RESEARCH AND ANALYSIS
Regional integration in East Asia needs strong political commitment
Liudmila V. Popova and Vladimir N. Kovalenko
East Asia has become the most dynamic economic region in the world in the past decades. After the Second World War, the main driving force of regional integration was Japan, but the recent economic rise of China significantly influenced the model and the speed of the regionalization process in East Asia. Since the early 1990s, the region witnessed a transition from a vertical type of integration based on Japanese investment, technology transfer, and component parts in accordance with hierarchical linkages, to a horizontal type of integration driven by Chinese investments into regional production chains and China’s advancement as a “global workshop”. China and Japan have become “two tigers in the same mountain” fiercely competing for leadership in the region.
Rapid economic development since the late 1970s followed by the entry into the WTO in 2001 provided China with a rising influence on traditional intra-regional economic relations and division of labour. The Open Door policy carried out by the PRC leadership has resulted in a rapid migration of manufacturing mostly from Hong Kong (China) and Chinese Taipei to mainland China, eventually forming the concept of Greater China. A new scheme of regional cooperation has emerged in East Asia, where China stands as the main assembly plant in the region, as well as an exporter of manufactured goods to developed countries. Economic ties between China, Hong Kong (China) and Chinese Taipei are central in creating new value chains within East Asia.
China’s new position in the regional division of labour significantly accelerated intra-Asian trade — since 1994, trade between China and ten major East Asian countries has risen almost seven times, reaching over US$ 1 trillion by 2008. Since 2007, China has become Japan’s largest trading partner, leaving the United States far behind. ASEAN countries are gaining increasing importance in China’s foreign trade. Deepening economic integration between China and East Asian countries has had a positive effect on economic growth in the region. Greater involvement in regional production chains along with growing dependence on China is leading to further specialization of East Asian economies and supports their high economic development dynamics.
Growing as a new regional powerhouse, China has become the major proponent of bilateral trade liberalization in East Asia, necessitating the creation of an appropriate institutional environment. China plays a leading role in the elaboration of regional policy, applying the so-called “soft power”, which embraces cultural, political and diplomatic means of influence.
At present, economic integration in East Asia is proceeding at two levels – inter-state level (ASEAN, bilateral RTAs), and inter-firm level, which comprises cross-border investments and the formation of intra-regional division of labour with China as a key actor in this process. An important step in strengthening regional integrity was the signature of free trade agreements between ASEAN, on the one hand, and China, India, Republic of Korea, Japan, Australia and New Zealand, on the other. In addition, a system of special consultations between ASEAN and China (ASEAN+1), ASEAN and China, Japan, Republic of Korea (ASEAN+3) and ASEAN+6 (China, Japan, Republic of Korea, India, Australia, New Zealand) was established. The latter arrangement developed into the East Asia Summit initially held in 2005, which, in turn, is perceived to be the backbone of the future “East Asian Community”. Despite the overall positive trend, the format of the “ASEAN+” suffers from one significant drawback, that is, the unbalanced position of ASEAN when it deals separately with China, Japan or Republic of Korea due to different political weights of the participants.
Considering the characteristics of regional economic and political integration in East Asia (in contrast to Europe), it should be reckoned that during the middle of the 19th century most countries in the region were colonies or semi-colonies which saw independence and formation of national states only in the second half of the 20th century. From the Cold War era, the region has inherited a lot of inter-state conflicts, between China and the United States, China and Japan, China and Chinese Taipei, Japan and Russia, the tensions between the two Koreas, the conflicts within ASEAN. Major countries in the region, apart from China, have built a national security system based on bilateral agreements with the United States as the main guarantor of security. Globalization and the disappearance of the traditional Cold War balance of power in the region have exacerbated the traditional East Asian conflicts over territory and natural resources, which in turn led to an escalation of long-standing bilateral territorial disputes.
For most countries in the region the idea of national sovereignty is an essential component of their national identity, whereas in the economic sphere there is a growing internationalization of operations. As a result, each country or region has its own policy on regional security. So far a widely accepted mechanism for ensuring regional security does not exist in East Asia. However, in the light of the significant changes that have occurred in the past twenty years, it is obvious that creation of a pan-regional security system becomes fundamental issue for further deepening of the integration in Asia.
For centuries, almost all the ASEAN countries saw China as a threat to their national security. The significant role of the overseas Chinese in South-East Asia trade and finance also adds concerns about potential Chinese hegemony. However, with the evolution of domestic and foreign policies of China, this fear, although fading, still lingers. The growing interdependence of the economies of China, Japan and the Republic of Korea has not led to a similar convergence in the socio-political and cultural spheres. Thus, it is clear that without additional efforts in increasing mutual trust, these countries will not be able to overcome the negative heritage background, so a full-scale political and economic integration could be delayed for an indefinite period.
East Asian countries, despite the negative historical legacy in international relations and different levels of socio-economic development, have come a long way towards each other. The last two decades have radically changed the format of regional integration: from a Japan-centred process, it has been smoothly transformed into a China-centred one. East Asian countries require political will and readiness to make mutual concessions in order to strengthen the political-institutional component of regionalization.
Liudmila V. Popova is Associate Professor in the Department of World Economy, Economic faculty, at St. Petersburg State University.
Vladimir N. Kovalenko is a PhD student in the Dept. of World Economy, Economic faculty, at St. Petersburg State University.