MANILA, Jan (IPS) As the US recession drags Asia down, there has been
much speculation about a regional response to the crisis. Seemingly
lending substance to this have been a trilateral summit of the leaders
of China, Japan, and South Korea last December and a flurry of
bilateral talks between Japan's Taro Aso and Korea's Lee Myung-bak, all
of which had economic cooperation at the top of the agenda.
On the face of it, coordinated action by the three could be
significant: they account for about three-quarters of East Asia's GDP
and two-thirds of its trade, and each is among the other two's leading
trading partners. There are, however, reasons to be sceptical of recent
declarations of cooperation.
Regional Cooperation: the Record
First, the idea of Northeast Asian cooperation in the form of a
regional trading area has been kicked around for the last 15 years in
different formulations, with little movement at all in terms of
implementation.
Second, government coordination of economic policies in the face of a
crisis does not have a good track record. It was not just the US that
vetoed the Asian Monetary Fund (AMF) proposed by Japan during the 1997
financial crisis: China also did for fear it could become a vehicle of
Japanese hegemony.
Third, these meetings have been a case of a mountain giving birth to a
mouse. The concrete measures agreed upon -to expand use of bilateral
swap facilities under the ten-member Association of Southeast Asian
Nations (ASEAN) Plus Three (China, Japan and South Korea) Arrangement
and call for the infusion of more capital into the Asian Development
Bank (ADB)- were timid compared to the gargantuan task at hand. None of
the three named a specific amount they would commit to the ADB, and for
nearly a decade now, the institutional evolution of the ASEAN Plus
Three formation has been stuck at the level of bilateral swap
arrangements to prop up regional currencies subject to speculative
attack.
One reason economic cooperation among the Northeast Asian giants has
become a hot topic is that it was Chinese demand that pulled the Asian
economies, including Korea and Japan, from the depths of stagnation and
out of the Asian financial crisis in the first half of this decade.
Japan's first sustained recovery following its collapse into recession
in the early 1990s was fuelled by record exports of capital and
technology-intensive goods to China. Indeed, China became the main
destination for Asia's exports, with one analysis pointing out that by
the middle of the decade, China had become ''the overwhelming driver of
export growth in Taiwan and the Philippines, and the majority buyer of
products from Japan, South Korea, Malaysia, and Australia.''
This positive role of the Chinese 'locomotive' earlier this decade
sparked optimistic talk in academic and policy circles about
'decoupling' economic growth in East Asia from that of the US when the
latter was threatened with recession because of the subprime mortgage
crisis in 2007. Others were less optimistic. Research by economists
C.P. Chandrasekhar and Jayati Ghosh, for instance, underlined that
although China was indeed importing intermediate goods and parts from
Japan, Korea, and ASEAN, it was for assembly as finished goods for
export to the United States and Europe, not for its domestic market.
Thus, ''if demand for Chinese exports from the United States and the EU
slows down, as will be likely with a US recession, this will affect not
only Chinese manufacturing production but also Chinese demand for
imports from these Asian developing countries.''
The swift transmission to Asia of the collapse of their key market has
banished all talk of 'decoupling'. The more accurate term for US-East
Asia economic relations today might be a chain gang, linking not only
China and the US but a host of other satellite economies, all of whose
fates were tied to the deflating balloon of debt-financed middle-class
spending in the United States. China's growth in 2008 fell to 9 per
cent, from 11 per cent a year earlier, provoking widespread
unemployment and discontent. Japan is now in deep recession, its mighty
export-oriented consumer goods industries reeling from plummeting
sales. South Korea, the hardest hit, has seen its currency collapse by
some 30 per cent relative to the dollar.
End of Export-Oriented Industrialization
The current downturn, many now realise, is no simple recession. For
East Asia, there is the added significance that this is the end of an
era of export-oriented industrialisation that began in the 1960s, when
Korea and Taiwan embarked on a development process that tied their
growth to the US market. Encouraged by the World Bank to make ''special
efforts'' to turn their manufacturing enterprises away from the
relatively small markets associated with import substitution toward the
much larger opportunities flowing from export promotion, the Southeast
Asian countries followed suit in the 1970s and 1980s.
Everybody's export market was the United States, where, over the last
15 years, a consumer binge fuelled by massive international credit
–much of it from China and Japan–extended a boom past its natural
life and appeared to portend a never-ending demand for Asian imports.
Now that Alan Greenspan's ''New Economy'' has fallen victim to the law
of gravity, it will not be easy to reorient the export machines that
the Asian economies have become into economic engines serving the
domestic market. Income and asset redistribution will be central to
that reorientation, and many national elites will fight tooth and nail
to avoid that.
Regional integration or the joining of national markets by bringing
down tariffs against one another while keeping them up against
non-member countries is another remedy for the decline of the US
market. The different economic elites, however, are very jealous of
their national markets, and government technocrats, who have been the
ones promoting the dream of a 1.9 billion East Asian market, have not
demonstrated an eagerness to take them on. The current crisis may
embolden them to take some first steps, but the distance between the
rhetoric of regionalism and the reality of separate markets and
independent economic policies will continue to be considerable.
*IPS columnist Walden Bello is president of the Freedom from Debt
Coalition, senior analyst at Focus on the Global South, and professor
of sociology at the University of the Philippines.