Already, in 1997, during the Asian financial crisis, there had been the first ASEAN+3 summit (China, Japan and South Korea) and this was later formalized into a regular event. At the ASEAN+3 summit in 2003, the Chinese premier Wen Jiabao proposed that a study be made into the feasibility of an East Asian Free Trade Area, which was accepted. [884] Following China ’s lead, in 2005 Japan started to negotiate its own Free Trade Agreement with ASEAN, which was agreed upon in outline form in 2007. In 2009 Australia and New Zealand did likewise. There is now a complex web of Free Trade Agreements in the process of negotiation in East Asia which is intended to act ultimately as the basic infrastructure of a wider East Asian Free Trade Agreement, designed to be in place around 2007 and implemented before 2020. [885] Whether this ever materializes, of course, is another question, but the progress towards a lowering of tariffs in the region — with China in the driving seat — stands in marked contrast to the effective demise of the WTO Doha round, a point lost on neither ASEAN nor the rest of East Asia. [886]
ASEAN lies at the core of the new East Asian arrangements and has provided them with their template. Although South-East Asia has always been the poor relation in the region (in 1999, for example, the GDP of the North- East Asian economy was more than nine times that of ASEAN), [887] it would have been impossible for North-East Asia to have played the same role because the latter remains too divided, riven by the animosity between Japan and China, and to a lesser extent that between South Korea and Japan, as well as distracted by the disputes over Taiwan and the Korean Peninsula. As a result there is nothing like ASEAN in North-East Asia: such formal multilateral arrangements are almost completely absent. An important consequence of these various developments has been the effective exclusion of the United States from economic diplomacy in the region. This has never been China ’s stated aim, [888] but, intended or otherwise, it is what has happened in practice. The centrality that APEC enjoyed in the mid nineties, and in which the US was a key player, [889] now seems a distant memory. The marginalization of the US is also manifest in the Chiang Mai Initiative, first agreed in 2000 on the proposal of the Chinese, [890] which involves bilateral currency swap arrangements between the ASEAN countries, China, Japan and South Korea, thereby enabling East Asian countries to support a regional currency that finds itself under attack. The agreement was a direct product of the Japanese proposal for an Asian Monetary Fund during the Asian financial crisis, [891] which was strongly opposed at the time by both the United States (on the grounds that it would undermine the IMF) and China (because it came from Japan). China has since swallowed its opposition — no doubt in large part due to the strengthening position of the renminbi — while the United States, weakened by the IMF debacle in the Asian financial crisis, has not resisted. [892]
If ASEAN has provided the canvas, it is the diplomatic involvement and initiative of China that has actually redrawn the East Asian landscape. In effect, China has been searching out ways in which it might emerge as the regional leader. [893] Underpinning its growing influence has been the transformation in its economic power. This has been the real driver of change in East Asia, the force that is reconfiguring the region. Unlike the European Union, where economic integration followed politics, in East Asia economics has been the dynamo of change, with political change following in its wake. [894] In North-East Asia, intra-regional trade — even in the absence of formally binding agreements — now accounts for 52 per cent of the total trade of the five economies (China, Japan, Taiwan and the two Koreas), a situation that has been achieved in little more than a decade; the equivalent figure for the European Union is 60 per cent, which it took half a century to reach. [895] Between 1991 and 2001, world trade increased by 177 per cent, whereas intra-regional trade in East Asia, despite the Asian financial crisis, increased by a staggering 304 per cent. By far the most important reason has been the growth of China, whose share in intra-regional trade almost doubled between 1990 and 2002. [896] With the emergence of the first Asian tigers in the early sixties, followed by the later examples, including China itself, the East Asian economy used to be seen in terms of ‘flying geese’, with Japan in the lead and the others flying in formation behind. [897] But with China ’s economic rise during the 1990s, Japan ’s role as the most important economy in the region is rapidly being challenged by China. Between 1980 and 2002, while China’s share of East Asian exports increased from 6 per cent to 25 per cent, Japan’s fell from 50 per cent to below 30 per cent; similarly, while China’s share of East Asian imports over the same period increased from 8 per cent to 21 per cent, Japan’s fell from 48 per cent to 27 per cent. [898] Even at the peak of its economic power, Japan’s role was always limited by the fact that it steadfastly refused to open up its economy to exports from its neighbours (other than those from its own foreign subsidiaries) — or, indeed, to the rest of the world — so its influence was largely exercised by a combination of its own foreign direct investment in Japanese overseas subsidiaries, imports from those Japanese subsidiaries and Japanese exports to the region. In contrast China ’s influence, because it has chosen to have an extremely open economy, is far more multifarious — as a market for the products of the region, as an exporter and as a multifaceted investor.
Figure 24. Growing importance of Chinese market.
Zhang Yunling, one of the architects of China ’s new strategy, and Tang Shiping have described the aim as: ‘to make China a locomotive for regional growth by serving as a market for regional states and a provider of investment and technology’. [899] The most obvious expression of this has been the way in which, in less than a decade, China has become one of — if not the — most important market for many countries in the region: in a few years’ time, it seems likely that it will be the single largest market for every country in the region. For the ASEAN countries, the Chinese market is now three times the size of Japan ’s. [900] No country — not even Japan, whose trade with China has recently overtaken that with the United States — can afford to ignore the Chinese market, or, as a consequence, China. [901] Since 200 °China ’s imports from ASEAN have increased at an annual rate of 30–40 per cent. [902] China, for example, accounted for 13.2 per cent of Singapore ’s exports in 2001, compared with 2.5 per cent in 1993, 18.5 per cent of South Korea ’s exports in 2001, compared with 6 per cent in 1993, and 9.2 per cent of Australia ’s exports in 2000, compared with 6 per cent in 1994. [903] It was widely feared in South-East Asia that Chinese imports from the ASEAN countries would be overwhelmingly comprised of raw materials. Certainly these are very significant, a case in point being the huge Chinese demand for timber, which is rapidly stripping the Indonesian forests. [904] The most important single category of ASEAN exports to China, however, is composed of intermediate goods. China is where the final assembly of many products of foreign-owned multinationals (American, European, Japanese, Taiwanese and South Korean) takes place prior to their export to their final destination. Countries like Malaysia and Thailand thus occupy a crucial niche in a complex division of labour centred on China. [905] In addition, China is assuming the role of an increasingly important investor in the region, with a large quantity of investment aimed at the extractive industries and infrastructure like railways, toll roads and refineries, in order to speed the flow of natural resources to the Chinese market. In 2002, 60 per cent of China ’s total foreign direct investment was directed towards Asia, [906] making it by far the most important destination. As a consequence, Chinese investment in South-East Asia has helped to compensate for the decline in Western investment over the last few years.
Zhang Yunling and Tang Shiping have described China ’s regional strategy in the following terms: ‘participate actively, demonstrate restraint, offer reassurance, open markets, foster interdependence, create common interests, and reduce conflict’. [907] With one bold and unexpected stroke, China has succeeded, in the manner of Deng Xiaoping, in redefining the dynamics of the region and, in the process, given itself more space for its own economic develop
ment. For sheer courage and unpredictability, China ’s East Asian initiative belongs to the genre of Chinese diplomacy initiated by Mao in the rapprochement with the United States in 1971. Even the intractable problems of North-East Asia are to some extent being redrawn by the ASEAN-BASED Chinese initiative, with both Japan and South Korea now involved in the creation of the East Asian Free Trade Area first proposed by the Chinese premier Wen Jiabao at the 2003 ASEAN+3 summit. It is impossible to predict the outcome of the process — or, more accurately, processes — now under way. They are open-ended and multi-layered, and could yet acquire another dimension, with the involvement of India and perhaps other South Asian countries in the future. [908] It has been suggested that one day there might be a fully-fledged East Asia Economic Union, perhaps even with a common currency, although the latter seems fanciful given the huge economic disparities across the region. [909] Nonetheless, the renminbi is likely to play a growing role in the region, especially if China further eases the restrictions on its use, as is likely over the next five years or so. In that eventuality, and assuming the dollar declines, the renminbi will increasingly be used for trading purposes, other countries in the region will peg their currencies to it, and in time it will surely assume the role of the reserve currency of choice in the region. [910] It is worth noting that in the zones around China’s borders — Myanmar, Mongolia, Laos, Cambodia and Vietnam — the renminbi, though not yet convertible, is already traded freely and used as a de facto reserve currency, sometimes instead of theUSdollar. [911]
Not surprisingly, China ’s rapidly developing economic influence in the region is having wider political and cultural repercussions. [912] Everywhere, in varying degrees, the impact of China can be felt. The willingness of China to foster interdependence, to seek new arrangements, and to take into account the needs and interests of other nations has had an extremely favourable effect on how it is seen in most countries. [913] David Shambaugh, a leading US writer on China, argues: ‘Bilaterally and multilaterally, Beijing ’s diplomacy has been remarkably adept and nuanced, earning praise around the region. As a result, most nations in the region now see China as a good neighbor, a constructive partner, a careful listener, and a non-threatening regional power.’ [914] This process has been enhanced by the stark contrast over the last decade between China ’s whole-hearted embrace of multilateralism and the United States ’ preoccupation with the Middle East combined with its shift towards unilateralism during the Bush administration. China’s overseas aid has risen from around $260 million in 1993 to more than $1.5 billion in 2004 at a time when the US has been reducing its own; as a result, China’s aid to the Philippines is now four times that of the US, double what the US gives to Indonesia, and far outstrips American aid to Laos, Cambodia and Myanmar. [915] China is funding many high-profile projects, including a new presidential palace and foreign ministry building in East Timor and a parliament building in Cambodia. [916] It finances the training of Cambodian and Laotian officials in China as well as receiving a growing number of politicians and dignitaries from the region in China on visitor programmes. [917] It has opened its doors to foreign students, with over 60,000 from East Asia studying for advanced degrees in Chinese universities in 2003-4. [918] There is a growing thirst across the region to learn Mandarin, while Chinese tourists are becoming an increasingly common sight in South-East Asia, greatly outnumbering those from Japan.
SHIFTING SANDS
One of the consequences of China ’s growing economic importance has been that the great majority of countries in the region have become more closely aligned with it. There are only two exceptions to this: Taiwan, at least until recently, and Japan. Even Singapore and the Philippines, two traditionally close allies of the United States, have moved much closer to China. Rather than countries fearing the rise of China and, as a result, choosing to move closer to the United States, the opposite has happened. Nor has there been any sign of an arms race in the region. A senior Singaporean diplomat confidentially offered the view in 2004 that:
The balance of influence is shifting against the United States. In the last decade the Chinese have not done anything wrong in South-East Asia. The Japanese have not done anything right, and the US has been indifferent. So already Thailand, Laos, Cambodia, and other states are defining their national interest as ‘Finlandization’ with respect to China. The US will never be shut out of South-East Asia completely, but there is less room for it now than in the past fifty years. [919]
As the accompanying figures suggest, attitudes in the region have grown more favourable towards China, compared with those towards the US, while China is generally seen as emerging as the new power centre in the region and as likely to become the most important economic partner of most countries. To illustrate the reconfiguration of power in East Asia towards China, I will look at three very different examples, namely Myanmar, Malaysia and South Korea; and then at the remarkable way in which Australia is being drawn into China ’s orbit.
As a former tributary state of the Middle Kingdom, Myanmar has long enjoyed a close relationship with China, but since the late eighties this has become more marked. The growing isolation of Myanmar — especially from and by the West — has served to increase its dependence on China for both trade and security, with the latter now by far its biggest trading partner as well as its largest source of inward investment. The country’s Chinese minority, which has grown considerably in recent years, has played a very important role in this growing economic alignment with China. There is also close military collaboration between the two countries, the only such instance of this in the region (with the partial exception of North Korea). With their long shared border, Myanmar is an important ally for China because it gives its landlocked south-west provinces vital access to the Indian Ocean for their exports while also providing a base for the Chinese navy to operate in the Indian Ocean. For a combination of historical and economic reasons — and because otherwise Myanmar would find itself even more isolated — China’s relationship with Myanmar is, in fact, more intimate than that with any other country in the region. [920]
Figure 25. East Asian attitudes towards China and the United States (% ‘favourable’) Nov 2005.
Figure 26. East Asian perceptions of bilateral relationship with China and the United States (% ‘good’) Nov 2005.
Figure 27. East Asia’s perceptions of Asia’s future power centre (%) Nov 2005.
Figure 28. East Asia’s perceptions of their closest economic partner in 5-10 years (%) Nov 2005.
For geographical reasons, the archipelagic countries of South-East Asia have traditionally enjoyed a more distant relationship with China than those like Myanmar and Vietnam that share the same land mass. [921] Furthermore, the ethnic, cultural and religious differences between China and countries like Malaysia and Indonesia are very pronounced. Malaysia, following its independence in 1957, viewed China with considerable suspicion because of its own large Chinese minority and the fact that the Maoist regime encouraged a guerrilla war, mainly based amongst the local Chinese, against the British and, after independence, against the newly installed Malay-dominated government. With China ’s rapid economic growth during the reform period, together with its turn away from promoting revolutionary change elsewhere, relations steadily improved. Although the two countries were in conflict over the Spratly Islands, the then Malaysian premier Mahathir Mohamed chose to pursue a policy of engagement with China, aware that his country could not win any naval clash. [922] He also played a critical role for more than a decade in encouraging China to become more involved in the region and with ASEAN in particular.
In the longer run any deepening relationship with China is likely to have an effect on the delicate racial balance in Malaysia between the Malay majority and the Chinese minority, who presently account for more than a quarter of the population. Not surprisingly, it is the Chinese minority who are primarily involved in trade with China, who fill the planes that fly between the two countries, and who benefit the mo
st economically from the bilateral relationship. [923] As a result Malaysia, while seeking a closer relationship with China, is bound to remain at the same time somewhat ambivalent. (The problem of an economically powerful indigenous Chinese minority is by no means confined to Malaysia: a Chinese minority, though relatively smaller than that in Malaysia, also plays the dominant role in the private sectors of Thailand, Indonesia, Myanmar, Laos, Cambodia, Vietnam and the Philippines. [924])
The most dramatic example of the way in which China ’s rise has been transforming relations in the region, however, is South Korea. [925] After the Second World War it became an intimate ally of the United States, a relationship which was cemented in the Korean War, with no small part of its subsequent economic success due to its position as an American vassal state during the Cold War. Yet over the last decade it has been moving closer to China both at a governmental and a popular level. [926] China is now easily the country’s largest trading partner and South Korean firms have invested heavily in the mainland, with China the largest destination for Korean foreign investment. [927] Over half the students from East Asia studying for advanced degrees in China come from South Korea. [928] More than 1 million South Koreans visited China in 2003, while 490,00 °Chinese made visits to South Korea. Each week, there are over 700 flights between the two countries. [929] The crisis over North Korea and its nuclear weapons has also served to bring China and South Korea closer together, with the latter discovering that it had more in common with the cautious Chinese position of restraint than the more aggressive American approach under Bush. Indeed, China ’s handling of the crisis and its emergence as the key mediator with North Korea has enhanced its standing both with South Korea and in the region more widely. [930] The fact that the United States has meanwhile strengthened its defence ties with Japan has further alienated South Korea, which views Japan with considerable enmity as a result of the latter’s conduct during its colonial occupation of the country. [931]
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