Inter-City Linkages and Cooperation Measures for Northeast Asian Cities
in the Global Era
- Focusing on the Pan Yellow Sea Zone -
Won Bae Kim Jeong-Ho Moon
Sung-Ho Oh Jin-Cheol Jo Min-Ho Seo
Korea Research Institute for Human Settlements For
Ministry of Land, Transport and Maritime Affairs
KRIHS Research Monograph 2008-1 · Inter-City Linkages and Cooperation Measures for Northeast Asian Cities in the Global Era
Authors: Won Bae Kim, Jeong-Ho Moon, Sung-Ho Oh, Jin-Cheol Jo, and Min-Ho Seo / Yang-Ho Park / Publisher : Korea Research Institute for Human Settlements Publication Registration No. 2-22 / Printed on July, 25, 2008 / Published on July, 25, 2008
Address : 1591-6 Gwanyang-dong, Dongan-gu, Anyang-shi, Gyeonggi-do (431-712) Tel : 031-380-0114 (main), 031-380-0426 (distribution) / Fax : 031-380-0470
ISBN · 978-89-8182-544-7
Korea Research Foundation Research Classification No. B101100 http://www.krihs.re.kr
2008, Korea Research Institute for Human Settlements
＊The content of this research is the outcome of an independent study conducted by the Korea Research Institute for Human Settlements.
KRIHS Research Monograph 2008-1
Inter-City Linkages and Cooperation Measures for Northeast Asian Cities in the Global Era
- Focusing on the Pan Yellow Sea Zone -
•
Won Bae Kim, Jeong-Ho Moon, Sung-Ho Oh, Jin-Cheol Jo, and Min-Ho Seo
K R I H S
Authors
Won-Bae Kim, Senior Research Fellow, Project Leader Jeong-Ho Moon, Research Fellow
Sung-Ho Oh, Research Fellow Jin-Cheol Jo, Research Fellow Min-Ho Seo, Researcher
K R I H S
C ․ O ․ N ․ T ․ E ․ N ․ T ․ S
Contents
Chpter 1. Northeast Asian Regionalization: Trends and
Issues --- 1
1. Regional Exchange Trend in Northeast Asia --- 1 1) Globalization and regionalization trends--- 1 2) Regionalization trend between China, Japan, and Korea ---- 4 3) Trends in economic exchange and investment --- 7 4) Trends in industrial cooperation --- 10 5) Trends in tourist & human exchange --- 18 2. Cooperation and Exchange in Northeast Asia: Issues and
Prospects --- 22 1) Obstacles to further regionalization in Northeast Asia 22 2) China-Japan-Korea FTA promotion: trends & prospects ---- 23 3) Political and diplomatic obstacles and prospects --- 26 4) Cooperation and exchange between China, Japan, and
Korea: prospects and tasks--- 28
Chapter 2. Inter-City Linkages and Cooperation System in Northeast Asia: Current Status and Outlook --- 33
1. History of Inter-City Linkages in Northeast Asia --- 33 1) Historical background of inter-city linkages in Northeast
Asia --- 33 2) Economic exchange and inter-city linkages in the Pan Yellow
Sea Zone 42 2. Inter-City Cooperation in the Pan Yellow Sea Zone: History and
Trends --- 46 1) Emergence of the Pan Yellow Sea Zone --- 46 2) Geographical scope, key port cities’ current situation, and
development strategy for the Pan Yellow Sea Zone --- 48 3) History of cooperation between port cities--- 64 3. Task for Inter-City Cooperation in Northeast Asia --- 71
1) Strengthening the administrative linkages and cooperation system between cities --- 71 2) Organization of support fund for inter-city linkages and
cooperation projects --- 72 3) Inducing proactive support from the business community,
private sector, and academe --- 73 4) Development of practical programs and new projects --- 74
Chapter 3. Establishing Logistics and Transportation Linkages Between Cities in China, Japan, and Korea --- 77
1. Status of Logistics and Transportation Linkages in Northeast Asia --- 77
1) Status of waterway exchange in Northeast Asia --- 78 2) Status of airway exchange in Northeast Asia --- 82 2. Status of Logistics and Transportation Linkages and Trends in
the Pan Yellow Sea Zone --- 85 1) Status of logistics and transportation linkages in the Pan
Yellow Sea Zone --- 85 2) Characteristics of logistics and transportation linkages in the
Pan Yellow Sea Zone --- 88
3) Recent efforts to expand logistics and transportation linkages in the Pan Yellow Sea Zone --- 94 3. Policy Direction for Invigorating Human and Commodity Flows
Between Cities in the Pan Yellow Sea Zone --- 99 1) Passenger flows: establishment of the 1-day business zone --- 99 2) Cargo flows: vitalization of an integrated transportation
system --- 101 3) Regional linkages: specific measures for enhancing
transportation infrastructure linkages --- 104
Chapter 4. Environmental Problems and Inter-City
Cooperation Measures in Northeast Asia --- 109
1. Status of Environmental Cooperation Between the Central and Local Governments in Northeast Asia --- 109
1) Status of environmental cooperation between central governments --- 109 2) Status of environmental cooperation between local
governments --- 111 3) Climate change and potential inter-city cooperation--- 114 4) Evaluation of environmental cooperation between the
central and local governments in Northeast Asia --- 117 2. Inter-City Environmental Cooperation: Cases and Implications--- 119
1) Inter-city environmental cooperation: examples in the Pan Yellow Sea Zone --- 119 2) Implications of environmental cooperation between cities in
the Pan Yellow Sea Zone --- 125 3. Common Environmental Problems and Measures for Enhancing
Inter-City Cooperation in the Pan Yellow Sea Zone --- 128 1) Common problems and responses in cities in the Pan Yellow
Sea Zone --- 128 2) Measures for inter-city environmental cooperation in the
Pan Yellow Sea Zone --- 133
Chapter 5. Conclusion: Promotion of Inter-City Linkages
and Cooperation in Northeast Asia --- 141
1. Importance of Regionalization and Inter-City Linkages and Cooperation in Northeast Asia --- 141 2. Establishing the Macro Environment for Strengthening Inter-
City Linkages in Northeast Asia --- 142 1) System improvement to strengthen cross-border cooperation - 142 2) Strategic linkages with the China-Japan-Korea FTA --- 144 3. Transportation Infrastructure and Environmental Cooperation
Measures --- 145 1) Measures for improving the inter-city transportation
infrastructure in the Pan Yellow Sea Zone --- 145 2) Measures for logistics cooperation --- 148 3) Measures for inter-city environmental cooperation in
Northeast Asia --- 149 4. Direction of Territorial Policies for Strengthening Inter-City
Linkages--- 150 5. Role of Local Governments in Promoting Inter-City Linkages and
Cooperation in the Pan Yellow Sea Zone --- 153
<Table 1- 1> Nature of the New Regionalism ... 2
<Table 1- 2> Comparison of Regionalism in Europe and Northeast Asia .... 4
<Table 1- 3> Changes in the Trade Volume of the Northeast Asian Three (China, Japan, and Korea)... 9
<Table 1- 4> Overview of the Business Bases of Korea’s Hyundai Motors in China ... 14
<Table 1- 5> Annual Direct Investment Matrix of the Chinese, Japanese, and Korean Electronics Industries ... 16
<Table 1- 6> Skilled Foreign Workers by Nationality and Visa Type... 21
<Table 1- 7> Labor Outflow from Korea (2000) ... 21
<Table 1- 8> Direction of FTA Policy of China, Japan, and Korea ... 25
<Table 2- 1> China-Korea Trade in the Pan Yellow Sea Zone (Bohai) .... 43
<Table 2- 2> Key Indicators for the Pan Yellow Sea Zone (2006) ... 50
<Table 2- 3> Economic Status of the 10 Key Cities in the Pan Yellow Sea Zone (2006) ... 51
<Table 2- 4> Economic and Industrial Structure of Key Cities in the Pan Yellow Sea Zone (2006) ... 52
<Table 3- 1> Container Traffic and Share of the Northeast Asian Three (China, Japan, and Korea) ... 78 T ․ A ․ B ․ L ․ E ․ S
Tables
<Table 3- 2> Container Volume: China-Korea, Japan-Korea, and China- Japan (2000~2006)... 80
<Table 3- 3> Container Volumes of Key Ports in the Northeast Asian Three (China, Japan, and Korea) ... 81
<Table 3- 4> Facilities in Key Ports of the Northeast Asian Three (China, Japan, and Korea; 2005) ... 82
<Table 3- 5> Comparison of Airway Transportation Volume Between China, Japan, and Korea ... 83
<Table 3- 6> Comparison of Airway Transportation Volume: China-Korea, Japan-Korea, and China-Japan... 84
<Table 3- 7> Container Transportation Volume Between Key Ports in the Pan Yellow Sea Zone (Korea → China; 2006) ... 89
<Table 3- 8> Container Transportation Volume Between Key Ports in the Pan Yellow Sea Zone (China → Korea; 2006) ... 89
<Table 3- 9> Container Transportation Volume Between Key Ports in Japan and Korea (Korea → Japan; 2006) ... 90
<Table 3- 10> Container Transportation Volume Between Key Ports in Japan and Korea (Japan → Korea; 2006) ... 91
<Table 3- 11> Container Transportation Volume Between Key Ports in China and Japan (2005) ... 92
<Table 3- 12> Airway Transportation Volume Between Key Airports in the Pan Yellow Sea Zone (2005) ... 93
<Table 3- 13> Airway Transportation Volume Between Key Airports in Japan and Korea (2005)... 94
<Table 4- 1> CO₂ Emission Reduction Plan 2010………130
<Table 4- 2> Basic Plan for General Waste Processing in Kitakyushu…131
F ․ I ․ G ․ U ․ R ․ E ․ S
Figures
<Figure 1- 1> Change in the Trading Structure of the Northeast Asian Three (China, Japan, Korea) for the Past 10 Years ... 7
<Figure 1- 2> Direct Investment by Japan and Korea in China ... 10
<Figure 1- 3> Production Bases of Japanese Automobile Companies in China ... 13
<Figure 1-4> Regional Distribution of Direct Investment Overseas by Korean Automobile Companies ... 13
<Figure 1- 5> Human Exchange Between China, Japan, and Korea (2006) 20
<Figure 2- 1> Key Continental and Maritime Cities in a Mediterranean Sea of East Asia... 34
<Figure 2- 2> East Asian Maritime Zone in a Mediterranean Sea of East Asia ... 34
<Figure 2- 3> Formation of the Exchange Network in the
“Commercial Age” of the 16th Century ... 35
<Figure 2- 4> Formation of China-Japan-Korea Maritime Zones at the End of the 19th Century ... 35
<Figure 2- 5> Historical Maritime Zones in East Asia... 36
<Figure 2- 6> Change in the Trading Volume Between China and Korea in the Pan Yellow Sea Zone (Bohai) (2000~2006) .. 44
<Figure 2- 7> Change in the Trading Volume Between Japan’s Kyushu and Korea (2000~2006) ... 46
<Figure 2- 8> Geographical Scope of the Pan Yellow Sea Zone 49
<Figure 2- 9> Establishment of Inter-City Networks and Launching of Businesses by Kitakyushu... 63
<Figure 3- 1> Change in the Container Volume Between the Northeast Asian Three ... 80
<Figure 3- 2> Change in Airway Transportation Volume (passenger and cargo) Between the Northeast Asian Three (2002~2005)... 85
<Figure 3- 3> Status of Joint Rail Cargo Transportation Between Japan and Korea and Rail-Ferry System Between China and Korea... 96
<Figure 3- 4> Comparison of the Number of Passengers Before and After the Introduction of the Gimpo-Haneda Line... 97
<Figure 3- 5> Analysis of the Prospective 1-Day Business Zones in China, Japan, and Korea in the Pan Yellow Sea Zone (airway) ...100
<Figure 3- 6> Train-Ferry System (RO/RO line)...102
<Figure 3- 7> Conceptual Diagram of the Road Feeder Service ...103
Chapter 1• Northeast Asian Regionalization: Trends and Issues 1 C · H · A · P · T · E · R
1 Northeast Asian Regionalization:
Trends and Issues
1. Regional Exchange Trend in Northeast Asia
1) Globalization and regionalization trends
The 1990s saw the trend of globalization of the world economy and development of the multilateral trading system (WTO). To reflect the regionalization trend, pre-existing agreements have been further developed and expanded.
In other words, efforts to promote organized cooperation among different countries at the regional level have been made since the late 1980s. Parallel to such efforts is the initiative to build a unified global market. This is symbolized by the launch of WTO.
Regionalism refers to the promotion of linkages and cooperation between certain countries sharing geographical proximity, history, cultural background, and economic interdependence based on the region’s characteristics. At the same time, however, autonomy in international society is maintained.
By area of interest, regionalism can be classified into economic regionalism or general regionalism. General regionalism addresses political and military issues. By degree of integration and institutionalization, an organization can be a simple regional organization or a supra-national one.
Strictly speaking, regionalism refers to the trend in international economics wherein certain countries that are geographical close to each other and with common historical and cultural backgrounds create a regional market. They also apply the principle of free trade within the region.
Therefore, the process of regionalism based on the pursuit of specific goals can be observed in regional economic integration.
Some examples include Europe’s EU, America’s NAFTA, and Asia’s APEC.
<Table 1- 1> Nature of the New Regionalism Old Regionalism New Regionalism Nature of
international order Cold War, Bipolar System Multi-dimensional order and globalization trends Nature of objective Specific (economic or military)
Compliance with the more all- inclusive, multi-dimensional social
trend Nature of
governance Top down More Voluntary, Bottom up Interest of the
participants
Group relations between people of different
nationalities
Behaviors of various non-state parties at the global level
Economic tendency Centripetal, Protective Centrifugal, Open Source: Hettne, Björn (2002). "The Europeanisation of Europe: endogenous and exogenous dimensions." European Integration, Vol. 24, No. 4, pp. 325~326.
Such globalization and regionalization trends tend to result in the diminishing significance of sovereign states, however. Competitions occur between city regions centered on metropolitan cities rather than between countries.
No doubt, advancements have been made in the transportation, information, and telecommunications technologies. The world economic order has been reconfigured as well. As a result, more capital, labor, commodity, service, technology, and information are formed, exchanged, and modified with little regard to national borders. This in turn leads to increasing interaction and trade between various parties including individuals, organizations, businesses, and regions in international society.
That is why the creation of autonomous city-regions around metropolitan cities is becoming increasingly important in vitalizing the regional economy. The same is true for the formation of networks with other city-regions worldwide. As such, cities are trying to enhance their competitiveness and expand their networks with one another to gain geographical advantage.
Chapter 1• Northeast Asian Regionalization: Trends and Issues 3
China, Japan, and Korea are the core countries of Northeast Asia; they have maintained a very close relationship throughout the long history of exchange and cooperation as well as invasion and war. “Regionalization” in Northeast Asia is not really a new phenomenon.
The exchange and interaction between port cities in Northeast Asia have formed a cycle of ebb and flow. In fact, they have repeatedly occurred throughout the region’s long history; they have survived the rise and fall of various Chinese dynasties and political, diplomatic, and economic relationships between China, Japan, and Korea.
Skinner (1985) conducted a comparative analysis of the growth cycles in the Chinese inland region and near-sea region in the Southeast.1 As a result, he came up with “Maritime Asia,” a concept that has evolved around China, Japan, and Korea since the 12th century.
Northeast Asia (China, Japan, and Korea) has extensive historical experience and huge potential to promote and realize regionalism at the city, regional, and national levels.
Nonetheless, China, Japan, and Korea (particularly China and Korea) have fallen behind Europe in terms of developing regional economic zones and bestowing local governments with autonomous powers. A centralized development strategy focuses on a few select primary cities rather than those incapable of participating in competition. Cities’ competitiveness in Northeast Asia is more heavily influenced by the central governments’
policies.2
China’s opening and reform in the late 20th century have made regionalization efforts by China, Japan, and Korea in Northeast Asia more aggressive. As a result, inter-city and inter-region linkages and cooperation as well as those between countries have expanded and deepened.
1 It represents the “maritime history” viewpoint, i.e., China, Japan, and Korea in East Asia and Southeast Asian countries have constantly built economic and cultural exchange networks through waterways to form “Maritime Asia.” This is comparable to the modern world order of the West (Gawagatsu, 1997; Skinner, 1985).
2 In Europe, cities have emerged as capable competitors outside national boundaries following the establishment of EU. In fact, they are directly competing against one another in the regionalized free market.
<Table 1- 2> Comparison of Regionalism in Europe and Northeast Asia
Europe Northeast Asia
Example Euroregions/
EUREGIO/Transmanche/Öresund
Sub-regional economic zones (Southern Chinese Economic Zone, Greater China Economic Zone, Pan Yellow Sea Economic Zone, Pan East Sea Economic Zone, Japan-Korea Waters, etc.)/TGA (SIJORI, Tumen River Area)
Characteristics
Full opening of national borders, outcome of supra-national policies (ex.
EU policies), policy-driven, top-down governance structure
Selective opening of national borders, outcome of inter- governmental agreement or unilateral policy decision by a specific country, market- driven, bottom-up governance structure
Source: Perkmann (2004). "Cross-border cooperation in Europe." WB Kim et al., Cooperative Development Strategy of the Regional Economy in the Korea-Japan Strait Zones. pp. 4~5 (contents revised and reorganized).
2) Regionalization trend between China, Japan, and Korea
The 1990s saw the end of the Cold War and beginnings of globalization trends with information technology development. These developments in turn have reinforced the economic cooperation between China, Japan, and Korea.
The Northeast Asian Three have come together and worked closely as a block.
As of 2006, the GDP of the Northeast Asian Three (China, Japan, and Korea) was USD 7.898 trillion or 16.4% of the world’s total GDP. Their trade value of USD 3.66 trillion made up approximately 15.3% of the world’s total trade value.
The rate of increase in their intra-regional trade was higher than the world’s average of 5.8% (6.9% for Korea, 13.4% for China). This explained the increase in the region’s share in the world’s total trade.
Furthermore, China’s rapid economic growth has enhanced the significance of Northeast Asia in the world economy. As a result, Northeast Asia has become one of the world economy’s three pillars along with North America and Europe.
Chapter 1• Northeast Asian Regionalization: Trends and Issues 5
The economic growth rate of the Northeast Asian Three (China, Japan, and Korea) has surpassed the world’s average economic growth rate of 2.3% between 1990 and 2000 (10.0% for China, 1.0% for Japan, and 5.3% for Korea).
China’s high growth rates of 7.5% (2001) and 10.5% (2006) within the last 5 years are expected to add further to the weight of the Northeast Asian economy vis-à-vis the world economy.
The continuing progress of economic regionalization led by China, Japan, and Korea has given rise to the ongoing FTA talks between the three countries. The ultimate objective is to facilitate regional economic integration.
The China-Japan-Korea FTA was first proposed during the Northeast Asian Three Summit held in Manila in November 1999.
The discussion was pursued further when China officially suggested conducting a feasibility study on the three countries’
FTA during the summit held in Phnom Penh in November 2002.
At the time, the leaders of the three countries agreed that their respective national policy research institutes would carry out a joint study on the China-Japan-Korea FTA between 2003 and 2005. As a whole, more efforts similar to such have been made to establish the regional economic community. Since 2005, however, further details have not been discussed.
Discussions on cooperation in the energy, transportation infrastructure, environment, and economic areas in Northeast Asia are also ongoing.
Recently, cooperation works have been commenced to bring together the transportation infrastructure in the region. Specifically, the Northeast Asian Railway Network (consisting of the Trans- Siberian Railroad [TSR], Trans-China Railroad [TCR], Trans- Manchurian Railroad [TMR], and Trans-Mongolian Railroad [TMGR]) has been connected to the Trans-Korean Peninsula Railroad. This has given the Korean peninsula an opportunity to become an important logistics and transportation hub in Northeast Asia.
Discussions on cooperation in energy -- such as the natural gas development in Siberia and Sakhalin and establishment of an integrated electric power network -- are currently underway.
China, Japan, and Korea have held the Tripartite Environment Ministers’ Meeting (TEMM) since 1999. Bilateral cooperation works in the China-Korea and Japan-Korea channels are now in progress. Note, however, that each country has its own different view regarding the importance of and need for environmental cooperation. Moreover, a systematic institution has yet to be established. Thus, a significant outcome has yet to be realized.
As mentioned earlier, most cities cannot act as autonomous entities in Northeast Asia particularly China, Japan, and Korea. Such inability has made them vulnerable to the influence of policies of their respective central governments. Nevertheless, the number of inter-city linkages around a few sub-regional economic zones has grown rapidly.
The following are the key sub-regional economic zones of Northeast Asia:
The “Pan East Sea Economic Zone” was spun off from the economic exchange between Far Eastern Russia, Northeastern China, Korean Peninsula, and East Sea Coast of Japan.
The “Pan Yellow Sea Economic Zone” is the result of the economic exchange between the Bohai Coastal area in China, West Sea Coastal area in the Korean Peninsula, and Kyushu and Yamaguchi areas in Japan.
The “Tropic of Cancer Economic Zone” or “Southern Chinese Economic Zone” is the product of the economic exchange between the Southern Coastal area of China, Hong Kong, Taiwan, Northern Philippines, and Okinawa, Japan.
The “Japan-Korea Strait Economic Zone” is the offspring of the economic exchange between the Northern Kyushu and Yamaguchi areas in Kyushu, Japan and Southeastern Korea specifically Busan.
Chapter 1• Northeast Asian Regionalization: Trends and Issues 7
3) Trends in economic exchange and investment
China, Japan, and Korea have established a “triangular trade structure.” Intra- region trade has increased by more than 3.2 times over the past years. As of 2005, Japan recorded a USD 22.2 billion trade surplus with Korea. On the other hand, Korea’s trade surplus with China reached USD 23.3 billion.
China’s trade surplus with Japan was USD 16.5 billion.
In 2005, total Korean exports to China stood at USD 61.9 billion;
the country’s imports from China amounted to USD 38.6 billion.
On the other hand, Korea’s total export to Japan was USD 24.0 billion; total Korean imports from Japan were pegged at USD 48.4 billion. Japan’s exports and imports to/from China were USD 80.1 billion and USD 108.4 billion, respectively.
The Japan-Korea trading relationship is both inter-dependent and competitive; its focus is on capital-intensive industries. As a result, Korea is structurally left with a chronic trade deficit with Japan.
Source: IMF (2006). Direction of Trade Statistics Yearbook 2006 (refer to KITA’s Trade Statistics).
<Figure 1-1> Change in the Trading Structure of the Northeast Asian Three
Korea Korea
Japan China Japan China
Intra-region trade increasing
1995 (unit: USD 100 million) 2005 (unit: USD 100 million)
(China, Japan, Korea) for the Past 10 Years
Korea and China’s diplomatic relationship was formally established in 1992.
Since then, Korea’s trade with China has surged. Specifically, Korea’s export to and import from China expanded at an annual average rate of 89.2% and 81.1%, respectively, between 1993 and 2006.
Korea’s trade with China has been growing by approximately 11.9 times for the past 10 years (1995~2005). As a result, Korea became the 4th biggest trading partner (7.6%) of China. For its part, China emerged as the biggest trading partner (18.6%) of Korea.
Korea’s trade with China exhibited a steadily increasing trend. In fact, it only dipped slightly in 1998 due to the Foreign Exchange Crisis or “IMF Bailout” (export decreasing by 11.7%, import declining by 35.0%).
Note that the Chinese economy has posted an annual average growth rate of 9%. This is the major reason for the remarkable expansion of China’s import of semi-finished goods from Korea.
China’s trade deficit with Korea more than doubled from USD 6.4 billion in 2002 to USD 13.2 billion in 2003. It went as high as USD 23.2 billion in 2005.
After peaking in 2003, the growth of China’s trade deficit has slowed down considerably. The two countries’ trading structure is transforming from vertical differentiation to horizontal differentiation. This is attributed to the increasing weight of semi- finished goods with reference to raw materials in Korea’s import from China.
China-Japan trade has ballooned rapidly since Japan’s direct investment grew in the 1990s. The continuing reinforcement of China’s presence in the Japanese economy caused the trade deficit of Japan with China.
In 1993, Japan’s trade deficit with China stood at USD 3.3 billion. It increased more than sixfold, reaching USD 25.6 billion in 2006.
Chapter 1• Northeast Asian Regionalization: Trends and Issues 9
Such trend can partly be explained by the re-export of the goods produced by Japanese companies in China back to their homeland. This practice has become widespread since 1995.
Such change in the trading structure suggests that the focus of the two countries’ trading relationship is shifting from labor- intensive industries to capital-intensive ones. Moreover, their relationship – which is characterized by China’s one-sided dependence on Japan -- is transforming into a mutually dependent, competitive one.
Capital flow between China, Japan, and Korea is practically unchecked. This is because the three countries welcome foreign direct investments.
<Table 1- 3> Changes in the Trade Volume of the Northeast Asian Three (China, Japan, and Korea)
Unit: USD 1 million, %
2001 2002 2003 2004 2005
WORLD 12,462,890 13,005,770 15,124,500 18,428,790 20,865,600 Korea 291,537 314,597 372,644 478,308 545,657
Weight (%) 2.34 2.42 2.46 2.60 2.62
China 509,581 620,762 850,961 1,154,122 1,422,227
Weight (%) 4.09 4.77 5.63 6.26 6.82
Japan 752,585 753,920 854,747 1,020,217 1,109,827
Weight (%) 6.04 5.80 5.65 5.54 5.32
Subtotal 1,553,703 1,689,279 2,078,352 2,652,647 3,077,711
Weight (%) 12.47 12.99 13.74 14.39 14.75
Source: IMF (2006). Direction of Trade Statistics Yearbook 2006 (refer to KITA’s Trade Statistics).
Direct investment between China, Japan, and Korea had mostly originated in Japan and Korea and went to China. Recently, however, China’s direct investment in Japan and Korea has increased.
Japan has become the biggest investor (except Hong Kong) in China since 1997. Korea’s direct investment in China grew continuously; it peaked in 2004 before its growth stalled.
Japan and Korea accounted for 8.6% and 5.0%, respectively, of the total direct investment in China in 2005.
Source: Byung Ki Ha (2007). "Regional issues on economic integration, industry, and trade."
International Seminar on Cross-Border Cooperation Between Cities in East Asian Countries, Dec.
13~14, 2007.
<Figure 1- 2> Direct Investment by Japan and Korea in China
4) Trends in industrial cooperation
Japan has played a leading role in the regional production network of Northeast Asia since the 1970s. Since the late 1980s, however, the influence of NIES including Korea has grown. Recently, China has emerged as a key production base in Northeast Asian production systems.
The rise of China’s economy proved to be the biggest contributing factor to such change in the industry network.
China has recorded rapid economic growth since its government implemented reform and market opening policies in 1997.
The country has also attracted immense foreign investments particularly in the coastal areas. This in turn has paved the way for the establishment of industrial clusters.
USD 1 million No. of investment cases
Value of Korean
investment Value of Japanese
investment Cases of Korean
investment Cases of Japanese investment
Chapter 1• Northeast Asian Regionalization: Trends and Issues 11
China is making all-out regional economic integration efforts by expanding its cooperation with Southeast Asian countries. It is also deepening its trading relationships in Northeast Asia.
In response to such situation, Japan has set the policy direction toward promoting networking efforts between its key areas and those in China and Southeast Asia. Businesses have been more instrumental in pushing through with this plan to build different Northeast Asian production systems for different industries and strengthen regional linkages.
More investments in China for the electric, electronics, automobile, and machinery industries, joint plasma production by Sony and Samsung, etc. (Japanese companies assign the upper-level functions related to core technologies, R&D, and product design in Japan and outsource the production function to China and Southeast Asian countries)
Korea has recently attempted to establish a Northeast Asian production system by expanding its investment in China. Its efforts have not translated into progress comparable to that made by Japan, however.
Korean businesses have made their entry into several overseas markets. In fact, they have become part of many overseas production networks. International production networks have also been created for the automobile, electric, electronics, and steel industries.
Korea has made efforts toward production networking in its electric, electronics, automobile, steel, and shipbuilding industries. The Seoul Metropolitan Area (SMA) in particular established the division of labor in the electric and electronics industries with some key areas in China. The Youngnam Region is starting to establish labor division for the automobile, steel, and shipbuilding industries with China.
Such trend calls for a focused analysis of the automobile and electronics industries, which are typical examples of industrial linkages between China, Japan, and Korea.
The automobile industry boasts of the best developed international production network evolving around Northeast
Asia. It represents how the businesses of Japan and Korea are expanding their production networks in China.
The electronics industry has traditionally observed the vertical division of the labor structure. Nonetheless, the enhancement of China’s technological level and general market growth of the country have rapidly changed the topography of industry networking.
(1) Networking trends in the Northeast Asian automobile industry
Japan’s automobile industry has already made Southeast Asia its production base; the country has rapidly increased investment in China since the early 2000s when China joined the WTO.
Honda paved the way for the entry of Japanese automobile businesses into the China market in the late 1990s. Since then, Toyota and Nissan have built production bases in China to enter the automobile parts market as well as the finished car market of China.
The same is true for the Korean automobile industry. Hyundai first built its production base in Beijing in the late 1990s. Korean automobile parts businesses started to make their entry into the Chinese market at around the same time.
As a result, the production of Korean automobile businesses clustered around Beijing. Likewise, Korea’s unique production network – which consists of multiple parts businesses driven by finished-car businesses – is becoming a fixture in China.
Chapter 1• Northeast Asian Regionalization: Trends and Issues 13 Source: Seong-Chun Jeong and Hyeong-Geun Lee (2007). Korea Institute for International Economic Policy, p.105.
<Figure 1- 3> Production Bases of Japanese Automobile Companies in China
(unit: USD 1 million)
Source: Seong-Chun Jeong and Hyeong-Geun Lee (2007). Korea Institute for International Economic Policy, p. 154.
<Figure 1- 4> Regional Distribution of Direct Investment Overseas by
Europe
China
Southeast Asia
US Suzuki
Toyota
Honda
Nissan
Korean Automobile Companies
<Table 1- 4> Overview of the Business Bases of Korea’s Hyundai Motors in China
Classification Investment Share
Production
Launch Key Products Production Capacity (2005)
Hyundai Motors - Peking
Hyundai:
50%
Peking Motors: 50%
2002
SONATA, AVANTE, TUCSON
300,000 (600,000 in 2008)
Jiangjin Motors - Hefei
Technology
transfer 2003 STAREX
90,000
(joint investment planned for commercial vehicle
production) Rongcheng
Huatai
Technology
transfer 2000 GALLOPER, TERRACAN
70,000 (100,000 in 2008)
Hyundai
Guangzhou
Hyundai Motors N/A 2007 (est.) Truck, Bus (20,000 est.) Kia Kia - Chefeng
Yida
Kia: 50%
Chefeng:
25%
Yida: 25%
2002
Qianlima, OPTIMA, CARNIVAL
130,000 (building of a second plant in 2007 planned to upgrade production capacity to
430,000) Source: Seong-Chun Jeong and Hyeong-Geun Lee (2007). Korea Institute for International Economic Policy, p. 164.
Note: As of the end of 2005; Rongcheng Huatai Motors was located in Shandong, whereas Jiangjin Motors was based in Anhui.
Japan and Korea’s automobile industry networks in China can be compared as follows:
Some of the similarities include the self-contained network structure, limited inter-network exchange, concentration of production bases on certain areas (Japan: Shanghai, Tianjin, and Guangzhou; Korea: Beijing), dependence of heavy parts procurement on local companies, limited relocation of the R&D function, emphasis on local procurement works, etc.
There are also some differences. For one, Japan pursues a high- quality, high-price strategy. In contrast, Korea pursues a small- profit, large-sales strategy. Unlike Korea, Japan strengthens the Keiretsu structure in parts procurement. It also brings down the
Chapter 1• Northeast Asian Regionalization: Trends and Issues 15
sales cost through production team discussions and efficiency improvement. Korea does the same based on the producers’
unilateral decision making. Such differences between Korean and Japanese automobile industries are attributed to the size, international competitiveness, and nature of the domestic production network.
(2) Cooperative relationship between the electronics industries of China, Japan, and Korea
In general, the electronics industries of China, Japan, and Korea have been characterized by the vertical division of the labor structure. Japan specialized in core parts production. Korea focused on semi-finished goods and medium-level technology parts production. China concentrated on finished goods assembly and retail parts production.
Accordingly, direct investment was made by Japan in Korea in the past. Investment by Japan and Korea in China started in the 1990s.
Direct investment by the Korean electronics industry targets China, not Japan.
Japan has technological prowess but minimal advantage as a production base. The country hardly has any merit as an investment destination except in terms of sales, production (albeit limited), and technology transfer.
Investment in China is made in the form of relocation and expansion of production facilities for electronic parts, appliances, and AV devices. Such strategy seeks to exploit China’s strengths as a production base, e.g., cheap labor. It also aims at making the most of the Chinese domestic market given its immense potential.
<Table 1- 5> Annual Direct Investment Matrix of the Chinese, Japanese, and Korean Electronics Industries
Unit: USD 1 million
Investor Korea China Japan
2000 137 4.3
2001 165 21.0
Korea
2002 218 2.1
2000 2.9 0.26
2001 10.6 1.7
China
2002 4.5 -
2000 153.2 332.4 2001 45.3 526.1 Japan
2002 38.4 304.5
Source: Joo, Dae-yeong, et al (2003). Korea Institute for International Economic Policy, p. 163.
Japanese businesses’ investment in China shrunk in the late 1990s. It bounced back strongly after 2000, however. In contrast, investment in Korea by Japanese businesses has been drastically cut down since 2000. This suggests that Korea has little appeal as an investment destination to Japanese businesses.
Both the Japanese and Korean electronics industries are relocating to or expanding their production bases in China.
Japanese and Korean businesses started moving their production bases to China in 2001 and 2003, respectively. This was due to the dwindling domestic demand and intensifying price competition.
The relocation of production bases from Japan and Korea to China has established the basis for businesses’ strategy of acquiring mass production capability. The maximization of the production advantage based on low labor cost was also targeted.
Sambo Computer, Digital Media Division of Samsung Electronics, and AC, Microwave Oven, and Refrigerator
Chapter 1• Northeast Asian Regionalization: Trends and Issues 17
Production Lines of LG Electronics in Korea are just some of the businesses that relocated their production bases to China.
Japan’s Hitachi, NEC, Sony, Matsushita, Pioneer, and Toshiba did the same.
Japanese and Korean electronics industries’ investment in the production bases to China continues to grow. Still, this may result in reduced domestic production. The absence of investment by MNCs at home may further exacerbate the situation.
This trend has been spreading through both the analog and digital sectors of the industry in Korea. In fact, the situation has delayed the upgrading of the industry and creation of value-added.
The production ratio in China is much higher for the electronics industry than the overall manufacturing industries in Japan. This indicates that the industrial hollowing out process has begun in the analog sector with its low value- added.
(3) Geographical linkages of the China-Japan-Korea industrial cooperation China-Japan-Korea cooperation works in the automobile and electronics industries are being pursued. They center on the three countries’ key economic engines.
In the case of the automobile industry, Honda and Toyota have their headquarters in the Kanto and/or Chubu areas of Japan. They built and started operating production plants in the Guangdong or Beijing areas.
Korea’s Hyundai Motors also opened assembly plants in the Beijing area.
The electronics industry is also very important in the three countries’ trading relationship as well as that between the key economic zones of each country.
More complex, regionalized production networks than those in the automobile industry are being formed.
Most of the Korea-to-China investments in the electronics industry were from the Seoul Metropolitan Area. The investment destinations were usually the Jingjinji and Changjiang areas.
More specifically, the electronics and telecommunications industries were ranked no. 1 in terms of investment made by Korea’s SMA in China’s three key areas. The three areas also made up 68.5% (USD 4.065 billion incl. Hong Kong) of Korea’s electronics and telecommunications investment in China (Won-Bae Kim, et al, 2007a).
Japan mostly invested in China’s information and telecommunications and other advanced-technology industries.
The specific investment destinations were the Kanto, Kinki, and Chubu areas. Note that these areas boast of outstanding industrial infrastructure and innovative capability.
Inter-regional linkages in the China-Japan-Korea industrial cooperation are expected to take the form of both vertical and horizontal production network expansion. The automobile and electronics industries are the targets. Such linkages enjoy great economic and industrial significance considering the key economic zones of each country.
Investment between the key economic zones of the three countries is active. Specifically, Japan and Korea invest in the Zhujiang Delta, Changjiang Delta, and Jingjinji areas of China.
This suggests that cross-border, inter-regional linkages will soon emerge as an important factor in a region’s competitiveness.
5) Trends in tourist and human exchange
The number of tourists between China, Japan, and Korea has constantly grown. The change has been particularly prominent in the directions of Korea to Japan and China since 2000. The same is true for Japan to China and China to Korea and Japan. In fact, only the Japan to Korea tourist flow was sluggish.
The three countries recognize the importance of the tourism industry at both the national and regional levels. Thus, they are making proactive policy- related efforts. In particular, they offer bigger incentives to promote the development of the tourism industry. Attracting more tourists serves as another impetus.
Chapter 1• Northeast Asian Regionalization: Trends and Issues 19
In Korea, tourism development investments within foreign investment areas are eligible for 100% deduction on national tax (corporate tax, income tax) for the first 5 years. On the 7th year, a 50% tax deduction applies. A levy extension of up to 15 years may also be granted for local tax (acquisition tax, registration tax, property tax, total estate tax) as in the case of corporate tax.
Both the central government and individual local governments are establishing policies in support of tourism development investment in China. For instance, Shandong is offering land usage right to investors developing deforested land or areas whose natural environment has been destroyed into tourist complexes. It also levies minimum real estate-related taxes.
Guangxi gives a 15% deduction on corporate income tax to domestic and foreign businesses investing in tourism development projects until 2010.
Individual local governments are particularly proactive in attracting tourism-related businesses and investments in Japan.
For one, they provide tax incentives such as property tax and acquisition tax deduction or exemption. The One-stop Foreign Investment Housing Service Center is also operating in Akasaka in downtown Tokyo. It seeks to help businesses from different industries attract foreign investment.
Korea’s current foreign workforce is described below. It can explain the labor movement between China, Japan, and Korea.
There was hardly any manual laborer of Japanese nationality.
There were a total of 181,449 illegal aliens. Among them, 86,266 (47.6%) were of Chinese nationality as of April 2004.
Industrial trainees numbered 74,923 in April 2004. This figure includes both legal and illegal aliens. At least 29,715 or 39.7%
of the total were from China.
For professional labor, 1,115 were from Japan and 1,102 were from China. China and Japan accounted for slightly more than half of language education visa holders. The two countries
also made up a big part of professional workers with E3 visa (45.5% of the class total).
Source: Kurishima, Akiyasu (2007). “National strategy for Japan’s cross-border cooperation."
International Seminar on Cross-Border Cooperation Between Cities in East Asian Countries, Dec.
13~14, 2007.
<Figure 1- 5> Human Exchange Between China, Japan, and Korea (2006) Japan
China Korea
2.3 million persons (- 4.5 million
(6% increase compared to 2005)
4.6 million
(13% increase compared to 2005)
3.8 million persons
0.8 million persons 2.1 million persons
4.5 million
(13% increase compared to 2005)
3.9 million persons
Total of 13.8 million persons (2005:12.5 million persons)
0.9 million persons (+27%)
Chapter 1• Northeast Asian Regionalization: Trends and Issues 21
<Table 1- 6> Skilled Foreign Workers by Nationality and Visa Type
E1 (professor)
E2 (language education)
E3 (research)
E4 (technical
training) E5 (professional)
E6 (art &
entertainment) E7 (specific activity) Visa
Type
Nationality No. Freq. No. Freq. No. Freq. No. Freq. No. Freq. No. Freq. No. Freq.
Total
Japanese Chinese
102 149
9.1 13.5
382 246
34.3 22.3
209 295
18.7 26.8
32 2
2.9 0.2
3 1
0.1 0.0
4 106
0.4 9.6
385 304
3.7 16.1
1,115 1,102 Total 965 22.6 10,657 56.6 1,370 45.5 189 3.1 334 0.1 3,026 10.0 3,266 19.8 19,807 Source: Jang-Won Lee (Jan. 2008). Presentation Materials for Korea Research Institute for Human Settlements’ EG Workshop.
Information on the currently active Korean workforce in China and Japan can be summarized as follows:
As of 2000, a total of 119,370 Koreans were studying abroad.
Among them, 31,519 (26.4%) were in Japan and 17,742 (14.9%) were in China.
A total of 25,105 people landed jobs outside Korea. Among them, 5,029 worked in Japan, and 2,272, in China.
A total of 12,285 people emigrated from Korea in 2000.
Among them, 28 went to Japan and 4 headed to China.
<Table 1- 7> Labor Outflow from Korea (2000)
Study Abroad Employment Emigration Total 119,370 100 25,105 100 12,285 100 Japan 31,519 26.4 5,029 20.0 28 0.2 China 17,742 14.9 2,272 9.0 4 0.0 Source: Jang-Won Lee (Feb. 2008). Presentation Materials for the Korea Research Institute for Human Settlements’ EG Workshop.
The study on the labor flows between China, Japan, and Korea showed that China mostly supplied unskilled labor to Japan and Korea. Moreover, there was very little exchange of skilled and/or professional labor.
A large proportion of Koreans residing in Japan are illegal aliens. They are most probably engaged in manual labor.
Both Japan and Korea are taking a rather stringent stand against unskilled foreign labor. Still, related supply factors are actually on the rise. This suggests that labor flows between the three countries will further expand in the future.
In case of professional and/or skilled labor, there is a relatively smaller cultural difference among the three countries compared to Western countries. This may translate into greater demand for bidirectional human exchange.
2. Cooperation and Exchange in Northeast Asia: Issues and Prospects
1) Obstacles to further regionalization in Northeast Asia
Northeast Asia has great growth potential both at the overall regional level and the individual country level. Such can be realized through economic cooperation. Nonetheless, the region has been taking a long time laying down the foundation for economic integration. In such sense, they pale in comparison with other regional economic zones in Europe and America.
Such lack of progress of Northeast Asian regional cooperation can be attributed to the following historical, political, and socio-cultural factors:
Traces of the conflictual inter-state political structure established during the Cold War, difference in economic systems, and conflicting interests of major superpowers
Division of the Korean peninsula, which is located at the heart of Northeast Asia, coupled with security-related risk factors:
They pose a challenge to the setup of a cooperation system between different countries.
Expansion of the military force in China and Japan, lack of effort on the part of Japan to repent on its past wrongdoings
Strong tradition of nationalism, absence of common language, poor infrastructure for socio-cultural exchange
Chapter 1• Northeast Asian Regionalization: Trends and Issues 23
The physical and institutional infrastructures leave a lot to be desired. Ports, airports, and transportation routes and required facilities for continuing exchanges between China, Japan, and Korea are insufficient. Likewise, the division of the Korean peninsula is serving as an obstacle to the development and use of land transportation routes through the region.
Absence of open institutional basis facilitating the movement of capital, people, and materials within the region; poor business conditions including those in the labor market
China, Japan, and Korea’s preference for pursuing independent, autonomous development plan: This translates into redundant, excessive investments in ports and other infrastructure. Complex transportation systems also remain underdeveloped as a result.
Difficulty in making foreign investment in key port and logistics facilities; physical obstacles such as investment regulations that prioritize investment by domestic businesses (Yim, Yeong-tae, 2006)
More substantive efforts toward the China-Japan-Korea FTA are being made, however. Likewise, there have been positive signs of political and diplomatic cooperation to ease the tension in Northeast Asia. Works aimed at institutional improvement have also been implemented. Such are intended to enable each country to keep pace up with the globalization and regionalization trends.
2) China-Japan-Korea FTA promotion: trends & prospects
(1) Rationale for the China-Japan-Korea FTA
FTA or trade cooperation policy promoting regional investment cooperation, etc., between China, Japan, and Korea is a matter of urgency.
A triangular trade relationship exists between China, Japan, and Korea. Korea imports capital materials to manufacture and sell parts materials to China. China uses the parts materials imported from Korea to manufacture finished goods and sell them to Japan.
The tariff and non-tariff barriers between China, Japan, and Korea greatly hinder trade promotion between the three countries.
Redundant, excessive investments in Northeast Asian countries’ key industries intensify competition. This in turn causes excess supply and lowers the investment yield in the international market.
(2) Status of the China-Japan-Korea FTA
The conclusion of the China-Japan-Korea FTA is expected to bring about benefits considering the regionalization trend worldwide. Nonetheless, the FTA among the three countries – which are located at the heart of Northeast Asia -- has yet to be discussed in detail.
China, Japan, and Korea account for 20% of the world economy and make for the world’s largest manufacturing industry base. Thus, a China-Japan- Korea FTA is expected to yield major economic effects.
The international trade weight is indicative of the level of market openness. The signing of the China-Japan-Korea FTA is expected to increase it by 5.31%, 2.32%, and 9.53% in China, Japan, and Korea, respectively. Such improvement in market openness will most likely result in 3.08%, 1.43%, and 5.15% rise in the income level of China, Japan, and Korea, respectively, for the next 25 years (Chang-Jae Lee, et al, 2005).
The signing of the China-Korea FTA is forecasted to translate into 0.14~1.28% additional growth for Korea’s GDP. If the tariffs are abolished as well, and with consequent capital accumulation, this figure is projected to reach 0.45~2.30%
(Chang-jae Lee, et al, 2005).
Nonetheless, the signing of the China-Japan-Korea FTA is hampered by several obstacles. These include the difference in the three countries’ level of economic development, competitive relationship between China and Japan, asymmetry between security alliance and economic partnership, and unresolved issues related to the region’s history.
Chapter 1• Northeast Asian Regionalization: Trends and Issues 25
<Table 1- 8> Direction of FTA Policy of China, Japan, and Korea Country Basic Policy Direction
Korea
- Simultaneous promotion of several FTAs
- Promotion of FTAs with the economic superpowers (EU, US, etc.) to pursue both economic growth and system advancement at the same time
China
- Expansion of its influence within the region while creating an economic zone centered on China through FTAs with ASEAN, India, and other neighboring countries
- Promotion of FTAs for the purpose of securing energy supply
Japan
- Promotion of FTAs to secure major control over the process of East Asian economic integration
- Support for domestic businesses’ activities abroad and expansion of its influence on other countries
Source: Federation of Korean Industries (2007). China, Japan, and Korea’s FTA Promotion Status and Related Issues.
(3) Tasks related to the conclusion of the China-Japan-Korea FTA
Northeast Asia is the world’s largest manufacturing industry base. It is heavily dependent on Europe and US for export. Note, however, that progress related to the development of trade within the region has been relatively sluggish.
Therefore, Northeast Asian countries should develop bilateral and multilateral trade relationships among themselves.
Through this, the growth of the regional market will be promoted.
China, Japan, and Korea are located at the heart of the region. Thus, economic and trade agreements between them are crucial for the establishment of FTA. Note that the China-Japan-Korea FTA is aimed at bringing together ASEAN as well as the three countries. Nevertheless, trade- and investment-related coordination of different interests among the three countries is proving to be a challenging task.
From the long-term perspective, the conclusion of the China-Japan-Korea FTA will boost the development of the individual country’s economy.
First, the removal of trade barriers between the three countries will result in regional market expansion. This in turn will fuel the economy’s accelerated growth.
Second, the FTA will help the three countries lower the cost of economic restructuring. The overall economy’s efficiency will also improve based on the complementary relationship among the Northeast Asian Three.
Third, strengthening the three countries’ economic cooperation is likely to lead to the resolution of other issues directly related to the region’s security. These issues include the reunification of Korea and the China-Japan territorial dispute.
Fourth, the enhancement of the three countries’ economic linkages can serve as an advantageous condition in negotiations with other trading blocks in Europe and North America. This is particularly important considering the world’s multi-dimensional trading system.
The establishment of an organization and an institute for economic cooperation between the three countries must precede the conclusion of FTA.
3) Political and diplomatic obstacles and prospects
China, Japan, and Korea have formed very intimate cultural, economic, and political relations between themselves based on their geographical proximity.
People from the three countries frequently interacted with each other. They shared Chinese characters, Confucianism, Buddhism, social rules, and historical records. This gave birth to the “Northeast Asian Cultural Area.”
The history of the three countries was not all about peaceful coexistence and cooperation, however. They have gone through countless disputes and conflicts that sometimes resulted in wars. The following problems persist as the innate source of political and diplomatic conflicts between China, Japan, and Korea:
China, Japan, and Korea were defined as a semi-colony, an imperial state, and a colony, respectively, in the late 18th
Chapter 1• Northeast Asian Regionalization: Trends and Issues 27
century and early 19th century. This is believed to be the cause of conflict structure among themselves. In fact, the history of disputes has reached its peak. Only the debris of mistrust between the people of the three countries remains.
For instance, the sudden change in attitude toward the history of Goguryeo by China highlighted the conflicts and mistrust regarding history between China, Japan, and Korea. The pre- existing problems with the Japanese history textbook are not helping things any.
Controversies on exploitation and repression during the Japanese colonization period are frequently raised. Textbook issues on the historical perspective regarding the Japanese colonization period remain unresolved. The same is true with the territorial dispute over Dokdo Island.
The security dilemma remains unresolved in the international environment surrounding Northeast Asia. In fact, it casts a shadow over the institutionalization of multilateral cooperation frameworks in the region. As a result, Northeast Asia is set apart from the example of European integration.
In Northeast Asia, there is no country that can play the role of a leader as in the case of Europe. Furthermore, the competition on military expenditures is becoming a fixture.
Among the top 11 countries with the highest national defense expenditures, 5 are located in Northeast Asia. Together, they constitute approximately 60% of the world’s total national defense expenditures (Goh, Bong-jun, 2007).
Moreover, “security blocks” are emerging in Northeast Asia.
For instance, the US has strengthened its alliance with Japan.
It has also forged a traditional alliance with Korea. In addition, the US has established a massive military alliance network extending to Australia and India. In response to such, China and Russia have strengthened their relationship over and beyond the general military cooperation level.
Such security blocks are clearly different from the multi-party approach to security issues. This is directly related to the individual countries’ military spending competition. As a result, the security dilemma between the two blocks can be expanded and reproduced in a vicious cycle.
Despite such security dilemma, the growing economic inter-dependence between Northeast Asian countries is generally believed to have a positive effect on several security issues. This will allow the region to enjoy peace and prosperity. Other plus factors are the opening of market and society and policy reform of North Korea. These can considerably reduce the economic and security risks faced by Northeast Asia.
The spread of democracy through countries in the region including China and North Korea minimizes conflict and likelihood of war in the region. This in turn contributes to the setup of a sustainable peace system.
Nevertheless, the tension between North Korea and US may extend to incorporate China into the conflict structure. This scenario cannot be ignored. Similarly, strengthening the Japan- US military alliance can pose a serious security threat to the region. The same goes for the confrontation with China and its medium- to long-term economic and military growth and confrontation with Japan.
4) Cooperation and exchange between China, Japan, and Korea:
prospects and tasks
(1) Prospect for economic cooperation and change in political condition More opportunities for international competition are given to Northeast Asia.
This is because the region has become one of the world’s 3 biggest economic zones together with EU and NAFTA.
Intra-region trade and investment are expected to grow. The process of industrial division of labor will likely be accelerated by FTAs.
Chapter 1• Northeast Asian Regionalization: Trends and Issues 29
Recently, more positive than negative changes in the international political, diplomatic, and security conditions have been noted. This lays down the groundwork for China-Japan-Korea exchange and cooperation.
The successful promotion of the 6-Party Talks will likely lead to the abolishment of the nuclear development program in North Korea.
The South-North Korea relationship has taken a positive turn since the Inter-Korea Summit on June 15, 2000.
The US is likely to take an appeasing stand toward North Korea. This is because the presidential election is set to be held in 2008 in the US.
Such optimistic change in various conditions is aiding in the FTA promotion in Northeast Asia. It also enables the sustained economic growth in China, development of Far East Russia, economic recovery of Japan, and incorporation of Mongolia and North Korea into the Northeast Asian Economic Zone.
Furthermore, the regional economic zones are expected to depend more heavily on international trade. China’s direct investment in other countries in the region is also forecasted to surge in the near future.
Increased trade between the Northeast Asian Three will induce industrial specialization based on each country’s comparative advantage. The trends of expanding intra-region trade and cross investment will also boost the formation of Northeast Asian production systems. Such systems are partially underway under the leadership of MNCs of Japanese and Korean origins as FTA talks progress between the three countries.
Businesses and other private sector players pursue strengthened economic linkages. For this, overall system and policy reform are required in each country. The government needs to accept -- and adapt itself to -- the market-led processes of regionalization and economic integration.
(2) China-Japan-Korea FTA: prospects and strategy
