East Asia: Politics, Economy, and Society

The future of the East Asian political economy:
China, Japan and regional integration
As international newspaper headlines increasingly focus on energy and security issues, one could almost forget that the main ties that
bind states and regions of the world together are trade and economic relations.
Ma a i k e H e i jma n s
From the 1970s onward, international economic relations
have been broadened to include the political sphere
– marking the start of much discussion on ‘the political
economy of…’. Politics in this respect encompasses not only
international political relations but especially domestic politics,
cumulating in the so-called ‘two-level game’1. This dual
approach is particularly useful in a region where economic
means have been used, arguably more than anywhere else,
for international as well as domestic political purposes: the
East Asian region.
The current status of East Asia, (i.e Northeast and Southeast
Asia), should be attributed first and foremost to the economic
success and attractiveness of the region. Notwithstanding the
much debated loose political integration, economic connections
in the region are profound, although for a long time at
the inter-firm and inter-regional rather than the inter-state
level. Causes, explanations and possible solutions for issues
in international relations of the region in the broadest sense
of the word – the political economic, but also energy and security
issues – should be sought therefore first and foremost in
the field of political economy. The three developments in the
field of political economy that I believe will shape the future of
international relations of East Asia are addressed here. These
are the development of China, the relationship between China
and Japan, and the economic integration between countries
in the region. The changing role of the United States in the
region is of great importance with regard to the second and,
to a lesser extent, the third development. In conclusion, the
importance of these developments in general and for the EU
in particular are sketched briefly.
Development of China
Whether spoken of in terms of the ill-phrased ‘peaceful
rise’ or the more recent ‘peaceful development’ slogan2,
the development of China is a crucial factor in the shaping
of East Asia’s international relations. Not only does China’s
growth depend on domestic policies, reform and stability
– China’s success or failure affects the region as a whole.
China has become economically interconnected with the
region to the extent that real and even perceived (in)stability
will significantly affect other East Asian countries, as did
the aftermath of the collapse of the Japanese ‘bubble’ in the
early 1990s.
China is revitalising its relations with countries in the
region, particularly the countries grouped in the Association
of Southeast Asian Nations (ASEAN). The ASEAN countries
are engaged in a balancing act of taking the opportunities
their large neighbour has to offer while not being overshadowed
by it. China is conscious not to be seen as an economic
threat, as its proposal for a free trade area with ASEAN
back in November 2000 illustrates. This move by China
was largely geopolitically motivated. It should be seen as an
attempt to engage neighbouring states and shed the threat
perception stirred by China’s success in attracting industrial
jobs and foreign investment. The success of China’s policy
of engagement, as well as the positive but wary attitude of
ASEAN-countries, was apparent when another step toward
the creation of the full completion of the free trade agreement
was taken last January. Following the signing of the
trade-in-services agreement, Philippines President Arroyo
said: ‘We are very happy to have China as our big brother in
this region’3.
The domestic challenges faced by China (analysed in detail
in the latest of a series of World Bank regional studies in
East Asia4) are diverse and profound. Cities and liveability,
cohesion and inequality, and corruption are of crucial
importance in managing the domestic distribution of economic
rents. The Chinese government itself also recognised
these challenges and placed internal challenges high
up the agenda. Indeed, President Hu’s recent proposal for
a ‘harmonious socialist society’ has been interpreted as one
of the most profound shifts since Deng geared the country
towards high growth rates by opening the country to foreign
investment5. The success or failure in making China’s
development sustainable will for these reasons – and as
suggested by the two-level game – have a profound influence
on the region.
The relationship between Japan and China
Notwithstanding signs of improvement since the inauguration
of Japanese Prime Minister Abe last September, relations
between Japan and China are extremely fragile. Bilateral relations
fell to an historical low in recent years, and while this
deterioration long resulted in ‘cold politics, hot economics’,
they came to a point where even economic relations were
increasingly politicised. The Japanese business lobby, grouped
in Nippon Keidanren, openly expressed concern to its government
and urged it to repair relations with China – and, for
that matter, South Korea6. The sudden decision in 2005 of the
Japanese government to end ODA loan aid to China should
also be seen in this (political economic) perspective, while taking
into account the legacy of war and colonial past in bilateral
relations. The sudden shift in ODA policy can be attributed
to certain Chinese policies, the deterioration of relations, the
fast economic development of China and its implications for
Japan, and a general aid fatigue of public opinion7. Opinion
polls found that public perceptions of the other country in
Japan as well as China have deteriorated. The percentage of
Japanese who indicate they ‘like’ China had been decreasing
already from the mid-1990s, and fell below five percent in
recent years8. One only has to remember the Chinese booing
of the Japanese team during the final of the Asian Cup in
2004 and the fierce anti-Japanese demonstrations in 2005 to
understand why. The Chinese on their side, have been much
antagonised by the continuing visits of former Prime Minister
Koizumi to the infamous Yasukuni Shrine. The government
has taken the change in Japanese leadership as an opportunity
to mend ties, however. The Chinese government was remarkably
quiet following Abe’s comments on so-called ‘comfort
women’ in March - a clear indication of the strong desire to
improve relations and avoid dismay prior to Premier Wen’s
visit to Japan. The unprecedented shift in media coverage
from a focus on historical issues to coverage of contemporary
Japan in connection with Wen’s trip is confirms this9. The Chinese
government is obviously raising pressure and playing for
high stakes, at the risk of extensive domestic criticism should
Abe betray Wen’s faith. The new engagement between China
and Japan is a positive sign, but tensions remain despite the
warm rhetoric on both sides. Important questions are yet to be
answered. notably whether or not Abe will visit the Yasukuni
Shrine and whether he will gain support for his policy in the
Upper House elections in July. Abe’s position was weakened
by the quick fall in his popularity domestically soon after his
inauguration, but more recently the Prime Minister regained
credit for engaging China while not seeming soft, and for his
long overdue visit to the United States in April. A complex mix of international and regional status, bilateral rivalry and
domestic politics defines the bilateral relationship.
Rivalry between the Japanese and the Chinese cannot be
understood apart from both countries’ aspiration for leadership
in the region – or, better, wariness of the other country
taking a leadership position. While the United States remains
a great power in the region, its supremacy is waning as China’s
influence grows. Preoccupied with the Middle East and
Central Asia, the Americans furthermore give leeway for and
even encourage Japan to take a more pro-active role in the
region. Neither Japan nor China however, seems in a position
to claim a leadership role now or in the near future.Through
an active policy of economic diplomacy, Japan has throughout
the past decades led the region in economic terms. It did not
however, actively seek to translate this position into leadership
in a more general sense. This changed as China started gaining
prominence on the world stage and is increasingly spoken
of as a future leader of the region. The speech by Foreign
Minister Taro Aso in December 2005, in which he presented
Japan’s objective to be a regional thought leader, a stabiliser
and a country that wants to build mutual relationships of
trust, showed Japan’s new ambitions. Japan’s proposal for an
East Asian community and East Asian Economic Partnership
Agreement should be seen as further proof of its renewed
interest in and engagement with the region. Undeniably
however, Japan is losing leverage over countries of the region.
While ASEAN countries are, for economic reasons, inclined
to lean increasingly towards China, for political reasons they
welcome a more active Japan. The China-Japan relationship
thereby will shape East Asia’s political economy.
Economic integration in
East Asia
A third factor that is to profoundly influence the future of the
political economy is the region’s path of economic integration.
Integration was throughout the 1970s and 80s based on
expansion of (private) Japanese production networks, spurred
by the Plaza Accord of 1985. The 1990s saw attempts to stateled
intra-regional integration, mainly through APEC. While
monetary co-operation took off successfully in the aftermath
of the financial crisis of 1997-98, inter-regional economic
integration largely failed due to lack of political will on the
side of numerous East Asian countries. Since the beginning
of the new century however, economic integration has taken a
more regional (Asians-only) turn and advanced through government
level talks and negotiation10. China’s entry in the
WTO in 2001 provided an essential stimulus to this effect and
the United States’ more permissive stance – as opposed to its
earlier strong disapproval of Japan’s proposal for an Asian
Monetary Fund – increased possibilities. Here also, domestic
as well as international developments merit attention.
As traditional regionalisation is increasingly complemented
by efforts toward regionalism, an increasingly complex ‘noodle
bowl’ is connecting countries and sectors of economies11.
Although the term is not usually used in this sense, a second
‘noodle bowl’ of institutionalised relations through inter- and
intra-regional institutions is forming. Throughout the past
decade East Asia has seen a surge in government-led initiatives
for regional co-operation, such as ASEAN+3, ASEAN+112
and the East Asia Summit. Generally these gatherings have
been talking shops more than they have been able to produce
real results, however. What East Asia needs now, is management,
not vision13.
Much is still uncertain about where East Asian integration
is heading. While some suggest that bilateral and regional
agreements are undertaken with the final goal of integrating
the whole region, others foresee that increased fragmentation
will come to a point of no return. The question is whether
countries are in for short-term gain or for real economic integration
in the long term. It is high time to create oversight at
the government level and to manage the two noodle bowls
before they become too knotted to unravel. The ASEAN+3
grouping encompasses the major production networks spanning
East and Southeast Asia and is experienced in political
engagement with other regions, notably through the Asia-
Europe Meeting. A more institutionalised process spurred by
these countries therefore provides the most likely route to success.
Consciously structured or not, the regional framework
for political economic relations of the future will be outlined
throughout the next decade.
The future of East Asia’s political economy is important for
observers in and outside the region. Increasing regional trade
integration notwithstanding, East Asia is still one of – if not
the – most open regions of the world. It is of major importance
for its largest trade partners – the European Union
(EU) and the United States – to ensure that East Asia remains
open and transparent. For this purpose, increased understanding
and co-operation between the regions is required.
With regard to the EU-China strategic partnership however,
one analyst remarks that three years after its announcement,
‘it has become clear that political rhetoric on the scope and
nature of EU-China relations has yet to catch up with political
reality.’14 Regrettably, critique of inter-regional co-operation
resembles that of East Asian intra-regional cooperation. The
EU as well as a stronger ASEAN+3 should make an effort to
turn the tide.
In his presentation of the Communication that is part of the
renewed China strategy of the EU, Trade Commissioner Peter
Mandelson commented that ‘trade policy stands at the crossroads
of the EU’s internal and external policies’14. For the
EU, just as for the East Asian region, the political economy
remains a two-level game involving domestic as well as international
interests. But EU policy of putting tariffs on textiles
from China as recent as late 2006, is not setting the right
example.