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The initial postwar challenge from East Asia was economic. Japan crashed back into global markets in the 1960s, became the largest surplus and creditor country in the 1980s, and was viewed by many as the world’s dominant economy by 1990. The newly industrialized countries (Korea, Taiwan, Hong Kong, Singapore) followed suit on a smaller but still substantial scale shortly thereafter. China only re-entered world commerce in the 1980s but has now become the second largest economy (in purchasing power terms), the second largest recipient of foreign direct investment inflows, and the second largest holder of monetary reserves. Indonesia and most of Southeast Asia grew at 7 percent for two or more decades. The oil crises of the 1970s and the financial crises of the late 1990s injected temporary setbacks but East Asia has clearly become a third major pole of the world economy, along with North America and Western Europe.
The new Asian challenge will be political and especially institutional. Alone among the large economic regions, East Asia has had no significant institutions of its own. For a series of reasons, its countries from Japan through China to Thailand are determined to rectify that anomaly. It will start, as have Europe and North America, with institutions to deepen economic cooperation within the region and to coordinate its economic relations with the rest of the world.
East Asian economic institutionalization is already underway. An East Asian Economic Group, as proposed a decade ago by Malaysian Prime Minister Mahathir Mohamad, has now held summit meetings for three consecutive years under the “ASEAN+3” rubric (the ASEAN countries, China, Japan, and Korea). Its economic ministers are starting to gather annually. It is now considering a system of “sherpas” and other summit preparatory devices, modeled to an extent on the traditional G-7 of advanced industrial democracies, that will further institutionalize the process. It has created a “Vision Group” to help chart its future, like the Eminent Persons Group that developed the blueprint adopted by the Asia Pacific Economic Cooperation (APEC) forum.
In addition, the central banks of the region have met regularly since the early 1990s. China, Japan, and Korea are actively monitoring capital flows to and from their northeast Asian region. The ASEAN Free Trade Area (AFTA) already constitutes a subregional trade linkup and its members have now established a surveillance mechanism to monitor their economic performance and anticipate future crises. Free trade initiatives between Japan and Korea, and between Japan and Singapore, are being officially considered.
Much more ambitious ideas are also being seriously contemplated. Japan proposed an Asian Monetary Fund in the immediate wake of the financial crisis in 1997. China, after rejecting the idea then, is now “very supportive” of it (per Premier Zhu Rongji in November 1999). Japan has provided a down payment of $30 billion through the Miyazawa Plan. The southeast Asians have asked Japan to fund such a facility on a permanent basis. Japan is guaranteeing foreign borrowing by other Asian countries, and is actively promoting regional use of the yen. The Philippines and Hong Kong have proposed the creation of an Asian currency.
On the trade side, the President of the Philippines has called for an East Asian Free Trade Area. Analysts in China, Japan, and Korea are studying a Northeast Asia Free Trade Area, and Korea has suggested extending the earlier Japan-Korea talks to include China. Such a group could eventually join with AFTA to cover the entire region. The private sectors are weighing in as well; a high-powered Japanese mission to key Asian countries, led by the Chairmen of Toyota and Bank of Tokyo-Mitsubishi in late 1999, strongly endorsed new regional economic institutions. Mahathir talked vociferously about regionalization but the Asians are now quietly going about it.
It will undoubtedly take some time for East Asia to convert these desires, initial steps and proposals into meaningful institutional arrangements. The process of economic integration is difficult, as demonstrated by the postwar evolution of Europe, and the Asian situation is even more complicated than Europe’s. Free trade areas and currency unions require both extensive technical cooperation and sustained political determination. The process is likely to evolve slowly over a number of years rather than emerge full blown in the short term.
This East Asian determination to create new regional institutions, even in its early stages of formation, could nevertheless have a profound impact on global peace and prosperity in the new century. It could have a major effect on the global balance of power, producing the “three bloc world” that was so widely discussed a decade ago—at the height of Japan’s economic success—but never materialized. It could alter the international financial, trade, and economic architecture more fundamentally than any of the current deliberations in the International Monetary Fund, the World Trade Organization and the G-7.
THE ROOTS OF CHANGE
East Asia’s search for an institutional identity is not new. ASEAN has linked that subregional group for over 30 years. Prime Minister Mahathir has pushed regional unity for some time. Both serious analysts and popular pundits have frequently postulated the prospect of a “three bloc world” on the assumption that Asia’s economic might would automatically translate into institutional cohesion.
But several factors conspired to preclude meaningful progress. Political rivalries and security tensions within the region were acute. So were historical antipathies, borne of past wars and frequently renewed antagonisms. The countries viewed each other largely as economic competitors rather than potential collaborators. Much of the region looked to an outsider, the United States, for protection rather than banding together to provide it themselves. The effectiveness of the global institutions, particularly in the economic sphere of paramount importance to most Asians, obviated the need for regional structures.
