亞太區域經濟整合與中華經濟區形成的外在約制

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(2) Asia-Pacific Economic Integration and External Constraints on the Formation of the Chinese Economic Area Fu-Kuo Liu *. chru. Abstract. subI. The purpose of this paper is to examine the impact of external constraints on the formation of the CEA and to what extent Chinese economic integration has been stimulated by the efforts to strengthen competitiveness in reaction to trading constraints generated by the EC and NAFTA.. net". gove. incrE. Since the progress of. ecOlli. Asia-Pacific economic development is closely associated with Japanese political and economic influences, the changes of Japanese economic momentum and of. repr.. their business strategies abroad will determine the pace of CENs development. The emergence of the greater Chinese economic area has been largely motivated cooperation.. by. ethnic. Chinese overseas through. investment or industrial. Luring more overseas Chinese investments in the CEA, the effect. as t inter. inten. the :. of an outflow of capital has worried the CENs ASEAN neighbours. This paper will explore the relationships between the CEA and four major. NAF. The study intends not only to. exter. explore the implication of global competition and industrial restructuring for. in tl:. the CEA, but also to offer an explanation of why the CEA development has. serve. been kept to low profile by the related governments.. in tl. Key Words: Regional Economic Integration, The Asia-Pacific Political Economy,. CEA,. economies: the EC, NAFTA, Japan and ASEAN.. Chinese Economic Area, EC, NAFTA, ASEAN, Multinational Trade,. may. Competitiveness, Industrial Restructuring.. Taiw.. * Ph.D.,. Associate Research Fellow, National Chengchi University.. -. Institute. 352. of. International. Relations,. Euro cumu.

(3) Q-J;;:Iii!.it@~~~WI:j:l.@~Iii~liXtttl91-t£~IIiIJ. I. Asia-Pacific Economic Integration and External Constraints on the Formation of the Chinese Economic Area. rl. The development of economic cooperation in the ASia-pacific region has been characterised by Japanese leadership subregional. ;traints. gration tion to. ress of. ·olitical and of pment. largely. ustrial effect. networking.. in economic development, mushrooming. economic groupings, and overseas Chinese trading and financial 1. Although there has yet to be a clear political commitment from. governments in the region, the formation of regional groupings has been an ,. increasing trend, to combine neighbouring economies in order to increase their economic strength.. For Asian NICs, it is a great benefit to have their interests. represented in any possible economic grouping rather than to be dxcluded. External constraints which challenge the Chinese Economic Area(CEA) as well as the rest ofthe Asia-Pacific economies, have resulted from the change of international trade practices, particularly the protectionist regional trade policy, and intensifying competitive pressures from the establishment of the single market in the European Community (EC) and of the North American Free Trade Area (. major. NAFTA)? For other regions, the EC's 1992 programme for the single market as an. nly to. external constraint has worried East Asian traders about the loss of market share. 19 for. in the Europan markets as a result of the trade diversion effect.. It has. serve, on the other hand, as an impetus to reinforce the de facto industrial alliance in the Asian-Pacific economies.. The EC could. In spite of official inertia, the formation of the. nomy,. CEA, like other recent self-forming subregional groupings in the Asia-Pacific region,. rrade,. may well be a part of ANICs' economic strategy, above all for Hong Kong and. ltions,. Taiwan.. Economic integration within the CEA is not yet mature in terms of the. European experience of integration, although the de facto economic integration is cumulatively occurring through regional "integration"of commerce, division of labour. 353 .

(4) and technology diffusion, and finance.. 3. Should economic integration happen to. advance, industrial development will be the essence of the CEA.. Whether it is. Chinet CEA. l. limited to economic integration or it will experience a spillover effect to political. partia. integration, the development of the CEA for now is pragmatically concentrated on. goverl. intensifying business links between the three economies.. Japanese influences over. regional integration will clearly be shown in future business-driven development of the CEA. While. a many. advantageous. economic. factors,. i.e.. complementarity. and. competitive advantage, within the CEA have appeared to encourage further moves. II:. towards economic integration, the formation of the CEA has also been propelled by. War e. the emergence of regionalism elsewhere, which has virtually shifted the weight of. to ha,. multilateral trad structures to regional concentrations.. In addition, the United. disinte. Staes has begun to pursue unilateralism which has inevitably caused trade friction. appear. between the US and the Asian-Pacific economies, Japan in particular.. three. 4. Because. Honk Kong, Taiwan and China have been highly dependent upon foreign trade, the. have (. development of the CEA has, therefore, been subject to external constraints largely. focus. from major trading partners, the United States and West European countries. As. trade'. a result, the pressures of competition sharpening export profit margins have. inwarc. boosted the ANIQ;' desire for the formation of a subregional grouping.. while. The CEA,. as a subregional economic grouping parallel to the Growth Triangle and the. for U1. Japanese Sea Economic Zone in Asia-Pacific, will have to be considered in the. region. general context of Asia-Pacific economic cooperation.. In addition, Japan and. ASEAN countries' general response to the CEA has special implications for its. indust. future.. region:. The purpose of this paper is to examine the impact of external constraints on. the PI. the formation of the CEA and to what extent Chinese economic integration has. indust. been stimulated by the efforts to strengthen competitiveness in reaction to trading. Pacific. constrairlts generated by the EO and NAFTA.. now. The analysis also focuses on the. Japanese political and economic influences on the formation of the CEA.. f. In. empha. addition, the formation of the CEA has been partly motivated by the ethnic. pressu. -. 354 -.

(5) 5l-t: ii~M!!~fl.g- ~ if1.M!! ~~~ fiXfi;J9i-tEt0iM to. len. Chinese overseas.. Luring more overseas Chinese investments in the region, the. , it is. CEA as a "suction pump" has worried its ASEAN neighbours.. )litical. partial explanation of why the CEA has been kept to low profile by the related. ;ed on. governments.. This may provide a. over mt of. Changes in the Asia-Pacific Political Economy. and Their Impact on Chinese Economic Integration. and moves led by ~ht. of. International politics today is undergoing a dramatic change in the post Cold War era.. The conventional wisdom of strategic and ideological confrontation seems. to have been left behind in most parts of the world. as the former Soviet Union. Jnited. disintegrates.. 'iction. appear to be the emerging focus for rivalry between nations. Recently. the world's. >cause. three main trading regions in Western Europe. North America and Asia-Pacific,. e, the. have clearly assumed the shape of a '1ove-triangle".5 The three regions' increasing. u-gely. focus more on intra-regional trade. above all on the part of the Ee, than on their. . As. trade with the rest of the world. has suggested that the development of a regional. l. So far as international politics is concerned, regional trading blocs. 6. have. inward-looking focus will shape the new international economic regime.. CEA,. while intra-regional exports in Western Europe, North America and Asia, accounted. the. for US$1,164 billion. $178 billion, and $358 billion respectively. exports of the three. the. regions to the rest of the world totaled $421 billion, $340 billion, and $421 billion?. In 1990,. and. Recently, the Asia-Pacific community has been undergoing a transformation of. r its. industrialization economically, democratization politically, and trading 'blocization" regionally.. Although these changes may have been stimulated by various factors,. ;s on. the progress of the transformation has generally been driven by the demands of. has. industrialization. As far as economic development is concerned, since the Asian. lding. Pacific economies have long depended heavily upon US' export markets, they have. the. now attempted to change the structure of their foreign trade by increasingly.. In. ;hnic. emphasising intra-regional trade.. 8. This is partly because of the US putting. pressure on its Asian trading partners for a solution of its trade imbalance and -. 355 . ", ! 1".

(6) '1. partly because of the growing demands within Asian markets themselves.. In. reform. consequence, sub-regional groupings based on economic complementarity have. great il. emerged right along the West Pacific Rim in the hope that regional economies. while tl. would strengthen their international competitiveness through market expansion and. In. It is still too early to judge whether increasing economic. released. interdependence will bring about regional economic integration, although many 9 alternatives have been set forth by academics and individual governments.. internat. An increasing number of economic development programmes in the region has. with ec. been driven and, in some cases, led by the private sector rather than by. particul:. industrial cooperation.. 10. internat. Driven by economic incentives, the business communities in the. recessiOl. region are by far the most devoted to programmes developing subregional. improve. groupings, most notably in the case of the Chinese Economic Area.. Taiwan. governments.. Perhaps. because of regional countries' diverse political interests, little has yet been achieved economic. have ta:. To a large extent, political. own go'. motivations have been serving as yet as a complementary rather than a dominant. and suc. factor to economic cooperation in the Asia-Pacific region.. Taiwan. politically. between. their. governments. towards. cooperation, except for the formation of ASEAN.. the. promotion. of. expendit. The end of the Cold War may have speeded up transactions among the "three. Taiwane. Chinese communities", namely China. Taiwan, and Hong Kong. Trade, investment. rushed,. and economic cooperation clearly have run ahead of any other national priority for. Chi. transactions between the rival "two Chinas" - the Republic of China (Taipei) and the. policy tl. People's Republic of China (Beijing).. before.. It has been suggested that China's main. threat today may not come from a particular country's military invasion, but from. transact. multi-level economic and scientific challenges from the Western industrial countries,. economil. the A NICs, some ASEAN countries, and some Eastern European countries.. ll. Above. decades. all, the impact of China's economic reforms on its domestic democratic demands. China.. may have posed more immediate challenges to the Beijing regime than anything. strategi<. else. Post-Cold War China has taken as active role in regional political and economic. very cOl. affairs.. Incl uded in this are pressures towards the transformation of the. the poli. international political system from a bipolar to a multipolar system, approaches to. Congresl. -. 356 .

(7) ~. ,: ~~~.~~~~.~. •• ~~~n~~~~~. n. reform and to an open dQor policy. China's thriving recent economic dynamics have. 'e. great importance in bringing about continuing East Asian economic prosperity,. ~. while the rest of the world stagnates in economic recession.. d. In the context of the changing international system, Taiwan has been relatively. c. released from the distortions and strangulation of China's "one China" policy in. '{. international. politics.. While. economic. topics. have. shaped. post-Cold. War. international transactions, many Western countries have allowed more official links with economically flourishing Taiwan regardless of Beijing's diplomatic pressures,. 3. particularly in the case of arms sales.. 12. In addition, lasting worldwide economic. recession provides an opportunity for Taiwan to exercise its economic influence and improve its relations with the rest of world because of this.. Notably, while. Taiwan has launched its massive "six-year national development plan" with total. t. expenditure up to US$303 billion since early 1991. many big international firms have taken advantage of Taiwan's offers and, in return, have been lobbying their own governments to develop official links with Taiwan.. France, the most active. and successful one, for example, has upgraded its non-diplomatic relationship with Taiwan by allowing a ministerial meeting in 1990 to advance its interest in Taiwanese public construction projects.. within two years, many European countries. rushed ministerial visits to Taipei in the footsteps of the French. 13. China's open door policy to the world, accompanied by Taiwan's change of policy to China, has made their economic interactions far more profitable than ever before.. However, change of policy alone is not able to stimulate all kinds of. transaction flows, unless it is accompanied by some practical incentives, such as economic advantages and a favourable international system.. In the last few. decades the triangular strategic relationships of the US, the Soviet Union and China, have dominated international relations in the Pacific region. For the strategic reason of confronting the Soviet Union, the US allied with China and was. !. very concerned with "China factors" in its East Asian foreign policy, in particular the policy to Taiwan stipulated in the 1981 Taiwan Relations Act of the US Congress which is subject to the 1971 Sino-American Shanghai Communique. -. 357 .

(8) acknow ledging that the PRe is the only China. This new American policy. to 199. inclining towards Beijing and its "one China" emphasis has resulted in China's being. as Ul:. able to intervene in any third country's decision to develop official links with. middlE. Taiwan.. uncert. That far-reaching American acknowledgement of "one China" has even. been exploited by Beijing to present its criticism of foreign countries' arms sales to. new. "I. An example is the. Ir. transaction over the two submarines deal between Taiwan and the Dutch. unificl. government in 1982.. has n. Taiwan as interference with China's domestic affairs.. Ever since the Soviet Union disintegrated, "China could no longer exploit the favourable strategic status between the two superpowers".14 Therefore, the. "China. fa::t:ors" have tam less signifJalnt for Ameriam foreign policy than they ueai to be.. provid which. transa. As a result, trade policy is becoming the most important part of China-US. focuse. relations. The US military presence in Asia has been diminished, partly because of. compe1. the Soviet Union's disappearance and partly because Japan has been vigorous. busine. enough to take a higher profile.. More than this, the US is increasingly concerned. order. with its own home affairs, as the White House has to face difficulties in. to Fig. convinCing the American public about maintaining its costly military presence in. Taiwa:. 15. The post Cold. Taipei. War period has left Asia with some unsolved "simmering disputes" - in the Korea. goverI. Peninsula, Taiwan Straits, Spratly and Paracel Islands, Kenkaku Islands, and China's 16 political succession, to name but a few. Many have agreed that "security for Asia. increa. (in the post Cold War era) has to be redefined largely in economic terms.,,17. respor. Therefore, on the whole, "securing access to markets and technology" has become. the ho. Asia, as a former US consul general in Hong Kong said in a panel.. Asia's most critical concern.. h. lB. F. This is not to suggest, however, that this optimistic tone has ruled out any. whet!:. possible danger from political turmoil and war in the region. In dealing more with. frame. economic recession than with military confrontation, most Western countries, since. prospE. 1990, have sharply cut their defense budgets (with France cutting 4.3 per cent,. gearec. Britain 5.6 per cent, Germany 16 per cent, the US 16.6 per cent, and Spain 19.3 per. impor. cent).19 The US Clinton administration has even offered a five year plan from 1994. poure.. -358.

(9) ... \:. 2::t:1!li~i'l!lJlm~~$.i'l!lJlm~~tItl~t£¥-JfljIJ. olicy. to 1998 to slash a total US$124 billion from defense spending?O On the other hand,. eing. as US troops pull out from the Philippines they are leaving "a vacuum in the. with. middle of Asia's new political, military, and economic universe,,?l Fearing political. ~ven. IS. to. uncertainty, Asian countries, as they are able to afford it, have begun to enter a ' ' t0 more up-t..'l new "arms race"yb pounng money ill o-uate weaponry systems. 22. the. In terms of the CEA, although there may be potential political ambition for. Iltch. unification on the agenda of both Beijing and Taipei, the CEA development so far has not been directly led by politics. However, the post Cold War scenario has. the. provided a political acquiesence between the "three Chinas" to the CEA development,. hina. which could be regarded as a necessary supplement to the thriving economic transactions.. In terms of economic integration, the consensus of the three has. I-US. focused more on integration of economic development and on pursuing industrial. e of. competitive strategy globally.. ~ous. 'ned. Through its investment incentives to Taiwanese. businessmen, Beijing is certain to attract Taiwanese industries to the Mainland in order to deepen the degree of Taiwan's dependence on the Chinese economy. (Refer. in. to Figure. in. Taiwanese business interest groups, e.g. in the case of business groups lobbying the. 1). Beijing's political intention could be infiltrated into Taipei via Mainland. ::hId. Taipei government for "direct trade" with China.. Irea. government could lose its political initiative against China and find. na's. lsia. increasingly at the mercy of Beijing.. In consequence, the Taipei itself. 23. In the case of Hong Kong and China, since Hong Kong is to become China's. ,,17. tme. responsibility after 1997, the increasing commerical transactions between them offer the hope of political. harmonisation OOtween different political. and eronomic systems.. For Beijing, politically, Honk Kong's return is certain, but it is still doubtful. my. whether Hong Kong will be able to fit into its "one country, two systems". ith. framework of unification.. nce. prosperity for 50 years in the 1984 Sino-British Agreement, Beijing has, therefore,. mt,. geared up its economic activities to attract Hong Kong investors, and. most. Jer. importantly, to demonstrate its commitment.. }94. poured a great deal of capital into Hong Kong, but also won over the confidence of. As China is pledged to maintain Hong Kong's current. 359. In addition. China has not only.

(10) there al FLGURE 1 THE DEGREE OF TAIWANESE. outflow. The. TRADE DEPENDENCE ON CHJNA (DTD) ~. emphasil. China trade/total trade. between. 8r------------------------------------------. restrainE. developn. 6 .......-----....---.-..-............. ---.....-.......... -............ -.--......... -........ --..............-.. recogniSE. business]. 4 .---....-......--..--..................................................... making. strength Hong KI. o8~2~~~~8~4~~8~5~~8~6--~8~7--~8~8--~8~9----9~O----9~1--~92 . export DTD. + import DTD. -*-trade DTD. As. Hon~. incident,. infrastn. investme. Source: International Trade Bureau, MDEA. ROC. 1993. &HK Custom. Statistics.. of. quicl. endorsen. construci the local business community and even the support of politicians, except for those. between. who are. Hong Kong's grass-root anti-Patten Business and. communi. Professional Federation, led by Gordon Wu and property tycoon Vincent 1.0, has as. and Beiji. pro-democracy.. In contrast to the United. them ge. Democratic Party, the Liberal Party and the Democratic alliance for the Betterment. Developn. of Hong Kong are both taking a pro-Beijing line.. New Chi. an aim to keep a good relationship with Beijing.. 24. Trying to defuse political. mistrust, politically, Beijing is moving quickly and loudly to express its willingness to tie in with Hong Kong's capitalism. In reality, Beijing shows no hesitation about taking over control of Hong Kong's economic dynamics.. In the light of the. handover in 1997, Hong Kong has little option but to integrate with China economically.. Soon after Hong Kong's future was decided in the 1984 agreement, 360. Hong K, estate,. 81.

(11) 52:;t::~~*'~~t;~$~*,~l!IWpxtfJ9i-tE~iiIJ. there appeared to be less confidence about that future.. This resulted in a large. outflow of business and emigration. The change of Asia-Pacific trade structure with its gradually increasing emphasis on intra-regional trade has, to some extent, also promoted the competition between regional economies themselves, because of limited regional markets and restrained. world. markets.. In. addition,. China's. commitment. to. economic. development in the context of the post-Cold War environment has virtually recognised the importance of Hong Kong remaining prosperous.. Hong Kong. businessmen have gradually realised that it would be wise to concentrate on making commercial links with a reforming China not only to gain profits and strengthen competitiveness but also to assure their long term security. In return, Hong Kong's pumping capital into China will safeguard China's current reforms. As Hong Kong has resumed its investment flows in China after the Tiananmen incident, Hong Kong's big firms have launched, since 1992, a series of large scale infrastructure investment projects in China, which has boosted a "second wave" of investment. of. quick. 25. The move towards longer term investment in infrastructure, instead. profits, characterises the change of investment flows. and their. endorsement of the Basic Law. For example, Gordon Wu's Hopewell Holdings, a construction conglomerate, has launched a US$12 billion six-lane expressway. ;;e. ld. IS. d. It. between. Hong Kong. and. Guangzhou?6 In reflecting the Chinese business. community's view on the recent row between Hong Kong governor, Chris Patten, and Beijing, Wu comments that 'Our biggest and only opportunity is to work with them gently and concentrate on the economy'.2. 7. Cheng Yu-Tung's New World. Development has become further involved in Chinese real-estate business?8 The. u. New China Hong Kong Group Ltd., set up in May 1993 with collaboration between. s. Hong Kong and China, has devoted its business to Chinese infrastructure, real .. 29 estate, an d te1ecommumcatlOns.. t. e. '1. ". - 361 . r.

(12) The Apprehension of Neighbouring Economies. blocs. About The Chinese Economic Area. emerf:! be fel. The intention of the CEA, especially as perceived by its neighbouring countries in Southeast Asia, is the resurrection of Chinese nationalism.. As the sense of an. integrating Chinese community in East Asia has grown following massive trade and investment flows launched by overseas Chinese in the region, other regional economic powers, notably Japan and ASEAN, have been anxiously following developments. For Japan, the establishment of the CEA may further disrupt the alternative. regional. grouping. proposed by. the Japanese and others.. economic integration based on the CEA within a larger regional framework exclusively covering the Chinese community could raise the suspicion that Chinese It could be for this reason that so. far the "three Chinas", China, Taiwan and Hong Kong, have been reluctant to. East. econOl. techn<. develo. It. Pacifi<. pan-PE. politic: indust own. Il. more. support the CEA openly. In addition, many proposals for regional integration have been based on individual interests and therefore there has been less support from regional countries for any particular play.. the E. More. worryingly, for ASEAN, given its economic domination already by ethnic Chinese,. economic power will dominate all the region.. of thE. For example, the East Asia Economic Caucus (. EAEC) proposed by Malaysia, has not as yet been welcomed in the region. Regional. laOOur. instan, from marke A. leaders even including those of ASEAN countries themselves, President Suharto of Indonesia in particular, have cast some doubts on its prospects.. 30. As a result, many. economies, instead, have hustled to expand in their own hinterlands through which their economic strength to compete in the world market will be improved.. suprel Perha: region Indusf. Incompatibility or Compatibility: Japanese. Interest and the Formation of the CEA. Since Japan has been involved in almost all the processes forming sub-regional. -. 362 . Minisf on pri Asian develc their.

(13) s. n. d ~ ~ ~. ~. ~. \:. E:l:;t ~tii£1I:I~~-g.~ r:p ¥II:I~ ~Jf3 flX:tl9 9'l-tEiV'Jitlj. blocs directly or indirectly in East Asia in terms of industrial development, any emerging regional bloc that does not work in favour of Japanese interests will not be feasible.. As the dominant economic actor, Japan has been a major determinant. of the remarkable economic growth of the Asia-Pacific region, especially in most of the East and Southeast Asian economies.. Notably, the fast growing economies in. East and Southeast Asia have been based upon the "flying geese" pattern of economic development led by Japan.31 Indeed, Japanese industrial experience and technological expertise have spread to every part of the regional economic development. It can be argued that there appear to be five possible scenarios for the Asia Pacific region: the Yen bloc, the Beijing bloc, the Western Pacific community, the pan-Pacific community, and Cooperating Asia-Pacific subgroups.32 Apart from the political considerations of other powers, notably the Us, and Russia, Japanese industrial strength has virtually tied its neighbours' economic development in to its own networks of foreign aid programmes, trade links, foreign investment, and even more crucially technological transfers.. The creation of an industrial division of. labour retwa:n Orina, Taiwan and Hong Kong, and retwa:n Clrina. and South Korea, for. instance, has taken place against the context of Japanese industrial domination, from the control of technology for upstream products right through to the markets. As the rising economic power capable of rivalling American economic supremacy, Japan has its own plan to lead a single regional economic unit. Perhaps because of previous partly successful attempts with regard to proposed regional blocs in the Pacific community, Japan's new strategy, called the New Asian Industrial Development (New AID) Plan, was announced in January 1987 by its Ministry of International Trade and Industry (MITD.. The plan was mainly based. on practical industrial cooperation which has already existed widespread across East Asian economies throughout their catching-up process on the way to economic development.. Since the mid-1980s, Japan and the ANICs have steadily expanded. their foreign investments in the region itself, not only because of dramatic. 363 .

(14) appreciation of their currencies but also because of the decade-long slowing down. foreig. of economic performances in most Western industrialised countries, the momentum. China. of Asia-Pacific economic cooperation, and regional governments' policies.. 33. As a. peace. result, a regional division of labour led by Japan has raised the possibility of. the r4. forming "a de facto economic sphere".34 Indeed,' Japan's plan is to coordinate its. a goc. overseas development assistance, trade, and foreign direct investment throughout. accept. Japan, the ANlCa, ASEAN countries and China, in order to enable Japan effectively. been. to manage regional industrial production.. 35. A single economic unit led by Japan,. politic. which is the centre of the plan, has exposed Japan's attempt to integrate East. their. Asian economies to rely more on economic means than political ones.. compl,. The Japanese plan is, to a large extent, reliant on the stable relationship between China and Japan.. techn(. Described by the former Japanese Prime Minister,. relies,. Kiichi Miyazawa, Japanese-US and Japanese-China relations are the two wheels of. coal a. its foreign policy. The former is running on a "world order track", while the latter is running on an "Asian order track".36 In East Asia, Japan's role as a "regional. a Japl. stabiliser" projecting its economic and, to a less extent, political strength to balance. Japan. confrontation in the region between powers, in particular the USA, the Russian. invest. Republic, and China (in the case of the Korea Peninsula), has been notable.. 37. to. In retrospect, Japan's relations with China in the pre-normalization period were largely shadowed by the United States' policy of containing communism.. l. th~. Japan. In the. advan. early 19708, the change of US policy to open relationships with China, to force the. struct. revaluation of the Japanese Yen and to impose quotas on Japanes textile exports to. indust. the United States, guided by the "Nixon Doctrine" of 1969, shocked Japan.38 This. Taiwa. has partly brought Japan onto the course initiated by the Americans to confirm. which. that the importance of China has to be taken into account in pursuing regional. wave. peace and national security. Since 1971, the year of Sino.Japanese normalisation, the. produ. relationship between them has steadily developed with a common security target of 39 eliminating the Soviet threat. By linking China with Japanese security, Japan has. strate manuJ. shown its eagerness to support China's economic development and most recently. laboUI. China's reform and open door policy from the beginning by means of increasing. -364.

(15) :- ~:. ~~~. 40. ••M~~.$ ••M~m~~~rr~~. 'In. foreign development aid, investment, and trade.. Lm. China has lain in a belief that a stable and prosperous China is vital to Asia's. a. peace and to Japan's interests.. The solid intention to link with. Whatever role Japan is to play in the world and. of. the region itself, acceptability to China is all the more important, because "without. ltS. a good political relationship with China, Japan cannot hope to win widespread. ut. acceptance as a leader elsewhere in Asia.. ly. been conditioned by complementary concerns in economic matters and in Chinese. 1Il,. political prejudice against Japanese expansionism.. st. their. highly. asymmetrical. 41. economic. For decades, Sino.Japanese relations have 42. These facts have contributed to. interdependence.. 43. Under. economic. complementarity, China gets access to Japanese machinery, chemical products,. ip. technology, and steel and other metallic products on which China's. ~r,. relies, while Japan, in return, imports food stuffs and raw materials, in particular. )f. development. coal and oil, and makes use of the Chinese potential market.. 3r. Japanese industrial development within the CEA has appeared to be a part of. al. a Japanese global strategy. All national economies of the CEA have been receiving. ~e. Japanese capital, amounting to a large proportion of Japan's private overseas. 1Il. investment. This is partly because the Chinese economic reform opening its market to the world has brought enormous commercial potential, and partly because for. °e. Japanese businessmen China could offer the best opportunity to gain competitive. Le. advantage, not merely comparatively, over their potential rivals.. Le. structural relationship between Japan and the CEA's economies as a whole,. ,0. industrial cooperation, across the Taiwan Strait between three economies, namely. LS. Taiwan, Hong Kong, and China, was largely based on labour-intensive industries,. n. which relied on Japanese passed-on technologies and machineries, during the first. Ll. wave of overseas Chinese rushing into China seeking locations substitutive for. e. production.. f. strategy of Japanese companies has been to gain access to the great market and. s. manufacturing sites in the CEA through the creation of an industrial division of. 'f. labour.. )" ~. 44. In terms of the. As the CEA has developed and become more noticeable, the global. Nissan Motor Co., the number two automaker in Japan, for example, has. -. 365 -.

(16) expanded its cooperation with Yueloong Motor Co., Nissan's Taiwanese partner, in. prine. order to engineer the larger global framework which was documented in its recent. Tianl. Asian strategy for the 21st century.. econe. The centre part of its plan is focused on 45. The first practical step has. of t. been to introduce a newly designed small commercial vehicle in summer 1994,. Japru. Japan itself, Taiwan, Thailand, and Mainland China.. which is to be built in Taiwan and Thailand.. 46. Earlier, a joint venture between. Nissan Motor and Taiwan-based Honda Sophisticated Instrument Co. had been. diplo. announced which would invest in China through partnership with China Motor Trading Hua-Tong Co. for a manufacturing factory with a production capacity of up to 400,000 cars per year.. 47. poter. Nissan is not alone in taking the Taiwanese short. OCCUI. Toyota, the number one Japanese automaker, intends. comp. to incorporate a Taiwanese partner, Kuo-Ruei Motor Co., into its network of. take. international manufacturing ventures.. It already possesses a new factory in. inves. Taiwan, set up in May 1993, which Toyota has regarded as its launching pad to ' 48 Chrna. ASE... In the Cold War era, Japan's economic relationship with China had blended. in A. with political and security considerations concerned with counterbalancing the. 1992. Soviet Union.. to. cut to the Chinese market.. The purpose of Japan's official development aid and foreign direct. $~. investment was to further its strategic interest in helping China to accelerate its. Eurc. modernisation, and so strength China's geopolitical importance for Asian stability, to. insid. some extent, even at the expense of short-term Japanese business interests.. 49. In. addition, continued economic modernisation in China has demonstrated its potential. the have. market ability which the Japanese business community could not afford to ignore. With the onset of the post-Dlld War era in the late 198Os, whilst Japan emerged as. thre. an economic superpower and China's importance in military and political terms. to e. became much clearer, its China policy became an important part of Tokyo's "global. an. diplomacy".50 Japan's adherence to this policy was plainly expressed in the Houston. pres. G7 summit in the summer of 1990, where Prime Minister Kaifu announced Japan's. is (. third package of yen loan to China with severe criticism pouring from other. becc. leaders, because of the Japanese pursuing their interests at the expense of moral. - 366 . j.

(17) ~*~. •••~~w~ ••• ~~~~*~~~. e partner, in. principles at the time of global sanctions against China in the wake of the. in its recent. Tiananmen incident.. ; focused on. economic terms in the short term than in political terms. Therefore, the formation. cal step has. of the CEA as an enlarged Chinese market has unquestionably tempted the. lmmer 1994,. Japanese business community.. 51. It is very clear that China is more important for Japan in. Ire between. It was not surprising that the Japanese took the lead in breaking the. . had been. diplomatic silence surrounding China just a few months after the June 1989. hina Motor. incident.. capacity of. potential political instability of Beijing, and the likely political struggle that will. mese short. occur when Deng Xiao-Ping dies, a large number of small and middle sized. :er, intends. companies, like Hong Kong and Taiwanese enterprises, have flocked into China to. letwork of. take advantage of low cost production factors.. factory in. investment in and trade with the "three Chinas" was greater than that with the. ng pad to. ASEAN countries (See Table 1).. Although many Japanese big firms remain very cautious about the. In the late 1980s, Japanese direct. As the "three Chinas" combination has become Japan's leading trading partner. d blended. in Asia, Japan's exports to the CEA rose by 23 per cent in comparison with the. ncing the. 1992 figure to US$56.1 billion, and its imports from the CEA grew by 9 per cent. ign direct. to $28.8 billion.. llerate its. European and North American economies dramatically, the increasing transactions. ability, to. inside the CEA have brought about the fastest growing economic performance in. ests.. 49. In. potential. o ignore.. 52. Whilst the worldwide economic recession. has slowed down the. the world, from which Japan's troubled sectors, the electronics and car industries, have benefited through increased exports.. 53. MITI's general trade policy guidelines for China, announced in 1991, suggest. lerged as. three major policy objectives:. il terms. to ensure that China remains an important source of Japan's energy supplies and. s 'global. an important export market for Japan, and to avoid isolating China and thereby. Houston. preserve peace and stability in East Asia.. Japan's. 1. other. is clearly in Japan's interest. becoming widely known.. to intensify bilateral trade relations and cooperation,. 54. To promote its relationships with China. As the CEA develops, its market potential is. In 1992, Toyota Motors, accompanied by a group of. moral. -. 367 .

(18) TABLE 1 JAPAN'S AID, TRADE, AND INVESTMENT IN EAST ASIA. AIO(US$mil.) TRAOE($bn.) INVESTMENT ($bn.). n. 53.19 78.51 46.22. 2.00 1.23 4.18. 2.177. 178.02. 7.41. Indonesia 1.433 Malaysia 777 Philippines 1.364 Singapore n Thailand 1.307. 48.26 29.49 13.30 36.93 26.50. 1.72 0.99 0.33 2.35 1.81. ASEAN Total 4.881. 154.48. 7.20. China Taiwan Hong Kong. 2.177. CEA Total. n. Note Sour. Note: total trade (1986-89). total direct. investment (April 1986-September 1989) . Source: Based on MITI &Ministry of Finance, see Charles Smith, and Louise do Rosario, "Empire of the sun", Far Eastern Economic Review, (3 May, 1990), p.48. Japanese trading houses and a transportation company, Sankyu, established new businesses in China.. This surge of direct investment by big Japanese firms has. been most important. It has led to China becoming Japan's second biggest trading partner.. 55. advantage. Apart from reinforcing economic ties with China, Japan's desire to take of. the formation. of the CEA. has been. apparent through. com} afrai. its. refo:. encouragement of trade with and direct investment in Hong Kong,56 and its setting. theil. up the regional operation centre for firms in Taiwan in accordance with the 57 government's aspirations in the CEA.. inve:. There may be various reasons for Japanese business being drawn into China. Firms may go to China for "defensive" reasons in order to preempt their. 368. othe for over.

(19) '. 5l!::t JiI~!f\!I!l;lm.g- ~ IF .~~JilJf%xlfJ9i-:tEr-JiUIJ. TABLE 2. TOP FOUR FOREIGN INVESTORS IN CHINA (US$ bn.). H. K. 1979-84 1985 1986 1987 1988 1989 1990 1991 1992*. 64.9 41.3 14.4 19.5 34.7 31.6 36.8 68.3 SO.O. USA TAIWAN JAPAN. 10.2 11.5 5.3 3.4 3.7 6.4 3.6 5.5 30.0. 1.0 4.2 5.2 9.9 14.0 34.9. 11.5 4.7 2.1 3.0 2.8 4.4 4.6 8.1 25.0. 391.5 79.6 68.3 1979-92 (1988-92) (251.4) (49.2) (67.3). 66.2 (49.2). Total:. Note: * 1992 was an estimation. Source: Industry Bureau, Ministry of Economic Affairs. Kung Yeh Gien Hsun, (Industry Brief Information), 23: 9, (September 1993), p. 34. Information based on Chung Kuo Dui Wuai Gin Gi~1 Mou Yi Nien Gien, (China Yearbook for Foreign Trade. Beijin): C. D. Yien, L. C. Lin, and C. Chung, "Tai Shun Da Lu Tau Tze Gi Mou Yi Tze Yien Giou", (A research for Taiwan's businessmen China investment and trade), Chung Hua Ihstitution for Economic Research. (June 1992). competitors and preserve their market share. 58. Being jealous of, perhaps even. afraid of, overseas Chinese businessmen benefiting too much from China's recent reforms, 59 Japanese firms have clearly showed their concern by the increase in their. recent Chinese investment, albeit it is not yet clear how far Japanese investment has got something to do with these "defensive" reasons (compared with other major investors in Table 2).. However, it is not so difficult to imagine that. for larger sized firms, in particular, expanding market share always implies victory over competitors.. While industries in Hong Kong, Taiwan, South Korea, and. -. 369 .

(20) ASEAN countries, as well as the United States and Europe, have been setting up. technoll. business in China regardless of the risk, increasing competition and the need to cut. Japan. costs have pushed Japanese industries to follow suit to avoid being left behind.. further. Due to the persistent economic slowdown in the European and American markets. Fo]. in the late 1980s and the early 199Os, and, by contrast, the strong economic growth. compan. performance in the CEA, business attention has largely shifted to East Asia. This. personr.. directly resulted in mounting pressure on the part of the Japanese for access to. compan,. the CEA.. Shangh. Although the Japanese have contributed to almost all parts of East Asian. of labo". economic development, in terms of transferring industrial experience and technology. Malaysi. the Japanese have still kept out their partners from the most critical advances and. that Te. high technology industries, with which the developing countries of the region have. division. as yet to be natisfied.. 60. In many cases, firms, which are linked with Uapanese. of prod. companies by cooperation arrangements or any other business protocols, have been. Czech f. complaining about their parsimonious technology transfers for years.. Even the. Taiwan. relatively advanced ANICs have made such complaints against the Japanese, let. fundam. alone the rest of less developed East Asian countries.. For example, the Samsung. Taiwan~. group, one of the largest South Korean conglomerates, the most formidable non. the lor. Japanese Asian company; is still highly dependent upon US and Japanese partners. industri. for vital equipment.. The Japanese above all have shied away from sharing. CEA a1. The original purpose behind the Japanese transferring their. the reg. technology was not to stimulate greater technological independence in their local. and sue. industrial secrets.. 61. partners, but to promote Japanese trade and to framework the vertical division of labour in favour of Japanese companies.. 62. Although it is not surprising that the. Japanese put their business interests first, nevertheless, it is paradoxically, to a large extent, outstanding Japanese investment flows which have accelerated regional development and technological levels. As far as developing technology in the CEA. Fn. is concerned, Taiwan's excellence in the manufacture of commercial appliances and. integra1. China's strength in fundamental research could augur well for future industrial. reopen. It also implies that through an industrial division of labour based on. on the. cooperation.. 370.

(21) ...t~. ~1. 52:;t I~J~~jjlf~ii ~ ~~~jjlfl~Jf~ px(jtJ~t£t-JiIlIJ 19 up. technological cooperation, the CEA as a whole, instead of being dependent upon. o cut. Japan or anywhere else, could develop its own technology base to support its. hind.. further economic development.. rkets. For example, Inventa Electronics Co. Ltd., one of Taiwan's leading electronics. owth. companies, has taken the lead in taking advantage of China's well-trained R&D. This. personnel as an advocate for its business strategy.. )s. to. By the end of 1992, the. company had recruited 250 staff for its laboratory from universities around its Shanghai subsidiary. Thereby, it has spread its framework for its industrial division. .sian. of labour across East Asia:. Ilogy. Malaysia; R&D in China; and headquarters in Taiwan. 63 Another example shows. and. that Tsang Kuen Enterprise Co., a successful electrical company, has organised its. have. division of labour, according to industrial ability, through its subsidiaries. In terms. nese. of production, China is to be the main supplier of components, and Mexico and the. been. Czech Republic are to be the location of its assembly plants. In respect of R&D,. the. Taiwan is to be the location of applied research and China the location of its. let. fundamental research.. 64. lower technology and larger quantity production in. In the short run, these joint efforts of Chinese and. ung. Taiwanese business will not easily rival the Japanese in terms of technology.. 3.on. the longer term, economic integration in the CEA will not only strengthen. lers. industrial output, but also accelerate technological development. In this respect, the. ~ing. CEA appears to be gaining potential as a rival to Japan's economic domination in. 3.eir. the region.. )Cal. and successfully.. In. However, that will only be achieved after the CEA is working fully. . of. Long Lasting Anxiety Comes True:. the. ) a. A Chinese Economic Threat To ASEAN. nal. EA. md. -ial on. From. the Southeast. Asian countries'. point. of view, Chinese economic. integration combining the economies of China, Taiwan and Hong Kong, is likely to. reopen a historic ethnic wound of anti-Chinese sentiment in the region, which was on the way to being healed.. It may also stir up new competition in terms of 371.

(22) economic development.. In response to the trend of worldwide regionalism, East. Asian countries are forming their own groups to promote their individual interests, whether stimulated by governments or by business itself.. In Asia-Pacific, the. II. more c. account. Malaysi. Japanese "flying geese" industrial development pattern has brought about the world's. fastest growing economies amongst Asian NICe since the 1970s, and. another tier of ANlCe (mainly Malaysia, Thailand. Indonesia, and Philippines) since the roid-1980s, as well as China.. In all these fast growing economies. except for. South Korea, regional economic activity seems to be dominated by Chinese businessmen.. Due to overseas Chinese families' particular business networks that. extend into every major maket in Southeast Asia, Japanese linking up with Chinese -owned companies in the region is considered to be one of the major factors in Japanese success there.. 65. In Southeast Asia as a whole, the combined wealth of the 40 million overseas Chinese in the region, sources suggest, may reach US$200 billion.. 56. These. tremendous business groups have established a powerful regional network, over time, through capital flows, joint ventures, marriages, political expediency, and a common culture and business ethics. stateless.. 57. Moreover, overseas Chinese are essentially. Their businesses are founded on shared dialect. personal relationships,. kinship, and a common origin in a clan, a village or a county. As one study states very straightforwardly, "the remarkable economic performance of the Overseas. Alt. Chinese in the ASEAN countries is fact· and cannot be explained away by any. Asia, e). statistical or structural hypothesis."SB. provoke. In Indonesia, in the mid-1980s about 70-75 per cent of the country's assets belonged to the ethnic Chinese.. The Indonesian Chinese, about 4 per cent of the. fever" i Further. The. forming. Thai Chinese, according to a survey in the mid-197Os, 8-10 per cent of the. security. population, owned 90 per cent of the commercial and manufacturing assets, and. Singapo:. half the capital of the banks.. taking. population, controlled 17 of the 25 biggest business groups in the country.. Only about 1 per cent of the population of the. Philippines is Chinese, but their companies account for two-thirds of the sales of. particul. the 67 biggest commercial companies.. as a. Sales of the smaller companies are even. 372 . "e.

(23) ' ~.. 2:t:Ji!~~mmilOOrft.~mJi!tfjpxag9}1£~AlIJ. East. trests, the. more dominated by the Chinese.. 69. The Chinese, the second biggest ethnic group,. account for a third of the population in Malaysia, but have a much larger share of Malaysian economic power and virturally dominate its business.. 70. the and. TABLE 3. THE ETHNIC CHINESE IN SOUTHEAST ASIA (in million). since. population* Chinese**. t for. ,inese. Indonesia Thailand Malaysia Singapore Burma Vietnam Philippines. that inese. rs in. rseas. 'hese. 181.4 57.5 18.3 2.8 42.1 67.6 62.3. 7.2 5.8 5.2 2.0 1.5 0.8 0.8. in%*** 3.9. 10.0. 28.4. 71.4. 3.5. 1.1. 1.2. Source: * Asia 1992 Yearbook. Far Eastern Economic Review, (December 1991). ** The Economist Yearbook 1993 Edition. p. 153. Information based on Overseas Chinese Economy Yearbook. R. O. C. *** own calculation.. over ld a. ;ially hips, ;ates 'seas. Although formal racial discrimination has disappeared in much of Southeast. any. Asia, except in Malaysia, the recent development of "China fever" seems to have provoked anti-Chinese sentiment.. Singapore, for example, has responded to "China. sets. fever" in a positive way by "making China its top overseas investment priority".71. the. Furthermore, the Singapore government has actively participated in the process of. The. forming the CEA, and, to a larger extent, to Chinese unification.. the. security and long term economic development, it is in its vital interest that. and. Singapore, a city-state, continuously pursues its internationalisation.. the. taking positive account of blood of relationships with China and Taiwan in. of .en. particular.. In terms of. This includes. Indeed, Singapore, always regarded by the regional Chinese community. as a 'Chinese place", is in an unquestioned position to be a middleman in whom. 373 .

(24) T both Taipei and Beijing unsuspectingly trust.. 72. During the first ever direct talks. between quasi-official representatives of Beijing and Taipei, the Strait Exchange. I. Foundation (SEF) and the Association for Relations Across the Taiwan Straits ( ARATS), held in Singapore in April 1993, it was said that Singapore, as ''an objective third party" for both of the players, had advocated the talks between China and Taiwan from the first emergence of their possibility.73 As a result, as Singapore's policy steers its attention away from already existing cooperation with Malaysia and Indonesia in its 'Growth Triangle" with China, its ASEAN partners have already cast some doubt on the intention of Chinese investment?4 The leader of Malaysia's opposition party 'Semangat 46", Tengku Razaleigh Harnzah, has bluntly criticised Malay Chinese for investing too heavily in China.. He also contended that with the economic integration of China,. Taiwan and Hong Kong, the appearance of the CEA is threatening the regional countries' security?5 The anxiety inside these governments over Chinas absorption of foreign investment has increased, although there is little sign yet that there is going to be a new wave of anti-Chinese sentiment.. Nevertheless, following some. major deals in China involving overseas Chinese from Southeast Asia in 1992 and 1993 (Table 4), signs of a backlash around the regional governments has emerged.. Indonesia's State Minister for Investment Promotion, Sanyoto Sastrowardoyo, has accused ethnic Chinese businessmen of investing too much in China.. 76. Some. regional media sources even warned that anti-Chinese sentiment would return, if ethnic Chinese conglomerates do not reinvest in Malaysia and Indonesia eventually. using their earnings from investment in China 77 In April 1994. a workers' demonstration over a wage dispute ended up as an anti-Chinese outbreak in Medan in Indonesia.. It is said that the event can be partly attributed to criticism about. recent ethnic Chinese investment in China?8 Moreover, in terms of a::onomic development, Orina and IOOSt ASEAN rountri€s, except for Singapore and Brunei, are nearly at the same level of economic development.. With' of the many foreigl have develo. -. 374 .

(25) " \. 5l~fi\I~~m~il"~cp~~mJi\lJf~px(!i]*:{f~$IJ. ks. TABLE 4. RECENT INVESTMENT BY OVERSEAS CHINESE FROM. ge. SOUTHEAST ASIA IN CHINA. (. m. en. dy. th of. .. 6". ,. ,00. :la,. lal. on is. ne. nd. :d.. las. me. if. .ly,. rs'. country. company (tycoon). investment(US$ mil.). Thailand Charoen Pokphan Bankok Land Soon Hua Seng. 3.000 1.400 1.000. Singapore Jia Tong Group Vikay Group (OWned by Indonesian Herman Tan1haha) (Peter Lim. Tony Wong. Steven Lam. and Chris Yong). 500 260 210. Indonesia China Strategic Investment (ael Hong Leong) Lippo Ltd(Mochtar Riady) Lippo Ltd. 260 130 40. Malaysia Kuok Group(Robert Kuok) Kuok Group Berjaya Corp(Vincent Tan). 300 130 100 US$7,300. Total . Source: "SE Asian Chinese head for home", Asian Business. (April 1993). p.26.. an. lut. With regard to their recent economic development, they have all taken advantage of their lower costs in wages, land, and resources to encourage the relocation of. ~pt. many labour-intensive industries from Japan and the ANICs.. nt.. foreign investors to further their economic development, Southeast Asian countries. In seeking to woo. have experienced strong competition from China at the same end of the development spectrum. Since the mid-1980s. the ANICs have joined forces with the. -. 375.

(26) 1. Japanese investing in Southeast Asia to gain access to lower cost production factors 79. China. While Chinas economic. gradua:. development has been speeding up to fully comply with reformist policy, more and. Shenzh. more foreign investors have been pulling their businesses, in labour-intensive. Th. industries in particular, out of Southeast Asia because production factors there,. investn. over time, have no longer been as competitive as they were when businesses were. biggest. set up a few years ago.. market. which. no. longer exist. in their. home countries.. As one of Malaysia's single largest investors in manufacturing sectors,. investn. Taiwanese investors, for example, have complained that the Malaysian government. China 1. is unlikely to widen its industrial incentives, is unable to control fast increasing. Japanef. labour cost, and is not reliable about the difficulties of securing visas which are of. in fave. particular importance for Taiwanese enterprises and their expatriate executives and. extent. 80. In early 1993, the then vice-Economic Minister of Taiwan, P.. encoun. K. Chiang, stated that Malaysia's investment climate was getting worse due to. another. rising labour costs and social problems. Moreover, George C. H. Wang, the director. Philippi. of Taipei's Economic and Cultural Centre in Malaysia, a leading organ of Taiwanese. in Chir.. business, pointed out that changes in the economic situation, China's accelerating. about. economic reforms as well as those in many other countries, such as Vietnam and. Praseti:. Indonesia, have offered better investment incentives and a declining interest in. (for its. imported technicians.. Malaysia.. 81. Af. Indeed, an analysis by the Taiwanese Ministry of Economic Affairs. f~. suggests that the recent decline of Taiwan's investment in Southeast Asia has. been. resulted mainly from the changed investment situation there, caused by soaring. industr. labour costs, and the cancellation of tax preferences.. 82. analysi:. The same story has been repeated with Taiwanese investment in Thailand.. market. The Mint Shine Electrical Co., a Christmas tree light maker, for example, came to. most f. Thailand for its cheap labour to gain a competitive edge in 1988. Complaining that. the tel. the minimum wage has jumped nearly 50 percent between 1989 and 1992, the. compet. 83. Thai Sanho, a manufacturer of. machin. sports shoes, had to close its factory in Thailand in January 1993, because their. stemml. competitive advantage from cheap production had been lost to their competitors in. of labo. company has decided to shift production to china.. -. 376 .

(27) ,'. !IT! ~ ~iijU!~IHt~ .p1jll*!l!~Wi~ /iX(fJ9'}t£¥'J1M. :tors. China and Indonesia Moreoer, Lynns Group, a maker of audio equipment, has. :>mic. gradually drained off much of its operation in Thailand.. and. Shenzhen, China, is taking over more production.. The group's factory in. 84. lsive. The immediate effect of the redirection of investment to China is that foreign. lere,. investment in Southeast Asian countries has decreased sharply. The Japanese, the. lIlere. biggest foreign investors in the region, have been lured by the Chinese "ultimate market" with its 12 billion-strong consumer market, the world's most attractive 85. Since 1990, Japanese investment in. tors,. investment opportunity in the early 199Os.. nent. China has nearly tripled to a current annual rate of $882 million.. sing. Japanese direct investment in Asia seems to be away from Thailand and Indonesia,. e of. in favour of investment in China and Vietnanl.. and. extent these industries' withdrawal of capital from Southeast Asia has been. 87. 86. The trend in. It is yet to be proven to what. P.. encouraged from China.. to. another of the region's biggest investors, have a1.oo cut their investment in Malaysia. the. clor. Philippines and Thailand sharply in the last two years, as their eagerness to invest. nese. in China took off. 88 There is a tendency to blame China when questions are asked. Iting. about the causes of this shift.. 1,. and. t in. Nevertheless, clear evidence exists that the Taiwanese,. Djisman Simandjuntak, executive director of. Prasetiya Mulya, a business school in Jakarta, says "China must be the main factor. •. (for its plunging foreign investment)".89. ~airs. Apart from competing for foreign investment, these countries have gradually. has. been facing increasingly strong competition from Chinese exports in labour-intensive. ring. industries such as footwear, textiles, and electronics.. 90. According to a shift-share. analysis of competition amongst ABEAN, China' and the ANICs in the Japanese. md.. market, for instance, the results suggest that ASEAN exports have suffered the. e to. most from the recent entrance of China into the Japanese market. 91 In seven of. Ghat. the ten standard International Trade Classification (SITC) categories, China has a. the. competitive advantage, compared to ASEAN, especially in crude materials and. of. machinery plus transport equipment. It is notable that the competition has mainly. heir. stemmed from their similarity in terms of economic development and their exports. ~. in. of labour-intensive industrial products.. 377.

(28) Another two studies have also discovered that China and ASEAN do compete directly for market shares in labour intensive industries, such as clothing, textiles, footwear, furniture, textile yarn, thread and toys, in the United States, Japan, other Asia-Pacific countries and Europe.. 92. The two economies have tended to pursue. o. economic development by following the ANTCs model of industrialisation through Since the export. the t:. markets for these products are restrained by worldwide economic recession and. econor.. protectionist pressures from developed countries, it has been inevitable that tense. owing. competition has arisen between the two and has cast a shadow on their future. trade. relationship. 93 Although there is yet to emerge an obvious regional integration. relatio. framework in the Asia-Pacific region, every subregional grouping has inevitably. Generl. hinged on each others' development, because their common characteristic of outward. depenc. -looking economic development, has, to some extent, tied them to the larger. accoull. framework of an international industrial division of labour.. Each developing. export. grouping is likely to be acknowledged by others because of their mutual interests.. cen if. the export of labour intensive products to developed countries.. The CEA has not been excluded from this linkage. For the ASEAN countries, the possible economic impact of the CEA, whether positive or negative, deserves to be analysed further. As the CEA is a natural and. same :. 2 per. 'loose formation",94 the governments' unwillingness, as of yet, to become involved. cent c. in its formation implies that the current economic transactions, either inter-regional. decline. or intra-regional, will not be changed. So long as the CEA remains the concern of. h. the private sectors, the increasing intra-regional economic ties are likely to. electr(. accelerate Asia-Pacific regional economic cooperation to help along regional economic. electri. In the long-term, a strong Chinese economic group right next to the. with. I'. ASEAN would probably outweigh any other regional grouping and become the. in tre. leader in the region.. the. development.. For now, the development of subregional groupings is likely. to boost the de facto ':Japanese Yen Bloc" in Asia-Pacific.. CI:. was '( trade China partic. -. 378 .

(29) .... ~'. 5l::t 1i\I~~1J!lHi~ .p~~1JIi\I1f'3pxtfJ9i-tE~$IJ tte 98,. The Impact of the Single European Market. er. on the Formation of the Chinese Economic Area. lle ~h. Owing to historic, geo-political linkage, and in particular market dependence,. rt. the US' market's importance to the CEA as well as to the other East Asian. ld. economies is relatively more notable than the ECs'. However, since the mid-198Os,. se. owing to increasing protectionism in the US, a strategic demand of the ANICs for. re. trade diversification away from the US markets has steadily increased their trade. m. relationship with the EC.. ,ly. Generalized System of Preference (GSP) in 1989 has further reduced their. rd. dependence on the US.. er. accounted for 37.2 per cent of total exports in 1986, and 30per cent in 1989, their. 19. export dependence upon the EC accounted for 10.6 per cent in 1985, and 13.9 per. ;s.. cen in 1989.. 97. 95. 96. Above all, the ''graduation'' of the ANICs from the US. While the ANICs export dependence upon the US. Taiwan's trade alone with North America, including the US and. Ca:na:Ja, fmlunted for 37.6 per cent of total tm:le in 1933, and Z715 per cent in 1992.. In the. ~r. same recorded period, Taiwan increased trade with the EC from 111 per cent to 17.. ld. 2 per cent.. ~. cent of total exports in 1985, to 22 per cent in 1987, the US share of its exports. e1. declined from 44.4 per cent to 37.3 per cent.. 98. While Hong Kong's exports to the EC, too, increased from 18.2 per 99. )f. In terms of export goods, the ANICs major export items to the EC are. ;0. electronics, textiles, and shoes; more recently joined by office machines, stereos, and. ic. electrical equipment, whose prices the Europeans have found hard to compete. le. with.100 In addition, Taiwan, for example, has continuously enjoyed a trade surplus. .e. in trade with the EC, from US$491 million in 1983 to $148 billion in 1992. 101 In. y. the case of China-EC trade, China's rapidly increasing trade surplus against the EC 102. was US$lO billion in 1991 and about $12.1 billion in 1993.. Due to their continuous. trade surplus against the EC and EC industry's failing to compete, the ANICs and China have been subjected to the EC protectionist backlash, anti-<iumping actions in particular.. Altogether, anti-<iumping investigations initiated by the EC against -. 379.

(30) Asian export economies comprised half the 169 cases between 1987 and 1991. 103. China was hit with four such investigations and Taiwan with two, while Hong Kong and South Korea were under another Brussels' anti-dumping investigation in their export of floppy disks.. 104. Not satisfied with quota restrictions on Asian. imports, recently, European textile makers, one of most dynamic lobbying groups, have. tried. to. investigations.. press. the. European. Commission. to. step. up. anti-dumping. An expert said that anti-dumping inquiries have always a "trade. chilling effect", because even though they do not end in a fine, European importers would become reluctant to do business with firms subjected to the Commission's investigation and probable fine.. 105. Although China's booming exports to the EC and the US may have partly resulted from the development of the CEA, as Taiwan and Hong Kong's producers have relocated in China. there is not yet a clear empirical survey on how much its two CEA partners have contributed to China's performance in foreign trade.. In. economic terms, while the EC has moved towards completing the single market and, at the same time, stepped up its protectionist actions against East Asian economies, the progress of Asia-Pacific regionalism in general and of the CEA in particular has been accelerated, as a result.. 106. Of course, the development of the CEA has. been characterised by both its defensive (increasing collective economic weight) and offensive elsewhere.. (strengthening. its. competitiveness). tendencies. towards. regionalism. The effects of the EC in 1992 on its trade partners in the developing. world have been shown in trade creation and diversion effects.. As European. countries with the Single Market in place to strengthen competitiveness take on their competitors, there is likely to be a further redirection of trade away from European traditional suppliers and towards intra-EC trade.. 107. In fact, the trade. diversion effect of the EC's 1992 programme will be greatest for 'low-value, undifferentiated, highly price-elastic goods, such as textiles, clothing, footwear, leather goods, electronic components, metals, chemicals.,,1D8 Amongst all developing. the con. str me cOL. countries' groups, Asian NICa and ASEAN countries including China will be the worst losers facing the trade diversion effect of the EC's 1992 programme.. - 380 . 109. Col be.

(31) ... ~',. 5l:t: UlI~Ml!?j1f~ ii 00 $. ~Ml!?j1fi!!~ Tit £t:J 9i-if ~ilill. 03. TABLE 5. ESTIMATIONS OF EC 1992 EFFEGrS ON. 19. DEVELOPING COUNTRIES (million ECUs). in ill. )s,. group of countries. 19. ACP countries Maghreb countries South Asia and China Asian NICs ASEAN countries Western Hemi sprlere OPEC. ie rs. l'S. Iy. rs. Asian NICs. creation. Hong Kong Taiwan South Korea Singapore. 725 1087 797 487. trade diversion -477 -534 -1125 -4077 -464 -751 -847. total effect* 361 80 -119 -1491 -18 246 1224. diversion total effect (US$ mil.). ts. rn d,. $,. -735 -1468 -1003 -847. 193 -262 -75 -195. iT. :IS. ld. III. ,g. Note: * The total effect is calculated together with regard to trade creation and diversion effects. Source: Information is based on Page. "Europe 1992: views of developing countries". p. 1560; Michael Davenport. "Primary benefits". Far Eastern Economic Review. (13 June. 1991), p.69.. n. n. n. .e. The general implication of the completion of the European single market for the CEA has competition.. ". l1O. been. the EO's protectionist challenge and the challenge of. The EO's protectionism will be more discriminating in a new trade. ~,. r,. g. e. structure in granting preferences to neighbouring economies, such as the current members of the European Free Trade Association (EFTA), the Mediterranean countries of Turkey, Malta, and Cyprus, East European countries, and the Commonwealth of Independent States in various manners. Against this, there will be a most discriminated hierachy of preferences against East Asian economies. 381 . As.

(32) they compete with these preferred EC economies in a wide range of products the Furthermore, the completion of the single market. provi(. will inevitably result in a more rational competitive environment within the. laboUl. market itself.. As a result, less competitive European industry will generate. and i. demands for increasing trade barriers, such as in addition to anti-dumping duties,. regior. EC markets will turn bitter.. local content, origin provisions, and financial assistance to selected industries, in (. order to regain competitive advantage against external competitors. Apart from. European industry's demand for protection from outsiders'. Arne. competition, the EGs willingness to enCourage more exports from East European economies. under. special. East Asian. 1. economies. ill In addition, those export items of the ANICs that retain high. 'horiz. similarity to the European counterparts' are much more likely to be subjected to. degre. On economic research on the impact of the EC 1992 on. oomplE. Taiwan's exports, suggests that Taiwanese exports of textiles and clothing. for. Unite. example, have met competition from the EC countries with 65.13, France 63.80,. on tl. protectionist practice.. arrangements. Greece 58.23, and Spain 58.22.. 112. will do. more harm to. In terms of industrial sectors, the ANICs' and. clear. China's consumer electronics have been subjected to the strongest protectionist. a chf. backlash in the EC (Table 5), not only because of strong industrial lobbying for. indus. prota:tion, but b:muse of their products' high similarity to those of the EX::: makers. 113. them. In the face of this gloomy picture for Asian exporters with regard to the. the I. European single Market, many have suggested the ANICs taking up some. relocf. alternative policies:. allying with European firms, making approaches to EGs. about. neighbouring countries that have treaty gaining access to the EC. diversifying trade. indus. to other areas, reinforcing competitiveness by further restructuring, or expanding. NAP. 1l4. However, it seems that the likelihood of establishing a. Japar. regional economic cooperation grouping is the "ultimate solution" for Asian. thrOt. intra-Asia-Pacific trade.. economies.. 1l5. As far as the CEA is concerned. it seems that Taiwan and Hong. Asia!. Kong's interest is better served everywhere by integration into the CEA than separate from it. Apart from other marketing strategies, which Taiwan and Hong. tarifi. Kong's exporters may have sought for in order to gain access to the European. intro. 382.

(33) '. 2:t1ii~~t;1mit~$.~t;1liimPX;R99}1f~ililJ. le. market, the fundamental economic complementarity amongst the CEA economies. ~t. provides their industries with a better opportunity to compete, in particular in. le. labour-intensive industries.. ~e. and integrating complementary economies, therefore, will give economies in the. 5,. region a brighter prospect for international trade.. Persistent regional industrial restructuring processes. n. Cooperation or Competition: the Effect of the North. s'. American Free Trade Area on the Chinese Economic Area. n. n. In terms of economic structure, European integration has taken the form of. h. "horizontal integration", which integrates regional countries with nearly the same. ,0. degree of economic development.. n. oomplementaIy 00sis through a general vertical division of labour: on the one hand, the. r. United States and Canada, providing advanced technology, capital, markets; Mexico,. ),. on the other hand, serving as a manufacturing base with low-cost labour. It is. d. clear that after NAFTA was legally launched in January 1994, there is going to be. :t. a change of trade structure in the three economies, with the US and Canadian. r. industries taking advantages of Mexico's cheaper labour rate, which would help. 1l6. NAFTA, by contrast, will progress on a. them build up competitive advantage over their competitors elsewhere.. Although. e. the general American public, in particular trade unions relating to jobs being. e. relocated in Mexico, retain doubts about the economic effect that NAFTA will bring. s. about, the fact that industrial division of labour has taken place will benefit. e. industries inside NAFTA.ll7 US Trade Representative Carla Hills stressed that. T. ,. NAFTA would, on the one hand, help the US companies compete with their. 1. Japanese and European rivals more effectively by using Mexico's cheaper labour through industrial collaboration, and would, on the other hand, guard against East Asians penetrating the US market through Mexico.. ll8. The main contents of the NAFTA agreement have two noticeable features: tariffs to be abolished within 15 years and rigid country-of-origin regulations to be introduced (see table 6).. Before NAFTA comes into being, there are at present - 383 .

(34) about 70 per cent of Mexican products entering the US market tax-free under the GSP, and the average tariff on the US imports from Mexico is already low at 3.4 per cent, (Canada 2.4 per cent for the Mexican products).119 Therefore, while tariffs will be abolished within NAFrA and be kept at the current rates for outsiders, it will not pose an immediate threat to East Asian exporters.. However, NAFrA's. regulations of country-of-origin highligh the group's protectionist propensity, which is likely to hit Mexico's East Asian investors hardest, particularly in the sectors of textiles, motor vehicles, and electronics and electric products. For example, clothing made in Mexico would have to use yarn or fibre made in North America rather than imported from East Asia Similarly, a range of consumer and industrial-electronic products ought to be EquippOO with printed circuit assemblies mOOe in NAFI'A. r.rl For most Asian fIrms, the. tight regulations of NAFrA will accelerate their efforts for internationalising production and will increase their foreign investment in Mexico in order to benefit from access to the integrated market. Strict rules about country-of-origin will accelerate further integration of related industries within NAFrA at the expense of outsiders.. A complementarity within the textile industry, for instance, between. the American upstream makers and the Mexican downstream makers will step up their collaboration and strengthening competitiveness against East Asian products. As a result, they will together discourage imports from outsiders, which would bring about the trade diversion effect for their trade partners.. The American. Textile Manufacturers' Institute went even further, appealing for 100 per cent North American content in imported textiles.. 121. The general picture of NAFrA drawn by the Agreement has worried exporters from the ANICs and ASEAN countries, because their similarity to Mexico in the stage of industrial development would lead to fierce competition.. 122. One. study concludes that East Asian countries, the ANICs in particular, would be larger losers from the trade diversion effect than Latin American countries both in absolute and relative term, as a result of their export, high similarity to those of Mexico. 123 Indeed, World Bank economist Alexander Yeats says that Asian. -. 384 .