infrastructure cooperation to reap more benefits for individual economies?
Given our belief that deep economic integration is, at the current time and given political realities, not practical for the Northeast Asian context, we find it premature to call for formal regional financial institutions such as a monetary union or development bank when so many security, political, and economic issues have yet to be resolved. At the very least, problems of transparency, an inadequate legal framework, intellectual property protection, protectionist policies, and lack of a consensual decision-making apparatus make regional economic integration truly difficult to achieve.21)But we are not entirely pessimistic. It is only in the last few years that Northeast Asian countries have decided to build regional economic relations, despite an absence of political community.
Time will tell whether these nationalist governments will be able to band together for mutual benefit.
partner for South Korea and Japan, and there are signs that Korea may be bending political will to match its increasingly important economic ties with China. Intra-regional investment is on the rise as well: China takes the bulk of foreign direct investment, together with Hong Kong consuming 70% of the region’s FDI. Both Korea and Japan remain relatively closed to FDI from other countries, but have significant holdings in China.23)Chinese investment in South Korea was almost nonexistent prior to its recent purchase of Ssangyong Motors. Japan is further along, being a major source of FDI in Korea, second only to the United States.24)While an “Asian Union” may at best be a dream that is decades away, there are still opportunities to promote economic integration in the region.
Overriding the palpable discontent in Northeast Asia is a forging of a broader regional community based on common identity and mutually- beneficial economic growth. Despite tensions, governments are looking for creative ways to build closer economic and cultural ties. China is seeking more trade opportunities within the region, notably with Korea, though intra-regional trade remains below predicted trade levels given the region’s economic characteristics.25)South Korean President Roh Moo-hyun initiated a Northeast Asian Cooperation Initiative, which is exploring ways to build a regional community. In many ways the Initiative is reflective of a new-found consciousness of Northeast Asia’s global potential.26) Throughout the region a cultural boom is taking place that is intensifying exchanges of music, movies, pop culture, and language. There is even talk of creating region-wide sports leagues. When there is a downgrading of relations between countries, as there has been during what is supposed to
148-- Peter M. Beck and Melissa Hanham
23) Schott and Goodrich, “Economic Integration in Northeast Asia,” pp. 6-8.
24) Republic of Korea, Ministry of Finance and Economy,
http://english.mofe.go.kr/faq/catch/m_view.html?no=252&page=2&field=&keyword=.
25) Schott and Goodrich, p. 14.
26) Kim Sun-ha, “Government seeks closer bonds with Japan, China,” JoongAng Ilbo,January 12, 2005.
be the “Korea-Japan Friendship Year,”the private sector is beginning to speak up, warning public sector leaders of the financial damage that nationalist invective can incite. Korean public officials avoid breaking off serious commerce with Japan and Japanese businessmen are publicly expressing misgivings about Tokyo’s policies, saying that bad politics hurts business.27)There are limits to how far business can pacify governments, however; Tokyo is facing the ascendance of two Chinas it must handle: The rise of China’s economy and the rise of China as a political and military power. Interestingly, we have found that regional identity is strongest when Northeast Asia is collectively confronting an outside force. However, it seems doubtful that China, Japan, and Korea will have a common enemy to fight against, other than each other.
Intra-regional investment, in addition to China’s support for a market economy, is the driving force behind the quest for more formal economic integration in Northeast Asia. We argue that expanding private sector linkages are the best bet to deepening regional economic cooperation.
Economic regionalism is usually initiated by growing trade and investment linkages in the private sector, driving government steps toward cooperative economic agreements. Rather than undertaking grand government-led schemes to finance regional development, which seems ill-advised given the precarious political-security situation in Northeast Asia, efforts should be focused instead on building a regional environment conducive to private sector cross-border transactions, investments, and joint projects. This means accelerating domestic economic reforms, streamlining regulatory measures, and reducing trade and investment barriers. Such measures would be particularly useful in hastening infrastructure projects, and would accelerate intraregional trade,
27) Norimitsu Onishi, “‘Japan Inc.’ finds itself in tight spot with China,”International Herald Tribune, January 13, 2005.
investment and growth.28) Another idea would be to encourage advantageous cooperative agreements among similar or corresponding economic sectors. Should the governments not act to assist regional private sector endeavors, businesspeople are sure to make their own way.
Increased private sector interaction will eventually propel the governments toward more formal economic arrangements. The private sector is aware of the extraordinary gains to be made from NEA regionalism—indeed economic complementarities are far from being fully utilized. Even if there is little chance of a formal regional integration, Northeast Asian regionalism shows promise.