The three most important of these forums are the Pacific Trade and Development Conference (PAFTAD), which was formed in 1968 and limited to scholars from the major market economies in the Pacific rim; the Pacific Basin Economic Council (PBEC), which was initiated by a group of business people in the same year; and the Pacific Economic Cooperation Conference (PECC), which was established in 1980 with representation from government officials in their private capacities, academics, and business leaders. However, all these are non-governmental institutions.
The cooperation in the economic area through APEC will be most likely first to spill over to those other functional areas such as emigration, drug trafficking and environmental pollution, for the problems in these areas can be addressed effectively only through cooperative measures.
Harry Harding, “Prospects for Cooperative Security Arrangements,” in Bundy, et al., eds., p. 138.
PAFTAD has had a history since its establishment in 1968 of studying a wide variety of regional economic issues and such studies have then generated other regional activities as well as government responses. PBEC has focused its efforts principally on trade and investment problems of concern to the business interests of the region, and through its national committees, regularly provides advice to governments on regional economic and business problems. PECC is a broader effort to discuss systematically closer regional economic ties. It is a carefully prepared regional conference structure for developing communication and understanding on areas of common economic concern, involving government officials but avoiding governmental commitments to its recommendations. PECC has thus paved the way for APEC, a broader and more formalized governmental institution in the Asia-Pacific.
Harding, “Prospects for Cooperative Security Arrangements.”
IMF, Direction of Trade Statistics Yearbook, various years.
In this respect, China will be playing an increasingly important role in the regional and global economy. For more detailed discussion, see Nicholas R. Lardy, China in the World Economy (Washington, D.C.: Institute for international Economics, 1994). Also see David Shambaugh, ed., Greater China: The Next Superpower? (Oxford: Oxford University Press, 1995).
Additional information
Kevin G. Cai earned a Ph.D. in political science at Queen's University in Canada in 1996 Currently he is teaching at Kyonggi University in South Korea. His major research interests include the political economy of economic regionalism in the world economy, the regionalism in the Asia-Pacific area, APEC, China's integration into the regional and global economy, and various political, economic and security issues in the Asia-Pacific region. The author would like to thank Michael K. Hawes for his valuable comments on the early draft of this article.
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Cai, K.G. The political economy of economic regionalism in northeast asia: A unique and dynamic pattern. East Asia 17, 6–46 (1999). https://doi.org/10.1007/s12140-999-0009-9
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DOI: https://doi.org/10.1007/s12140-999-0009-9