Abstract
This article discusses the effect of China’s economic rise on East Asian economic integration and concludes that the emergence of China as an increasingly important economic power has made a great contribution to Asian economic integration mainly through four channels: being a main importer and FDI destination country for most Asian countries under the processing export pattern; the renminbi’s more active image in the regional currency cooperation and its potential role as one of the core regional currencies in the future; playing a more important role in the regional political affairs and having an increasing potential to be part of the political core power (together with Japan); the demonstration and stimulative effects made by the motion of the FTA between China and ASEAN.
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Notes
ASEAN was established in 1967 by Singapore, Indonesia, Malaysia, The Philippines, and Thailand (known as ASEAN-5), and increased by Brunei in the 1980s (known as ASEAN-6), and by Cambodia, Laos, Myanmar, and Vietnam in the 1990s (known as ASEAN-10).
NAFTA was established in 1994 by the US, Canada, and Mexico, with a total population of 410 million. Now it covers large fields of trade and investment liberalization, environmental protection, and intellective property protection.
The EU was founded in 1993 by 15 countries and expanded to 25 members in 2004, with a population of 377 million. It is now the only unified transnational market in the world with complete flow of goods, labor forces, and capital.
As a special region with massive differences, East Asia confronts great troubles in regional cooperation. Economically, both the most developed economies, like Japan, and the complete opposite, like Laos and Myanmar, live together; politically, totally different mechanisms, such as capitalism, socialism, and militarism coexist; ideologically, Confucianism, Islamism, and Catholicism are all present.
IMF (2006).
See the statistics of China Government Working Report 2006 and China Statistical Yearbook 2005.
China Commerce Ministry website, <www.mofcom.gov.cn>, accessed 1 October 2006.
According to the statistics of WTO, by 2004, regional economic agreements recorded by WTO amounted to 285, 189 of which have been put into practice, and 90% of the total 144 members of WTO joined regional economic organizations separately.
APEC was advanced in 1994, stating that developed members would achieve trade and investment liberalization by 2010 and developing members would realize it by 2020.
The “10 + 3” refers to China, Japan, South Korea, and the ASEAN-10.
China Commerce Ministry, Country Report on International trade: Japan, <countryreport.mofcom.gov.cn>.
China Commerce Ministry, Country Report on International trade: South Korea, <countryreport.mofcom.gov.cn>.
They are Taiwan (first), South Korea (second), Japan (third), The Philippines (fifth), Malaysia (seventh), and Thailand (eighth), China Commerce Ministry website, <www.mofcom.gov.cn>, accessed 1 October 2006.
This recession model took China’s GDP as independent variable and China’s imports from other East Asian countries as dependent variable, selecting the statistics from 1990 to 2001 as the sample range.
Li et al. (2004).
China Commerce Ministry, China FDI Statistics 2004.
From 1998 to 2004, the proportions respectively were 56.9, 56.9, 54.9, 55.4, 55.3, 55.2, and 56%. All the statistics come from the China Commerce Ministry website, <www.mofcom.gov.cn>.
A report delivered by Morgan Stanley Co. points out that China’s rise is essentially different from Japan’s postwar miracle, because the outgoing character of China’s economy leads other nations easily to share the benefit. The interdependent index of China rose from 1% in 1985 to 60% in 2003, higher than that of the US at 23.6%. China’s import-dependent index also exceeds that of the US and Japan. In 2003, China’s import dependent index was 30%, while that of the US and Japan respectively were 14 and 8%.
China Commerce Ministry website, <zhs.mofcom.gov.cn/aarticle/Nocategory/200601>, accessed 1 October 2006.
The proportions invested in the manufacturing industry between 2001 and 2005, respectively, were 65.9, 69.8, 69, 70.9, and 65.1%, most of which belong to labor-seeking processing trade investment, edited from statistics delivered by the Commerce Ministry, China Commerce Ministry website, <www.mofcom.gov.cn>.
The share of exports of foreign companies in China of China’s total, respectively, are 50.83, 53.19, 55.48, and 57.43% from 2001 to 2004. China Commerce Ministry, China FDI Statistics 2005.
Ranking by accumulative utilized amount of FDI from different economies to China, the three East Asian economies are Hong Kong, Japan, and South Korea, China Commerce Ministry website, <www.mofcom.gov.cn>.
World Bank (2006).
The number of consumers of mobile phones in China has boomed recently. In 1990, there were only 18,000 users in China, and the figure rose to 6.85 million in 1996, 206 million in 2002, and more than 400 million in 2006.
In the automobile market of China, consumption demand sharply increased from 2.39 million in 2001 to 5.11 million in 2004, up by 28.8% annually, in which the demand for cars expanded by 44% from 800,000 to 2.41 million in 2001–2004.
The overseas travel person-times of Chinese residents rose from 9.23 to 28.85 million in 1999–2004, and their expenditure went up from US $8 billion in 1997 to US $15.2 billion in 2003. China Statistical Yearbook 2005, National Bureau of Statistics; International Trade Statistics 2002–2004, WTO; Statistics Handbook 2002, UNCTAD.
China Commerce Ministry, Consumption Market Development Report of China, April 2006.
In 2003–2005, FDI outflows from China were US $2.9 billion, US $5.5 billion, and US $6.92 billion, respectively, and stocks of outward FDI were US $33.2 billion, US $44.9 billion, and US $51.8 billion, respectively. China Commerce Ministry, China Outward FDI Statistics 2003, 2004, 2005.
UNCTAD, World Investment Report 2005.
The four phases are: (1) with GDP per capita less than US $400, almost no inward and outward FDI exists; (2) with GDP per capita between US $400 and US $1,500, inward FDI is increasing and outward FDI appears; (3) with GDP per capita between US $2,000 and US $4,750, net FDI outflow still remains negative, while outward FDI grows faster than inward FDI; (4) with GDP per capita more than US $4,750, net FDI outflow now turns positive.
With the AMF, Japan proposed to establish an organization including Japan, China, South Korea, and ASEAN to raise a fund of US $100 billion for providing assistance to crisis-hit nations. But this idea was quickly aborted because of the intensive objections of the IMF and US.
Theoretically, regional monetary coordination can be divided into three levels: (1) establishment of a self-helping mechanism; (2) establishment of an exchange rate linkage mechanism; (3) establishment of an unified monetary area.
As the internationally accepted currency, the US dollar has the scale of economy in circulation, which leads it to becoming the major exchange medium and reserve capital in East Asia. However, if the US dollar is to work as the core currency in this region, the monetary policies and external financing of East Asian economies will have to rely on exogenous variables and therefore be exposed to large risks. At the same time, Japan has long been trapped in recession, and the processes of market opening and currency internationalization have developed too slowly, so the yen now would be difficult to use as the core currency in the region.
As East Asian economies were trapped in great difficulties, China took the responsibility to keep its exchange rate stable, effectively helping avoid further contagion and deterioration of this crisis. As a consequence, RMB credit was established by the reliable and strong national basis.
Studying the coefficient GDP increase ratio in 1980–2001 of all East Asian economies, China had the lowest (0.35), much lower than the others, including Japan (0.71). McKinnon et al. (2003).
Deutsch et al. (1957).
All the successful integration organizations nowadays have their core power, such as France and Germany in the EU and the US in NAFTA. Especially in the process of European integration, Franco-German core power played a remarkably important role. Unlike the EU, developing by “expanding the homocentric circle,” East Asia now follows the method of an “overlapping circle,” namely, many overlapping groups have developed concurrently in this region, such as the ASEAN Forum, China-ASEAN FTA, and Talks between China, Japan, and South Korea. These various cooperative groups indicate their desire to promote integration, while also exposing the contradictions and problems between them. Lack of core power will severely restrict further development of the integration process in this region.
If one country in an integration organization is much stronger than any other member, it will easily neglect the information from and need of others, thus conversely disturbing the integration process. See Deutsch et al. (1957, pp. 27–28).
A single core country in a region will disturb the integration process; so will too many core countries, since it is hard for them all to coordinate and reach agreement.
Economically, China has a large and promising market that Japan exigently needs to drive economic recovery, and concurrently, China lacks capital, technology, and administrative experiences that are definitely the abundant resources in Japan. Especially after China’s entry into the WTO, cooperation between China and Japan is becoming broader and deeper. Politically, Japan, as an economic giant, wants to build up its corresponding status in political affairs and cannot neglect support from China for issues such as its application to be a permanent director of the UN and its diplomatic status with the US and with Asian nations.
Pedersen (1998).
Lake (1996, p. 38).
China and ASEAN, in their fifth official summit of November 2001, agreed on a recommendation to establish the China-ASEAN FTA within 10 years. The Framework Agreement on China-ASEAN Comprehensive Economic Cooperation (China-ASEAN CEC) was officially signed in November 2002 and thereafter the protocol for amendments in October 2003. In China-ASEAN CEC, China made some concessions: providing to three non-WTO members (Vietnam, Laos, and Cambodia) most-favored-nation treatment; arranging a specific favored tariff for three of the least developed countries with zero tariffs for most of their exports to China since 2004; agreeing on “Early Harvest,” covering a large group of agricultural products and representing over 600 tariff lines with tariffs eliminated over 3 years, effective from January 2004. It is anticipated that in 2006, exports of China’s “Early Harvest” to ASEAN will reach US $0.78–0.95 billion, while imports will amount to US $0.84–1.02 billion.
The “10 + 3” means cooperation in all of East Asia of China, Japan, South Korea, and ASEAN together; “10” indicates the development of ASEAN itself; “3” means talks between China, Japan, and South Korea; “10 + 1” means cooperation between ASEAN and China, Japan, or South Korea, respectively.
The report “East Asian Integration” by the World Bank shows that under “10 + 3,” all members would benefit from the regional cooperation. Specifically, the report predicts that ASEAN would gain 3% of its GDP, South Korea would achieve 1.1%, Japan 0.2%, and China 0.1%, respectively, while both “3” and “10 + 1” would hurt the third party. The Japan-ASEAN FTA would lead to China losing 0.1% of the GDP and South Korea 0.2%. The China-ASEAN FTA would lead to South Korea suffering a decline of 0.2%. A FTA among China, Japan, and South Korea would result in a 0.26% loss for ASEAN. The Chinese scholar Zhao (2000) used the CGE model to estimate the effects of various FTAs for China, Japan, and South Korea and reached the same conclusion.
Japan has always been the major trading partner, largest investor, and top Official Development Assistance (ODA) provider for ASEAN. Conversely, ASEAN has acted as an important source of primary materials and an overseas production base for Japan.
Xue and Zhang (2003).
Economically, it is the significant trade partner for most of the East Asian countries, absorbing one-fourth of the total exports with a value of US $400 billion from the region, and the US is also the major supplier of technology and capital. Militarily, the US has an army of more than 100,000 soldiers and four military partners (Japan, South Korea, Thailand, and The Philippine) in East Asia, and maintains special security partner relationships with Singapore, Indonesia, and Malaysia. Because of the extraordinary status of the US, East Asian countries have to take its concerns seriously into account.
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Zhang, L., Sun, Z. Effect of China’s rise on East Asian economic integration. Econ Change Restruct 41, 315–330 (2008). https://doi.org/10.1007/s10644-008-9054-4
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DOI: https://doi.org/10.1007/s10644-008-9054-4