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A turning point for the East Asian region

By Zhou Muzhi (China Daily)
Updated: 2009-03-25 07:49

Thirty years ago, China reached a historic turning point and launched a major change in policy: moving from a closed to an open society and from a planned to a market economy; and through this change achieved an average, annual growth rate of 9.8 percent.

China is now the third largest trading country in the world. Last year it surpassed Germany to become the third largest economy.

However, China was not the only country in the East Asian region to achieve an impressive rate of development; since 1960 most countries have experienced fast growth. As a result, East Asia has a greater presence in the world economy: it has increased from 8.9 percent in 1965 to 14 percent in 1980 and continued to grow to 20 percent in 2006 (the last year that statistics are available). In the past 30 years, the region has experienced the highest growth rate in the world.

At the same time, the rate of inter-regional trade has increased even faster: from 34 percent in 1980 to 56 percent in 2005, which indicates that the fast growth of each country was not an isolated occurrence. As the relationships among the countries that make up our region have strengthened, their interconnectedness has played an extremely important role and has helped each of them to achieve greater economic development. While China has been called "The World's Factory," in fact, this term rightfully applies to the entire region.

We are now more interdependent than at any time in the past.

It was the rapid development of the supply chain that has brought fundamental change. (The supply chain is the process that collects material, moves it to production sites, and then delivers the finished product to the buyer.) Initially the supply chain was local and domestic; but due to the evolution of information technology, the supply chain has expanded from local, to regional, to global.

Several factors relating to cost and effectiveness contributed to this impressive increase in trade:

Information technology. It cannot be overstated how much the shift from paper to digital-stimulated trade acceleratedthe flow of information within the business community;

The World Trade Organization (WTO): WTO has served us well in facilitating the drop in tariff barriers;

The transport system: the rapid and extensive expansion, especially of sea and air transport, has increased efficiency, capacity, and speed of delivery;

The information revolution has brought us to a new stage of development.

With greater globalization has come increasing competition, forcing companies to focus on their core business and use the supply chain to optimize their allocation of resources, increase their efficiency, and maximize their profit. This shift in the business model has had great geopolitical impact.

It was lucky for China that the global supply chain was developing at the same time that China was opening. This led to rapid economic expansion. China built up a huge amount of infrastructure: harbors, airports, and highways; developed thousands of industrial parks; and provided an abundant supply of cheap labor. This expansion was concentrated in coastal areas, especially in the Yangtze and Pearl River deltas and in the Jingjinji area. This attracted foreign investment, which together with domestic companies lead to the development of huge industrial clusters.

Hundreds of millions of people from all over China have been attracted to these areas to pursue a better life. This tidal wave of migration has created three megalopolises. In 2006, these three areas produced 42 percent of China's GDP, 79 percent of its exports, and received 68 percent of direct foreign investment. These three areas are the growth engine of the Chinese economy.

China provided land and built infrastructure, opened their market and freed the movement of people, which released an explosion of energy. All this contributed to the success that China has achieved.

East Asia has made enormous progress but there is still a lot more to do. We see that the great development of each country in the past 30 years has depended on our mutual cooperation: now we need to create a formal system to expand and guarantee this cooperation:

We need a regional Free Trade Association (FTA);

We need a regional system for financial cooperation;

We need a regional investment agreement;

We need a regional system for energy cooperation;

We need a regional system to address environmental issues.

Several countries have developed some of these systems with each other but not the entire region. We have built a framework in Asean+3 (China, Japan, and Korea), which has been successful but we need to go further and much more needs to be done. The current crisis demonstrates the need for this and will, of necessity, push us to a stronger system. Looking to the future, I hope we will someday see an East Asian Common Market.

Southeast Asia is not only facing an economic downturn, it also faces the dangers of increasing protectionism. Nations around the globe are recognizing the need for stimulus plans to save their own economies. While recognizing the benefits of globalization, there is also a temptation to blame globalization for the present crisis and retreat into protectionism. This must be resisted at every level. There are flaws and inequities in the global system which need to be addressed and corrected but the global system must be saved! We should not "throw the baby out with the bath water".

In the East Asian region, today we are facing a major turning point, no less significant than China faced 30 years ago. The downturn of the global economy requires a fundamental change in our approach to development: we need to work more closely together, we need a more combined effort and we need greater mutual understanding to successfully develop the new institutions that this new global age demands and to help us, in the future, to achieve the ultimate goal of a common market.

The author is a Professor of Tokyo Keizai University, Japan.

(China Daily 03/25/2009 page9)