China leads in advocating free trade
Jin BaisongChina Daily  Updated: 2005-11-02 05:58

Now that East Asian economies' "V formation" - with Japan as the lead goose - has been disrupted, an era of real competition has been ushered in, as pointed out by Joseph Stiglitz, former chief economist of the World Bank.

Competition is one thing and co-operation is another. Total trade volume in East Asia increased by a factor of 7.8 from 1985 to 2003. Mutual investment between different economies in the region has maintained energetic momentum. Bundled together, China, the Republic of Korea (ROK), Japan and the 10-country Association of Southeast Asian Nations (ASEAN) have a population of 2 billion and a GDP of US$7.44 trillion - a match for North America or the European Union. The time is right for establishing free trade zones.

Regional economic grouping follows two paths. One is advocated by China and promoted by Beijing and ASEAN countries, characterized by the establishment of bilateral free trade zones. The other is led by Japan, which also focuses on setting up free trade zones with ASEAN.

The European Union was formed because there were no distinct ideological differences between member countries, with their values based on Christianity. Economically, the foundations and need for close co-operation were already in place.

But in Asia, values vary widely because of the profound influences of Indian Civilization, Confucianism, Islam and Christianity existing side by side.

In view of this, the strength of individual economies is all the more important for promoting regional economic co-operation and integration. China and Japan, among others, could play a vital role in this regard on condition that the two sides discard disputes, retain common ground and strive for tolerance.

China joined the Bangkok Agreement in May 2001 and the World Trade Organization in November of that year, and signed a framework agreement on overall economic co-operation with ASEAN in 2002, targeting the establishment of a Sino-ASEAN free trade zone by 2010. At the same time, co-operation in investment, the information industry, monetary and service sectors has also been stepped up. In addition, the Chinese Government has time and again expressed its desire to establish a China-Japan-ROK free trade zone as well as the East Asia free trade zone.

By doing this, China has indirectly become an advocate of free trade zones in East Asia, which means the vast areas excluding the South Asia Subcontinent and the nations in Central and West Asia. In other words, the country is playing a leading role.

But Japan, which considers itself the unchallenged leader of Asia, has its own plans, despite China expressing its desire for co-operation.

This was demonstrated by a plan hammered out at the 2003 ASEAN Summit in Tokyo, a plan that will lead to the establishment of an economic partnership agreement in East Asia.

But negotiations have proceeded slowly, owing to resistance from various interested groups in Japan. In negotiations with Thailand on farm products, for example, Japanese negotiators insisted that Japan's rice market remain closed to the outside world. In talks with the Philippines on labour import, Japan permitted the entry of only a very limited number of Filipino labourers. Such behaviour makes some doubt if Japan is capable of acting like a world power.

At present, Japan's ability does not match its ambition to power economic growth in East Asia. In the 1990s, the Japanese economy entered a chronic sluggish period, which was made worse by the Asian financial crisis in the late 1990s. Now Japan depends heavily on China for consumption demand to lift it out of the quagmire of a decade-long depression, let alone for driving the Asian economy forwards. The countries that could replace Japan as the region's economic locomotive are the United States beyond East Asia and China within.

In its 2000 white paper on trade, the Japanese Ministry of Economy, Trade and Industry said Tokyo's involvement in regional economic co-operation in Asia is meant to promote its domestic reform programme and enliven the Japanese economy. In other words, Japan needed other Asian countries to help pull it out of economic difficulties. So how can Asian countries that are much weaker economically count on Japan's help in terms of regional development and co-operation?

In addition, Japan has allied itself closely with the United States, which naturally distances Japan from other Asian countries politically and diplomatically.

Some Japanese foreign ministry officials think regional co-operation should be carried out in political, diplomatic and security areas rather than in the fields of economy and trade. Some Japanese defence researchers have proposed that US military elements be ushered into the framework of East Asian co-operation. Obviously a set of plans involving political, diplomatic and security affairs with regard to East Asian co-operation is being conceived by Japan. Once Tokyo unveils its plans, I believe it will be hard for East Asian countries to accept them.

East Asian regional co-operation should follow a step-by-step principle. It is supposed to start from economy and trade. Only when liberalization of trade and investment is fairly consolidated can regional co-operation spread to new fields and become deeper. The ideas of overall and fast-paced regional co-operation as conceived by Japan are likely to exacerbate disputes between the parties involved and lead to a failure of the regional co-operation.

I personally have some specific suggestions with regard to China's co-operation with East Asian economies. To begin with, Thailand is the focal ground because enterprises run by overseas Chinese make up an important portion of the Thai economy and political, economic and cultural exchanges between China and Thailand have been faring very well.

In addition, with a population of 60 million, Thailand is a huge market that is fairly stable and standardized. In Thailand, Japan's competitive edge lies in digital technology, automobiles, machinery and management expertise. China's advantages lie in home electric appliances, cultural industries and textiles, which should have priority in China's economic undertakings in the region.

Indonesia and Viet Nam are supposed to be secondary focuses. Considering these markets are not as standardized as that in Thailand, though very large in scale due to the countries' large populations, large-scale entry of Chinese enterprises is not advisable at present. Projects enjoying government support should be promoted first in order to power non-governmental co-operation in such fields as energy and raw materials.

The author is a researcher at the Foreign Trade Research Section of the Research Institute affiliated to the Ministry of Commerce

(China Daily 11/02/2005 page4)

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