International W orkshop
D e ve lop m en t p rosp e cts for a n d
In terd e p en d e n ce of C ore E co n o m ic R e g ion s o f N orth e a st A sia
O ctob er 11, 2007
Seou l
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Preliminary draft Not for circulation or quotation
Changing Geo-economic Landscape of Northeast Asia and the External Relations of Core Economic Regions
Won Bae Kim
International Conference
Development Prospects for and Interdependence of Core Economic Regions of Northeast Asia
October 11-12 KRIHS
Contents I. Introduction
II. Changing Economic Landscape of Northeast Asia
III. Industrial Agglomerations or Clusters in the Core Economic Regions IV. External Relations of Core Economic Regions
V. Concluding Remarks
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I. Introduction
The geoeconomic landscape of East and Northeast Asia has changed from a unipolar to a multipolar system in past decades. Many reasons count for such a change. China’s integration into the global economy is one. The movement towards free trade and regionalization within East Asia is another. Under such a new geoeconomic landscape, core economic regions in Northeast Asia have emerged and have been playing a bigger role than before. In a sense, the economic geography of Northeast Asia is redefined by core economic regions, which are not only the locus of each domestic economies but also focal points of international economic networking. Thus competition and cooperation between these regions shape the geoeconomic landscape of Northeast Asia.
It is therefore worthwhile examining these core economic regions in terms of their economic structure, industrial cluster, and external linkages.
This paper has three tasks. First, it attempts to describe changing geoeconomic landscape of Northeast Asia by a simple analysis of location quotient. Second, it aims at documenting the industrial structure of the eight core economic regions. Third, the paper attempts to assess the external relations of regions using available information on trade and investment. The final part of this paper will conjecture the future relations between the core economic regions in Northeast Asia.
II. Changing Economic Landscape of Northeast Asia
The three economic regions or metropolitan economies of Japan have been the leaders of East Asian economy, although their influence on the East Asian economy has waned somewhat since the early 1990s. The so-called flying geese model is no longer relevant for explaining the dynamics of the East and Northeast Asian economy. Together with the relative decline of the Japan’s core regions, China’s coastal regions have advanced rapidly largely due to China’s reform and open policy. This relative standing can be easily seen from the size of those regional economies (Table 1). Japanese have been proud of the fact that the GDP of its core region, Kanto, is bigger than that of Canada and Korea (Republic of Korea). Even its second largest regional economy of Kinki has the GDP size close to that of Australia and bigger than those of most Southeast Asian economies. Even though the three core regions of Japan, namely, Kanto, Kinki, and Chubu still produce large incomes, they are no longer the sole giants of East Asia.
Korea’s Capital and Youngnam region, China’s Changjiang, Zhujiang delta and Jing-
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Jin-Ji region play a leading role in industrial production. If we adopt the purchasing power parity index, China’s Changjiang region produces almost as much as Japan’s Kanto region. Zhujiang delta’s GDP is slightly bigger than that of the Kinki region.
China’s three core regions have been advancing fast to the main stage.
Such a diversified pattern of economic landscape in Northeast Asia is closely related to the changing geography of industrial production in East Asia. The new international division of labor accompanied by foreign direct investment and intra-industry trade helped produce the decentralization of industrial production in Northeast Asia. Using a simple index of location quotient,1 one can easily observe shifting patterns of industrial production in Northeast Asia (Table 2).
Japan’s three core regions reveal a tendency of tertiarization, i.e., the economy is moving towards a service-oriented one. Since the service sector of a regional economy serves usually the region’s demand, most regions have more or less a similar share of service industries proportional to the size of their economies. Exceptions are global city- regions such as New York and London, where the financial sector is extraordinarily big because they serve the global financial economy. In this regard, Japan’s Kanto region, where Tokyo is located, shows relative specialization in all the three branches of the service sector. More importantly, the trend between 1996 and 2004 indicates further specialization of the Kanto region in the three service branches.
On the other hand, the Kinki region has been advancing in the transportation/
communication and the real estate/business services branches, whereas its manufacturing sector has been further weakened in terms of specialization. The Chubu region is an exception, still showing a quite high specialization in the transportation machineries and equipments. The Chubu region, however, reveals a weak specialization in the transportation/communication branch.
1 Making even a simple index of location quotient across national borders is cumbersome because of different statistical system between countries and exchange rates. The location quotient is basically a measure of showing the difference in terms of industrial structure between the larger region (here Northeast Asia) and the component regions (the eight core regions). Industrial classification employed in this exercise is as follows. First, certain categories of the manufacturing sector are selected, which can be regarded as knowledge-based manufacturing and to have potential or revealed competition among the three countries of China, Japan and Korea. They are then regrouped into transportation
machineries/equipments, general machineries/equipments, electrical & electronic machineries/equipments, precision machineries/equipments. Second, three categories of the service sector are selected for
comparison and they are transportation & communication, finance and insurance, and real estate &
business services.
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For the two Korean regions, it is interesting to observe relatively strong specialization in the manufacturing sector. It is striking to see a very high specialization of the transportation machineries/equipments in the Youngnam region. Even the Capital region, which is the engine of the Korean economy, is characterized with a strong specialization in all the four manufacturing branches (highest specialization in the electronic/electrical machineries, then precision machineries and transportation machineries). Another point to note is that the Capital region has the highest value of location quotient in the finance and insurance branch among the eight regions.
The three Chinese regions reveal a tendency of further specialization in the all four branches of the manufacturing sector. The Zhujiang and Changjiang region have gained further specialization in general machineries, precision machineries, and the electronic/electrical machineries between 1997 and 2005. A slightly different pattern is shown in the Jing-Jin-Ji region, where specialization has been weakened in the general machineries but has been increased in the precision machineries and the transport machineries. Because of strong growth in the manufacturing sector in general, the three Chinese core regions indicate a decrease in the relative agglomerations of service activities in their regions. This does not mean a decreasing share of GDP in the service sector of these regional economies. Beijing, which constitutes part of the Jing-Jin-Ji region, has lost the intensity of specialization in the finance and insurance activities. A similar trend is observed in the transport/communication branch of the Jing-Jing-Ji and the Zhujiang region. It is interesting to note, however, that the Zhujiang delta region still possesses some degree of specialization when one adds Hong Kong to the Zhujiang delta.
In sum, the eight core regions of Northeast Asia reveal a divergence in terms of their industrial specialization. Mature core regions such as Kanto and Kinki move towards a more service-based economy, whereas emerging core regions such as Changjiang and Zhujiang delta transform themselves as the centers of manufacturing. Middle regions such as Korea’s Capital and Youngnam show a dubious tendency of further specialization in some branches of the manufacturing sector, while on the whole slowly increasing the relative weight of the service sector.
III. Industrial Agglomerations or Clusters in the Core Economic Regions
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1. Kanto region
The region has more than 40% of national share in the production of precision machineries, information and communication equipments, printing related products, non-ferrous metal, leather, plastic and electrical machineries. Based on such industrial potential, the Japanese government has been implementing seven regional industrial cluster projects. The first five projects are geared to revitalize regional industries and the two remaining projects are for the Tokyo capital region. Target industries in these projects include as follows.
a. Industrial machineries, electronic equipments and communication equipments in the west Kanto region
b. Precision machineries in the central road corridor region (mostly in Nagano and Yamanishi)
c. Machineries including mechatronics in Chiba and Saitama prefecture
d. Transportation machineries and optical equipments in the Shizuoka and Nagano prefecture
e. Transportation machineries in the northern Kanto region f. Bio industries in the bio-venture project in the capital region
g. Information industries in the information venture project in the capital region In short, the Japanese government promotes the idea of the Kanto region as the world’s largest hub of new industries. In addition to the seven projects mentioned, the government also adopted two new projects. The first one is “Keihin network support activities” to utilize the potential of R&D institutions and manufacturing establishments agglomerated in the central Tokyo and its vicinity. The second one is “----Tsukuba network support activities” utilizing the opportunity of opening of the Tsukuba Express.
2. Kinki region
The region has a long tradition of machinery industries, which are the pillar of the regional economy (general machineries and electrical machineries contribute 29.5% and 24.5% respectively to the regional economic surplus). Government industrial cluster projects include two major categories. One category is bio-related projects and the other is manufacturing related projects.
The bio-related cluster project is based on the agglomeration of world-class R&D institutions in the region. Moreover, the Kinki region is advanced in commercializing
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biotechnology. There are 4 pharmaceutical majors in Osaka. As a matter of fact, Osaka is the number one in Japan in production of pharmaceutical products. Well-known global pharmaceutical companies such as Astrageneka and Bayer advanced into Osaka and Kobe. Furthermore, numerous enterprises in precision equipments, food and textile industry are involved in bio-related industries. R&D base in the pharmaceutical industry is strong. There are 36 bio-related R&D organizations in the universities and 22 national and public institutions. Research personnel include 2048 persons in the university and 139 in the national and public R&D institutions. In this regard, the Kinki region is the major agglomeration of pharmaceutical industries. In spite of the region’s strength in the bio-related areas, manpower shortage and consumers’ receptivity are considered to be shortcomings. The bio-related projects focused on inventing medicine, renewable medicine, and advanced analytical equipments but, recently, they expanded into food industry.
The Kinki region also has competitive advantage in nano-tech and materials industries.
Manufacturing-related projects aim at supporting the cluster development of machineries, specifically robot, semiconductor, sensor and airplane parts. In addition, the Kinki region also promotes information technology industries. Information and communication equipments industries are agglomerated in Osaka and Hyogo, whereas electronic parts and devices industries are concentrated in Osaka, Hyogo, and Kyoto.
ICT industries are, however, concentrated mainly in Osaka. The Kinki region has a great potential in IT industries. For example, there are several headquarters of 16 IT- based household appliances companies and 24 electronic parts companies. There also exists an agglomeration of R&D institutes and manpower. Given the strengths and weaknesses of the Kinki region, the following areas such as human interface, home network, and mobile wearable ubiquitous industries are considered to be promising for the region.
Energy and environment cluster is regarded as another important future industry. The Kinki region has a strong industrial base in cell manufacturing because many household appliance makers are concentrated in the region. In the environment business, the region has comparative advantage in air and water pollution prevention facilities, and treatment facilities for organic wastes, which is largely derived from the agglomeration of heavy machinery makers. There is also an agglomeration of R&D institutions and universities in the area of energy and environment. Shortcomings of the region include cooperation and networking among universities, public research institutions and private research organizations. It is also deemed necessary to provide effective support for the small and
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medium-sized enterprises with technical capacity to carry out overseas operation. The Kinki region policymakers consider a good prospect for fuel cell, environment/energy equipments and services including waste treatment and the effective use of renewable materials.
To summarize, the Kinki region has four industrial clusters of IT-based household appliances, robot, energy and environment instruments. Current policy focuses on the deepening of industry-university-government networks, the creation of cluster cores, and the generation of several sub-clusters through selective promotion. In the plan for the second period cluster promotion, the Kinki region proposed three projects. They are:
a) neo cluster, which focuses on future robots related to IT-based household appliances;
high-function materials such as next generation semiconductor devices and multifunction sensor, and high-efficiency energy instruments like solar battery; b) bio- cluster emphasizing medical area, advanced analytical instruments and product bio (e.g., bio process and environment bio); and c) green cluster, which primarily deals with environment-related instruments.
3. Chubu region
The Chubu region includes Nagano, Shizuoka, Gifu, Aichi and Mie according to MLIT but METI includes Nagano and Shizuoka to the Kanto region. For the sake of convenience, industrial cluster development in the three core prefectures (Mie, Aichi and Gifu, the three defined as Tokai region) is discussed here. This Tokai region is the center of automobile and related industries as indicated by the region’s share of national production in the car air conditioner (73.5%), internal combustion engine (59.9%), airplane parts (55.6%), automobile (45.6%), and automobile parts (43.6%). The Tokai region is indeed the global center of automobile industry. There is a heavy concentration of automobile related industries in the region. Challenges facing the region’s automobile industry are two fold: one is to overcome environment and energy problems and the other is to maintain cost competitiveness. Globally, there is stiff competition with respect to next-generation technology and cost. Through relocating some of domestic operation to overseas and upgrading technology, the Nagoya region is responding to those challenges.
Geographically, manufacturing firms are distributed as follows. Automobile firms are concentrated in Aichi prefecture, whereas metal machine tools enterprises are in Aichi
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and Gifu prefectures. Aerospace companies are mostly located in Aichi and Gifu prefectures.
Obviously, labor has been a problem for the region’s manufacturing firms. Labor has been imported from abroad, numbering now 292,000 persons. Even though Japan has promoted the importation of skilled professionals, most of foreign labor employed in the region has been unskilled workers. Other challenges facing the region include continuous technology innovation, quality upgrading of manpower, energy saving and/or substitute energy development. Another problem of the Tokai region is its weak international cooperation in terms of importing talent and technology and industrial exchanges. The region, on the whole, requires internationalization strategy.
Apart from challenges facing the region’s manufacturing industry, the underdeveloped service industries constitute a major weakness of the regional economy. Even though businesses have been recently booming in downtown Nagoya due to the steady development of the regional economy, the region as a whole suffers from the industrial structure tilted towards manufacturing. Policymakers in the region do pay attention to the promotion of urban service industries such as information service, advertisement and design. In addition, information software, digital contents, media services are regarded to be favorable to the upgrading of the region’s manufacturing industries.
Health and welfare services including childcare are considered to be worthwhile promoting for the rapidly aging, small number of children society.
4. Korea’s capital region
Similar to the Kanto region, the capital region of Korea has internationally competitive clusters of LCD and semiconductor industries. Accordingly, the capital region shows a high specialization index in electronic parts, audio-visual and communication equipments industries. Broadly defined ICT (information communication and technology) industries are now the pillar of the region’s manufacturing sector. Typical urban industries such as apparel and leather products, printing and recording industries also show a strong presence in the region. Among the service sector, the region is specialized in business services such as finance, law and accounting. Also pronounced is ICT related services.
The national government of Korea has been promoting regional industrial clusters. For
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the capital region, finance, IT, and logistics are the three most important target clusters.
However, each component area of the region pursues a more variety of industrial clusters. For example, Seoul city desires to promote bio, IT and digital contents in addition to finance. Incheon city also wants to develop automobile, machinery and IT in addition to the logistics industry, whereas Gyeonggi province attempts to develop life, cultural contents and logistics in addition to IT. The national strategy of making Korea as an economic hub of Northeast Asia implemented free economic zone policy, in which Incheon is included as a logistic hub and Seoul as a financial hub.
Inter-local rivalry is strong, however, in the promotion of industrial clusters.
Redundancy and weak cooperation between local governments often follows in such situation. Moreover, networking among various actors for regional innovation is relatively weak.
With respect to the LCD clusters, the capital region’s dependency on foreign countries in parts and materials is still high. This stems partly from the division of labor in East Asia in the LCD industry, where Japan produces integrated intermediate parts as well as produces panel and final goods through a full-set structure, Korea and Taiwan import those parts and produce panel, and China assembles imported panels. However, those clusters involved in such a division of labor aim at a more or less full-set production system within their own country, which tend to inhibit cross-border cluster-to-cluster networking and cooperation.
5. Youngnam region
The Youngnam region has a strong industrial base, which was formed during the early years of Korean economic development. The shipbuilding industry agglomerated along the southern coastal area is internationally competitive and it produces the largest value in the world. Related industries such as instruments and materials are concentrated in and around Busan. Another important industry for the region is automobile and parts, whose firms are distributed in Busan, Ulsan and Daegu. In addition to these two internationally competitive industries, there is machinery industry in Gyeongnam province and electronics industry in Gyeongbuk province. Considering such industrial agglomerations in the Youngnam region, the central government proposed to develop a mega cluster of machinery-related industries including automobiles, ships, and related parts and materials. The focus, however, is to develop innovative industrial clusters
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utilizing the existing industrial potential. Many industries are listed as strategically important. For example, robots, smart home, mechatronics, new materials, IT and bio industry are chosen for selective promotion.
However, the future of the Youngnam region to sustain competitive clusters in the shipbuilding and automobile industries, let alone in new industries such as robot and mechatronics, depends a lot on the region’s innovative capacity. Despite the fact that the region has a sizable number of R&D institutions and universities, its innovative potential has not been fully utilized, whose results fare not so well in international comparison. The triangular networking of universities-industries-government has to be greatly improved in order to become an industrially competitive region. Furthermore, the rapid growth of the automobile and shipbuilding industries in China presents a great challenge for the Youngnam region
In addition to the manufacturing sector, the region has a great potential to become a marine logistics hub of Northeast Asia. The national government has been promoting to make Busan as a hub, although the efforts have been challenged by the rapid growth of Chinese ports such as Shanghai and Shenzhen.
6. Changjiang region (to be expanded)
Changjiang region is the largest core of China’s economy, producing 31% of the nation’s machinery industry, 29% of the nation’s electronic goods industry, and 21% of transport machineries. Changjiang region attempts to build 8 industrial groups. They are automobile, petro-chemical, machinery, steel, textile, apparel, and food. Among these, the electronic parts and components industry such as data processing machines, integrated circuits and liquid crystal devices is a leading export industry. Next follows textiles and apparels.
Shanghai city already developed high technology districts including the automobile district in the west Shanghai, the micro-electronic district in the Pudong area, and chemical engineering in the southwest. Jiangsu province has the Huning information industry agglomeration along the railway of Shanghai-Nanjing. Six special industrial districts belong to the Huning agglomeration and they are Suzhou high-tech zone, Suzhou industrial zone, Nanjing Jiangning development zone, Wuxi high-tech zone, Kunshan high-tech zone and Wujiang development zone.
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Zhejiang province also has numerous industrial districts. In terms of industrial development, Zhejiang model is close to endogenous regional development. In contrast, government leads industrial agglomerations in Shanghai and Zhejiang.
7. Zhujiang delta (to be expanded)
The Zhujiang region has three industrial groups of different characteristics. They are household appliances, IT industries, and a group composed of traditional industries such as ceramics, apparel and toys. To a large extent, industrial agglomerations in the Guangdong province can be characterized as an FDI-led industrial development model.
As such, processing industries take the major proportion of the region’s manufacturing sector. The automobile industry is a recent addition, which is again largely driven by FDI. Industrial agglomerations in the Zhujiang region have shortcomings such as weak inter-industrial connections and local embeddedness.
8. Jing-Jin-Ji region (to be expanded)
The region’s leading industries are resource-intensive energy related and also they are mostly heavy and chemical industries. Beijing, however, has developed a well known IT cluster in Zhongguancun. Based on a strong industrial base, Tianjin embarked a plan to become a center of advanced manufacturing including information industry, automobile, chemical, bio, and new energy.
Whereas the two mega-cities of Beijing and Tianjin aim to transform into a service- oriented economy, the province of Hebei serves as a site of heavy and chemical industries. In the Chaofeiden, Tangshan, the Chinese central government attempts to build a large-scale steel complex and other heavy and chemical industrial bases.
IV. External Relations of Core Economic Regions 1. Inter-Country Trade
Trade among China, Japan and Korea has expanded substantially in the past decades.
China-Korea trade has recorded a remarkable growth since the two countries established diplomatic relations in 1992. The annual growth rate of Korea’s export to China
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between 1993 and 2006 was 89.2%, while that of Korea’s import from China was 81.1%. The impressive growth of Korea’s export to China was largely due to the rising demand for intermediate goods in China. In result, Korea enjoyed trade surplus over China. However, the growth rate of Korea’s export to China has slowed down since 2003 and the structure of import from China to Korea has also changed. Korea used to import a lot of raw materials from China but recently imports more intermediate goods from China than before, which implies a shift of trade pattern from a vertical division of labor to a horizontal division of labor.
China-Japan trade has also expanded greatly. Japanese investment into China in the 1990s has played a big role in trade expansion. In result, China became an important country for the Japanese economy. Unlike the US or Korea, China is one of the few countries that Japan experiences trade deficits. In 1993, Japan’s trade deficit with China was $3.3 billion in 1993, whereas it increased to $ 25.6 billion. Such deficit growth largely stems from the importation of products made by Japanese enterprises invested in China. Nonetheless, such changes in China-Japan trade structure reflect the fact that trade between the two is no longer one-way. Instead, they indicate interdependent or competitive trade relations.
Japan-Korea trade has steadily increased since the 1960s. And it is often characterized as asymmetric interdependence. The trade expansion between the two countries has consistently resulted in trade deficit on the part of Korea. As trade expands between them, more capital goods and core components are imported from Japan. This is because Korea is behind Japan in terms of technological competitiveness. In a few items such as display equipments, Korea is competing with Japan resulting in an interdependent and competitive trade structure.
In sum, China’s rapid growth provided fuel for trade expansion between China and Korea and China and Japan up to now. China’s expected growth enables us to predict that the trend will continue and that Japan and Korea will continue to supply intermediate goods required for China’s rapid growth. One twist, though, is China’s industrial upgrading. China is no longer a country exporting cheap labor-intensive products. It exports components and parts with medium-level technology. Furthermore, Chinese government aims at producing capital goods as well in the near future. In short, trade relations among the three countries will involve more competition than before.
2. Subnational dimension of inter-country trade
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Core economic regions of China, Japan and Korea occupy the central position in the respective country’s foreign trade and foreign investment. For example, China’s three core regions exported 74% of total export of China in 2005. The amount of import by these regions also accounted for 72% of the nation’s import. Similarly, the three core regions absorbed about 78% of total foreign direct investment in China. As such, core regions play a leading role in the country’s external economic relations.
1) China’s three core regions
In terms of foreign trade, Changjiang delta’s share has risen substantially between 2000 and 2005. The role of Zhujiang delta as a leading region of China’s export and import has somewhat decreased, whereas the position of Changjiang delta has expanded. The same pattern is reflected in the share of FDI. In 1995, the Changjiang region took about 44% of total FDI in China, while its share increased to 57% in 2005.
Whereas China’s major trading partners are the US, Hong Kong, Japan, South Korea, and Germany, regional trading partners differ slightly by region.
For the Changjiang region, the U.S., Japan, South Korea, Hong Kong and the U.K. are the five major exporting countries. In terms of import, Taiwan and Germany are included instead of Hong Kong and the U.K. The Jing-Jin-Ji region has a more or less similar set of countries as its trading partners. They are the U.S., Japan, South Korea and Germany. In contrast, Guangdong province representing Zhujiang delta has somewhat different sets of countries for its export and import. Major export destinations are Hong Kong, US, Japan, Germany and Netherlands. If we include Hong Kong as part of Zhujiang delta, then Zhujiang delta has trading relations with US, Japan and European countries. Guangdong province imports primarily from Taiwan, Japan, South Korea, and the US indicating much closer connections with Northeast Asian countries.
2) Relations with Korea
For China as a whole, Korea is the third largest trading partner. The three core regions of China accounted for 54% of China’s export to Korea and 80% of China’s import from Korea. In 1998, Guangdong province was the largest trading partner of Korea.
However, the Changjiang region became the largest partner in 2006. Guangdong became the second largest and followed by the Jing-Jin-Ji region.
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The Changjiang region’s trade with Korea increased from $8.5 billion in 2000 to $53 billion in 2006, recording 20% growth rate per annum. The region imported more than it exported to Korea with a deficit of $16 billion. The main export items from the Changjiang to Korea are electrical/electronic goods, primary metals, textiles and apparels, general machinery, and petrochemical products. The main import items are electrical/electronic goods, petrochemical products, general machinery and primary metals. The Changjiang region is specialized in the export of agricultural products and other transport equipments to Korea, whereas it is specialized in the import of petro products, non-metal minerals, petrochemical products, precision machinery, and electrical/electronic goods with respect to Korea.
The Jing-Jin-Ji region has relatively close trade relations with Korea. The share of Korea in the region’s total trade has risen from 9.7% in 2000 to 12.1% in 2006. The main export items to Korea are electrical/electronic goods, primary metals, minerals, general machinery, textiles and apparels, whereas it main import item from Korea are electrical/electronic goods, petrochemical products, general machinery, and automobile parts.
The Zhujiang delta region represented by the Guangdong province is a major trading region in China. However, its trade with Korea accounts for less than 5%. The main export items to Korea are electrical/electronic, primary metals, textiles/apparels, general machinery, and petrochemical products, whereas it imports from Korea are composed of electrical/electronic goods, petrochemical products, general machinery, and primary metals.
3) Trade relations of Korea’s two regions with China and Japan
As China became the largest trading partner of Korea, the importance of trade with China increased for the core regions of Korea. The share of China in the capital region’s trade has increased from 9.5% in 2000 to 22.1% in 2006. China’s importance is more pronounced as an export destination for the capital region. Electrical and electronic goods are the major export items from the capital region to China. Main import items from China are electrical/electronic goods, textiles/apparels, primary metals and general machineries (Table 3).
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China has gained its importance as a trading partner of the Youngnam region. The share of China took only 10.2% in 2000 but it increased to 18.5% in 2006. The region exports primarily petrochemical products, electrical/electronic goods, primary metals, machineries and petro-products to China, whereas it imports primary metals, electrical/electronic goods, mineral products, and textiles/apparels (Table 4).
4) Korea’s investment in China
As of 2006, the cumulative total of Korea’s investment in China amounted to $17 billion. The three core regions took a major share of Korea’s FDI in China. The Capital region of Korea, which is the major source region of Korea’s investment in China, invested heavily in the Changjiang and Jing-Jin-Ji regions. About 76% of the capital region’s investment cases in China are in the manufacturing sector. In terms of investment amount, textiles/apparels, electronics and communication, machineries and petrochemical are the four major industries that Korean enterprises made investment. In addition, investment in the service sector including wholesale and retail is on the increase.
The investment from the capital region of Korea to China’s three core regions has different emphasis. On the whole, electronics and communication takes the largest share in all the three regions. Investment from Korea’s capital region is relatively concentrated in the transportation equipments industry for the Jing-Jin-Ji region, whereas petrochemical industry for the Changjiang region.
The Youngnam region of Korea is also selective in its investment destination. The Changjiang region takes the largest share of the investment from the Youngnam region to China. Next follows the Jing-Jin-Ji region. The share of Zhujiang region is small, reflecting a relatively weak connection. The focus of Korean investment originating from the Youngnam region is manufacturing activities including transportation equipments, primary metals, textiles/apparels and electronics/communication. Regional breakdown of the manufacturing investment from the Youngnam region indicates that primary metals, transportation equipments and electronics/communication are target industries for the Jing-Jin-Ji region, whereas primary metals, transportation equipments and textiles/apparels are for the Changjiang region.
These investment flows from Korea’s major regions to China’s three core regions can be summarized in the Figure 1. Major sectors that enterprises in Korea’s capital region
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invest in are: electronics/communication, transportation machinery, textile/apparel, petrochemical and machinery. Investment flows are primarily from Korea’s capital to China’s Changjiang and Jing-Jin-Ji region in the electronics/communication industry (although to the Zhujiang region with lesser amount). In the transportation machinery sector, both Korea’s capital and Youngnam region establish connections with the Jing- Jin-Ji and Changjiang region. The Zhujiang region does not present itself as a major destination for Korean investment.
In the textile/apparel industry, the Changjiang region is the major destination for the enterprises from the capital and the Youngnam region. The Changjiang region and, to a lesser extent, the Jing-Jin-Ji region are again the focus of Korean investment in the petrochemical industry. Here, the firms in the capital region largely make investment. In the machinery industry, Korean investment is concentrated in the Chanjiang region, although the Jing-Jin-Ji and the Zhujiang region receive some. In the service sector, the pattern is different. The Zhujiang delta including Hong Kong hosts a large portion of investment from the two Korean regions.
5) Korea-Japan trade at subnational level
The trade volume of Korea’s capital region with Japan exceeded $10 billion in 2004.
However, the region imports from Japan much more than it exports to Japan, recording trade deficit of almost $7 billion in 2006. Major export items include electrical/electronic equipments, machineries, apparel and precision equipments, whereas major import items contain electrical/electronic equipments, machineries, precision equipments and mineral fuel.
Korea’s Yeongnam region has closer trade relations with Japan. The city of Ulsan is the only area, which has trade surplus with Japan. Ulsan exports primarily mineral fuel and organic chemical products, while it imports organic chemical products, steel, and machineries from Japan. On the other hand, Gyeongnam province exports machineries, electrical equipments and steel products to Japan. It imports steel, electrical equipments, and machineries from Japan. The core city of Busan has lesser trade volume with Japan than those of Ulsan and Gyeongnam. Also export product composition differs. Main export items include fisheries, machineries, steel and steel products, whereas main import items include steel, machineries, and transportation equipments.
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6) Trade relations of Japanese three core economic regions
The Kanto region of Japan generates substantial volume of trade with the world. While the region’s export and import activity with Korea constituted about 7% and 4%
respectively in 1996, they increased to 8% and 4% in 2006. Even though the Kanto region’s trade with Korea increased, it is incomparable to the region’s trade with China.
In 1996, Korea was the second largest export and the fifth largest import countries. The relative importance has dropped since then. Now, China is the largest importing source country and the second largest export destination for the Kanto region.
Main trade items of the Kanto region with Korea include electronic parts such as semi- conductor and integrated circuits suggesting a strong intra-industry trade.
The Kinki region has also increased its trade with Korea from 572 billion yen in 1999 to 1274 billion yen in 2006. Korea took 5.9% of the Kinki region’s export in 1999 and 8.4% in 2006. However, Korea’s share of the Kinki region’s import stayed around 5%.
Similar to the Kanto region, the importance of China as a trading partner of the Kinki region has been strengthened. China is now top trading partner of the Kinki region in both export and import.
In terms of commodities, the Kinki region exports to Korea such items as optical devices, steel, electric circuits, audio-visual equipments and semi-conductor. Import items from Korea include semi-conductor, office equipments, apparel, audio-visual equipments, steel and metal products. Intra-industry trade is frequent.
Unlike the Kanto and Kinki region, the Chubu region of Japan has less trade connections with Korea. The share of Korea in the region’s export and import took only 3.1% and 5.7% respectively in 2006. Similar to the Kanto region, the Chubu region has closer trade connections with the US (as the major export destination) and China (as the largest import source country).
V. Concluding Remarks
The foregoing discussions, although preliminary, suggest that the industrial geography of Northeast Asia changed from the vertical structure of the past to a mixed structure, where both vertical and horizontal relations coexist. What we can glance from trade and
18
investment relations are two-fold: one is the increasing intensity of intra-industry trade and the other is a geographically bounded pattern of industrial networking. However, industrial networking contains both complementary and competitive elements. For example, the Kanto region of Japan may not desire to relinquish its core competence through technology transfer and thus would suggest a sort of compartmentalized networking in the near future. In general, one can speculate that inter-regional competition may be heightened as intra-industry trade increases, thus eroding complementary relations between regions.
However, competition and cooperation between regions can evolve in a much complex fashion. For example, competition between regions could be either zero-sum or positive-sum. Free trade and accompanied industrial specialization supports the logic of a positive-sum game. The case of European integration, however, suggests that there are certain situations where competition is likely to induce a zero-sum result, i.e., winners and losers. It is obvious that we need more empirical evidence to make claims either way. One can safely state that benefits distribution would be fairer under a multipolar system than a unipolar system. Thus far, we have seen mutually beneficial results of inter-country and inter-firm cooperation in Northeast and East Asia. Even though it is difficult to predict the future, a more horizontal structure of division of labor between core economic regions would involve more competition. As free trade becomes a norm in Asia, multinational companies certainly do want to expand their regional production networks in order to achieve efficiency. We are observing such a trend in several categories of industries such as automobile, electronics and communication, and even steel and shipbuilding. Obviously, there are obstacles blocking such expansion of regional and global production systems. There are, however, ample reasons to believe that inter-regional networking and cooperation between regions (not just between firms) would bring more benefits to all the parties involved. Securing a full-set industrial structure within a region or a country is neither possible nor beneficial. We need to examine more deeply ways to promote collaborative regional development in Northeast Asia through industrial cooperation and more generally knowledge sharing.
19
Table 1. Asia-Pacific Countries and Core Economic Regions
PPP GDP 2005 (billions of international
dollars)
GDP 2005 (billions of US
dollars)
Population 2005 (thousands) United States 12,409 12,455 296,497 China 8,573 2,229 1,304,500 Changjiang delta 1,338 348 82,280 Jing-Jin-Tang 438 114 34,700 Zhujiang delta 623 162 40,780 Zhujiang+Hong Kong 801 340 47,724 Japan 3,944 4,506 127,956 Kanto 1,444 1,650 42,370 Kinki 596 681 20,890 Chubu 574 656 17,220 Kyushu 355 406 13,350 Canada 1,061 1,116 32,271 Korea, Rep. 1,056 794 48,294 Capital region 479 360 23,050 Southeast region(BUG) 174 131 7,790 outheast region(BUG+DG) 282 212 12,985 Mexico 1,052 768 103,089
Taiwan 346 22,770
Indonesia 847 287 220,558 Australia 643 701 20,321 Thailand 549 177 64,233 Philippines 409 98 83,054 Malaysia 275 130 25,347 Vientnam 254 52 82,966 Hong Kong, China 214 178 6,944 Singapore 130 117 4,351 New Zealand 93 109 4,110
20
Table 2. Industrial Specialization of Core Economic Regions based on Location Quotient
Region Industry
Transport machinery
General machinery
Precision machinery
Electrical machinery
Transport &
communication
Finance &
insurance
Real estate &
business
Jing-Jin-Ji 1.14 3.02 1.44 0.29 1.05 1.36 0.31
2005 1.19 2.39 1.67 0.48 0.82 1.03 0.51
Changjiang 1.22 2.68 1.98 0.88 0.87 1.03 0.25
2005 1.27 3.46 2.38 1.28 0.69 0.64 0.36
Zhujiang 0.59 2.80 1.96 0.99 1.16 0.50 0.30
2005 1.07 4.18 3.44 2.01 0.71 0.44 0.50
Kanto 0.43 0.51 0.91 0.81 1.00 1.18 1.21
2004 0.31 0.24 0.48 0.40 1.04 1.24 1.32
Kinki 1.86 0.83 0.75 0.92 1.03 0.66 0.89
2004 1.63 0.42 0.63 0.79 1.04 0.71 0.98
Chubu 0.31 0.84 0.56 0.78 1.04 0.87 1.09
2004 0.28 0.43 0.48 0.57 1.08 0.84 1.17
Capital 1.96 2.57 1.96 3.33 0.90 1.26 0.59
2005 1.47 1.25 1.96 4.35 1.14 1.51 0.59
Yeongnam 8.55 3.46 3.27 1.41 0.89 0.63 0.29
2005 8.59 2.53 1.39 1.69 1.07 0.74 0.26
21
Table 3. Commodity Composition of the Capital Region’s Trade with China
(Unit: $million, %) Export to China Import from China
2000 2006 2000 2006
Trade specialization
index
Amount Share
(%) Amount
Share (%)
Amount Share
(%)
Amount Share
(%)
2000 2006
Agriculture 55 0.7 33 0.1 599 7.9 818 2.9 -0.83 -0.92 Mineral 349 4.2 524 2.1 599 7.9 1,049 3.7 -0.26 -0.33 Food & Tobacco 36 0.4 162 0.6 249 3.3 674 2.4 -0.75 -0.61
Wood & paper 196 2.3 128 0.5 159 2.1 481 1.7 0.10 -0.58 Leather & fur 661 7.9 312 1.2 113 1.5 477 1.7 0.71 -0.21
Textiles &
apparel
1,918 22.8 2,059 8.1 1,701 22.5 4,248 15.0 0.06 -0.35
Non-metal mineral
89 1.1 186 0.7 116 1.5 913 3.2 -0.13 -0.66
Primary metal 535 6.4 1,594 6.3 723 9.6 4,019 14.2 -0.15 -0.43
Petrochemical &
rubber
1,628 19.3 2,098 8.3 374 4.9 1,576 5.6 0.63 0.14
General machinery &
equipment
1,190 14.1 4,921 19.5 797 10.5 3,957 13.9 0.20 0.11
Automobile 100 1.2 1,210 4.8 38 0.5 235 0.8 0.45 0.67
22
Other transport 9 0.1 9 0.0 11 0.1 25 0.1 -0.10 -0.49
Electrical/
electronic
1,434 17.0 10,213 40.4 1,716 22.7 8,056 28.4 -0.09 0.12
Precision machinery
60 0.7 1,538 6.1 130 1.7 580 2.0 -0.36 0.45
Other mfg 156 1.9 303 1.2 241 3.2 1,267 4.5 -0.21 -0.61 Total 8,417 100.0 25,290 100.0 7,566 100.0 28,376 100.0 0.05 -0.06
Table 4. Commodity Composition of the Youngnam Region’s Trade with China
(Unit: $million, %) Export to China Import from China
2000 2006 2000 2006
Trade specialization
index
Amount Share
(%)
Amount Share
(%)
Amount Share
(%)
Amount Share
(%)
2000 2006
Agriculture 34 0.6 42 0.2 442 12.8 613 4.6 -0.86 -0.87 Mineral 719 11.7 2,567 11.0 485 14.0 1,087 8.1 0.19 0.41
Food &
Tobacco
13 0.2 26 0.1 75 2.2 220 1.6 -0.70 -0.79
Wood &
paper
91 1.5 99 0.4 66 1.9 147 1.1 0.16 -0.20
Leather & fur 94 1.5 79 0.3 27 0.8 36 0.3 0.56 0.37 Textiles & 839 13.7 1,001 4.3 476 13.8 934 7.0 0.28 0.03
23 apparel
Non-metal mineral
91 1.5 96 0.4 63 1.8 325 2.4 0.18 -0.54
Primary metal 822 13.4 3,544 15.2 505 14.6 3,821 28.6 0.24 -0.04 Petrochemical
& rubber
1,125 18.3 5,059 21.6 169 4.9 770 5.8 0.74 0.74
General machinery &
equipment
681 11.1 2,876 12.3 197 5.7 1,530 11.4 0.55 0.31
Automobile 41 0.7 1,259 5.4 20 0.6 174 1.3 0.34 0.76
Other transport
2 0.0 20 0.1 6 0.2 72 0.5 -0.46 -0.56
Electrical/
electronic
1,496 24.4 4,365 18.7 694 20.1 2,967 22.2 0.37 0.19
Precision machinery
53 0.9 2,230 9.5 208 6.0 479 3.6 -0.59 0.65
Other mfg 29 0.5 125 0.5 23 0.7 205 1.5 0.12 -0.24 Total
24
Figure 1. Investment from Korea’s Core Regions to China’s Core Regions by Industry (amount in $million)
The following figures represent electronics and communication, transportation machinery, textile/apparel, petrochemical, machinery and service activities in descending order.
Capital region
Youngnam
Jing-Jin-Ji
Changjiang
Zhujiang (423)
(166) (177)
(156) (45) (11)
Capital region
Youngnam
Jing-Jin-Ji
Changjiang
Zhujiang (1,018)
(1,270) (99)
(61)
(497) (22)
25 Capital region
Youngnam
Jing-Jin-Ji
Changjiang
Zhujiang (80)
(18)
(14)
(66) (390)
(121)
Capital region
Youngnam
Jing-Jin-Ji
Changjiang
Zhujiang (230)
(552) (6)
(55) (66)
(14)
26 Capital region
Youngnam
Jing-Jin-Ji
Changjiang
Zhujiang (503)
(606) (16)
(48)
(1.611) (25)
Capital region
Youngnam
Jing-Jin-Ji
Changjiang
Zhujiang (114)
(47) (309)
(84) (154)
(6)
Schematic Economic Interactions among the Eight Core Regions
Euijune Kim
Professor, Department of Agricultural Economics and Regional Information, Seoul National University, 599 Gwanangno, Gwanak-gu, Seoul, 151-742, Korea
(E-mail: euijuen@snu.ac.kr) And
Hyewon Shin
Graduate Student, Department of Agricultural Economics and Regional Information, Seoul National University, 599 Gwanangno, Gwanak-gu, Seoul, 151-742, Korea
(E-mail: trost@snu.ac.kr)
This paper was presented at International Conference Development Prospects for and Interdependence of Core Economic Regions of Northeast Asia, Anyang, Korea, October 11, 2007
1. Introduction
As Global Production Networks generate an acceleration of globalization, economic interactions of nations have been more intensified in recent years. The economic reform and globalization in the 1990s have created more competitive markets, which force local governments to play economic agents and planners in the world market. They have to be involved directly in re-shaping their positions in the new environment of economic competition. Under such transformation of political economic circumstances, some questions can be raised with principles of competition and cooperation at the regional scale. Which factors might have influence on attracting FDI and creative classes more? How policies can enhance those factors? Do FDI outflows to Chinese regions have negative effects on Korean regions, unquestionably? Does the economic growth of Seoul Metropolitan Area have positive influence on urban economic growth of Tokyo?
This paper is of an analysis of the spatial interactions of economic growth of core economic regions in Northeast Asia. In this paper, the core economic region will be defined as a city-region, in which it incorporates urban centers with rural hinterlands, populated more than two million residents. The paper deals with eight core economic regions in the paper; Seoul Metropolitan Area (Seoul, Kyunggi and Incheon; SMA hereafter) and the Busan Metropolitan Area (Busan, Woolsan, Daegu, Kyungbook and Kyungnam; BMA hereafter) in Korea, Kanto, Kinki, and Chubu Areas in Japan and Jingjinji, Changjiang, and Zhujiang in China. It employs the convenience of regional aggregation, which accords with the data availability. In addition, Hong Kong is a reference case for the interregional comparison. This paper attempts to forecast the regional incomes of each eight core economic region and its income share in Northeast nations. It also examine that, in terms of regional income growth, one core economic region would have complementary relations with another or it would have competitive ones. Chapter 2 begins with the economic forecasts on the regional incomes in 2020 by estimating logistic functions of the GRDP for each core economic region. And the next chapter analyzes spatial interactions of regional incomes in the regions of China, Japan and Korea with
Granger causality and Dendrinos-Sonis Model. Finally, Chapter 4 summarizes the implications of the analysis.
2. Economic Forecasting on GRDP of Core Economic Regions
This section is devoted to an estimation of the GRDP for the core economic regions and Hong Kong by 2020. The historical data of the GRDP for each region is shown in Table 2.1, on which the GRDP is measured with a PPP exchange rate of UN in 2000 constant prices. The GRDP of the SMA has increased from 206.2 billion US$ in 1985 to 458.5 billion US$ in 2005, while that of the BMA jumps from 126.8 billion US$ to 265.9 billion US$ in the same period. In 1990, the GRDP level of the SMA was larger than Jingjinji (147.3 billion US$), Zhujiang (255 billion US$), Hong Kong (131.8 billion US$) in China, and BMA (165.7 billion US$). However, the GRDP of the SMA was outpaced by Zhujiang (347.9 billion US$) in 1992 and Jingjinji (476.4 billion US$) in 2003.
In Table 2.2, the growth rates of the GRDP for SMA and BMA in 1985 lingered at 10.53% and 9.58% respectively. While the economic growth rates of the two regions tend to slide down, on the whole, the SMA has experienced negative economic growth in 1998 and 2003. So has BMA in 1992, 1998 and 2003. In 2004, which is the latest year that the GRDP data for all the Core Economic Regions are available, the SMA and the BMA recorded the lowest growth rates of the GRDP (4.63%
and 4.98% respectively). Hong Kong achieved the highest growth rates and Zhujiang followed next in the same period.
<Table 2.1> GRDP of Eight Core Economic Regions and Hong Kong
(Unit: hundred million US$(PPP) at constant price in 2000)
Korea Japan China
year
SMA BMA Kanto Kinki Chubu Jingjinji Changjiang Zhujiang Hong Kong
1985 2,062 1,268 1986 2,279 1,389 1987 2,482 1,494 1988 2,623 1,569 1989 2,803 1,627
1990 2,917 1,657 9,144 4,176 3,465 1,473 3,394 2,550 1,318 1991 3,025 1,694 9,565 4,431 3,679 1,601 3,645 3,021 1,330 1992 3,096 1,691 9,691 4,477 3,712 1,671 4,196 3,479 1,335 1993 3,188 1,676 9,845 4,569 3,752 1,768 4,865 3,649 1,275 1994 3,273 1,759 10,162 4,610 3,894 1,652 4,708 3,839 1,281 1995 3,371 1,809 10,510 4,850 4,107 1,703 4,772 3,660 1,315 1996 3,409 1,893 11,015 5,107 4,383 1,835 5,034 3,745 1,353 1997 3,409 1,915 11,249 5,093 4,406 2,093 5,564 3,901 1,358 1998 2,938 1,753 11,374 5,087 4,458 2,512 6,597 4,149 1,284 1999 3,295 1,950 11,640 5,165 4,517 2,830 7,317 4,525 1,433 2000 3,634 2,092 12,158 5,364 4,737 3,216 8,136 4,868 1,730 2001 3,736 2,170 12,295 5,336 4,783 3,635 8,885 5,186 1,789 2002 4,248 2,406 12,577 5,463 4,950 4,149 10,063 6,139 1,956 2003 4,046 2,371 13,098 5,637 5,117 4,764 11,769 7,172 2,154 2004 4,234 2,489 13,990 5,960 5,536 5,155 12,781 8,021 2,472
2005 4,585 2,659 5,796 14,343 10,074 2,615
<Table 2.2> GRDP Growth Rate of Eight Core Economic Regions and Hong Kong (Unit:%)
Korea Japan China
Year
SMA BMA Kanto Kinki Chubu Jingjinji Changjiang Zhujiang Hong Kong
1986 10.53 9.58
1987 8.91 7.53
1988 5.68 5.04
1989 6.85 3.72
1990 4.08 1.8
1991 3.71 2.23 4.61 6.09 6.18 8.73 7.41 18.47 0.90
1992 2.34 -0.14 1.31 1.05 0.92 4.35 15.1 15.14 0.38
1993 2.96 -0.88 1.6 2.04 1.08 5.79 15.96 4.91 -4.49
1994 2.67 4.93 3.21 0.91 3.77 -6.55 -3.22 5.21 0.47
1995 2.99 2.87 3.43 5.19 5.47 3.09 1.35 -4.67 2.69
1996 1.12 4.64 4.8 5.3 6.73 7.75 5.49 2.33 2.84
1997 0.01 1.14 2.12 -0.27 0.52 14.06 10.53 4.15 0.35
1998 -13.81 -8.45 1.12 -0.11 1.19 20.04 18.57 6.37 -5.44 1999 12.16 11.22 2.33 1.53 1.32 12.63 10.92 9.07 11.59
2000 10.28 7.27 4.46 3.85 4.86 13.65 11.19 7.56 20.79
2001 2.8 3.74 1.12 -0.51 0.98 13.04 9.21 6.54 3.39
2002 13.71 10.9 2.29 2.38 3.48 14.14 13.26 18.37 9.35
2003 -4.74 -1.46 4.15 3.17 3.39 14.81 16.95 16.83 10.11
2004 4.63 4.98 6.81 5.74 8.18 8.22 8.6 11.84 14.75
2005 8.31 6.81 12.43 12.23 25.59 5.80
