Inter-City Networking Strategy in the Yellow Sea Sub-Region
Kim, Won Bae Editor
Korea Research Institute for Human Settlements
in Collaboration with
Institute of Spatial Planning and Regional Economy, China Kyushu Economic Research Center
Pusan Development Institute Inchon Development Institute
Copyright ⓒ 2000 Korea Research Institute for Human Settlements
All right reserved. Printed in the Republic of Korea. No part of this book may be reproduced in any manner without written permission except in the case of brief quotations embodied in critical articles and reviews. For information address Korea Research Institute for Human Settlements, 1591-6, Kwanyang-dong, Tongan-gu, Anyang-shi, Kyonggi-do, 431-712, Korea.
Inter-City Networking Strategy in the Yellow Sea Sub-Region / Edited by Won Bae Kim
- Anyang : Korea Research Institute for Human Settlements, 2000 p. cm
Includes bibliographical references ISBN 89-8182-114-3
Economic exchanges have rapidly grown across the Yellow Sea in the past decade. Political changes such as China’s open-door policy and the normalization of Sino-Korean relations obviously helped the rapid growth of economic exchanges. But economic complementarity, geographical proximity, and cultural affinity existent in the Yellow Sea Sub-Region were underlying factors in the deepening economic cooperation. With increasing volume of trade and travel across the Yellow Sea, there are now 11 air connections and 10 ocean routes among the cities in the Yellow Sea Sub-Region.
Despite these achievements, cross-border economic cooperation in the sub- region faces a few constraints and potential problems. One of the most serious problems is high transaction costs, which stem from differences in social, institutional, and technical systems between China, Japan, and Korea.
Furthermore, trade and investment across the border within the sub-region is constrained by the lack of formal agreements among the three countries. In addition to the lack of institutional infrastructure, the underdeveloped physical infrastructure constrains efficient flows of goods and movements of people in the Yellow Sea Sub-Region. Inter-city and inter-national competition for markets and investment is also rising, posing a threat to the co-prosperity of cities and nations in the sub-region.
Recognizing the need to deepen economic cooperation across the border, all three nations and localities in the sub-region have been considering ways and means to promote economic cooperation and cultural understanding. Although inter-state relations still govern the scope and depth of cross-border cooperation, private and local initiatives play an increasingly important role in cross-border economic, technological, and cultural exchanges. The best approach to cross-
border cooperation in Northeast Asia would be a multi-tiered one, in which private, local, and national institutions pursue cooperation for the common interests at various sectors and levels.
This monograph is a product of a year and half joint research among the three institutions—the Institute of Spatial Planning and Regional Economy under the State Development Planning Commission, the Kyushu Economic Research Center in Japan and the Korea Research Institute for Human Settlements. It is perhaps the first attempt to bring in local, national, and supra-national perspectives together on the cross-border cooperation in the Yellow Sea Sub- Region. Even though the joint study does not cover macro-issues of trade and investment and the constituent cities and provinces of the Yellow Sea Sub- Region in sufficient depth, it does shed light on the importance of the sub- region in Northeast Asia and provide some practical suggestions to improve cross-border economic cooperation at the level of cities. Rather than dwelling upon grand concepts of Free Trade Area or Customs Union, the study focuses on the logistics and tourism sectors, which will facilitate trade and investment in the sub-region. Apart from the substantive matter, it sets an example of trilateral research cooperation among China, Japan, and Korea, which is rarely seen in the research community of Northeast Asian countries.
WBK June, 2000
On behalf of the Institute of Spatial Planning and Regional Economy, the Kyushu Economic Research Center, and the Korea Research Institute for Human Settlements, research coordinators would like to thank the municipal government of Dalian and Qingdao for their support. The participation and support of Inchon Development Institute and Pusan Development Institute representing the two cities was a big boost for the study both substantively and morally. Research coordinators would also like to thank those who participated in the workshops held in Pusan in November 1999 and in Fukuoka in April 2000 as moderators, discussants, and presenters of special papers. They include Park Jae Yoon (President, Pusan National University), Ha Woong Soo (Pusan National University), Kim Chang Soo (Pusan National University), Lee Cheol Yeong (Korea Maritime University), Moon Seong Hyeok (Korea Maritime University), Park Myeong Sub (Pukyong National University), Song Gye Eui (Dongseo University), Kim Chang Nam (Dong-A University), Yhang Will Joo (Silla University), Choi Yeol (Pusan National University), An Young Myeon (Dong-A University), Tsumori Takyuki (Okayama University), Dai Erbiao (International Center for the Study of East Asian Development), Kabu Takayuki (Kyushu Economic Research Center), and Ogawa Yuhei (Seinan Gakuin University). Finally, the leadership provided by the head of the three aforementioned institutes was essential for the success of the joint study.
CHINA
Institute of Spatial Planning and Regional Economy, China Du Ping
Gao Guoli Shi Yulong Shen Bing Wang Qingyun Wang Yanghong
Yang Jie
JAPAN
Kyushu Economic Research Center Chen Shuang
Imamura Akio Kabu Takayoshi
Takaki Naoto
KOREA
Korea Research Institute for Human Settlements Kim Gyeong Seok
Kim Won Bae Kwon Young Sub
Lee Jeong Sik Pusan Development Institute
Keum Sung Keun Lim Jung Duk Park Chang Ho Inchon Development Institute
Hong Chul Kim Beon Uk
Preface i
Acknowledgement iii
Contributors v
Contents vii
List of Tables ix
List of Figures xi
Ⅰ. Introduction
1. Background 1
2. Research Topics 3
3. Research Scope and Purposes 4
4. Research Methods and Collaboration 5
Ⅱ. Dynamics of the Yellow Sea Sub-Region Formation
1. Regionalization of the World Economy and Northeast Asia 7 2. The Emergence of Sub-Regional Economic Zones (Cross-
Border Regions) and the Position of the Yellow Sea Sub-
Region in Northeast Asia 12
3. Geographical Boundary and Major Characteristics of the
Yellow Sea Sub-Region 14
4. Recent Development and Future Prospects for Economic
Cooperation in the Yellow Sea Sub-Region 18
Ⅲ. Status of and Prospects for Inter-City Linkages between Major Port Cities in the Yellow Sea Sub-Region
1. Enlarged Spaces of Production, Distribution, and Travel 25 2. Cities as a Basic Unit for Networking and Regional
Integration 26
3. Profile of Six Port Cities 28
4. Dalian 29
5. Qingdao 34
6. Inchon 40
7. Pusan 44
8. Fukuoka 50
9. Kitakyushu 55
10. Prospects for Inter-city Linkages and Cooperation in the
Yellow Sea Sub-Region 60
Ⅳ. Current Conditions and Issues of Logistics and Tourism Industry in the Yellow Sea Sub-Region
1. Transportation and Logistics Development in East and
Northeast Asia 64
2. Inter-Port Competition and Linkages in the YSSR and
Northeast Asia 66
3. Tourism Development in Northeast Asia 72
4. Opportunities for and Obstacles to Inter-Local Cooperation
in Tourism Industry in the YSSR 79
Ⅴ. Inter-City Cooperation Strategies in the Logistics and Tourism Industry in the YSSR
1. Rationale for Cooperation in the Logistics and Tourism
Industry 83
2. Measures to Promote Cooperation in the Logistics Industry 84 3. Measures to Promote Cooperation in the Tourism Industry 89
4. Inter-City Networking Strategy 94
Ⅵ. Conclusions and Policy Recommendations
1. General Conclusion 103
2. Policy Recommendations 106
Joint Policy Recommendations 109
References 111
Appendix : Workshops and Conferences 115
Table 2. 1 Major Indicators of Northeast Asia
Table 2. 2 Northeast Asia Compared with Major Regional Blocs Table 2. 3 Trade among China, Japan, and Korea
Table 2. 4 Investment Trend in Northeast Asia Table 2. 5 Major Indicators of Yellow Sea Region Table 3. 1 Profile of Six Major Port Cities
Table 3. 2 Situation of Tourist Source Markets for Dalian Table 3. 3 The Structure of Export Goods From Dalian (1997) Table 3. 4 The Geographical Distribution of Export and Import Goods
from Dalian (1997) Table 3. 5 Foreign Capital in Dalian
Table 3. 6 Sources of Direct Foreign Investment in Dalian (1997) Table 3. 7 Sectoral Distribution of Foreign Capital in Dalian Table 3. 8 Export Amount of Qingdao with Major Trade Partners Table 3. 9 Qingdao’s Utilization of Direct Foreign Investment Table 3. 10 Growth Trends of Trade in Inchon
Table 3. 11 Trends of Incoming and Outgoing Cargo Volume at Inchon Port Table 3. 12 Trends of Container Cargo Volume at Inchon Port
Table 3. 13 Export Records of Pusan with Major Trade Partners Table 3. 14 Outward Foreign Direct Investment of Companies in Pusan Table 3. 15 Inward Foreign Direct Investment of Pusan (June 30, 1996) Table 3. 16 Trends of Container Cargo Volume at Pusan Port
Table 3. 17 Visitor Arrivals in Pusan by Nationality Table 3. 18 Foreign Companies in Fukuoka
Table 3. 19 The Number of Kitakyushu’s Business Abroad Table 4. 1 Changing Places of the World Top 20 Ports
Table 4. 2 Change of Trade Volume between NEA and Other Regions Table 4. 3 Container Cargo Volume of Three Nations in NEA Table 4. 4 Growth Trends of Container Cargo Flows in Asia
Table 4. 5 Transport Volume between Port Cities of China and Korea (1998)
Table 4. 6 Characteristics, Functions and Hierarchy of the Port System in East Asia
Table 4. 7 Arrivals of Tourists from Abroad by Regions
Table 4. 8 The Status of Economy and Tourism in Korea, China and Japan (1997)
Table 4. 9 The Tourist Share of Korea, China and Japan (1995~1998) Table 4. 10 Purpose of Travel within the YSSR
Table 4. 11 Air Routes in the YSSR (Flight Time & Frequency per Week) Table 4. 12 Regular Passengers Routes by Sea between Korea, China and
Japan
Table 4. 13 Foreign Visitors of Major Port Cities in the Yellow Sea Sub- Region
Table 4. 14 Prospect for Tourism Economy of the World and Northeast Asia
Table 4. 15 Northeast Asia Tourism Arrivals Matrix (1997~2020)
Table 5. 1 International Festival of Main Cities in Yellow Sea Sub-Region Table 5. 2 Conferences and Forums of Cities & Provinces in East Asia Table 5. 3 Summary of Policy Recommendation by City
Figure 2. 1 The Yellow Sea Sub-Region and the East Sea Sub-Region Figure 2. 2 The Geographical Boundary of the Yellow Sea Sub-Region Figure 3. 1 The Change of Total Trade at Qingdao Port
Figure 3. 2 National Composition of Qingdao’s Foreign Tourists Figure 3. 3 Trends of Export Amount at Hakata Port
Figure 3. 4 Industrial Composition of Export and Import at Fukuoka Airport
Figure 3. 5 The Value of International Trade at Kitakyushu Port Figure 3. 6 Container Throughput at Kitakyushu Port
Figure 4. 1 Hierarchy of the Port System in NEA
Figure 4. 2 Intra-regional Tourism Flow in Korea, China and Japan (1990-1997)
Figure 4. 3 Air and Sea Connections between Major Port Cities in the YSSR
Figure 5. 1 Movement of Containers in the Container Pool System Figure 5. 2 Culture and History Tours
C HAPTER 1
Introduction
1. Background
The world economy is increasingly affected by globalization and regionalization. With the establishment of common currency in the European Union (EU) in 1999, global competition is expected to intensify between EU and North America. Although East Asia is perceived to be another pole to compete with the above two major economic blocs, it does not appear to have reached a stage to exert its power in the strategic maneuvering of the world economy. If Northeast Asia forms a closely-knit economic region, it will result in a tri-polar structure of the world economy. Because of political and economic reasons, however, a formal institution for Northeast Asia seems unlikely to be established in the near future. Instead, informal institutions and sub-regional economic zones are more likely to emerge. As a matter of fact, several sub- regional economic zones or natural economic territories are emerged or emerging in East Asia.
Successful examples of these sub-regional economic zones are the growth triangle linking Singapore with Johor of Malaysia and Riau of Indonesia (SIJORI) and the Southern China Economic Zone (SCEZ) centering on Hong Kong and Guangdong. Pooling production factors of the neighboring areas, the core cities of Singapore and Hong Kong have repositioned themselves in global competition. As such, inter-city or inter-local (provincial) cooperation became an effective means to enhance international competitiveness. Other sub- regional economic zones considered are the Greater Mekong Sub-region, the
Indonesia-Malaysia-Thailand growth triangle, the Brunei-Indonesia-Malaysia- Philippine growth area, and the Yellow Sea Sub-Region(YSSR). These sub- regions, however, have a larger geographical scope than city-centered sub- regions of SIJORI and SCEZ. For this and other reasons, they are not making as rapid a progress as SIJORI and SCEZ.
In particular, candidate sub-regions in Northeast Asia include the Yellow Sea Sub-Region, the East Sea (Japan Sea) Sub-Region, North-South Korea Cooperation zone, and the Korea-Japan Strait Sub-Region. Although these sub- regions overlap each other, they have been discussed either singly or in combination. Among these, the Yellow Sea Sub-Region has been most extensively discussed. Examples are: a study jointly conducted by the Korea Research Institute for Human Settlements and the East-West Center of Honolulu (1991), the research carried out by the International Centre for the Study of East Asian Development (1991), and a study jointly conducted by the Institute of Geography, Chinese Academy of Sciences and the Korea Research Institute for Human Settlements (KRIHS, 1998). All these studies have envisioned a sub-regional economic zone around the Yellow Sea and have dealt with issues of trade, investment, and industrial cooperation.
Recognizing the need to coordinate development efforts by national or local governments, those studies have proposed diverse strategies and policy measures to promote cooperation between city-regions within the Yellow Sea Sub-Region. However, the scope of subject of those studies dealt with only general matters due to wide geographical scope and the lack of city-region data.
Only the recent study by the Institute of Geography, China Academy of Science and the Korea Research Institute for Human Settlements dealt with city-level issues.
In the mean time, individual cities in the Yellow Sea Sub-Region have formulated their own development strategies and plans to raise their relative position vis-à-vis other cities in the sub-region. Dalian strives for a second Rotterdam in Asia, Tianjin for a major technology and international business center, Qingdao for a financial and trade center, Inchon for a major air-hub city in Northeast Asia, Pusan for a port logistics hub, Fukuoka and Kitakuyshu for centers of logistics and advanced industries. An enormous sum of capital has been committed to support mega-projects within the sub-region. Lacking
coordination and collaboration, some of these projects led to redundancy and unnecessary competition within the sub-region. Even though inter-city associations such as the Mayor-Governor Association of the Korea-Japan Strait Zone and East Asian City Conference are formed, rivalry between cities is still intense.
To convert such redundancy and unnecessary competition into a positive force, it is necessary to form inter-city networks within the Yellow Sea Sub- Region. As the trend of global economy moves from independence to interdependence, networking is a key for firms, cities, and nations. Considering the difficulties involved in inter-state relations, it is relatively easier to build networks between cities. In addition, cities are in fact the locus of globalization and regionalization. Through inter-city networks, the Yellow Sea Sub-Region will reap the benefits derived from network economies and synergy effects.
Inter-city networking within the sub-region will contribute to regional cooperation and integration in Northeast Asia.
2. Research Topics
Inter-city networks are justified on many grounds. Cities forming network can benefit from each other through increased flows of information, expanded scope of industrial cooperation, close cooperation in infrastructure development, sharing transport and logistics facilities, joint utilization and marketing of resources, and united efforts against external threats to the network. Even though there have been progress in inter-city linkages within the Yellow Sea Sub-Region, the cities in the sub-region did not reach a stage to realize the benefits of network economies. Differences in institutional settings, barriers to the free flows of information and capital, lack of coordinating organizations are some of impediments to inter-city networks within the sub-region. To establish a functioning network of cities, we need to first understand the current status and future development prospects for the cities and regions within the Yellow Sea Sub-Region.
Specifically, we will examine the following items in this research.
1) Current inter-city linkages and interactions (trade, investment, information, transport, etc.)
2) Industrial structures and infrastructure endowments of the major coastal cities
3) Current logistics conditions in and around the major coastal cities (mainly marine transportation)
4) Current conditions of tourism industry in the major coastal cities and the possibility of inter-city linkages
5) Inter-city cooperation strategies of major coastal cities in the Yellow Sea Sub-Region
3. Research Scope and Purposes
Based on the investigation of the above items, this research will look into ways to coordinate the logistics and tourism function of major coastal cities so as to create synergy effects of logistics and tourism industries of the sub-region as a whole. The desirable pattern of cooperation between the cities and regions within the sub-region will be sought, which means the establishment of an inter-city network in the Yellow Sea Sub-Region. Urban development strategies of individual cities can then be readjusted according to a shared vision of the inter-city network in the Yellow Sea Sub-Region.
Although trade and investment are the foremost concern for the cities and provinces within the sub-region, the study does not directly deal with trade and investment issues. Rather, the study focuses on trade and investment facilitation measures such as logistics and tourism. The reason is simple. First, trade and investment cooperation is basically inter-state issues rather than inter-local issues. Removing trade barriers and establishing freer investment environment are current concerns of the national governments of China, Japan, and Korea.
Japan has proposed an establishment of Free Trade Agreement between Japan and Korea, whereas Korea’s counter proposal is to establish a larger Free Trade Area including China. At any rate, three countries recently agreed to study the idea of Free Trade Area, which will take some time until the idea is fully discussed.
Even without such an agreement to free trade and investment, the three countries can benefit greatly through cooperating with each other in transportation and logistics of commodity flows and people movement. Such measures as standardization of logistics system, simplifying exit and entry procedures, and joint use of port and airport facilities would facilitate more efficient transport of people and goods between cities and countries in Northeast Asia, which will reduce intra-regional transaction costs significantly.
Even if a free trade agreement is made in the future, it will not be effective without closely integrated transportation system and logistic procedures within the region.
The above explanation—essentially less political sensitivity of logistics and tourism—constitutes the second reason for emphasizing logistics and tourism. Given the global trend of integrated logistics across the border, there will be no country to oppose to the principle of cooperation. Opinions can vary between countries depending on the status of logistics infrastructure development. For example, China, being a latecomer in economic development and lacking modern logistics system, may need more time to become fully integrated in regional or global logistics system. Nonetheless, China will benefit greatly from integrating with neighboring countries.
Tourism has similar characteristics. Since tourism resources are non- movable, cooperation does not pose a threat to any city or country. Instead, cooperation brings benefit to all participating parties. On the other hand, logistics and tourism share more or less the same set of transport infrastructure and institutional environment concerning the movements of goods and people.
This is why we have chosen these two specific areas as the first target of inter- city cooperation in the Yellow Sea Sub-Region.
4. Research Methods and Collaboration
The major coastal cities in the Yellow Sea Sub-Region include Dalian, Tianjin, Qinhuangdao, Qingdao, Inchon, Pusan, Fukuoka, and Kitakyushu.1 These
1 Tianjin and Qinghuangdao are important gateway cities for the Beijing region and Hebei Province. Because of practical constraints in conducting a joint research among the three
cities, with million-plus population, play an important role in industrial production and logistics in the Yellow Sea Sub-Region. Other large cities such as Beijing and Seoul located within the YSSR may be included for analysis when needed. Since those cities mentioned above serve as a gateway to a larger hinterland respectively, we assume it will be sufficient to examine the possibility of cooperation among them at an initial stage. As mentioned earlier, the primary objective of the research is to derive joint policy recommendations among the cities under investigation. To achieve this objective, it is essential to conduct a joint research with those cities and relevant research institutes within the YSSR.
Therefore, the research has been carried out jointly by the three research institutes: the Korea Research Institute for Human Settlements (KRIHS), the Institute of Spatial Planning and Regional Economy (ISPRE) under the State Development and Planning Commission of China, and Kyushu Economic Research Center (KERC) in Japan. Each institute conducted analyses on the selected cities and proposed policy recommendations for individual cities as well as for the whole sub-region. In order to facilitate discussion among researchers, meetings were held in Beijing, Pusan, and Fukuoka. Secondary data published by the official governmental agencies were used and additional information on the logistics and tourism industry at the city level were collected through a small field survey, which was jointly conducted by KERC and ISPRE in China and by KERC and KRIHS in Korea.
institutions, they were not included for analysis.
Since the research attempts to provide policy inputs for both central and local governments and business communities in the YSSR, local participation is actively sought. During the research process, we could manage to have local institutions involved in the research such as Dalian and Qingdao municipal governments, Pusan and Inchon Development Institutes representing the local views. In Japan, Fukuoka and Kitakyushu’s key research institutes such as Asia-Pacific Center and the International Center for the Study of East Asian Development participated in the meeting. Reflecting upon the inputs provided by the local institutes, the study is expected to provide more balanced views on inter-city cooperation in the YSSR sharing local, national, and regional
perspectives.
C HAPTER 2
Dynamics of the Yellow Sea Sub-Region Formation
1. Regionalization of the World Economy and Northeast Asia
Together with the globalization trend supported by the advance of information technology, regionalization is now a worldwide phenomenon. Although regionalism may become an obstacle to the global economic integration, regionalization can be interpreted as an intermediate stage before global integration. It is known to be more than 150 regional economic blocs of one form or another. Out of these, EU (European Union), NAFTA (North America Free Trade Agreement) and MERCOSUR are major ones. Even though AFTA (ASEAN Free Trade Agreement) exists in Asia, it is not as cohesive as EU or NAFTA.
Despite a substantial population and economic share of the world, economic complementarity, and geographical proximity, countries in Northeast Asia— mainly China, Japan and South Korea—have not formed any regional bloc or free trade agreement yet(Table 2.1). Historical, political, and psychological factors in addition to economic factors such as trade imbalance are responsible for the absence of formal regional institutions.
Given the fact that intra-regional trade and investment have increased rapidly in recent years and the recognition for economic cooperation has been shared among the countries in Northeast Asia, it is not outrageous to expect some kind of regional economic bloc in the future, if not in the near future. As
shown in Table 2.2, Northeast Asia has a much larger population than EU and NAFTA. Although Northeast Asia has a smaller share of world GDP, its share in world trade is larger than that of NAFTA. The position of Northeast Asia in world trade is estimated to be more pronounced in the future (DRI, 1997).
Table 2.1 Major Economic Indicators of Northeast Asia
Country or Region
Area (km2)
Population (1000persons)
GDP (billion $2)
Export (million $)
Year 1996 1999 1998 1998
China 9,596,960 1,265,979 959.0 183,757
Hong Kong 1,070 6,339 166.4 174,175
Taiwan 361,790 21,983 261.4 109,809
Japan 377,800 126,187 3783.0 387,965
South Korea 99,260 46,858 320.7 133,223
North Korea 120,540 23,566 22.3* 560
Mongolia 1,566,500 2,680 1.0 418
Russia 17,075,400 146,720 276.6 73,900
Far East 6,200,000 7,630# - -
Note : ‘*’ means GNP and ‘#’ figure for the Russian Far East is for 1995.
Source : Far Eastern Economic Review (2000. 4. 20)
National Statistical Office, Republic of Korea / International Statistics Yearbook (1999) IMF / International Financial Statistics (1999. 6)
Taiwan / Financial Statistics (1999. 4)
World Bank, 2000 World Development Indicators CD-ROM
Table 2.2 Northeast Asia Compared with Major Regional Blocs
% Share of World Population
1997
% Share of World GDP
1997
% Share of World Trade
1997
Intra-regional Trade Dependency
1997*
NAFTA 6.8 33.2 19.1 44.1
EU 6.5 28.0 36.1 59.9
NEA 18.6 19.2 24.0 18.79**
Note : * Amount of intra-regional trade divided by the total amount of trade.
** This is only trade among the three countries of China, Japan, and South Korea.
Source : Lee, 1999 and Chung, 1999
2 The currency in $ is U.S dollars hereinafter.
In addition, the trend of growth in intra-regional trade and investment in
recent years indicates an increasing degree of economic integration within Northeast Asia. At the moment, Northeast Asia, however, is behind EU or NAFTA in terms of intra-regional trade dependency, which is often used as an indicator of regional bloc formation. These three countries—China, Japan, and Korea—reveal a high trade dependency on the U.S. Certainly, this makes them difficult to form an economic bloc (Chung 1999). But the trend in the 1990s indicates an increasing intra-regional interdependency in Northeast Asia and this trend is expected to continue in the 21st century. An interesting point to note is that Japan’s role as an import market is not significant despite its economic size. Furthermore, there will be a larger role to be played by the Chinese economy and a lesser role by Japan in the coming decades. In other words, China will post its importance in intra-regional trade in Northeast Asia (Chung 1999).
Table 2.3 Trade among China, Japan, and Korea
unit : million $, % 1991 China Japan S. Korea World Intra-regional share
China 20,249 3,242 135,633 17.3
export 10,218 2,176 71,842 17.3
import 10,031 1,066 63,791 17.4
Japan 22,809 32,399 548,498 10.1
export 8,593 20,060 314,395 9.1
import 14,216 12,339 234,103 11.3
S. Korea 4,442 33,466 152,923 24.8
export 1,002 12,355 71,672 18.6
import 3,440 21,111 81,251 30.2
1998 China Japan S. Korea World Intra-regional share
China 58,025 21,287 323,894 24.5
export 29,718 6,266 183,589 19.6
import 28,307 15,021 140,305 30.9
Japan 57,261 27,542 668,411 12.7
export 20,182 15,400 387,927 9.2
import 37,079 12,142 280,484 17.5
S. Korea 18,428 29,078 225,595 21.1
export 11,944 12,238 132,313 18.3
import 6,484 16,840 93,282 25.0
Source : For 1991, UN, International Trade Statistics Yearbook(1992) and for 1998, IMF, Direction
of Trade Statistics Quarterly (1999. 12)
Furthermore, intra-regional investment is still relatively low despite high economic complementarity. For example, Japan’s direct investment in China and Korea recorded only 2.6% and 0.7% of total Japanese overseas direct investment in 1998, which has increased until 1997 (Table 2.4). China, however, became an important destination of Korea’s overseas direct investment, consistently taking up more than 10% of Korea’s total overseas direct investment since 1992. China, on the other hand, is mainly a receiving end of foreign direct investment. For the time being, intra-regional investment will depend on Japan and Korea’s investment in China and the two countries’
investment in each other. Investment in the manufacturing sector accounts for a major portion of Japanese and Korean investment in China. Anticipating China’s rapid economic growth and industrial restructuring, more Japanese and Korean investors will be interested in China’s manufacturing capability. If China opens up its construction market, foreign direct investment in infrastructure building will become activated and Japan and Korea are likely to be major investors in China’s social overhead capital construction.
Apart from the factual basis, there is a shared recognition for some kind of economic cooperation among Northeast Asian countries such as China, Japan, and Korea at least. There have been rising concerns about financial stability after the Asian economic crisis in 1997. A recent meeting among financial ministers in Chiang Mai discussed ideas of foreign currency lending and currency swap to help out each other for any future financial emergency in Asian Development Bank member countries (Chungang Daily May 7, 2000).
Another idea of long-term economic cooperation was discussed during the summit in Manila late 1999. The leaders of three countries—China, Japan, and Korea—agreed to carry out a joint study to look into the possibility of free trade area among the three countries.3
3 President Kim of the Korean government made this agreement in the summit of the three countries in Manila in 1999. Japan has earlier proposed to Korea for a free trade area between Japan and Korea.
Table 2.4 Investment Trend in Northeast Asia
unit : million $ Inbound Investment
Country
1991 1992 1993 1994 1995 1996 1997 1998 1999 China World 4,366 11,007 27,515 33,767 37,521 41,726 45,287 45,487 - Japan World 4,339 4,084 3,078 4,155 3,930 7,085 5,605 10,239 -
World 1,116 803 728 991 1,358 2,309 3,088 5,215 10,357
China 1 3 2 2 7 3 3 3 13
South Korea
Japan 203 174 157 340 338 279 236 423 806
unit : million $ Outbound Investment
Country
1991 1992 1993 1994 1995 1996 1997 1998 1999 World 42,211 34,989 37,333 41,882 52,698 49,728 54,739 39,851 - China 584 1,090 1,757 2,625 4,592 2,600 2,015 1,041 - Japan
S. Korea 265 230 260 411 460 430 449 296 -
World 1,115 1,219 1,262 2,300 3,072 4,248 3,230 3,893 2,482
China 42 141 264 632 824 836 633 631 289
South Korea
Japan 12 28 6 58 105 81 64 23 48
Note : ‘*’ data of Korea are set on the basis of ‘total invested cases’.
‘-’ means ‘not available’.
Source : Ministry of Finance & Economy, Republic of Korea, Outward Direct Investment (1999.12) Ministry of Commerce, Industry & Energy, Republic of Korea, Trends in Foreign Direct Investment (2000.2)
Despite these encouraging signs, the short-term prospect for forming a free trade area in Northeast Asia is not bright hindered with obstacles and problems. Foremost of these is China’s reluctancy in joining a free trade agreement. We have to wait until China integrates further with neighboring economies, resolves the Taiwan-Mainland question, and transforms its socio- economic system compatible with those of neighboring economies such as Japan and Korea. Nationalism prevalent in those three countries is also an obstacle to economic integration. Trade imbalances between these countries are pending problems to be resolved before making an agreement on free trade area.
2. The Emergence of Sub-Regional Economic Zones (Cross-Border Regions) and the Position of the Yellow Sea Sub-Region in Northeast Asia
In more general terms, the absence of formal regional economic organization in Northeast Asia reflects the difficulties involved with the state-led economic cooperation. Because of diverse political interests, historical backgrounds, and socio-economic systems, East Asian countries including China, Japan and Korea are unable to form either trading blocs or an integrated region. An alternative approach, which led to successful results in East Asia such as SIJORI (growth triangle composed of Singapore, Johor in Malaysia, and Riau in Indonesia) and SCGT (Southern China Growth Triangle composed of Hong Kong, Guangdong, Fujian and Taiwan), is possible in Northeast Asia. Unlike inter-state agreements to trading blocs, sub-regional economic zones do not require national changes in institutional and administrative arrangements.
Moreover, sub-regional economic zones can be established at lower cost and in less time than formal trading blocs (Tang and Thant 1998).
This alternative approach, which may be characterized as locally-driven model, is already in place in Northeast Asia. Even though the locally-driven approach does not mean the exclusion of the central government,4 it is basically governed by local and sub-national actors such as local authorities, firms, and residents of cities and provinces.5 As observed in SIJORI and SCGT, private and local initiatives play much more important roles in shaping inter- local exchanges and cooperation in sub-regional economic zones. The role of large companies, in particular, multinational companies, is crucial in bringing a sub-region into an integrated economic zone.
Such a locally-driven and spontaneous process of economic integration is in progress in Northeast Asia. One is centered around the Yellow Sea and the other centered on the East Sea (Japan Sea). The Korean peninsula is involved in both sub-regions. The YSSR (comprising China’s Bohai region, the western
4 The political will of the national governments of Singapore, Malaysia, and Indonesia was an important element in the formation of SIJORI.
5 McGee et al. (1999) discount the possibility of region building based on state initiatives. Instead, they emphasize the potential to build a virtual region based on spontaneous interactions & local actions by citizens.
part of the Korean peninsula, and the southwestern part of Japan) seems to have better prospect than the ESSR (comprising China’s northeastern part, the eastern part of the Korean peninsula, the Russian Far East, and the western part of Japan) in two respects.6 One is the existence of large cities and the other is better infrastructure endowment. As will be discussed in detail later, the YSSR with a population of approximately 300 million persons is a potential powerhouse capable of rivaling both EU and NAFTA (Friedmann 2000). In fact, the YSSR has a strong industrial base and a potential to become a leading manufacturing zone in the world. Therefore, a successful formation of an integrated economic zone in the YSSR will pave the way for a successful economic cooperation in Northeast Asia.
6 The population of the ESSR is about 100 million persons.
YSSR
ESSR (JSSR)
Figure 2.1 The Yellow Sea Sub-Region and the East Sea Sub-Region
In contrast, it will take some time until the ESSR realizes its potential despite its huge potential for resources development. The constituent parts of the ESSR are relatively underdeveloped and sparsely populated: the western part7 of Japan is underdeveloped compared with its eastern part; the eastern part of the Korean peninsula8 is also less developed in comparison with its western part; and the Russian Far East is also underdeveloped and sparsely populated. Local and international efforts made by UNDP in the past decade did not bring significant results in the sub-region.9
The above comparison of the YSSR and ESSR clearly indicates the importance of the YSSR in the economies of Northeast Asia. This does not, however, mean to devaluate the potential role of the ESSR in the future. Since energy is an important element for sustainable economic development of the countries in Northeast Asia, the joint development and utilization of Russia’s natural gas will be a catalytic project that will promote economic cooperation in the ESSR as well as in Northeast Asia as a whole.
3. Geographical Boundary and Major Characteristics of the Yellow Sea Sub-Region
The geographical boundary of the YSSR is not clearly set. Some define the boundary in an extensive manner to include Shanghai, Jiangsu, Shandong, Hebei, Liaoning, Beijing and Tianjin in China, the southwestern part of Japan, and the whole Korean peninsula (Kyushu Bureau of MITI 2000). If we focus on the coastal part of the Yellow Sea rim, we can define the sub-region more narrowly, including only Liaoning, Hebei, Tianjin, Shandong, the northwestern part of Kyushu, and the western part of the Korean peninsula.10 This study,
7 The western part of Japan includes the area facing the East Sea (The Sea of Japan).
8 Hambuk, Hamnam, Kangwon, and Kyongbuk provinces can be included in the eastern part of the Korean peninsula and their combined population is about 5 million persons.
9 Local-level efforts in Niigata in Japan, Kangwon Province in South Korea, and Hunchun in China did generate some positive results in inter-local linkages and cooperation but they did not produce a critical mass to sustain the momentum of cross-border regional formation. The thawing of North-South Korean relations and infrastructure investment in key nodal points would certainly give a boost to the sub-regional economic cooperation in the ESSR.
10 If we focus on port cities, we may exclude the eastern part of the Koreanpeninsula. In terms of
however, covered a little wider geographical area for the sake of analysis including Liaoning, Hebei, Tianjin, Beijing, seven prefectures11 of Kyushu plus Yamaguchi prefecture, and the Korean peninsula. The assumption behind this definition of geographical boundary lies in the hinterland of major port cities in the Yellow Sea. For the reasons of the non-availability of information and its political isolation, North Korea is not included in the analysis.
trade and investment, the whole Korea perhaps with an exception of Kangwon and Kyongbuk provinces is involved in the YSSR. This is why we do not attempt here to delineate the western part of Korea arbitrarily.
11 The seven prefectures are Fukuoka, Saga, Nagasaki, Kumamoto, Oita, Miyazaki and Kagoshima.
●
Beijing
Jinan Tianjin
Shanghai
Fukuoka
Kitakyushu Kwangyang
Pusan Qinhuangdao
Dalian Shenyang
Pyongyang Nampo
Seoul Inchon
500km 1000km
Vladivostok
Yantai
Qingdao S.KOREA
N.KOREA
CHINA
JAPAN
Figure 2.2 The Geographical Boundary of the Yellow Sea Sub-Region
According to the above definition, the YSSR has a total population of 280 million persons, which accounts for 19% of the total population in Northeast Asia. In terms of Gross Domestic Product, the YSSR’s share in Northeast Asia is about 18%. The YSSR is also an important sub-region in terms of export, accounting for close to 20% of Northeast Asia’s total export.
In the world economy, the YSSR’s position is not outstanding but it has a great prospect to become a manufacturing zone, possibly with a strong knowledge component in the near future. As of 1998, the YSSR accounted for 4.7% of the world’s population and only 3.6% of the world’s gross domestic product. Notable, however, is the importance of the YSSR in a few manufacturing industries. The combined output of China, Korea, and Kyushu accounted for 46.5%, 20.3%, and 8.2% of the world’s shipbuilding, steel production, and automobile production respectively.
Given with such a large industrial production capacity and numerous urban agglomerations of population over one million persons, the YSSR has a potential to become a major manufacturing zone in the world. As envisioned by a few planners (Kim 1991 and Kyushu Bureau of MITI 2000), this potential of the YSSR can be realized when efficiently supported by technological, production, and logistics networks within the region.
Looking into the three constituent parts of YSSR closely, we find a great potential for economic cooperation as well as concerns with imbalances in the long-run (Table 2.5). For example, the Chinese part, accounting for 78% of the YSSR’s total population, produced only 22% of the YSSR GDP and generated 19% of the YSSR export in 1998, whereas the Kyushu region accounted for 45.6% of the YSSR GDP with only 5.4% population. Korea produced and exported much more than its population share in the YSSR. In other words, the Chinese portion of the YSSR provides a source of labor supply and a base for land-consumptive activities with its large population and land area. Japan and Korea in the YSSR, on the other hand, provide a source of capital and technology. Although we expect that Chinese portion of the YSSR will catch up with Kyushu and Korea sooner or later, those macro-level intra-regional imbalances will raise an issue regarding the mode of economic cooperation within the YSSR.
The Chinese part of the YSSR covering Liaoning, Hebei, Shandong,
Beijing and Tianjin is known as the Bohai economic region occupying one of the three important economic regions together with the Shanghai region and the Pearl River Delta region (Kim and Kwon 1998). Although the Bohai region has a large population and industries, it is lagging behind the Shanghai and the Pearl River Delta region in terms of economic growth and external opening.
One negative feature in the Bohai region, especially in Liaoning province, is a large share of state-owned heavy industries in the regional economy. In other words, the Bohai region’s future depends on the successful transformation of those state-owned industries. The region’s population over 200 million and a strong industrial base, however, provides a big enough market and production potential. As indicated in the export and FDI figures, the Bohai region has been catching up with its southern counterparts through actively seeking economic cooperation with neighboring countries such as Korea and Japan.
Japan’s Kyushu region, which occupies roughly 10 percent of Japan’s economy and population, has served as a base of Japan’s heavy industries such as steel and chemical industries. Recently, however, the region attracted many automobile and IC (integrated circuit) -related firms, making the region one of the important car assembly bases in Japan. On the whole, Kyushu is not a manufacturing-centered but a service-centered economy. The service industries made up a 71.9% share of gross regional product in fiscal 1996. With well- endowed infrastructure and advanced technology base, Kyushu is expected to play a leading role in industrial cooperation in the YSSR (Kyushu Bureau of MITI 2000).
Korea, which has 47 million population and $ 321 billion GDP, plays an important role in the YSSR. Geographically and economically, Korea is located between Japan and China. Korea’s medium technology and modest capital are one of the important sources for the economic development of the Bohai region.
The geographical position of Korea is also important in constructing networks within the YSSR, whether they are tangible or intangible.
As revealed in the inter-country trade among China, Japan, and Korea, there exists an economic complementarity within the YSSR. The degree of complementarity is much higher between Japan and China, while somewhat lower between Japan and Korea and between Korea and China. Taking a long- run view, Korea’s position is relatively weak compared with those of Japan and
China because it has an overlapping area to compete against both China and Japan (See the section below). In a sense, Korea has to make more efforts towards building up cooperative economic networks than China and Japan.
Table 2.5 Major Indicators of Yellow Sea Region
Area
(1000km2 )
Population (million
persons)
GDP
(billion $)
Export
(billion $)
Foreign Direct Investment Utilized, Cumulative at the End of '91 & '98
(billion $) Region
1991 1998 1991 1998 1991 1998 1991 1998 China 9,600 1,158 1,248 406.3 958.9 62.1 183.8 43.7 454.6
Liaoning 147.5 39.9 41.6 20.2 46.9 5.6* 8.1 3.5 21.9
Hebei 187.9 62.2 65.7 18.1 51.4 1.7* 3.1 0.4 14.3
Shandong 157.2 85.7 88.4 29.5 86.5 3.5* 10.4 1.8 22.0
Beijing 16.4 10.9 12.5 10.5 24.3 1.3* 10.5 2.4 21.7
Tianjin 11.9 9.1 9.6 6.3 16.1 1.8* 5.5 1.3 21.1
Subtotal 520.9 207.8 217.8 84.6 225.2 13.9 37.6 9.4 101.0
Japan 377.8 124 126 3,478.6 4,672.7# 314.5 386.9 - -
Kyushu 7 prefecture + Yamaguchi
48.3 14.9 15.0 331.6 458.7# 14.6 23.9 - -
Korea 99.3 43.3 46.9 295.1 321.3 71.9 132.3 - 32.5^
YSR Total 668.5 266.0 279.7 711.3 1,005.2 100.4 193.8 - - Note : * indicates figures for 1990. # indicates figures for 1996. ^ indicates the cumulative
foreign direct investment figures up to January 2000. ‘-’ means ‘not available’.
Source : compiled from various sources provided by ISPRE and KERC.
4. Recent Development and Future Prospects for Economic Cooperation in the YSSR
The Process leading to the formation of the YSSR
Although the YSSR is not emergent yet like the growth triangle of Singapore- Johor-Riau or the Southern China Growth Triangle, it has been in formation since the 1990s. The normalization of diplomatic relations between China and
the Republic of Korea in 1992 gave an impetus to the process of sub-region formation, although Japan already established closer economic cooperation with China in the 1980s. The timing was also favorable because China’s Bohai region was actively seeking foreign direct investment and Korean firms were seeking low production costs sites due to industrial restructuring in the country.
The process leading to the sub-regional formation since the 1990s has been fundamentally market-driven. It was private firms who sought to exploit natural economic complementarities, even though governments unilaterally helped reduce barriers of trade and investment. The locally-driven process indeed has made a significant progress during the 1990s. For example, trade and investment across the Yellow Sea have increased remarkably over the years to exploit economic complementarity among the three partners. In terms of trade, information is not available at a city or provincial level, but we can infer from the volume and structure of trade between the countries.
Between 1991 and 1998 (Table 2.5), there has been a remarkable growth in trade between China and Korea. Trade between China and Japan has also substantially increased. Trade volume between Japan and Korea, however, was up till 1997 but fell in 1998 because of the Asian financial crisis. We can observe a similar trend at the sub-national level. For example, Kyushu, which publishes data on trade, has been deepening its trade relations with China and, in particular, with the cities in the YSSR (KERC 2000). Although Kyushu’s trade with Korea has not recently been growing much, its share in the total amount of trade between Japan and Korea has continued to mark around 40%
in the 1990s.
National trade statistics reveal that Japan has comparative advantage in industrial machinery, communication equipment, steel, plastic, rubber and precision machinery, while Korea has comparative advantage in steel, apparel, electrical machinery, and communication equipment. As such, there exists a competition between Japan and Korea in certain industries also with a strong complementarity between both China and Japan and China and Korea (Kim et al. 1998). This complementarity is clearly revealed in trade between Kyushu and China. Kyushu exports to China mostly general machinery, chemicals, steel, electrical and precision machinery, while it imports from China fishery, apparel, electrical machinery, and fuels. Given the heavy-industry oriented structure of
China’s Bohai region, we may guess trade within the YSSR contains both elements of vertical and horizontal division of labor. In fact, national-level data indicate that intra-industry trade has been growing among the three countries in such commodity groups as steel, chemicals and electrical machinery (Kim 1998).
With regard to investment, China’s Bohai region hosted about two-thirds of Korea’s foreign direct investment in China, while it attracted about 40% of Japanese investment. Korea’s investment in the Bohai region is largely from the capital region of Korea, where industrial restructuring took place rapidly. In terms of investment, the Chinese cities along the Yellow Sea Rim are Kyushu firms’ favorite destinations, accounting for almost 40% of Kyushu’s direct investment in China (KERC 2000). Both Korean and Japanese investors have shown a greater interest in China’s manufacturing sector, indicating the possibility of closer economic integration within the YSSR. One nagging point, however, is the meager presence of Japanese investment in Korea, especially between cities and provinces across the Korea-Japan Strait. Although high labor costs in Korea is one reason, Korea’s unfavorable investment environment until 1997 would have been another reason for low interest of Japanese investors in Korea.
Underlying forces and motives for cross-border cooperation
As alluded above, economic complementarity among China, Japan, and Korea constitutes an important reason for forming an integrated region in the Yellow Sea rim. In addition, we can list two more reasons. One is geographical proximity. For example, the distance between Pusan and Fukuoka is only 200km, while that between Inchon and Qingdao is about 600 km. It takes about 7 hours by fast-speed boat. Another reason for supporting the emergence of an economic region lies in the history of coastal trade and cultural exchange along the Yellow Sea rim. Sharing common cultural roots, cities and provinces in the YSSR have a bright prospect for inter-local cooperation across the sea.
Indeed, we can trace back to the history more than two thousand years ago, when coastal cities in the YSSR exchanged commodities, technology, and people. The focal points of this coastal trading included the Liaodong peninsula,
the Shandong peninsula, the Korean peninsula, and the Kyushu island of Japan.
Even though there were battles over the control of sea routes, the Yellow Sea was most times the channel for trade and travel. The heyday of the coastal trading was the period of Shilla in Korea (669-935 AD), Tang in China (618- 907 AD), and Yamato-Nara-Heian period in Japan (646-856 AD) (Yoon 1999).
It was ironically since the 15th century, during which cross-border inter-city networking began in Europe along the Mediterranean Sea, that Northeast Asian countries lost impetus for cross-border inter-city networking. This period can be characterized with the stabilization of centralized administrative systems in Northeast Asia, namely Ming and Qing Dynasty in China, Choson Dynasty in Korea, and Tokugawa Bakufu in Japan.
Based on these reasons, namely economic complementarity, geographical proximity, and cultural affinity,12 it is not presumptuous to assume the emergence of the YSSR or the revival of inter-city networks along the Yellow Sea, as one phrased it as “Mediterranean of East” (Yoon 1999). On top of this, we observe strong economic motives among cities and provinces within the YSSR. Cross-border cooperation can help create conditions for growth by enlarging local markets, pooling resources, and more efficient use of labor and capital.
Obstacles to the full integration of the YSSR
Different socio-economic systems, relatively closed national markets, weak local authority and responsibility, and underdeveloped and less-integrated infrastructure in Northeast Asia still hinder inter-city network formation in the YSSR (Rozmann 1999a). Trade barriers are still high in China, Japan and Korea and some markets are closed for non-tradable goods and services. Entry and exit procedures are cumbersome and time-consuming. These barriers and relatively closed markets (notably air transport market) are not conducive to international and inter-local cooperation.
Furthermore, short-run profit motivation and weak internationalism combined with preoccupation with local and national interests are hindering
12 Although these three are not sufficient and necessary conditions, they are important qualities for successful sub-region formation in East Asia (Thant, 1998).
cross-border cooperation in the YSSR. For example, most of internationalization efforts made by China, Japan, and Korea are designed to secure local or national interests rather than inter-local or inter-national interests. There have been few genuine efforts exerted by localities and residents to fully understand the culture and institutions of other localities in neighboring countries despite the rhetoric of internationalization and regionalization (Rozmann 1999b).
Cross-border cooperation is often conceived as a promotion strategy of a city or a province in all three countries. Although self-interest or self-promotion is inevitable to a certain extent, narrow self-interest is not conducive to creating agreements, let alone common goals and visions, among cities across the border.
Competition and cooperation in the YSSR
The main thrust among the cities in the YSSR is at the moment competition rather than cooperation. Every city in the region attempts to win from the inter-city competition. The major problem in this competition-based approach can be described by the prisoners’ dilemma. A zero-sum game resulting in winners and losers is bound to escalate competition, which in the end is likely to hurt not only losers but also winners, since resources and energies are unnecessarily spent for excessive rivalry and redundancy.
Ambitious port expansion plans in major coastal cities of the YSSR, for example, illustrate the possibility of excessive competition. Another case of excessive competition can be anticipated in a few manufacturing industries such as electronics, car assembly and components, and machinery. If this happens, the YSSR as a whole will suffer from excess capacity and the resultant overall inefficiency.
Such win-or-lose game may be avoided if cooperation is in force.
Through cooperation, we may find an alternative solution. For instance, if port cities in the YSSR came to agreements to utilize each other’s port facilities, they would avoid duplicating investment in the same facilities. Even though not all the cities recognize this potentiality yet, all the cities agree to the principle of competition with cooperation. Thus, the task ahead is to promote dialogue and discussion among cities and nations in the YSSR. Although we are not necessarily advocating that inter-local cooperation is the only mode of
cooperation, we nonetheless promote a locally-driven approach in conjunction with inter-state approach.
A few promising signs can be noted in the YSSR. For instance, there has recently been significant growth in the number of inter-city sisterhood relations and larger associations of cities and provinces in the YSSR.13 As the democratization and decentralization trend in Japan and Korea continues, more latitude and discretion are given to local authorities. In turn, this will help these localities pursue cross-border cooperation without relying too much on the central government. In the longer-term, with high regional consciousness among the residents of the YSSR and a strong will of local authorities, the process of cross-border cooperation and consequently, sub-region formation is likely to be accelerated.
13 Examples are the East Asian City Conference including the cities of Kitakyushu, Shimonoseki, Dalian, Qingdao, Inchon and Pusan (Tianjin, Yantai, Ulsan joined later) and the Governor’s summit of the Korea-Japan Strait including Fukuoka, Saga, Nagasaki, Pusan, Chollanamdo, Kyongsangnamdo, and Chejudo.
C HAPTER 3
Status of and Prospects for Inter-city Linkages between Major Port Cities in the YSSR
1. Enlarged Spaces of Production, Distribution, and Travel
Although national boundary is much more rigid in Northeast Asia than in EU and NAFTA, it has recently become porous. Now, capital is almost free to move around and in fact firms are investing across the national boundary. As discussed in Chapter II, Japanese and South Korean investors have established joint ventures or independent firms in China. These joint ventures and independent firms procure raw materials and parts partially from China, mother companies, or third countries. In case of Korean-invested firms in Shandong Province, the ratio of local procurement is known to be relatively low. Also low is the Korean-invested firms’ sales of products in Chinese market. In comparison, Japanese-invested firms tend to procure larger proportion of raw materials and parts from China and to sell more products to the Chinese market (Kim and Kwon 1998). Despite these variations, integrated production networks are developing in the YSSR through foreign direct investment.
Trade, on the other hand, promotes the international division of labor along comparative advantages. Industrial specialization is taking place within the YSSR, although there exists competition in certain industries. Increased trade requires an efficient transportation of goods between countries and between port cities and inland cities within a country. The rapid growth of marine and air transport among China, Japan, and Korea in the 1990s attests the close relationship between trade and transportation. There are now 10 marine
These transport linkages are growing in parallel with the growth of trade, investment, business and tourist travel. In other words, the geographical scope of production and travel has enlarged substantially in the YSSR since the 1990s.
In fact, the YSSR can become a one-day travel zone with the availability of round-trip air transport. Businessmen can fly from Fukuoka in the morning, do business in Dalian, and come back to Fukuoka in the evening. Even a one-day boat trip is possible between Pusan and Fukuoka. As such, the YSSR has an opportunity to become an integrated region with networks of trade, investment, business, logistics, tourism, and so forth. Yet, there are obstacles and shortcomings to overcome. Some are related to hardware such as port facilities and others to software such as entry and exit procedures.
2. Cities as a Basic Unit for Networking and Regional Integration
Inter-city networking by the public sector is seen as being primarily in economic intent and is designed to generate network economies, lower transaction costs, and economies of scale through sharing resources and controlling competition (Cappellin 1994a). More broadly, the main purpose of inter-city networking can be understood to promote and facilitate the integrated and sustainable development of the region encompassed by such a network (Friedmann 2000). This is indeed what has been observed in the formation of European Union. It was not just nation-states but cities as well that played an important role in European integration. Cities, a basis for regional integration, are the first and essential political and institutional contact for those who choose to move. Local authorities in cities can play a vital role in developing dialogue between cities of different cultures and political-economic systems (Eurocities 2000, Friedmann 2000).
Such conception of inter-city networking follows closely the notion of inter-firm or inter-institution networks.14 A basic assumption of network
14 Network concept is mostly developed in the literature on organizational theory. The concept is often discussed with reference to markets and hierarchy, which were fully elaborated in
