September 2005

China in Asia: Competing Visions of Regional Economic Integration

Two competing paths to East Asian integration are emerging: one, symbolized by the Asia-Pacific Economic Cooperation (APEC), is a broad transpacific vision; the other, more recent and still amorphous, is exclusive to East Asia itself, and symbolized by the Association of Southeast Asian Nations (ASEAN) +3 process and negotiations. Significantly, APEC includes both the United States and Taiwan; ASEAN +3 excludes both. The aim of this September 30 AEI-NDU conference was to examine the role that China will play in shaping these competing paths to regional integration, as well as how the United States will respond to defend its preeminent economic and diplomatic position in Asia.

Pek Koon Heng
American University

Ms. Heng presented a Malaysian perspective on East Asian economic integration. Many Western commentators see the December 12-14, 2005, East Asian Summit in Kuala Lumpur as the culmination of former Malaysian prime minister Mahathir’s vision of an East Asian Economic Community. Yet due to the summit’s inclusion of non-East Asian members, many Asians were left disappointed. The original vision was of an exclusively East Asian grouping under a Japanese economic umbrella.

The idea of a regional economic grouping failed largely because it lacked American support. After the Clinton administration advanced the Asia Pacific Economic Cooperation forum (APEC, formed in 1989), Mahathir reluctantly came on board but did not abandon the idea of an exclusive Asian community. The Asian Financial Crisis of 1997-1998 brought an end to Southeast Asia’s rapid growth and seriously undermined confidence in the U.S. ability to provide adequate economic leadership in the region. This revived momentum for regional cooperation, which led to the ASEAN + 3 (Association of Southeast Asian Nations plus China, Japan, and South Korea) in 1998 and the Chiang Mai Initiative in 2000.

A new factor in regional integration is the rise of China. Malaysia views China not only as a competitor but also as an opportunity. Malaysia sees its geographic location and large ethnic Chinese population as comparative advantages. Deputy Prime Minister Najib’s September 2005 official visit to China resulted in trade agreements designed to boost bilateral trade from US$19 billion to US$50 billion by the year 2010. This would surpass the current Malaysia-U.S. trade of US$40 billion. 

China has taken the lead in proposing the China-ASEAN free trade agreement (FTA) through both bilateral and multilateral channels. With the initial phases already concluded, China and ASEAN members recently agreed to remove all tariffs on $100 billion worth of goods. For China and the older six ASEAN members the deadline is 2010, and for the newer four members the deadline is 2015. This agreement has provided greater momentum for an East Asian Community.

Malaysian officials are unsure of how to proceed with the expanded East Asian Summit. Singapore, Indonesia, and Japan pressed for the grouping to be enlarged to include Australia, New Zealand, and India. Ms. Heng believes that Malaysia will continue to lobby for a core ASEAN + 3 grouping (perhaps with an ASEAN +3 + 3 tiered structure) in which China, rather than Japan, would be the engine of growth.

Malaysia continues to see the United States as playing a pivotal role in advancing its security and political interests. The U.S. government and business community need not feel excluded from or threatened by ASEAN + 3. East Asian Summit attendees had to meet three conditions: accession to ASEAN’s Treaty of Amity and Cooperation (TAC), full dialogue partner status with ASEAN, and considerable trade interests in the region. The United States has not signed the TAC.

Edward Lincoln
Council on Foreign Relations

Mr. Lincoln spoke about Japan’s historical role in regional economic integration. The driving force behind Japan’s recent regional integration is China, not the broader region. While Japan’s trade with the rest of East Asia remains steady, trade with China is rising rapidly. Japan already imports more from China than from the United States, and exports to China are likely to surpass exports to the United States over the next few years. Foreign direct investment (FDI) from Japan continues to be concentrated in Western countries, but the growth rate is decreasing. Twelve percent of Japan’s total FDI now goes to China. Japan’s overall Official Development Assistance (ODA) budget has decreased by about 30 percent since the 1970s, but East Asia remains the primary focus of Japan’s foreign aid.

From the 1960s to the 1980s, Japan’s regional thinking was anchored in the Asia-Pacific framework. There was a need to keep the United States engaged in order to reassure both the United States and the region about Japanese intentions. In the 1960s, Japan helped form the Asian Development Bank and promoted Asia-Pacific dialogue. The Japanese were also instrumental in forming APEC in 1989.

In the late 1980s and early 1990s Japan experienced a growing sense of de facto leadership in East Asia. With the Japanese economy growing so dynamically, there was no sense of an economic or political rival for leadership in the region. After the appreciation of the yen in 1985, East Asian exports to Japan and Japanese FDI to the region increased dramatically.

During the Asian Financial Crisis, Japan’s vice minister of finance Sakakibara proposed the Asian Monetary Fund, which the United States quickly dismissed. Japan followed in 1998 with the New Miyazawa Plan which increased bilateral aid to Asian countries in crisis and improved Japan’s regional image. The Japanese government has embraced the Chiang Mai Initiative, ASEAN + 3, and talk of deeper financial ties, but at present there is more rhetoric than action. Keeping the United States engaged is of utmost importance to Japan.

Since 2001 there has been a shift toward bilateral FTAs. At present, Japan has agreements with Singapore, Mexico, and Thailand, and is negotiating deals with South Korea and the Philippines. Despite the Mexico FTA, there is a clear East Asian focus. There is a growing sense of unease in Japan about its regional role and the shift in regional interest to China.

Claude E. Barfield
AEI

In his remarks, Mr. Barfield commented on recent conferences he attended in China, Japan, and Thailand. In Fukuoka, Japan, he sensed a great deal of enthusiasm and acceptance of the idea of an East Asian Community. Fukuoka appears to be approaching the idea of regionalism from a commercial standpoint, improving its infrastructure, emphasizing local goods and services, and consulting scholars and experts from around the region. Although the actual mechanics of what might constitute such a community remain unclear, there is a strong sense that Asians need to pull together. In Beijing, however, the mood was different. The Chinese do not mind discussions of Asian integration, but China is not prepared to cede power to a supranational organization. With these competing visions at play, East Asian integration has very clear limits.

Along with the Chinese and Japanese views, there is the Asia-Pacific vision embodied in APEC. It has not been the typical reciprocal trading agreement, but rather a process of all countries going at their own pace with the goal of free trade for developed countries in 2010 and developing countries in 2020. This has clearly not worked. The other vision is ASEAN + 3. Although this vision has taken on a new dimension with the inclusion of Australia, India, and New Zealand at the upcoming East Asian Summit, it is still rooted in the East-Asian region. This effort excludes the United States and, at least initially, Taiwan. Regional integration centered on ASEAN is inherently weak. Due to historical and political obstacles, the process is at a standstill and is degenerating into an increasing number of bilateral FTAs.

These developments present a challenge to the United States. Bilateral FTAs are suspect in terms of economic efficiency, but the Bush administration is trying to use parallel liberalization to move from bilateral to multilateral policies. However, trade policy does not exist in isolation; it is also a means to further U.S. diplomatic and security goals. Unfortunately, the process has not produced clear agreements or institutions for the United States to join. The Bush administration should announce that the United States wants to be involved with any negotiations, though this will likely draw opposition from Congress.

National Defense University research assistant Tamara Shie prepared this summary.