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Greater East Asia Co-Prosperity Sphere Coming?

Whoops, that was the old brand, and it was to be led by Japan. The results were less than happy since Japan was not prepared to take “no” for an answer.

But this time around, necessity as well as opportunity are leading China, Japan, and Korea to discuss moving forward on closer economic ties. In fact, the driver for talks appears to be more than a tad of desperation of the Japanese.

The US has been opposed to anything more than symbolic movements on this front. For instance, in the 1997 Asian crisis, Japan wanted countries in the region to lead rescue efforts. That idea was opposed, forcefully, by Robert Rubin, Larry Summers, and Timothy Geithner, who was then at the IMF but slotted to join the Treasury. And we know how that movie ended. The IMF “reforms” were the same template they had used for Mexico, and was inappropriate in key respects for high-savings Asian countries. The Asian tigers’ resentment of punitive and painful programs led them to institute currency pegs at artificially low rates so they could build up their reserves. China held its peg during the crisis at US request, reinforcing its use of pegs (and one can further argue that the low rates implemented in the crisis countries gave China plenty of cover to maintain its peg even as its currency became increasingly undervalued).

It is still not clear how serious this move is. There has been talk for some time of beefing up ASEAN (for instance, having it have its own development bank as an alternative to the World Bank). This initiative is outside ASEAN and is in the brave talk stage. The biggest potential obstacles is long-standing distrust among the principal actors. That may be compounded by China trying to assert a leadership role, which is understandable given its economic position, but diplomacy is not yet one of China’s strengths.

From the Telegraph :

The three countries, dismayed at falling levels of trade and investment from the US and Europe, met in Beijing to plan for more structured levels of co-operation.

The move came as HSBC warned there is likely to be a “shift in the world’s centre of economic gravity from West to East”. The bank has already decided to move its chief executive, Michael Geoghegan, from London to Hong Kong next February to prepare for Asia’s ascendancy.

Wen Jiabao, the Chinese prime minister, and his Japanese and South Korean counterparts, Yukio Hatoyama and Lee Myung-bak, said the three countries were “committed to the development of an East Asia community”, similar to the European Union.

The idea, which is being strongly pushed by Japan, could eventually lead to a free trade block and co-operation on public health, energy and the environment….

The proposals are in their early stages, and the three countries emphasised that it was a “long-term goal”. Liu Changli, a professor at China’s North East Finance University, said a free trade area could be in place “by 2020, on a best-case scenario”. He added: “Add another five to 10 years for an economic union and a further five to 10 years after that for a true economic, military, political and cultural union”.

The proposals come as Japan is struggling with the collapse of its export sector, a key motor of its economic growth. Since Mr Hatoyama was elected at the end of August, he has been searching for a way to kick-start the economy and alleviate the country’s debt, which currently stands at 283pc of GDP, the highest of any G20 nation….

South Korea’s ties with China have also weakened, with substantial Korean populations in Beijing and Shanghai returning home because of the downturn.

Both countries now see China’s booming economy, which is set to grow by at least 8pc this year, as a beacon of hope. China, for its part, has a long-term strategy of reducing its dependence on the West and building political and economic ties with Russia, the Middle East, Africa, Latin America and Asia. It has already signed a bilateral free trade agreement with ASEAN, the coalition of South East Asian nations, which is due to come into full effect next year.

However, any attempts by the three nations at closer integration are likely to be opposed by the US, which is concerned about any waning of its influence in the Pacific.

Japan’s role in this is a clear statement of diminished US power. Japan is a military protectorate of the US. For at least the last three years, if not longer, Japan has been playing a very careful game between the US and China. It appears to have decided it has little to lose in seeking to throw its lot in with China.

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10 comments

  1. Vinny G.

    The article does not mention at what point would this Asian Union also establish a common currency. I wonder what the timeframe for that might be.

    Vinny G.

  2. purple

    This won’t happen, and the reasons should be obvious. These countries all are dollar -pegged and in export battles with each other. China is much poorer than Japan, per capita. ASEAN countries are even poorer. Common currencies require at least a somewhat similar level of development.

    1. Vinny G

      Good point. Perhaps a China-Russia economic union makes more sense then. Russia with resources, China with labor.

      Vinny

    2. Bob_in_MA

      Yeah, it is amazing how people can write about something and miss the most cogent point. Is there even one East Asian country that doesn’t follow subsidized-export development model?

  3. kevin de bruxelles

    US naval might keeps international sea lanes open for East Asian cargo so any serious attempts to create an East Asian Union (EAU) would necessitate a serious blue-water navy. So only when I see serious evidence of a Chinese or Japanese naval build-up will I start taking the idea of an EAU seriously. I have no doubt that East Asians have the culture and technological ability necessary to create an outstanding blue-water navy; what I am not certain of is if they have to political will to do so when it is so easy to just keep leeching off the US.

    Given the homogeneity of the East Asian organizational model (authoritarian, mercantilist, protectionist, suppression of domestic demand, etc.) across the region it does seem to make sense for East Asian countries to unite. Since many more or less already use a common currency (the dollar) it will not be so difficult to unite on a common currency in the coming decades. This will happen well after the coming collapse of the dollar which will make Asian countries re-examine their export driven model and eventually force them to allow domestic demand to increase.

  4. David S

    China, Japan, and Korea already form a sort of common market and have adapted to one anothers’ systemic idiosyncracies. It’s not so easy to extrapolate their modus vivendi into a new global model or global threat. In fact the ‘current model’ (authoritarian, mercantilist, protectionist)is unlikely to be the basis of any Asian union. It is conducive to a kind of primitive accumulation that has depended on the profligacy of the rest of the world. In the long run it is incompatible with the aspirations of the Asians themselves, not to mention the requirements of a broader world trade.

  5. TulsaTime

    The big question is whether they do any of this before the impending Chinese collapse. I don’t subscribe to the Chinese recovery ‘story’ being pushed around the MSM, they are on the same short path that the US is. But that will not stop the inevitable planning and projecting for the future that will never come. The big question is how much is left of China after the cards fall.

  6. Brian

    It will be interesting to see how this initiative develops over time. There are certainly many benefits to be gained from a union between these three powers – political clout, free trade, balancing (Japan’s upcoming labor shortage vs. China’s need for technology and capital), etc.

    However, there are two major reasons that this will never happen.

    1 – Cultural animosity. China has never come close to forgiving Japan for the atrocities committed during its occupation of Manchuria. Ditto for Korea with Japan. In addition, Koreans are very threatened by a strong China due to the historical background of Chinese dynasties meddling in Korean civil disputes and extracting tribute. There is no doubt that they would see a strong union as a step towards this state of affairs once again. Asians are like elephants, they never forget.

    2 – Direct competition between industries. Just a few: LCD screens between Korean and Japan, shipbuilding between Korea and China, automotive between all three. A few years time will add a greater degree of parity between these matchups, making the competition even more fierce.

    Instead, I see more potential for the ASEAN+3 block.

  7. Mandarin

    An exit from America’s predicament will certainly entail a stronger China. We’re broke and the current rescue efforts show little prospect of restoring the status quo ante. We can no longer buy from China and they can’t absorb much more of our paper. They want hard assets – productive capacity, equity, and access to high tech goods- that have been denied them by deliberate US policy. And they should have them. It’s not the end of the world. If the West and America specifically cedes control of the shipping lanes to the Chinese or Japanese, then God bless ’em – that’s another ridiculous burden we can jettison. And if the loss of hegemony brings with it the loss of cultural dominance, it’s probably our own damn fault because we abdicated our own heritage.

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